Therefore, the Chinese economy is characterized by an acute scarcity of land and capital and a relative abundance of labor. This was evidenced in the 1950's by remnants of open unemployment in the cities and at least seasonal underemployment in the rural areas, particularly during the winter months. In addition, there must have been pockets of disguised unemployment in all economic sectors. Some of this underemployment was gradually absorbed in the 1950's, as irrigation and other capital projects were introduced in agriculture and as capital plant was rapidly expanding in industry, transport, and other sectors.

However a systematic, conscious, all-out campaign to use labor in order to create capital was not launched until the Great Leap. In this sense the Great Leap represented the first comprehensive attempt in China to substitute on a mass basis a relatively abundant factor for a scarce one. As shown in earlier chapters, this attempt failed due to many errors in planning and implementation. However, the Great Leap concept as a development strategy well suited to China's factor endowments left an indelible imprint on Chinese planners and policymakers. It has been gradually rationalized since, through a process of trial and error.

As a result, we see in the 1970's a whole series of programs designed to convert labor into capital and in a certain sense even into land, that is, cultivated land. However, as these programs expand, more and more labor is absorbed so that labor shortages are becoming pronounced and labor too is developing into a scarce factor, although still relatively abundant as compared to land and capital.

These rationalized Great Leap-type programs of agricultural development (usually identified with Tachai as a model) involve land improvement, irrigation, and generally a marked intensification in the patterns of land use. This involves "farmland capital construction” based on "self-reliance and hard struggle transforming China in the spirit of the Foolish Old Man who removed the mountains." More concretely, it indeed means reshaping the geographical features of an area to provide the physical conditions necessary for the application of an appropriate mix of other inputs-labor, machinery, fertilizer, and improved seed strains-to bring about high and stable yields. This often requires squaring or terracing the land; at times it involves leveling mountains and transporting the soil manually in baskets for several kilometers to build a huge dam or to cover some areas with top soil. In many areas it means constructing underground drainage channels, reservoirs, canals, irrigation channels, pumping stations, and tube wells.10

The major effort in this renewed and expanded movement to learn from Tachai seems to be concentrated in North China, where the water supply has in the past been highly variable, unreliable, and short. Precisely for this reason grain yield per acre of cultivated land has generally been lower in the North than in the South. Correspondingly, the opportunity for raising yields with large investments in land improvement may be expected to be considerably greater in the North. Therefore, it seems that this is the region the Chinese

Hua Kuo-feng, "Summing-up Report," p. 9.

10 These major construction projects have been under way for some time. They could be observed during my visit to China in December 1972. They were given a renewed impetus by the National Conference on Learning from Tachal held in September and October 1975 and were described in some detail in American Rural Small-Scale Industry Delegation, Rural Small-Scale Industry, Chapter 5, pp. 2-5 and Chapter 6,

p. 7.

leadership is relying on to raise agricultural output significantly beyond current levels. A larger, more regular, and better distributed water supply combined with improved seeds and more fertilizer could lead to a spread of rice production in the North and a significant rise in multiple cropping per acre.

These massive "farmland construction" projects clearly absorb masses of labor-much of it utilized during the slack season. At the same time, the intensity of land use is also being greatly stepped up in areas that have been traditionally irrigated. More and more of the single-cropped areas are being double cropped and double-cropped areas are being converted to triple cropping. In addition, there is more inter-planting and transplanting of crops that heretofore had not been subject to this practice such as wheat, corn, and cotton. All these measures are designed to increase yields per acre; therefore they are in effect land-saving, but they also absorb a great deal of labor. Labor is also being claimed by the rapidly expanding rural industries. As noted in earlier chapters these produce fertilizer, cement, farm machinery, bricks, iron and steel, pumps, and other types of equipment needed as inputs in farm production. As a result of all these measures, rural labor seems to be quite fully employed all year round. Moreover, there are repeated signs of marked labor shortages in at least some rural areas and during some periods of the year. This has greatly increased the pressure for mechanizing some of the production and processing operations in farming, particularly those that absorb a lot of labor during harvesting and cultivating time. Thus, the emphasis on selective mechanization of agriculture has been quite pronounced in recent Chinese statements and official pronouncements.11

Grain milling provides a telling example of how much labor can be saved even by quite modest measures of mechanization. According to data collected by the American Rural Small-Scale Industry Delegation, hand pounding of rice requires 400 man-hours per ton in some of the places they visited in China. A simple pedal-operated device can do it in 120 man-hours while a commune-run rice mill requires 10 man-hours.12 Similarly, a lot of labor can be saved by the mechanization or semi-mechanization of threshing; therefore it is not surprising that mechanization has progressed furthest in these two types of operations.

However, the adaptation of production and capital formation technology to the country's factor endowments is not confined to agriculture. It is also quite apparent in Chinese industry, although perhaps in a less dramatic form. In industry it is manifested by the simultaneous application of a spectrum of technologies, based on different factor proportions. This "walking on two (or several) legs" is demonstrated by the rise and spread of rural industries on the one hand and the rapid expansion of large-scale factory industry on the other. At the same time it is illustrated by the simultaneous utilization of both highly mechanized, capital-intensive and preponderantly manual, labor-intensive processes within the same factory, each used for particular operations. But this latter phenomenon is not unique to China. To a greater or lesser extent it is a familiar feature of the development landscape in all industrializing countries.

11 A note of urgency concerning the need for farm mechanization is quite pronounced in Hua Kuo-feng's report. 12 American Rural Small-Scale Industry Delegation, Rural Small-Scale Industry, Chapter 4, p. 25.

In this respect the distinctiveness of the Chinese development model is derived from the scale of an approach to "farmland capital construction" and the close integration of rural industrial and agricultural development analyzed in greater detail in chapter 4. In the Chinese case this process of adapting technology to the prevailing factor endowments is carried well beyond the formation of physical capital; it is applied to human capital formation as well.

Perhaps the scarcest resource in China-even scarcer than land and capital-is highly skilled manpower such as scientists, engineers, and medical personnel. This scarcity was of course much more pronounced before 1949, since the supply has been significantly augmented in the past 25 years. In the face of such scarcities, the training and utilization of this type of manpower-particularly the technological aspects of this utilization-can have far-reaching implications not only for economic growth and military security, but also for income distribution and the welfare of the population at large.

Perhaps this can be most clearly demonstrated in the field of health care and delivery systems. In many less developed areas a significant share of the physicians tend to be trained in advanced countries or in medical schools at home that emulate their practices. Frequently this means that the physicians are trained to work with complex and very expensive medical equipment, relying on elaborate hospital facilities and highly advanced methods of health care. Medical personnel thus trained are strongly tempted to reproduce these facilities and practices at home.

Low-income countries, however, can at best afford only a small number of such health care units. This then becomes one of the factors that may lead to the concentration of physicians and health facilities in the cities at the expense of the countryside. In the absence of strong counter-measures, this leads to situations in which the urban upperincome groups are relatively well provided for with medical care while only minimal provisions may be made for the care of the rural masses. Therefore, in low-income countries capital-intensive health care systems tend to favor the rich as compared to the poor.

The Chinese seem to recognize this quite clearly and thus have adopted a strategy designed to produce a mass base for the wide distribution of health care.13 By training a sizable pool of para-medical personnel, they have built a hierarchy of manpower and facilities ranging from the most advanced in the large centers to the quite simple or even primitive in the villages. However, this does not necessarily mean that complete egalitarianism in health care quality and delivery has actually been attained; it rather means that as compared to the past these differentials have almost certainly been narrowed both inter-personally and inter-regionally.

The same general strategy characterizes the Chinese approach to manpower training and utilization in other fields. For instance, it applies to agricultural scientists and farm extension workers, as indicated above. It is also evident in industry in the technical education provided to workers, thus creating a continuum extending from the highly trained engineer, to the less well trained who are educated in

13 For a sophisticated analysis of the relationships between technology and health care strategy in China. See Peter S. Heller, "The Strategy of Health-Sector Planning "in M. E. Wegman, T. Y. Lin, and E. Purcell, eds., Public Health in the People's Republic of China, New York, 1973; especially pp. 85 90.

so-called workers' universities, to the skilled worker, and to the unskilled laborer.

In many ways, the picture presented here is a highly simplified and idealized blueprint, which in its present form is largely the child of the Cultural Revolution. Although some programs can be traced back to the early 1960's, others were introduced only since 1968-69 or even later and thus some have not yet become diffused all over the country. It will take time to train people in sufficient numbers to implement this strategy fully. Beyond this, there are inevitably some costs as well as benefits built into this approach. The recognition of these costs and dilemmas has apparently produced some resistance to the implementation of these programs in universities and scientific laboratories.

In a certain sense the strategy of human resource development adopted in China tries to substitute a mass-based system for an elitebased one. To accomplish this the top of the educational and manpower pyramid is faced with the risk of becoming diluted in several ways. On the one hand, the energies of the people at the top tend to become scattered as they are induced to perform a variety of tasks. They have to spend some time in the rural areas with the masses; often they have to concentrate on highly applied research, development, or extension work rather than on basic research. They also have to devote time to political education and discussion. As a result, their own scientific and advanced technical development may suffer. The scientific and technical advances in their own fields may thereby be retarded.

On the other hand, the educational policies adopted since the Cultural Revolution seriously undermine the possibility of replacing those at the top with equally well trained people. This is due to the fact that admission requirements to universities, including the leading institutions, have been appreciably eased. Elementary and secondary schooling combined were reduced from 12 to 9 or 10 years. At the same time the university curriculum was shortened from 4 to 6 years to 3 or 31⁄2 years. Moreover, university students have to spend some time in factories and on farms and in political education. It may very well be that this system turns out students of greater dedication and commitment although there is no way of assessing this one way or another admirably suited to occupy a range of intermediate technical, scientific, and leadership positions. However, it is doubtful that it can produce a generation of high-grade scientists, physicians, and -engineers.

This is clearly recognized by many scientists and academicians in China, as evidenced by the fact that these practices have been a subject of continuous debate, with considerable pressure to upgrade academic standards. As a result, visitors to Chinese universities are always told that they are still in a state of "struggle, criticism, and transformation." Based on all these considerations combined it could be argued that the pattern of manpower training and utilization adopted since the Cultural Revolution is well designed to adopt and distribute rapidly technology and knowledge that is well developed. However, this could be at the expense of borrowing from the future in the sense that this strategy, if sustained over a long period, may undermine China's capacity to push forward the frontiers of science and technology.

INSTITUTIONAL MECHANISMS AND INCENTIVES

The adoption of production and investment technologies designed to implement societal objectives in ways suited to China's factor endowments required the crystallization of a system of economic organization for resource mobilization and resource allocation. It also required a set of incentives to motivate the human actors in the system to contribute to the best of their ability.

Thus farm production was collectivized so as to facilitate consolidation of land holdings, gain economies of scale, obtain more ready access to agricultural produce, accelerate the flow of new ideas and techniques to rural areas, and prevent the rise of a "kulak" class in the countryside. Collectivization did not entail institutional innovation, since it was adopted from the Soviet Union. However, while collectivization in the Soviet Union was preponderantly extraction-oriented, the Chinese were equally concerned about promoting production. But collectives-agricultural producers' cooperatives later transformed into production teams-were too small to manage an integrated approach to agricultural development involving farm production, capital construction, and rural industrialization at one and the same time. This, combined with several other considerations, led the Chinese to bold innovation in the form of communes, which turned out to be counter-productive in their initial and experimental forms; but following a process of trial and error, they seem to have evolved into quite effective instruments for the mobilization of labor and other resources and its allocation to competing tasks. With the team and the village remaining the basic units of social organization and production, the close links between reward and effort could be preserved. This was reinforced by the continued maintenance of private plots and rural markets, which served to reinforce material incentives. There are definite indications that some leadership groups are pressing for the collectivization of private plots and the simultaneous transfer of the income-accounting functions from the team to the brigade. These measures would inevitably disturb the currently prevailing reward system. How this would affect peasant incentives, if these changes were introduced gradually and combined with persuasion and indoctrination, is impossible to forecast. They would almost certainly be disruptive and counter-productive if introduced suddenly and simultaneously in the country as a whole.

Agricultural collectivization and communization in agriculture were paralleled by nationalization of industry and other non-farm sectors. In this way the state and its subordinate organs assumed direct control over the management of industrial, banking, trading, and other kinds of enterprises. Broadly speaking, in all these sectors the Chinese adopted institutional forms pioneered by the Soviet Union in the 1920's and 1930's. As described in Chapters 3 and 4, these enterprises bought from and sold to each other intermediate and producer goods. They sold consumer goods to households and, in turn, purchased labor from them. All transactions between enterprises and households were in cash, while inter-enterprise payments were made through a system. of bank clearings.

Prices of most commodities were fixed and controlled by central or local state organs. Most producer goods and the most essential consumer necessities were subject to "unified distribution," that is,