Opening to the Outside World } 367
Reform of the Trade System
A strong bias against foreign trade was built into the Soviet economic model
adopted by China in the 1950s. Factory managers in a planned economy
succeeded or failed professionally on the basis of whether they fulfilled the
targets assigned them by annual and five year plans. If factories and their
managers were to produce for export a certain quantity and type of good,
that task would be assigned them by the plan. Similarly, if some particular
machinery, equipment, technology, or raw material was to be imported for
use in a particular factory, that too would be determined by the plan. The fac-
tory manager’s job was to use the imported items or material as directed by
the plan. It followed from this that exports and imports—foreign trade—were
essentially plan-driven. The planners would work out their economic objec-
tives for the next period of time. They would then calculate the materials and
items necessary to achieve those objectives, along with the capabilities of var-
ious domestic firms to supply those materials and items. If required materials
or items were not available domestically, the planners might opt to import
them. The planners would then tabulate the sum total of all projected imports
and, finally, consider what could be exported to generate the requisite amount
of foreign currency to pay for the projected imports. Trade was thus essen-
tially import-driven: goods were exported as necessary to pay for planned
imports.^33
This system had a number of disincentives to trade. Factory managers had
little incentive to ensure that the goods they produced were exactly what the
final customer needed, let alone redesign a product to fit the customer’s need.
The factory, after all, did not have to sell the goods they manufactured; their
task was completed upon delivery of plan-stipulated goods. The planners
were responsible for determining who would receive the products produced
by a factory. And in any case, there was no direct contact between the fac-
tory and the customer. All contact was via a higher authority, most probably
a trade company with a monopoly with trade in a particular range of goods.
That monopoly was itself a further restraint on trade. All foreign exchange
earned by trade was taken by the foreign trade ministry. This too gave little
incentive for factories or even foreign trade corporations to export. Learning
to operate new imported machinery could be risky and might result in non-
fulfillment of plan objectives. Increases in productivity that might reward the
import and utilization of new machinery in a competitive environment did
not matter much in a planned economy. Costs, including losses, were covered
by the state. The incentive for factory managers was to convince the planners
that the items produced by the factory required as many inputs as possible.
The incentives for factory managers, in other words, was to use resources in-
efficiently. This was yet another obstacle to trade, since success on markets
required low costs, premised, in part, on efficient operations. Maoist China