try, the requirements for foreign exchange are reduced. Fourth, capital savings may also be achieved if the economic lifetime of "obsolete" equipment from plants in the modern industrial sector can be extended through use in small- and medium-sized enterprises. Fifth, local smallscale mining and other industrial activity can sometimes be carried out with lower capital per output ratio than in big units. Sixth, the shorter gestation period for a number of the small-scale plants also has an important bearing on capital requirements.

The development of small-scale industries is similarly of importance for long-term planning. First, industrial bases can be located and gradually developed where the potential demand is and where the raw materials are. Second, they enable a domestic engineering industry and design capability to gradually develop, which is likely to lead to a higher utilization of plant capacity in the machine-building sector than would otherwise have been possible. Third, skill formation takes place within local industrial systems and can first adapt to future local needs and later to the future needs of the modern industrial sector. Fourth, the industries become complementary and interrelated and can be used for large-scale subcontracting. And the system character facilitates the multipurpose utilization of human and physical capital which may reduce the influence of bottlenecks.

Resource mobilization is another important area where the system of small-scale industries play a role. First, the local character and extensive local control is likely to induce investment, particularly for commune- and brigade-level enterprises, and thus tap local savings arising from increased agricultural productivity which might otherwise have been consumed. Second, the existing wage differential between cities and countryside can be utilized, through subcontracting, in order to reduce cost and thus increase investible profits. Third, the lower average wage level in the rural industrial sector might be an important factor in controlling the rate of increase of the wage level in the modern industrial sector.

The principles of rural modernization and rural industrialization were spelled out early, but China had to carry out a considerable amount of experimentation in finding the appropriate forms of implementation. There has not always been a concensus on what the rural modernization and rural industrialization policies should be, and the Cultural Revolution which started in 1966 is, in many ways, a new starting point for more active rural policies which were first initiated in 1958. Although the principles of rural industrialization today are the same as or similar to those of the Great Leap Forward period, there are also distinct differences. This paper has almost exclusively dealt with the present stage of development of rural industries in China. However, one basic difference, which must not be forgotten, is that rural industrialization today does not aim at rapid transfers of manpower from agriculture to industry, which was the case in 1958. Many development economists have in recent years tended to assume that China is achieving considerable employment generation in the rural industrial sector. However, there is little evidence to support this notion, and there is nothing to indicate that Chinese planners are primarily aiming at this. Far more important is the objectve to achieve a complementarity between agriculture and rural industry.

Finally, the encouragement of efficient and productive small-scale industries in rural as well as urban areas has never been presented as an alternative to the development of medium- and large-scale enterprises. They have always been seen as a complementary element in the industrialization process. The experience of already developed countries suggests that a balanced industrial structure requires a considerable range of enterprises. The provision of a strong and viable development basis in China for small-scale industries is likely to have significant long-term economic as well as social advantages.

Part IV. DEFENSE ECONOMICS

THE UTILITY OF ALTERNATIVE STRATEGIC POSTURES

TO THE PEOPLE'S REPUBLIC OF CHINA

By ANGUS M. FRASER*

Utility: The ability of a good or service to satify human wants. It is not an inherent property of things, but a relation between things and people, the relation being one of desire. Encyclopedia Britannica, 1973.

I. INTRODUCTION

This essay centers on the military segment of national strategic posture in the People's Republic of China. While it is not an excursion into formal economic theory, it does seek to determine the adequacy of current and projected military forces in satisfying Chinese needs (as seen by the Chinese) and to look for feasible alternatives that might have greater utility. The massive internal functions of the People's Liberation Army enter only implicitly, in the form of an assumption that the leadership in Peking will not act consciously to alter or reduce the PLA's overall function as described by Mao Tsetung: a work force, a propaganda force, and a fighting force.

Several basic assumptions and conditions underlying this essay are set forth in the next section. This is followed by a general discussion of the nature of war in the world today and a listing of major Chinese experiences in conflict since 1949. Forces in being and improvement plans are briefly described and related to operational capabilities, with some comment by U.S. defense officials. There is some consideration of several recent documents and an account of certain significant political-military changes that bear on posture decisions. Force characteristics and alternatives and the current condition and range of choices are then considered together to permit some tentative judgments about perceptions, goals, and preparations in the PRC, and the utility of alternatives to the existing strategic posture.

This paper rests, necessarily, on the professional judgments of the author. The nature of the approach, the limited availability of firm data, and the hypotheses tested all militate against detailed documentation. The professional judgments on Chinese strategic policy have been based on a review of the kinds of forces the PRC has developed and maintained and the use to which these forces have been put. From this assessment some central conclusions have been reached:

(1) A primary PRC objective has been adequate physical security. Current and future requirements are primarily to be prepared to meet substantial ground incursions from the Soviet Union and to avoid Vietnam-type destruction of their industrial and transportation systems.

The author is a retired colonel. U.S. Marine Corps, with long and varied military service throughout area and extensive military planning experience.