Odd Arne Westad on how China First Joined the Global Capitalist Economy

How did China become the economic behemoth that it is today? One pivotal moment was, obviously, it's ascension into the WTO. Prior to that, the era of reform under Deng Xiaoping was obviously crucial. But obviously no single event or turning point can really tell the story. In a groundbreaking new book -- The Great Transformation: China’s Road from Revolution to Reform -- historians Odd Arne Westad and Chen Jian tell the full story of how China went from being an impoverished, highly planned communist economy to the dynamic capitalist economy it is today. We spoke with Westad, a professor at Yale, about this book, and what people get wrong about China's big opening up. Read more:China’s Surging LNG Imports From US Threatened by Next Trade WarMorgan Stanley, Goldman Call for Greater China TransparencySee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:15Tracy Alloway?

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• 0:44Tracy Alloway?

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:02Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 1:07Tracy Alloway?

  And I'm Tracy Alloway.

• 1:08Joe Weisenthal?

  Tracy, now that I'm like a middle aged old man, I don't know. I've been getting really into reading history lately.

• 1:15Tracy Alloway?

  Is it Roman history?

• 1:17Joe Weisenthal?

  No, no, it's actually worse than Roman history. I've been reading a lot of 20th century history and the problem, well, one problem, there's a bit of a diversion, but one problem with reading 20th century history is that I'm eventually going to have to get around to really learning what World War II is all about. And then I'm going to be a 50 year old man reading.

• 1:34Tracy Alloway?

  You have to fulfill your destiny.

• 1:36Joe Weisenthal?

  I know. So I'm going to be a 50 year old man in a few years, reading World War II books and watching World War II documentaries. So, but yes, I've been reading a lot of 20th century history lately.

• 1:45Tracy Alloway?

  You know how you know that you are really old? It's when you start reading 20th century history books and realize that you were like there and sort of participating in that time period.

• 1:55Joe Weisenthal?

  Well, it's so funny that you mentioned this because this is increasingly dawning on me when I read history. And again, slight sidetrack, but I mentioned before a couple of times, I lived in Malaysia for a year in 1989 and 1990. And I discovered in reading history recently that, um, I don't know if they call it the Malaysian Civil War, but the ultimate peace agreement between the Malaysian government and the Communist Party of Malaysia was signed in 1989 that ended that conflict. And so I was there. I had no idea. But reading-

• 2:25Tracy Alloway?

  Great school Joe was living through history.

• 2:27Joe Weisenthal?

  I was. And it sort of reminds, I think this is an important thing that I've realized, reading more history, is that the modern world as we know it is so young. It's basically like the length of a person's life. Depending on where you want to start it. Like, we're just getting started here.

• 2:41Tracy Alloway?

  So, the history we're going to be talking about specifically-

• 2:44Joe Weisenthal?

  We're being really vague, aren't we?

• 2:45Tracy Alloway?

  Is China.

• 2:46Joe Weisenthal?

  Yes.

• 2:46Tracy Alloway?

  And I was thinking about this because the first time I went to China was in 1994. And it was completely different to how it is now. Like, there were still rickshaws on the street, friendship stores existed, friendship stores still existed in the early 2000s when I was there. And I don't know, do you know what a friendship store is?

• 3:06Joe Weisenthal?

  I can guess. Actually, I don't know.

• 3:08Tracy Alloway?

  So, it's like where foreigners were basically allowed to go and like, purchase specific goods. They had a lot of like tourist tat and stuff like that. But if you went to a friendship store in Beijing in the early 2000s, it was basically like going to the East Bloc. It was like a full employment program where you would find a salesperson on the floor and you would say, "I want this item." And then they would give you a little like, token or receipt. And then you would take that to the cashier-

• 3:35Joe Weisenthal?

  Amazing.

• 3:36Tracy Alloway?

  And pay. And then someone else would bring the item to you.

• 3:39Joe Weisenthal?

  Sounds kinda nice.

• 3:40Tracy Alloway?

  So, yeah, that was in the 2000s. And now, when I think about Beijing, like, it has changed completely. Like, stuff that used to be one-story neighborhoods full of bars, like Sanli Turn, is now like luxury shopping centers.

• 3:54Joe Weisenthal?

  Totally. So, this is the other thing too, which is that, you know, we talk a lot about China right now for obvious reasons. But I kind of feel that like if we're going to talk about today, there probably is some justification for like how we got here. And I have to admit, you know, my understanding is really very rudimentary and limited. Like in my mind, it's basically like Mao died, Deng Xiaoping liberalized the economy. That was the, the economy plugged into global capitalism.

• 4:21Tracy Alloway?

  And then idiot sunflower seeds happened.

• 4:23Joe Weisenthal?

  Yeah. And then they allowed a business and then they entered the WTO in here. And I would say I know basically four facts about the history of China and those are, you know, 1978 WTO now. So maybe that's just three. And so I actually think it's important to sort of deepen our understanding of how we got to the China that we are so deeply connected to today.

• 4:45Tracy Alloway?

  I am in favor of you using the podcast as an excuse to read a bunch of history books.

• 4:50Joe Weisenthal?

  It's great.

• 4:51Tracy Alloway?

  And manifest your middle aged self. That's fine. We should do it.

• 4:55Joe Weisenthal?

  Well, it's better because if I have to read books, that means I'm not just scrolling Twitter all the time. So if I have to prepare for episodes. Anyway, we're going to be speaking with one of the co-authors of the new book came out in October, The Great Transformation, China's Road From Revolution to Reform. And I would say it complexifies a bit the very rudimentary story of the last, I don't know, 40 plus years of China. It's more than just three specific dates. It complexifies that story. It sort of fleshes it out in a big way. The co-authors are Odd Arne Wested and Chen Jian. The first time on Odd Lots that we'll have a guest with the name Odd.

• 5:32Tracy Alloway?

  Truly the perfect guest.

• 5:33Joe Weisenthal?

  So it's truly the perfect guest. So we're speaking with Professor of History at Yale, Odd Arne Wested. Professor Wested, thank you so much for coming on the podcast.

• 5:43Speaker 03

  Thank you for having me on. You almost had to, right?

• 5:45Joe Weisenthal?

  We had to.

• 5:46Speaker 03

  It's really a shame that you haven't had me on before. I mean, you should have been the very opening of your podcast with me as your first guest.

• 5:54Tracy Alloway?

  We had to wait for Joe to enter his history phase.

• 5:56Joe Weisenthal?

  That's right. But you should have, you should have been the first guest. So why this book? Because I imagine if I go on Amazon, there are probably hundreds of books that are some version of how China reformed, how China went from being this backwards economy to a dynamic capitalist economy. I know it's been written about in various forms numerous, numerous times. Why did you and your co-author still feel at this point that this was an important story or collection of stories to tell?

• 6:26Speaker 03

  I think there are two reasons. The first one is quite personal in a way. I mean, it almost goes back to what you were talking about a minute ago. So I first came to China as an exchange student back in the late nineteen seventies. And Chen Zhen, of course, my co-author, lived there during that period. So this is in a way somewhat personal for us as well. We lived through parts of the time period that we are talking about in this book. And there is no better incentive, as you just touched upon, to go back to look at history again than trying to understand the period that you lived through. So that's the first reason. And the second reason is, of course, that we think we do it better than anyone else. And we think we do it better than anyone else because we have more access to sources

• 7:05Speaker 03

  and more access to information about what actually happened during that time period. As you read the book, you can see how, at least when we do this as well as we can, we are able to get on the inside of many of the things that took place during that time period and show the complexities. I mean, show you how complex that period of very early Chinese reform and opening was. And in many ways, how contingent the process was. And how surprising it is in more than one sense that we ended up where we are today.

• 7:35Tracy Alloway?

  So, speaking of access, you mentioned this, I think, in the very beginning of the book, but you started researching this in twenty ten. And you said that the research process and the access you had kind of changed over the next, I guess, thirteen or fourteen years or so. Give us a little bit more detail. Like, as a researcher of Chinese history, how have things actually evolved for you?

• 8:00Speaker 03

  That's right. We started thinking about this and started researching it in the early twenty teens. And of course, back then, we had much better access to sources, much better access to archives, to talk to people, to travel around in the country, to have informal discussions with people who would be in the know than what is the case today. So China has really since twenty sixteen, seventeen, thereabouts, closed down in terms of access to historical sources of all kinds. So we were lucky. We started this process quite early on and had some good years in which we actually could collect material. Then we did something really silly. We put it aside. Other projects, hoping that we would get even better access in a few years. That happens sometimes that you make the wrong call on these kinds of things.

• 8:45Speaker 03

  And instead, of course, it got much worse. So what we had to do was to go back to some of the material that we had gathered in that early time period before we switched to other projects that we then completed before we returned to this book. And then try to fill that in as best we could with other materials we could get now. But the the the level of access, the level of information is very different today from what you could get hold of back then.

• 9:08Joe Weisenthal?

  So I want to get into some of the content of the book, obviously. And like I said in the intro, you know, I have this very cartoonish vision of history in my head where Mao dies. Deng Xiaoping becomes the new leader of the country after a little bit of tension and turmoil. And then China liberalizes. So one of the sort of eye opening or sort of mind expanding moments in the book, you talk about the Cultural Revolution and how even there. And we think of that as going, I guess, from nineteen sixty six to sometime in the nineteen seventies. You argue that A, the real intensity of it was two years where the sort of the youth of China rose up against the old codgers within the Communist Party.

• 9:51Joe Weisenthal?

  But even in that time, amid some of this incredible turmoil that the Communist Party was going through under Mao. Some of the seeds of, I guess, capitalism were actually planted in that turmoil.

• 10:04Speaker 03

  Yeah, that's right. I mean, that I think is one of the contributions of this book. I mean, your summarized history of what happened is not wrong.

• 10:11Joe Weisenthal?

  Okay.

• 10:11Speaker 03

  It's just that it was really difficult and, as I said, very contingent in terms of the various things that were happening to get from one to the next of those stages. And one of the things that we do show in the book is how the Cultural Revolution, which was undertaken, of course, in order to solidify Mao Zedong's leadership and attack the old leaders in the Communist Party, who he regarded as being too backward to take China into his new communist paradise. Had this Cultural Revolution had effects that were in no way foreseen. And part of them was, in many ways, the destruction of old China.

• 10:49Speaker 03

  I mean, they got rid of many of the traditional ways of thinking and loyalties and much of the patriarchal approaches within families, all of this. Because of these political campaigns that they undertook, directed almost against any kind of authority, except Mao's own authority. And in a strange kind of way, when you get into the nineteen seventies, Mao is still alive, still ruling from Beijing. Things start to change in some places from the ground up. So this is turning to markets, almost as a kind of revolutionary act, out of desperation. Because people along the coast, in the south, in areas that have some experience with capitalism and with markets.

• 11:34Speaker 03

  They are worried that when this campaign ends, things have got to get even worse. And some of these people had been starving, you know, back during the Great Leap Forward in the late fifties and early sixties. So they start trading, they start building up the opportunities that they can take for themselves in a little way. I mean, this is not a predominant fact in China in the early nineteen seventies. But it did seed something that is incredibly important for the future. And then comes into full flow after the party takes a step back, after Mao died, and opens up for these kinds of reforms happening on a countrywide scale.

• 12:11Tracy Alloway?

  I apologize in advance for asking a hypothetical. But do you think the economic liberalization of the late nineteen seventies, early nineteen eighties would have been able to happen? Or would have happened in some form if China hadn't experienced the Cultural Revolution? And all the, I guess, emotional trauma and political chaos that came with it?

• 12:33Speaker 03

  It wouldn't have happened when it happened, that's for sure. That's not even a hypothetical. I mean, I think if China had continued basically along the Soviet model of development, which is what they took up after the People's Republic was put in place in the late 1940s. Soviet-style everything, right? Planning, centralisation, the whole lot. I don't think the kind of reform that we saw in the late 70s and early 1980s would have happened. Because there wouldn't have been any fundamental reason to undertake it. Hmm. I mean, China would probably have chugged along in the same kind of way as the Soviet Union did until some point when that model started breaking down. Now, I'm not saying that the Cultural Revolution was a necessary condition for these changes to take place.

• 13:16Speaker 03

  But the period of Cultural Revolution activism did in many ways prepare the ground for the timing of this and when it was to happen. Also because, you know, China at the end of the Cultural Revolution was a disastrous. You know, when I first arrived there in 1979, this was a dirt poor and terrorised country. You know, a poorer in terms of income per capita than most African countries. And things were getting worse, not better. So that kind of desperation at all levels of Chinese society fitted into these changes. Something had to be done. And going back to the Soviet model of development that had existed early on, when you get into the 1980s, does not seem as a viable proposition.

• 14:12Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 14:28Speaker 04

  We're seeing a lot of institutional players come in. Digital asset dedicated hedge funds, high-frequency traders and that sort of thing. And folks who service institutional clients.

• 14:37Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reece Merrick of Ripple says.

• 14:45Speaker 05

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80 year old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 15:04Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 15:13Speaker 06

  With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatgpt.com.

• 15:50Joe Weisenthal?

  What does it mean when you talk about history being contingent? You use that word a couple of times, and I actually don't know if I fully understand what that means. But when you're telling these stories or this story and you're keeping in mind contingency in history, can you talk a little bit more about this idea?

• 16:07Speaker 03

  So you'll have seen from the book that we go in and out from the micro to the macro level of telling history. And if you look at the night when the coup against the radicals, the so-called gang of four, within the party took place, which we described in some detail, was what happens from hour to hour.

• 16:28Joe Weisenthal?

  Right, this was the moment in which the left faction, after Mao dies, was arrested and allowed for the sort of more moderate path to emerge.

• 16:39Speaker 03

  That's right. And it was in effect a military coup. It was undertaken by the military and the security forces against the people. Who Mao himself had put in charge of the party, including his widow, who was most prominent of all, Jiang Qing. Now, that night, the following few days, things could have ended up very differently. When Shanghai, the biggest city in China by far, was still under the control of the radicals. There were military units that supported the radical approach to politics. This could have ended up very differently from what it did. And as we describe in the book, some of the plot, some of the coup makers themselves in those days that followed the coup itself

• 17:23Speaker 03

  were completely surprised by how little resistance there had been from the left. And how little chaos there had been on the streets. So that's what I mean with it being contingent. I mean, this is something that obviously connects to the larger picture that we see today. Going back to your sort of three level version of what happened, right, in China. But it didn't seem that obvious at the time. And it could have gone in very different directions from what we are seeing today.

• 17:49Tracy Alloway?

  How important was the fraying of the relationship between China and the Soviet Union in the sort of nineteen sixties, early nineteen seventies to spurring or catalyzing that opening up? Because it does feel like the sudden emergence of the Soviet Union as an external enemy. It feels like that led China in some respects to open up to the US and some other countries.

• 18:14Speaker 03

  This is a sort of trajectory that I think is really important to get right. Because what Mao and his group of leaders did in the late nineteen sixties was to turn to the United States as an ally, a pseudo ally, a security ally against the Soviet Union because they were so deadly afraid that there would be a war with the Soviets. A war that China certainly would have lost, given the state that the Chinese communists themselves had put China into during the Cultural Revolution. So what Mao did was to turn to the enemy far away, the United States, to help back in against an enemy much closer to home, the Soviet Union,

• 18:56Speaker 03

  which they had this falling out with mainly for ideological reasons. From Mao's perspective, this was always intended to be a strictly security-oriented pseudo-alliance. Hmm. Right, it was directed against the Soviet Union. Mao, to the end of his days, was puzzled that the United States would support the real communists, meaning him, against the fake communists, meaning the Soviet Union. But as long as they were willing to do that, he was certainly willing to reap the benefits. But he never intended that this would have any effect in terms of the increasingly radical communist direction that he was taking for China internally, domestically.

• 19:36Speaker 03

  So that's when what happens in nineteen seventy-six after Mao's death becomes so significant. Because the people who then took over, they thought, aha, we have this relationship with the United States. They are supporting us for their own reasons in the Cold War against the Soviet Union. We can now also make use of this to supercharge Chinese reform, right? If it hadn't been for that relationship, strictly security-oriented, that already existed between China and the United States, I doubt that that would be possible. So it's very important for the longer-term US-China relationship to think about that origin and how this actually got started. Very different from the way most people think about it,

• 20:20Speaker 03

  where the security element and the reform element are sort of conflated into one.

• 20:25Joe Weisenthal?

  It's also just hard in twenty twenty-four to imagine that various communist states would not be natural allies. And of course, China, after the Vietnam War, China also went to war against Vietnam. The fact that they're so concerned about the Soviet invasion, it's just sort of this fascinating dimension that I don't think fits neatly into our heads. You know, I also read your co-author's book. He recently wrote a great biography of Zhou Enlai. And it occurs to me, like, reading that book and the new book, obviously, I think Mao is associated ideologically with the left faction and the CCP and the Gang of Four, etc., but he always seemed to keep a couple of, I don't know if the word is liberals,

• 21:09Joe Weisenthal?

  but to some extent liberals, around. So Zhou, he never got purged, even though it didn't seem like Mao particularly liked him for much of his life.

• 21:16Tracy Alloway?

  Token liberals.

• 21:17Joe Weisenthal?

  Token liberals. And Deng Xiaoping got purged multiple times, but never lost his membership of the Communist Party and always seemed to find his way back, even during the Mao era. Why was it that despite his ideological predilections towards the left, that in these important roles, he couldn't bring himself to purge some of these perhaps more reformist-minded characters?

• 21:44Speaker 03

  Because he needed to have things done. I mean, Mao wasn't just an ideologue, which was the most important aspect of him, I think, when you look at his historical role. He was also the leader of a country. And he needed to get certain things to work within the country or within the party. And for that, having seen time and again that his ideological allies were not particularly good at this, they were good at reciting Marx and Lenin, but they were not particularly good at running things, he needed people like Zhou Enlai, he needed people like Deng Xiaoping to get things done. But as Chen Zhen's Great Zhou Enlai biography shows very clearly, there were limits to how far he would go in working with people like Zhou or Deng. He was willing to work with

• 22:28Speaker 03

  them as long as they served his purposes. And if there was any sense that they actually tried to have a direct political influence above or different from his, they would get into trouble. So I'm not sure if token liberals here is the right term. I mean, liberals in terms of their thinking about politics. These people served, as long as he was alive, served as German, and they served him at his leisure. So if he got a suspicion with them, as with so many other people, that they were not serving his radical interests, he would act against them.

• 23:01Tracy Alloway?

  You mentioned earlier that your book brings together the macro and the micro. And in terms of the micro, it reminded me a lot of Secondhand Time, which is an oral history of the end of the Soviet Union. And there are lots of stories in there about individual experiences and entrepreneurs who suddenly are starting their businesses in the post-communist period and things like that. I've been trying to get Joe to read this book. I'll read it. It's amazing. But can you talk to us a little bit more about the individual stories that you heard from this particular period in Chinese history?

• 23:40Speaker 03

  So there are many stories. And both Chen Yan and I are the kind of historians who are storytellers. We like to tell these stories. We like to focus on individuals and their experiences. And that's, of course, what sets this period apart. It's such an incredibly dramatic era. I mean, first, the Cultural Revolution and its demise, and then this period of almost unbelievable change, which I remember very well myself. I mean, from one day to the next, things that had been seen as being true forever were no longer true, right? And and things changed so very quickly. And entrepreneurs who had a few weeks earlier had been put in prison for their activities, but suddenly held up as heroes of economic development, right? That was China

• 24:22Speaker 03

  during this time period. And it's wonderfully fertile ground for historians who like to tell stories. So we tell some of these, maybe some of the most fascinating ones that we came across are the ones of these early entrepreneurs. I mean, people who get started even before the political changes in Beijing have taken place. Very often coming out of collective enterprises of some sort, people's communes, or whatever you have, and finding that they were pretty good at doing what they were set to do. We have one example in there, which is one little tractor repair shop that turned out to be incredibly good at repairing tractors in Guangdong province, in the south of China, and then started gradually.

• 25:06Speaker 03

  To get payment in kind, a kind of bartering system, their services against a little bit of steel or a little bit of machinery or some silk and all that, right? Which they could then trade, well, for a while, they could actually smuggle it into Hong Kong and trade it there. By the mid nineteen seventies, these folks have a Hong Kong bank account, right? Well before anything has happened in Beijing in terms of reform. So if these guys had been caught, they would probably have been shot, right? For smuggling and currency fraud. When the reform really gets started in nineteen seventy eight, they have a leg up, right? And they can do things that no one else can. And now they're heroes. So this is the origins of one of the biggest companies in China today.

• 25:50Speaker 03

  So these are the kinds of stories that we like to tell. I mean, at the political level as well, I mean, one of the most fascinating people that we came across is Huagong, the guy who became somewhat unwillingly Mao's handpicked successor. And who was actually quite a decent leader in many ways, not very imaginative, not of the kind of dynamism that Deng had, but still probably someone who was a necessary figure. You know, in order to facilitate that transition.

• 26:19Joe Weisenthal?

  Yeah.

• 26:19Speaker 03

  That happened in the, in the late nineties.

• 26:22Joe Weisenthal?

  Yeah, I get the impression too, reading about him, that obviously he was in a difficult position having to uphold Mao's legacy, who's pushed aside eventually more or less by Deng Xiaoping, but also sort of went gradually and didn't put up a huge fight that probably saved a lot of turmoil. You know, speaking of some of these early companies, I hadn't realized that China's number one electrical appliance manufacturer, I don't know if I'm pronouncing it right, but Midea, it looks like. That was actually founded in nineteen sixty eight, as you point out in the book. So really, I mean, here's this gigantic publicly traded company, and it was founded right in the heart of the Cultural Revolution.

• 26:59Speaker 03

  Yeah, those are, I mean, those were perhaps those some of the most surprising examples that we found. I mean, there are not many of them. I mean, we we should be careful with not exaggerate.

• 27:08Joe Weisenthal?

  Okay.

• 27:08Speaker 03

  This is not an attempt at rehabilitating the Cultural Revolution, but it was possible under extraordinary circumstances and by extraordinary people to do things that probably early on could not be done. I mean, they didn't do it because the Communist Party wanted them to do it. They did it because the Communist Party lost control and couldn't go on with the kind of centralized planning that they had done before, not everywhere and at all times, anyway. So Media is a good example of that, and I'm sure there were hundreds, if not thousands, of these startups, cultural revolution era startups that didn't succeed, or these people were caught and ended up in prison camps or whatever, right?

• 27:47Speaker 03

  So we shouldn't overstate the countrywide importance of these attempts at entrepreneurship. Many of them ended up not going anywhere. But there was this opportunity among those that survived to have that fundamental advantage over others when then countrywide national reform came about in the late nineteen seventies. And that actually connects to your point about Huagou Feng, because at that point, normally in Chinese politics, someone who fell from grace the way Huagou Feng did would have met with quite a terrible fate. Huah allowed himself to be replaced at the top because he simply thought it was better for China that it went in the direction that it did peacefully.

• 28:31Speaker 03

  And then spent the rest of his life cultivating grapes in his residence in Beijing. He became one of China's foremost experts of native grape varieties, a subject of which he published at least two articles, so of course under a pseudonym. So, you know, this kind of thing earlier on in China would have been unthinkable, given the cutthroat aspects of Chinese politics.

• 29:09Speaker 06

  With ChatGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatgpt.com.

• 29:47Tracy Alloway?

  I didn't realize that China had native grape varieties, so that's interesting. Okay, but just on this point, what was the downside for individuals in accepting market liberalization? Because nowadays, we talk a lot about the social compact in China, the idea that, okay, maybe people don't have as many democratic rights as in other parts of the world, but the promise from the CCP is that we're all going to get rich. And it feels like in the 1970s, 1980s, there was some loss of a social safety net that came about as a result of the promise that, like, okay, you're not going to get as much welfare, social welfare,

• 30:27Tracy Alloway?

  but you're going to get a chance to become really, really wealthy.

• 30:33Speaker 03

  And that was, of course, part of this great transformation that we are talking about is what happened when much of that social welfare net disappeared. It was a very brutal process. I mean, we have a tendency, I think, in this country and elsewhere, to think about Chinese reform as the good reform in terms of results and Russian reform as the bad reform, right? I mean, where things went wrong after the collapse of the Soviet Union. But these two are in many ways much more similar, we discovered, than what they generally have been taken to be. I mean, the desperation that you find among a lot of Chinese when the social welfare system went away, mainly in the late eighties and nineties, like in

• 31:16Speaker 03

  October, early two thousand, was very profound. It was a market revolution, but as all market revolutions, it has its winners and its losers. And what was remarkable about the transformation in China was that when one went through that first period of relative hardship, then of course, the general economy started to pick up, giving more people a chance to enter into the middle class. But these two time periods are not the same. There was a period of real hardship to begin with, and then quite a bit later, this opportunity for many people, still not everyone, still there are about four hundred to five hundred million poor people in China, right? A lot of people. But for many to take that step into the middle

• 32:00Speaker 03

  class. And that's in a way the story of China's reform, that they were able to make that jump. While in Russia, most of the efforts at setting up a more good economy that actually worked domestically failed.

• 32:13Joe Weisenthal?

  So one thing that people say a lot is that the Chinese Communist Party for a long time, up until today, is obsessed with the fall of the Soviet Union and figuring out how to avoid a similar collapse at some point. And part of me wonders, like, the two countries seem so different and the circumstances seem so different, that it's like hard for me to like say like, oh, if you do this, then you do get that outcome. And like, who knows? But there is some school of thought that part of the problem with Soviet reforms starting under Gorbachev was the sort of political liberalization, that maybe economic liberalization is okay, markets, but you still need that strong central party, and that maybe Gorbachev's

• 32:55Joe Weisenthal?

  mistake was doing both at once, or maybe doing the political liberalization at all, etc. You talk also in your conclusion about some of the missed opportunities of more political liberalization, along with the market liberalization that China has seen over the last several decades. When you think about the fall of the Soviet Union and what contributed to that collapse, how much of it is it the market reforms versus the structure of the Soviet Union versus the political liberalization? And is there an argument to be made that the reason that the CCP and the country is as stable as it is today is because they didn't also pursue the political liberalization?

• 33:36Speaker 03

  No, not really. I don't think that is the key reason. I think the key reason why the CCP succeeded was more that they were willing to experiment. I mean, under a situation of political dictatorship, as you pointed out, they were willing to experiment in ways that the Soviet dictatorship never was. And maybe, I mean, and this is pure speculation, but maybe that goes back to what we talked about earlier on, that the Soviet Union kept chugging along, you know, with some growth a very, very long time. There wasn't that kind of desperation that you found in China after everything that the Communist Party had tried had failed. So these people were really running out of time, both to transform China, but also to protect the dictatorship, right? They had to do something.

• 34:20Speaker 03

  And then they introduced gradual reform and all that gradual economic reform without ever thinking that they would give up political control. So this is one of the things that we show in the book, and I think this is the reason why the Chinese Communist Party today is so obsessed with learning the negative lessons from the Soviet Union, is that much of this was, of course, not just about creating a China that was rich and strong, it was being able to recreate the Communist Party that was in control of most things, right? So that story of how the dictatorship was reinforced at the back of reform already in the mid 1980s is a very central part of our book.

• 35:03Speaker 03

  I mean, we do see a period of openness from the late 70s to the mid 1980s, when there would have been a real possibility that China would have moved in a more, it's not democratic, but more pluralistic, more open direction than what happened, what happened later on. But by 1984 or thereabouts, that period is ended. Deng is laying down the law saying the direction that China will go in is one of increased deepening market reform and Communist Party control. There will be no pluralism of any sort, there will be no freedom of speech, all of that is up. And this is of course very

• 35:44Speaker 03

  important in terms of understanding China today. I mean, this is what created the kind of situation that we see now. Even now, of course, I was in China in the in the spring, and one of my businessman friends was joking that maybe, you know, reform and opening should be seen as a gigantic net, you know, letting its new economic policy back in the 1920s, where people were allowed to generate wealth for a while, just for the party to come back in and confiscate everything. So don't say that I'm sharing that view, but given what Xi and Ping has been up to recently, you can sort of understand it.

• 36:20Tracy Alloway?

  Since we're up firmly in the 1980s now, talk to us about Coca-Cola and its presence in the Chinese market, because I kind of think this is like a nice little microcosm of the changes that happened to the Chinese economy around that time.

• 36:35Speaker 03

  So the Coca-Cola example is really interesting, because it's a typical example in a way of how it was possible for a multinational company to come into China, to start working in China because of the attractiveness, the symbolism of the product that it delivered, but also was able to work with local people and local businesses within China. And what's also fascinating here is the connection between Coca-Cola and its political significance in terms of the solo American relationship.

• 37:09Tracy Alloway?

  Right, because Coke was like a symbol of American capitalism, right?

• 37:14Speaker 03

  Yes, and the Chinese leadership wanted to embrace that symbolism without necessarily having to embrace the full package. So they were trying to figure out how they could work with this particular American company, and indeed other American companies as well, in order to be seen as helping bring Coca-Cola to China.

• 37:36Speaker 03

  But on conditions that would be acceptable to them. And this is the story that is repeated over and over again in China when it comes to foreign companies, the connections to local partners, how the government oversees this in sort of political terms, but also how it can turn out to be immensely commercially successful under those circumstances.

• 37:58Joe Weisenthal?

  You joked about your businessman friend in China saying maybe that whole reform period was like Lenin's net period and you had the dominance of the party and then wealth was created and then now the party reemerges in strength and seizes control of that wealth, so to speak. I'm curious your take here in 2024. Do you find that to have been an inevitable arc? I mean, it probably doesn't sound like you believe much is inevitable, given your focus on contingencies of history, but was this something that like due to the specific leaders who emerged in China, most prominently Xi Jinping, but also to some extent with the

• 38:42Joe Weisenthal?

  more nationalist edge of Hu Jintao, like was this something that is like it was the result of these specific individuals that has bent the curve of history, so to speak? Or do you think there was sort of like structural forces in play that brought back the sort of like very high level of state control?

• 39:00Speaker 03

  I think it was both. I mean, in the Xi Jinping case, I think he was picked by the party as the, what the Chinese would call the core leader back in the early 20 teens in response to what was seen as a bunch of real problems from a Chinese Communist Party perspective. Over liberalization, decentralization, corruption, strength of private companies that meddled in a lot of things that the communists didn't want them to meddle in. They wanted to get a strong leader in who could deal with those issues in a way that his predecessors, Jiang Zemin, Hu Jintao, had not been able to do. So they wanted a strong leader. It's just that.

• 39:44Speaker 03

  Who I think even for many communist leaders of that generation, they got more than they bargained for. So that's where the personality aspect comes in. They got a leader who really wanted to return, at least on some issues, to the Maoist or even the sort of pre Mao period in terms of the CCP's history. And emphasizes the party's position over what even many party leaders back ten, fifteen years ago thought would be good for China. And it's a classic example, right, of responding to real world problems, not unknown in this country, right, by going very far in one direction, hoping that that would resolve the problem that is there,

• 40:25Speaker 03

  and then getting stuck, in a way, in with the kind of leader that you have in this case in the P. So I think that's the story, the way we can tell it now. I hope at some point to be able to tell that story based on archives and primary documents as an historian. We can't do that yet. But I think at some point we will be able to do that, and then it will be fascinating to test that hypothesis about how this happened.

• 40:48Tracy Alloway?

  Hmm. So just on the the revolution from below point, one of the things that you emphasize in the book is a lot of the stuff that happens in this time period is a result of people feeling that they are heading somewhere, that there's like a grander Chinese vision that can be achieved. And so that motivates people to actually do something. I'm curious, just going up to the present day, do you get a sense that people feel that, that there's like a direction that China is heading in, that it's clear to people like what they are trying to do?

• 41:28Speaker 03

  At the moment, absolutely not. I think it's very, very clear that a lot of people in China do not understand where the country is heading and what the reasons are. And, you know, you don't spend much time in Beijing before you realize that these days. I think it was very different in the time period that we are talking about, which was generally a time of uplift, at least in economic and and social terms. And it's right to say. I mean, as many historians have said, that there was an element of a bargaining that at least for some Chinese, not everyone, but for some Chinese, maybe particularly in business, that one accepted a dictatorship for what it was and then went on getting rich and establishing some of these great or middling fortunes that you find so many

• 42:13Speaker 03

  of in China today. And that is good. I mean, that was positive. It was much, much better than the dark past that we described at the beginning of the book. It was just that China wasn't able to take what in our view is a necessary step to improve its political system, its overall attempt at trying to become a more open, more pluralistic country in the period when the going was good, when there was a general sense that China was making advances domestically and internationally. Now, I think even if people from within the Chinese Communist Party after Xi Jinping would try to move in a direction of increased liberalization, which I think they will

• 42:56Speaker 03

  have to do at some point, because people are just very unhappy with the kind of system that is there at the moment, it would be much more difficult because the going is not that good and it probably is never going to be that good again. I mean, it was a remarkable period of economic transformation, 10% per year growth rates. It would have been possible to carry out necessary reform, but these people didn't want to do it because they had become so preoccupied with holding on to power themselves. And I think historically that that might turn out to be the biggest mistake that the Chinese Communist Party has made.

• 43:27Joe Weisenthal?

  Arne Wested, thank you so much. Truly the perfect guest. Really appreciate you coming on.

• 43:33Tracy Alloway?

  Nominative determinism that he had to come on all of us.

• 43:36Speaker 03

  It is indeed. It is indeed. We talked about contingency. This is not contingency.

• 43:40Joe Weisenthal?

  This is right. This is the one, this was the one scientific fact of history that was inevitable regardless of.

• 43:47Speaker 03

  It was great chatting with you.

• 43:48Joe Weisenthal?

  Yeah, thank you so much. Congrats on the book and encourage people to check it out and I appreciate it.

• 43:53Speaker 03

  Thank you.

• 44:06Joe Weisenthal?

  Tracy, I'm totally down in my dotage to just turn this into a history podcast where we read books and then talk to historians.

• 44:14Tracy Alloway?

  I feel like podcasts becoming history podcasts is also an inevitability, right?

• 44:19Joe Weisenthal?

  Well, you run out of things to talk about, so you gotta start mining the past.

• 44:22Tracy Alloway?

  You know what? Actually, in all your recent reading, you might know the answer to this question, which I forgot to ask Arne about, but why was the Soviet Union and China in like the 1950s obsessed with steel production? Do you know why?

• 44:37Joe Weisenthal?

  I actually don't know. The answer, my guess would be is just like the most sort of objective thing of what you need to modernize in a 20th century economy. You need steel for probably literally everything that gets built. It would have been a good question. Another thing that I wish I had asked is how paranoid, how justified was, because you asked that great question about the importance of the tension between China and the Soviet Union in Mao's turning, at least to some extent, to the US, which then expanded greatly over the following decades. But I never get the impression that there really was any actual prospect of war. Like, there's one point in the book where like the leaders

• 45:18Joe Weisenthal?

  all scrambled away from Beijing because there were fear of a nuclear attack from the Soviet Union. But it's not clear that there was any real, anything happening there.

• 45:26Tracy Alloway?

  I guess hindsight is 2020 when it comes to a lot of this stuff, including the Cold War is kind of similar, I guess. Like, nothing happened in the end in terms of like a nuclear disaster.

• 45:37Joe Weisenthal?

  We can close with Cuba is my understanding.

• 45:38Tracy Alloway?

  That is true, but like, it didn't happen.

• 45:41Joe Weisenthal?

  Yes.

• 45:42Tracy Alloway?

  But one thing that I got from this book is, again, the importance of an external enemy when it comes to radical economic transformation. And I think we've seen so many examples of that throughout history at this point. So China, China's market liberalization as a result of its fear of the Soviet Union is a great one. I guess the return of industrial policy in the US as a result of its fear of China's economic dominance is another one. Japan in the 1980s would be a good one, too. It feels like in order for anything to get done at scale and in an efficient time period, you have to have like some sort of threat that's hanging over you.

• 46:24Joe Weisenthal?

  This is why we need the Paul Krugman, like, we need to convince everyone that the threat is the aliens.

• 46:29Tracy Alloway?

  Yes, yes.

• 46:30Joe Weisenthal?

  And then you catalyze development without actually, and then there's no aliens in the end. But, um, yeah, I thought that was fascinating. I know it's such a cliche and I hate to admit it, but it does seem like, understanding the modern world, you can learn something by reading the past.

• 46:45Tracy Alloway?

  Incredibly surprising.

• 46:46Joe Weisenthal?

  I resisted that reality for a long time in my life, and now I've succumbed. We have to know how we got here.

• 46:52Tracy Alloway?

  Okay, now that you've discovered history, shall we leave it there?

• 46:54Joe Weisenthal?

  Let's leave it there.

• 46:55Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alockway. You can follow me at Tracy Alockway.

• 47:01Joe Weisenthal?

  I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest, Odd Arn Wested. He's OA Wested, and definitely check out his new book, The Great Transformation. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot, and Kel Brooks at Kel Brooks. Thank you to our producer, Moses Andam. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have transcripts, a blog, and a newsletter, and you can chat about all of these topics 24/7 in our Discord. There's even a books channel, which is where I think I saw this book pop up first.

• 47:34Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when Joe reads history books, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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