A Capitalist Verdict On Its Troubles

WESTERN intellectuals of all political stripes were much impressed by Deng Xiaoping's economic miracle during the 1980s. Now they're asking: Where did he go so tragically wrong? Liberal Harvard economist Robert Reich offers one explanation: ``Democracies cannot flourish without capitalism. But capitalism can flourish without democracy. To Deng, such Asian states as Singapore and South Korea were examples of this.''

While Mr. Deng had been moving very rapidly away from the whole idea of economic central planning, Dr. Reich says, ``he saw democratic ferment in China as the major impediment to economic overhaul, and now we have seen the tragic results.''

Economic growth in China this decade was so dramatic it catapulted much of Chinese society into a new and unsettling world: Income differences widened, the pressure for internal migration rose, and inflation accelerated.

But more than anything, intellectuals argue, it was the incongruity of Deng's deep faith in the market economy alongside his distrust of democracy that split China. He led the effort to create a mixed economy from a centralized one.

``There are no other economic models in the world with China's distinctive history, so Deng had to create as he went along,'' says Reich. ``Obviously, he failed.''

In an interview, Yale historian Paul Kennedy pointed to the strains caused by rapid growth as a major cause of China's troubles.

``There have been growing signs that in some ways the Chinese economy was beginning to run away,'' he says. ``In 1988, the Chinese government somewhat shamefacedly admitted that industrial production had zoomed up 22 percent. Its target figure apparently was 11 percent.

``From what we can tell in rough estimates, Chinese GNP [gross national product] has been doubling every seven years. This is all pretty incredible. There have also been increasing reports that the Chinese government had been forbidding many people to migrate to the newly industrialized southern coastal areas, and this was causing much dissension.''

Mr. Kennedy says he believes that the communist world is in turmoil because late in the 20th century it is groping with the two revolutions of the 18th century - the French Revolution and the Industrial Revolution.

Kennedy doesn't think that all the ferment in China and the East European countries is necessarily a vindication of capitalism United States-style. He says he has talked to Soviet leader Mikhail Gorbachev's advisers and they ``are very much interested in Sweden as an economic model, and ironically, also in [Alexander] Dubcek's Czechoslovakia.'' Mr. Dubcek was the leader of the 1968 attempt to liberalize the Czech communist government, an effort blocked by Soviet tanks.

Nobel laureate Milton Friedman says: ``The Chinese social unrest caused by the recent inflation rate of 20 to 22 percent should not be underestimated. The Chinese have never gotten over the really incredible hyperinflationary period that occurred during the rule of Chiang Kai-shek.'' The possibility of this kind of inflation, says Mr. Friedman, made Deng's colleagues wary.

``After all,'' he says, ``it was the communist regime that took over in 1949 which managed to establish enough order in the economy to bring down that inflation. And the Chinese people are still extremely afraid that the same sort of thing could happen again.''

Friedman believes that Deng should have stopped at agricultural reform. ``If he had,'' says Friedman, ``I don't believe the situation would have come to what it is today.''

Since 80 percent of the Chinese economy is based on agriculture, the lessening of the restrictions and development of regionalized market economies was very effective, Friedman says.

``The big mistake was the Communist Party trying to hold onto the means of production at the same time that it was promoting industrial reform. The two just do not work together.''

Still, if Friedman had to forecast which country - the Soviet Union or China - will make it economically down the road, he ``would still be with China, despite the current horrors. The Chinese people have a long entrepreneurial history, unlike many of the Russian people, and they are geographically part of the Pacific Basin, which, of course, is exploding with capitalism these days.''