Due to chaos in the economy, production declined substantially. Mass consumption and a wasting of resources ensued. Local leaders exaggerated statistics in hopes of pleasing superiors and getting credit for the achievements of others. Only later did facts prove that their production claims for steel, grain and other goods were completely false.Meanwhile, some leaders let the veneer of success go to their heads. During a food shortage, as nationwide famine was about to break out, Mao Zedong was asking, "What if there is too much grain?" Gradually, communes adopted new food distribution methods, such as public cafeterias, to feed "each according to his need."
By the end of 1958, the negative implications of these practices were finally revealed: Production had declined, enterprises had suffered major losses, daily necessities were in short supply, and the national economy was in dire straits.
In 1959, from July to August, the Eighth Plenum of the Eighth Central Committee of the CPC (the Lushan Conference) convened at Lushan in Jiangxi Province. At the beginning of the conference, Mao Zedong said the main purpose was to review experiences and lessons learned from the Great Leap Forward. Mao admitted the movement was "unbalanced and upset natural proportional relationships in the national economy." He also called the transfer of power "excessive." Later, after Defense Minister Peng Dehuai heeded Mao Zedong's request for leaders to honestly reflect on the experiences and lessons of the Great Leap Forward, Mao Zedong decided to extend the conference an additional 10 days. Mao Zedong then criticized Peng, and launched a nationwide movement to "oppose rightist tendencies." Thus, the political climate shifted dramatically from "correcting the left" to "opposing the right."
The movement to "oppose rightist tendencies" led to a second wave of "excessive egalitarianism, causing the economy further deterioration. In 1959, the nation produced a total 170 billion kilos of grain – down 30 billion from the 200 billion kilos produced in 1958. In 1960, gain output decreased to 143.5 billion kilos – less than the 143.7 billion kilos harvested in 1951. Widespread famine began to grip the nation.
Because of limited access to information and a lack of proper prevention measures, widespread malnutrition started appearing in cities and towns, leading to mass disease. Between 20 million and 40 million people in rural areas died prematurely during this period.
In autumn 1960, the CPC Central Committee finally settled on an Eight Character Policy to implement a process for "regulation, consolidation, replenishment and improvement" of the national economy. The recovery was lead by Chen Yun and a group of economic leaders from the CPC Central Committee. Its aim was to adopt measures to overcome grave economic problems caused by the Great Leap Forward and communes.
Here are some of the activities that paralleled introduction of the Eight Character Policy:
-- The CPC Central Committee convened in January 1962 with central authorities and cadres from five levels participating in a working conference on growth (called the Seven Thousand Member Plenary Session). During the conference, Mao Zedong took personal responsibility for mistakes of the Great Leap Forward and tried to calm resentful cadres. At the same time, he called for unity to overcome the challenges that would lay ahead. A group of Central Committee leaders led by Chen Yun was responsible for economic recovery and accepted the daunting task of "regulating" the national economy.
-- The central government withdrew powers that had been granted in the 1958 reforms to local governments in areas of finance, credit and enterprise jurisdiction.
-- The policy was based on a system that relied on a high degree of central decision-making power for allocating scarce resources. Key measures included ordering steel producers to completely abandon small-scale industries tied to "folk methods" of production as well as "small enterprises using modern methods." Also, roughly 30 million peasant workers who had moved to cities and towns for work were told to return to the countryside. A policy that called for closing, discontinuing, merging and restructuring industrial enterprises was implemented in cities.
Several months after the reforms were implemented, the economy gradually stabilized. And by 1964, it had largely recovered. But while people rejoiced over economic recovery, problems inherent to central planning had resurfaced. As a result, more attention was given to further reform.
However, before the Cultural Revolution ended in 1976, an ingrained ideological belief that socialist economies were only able to allocate resources through administrative decree made it difficult to rally political support for market-oriented reform. As a result, transferring power to local governments seemed the only possible avenue for reform. This resulted in new policies that mirrored the 1958 reforms that had shifted administrative division of power. For example, large-scale economic reforms in 1970 were heralded with a 1958-style slogan: "Decentralization is the revolution. The more decentralized, the more revolutionary."
So between 1958 and '76, multiple transfers of administrative power brought disorder and ended in a return to centralized power. This is turn led to a vicious cycle in which decentralization yielded chaos and re-centralization choked the economy.
Rethinking the Rules