institutions. They began in agriculture: By 1983, following
the ideas of Hu Qiaomu, the household responsibility
system, which would provide economic incentives to
farmers, was universally adopted. In 1985 the mandatory
state purchasing of grain was abandoned and replaced by
a system of more voluntary contracts. Administrative control
of agricultural prices was greatly relaxed in 1985. In the
urban economy, state enterprises were given more
autonomy, and fourteen “open cities” were identified and
given the ability to attract foreign investment.
It was the rural economy that took off first. The
introduction of incentives led to a dramatic increase in
agricultural productivity. By 1984 grain output was one-third
higher than in 1978, though fewer people were involved in
agriculture. Many had moved into employment in new rural
industries, the so-called Township Village Enterprises.
These had been allowed to grow outside the system of
state industrial planning after 1979, when it was accepted
that new firms could enter and compete with state-owned
firms. Gradually economic incentives were also introduced
into the industrial sector, in particular into the operation of
state-run enterprises, though at this stage there was no hint
at privatization, which had to wait until the mid-1990s.
The rebirth of China came with a significant move away
from one of the most extractive set of economic institutions
and toward more inclusive ones. Market incentives in
agriculture and industry, then followed by foreign investment
and technology, would set China on a path to rapid
economic growth. As we will discuss further in the next
chapter, this was growth under extractive political
institutions, even if they were not as repressive as they had
been under the Cultural Revolution and even if economic
institutions were becoming partially inclusive. All of this
should not understate the degree to which the changes in
economic institutions in China were radical. China broke
the mold, even if it did not transform its political institutions.
As in Botswana and the U.S. South, the crucial changes
came during a critical juncture—in the case of China,
following Mao’s death. They were also contingent, in fact
highly contingent, as there was nothing inevitable about the
Gang of Four losing the power struggle; and if they had not,
China would not have experienced the sustained economic