Clandestine Competition in China

Jan 24, 2012 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Labor, Regulation, Thinking Economically • 117 Views    No Comments

By Mira Korber, guest blogger.

If you asked an American government official if you owned the teeth in your mouth, you would probably get some very strange looks.

But, imagine hearing “no” as the answer to your question. The year would be 1978, and you would be living in communist China, where, in fact, a farmer was told his teeth belonged not to him, but to the collective.

On such collectives, farmers worked public land together, and at the end of the season, everyone received the same government-determined ration of the final harvest. No matter how much a farmer worked, he received the same as his neighbor.

And there was never enough food.

In this fascinating NPR podcast/article, you learn why. As all the farmers received the same amount, regardless of the effort they exerted to work, they had no incentive to produce more output. The community of Xiaogang suffered from hunger because people were not motivated to grow enough food to subsist.

That is, until a group of farmers met in secret to draw up a contract. To ameliorate the hunger problem, the document assigned private plots of land to each farmer. If each farmer grew enough food, he got to keep some for his family. (This illegal contract was hidden away in the bamboo of someone’s roof.)

At harvest time, the farmers gathered a bounty greater than the previous 5 years put together. And because the government happened to embrace their ideas, they formed the basis of a new Chinese economic model.

The bottom line? By giving each farmer his own plot of land, he began to farm in his own self-interest, and was therefore incentivized to produce more food. By engaging in secret competition with one another, the farmers were able to produce more individually than they would working as a collective.

The Economic Lesson

The story of Xiaogang village reminds us of William Bradford, Plymouth colony governor, and the Pilgrims of early America. In “Of Plymouth Plantation,” written by Bradford, we see a similar shift from collective to individual farming:

“the Govr…gave way that they should set corve every man for his owne perticuler, and in that regard trust to them selves; in all other things to goe on in the generall way as before. And so assigned to every family a parcell of land…This had very good success; for it made all hands very industrious…much more torne was planted then other waise would have bene by any means the Govr…The women now wente willingly into the feild…”

An Economic Question: Keeping incentives in mind, how do you think the present-day American government might manipulate its citizens’ behavior in one way or another?



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