Explainer: Why Did The Great Leap Forward Fail

Explainer: Why Did The Great Leap Forward Fail

The Chinese Communist Party uprooted the National Party in 1949. Mao Zedong spearheaded this defining moment in the modern history of China. It is also important to underscore the fact that the removal of this long-standing rival in political power marked the beginning of communism in China and start of the China-Taiwan conflict.

Mao aspired to transform his country from an agrarian economy to an industrialized economy based on a centrally planned economic model. The first attempt to achieve this was through the development and expansion of The Great Leap Forward beginning in 1958. It became the flagship economic and social campaign of the Chinese Communist Party.

However, spanning from 1958 to 1961, the campaign became one of the most catastrophic events in the history of China. The Great Leap Forward caused an economic crisis. This failure stems from the simplest reason that this ambitious socioeconomic program undermined two critical factors of successful industrialization: competition and pricing.

Reasons “The Great Leap Forward” Campaign of the Chinese Communist Party Failed

Lack of Competition and Imperfect Market

The problem essentially centered on inefficiency transpiring from the micro-level to the macro-level. This inefficiency, moreover, was a product of a subdued or diluted sense of competition. Renowned economist Friedrich Hayek, in his 1949 essay “The Meaning of Competition,” noted that the absence of competition leads to imperfection in the market.

Friedrich illustrated two situations that draw the difference between an imperfect market and a perfect market. The first situation involved the absence of agencies and avenues for humans to adapt and progress. The second involved competitive activities that enable and encourage individuals to adapt and progress according to the situation.

The first essentially represented an environment in which economic activities are controlled and the absence of competition in the market. The second illustrated a market in which competition is not only free but also encouraged. Nevertheless, between the two situations, the communes in China during The Great Leap Forward demonstrated an imperfect market because of the absence of opportunities for enterprising people to adapt and progress.

A communal or shared microeconomic goal fundamentally trapped people and denied them the agency to improve their individual situations. This extended to the enterprises they pursued. Their labor input is used without regard for market competition. They fundamentally threaded a single and linear direction within a static socioeconomic environment.

Take note that the situation in a free-market competitive setting is dynamic and multi-linear. There is no communal or shared goal that would prevent people from pursuing different and individualized goals. The free-market setting encourages people to define and create their own and separate microeconomic goals based on the market direction they choose.

Nevertheless, based on the above, one of the reasons why The Great Leap Forward failed and became disastrous was the fact that the removal of competition resulted in an imperfect market in which personal or individual microeconomic goals became non-existent. The Chinese government controlled the economy by defining and limiting the role of the people.

It is also worth noting competition in a free-market economic system drives innovation. Profit is the reward for innovation. It motivates individuals to become enterprising people. Hence, to become profitable, enterprises need to introduce innovative products that appeal to the customers not only by satisfying a demand but by creating a new demand.

Inefficiency Due to Lack of Comparison and Pricing

Remember that Friedrich argued for the importance of competition and economic decentralization. His arguments were essentially counterarguments against theories, notions, propositions, and perceptions about planned economy and centralization. His tenets form the basis of the free market and one of the popular arguments against socialism and communism.

He also mentioned in the essay “The Use of Knowledge in Society” that a planned and centralized economy prevents the dissemination of information vital to economic progress because it confine people within a small economic unit. This argument was evident in the communes and agricultural units in China during the course of The Great Leap Forward.

Comparison was non-existent within communes. People did not aspire to make better products due to the absence of market competition. The purpose of their labor not to produce a superior product that would appeal to customers but to follow predetermined production goals and standards. There was no point of comparison in a planned and centralized economy.

Pricing was also non-existent in the centrally-planned economy of China during The Great Leap Forward. Take note that pricing is at the heart of incentives in a market economy. It is essentially the monetary reward for a successful product or output. Pricing is also determined by the law of supply and demand under a free-market economic model.

The workers in Chinese communes were producing outputs as ordered by the Chinese Communist Part. The same Chinese government also set the prices of products. People were less motivated to be productive and innovative because of the absence of economic and personal incentives. This also demonstrated the lack of goals and objectives at the micro-level.

Nevertheless, based on the aforementioned, another critical reason why the Great Leap Forward failed and resulted in an economic crisis was the absence of comparison and pricing due to the non-existence of competition in the market. China designed an economy with the goal of producing predefined categories of products for immediate consumption.

The government under the Chinese Communist Party removed the marketplace for its outputs. People did produce to compete. Production was not driven by the market and is not influenced by supply and demand. It was done for the sake of responding to predefined demands. There was also no pricing that would provide a monetary reward for the outputs.

Summary, Conclusion, and Takeaway: Why Did The Great Leap Forward Fail?

The lack of a sense of purpose at the micro-level was the most daunting phenomenon that emerged from The Great Leap Forward socioeconomic program of the Chinese Communist Party. This absence of individual purpose impacted the different macroeconomic facets of the country. People failed to understand and appreciate the importance of individual productivity and their active participation in economic activities.

Hence, in a nutshell, the central reason The Great Leap Forward was the underlying planned and centralized economy of China. This economic system transpired in a socialist and communist social backdrop where property rights were absent and the government had unquestionable authority over the economy. It also discredited the essence and benefits of competition and pricing. This resulted in market imperfection and overall economic inefficiency.

Competition fuels innovation. It encourages the production of better products. Pricing provides the incentive or economic reward for making these superior products. It also encourages individuals to become enterprising people who would further promote the production and distribution of innovative and competitive products in the market. The interplay among competition, pricing, innovation, and efficiency drives progress.