The remaining 18 and 10% are allocated to investment and defense respectively. Let us inquire what would happen if we begin with such an allocation in a given year. First, if the population grows at 2% a year, personal consumption would have to expand at the same rate in order to keep per capita consumption unchanged. Some additional allocation of output to consumption would have to be allowed if per capita consumption is to improve. In terms of the percentage points of base year output, the following increments would be required: Personal consumption and Government administration (in percentage points of GNP of the base year) Total Increment Personal consumption in the base year. 72.0 Personal consumption in the following year at 2 percent annual growth of the population: 1 percent improvement. 2 percent improvement.. 74.9 2.9 3 percent improvement. 4 percent improvement. 5 percent improvement. 77.1 5.1 In order to produce the increment in the consumption over and above the level of the base year, let us assume that new investment is required and that some of the investment in the base year needs to be earmarked for this purpose. How much depends upon the types of goods produced, the technology adopted, the "construction period" required for new plants, etc. Allowing for a one-year lag between investment and incremental output, the 18% allocation to investment assumed in the "illustrative sketch" and the 4 percent long-term GNP growth rate assumed in the same text (p. 8) would give us an implicit incremental capital-output ratio of 4.5, meaning that for every single percentage point of increment in output, 4.5% points of output must be devoted to investment. On the other hand, we could take other ratios, such as 1 to 2.3, which was developed for China for the 1952-57 period in one of the papers in the 1967 study issued by the Committee (An Economic Profile of Mainland China, vol. 1, p. 126), or, say, a ratio of 1 to 3, used sometimes in textbooks on economic development. We can derive in this manner an estimate of the amount of investment required to sustain the assumed increment in consumption at various rates of improvement. If the investment required is then subtracted from the 18% of GNP alloted to investment in the base year, the remainder, or, more precisely, the amount of "allocable surplus" represented by the remainder, would be available for either (1) investment in order to expand the country's productive capacity for non-consumer goods, including defense-related products, or (2) without adversely affecting the supply of consumer goods required during the following year, the production of end-products for defense purposes. If this process is followed through, we should find that the amount of investment required to provide for the increment in consumption, expressed in terms of percent points of the base year GNP, is as follows: It can be seen that if the 18% of the GNP is allocated to investment in the base and if the incremental capital-output ratio is 4.5, the investment would just be sufficient to provide for an improvement in per capita consumption in the following year at a little over 3%, assuming a natural population growth rate of 2% a year. On the other hand, if the incremental capital-output ratio is 3 or 2.3, even at 5% improvement in per capita consumption, an 18% allocation of the GNP to investment in the base year would leave 2.7% points (18-15.3) and and 6.2% points (18-11.8) respectively as what we have called the "remainder" or "allocable surplus." If this "allocable surplus" is fully assigned to defense, the proportion of defense in the base year GNP would rise from 10% of the "illustrative sketch" to 12.7% and 16.2% respectively. This range is consistent with the 15% suggested in the study (p. 45) although it tends to raise the question whether 15% should be regarded as the probable ceiling in China's GNP allocation to defense. A more important point is whether a rigid and clear distinction can or even should be maintained when we explore the implications of GNP allocations by end use for China's defense effort and future economic development. Is the construction of a plant in any given year for making tanks or weapons carriers that later can be converted to the production of civilian vehicles or other machinery for civilian use an allocation to "investment" in that year, or is it an allocation to defense? Do we include under the GNP allocation to defense only the current maintenance of the armed forces and the production of end items that have no civilian application? How about the construction or expansion of plants for weapons production? Chinese arsenals are not always distinguishable from Chinese machine manufacturing plants, and vice versa. The issue is not purely semantic, because it touches on the coordination of China's strategy of economic development with its defense planning. A defense program that stresses the current expansion of defense plants rather than end-items could be simultaneously expanding the potential base of production for the civilian sector in the future. Not every kind of defense spending is at the expense of future economic growth. How soon China can switch its growing capital stock, expanded originally for defense, from defense orientation to the civilian sector is, of course, a function of Chinese policy in the future. It suffices in the present discussion to point to the risk of drawing wrong conclusions on the basis of (1) an apparently relatively small allocation of the GNP to defense and (2) the opportunity cost of defense to Chinese economic development if we look at the end-use allocation pattern statically. One should note in passing that the assumption that 72% of the GNP is allocated to personal and government consumption (excluding defense) should not be taken too literally. The actual allocation to personal consumption may be smaller and it can perhaps be reduced, at least in the short run. In this respect estimates by different authors and for different periods vary. A smaller personal consumption allocation would increase the potential for "investment cum defense." In discussing China's defense potential, another caveat for the unwary is that that cost of weapons systems should be derived in a manner consistent with the pricing of the GNP estimates. If weapons costs are translated into Chinese terms in one way, for instance, by converting non-Chinese costs into Chinese currency units in some aggregative manner, while the GNP is derived in a different manner in terms of its pricing, we may obtain quite misleading impressions about China's ability to bear the burden of certain sophisticated weapons programs and of force modernization. The preceding comments should not, however, be construed as an estimate of a very large actual Chinese defense program at a relatively low cost to China's future economic development. The comments are intended to demonstrate (1) the many pitfalls in interpreting certain statistics and the necessarily incomplete observable events in China and (2) the possible, even probable, existence of a large Chinese potential. However, the potential may not be fully realized at a given time. Past under-full utilization of resources can perhaps be explained by specific deficiencies in technology, specific shortages in some industries, planning and management errors often a result of ideological blinkers and political errorsand, more recently, the possibility that the writ of the central authorities does not run in the country as a whole or in every segment of administration, and at all levels of control. IV. DIRECT VERSUS INDIRECT CHINESE THREAT If Peking can successfully utilize its economic potential to the full and if it focusses its immediate attention on a small number of objectives, it should be able to expand its nuclear arsenal and modernize its conventional forces steadily. Nor should we overlook the possibility that China may decide to take technological paths in weapons development that bypass some of the stages other nations have traversed. Such an approach would be quite consistent with China's past policy on R & D. Yet all this does not mean that China will necessarily pose a direct military threat to the United States, at least in the next few years, or as long as the present level of distrust exists between Peking and Moscow. This conclusion is not based on the assumption that China has turned inward to nation-building. It is based on the belief that China has assigned the utmost priority to the acquisition of effective military and political deterrents vis-a-vis the Soviet Union. For both political and military reasons China simply has to relegate the United States to the role of a "secondary enemy," at least for the time being. The central authorities of China, in my view, do not have the necessary degree of control or the necessary command of resources to do otherwise. However, there is not only a potential direct threat in the future, but there is an indirect threat at present. The indirect threat lies in the possible misinterpretation by other countries of the policy, current capability, and internal strength of China and especially of United States policy toward China under the Nixon Doctrine. If other nations, especially but not only Japan, should believe that the United States is withdrawing its interest in Asia, conceding a sphere of influence to China, and this because of the deterioration of America's power vis-a-vis that of China, they most likely will seek other options for their own security than relying upon the United States. Some of these options may change the entire political, economic, and strategic environment for United States policy. Such an indirect present threat is quite real. Finally, one should point out that the state of Sino-Soviet relations is a most important parameter, while assuming that Sino-Soviet distrust will continue for some time at a level sufficient to prevent the adoption, on a broad front, of parallel Chinese and Soviet policies adverse to the United States, one must nevertheless expect changes in Chinese leadership and possible changes in Chinese policy even without personnel shifts. Few people had predicted the breach of the close relations between Moscow and Peking before it actually occured. Few recognized the breach until quite some time after it had occurred. The risk of some mistaken perception of the future must be acknowledged by keeping available other options than the one currently being followed. It is important that the American public be mindful of these uncertainties. Chairman PROXMIRE. Thank you very much. STATEMENT OF JOYCE K. KALLGREN, ASSOCIATE PROFESSOR OF Mrs. KALLGREN. I think the Joint Economic Committee has performed an important service in commissioning and publishing the economic studies contained in the "People's Republic of China: An Economic Assessment," and I went to thank you for it. I would like to offer a few brief comments. Speaking as a political scientist, I do this without criticism but, rather, to highlight some political aspects that are noted but I do not think highlighted in the report. The first of my comments relates to the grave problem of providing reasonable well-being for China's enormous population. The problem includes food, clothing, housing, health, and other basic amenities of an increasingly modern society. Its dimensions are indicated, though not defined, by the fact that various sources in this compendium of papers estimate China's population as ranging from a minimum of 750 million to a maximum of 875 million. Any meaningful discussion of China's prospective ability to cope with this problem requires simultaneous appraisal of China's efforts toward population control, and this was made by John Aird's valuable paper, "Population Policy and Demographic Prospects in the People's Republic of China." He points to evidence that the headway so far made in declining birth rates is being offset, or more than offset, by declining death rates. He concludes, essentially, that a lowered rate of population increase is not likely to be achieved until the 1980's. This appraisal may well be correct. It is certainly true that the inertia, conservatism, and low literacy of rural societies have usually acted to limit effective birth control programs. The success of birth control in developing societies has seemed to have correlation with literacy and urbanization. I suggest, however, that China may not fit the normal pattern. Through a remarkable mobilization of its citizens, China has achieved a degree and intensity of social and political change not found in other developing societies. Effective limits have been intentionally and effectively set to the urbanization that other developing nations have promoted or allowed in their quest for industrialization. Instead, there is taking place a high degree of dispersal of small-scale industrialization into the communes throughout the rural areas. Furthermore, the rural literacy rate has been greatly raised-by nearuniversal schooling and by the large-scale movement of urban high school graduates to the countryside on a permanent basis. I suggest, therefore, that the success of family planning is not solely availability and propagation of birth control means, which is important; but in the Chinese case it is necessary to also consider the positive elements in the society that encourage personal compliance with such a policy and so contribute to family planning. These include career alternatives and social rewards and incentives. The Chinese leadership has pursued policies designed to alter some features of family structure and authority and many of these are quite well known: the Marriage Reform Act; the basic changes in land tenure that have resulted in the development of the people communes; basing of all personal incomes of commune members-both men and women- -on their individual labor contribution; the systematic recruitment of women into the labor force in both city and countryside. The formal and traditional authority of parents and grandparents has been reduced. The role of the state has been introduced and reinforced. It can hardly be expected that the effectiveness of these policies has been complete or uniform in geographical extent. But with the passage of time, the establishment of these goals, and their steady reinforcement through the expanding educational system, is likely to bring increasing popular awareness and support, and individual compliance. These changes, essentially institutional, have been accompanied by social welfare policies and programs. Primarily urban, these have also been effective to a lesser extent in the country. Most importantly, these have included labor insurance, child-care facilities, medical facilities and more rational distribution of their services, modest programs of income supplement for families with insufficient resources. Access to these services has generally been through an organization-factory, school, army, commune production team. Impressive though the progress has been, it must be noted that many of these services are still unavailable to substantial portions of the population. Furthermore, since 1949 and particularly since the beginning of the cultural revolution, there has been a change of emphasis in the development of careers, educational options and responsibilities for individuals. The well-being of the Nation is translated into personal terms: the effect for the individual is to reward those who limit or delay marriage. Advanced education, for example, now follows a period of 2 or 3 years' work in factory or commune and requires the recommendation of the individual's unit. Students now enter universities in their mid-twenties. Early marriage would seem to foreclose on one's hope of advanced education, and the career options that such education might offer. Similarly, factory employment involves apprenticeship at a low salary but with the opportunity for advanced factory training. Early marriage is difficult on the low initial salary scale. For cadresand the activists or ambitious who may seek to become cadres― the options may be even clearer. Success demands not only ideological compliance but positive personal commitment. Delayed marriages and small families are common. Thus some of the individual opportunities in China counterbalance traditional social pressures and enhance the desirability of birth control or delayed marriage. It would be an overstatement to claim that this sort of situation is universally effective, but it must be increasingly influential with the young people brought up in the new China and now in their early childbearing years. In the early years of the Communist period, there was indecision and controversy over population control. After agreement on its necessity, much of the efforts during the 1960's toward birth control and family planning have been low key and without the more common trappings of a high pressure mass campaign. Recent visitors to China have reported, however, that these efforts have been widespread and effectively understood. They are also closely tied to the recent emphasis on the development of rural medical care. The real issue for success is whether there will be adequate opportunities for school graduates who can be expected to be disposed toward family planning but are also subject-even in a diminishing degree to traditional family ties and wishes. As Professor Salaff of the University of Toronto has pointed out, the key is the provision of incentive reinforcement and career alternatives for men and women. Will the new rural industries develop to offer career alternatives that involve tasks normally associated with urban life? Will the education efforts succeed in raising the cultural level in the rural areas as has been done in the cities? With the emphasis being put on balanced urban/rural development, it seems reasonable to assume that increasingly large numbers of young men and women will be unwilling to abandon or jeopardize their chances for important and satisfying careers and, consequently, will be willing to delay marriage and/or to limit their families. In sum, the success of birth-control efforts is intimately linked to party-directed social change that goes beyond experience elsewhere which has relied heavily on urbanization. Therefore, in my judgment, it makes the Taiwan experience somewhat questionable in applicability. Though both societies share a cultural heritage, the degree of politicization that characterizes the People's Republic of China, and the intimate relationship between the state and society, give a uniqueness to the People's Republic. The priorities and values of these two areas are vastly different and also the means at hand to achieve their goals. Unless the capacity for social change in a large agricultural |