Monday, July 14, 2008

Mao's "Cultural Revolution" - Real facts

The Cultural Revolution was launched by Chinese Communist Party
chairman Mao Zedong during his last decade in power (1966-76) to
renew the spirit of the Chinese revolution. Fearing that China would
develop along the lines of the Soviet model and concerned about his
own place in history, Mao threw China's cities into turmoil in a
monumental effort to reverse the historic processes underway.

During the early 1960s, tensions with the Soviet Union convinced Mao
that the Russian revolution had gone astray, which in turn made him
fear that China would follow the same path. Programs carried out by
his colleagues to bring China out of the economic depression caused by
the Great Leap Forward made Mao doubt their revolutionary commitment
and also resent his own diminished role. He especially feared urban
social stratification in a society as traditionally elitist as China.
Mao thus ultimately adopted four goals for the Cultural Revolution:
to replace his designated successors with leaders more faithful to his
current thinking; to rectify the Chinese Communist Party; to provide
China's youths with a revolutionary experience; and to achieve some
specific policy changes so as to make the educational, health care,
and cultural systems less elitist. He initially pursued these goals
through a massive mobilization of the country's urban youths. They
were organized into groups called the Red Guards, and Mao ordered the
party and the army not to suppress the movement.

Mao also put together a coalition of associates to help him carry out the
Cultural Revolution. His wife, Jiang Qing, brought in a group of
radical intellectuals to rule the cultural realm. Defense Minister Lin
Biao made certain that the military remained Maoist. Mao's longtime
assistant, Chen Boda, worked with security men Kang Sheng and Wang
Dongxing to carry out Mao's directives concerning ideology and
security. Premier Zhou Enlai played an essential role in keeping the
country running, even during periods of extraordinary chaos. Yet there
conflicts among these associates, and the history of the Cultural
Revolution reflects these conflicts almost as much as it reflects
Mao's own initiatives.

Mao formally launched the Cultural Revolution at the Eleventh Plenum of the
Eighth Central Committee in August 1966. He shut down China's schools,
and during the following months he encouraged Red Guards to attack all
traditional values and "bourgeois" things and to test party officials
by publicly criticizing them. Mao believed that this measure would be
beneficial both for the young people and for the party cadres that
they attacked.

The movement quickly escalated; many elderly people and intellectuals were
not only verbally attacked but were physically abused. Many died. The
Red Guards splintered into zealous rival factions, each purporting to
be the true representative of Maoist thought. Mao's own personality
cult, encouraged so as to provide momentum to the movement, assumed
religious proportions. The resulting anarchy, terror, and paralysis
completely disrupted the urban
economy. Industrial production for 1968 dipped 12 percent below that of 1966.

During the earliest part of the Red Guard phase, key Politburo leaders were
removed from power--most notably President Liu Shaoqi, Mao's
designated successor until that time, and Party General Secretary Deng
Xiaoping. In January 1967 the movement began to produce the actual
overthrow of provincial party committees and the first attempts to
construct new political bodies to replace them. In February 1967 many
remaining top party leaders called
for a halt to the Cultural Revolution, but Mao and his more radical
partisans prevailed, and the movement escalated yet again. Indeed, by
the summer of 1967 disorder was widespread; large armed clashes
between factions of Red Guards were occurring throughout urban China.

During 1967 Mao called on the army under Lin Biao to step in on behalf of
the Red Guards. Instead of producing unified support for the radical
youths, this
political-military action resulted in more divisions within the
military. The tensions inherent in the situation surfaced vividly when
Chen Zaidao, a military commander in the city of Wuhan during the
summer of 1967, arrested two key radical party leaders.

In 1968, after the country had been subject to several cycles of radicalism
alternating with relative moderation, Mao decided to rebuild the
Communist Party to gain greater control. The military dispatched
officers and soldiers to take over schools, factories, and government
agencies. The army simultaneously forced millions of urban Red Guards
to move to the rural hinterland to live, thus scattering their forces
and bringing some order to the cities. This particular action
reflected Mao's disillusionment with the Red Guards because of their
inability to overcome their factional differences. Mao's efforts to
end the chaos were given added impetus by the Soviet invasion of
Czechoslovakia in August 1968, which greatly
heightened China's sense of insecurity.

Two months later, the Twelfth Plenum of the Eighth Central Committee met to
call for the convening of a party congress and the rebuilding of the
party apparatus.
>From that point, the issue of who would inherit political power as the Cultural Revolution wound down became the central question of Chinese politics.

When the Ninth Party Congress convened in April 1969, Defense Minister Lin
Biao was officially designated as Mao's successor, and the military
tightened its grip on the entire society. Both the Party Central
Committee and the revamped Communist Party were dominated by military
men. Lin took advantage of Sino-Soviet border clashes in the spring of
1969 to declare martial law and further used his position to rid
himself of some potential rivals to the succession. Several leaders
who had been purged during 1966-68 died under the martial law
regimen of 1969, and many others suffered severely during this period.

Lin quickly encountered opposition. Mao himself was wary of a successor who
seemed to want to assume power too quickly, and he began to maneuver
against Lin. Premier Zhou Enlai joined forces with Mao in this effort,
as possibly did Mao's wife Jiang Qing. Mao's assistant Chen Boda,
however, decided to support Lin's cause. Thus, despite many measures
taken in 1970-71 to return order and normalcy to Chinese society,
increasingly severe strains
were splitting the top ranks of leadership.

These strains first surfaced at a party plenum in the summer of 1970.
Shortly thereafter Mao began a campaign to criticize Chen Boda as a
warning to Lin. Chen disappeared from public in August 1970. Matters
came to a head in September 1971 when Lin himself was killed in what
the Chinese asserted was an attempt to flee to the Soviet Union after
an abortive assassination plot against Mao. Virtually the entire
Chinese high military command was
purged in the weeks following Lin's death.

Lin's demise had a profoundly disillusioning effect on many people who had
supported Mao during the Cultural Revolution. Lin had been the high
priest of the Mao cult, and millions had gone through tortuous
struggles to elevate this chosen successor to power and throw out his
"revisionist" challengers. They had in this quest attacked and
tortured respected teachers, abused elderly citizens, humiliated old
revolutionaries, and, in many cases, battled former friends in bloody
confrontations. The sordid details of Lin's purported assassination
plot and subsequent flight cast all this in the light of traditional,
power struggles, and vast numbers of Chinese people began to feel that
they simply had been manipulated for personal political purposes.

Initially, Premier Zhou Enlai benefited the most from Lin's death, and from
late 1971 through mid-1973 Zhou tried to nudge China back toward
stability. He encouraged a revival of the educational system and
brought back into office a number of people who had been cast out.
China began again to increase its trade and other links with the
outside world, and the economy continued the forward momentum that had
begun to build in 1969. Mao personally approved these general moves
but remained wary lest they call into question the basic
value of having launched the Cultural Revolution in the first place.

During 1972, however, Mao suffered a serious stroke, and Zhou learned that
he had a fatal malignancy. These events highlighted the continued
uncertainty over the succession. In early 1973 Zhou and Mao brought
back to power Deng Xiaoping. Zhou hoped to groom him to be Mao's
successor. Deng, however, had been the second most important purge
victim at the hands of the radicals during the Cultural Revolution.
His reemergence made Jiang Qing and her followers desperate to firmly
establish a more radical path.

>From mid-1973 until Mao's death in September 1976, Chinese politics shifted
back and forth between Jiang Qing and those who supported her (notably
Wang Hongwen, Zhang Chunqiao, and Yao Wenyuan, who with Jiang Qing
were later dubbed the Gang of Four,) and the Zhou-Deng group. The
former favoured ideology, political mobilization, class struggle,
anti-intellectualism, egalitarianism, and xenophobia, while the latter
promoted economic growth, stability, educational progress, and a
pragmatic foreign policy. Mao tried unsuccessfully to maintain a
balance between these two forces while he struggled to find a
successor who would embody his preferred combination of each.

From mid-1973 until mid-1974 the radicals were ascendant; they whipped up a
campaign that used criticism of Lin Biao and of Confucius as a thinly
veiled vehicle for attacking Zhou and his policies. By July 1974,
however, the resulting economic decline and increasing chaos made Mao
shift back toward Zhou and Deng. With Zhou hospitalized, Deng assumed
increasing power from the summer of 1974 through the late fall of
1975, when the radicals finally convinced Mao that Deng's policies
would lead eventually to a repudiation of the Cultural
Revolution and of Mao himself. Mao then sanctioned criticism of these
policies by means of wall posters (ta-tzu-pao), which had become a
favoured method of propaganda for the radicals. Zhou died in January
1976, and Deng was formally purged (with Mao's backing) in April. Only
Mao's death in September and the purge of the Gang of Four by a
coalition of political, police, and military leaders in October 1976
paved the way for Deng's subsequent reemergence in

Although the Cultural Revolution largely bypassed the vast majority of the
people who lived in rural areas, it had serious consequences for China
as a whole. In the short run, of course, the political instability and
the constant shifts in economic policy produced slower economic growth
and a decline in the capacity of the government to deliver goods and
services. Officials at all levels of the political system learned that
future shifts in policy would jeopardize those who had aggressively
implemented previous policy. The result was bureaucratic
timidity. In addition, with the death of Mao and the end of the
Cultural Revolution (the Cultural Revolution was officially ended by
the Eleventh Party Congress in August 1977, but it in fact concluded
with Mao's death and the purge of the Gang of Four in the fall of
1976), nearly three million party members and countless wrongfully
purged citizens awaited reinstatement. Bold measures were taken in the
late 1970s to confront these immediate problems, but the Cultural
Revolution left a legacy that continued to trouble China.

There existed, for example, a severe generation gap; individuals who
experienced the Cultural Revolution while in their teens and early
twenties were denied an education and taught to redress grievances by
taking to the streets. Post-Cultural Revolution policies--which
stressed education and initiative over radical revolutionary
fervour--left little room for these millions of people to have
productive careers. Indeed, the fundamental damage to all
aspects of the educational system itself took several decades to repair.

Another serious problem was the corruption within the party and government.
Both the fears engendered by the Cultural Revolution and the scarcity
of goods that
accompanied it forced people to fall back on traditional personal
relationships and on bribery and other forms of persuasion to
accomplish their goals. Concomitantly, the Cultural Revolution brought
about general disillusionment with the party leadership and the system
itself as millions of urban Chinese witnessed the obvious power plays
that took place under the name of political principle in the early and
mid-1970s. The post-Mao repudiation of both the objectives
and the consequences of the Cultural Revolution made many people turn
away from politics altogether.

Among the people themselves, there remained bitter factionalism, as those
who opposed each other during the Cultural Revolution often shared the
same work unit and would do so for their entire careers.

Perhaps never before in human history has a political leader unleashed such
massive forces against the system that he created. The resulting
damage to that system was profound, and the goals that Mao sought to
achieve ultimately remained elusive.

Saturday, July 05, 2008

Excess speculation or excess money?

Excess speculation or excess money?
By Swaminathan S. Anklesaria Aiyar

From ancient times, Indian rulers have always blamed inflation on the
perfidious bania. That is happening globally today. Politicians
everywhere are blaming speculators for high inflation.

Actually, inflation occurs when too much money chases too few goods.
Today, no great shortfall in goods is evident. World oil production is
rising, though slowly. Mineral and metal production is up. The FAO
predicts a record global harvest in 2008.

But the world has long been awash in money. The US kept interest rates
at just 1% for years after the 2001 recession. This encouraged
Americans to spend more than they earned, creating a huge US trade
deficit and corresponding trade surpluses in China and other Third
World exporters. Initially, this flood of dollars lifted all global
boats — world GDP grew at record rates in 2004-08. Inflation was kept
down by rising productivity, and by outsourcing manufacturing and
services respectively to low-wage centres in China and India.

Money supply expanded fast in Third World countries too (including
India). This was partly because central banks bought up dollars in
forex markets rather than let their currencies appreciate.

Alas, a flood of money cannot for long lift production alone. Soon it
starts raising prices. First the excess money raised housing prices,
and everybody was happy. Then it raised stock market prices, and
people were very happy. Finally, the flood of money raised consumer
prices, and suddenly people are very unhappy.

When world growth is so high that spending outpaces commodity
production, commodity prices will rise to signal that growth needs to
slow down. But this is politically unpalatable. Slower growth hits
jobs and incomes. Rather than permit this, governments everywhere try
to stimulate the economy with even more money.

The US Fed has not only slashed interest rates to 2% but provided
hundreds of billions of dollars to the stricken financial sector to
help it escape the consequences of its excesses. This new dollar flood
has worsened inflation.

World commodity prices have shot up in the last two years, spilling
over into higher consumer prices. Politicians globally are looking for
culprits, and finding them in speculators. Hundreds of billions of
dollars have gone in recent years into two investment areas. First,
purchases in forward commodity markets — contracts for delivery of
commodities at specified future dates. Second, commodity index funds —
mutual funds that mimic the price of a group of commodities by buying
and selling futures. Such funds have attracted $240 billion in recent

Has this sent commodity prices skyrocketing? Very doubtful. Yes,
investors are buying forward contracts worth billions. But for every
buyer of contracts, hoping for rising prices, there has to be a
seller, hoping for falling prices. Speculation is necessarily a
two-way street. Besides, every contract expires and is settled at the
due date, so such speculation is self-terminating.

Forward trading is mostly paper trading, and must not be mistaken for
hoarding. World commodity stocks today are generally low by historical
standards. Massive forward trading has not translated into hoarding.

Academic studies have long attempted to find whether forward trading
causes a rise in current prices. No clear link has ever been
established. Price manipulation is possible in thin, weakly regulated
markets. It is not evident in big commodity markets. The US has just
enacted legislation limiting the size and financing of forward trades
in oil. Past experience suggests this will have a marginal impact at

There is hardly any forward trading in iron ore, yet its price is up
76-95% in new contracts. By contrast, huge forward trading in sugar
has left world prices low. Nickel futures are down from a peak of
$60,000/tonne last year to just $22,000. Wheat futures once spiked to
$13/bushel but are now down to $9/bushel. There is no clear link
between forward trading and skyrocketing prices.

When the interest rate is lower than the inflation rate — economists
call this a negative real interest rate — money supply is definitely
excessive. India, the US and many other countries have negative real
interest rates today. A recent Merrill Lynch study suggests that a 1%
fall in the real interest rate increases commodity prices by 17% in 10
months. If this is even partially true, the main culprits have been
not speculators but governments printing excess money. Worse, this
excess money was often used to subsidise oil prices, stoking demand

Today, at last, governments across the globe are reluctantly reducing
oil subsidies and starting to fight inflation through a monetary
squeeze, even if it means slowing growth. Squeezing money in India
alone will produce only limited results. For good results, central
bankers of the world should get together for coordinated action. But
no such initiative is in sight.

Politicians are quick to take the credit when the economy does well,
and to blame others when things go wrong. They must take the
responsibility for bad as well as good policies. Banias may be quick
to grasp the inflationary potential of bad policies, and profit from
it. But the root cause of rising prices lies elsewhere.