Build new systems, don't reform old systems
Lessons from Deng Xiaoping's transformation of China
Once a codified system has become dysfunctional and sclerotic, it is quicker and easier to build a new system than it is to reform the incumbent system. The primary reason for this is not technical but political - it is the political resistance to reform embedded within the incumbent system that prevents transformation.
Crises provide a window for transformation
Above all, the Cultural Revolution enabled Deng Xiaoping's reforms. As Mancur Olson has argued1, Mao decimated the administrative and managerial class in China and swept away many of the special interests in Chinese society. The horrors of the Great Leap Forward and the Cultural Revolution and Mao’s role in those failures also gave Deng room to make the un-Maoist policy decisions that he needed to.
Appointing a new CEO is not enough
Even after Deng Xiaoping became the paramount leader of China in December 1978, he was not yet able to implement transformational change. Initially, he was much like a new owner or CEO of an old organisation. He “had been moved to the top of a structure that he had not created”2, but this did not mean that he had the power to implement his vision.
This was partly because the previous leader, Hua Guofeng, and his allies still held power and influence. Therefore, Deng’s first task was to bring in his own team at all levels and weaken Hua Guofeng and his supporters. It was only when Deng was able to remove Hua Guofeng’s supporters and bring in his own by early 1980 that he could truly “take office”.
Build a new organisation
At the 5th Plenary Session in February 1980, Deng also resurrected an old institution, the party Secretariat, that had been abandoned in 1966. As Ezra Vogel notes (emphasis mine),
Deng well understood that to gain control over the levers of power, it would be easier to start with a fresh organizational structure than to send one or two leading officials to an old organization that did not match his policies. After the Secretariat was reestablished it became an entirely new organization over which Deng achieved clear control.
The Secretariat was not only a new organisation, it was a small and lean organisation that “worked like an inner-party cabinet”. It was split into small groups organised by domain (e.g. agriculture, defence) and headed by party secretaries, each of whom had managerial authority.
Hiding the new in the garb of the old
By hiding his power grab in the guise of an old institution (the party Secretariat), Deng avoided criticism that he was sidestepping the existing power structures (which he was). But this was even more true of many of his policies where he took great care to avoid any ideological battles with those wedded to the old socialist ideology. For example,
Marx's statement in Das Kapital about a capitalist with eight employees exploiting his workers was interpreted to mean that working entrepreneurs who employed no more than seven others were not capitalists. Household enterprises sprouted “like bamboo shoots after the spring rain.” Deng, with Chen Yun's consent, said “let's see how it goes.” At first entrepreneurs were cautious about hiring more than seven workers, but as they observed the government took no action, other successful firms followed suit. Deng did not argue with them.
As I’ve explained in previous essays (1, 2), there are many technical reasons why reforming systems and removing “legacy code” is hard. However, the insurmountable hurdles that typically scupper reform are political in nature, which is why the only way to achieve transfomational change is to build new systems from the ground up to gradually replace the incumbent systems.
Mancur Olson in ‘Power and Prosperity’
Ezra Vogel in ‘Deng Xiaoping and the Transformation of China’.