Question

Explain the dual-track approach to urban reform during the ’80s (first phase of market reform). Figure out what are the advantages and disadvantages of this approach. Give your own critical assessment of this policy. Why is it like that?

Answer 1

A dual track system is an economic system wherein the government controls key sectors of the economy, and the private sector enterprise is allowed control over the other sectors.

In the case of China, the government introduced state controlled prices which were lower accompanied with the market prices which were higher. This ensured that there was not sudden opening of the market and shift to capitalism was gradual. Later on the state owned enterprises were allowed to sell their products at market prices after the planned targets were met.

This approach had several advantages mainly that market liberalisation was done in a partial manner and gradually, unlike in western economies. Secondly, the government control was decentralised which resulted in the rapid growth of the private sector and efficiency in determining market prices.

Despite the Economic reform, there were several disadvantages as well to this approach such as corruption and unfair distribution of planned goods.

I think it was implemented quite successfully because of stepwise reform strategies as China lacked the legal, institutional and governance structures which are required to support an economic system which is largely based on private ownership. This played a significant role for long term economic growth, without damaging domestic industries. It also led to increase in output of all sectors.