[MUSIC] The leadership changes that I've been talking about are really quite important because they bring important policy changes. And in fact, as this slide says, new leaders make a difference. In fact, every leadership change in almost any communist country since 1917 has been followed by budgetary allocations or re-allocations, and policy changes under new leadership who have their own economic teams. And in this way, it's a lot like elections in democracy. This was a study done by Valerie Bunce, who was a graduate student with me back at the University of Michigan, who showed that the new Eisenhower administration in the United States, and Khrushchev, both of them brought about significant changes and investments. Now, these policy differences are really important. We'll talk about it more in the policy class. But they're really important, because they shape economic strategies, and as I said, they really are important, about where money is spent. The budgetary allocations by the leadership, which has effects on the growth rates, on regional development, inland, coastal, consumption versus savings. China is now trying to do more consumption. Attitudes towards foreign investment, and China's role in the world. And in fact, in an attitude among the leadership towards the private and public sector and how the leadership feels about these things has a very significant impact on what goes on in the real economy. Now new leaders from my perspective, I proposed or put forward this idea, that one of the ways that new leaders change policy is when they come into power or they are able to reassert their power, they do it through what I call policy waves. And we can see these major changes in policy in the reform era. A curve of waves. 1978-79, 84-85, 87-88, 92-93 and 97-98. And in each case, a significant change in leadership occurred. And below I'll give you three examples. So in 1978-79 Deng Xiaoping, who had been kicked out in 1976. He returns to power. And he's able to open up the coastal areas of China to the international market. Dismantles collective agriculture. Quickly establishes diplomatic relations with the United States. And this is really the beginning of what's called the Reform and Opening Policy. So that's really important. In 1987, Zhao Ziyang becomes the General Secretary of the Communist party, and between 1987 and 1988, he introduces his own new policy, one which is called, Coastal Development Strategy, which is further and opens up China along the coast, he pushes for major political reforms, they establish 6,000 foreign trade companies, before that there'd been 12 foreign trade companies in all of China that had a monopoly on trade, and this really opened up trade to the outside world. He established high tech zones and he liberalized prices. A third grade example of this is really in 1997. Jiang Zemin who had been appointed as leader in 1989 but had not bee able to put to really solidify his power, he really consolidates his power in 1997, at the 15th party congress. And he and his Prime Minister In 1997, 1998 privatize all of the public small and medium sized enterprises in China. They introduced a private housing reform, which has been a huge boom. All of this housing development that’s been going on in China can really be dated back to this 1998 reform, and they dramatically cut the bureaucracy. Now we're talking about the current reform, which is what I call the sixth wave of reform since 1978, under Xi Jinping. And we'll discuss it in more detail in a later section on public policy. Now I want to turn to a discussion, a brief discussion about what makes a weak leader. All right, we talk about, what I said about the beginning of this section, this whole class today, I talked about the importance of strong leadership but I also said that you can have weak leaders and I think that Hu Jintao who rules China, who runs China, is the General Secretary from 2002 until 2012. He's really an excellent example of a weak leader. Now, he has very good values in terms of trying to improve society. He wants to improve the environment. He has a lot of policies that I think were good and he was trying to make up for some of the excesses of the Jintao Minh era. But, both because of the excesses of the Jung era and because Hu Jintao himself was never very powerful, vested interests in this period become very, very powerful. Who do I mean by vested interests? For example, the state owned enterprises become very, very powerful during his rulership, during his leadership. And so China has really bad environmental degradation because they can't reign in the waste and the pollution that comes out of these state owned enterprises. China at one point was losing 6,000 miners a year. 6,000 miners a year were dying in private coal mines. The Prime Minister Wen Jiabao, who worked with Hu Jintao, they tried to close down these private coal mines. And they failed to do so, which is quite shocking. You know in Australia on average maybe 2 to 3 miners die a year. Other problems we found were a retrenchment on the World Trade Organization commitments that China made in 1999. China really wanted to get into the WTO. They promised certain things, opening up the economy during this period. We see increased protectionism. We also see a major jump in investment in domestic security forces, in the People's Armed Police. In fact, by 2011, China spends more money on domestic security, than it does on the army, and on foreign security. Who also has to face a challenge for power, from Bo Xilai? The son of one of the eight immortals. And he, Bo Xilai, is backed up by an oil security faction that, in the end, now recently has been purged. But that group is able to push Bo Xilai for a real serious challenge to Hu Jintao. And it's largely because Hu Jintao was very weak. And so when I talk about waves of policy change, waves of policy reform. What we see is under Hu Jintao there is no policy wave. Now stop for a second and just think. What about leaders in your country? Do policies seem to change each time the leaders change?
