A Bird in the Cage: Market Reform under Socialism

China’s economic reform in the early 1980s was a tale of two economies: a stagnant state sector contrasting with a fast rising non-state economy. During the marginal revolutions, the vibrant non-state sector was born at the periphery of the socialist economy. It took very little time for ambitious entrepreneurs to find and pursue economic opportunities underexplored or unexploited. With the socialist economy’s decades-long bias toward heavy industry, Chinese consumers had long been undersupplied with even the most basic consumer goods and services. All this was about to change. In the early 1980s, entrepreneurs began to address these unsatisfied demands, and doing so proved to be highly profitable. Self-employed barbers, for example, came to earn higher incomes than surgeons in state hospitals. Street vendors who sold noodles and snack foods earned more than nuclear scientists. Traders, small shop and private restaurant owners, many of them the former “youths waiting to be employed,” were among the highest income groups in China during the 1980s. Not surprisingly, the number of self-employed household businesses and single proprietorships increased from 140,000 in 1978 to 310,000 in 1979, 806,000 in 1980, and reached 2.6 million in 1981.1 City residents started to enjoy many goods and services that had not been available from state-owned establishments.