Democracy Lab

A User's Guide to Democratic Transitions

A how-to guide for reformers around the world.

Let's face it: Democracy is struggling. Sure, it surged after the fall of the Berlin Wall, reaching a high-water mark in the first years of the 21st century with various inspirational "colored" revolutions. But then democratic gains in Eastern Europe, Africa, and Latin America stalled, or even deteriorated, as fragile democracies struggled under the enormous challenge of governance. The expensive U.S. failures to impose democracy in Iraq and Afghanistan haven't helped. Today, many countries that once seemed budding with democratic promise now appear mired in political infighting, beset by power grabs by ousted elites, or trapped in downward spirals of poverty and unemployment. And the seemingly inexorable rise of autocratic China, in sharp contrast with gridlocked western democracies, has some wondering whether democracy is even worth pursuing.

While many people have enjoyed rising wealth and stability under autocracy (most of them in China), we remain convinced that democracy is the least bad form of government out there, to paraphrase Churchill. And thankfully, there's some statistical evidence to back up our belief that democracy is still the best way to realize both freedom and prosperity. Although economists for more than 50 years have debated whether democracy or autocracy is better for growth, more recent studies tip toward democracy.

The hard truth, however, is that the transition from authoritarianism to democracy is notoriously difficult. History suggests that transitioning countries' move toward genuine substantive democracy characterized by resilient majority rule, free and fair elections, and strong minority and civil rights protections will be slow. The bad news is that for countries like Egypt, Tunisia and Myanmar it's likely to be a long and bumpy ride.

In our new book Pathways to Freedom: Political and Economic Lessons from Democratic Transitions, we compared eight countries' experiences with democratization: Poland, Ukraine, Thailand, Indonesia, Brazil, Mexico, Nigeria, and South Africa. Though the contexts are obviously quite different, certain lessons can be drawn. Below, we highlight our seven most important take-aways. Our hope is that leaders facing the challenges of transitions today can draw upon the lessons of others to identify those policies most likely to promote robust, inclusive economic growth and to foster the gift of genuine and enduring democracy.

1. Don't miss the opportunity presented by a good economic crisis.

Many experts once believed that economic growth led inevitably to democracy. Although most rich countries in the world today are relatively democratic, some -- such as China and Saudi Arabia -- have enjoyed growing economic prosperity without a commensurate increase in political freedoms. Indeed, studies show that it's not economic growth but rather economic crisis that triggers regime change. Over the past three decades, many democratic transitions have been precipitated by serious economic shocks that ruptured the authoritarian bargain.

Indonesia is the poster child for getting the most out of an economic crisis. Its remarkable transition to democracy was precipitated by the onset of the Asian financial crisis in 1997 that ushered in deep political and economic reforms. In Brazil, a structural economic crisis in the 1980s paved the way for its transition from military government to democracy. Mexico experienced a similar trajectory as the 1982 debt crisis set off political and economic change. In the Middle East uprisings of recent years, the economic shocks of rising food prices and youth unemployment played a strong role -- although whether the transitioning Arab countries will be able to consolidate democracy and usher in much needed economic reforms remains to be seen.

Tempting as it may be to engineer an economic shock in your least favorite autocracy, economic crises can also unfortunately make the most odious governments hunker down even more. (Think of the sanctions on Iran or North Korea.) And hold on to your hats if the price of oil sharply declines. Resulting economic crises in places like Saudi Arabia and Russia are likely to spur transitions -- and all the turbulence that goes along with that.  

The bottom line here is the need to recognize how economic crisis can upend the status quo and open the door for fundamental change. In anticipation of that moment, policymakers should pursue strategies to nurture a middle class. Once upheaval hits and democracy begins to take root, a resilient middle class can be the necessary safeguard against backsliding to autocracy.

2. On elections, "Fake it till you make it."

A clear lesson from our case studies is that elections -- even sham elections -- lead to greater success in the transition to substantive democracy. International observers often denounce flawed elections as meaningless attempts to dress authoritarian rule in the trappings of democracy, but elections can also sow the seeds of public expectations that over time blossom into democratic demands that cannot be ignored.

Mexico offers a great example of the unintended consequences of controlled elections. In the 1970s, the ruling Institutional Revolutionary Party took its quest for electoral legitimacy so far that when the loyal opposition failed to field a presidential candidate in 1976, the government revised the election laws to make it easier for the opposition to gain a few seats. To the party's surprise, when the economic crisis of the early 1980s hit, the opposition was able was able to use this opening to marshal civil society organizations in a campaign for more transparent elections.

In Brazil, the military regime likewise tolerated an opposition it believed it could control. But as economic crisis led to widespread discontent in the early 1980s, the military began to lose its grip on the political situation. Having won their place in the political arena, the opposition was now poised to win a surprisingly large victory in the 1982 elections for Congress and state governors. The earlier "rigged" election had set the stage for the military's downfall in the presidential election of 1986.

Other quantitative evidence confirms that authoritarian regimes with partial political openness are the likeliest to become more democratic, especially if they provide for multiparty electoral competition. So go ahead, support the vote, even if it's not perfect.

3. Be wary of armed rebellions, but back nonviolent, mass mobilizations.

Armed rebellions often fail to lead to democratization, even when regimes are overthrown. History is littered with failed uprisings, coups d'états and violent revolutions that succeeded in nothing more than replacing one form of dictatorship with another. Nonviolent, mass mobilizations, on the other hand, have a stronger track record of laying the groundwork for democratic change. Proponents of nonviolence, from Mohandas Gandhi to Martin Luther King, have long noted that sustained peaceful protests lead to a more engaged citizenry and a better-organized civil society -- critical for staying the course during the inevitable challenges of democratic transitions.

Consider these examples:

  • Poland's experience with its trade union federation Solidarity -- a social-political movement that at its peak included a quarter of the population as members -- illustrates how a peaceful grassroots movement can be instrumental in a democratic transition.
  • South Africa's broad-based grassroots liberation movements, though not always peaceful, opposed apartheid over decades and bequeathed a legacy of strong civil society engagement.
  • Indonesia's transition also benefited from a broadly engaged citizenry. Widespread street protests in 1997 and 1998 and high voter turnout in 1999 made ordinary Indonesians owners of their democratization process and more willing to withstand the prolonged uncertainty of the times.
  • In contrast, although Ukraine appeared to experience a peaceful mobilization during the Orange Revolution in 2004 when hundreds of thousands of protestors filled the streets of Kiev, the crowd was a passive force lacking the depth and vibrancy of a genuine grassroots movement.
  • Similarly, Nigeria's largely unsuccessful transition has never been grounded in a broad-based popular movement.

Some countries, like Namibia and El Salvador, have overcome violent beginnings to evolve along a path of democracy. And some dictatorships are so totalitarian that their end can come only through violence: Muammar al-Qaddafi, for example, was determined to fight his people to the bitter end. Libya's transition is not doomed by its violent birth, although the militias that helped overthrow Qaddafi -- and the climate of lawlessness that resulted -- now pose significant obstacles to stability.

The takeaway for policymakers is not to write off countries born of violence, but to proceed with caution in abetting armed revolutions, and to resist the great temptation of favoring deals between elite groups over the messier, slower, but more reliable support of home-grown mass mobilizations. What form might this support take? The international community should nurture civil society-building through civic exchanges and support for local civil society organizations. Support for independent media is also a crucial aid to nascent democracy. These are generally low-cost, high-return investments.

4. Encourage Inclusive Growth.

The promise of political freedom raises peoples' expectations for economic and social opportunities. The success of emerging democracies depends fundamentally on whether democratization can also materially improve people's lives. When citizens do see improvements in social inclusion and living standards, they reward the politicians who provide them, creating a powerful feedback loop that helps consolidate democracy. On the other hand, if unemployment skyrockets, or if the rich just seem to get richer while nothing changes for the masses, a return to autocracy can begin to look pretty good

Brazil's transition to democracy was consolidated in large part by socially inclusive growth, which generated widely shared benefits. Throughout the 1990s and early 2000s, Presidents Cardoso and then Lula da Silva managed the impressive jujitsu of unleashing new talent and investment through anti-inflationary, anti-monopoly economic reforms, while simultaneously increasing social spending on the poor and middle class. Brazil used two main strategies to improve the well-being of the poor: First, they used conditional cash transfers that efficiently targeted that the neediest while encouraging positive behavior such as keeping kids in school; second, they used universal provision of social and economic rights (health care, education, and labor protections) to include blacks and other disadvantaged groups.

Mexico likewise consolidated democracy by delivering on economic opportunity for a broader cross-section of citizens. Monthly stipends to the poorest, conditioned on such behaviors as keeping kids healthy and in school, expanded greatly and now cover about a quarter of the population. This marks a shift from earlier decades when the government did little to provide material opportunities for the most vulnerable groups, even as political participation began to expand. 

When democracies fail to deliver on material expectations, by contrast, they can become breeding grounds for strongmen. To dissatisfied and excluded constituencies, a promise to fight against the rich can have sudden allure. In Thailand after the 1997 Asian financial crisis, the economic and social policies of the nascent democratic government were widely perceived as exclusionary, benefiting foreign investors and domestic elites at the expense of regular Thais. This widespread resentment swept into power the populist Thaksin Shinawatra, who promised to deliver for ordinary Thais. But he put in place an electoral autocracy that prompted a coup and a streak of violent unrest.

South Africa -- two decades after the end of apartheid -- also needs to deliver better for the disadvantaged if it hopes to avoid rising discontent and unrest. Though many South Africans expected fundamental socioeconomic change to follow from their revolution, poverty and inequality remain entrenched. Today, the black share of total earned income, at 13 percent, is slightly less than it was two decades ago.

Achieving both macroeconomic stability and inclusive growth is usually a tough feat for a new democratic leader. Expectations are high; people are impatient. So identifying reforms that can immediately improve people's lives without deepening unsustainable economic policies in the longer term is critical. The specific policy options available in any country are always context-specific. What worked in Poland probably won't work in Nigeria. But a few banner headlines seem to apply:

  • Restructuring and in some cases expanding the social safety net not only improves the lives of the poor, it makes them more supportive of the new government.
  • Redirecting social spending that has been captured by special interest groups can be a tangible accomplishment. In this vein, one important but politically difficult step is the elimination of expensive and inefficient subsidies, such as those for fuel, that impose significant costs on government budgets and distort investment incentives and economic growth. Such subsidies should be replaced by targeted cash transfers to those hurt the most by rising prices.
  • Cash transfers can also play a vital role in creating shared opportunity by enabling struggling families to invest in health and education-simultaneously cushioning the hardships of the present and laying the foundation for future economic prosperity by developing human capital.

International actors have an important role. They should support the economic policies of domestic reformers through development grants and loans, sovereign loan guarantees, and debt forgiveness. Strategic outside economic help can create important fiscal space for governments to deliver on the demands of the new, democratic social contract.

5. Double Down on Rule of Law.

Should I believe in this new government, or not? That is the question confronting someone in a new and often shaky democracy. To answer that question, a new democracy needs to show its citizens that it can protect their core rights and establish fair economic and political rules. It's not rocket science: If people believe that legal systems and public institutions work for them, rather than against them, it gives them a stake in the system and a greater willingness to tolerate the inevitable turbulence of a transition. An effective, transparent, and predictable legal system also prevents well-connected insiders from amassing wealth and public assets through shady backroom deals.

Contrast the experience of Poland with Ukraine. Poland today is a paragon of inclusive democracy and a market economy built from the ashes of an oppressive state. Its success can in part be attributed to the fact that structural economic reforms, particularly the privatization of state-owned assets, occurred only after policymakers had put in place a legal system that leveled the playing field and established strong safeguards against corruption. In contrast, Ukraine has failed spectacularly to establish a fair and impartial legal system, building an arbitrary one instead. Without equality before the law, predictability in legal enforcement, or any meaningful mechanisms of transparency, the vast majority of Ukraine's newly privatized wealth ended up in the hands of oligarchs by the late 1990s.

Arguably, one of the most important things that transitioning countries like Libya and Burma can do today is implement strong rule of law reforms, especially those that can be implemented in the near term and are hard to unwind. The establishment of transparent auctions to privatize public assets is critical. So too is the reform of laws constraining civil society organizations and non-governmental organizations (NGOs). (This is why Egypt's new, even more repressive NGO law, is so worrying.) Building the capacity of the judiciary, parliaments, and civil society to implement rule of law reforms takes time, but these are investment well made. The good news is that the spread of information technology today allows average citizens to play a bigger role in combating corruption and bolstering the law through the public dissemination of revenues, expenditures, important social and economic statistics, and the disclosure of the income and assets of public officials.

6. Spread Out the Power.

Spreading power out to local regions has strong benefits. It helps dilute the dangerous concentration of central authority often inherited from authoritarian regimes; it also increases accountability by bringing administration closer to the people. 

Indonesia's democracy has benefited from devolution of power. Though a decentralized system seems an obvious fit for the vast and diverse archipelago of Indonesia, Jakarta-based elites long resisted giving up any control. The chaotic political and economic environment of the late 1990s and early 2000s, however, led them to grudgingly accept greater devolution as a way of maintaining national unity in the face of growing separatist demands. The move brought clear benefits: separatist agitation diminished as local and regional governments gained authority, budget transparency increased, and policies improved as competition at regional and local levels for investment grew.

Spreading out power also had a positive impact in Poland. After the failed economic and political centralization of the communist government, Poland's early reformers made a priority of establishing local self-governance. By the late 1990s a series of reforms gave local communities control over almost half of Poland's budget. 

Decentralization of power of course is not a panacea. It requires effective local governance structures, and it can be risky in situations where centrifugal forces threaten the stability of the state. But it can also blunt violent separatist movements. Transitioning countries should therefore decentralize thoughtfully, in ways that help deepen and sustain democratization. For countries like Libya, Mali, and Burma, each facing disaffected populations, addressing regional needs must top the list of their priorities. Foreign governments, multilateral organizations, NGOs, and others seeking to strengthen democracy can support decentralization by providing technical assistance, nurturing partnerships and building capacity at local levels through community-driven development initiatives.

7. Lean on Good Neighbors and Compensate for Bad Ones.

Good neighbors can help fragile democracies succeed through tough times by providing critical economic and technical assistance and exerting constructive political pressure. Conversely, bad neighbors can undermine transitions by fostering power-grabbing and corruption -- or simply by failing to provide support for democratic consolidation. Neighborhoods are not merely geographic, although shared borders are an important element of interdependence between countries. Neighborhoods are also economic communities, such as the European Union; political-military alliances, such as the North Atlantic Treaty Organization; and cultural groups based on a common heritage. Neighbors exert a powerful force on the trajectory of countries with which they share interests and destinies. 

In Poland, Indonesia, and Mexico, positive neighborhood influences provided important leverage for internal reformers intent on challenging entrenched interests and proved a powerful bulwark against backsliding. In Ukraine, on the other hand, Russia has been a destructive influence, fostering corruption and shady dealing in the vast energy sector. 

Given the importance of good neighbors, foreign governments and international and regional organizations must strive to compensate for bad ones. The multilateral development banks have a strong role to play. Their existing relationships, deep pockets, and strong expertise should be mobilized to give domestic democratic reformers support in economic restructuring and investing for inclusive growth. Regional organizations such as the Economic Community of West African States and the Association of Southeast Asian Nations could also play a more robust role in bolstering democratic transitions, as the European Union did for Poland and other countries of Eastern Europe after the Soviet Union crumbled. 

Economic and political "neighbors" can wield two influential instruments to support domestic reformers in their difficult work of building democracies: conditionality and technical assistance. Good neighbors can also provide technical assistance and facilitate knowledge sharing to help build the capacity and expertise of government bureaucracies, the judiciary, civil society, and other important actors.

* * *

Of course, there is no one-size-fits-all solution for the difficult challenge of transforming oppressive states into free and open societies. History has made fools of those who believed that they could determine the fate of nations by following a playbook. But these insights can serve as valuable guideposts on the long and difficult road to democratic consolidation.



China: Year Zero

1979 and the birth of an economic miracle.

It is inevitable, perhaps, that we tend to focus on leaders when we examine grand political and economic transitions. But they are not the only actors in these dramas. Deng Xiaoping and his colleagues triumphed precisely because they unleashed the creativity and the entrepreneurial urges of millions of Chinese. Many of them -- shocking though it might be to think -- were not even members of the Chinese Communist Party.

In January 1979, around the time that Deng was preparing for his trip to the United States, a young man named Rong Zhiren returned to his hometown of Guangzhou, historically known as Canton, the largest city in Guangdong province, up the river from Hong Kong. Rong had just turned 30, but he had relatively little in the way of concrete achievements to show for someone of his age. The reason was the Great Proletarian Cultural Revolution. A central part of the Cultural Revolution was Mao Zedong's campaign against intellectualism, book learning, and the "Four Olds" (old habits, old ideas, old customs, and old culture). In 1966, he had ordered the closure of China's institutions of higher education. Over the ensuing years, 17 million students were dispatched to the countryside to learn the virtues of the simple life from the peasantry. University entrance examinations did not resume in China until autumn 1977. By early 1979, only 7 million students had made it back to the cities.

As the Cultural Revolution played out, the overwhelming majority of students stayed where they were assigned, which usually meant wasting their best years tilling the land in remote agricultural communes. Rong did not. Sent out to the countryside in 1969, he snuck away as soon as he had the chance. He spent the next decade dodging the police and living from odd jobs, such as drawing and tutoring. He lived with friends, moving from place to place. In December 1978, back in Guangzhou but still on the run, he heard a radio broadcast publicizing the results of the historic Third Plenum in Beijing, the meeting that sealed the triumph of Deng's pragmatic course of economic reform. Like millions of other Chinese, Rong understood that something fundamentally transformative was under way -- and that included an opening for entrepreneurship. "I knew this policy would last because Chinese people would want to get rich," as he later put it. In January 1979, he decided that he would be one of the first to take a chance. He applied for a business license. The bureaucratic obstacles sounded daunting: One of the requirements was a complete physical checkup to ensure that he had no infectious diseases. But it turned out to be a cinch. Rong sailed through the procedure in just a few days. (Nowadays it takes nearly three weeks.) The Guangdong government, eager to get things going, was already trying to encourage business creation.

Rong started his business on March 18 -- an auspicious date because the number "18" sounds like the phrase "you'll definitely get rich" in Mandarin. Following the advice of people in the neighborhood where he had been working, he decided to open a small restaurant specializing in breakfast. His signature dish was classic Guangdong comfort food: congee (rice porridge) with peanuts and spareribs. He set up his restaurant -- really a glorified tent on a wood frame he put together himself -- at an intersection close to two high schools, assuming that he could market his cheap breakfasts to hungry students. His startup capital was 100 yuan (roughly $65 at the official, highly inflated exchange rate), 60 of which he had borrowed from his girlfriend. The furniture and a big cooking pot were loans from friends. He was nervous at first. The idea of running one's own business was frowned upon by many educated people, who regarded such things as beneath their dignity. But those worries began to fade away as he immersed himself in the daily routine of his business, and the money started rolling in. Almost immediately, the restaurant was an enormous success.

In May 1979, Tom Gorman, a Hong Kong-based American businessman, set off on another one of his trips to the Canton Trade Fair. As part of his job with a Hong Kong publisher of trade magazines, he had already made the trip to the fair several times, so he knew the routine. In the 1970s, foreigners who wanted to do business with the world's most populous country had to follow a peculiar procedure. They could enter the People's Republic only at one point, from Hong Kong. There they boarded a train at Tsim Sha Tsui station in Kowloon, across the harbor from Hong Kong Island, marked by its splendid colonial clock tower, and headed north through lush green semitropical countryside to the border crossing at Lo Wu. There they disembarked and walked across the ironically named Friendship Bridge, a rudimentary wooden structure that spanned the slow-flowing Shumchun River, carrying their baggage with them. On the other side the visitors were greeted by scowling border guards wearing uniforms adorned with the insignia of the Chinese Communist Party, who examined the proffered visas and granted the privilege of entry.

And so it went in that spring of 1979. Just as every time before, the guards directed Gorman to a customs waiting room, where he filled out an enormous number of forms documenting every item in his possession. Officials checked his vaccination records. (If you didn't have all the shots required, they would administer the missing ones on the spot, so it was good to be prepared.) By now it was midday, and the next stop for Gorman and his fellow travelers was the special border-crossing restaurant, which offered a remarkably sumptuous lunch, supplemented with Qingdao beer. Lunch was followed by an obligatory nap period, in a waiting room equipped with spittoons and armchairs adorned with antimacassars. There was little alternative. Southern China is sweltering in the summer, and there was no air conditioning in the People's Republic. And the train from Shumchun Station to Guangzhou departed only at infrequent intervals. Looking back years later, Gorman would compare the move from frenetic Hong Kong to the sleepy post-Mao mainland "like the transition from snorkeling to wearing a diving bell." You were no longer your own master. The powers-that-be would let you know when you were needed.

Gorman arrived at his hotel in Guangzhou to find the familiar routine in place. At that time the only way to do business in China was to establish contacts with one of the 14 ministries that controlled each of the country's industrial sectors (chemicals, steel, light industry, etc.). This was easier said than done. Chinese officials were still strikingly stingy with information, another legacy of the Cultural Revolution, when association with foreigners could cost you a stint in a labor camp or worse. You could always go to the trade-fair building and seek out the people you wanted to meet (assuming that you already knew who they were), but that was no guarantee of success. Still, there was little choice. You certainly couldn't expect them to come to you.

All this is why Gorman and the handful of other Americans at the fair sat up and took notice when a group of Chinese functionaries at the fair approached them with an offer: Would the Americans be interested in taking a look at an investment opportunity? It was not too far away from Guangzhou; it would require an overnight trip. The Americans said yes.

On the appointed day, they set off from Guangzhou in a van that jolted down hideous dirt roads for hours. At one point it broke down, and everyone had to get out and walk to a spot where the Chinese hosts were able to arrange for another ride. The walk was not a total loss; the little group passed by a rural private market where local farmers were hawking all manner of produce, a vignette none of the Americans in the group could ever remember having seen before.

Finally, after a full day's journey in the intense heat, they arrived at their destination. It turned out to be just across the border from Hong Kong -- not far from the Lo Wu crossing where all foreigners made their entry into mainland China. (In these days you couldn't fly directly to Beijing from the outside world.) The bewildered Americans followed their hosts to the top of a dike, where the Chinese guides gestured at the vista spread before them. It was not clear what they were meant to look at. All that the Americans could see was the usual South China landscape: There were rice paddies, worked by peasants and their water buffalos in the time-honored manner, and duck ponds. There were a few trees, and here and there a modest peasant dwelling. What the Chinese were describing seemed to bear no relationship to the observable reality. This, they told the Americans, was the location of something called the Baoan Foreign Trade Base. The party had designated it as a special location for foreign investment. According to the plans under consideration, it would soon be the site of chemical factories and textile mills and manufacturing plants. And, oh yes, there would also be plenty of hotels for the foreign businessmen. It was going to be a wonderful chance to make money.

The Americans thought the Chinese were crazy. "It stretched everybody's imagination," Gorman said. "I don't think there was one of us who listened to the briefing and thought, ‘Yeah, that sounds feasible.' It was, emphatically, ‘Come on, what are you smoking?'"

The next day, after an uncomfortable night spent in the only existing local hotel (which had no electricity or running water), the Americans attended a briefing where the Chinese unrolled blueprints that depicted acres of factories, warehouses, and other facilities. The plans betrayed a startling ambition. "It was really hard to believe," Gorman recalled. "Nothing in China at that point happened quickly -- except politics. Business and construction didn't happen on those kinds of timelines."

The Baoan Foreign Trade Base was located in a village that was named, like the nearby river, Shumchun. It later became known under a different version of the name: Shenzhen. It was a place that had attracted Deng's attention at least as early as the 1978 Work Conference (just before the Third Plenum), when he had floated the idea that the party should "enable some regions to perform better and become more prosperous." Deng had calculated that if only 5 percent of the counties and 5 percent of the citizenry became "relatively prosperous," this would translate into 100 counties and 40 million residents -- the equivalent of a medium-sized country and presumably a powerful catalyst for change. Shenzhen was the first on his list of 19 places targeted for early prosperity. "Obviously, he had taken notice of this place at a very early date," writes former aide Yu Guangyuan. "In his view, a major factor in Shenzhen's quest to become prosperous sooner than others was its capacity to conduct foreign trade." During the Work Conference, in fact, Yu himself had told party officials from Guangdong of his own idea -- inspired by an ad a friend had brought from Hong Kong -- to construct office buildings in Shenzhen under the auspices of the Chinese Academy of Sciences (Yu's home institution) and rent them to people from Kowloon, just over the border, where soaring land prices were already driving rents into the stratosphere. Yu even envisioned simplifying border-control procedures for visitors from Hong Kong.

Gorman and his compatriots, all of whom had experienced firsthand the xenophobic legacy of the Cultural Revolution years during their visits to China, could hardly be blamed for feeling skeptical. What they were not yet able to appreciate was the fact the Chinese were deadly serious about their plans to invite overseas investors into new "special districts" that were already well into the planning stages.

Lower-level officials -- especially in Guangdong -- were undoubtedly keen on the idea. But this was one case where Deng could claim full credit for driving the initiative forward. He had spent his years in exile brooding over how to stimulate the Chinese economy, and he had concluded, after his return to power in the early 1970s, that his country had to tap into the global marketplace for technology, know-how, and management expertise. His 1974 trip to United Nations headquarters in New York City had been the first to jolt him into an understanding of just how far behind China had fallen.

After his third return from political oblivion in 1977, Deng took a series of trips around the region that reinforced this view. His itinerary included a visit to Japan, where he saw the evidence of that country's extraordinary postwar rise to the pinnacle of the global economy, as well as one to Singapore, which though far smaller in absolute terms was also demonstrating just how powerful the East Asian formula of single-party rule and market economics could be. Deng's private comments to his speechwriting team in 1978, when he gushed about the Japanese and Singaporean workers who could use their bonuses to buy houses and cars, make it clear just how influential these experiences were.

Nor was that all. Deng and his colleagues -- at least those who wanted to pay attention to the outside world -- were also acutely aware of the extraordinary rise in living standards already engineered by Hong Kong and Taiwan, which -- like Japan, Singapore, and South Korea -- had also made strategic decisions to reject "self-sufficiency" and to actively participate in global trade. Taiwan, in particular, had reaped a variety of benefits from its "export-processing zones," areas with special commercial, legal, and tax regimes designed to entice foreign investors to take advantage of a well-trained but low-wage labor force. The Taiwanese were gambling that the shortfalls in tax and customs revenues would be balanced out by the know-how they would acquire in management and production techniques (not to mention the extra employment). By the late 1970s, their gamble that was paying off to spectacular effect, and the example was not lost on their compatriots on the mainland.

But the impetus for a creative approach to foreign investment did not come only from the top. There was also some intense lobbying going on at the regional level -- particularly in one of the areas that stood to gain the most from trade with the outside world. That was Guangdong province, directly adjacent to Hong Kong. Its capital, Guangzhou, was the home of the traditional trade fair because it had a long history, dating back to imperial times, as one of the few places where foreigners were allowed to do business with Chinese. The direct proximity of Hong Kong, whose population included many Cantonese-speaking migrants from Guangdong, meant that the province still had access to an extensive web of contacts with the outside world, including the huge network of overseas Chinese. All this meant that a certain amount of illegal trade had continued even during the darkest days of Maoism. (Indeed, considering the huge and intricate possibilities for smuggling offered by the Pearl River Delta, the gateway to Guangdong, it could have hardly been otherwise.) Many Guangdong residents received remittances from their relatives in Hong Kong or places more distant, and these funds were major source of revenue for a region that had otherwise been severed from its natural trading hinterland after 1949.

Guangdong party officials knew all of this very well, and they were eager to seize upon the new talk in Beijing of opening up the country to investment. They had prevailed upon the party bureaucracy to let them open a few modest channels for trade with Hong Kong, but they were already thinking big. Their plans received a major boost in 1978, when a set of high-ranking party officials, including several from Guangdong, set off on a fact-finding trip to Western Europe that affected them in much the same way that Deng's journeys had unsettled him. They were impressed not only by the modern air-traffic control systems at Charles de Gaulle Airport in Paris and the automated milking sheds on a Dutch farm, but also by the willingness of their hosts to expose them to new insights and by the eagerness of European businesspeople to marshal funds for investment in production facilities in China.

In January 1979, just two weeks after the end of the Third Plenum, the new party boss in Guangdong, Xi Zhongxun, got approval from Beijing to start drawing up plans for "special zones" that would be opened up to foreign investment. The first zone opened shortly after that in Shekou, a corner of Shenzhen. The Chinese Merchant Steamship Company, a Hong Kong firm set up and owned by the government in Beijing, had been lobbying for a place where old ships could be taken apart for scrap, which could be sold at high profits to the resource-hungry capitalists in Hong Kong. The fact that the company in question was technically "foreign" but actually controlled by the People's Republic made the experiment that much easier to implement. "Shekou thus became the first place in China to allow foreign direct investment and the first area where decisions about a company inside China could be made by people located outside the country," noted Yu Guangyuan. (Xi Zhongxun, the official responsible for the creation of the Shekou zone, was the father of Xi Jinping, the current Chinese president.)

Economic trends in the outside world gave the officials in Guangdong an additional incentive to open up their province to the outside world. Neighboring Hong Kong was experiencing one of the characteristic disadvantages of a surge in economic growth: a sharp rise in wages. This was rapidly eroding the colony's international competitiveness, and Hong Kong businesspeople were casting desperately around for new sources of labor. The most obvious place was just over the border.

C. K. Feng was a junior executive with Eltrinic, a small Hong Kong firm that made small electrical devices: a bug zapper, an electric can opener, snow-melting equipment for the U.S. market. Eltrinic's production was fairly labor-intensive, and the rising wages were hitting it hard. So when one of the company's bosses heard from a contact on the mainland that the Communist Party was soon going to start inviting in foreign manufacturers, Feng took notice. "I volunteered to go the mainland to open up and find workers there," he said later. "I was so concerned about the workers' shortage in Hong Kong." He first traveled to Baoan -- the same spot that Gorman visited a few months later -- in late 1978, and soon began plans to construct a small factory building and to transport machinery there from Hong Kong. The mainland authorities gave Feng a special Hong Kong travel permit, actually a thick book used to record a variety of data. This presumably privileged access did not seem to reduce the number of papers that had to be filled out at each crossing, however. Each time he entered China, Feng said, "it was like crossing into a different world."

In spring 1979, after jumping through countless bureaucratic hoops, Feng opened the first Eltrinic factory in Shenzhen. It employed 20 local workers. (The company's total work force at the time was around 700, almost all the rest of them in Hong Kong.) The first year was spent training them. The factory's intended production -- heating elements for blow dryers -- required a certain amount of skill, and the mainland workers were starting from scratch. None of them had ever seen a blow dryer. But they weren't fussy. "The workers produced whatever you wanted them to produce," Feng recalls. "They didn't care." Maintaining communications between the factory and headquarters in Hong Kong was no easy task. The only local telephone was located in the village administration office, and placing calls was hair-raisingly frustrating business. The villagers, however, were extremely happy. When the production line was inaugurated, they killed a dog -- a much-valued local delicacy -- for a banquet to celebrate the occasion. The somewhat more fastidious Hong Kongers were bemused.

The founding of Feng's factory preceded the formal establishment of the "special zones" on 26 August 1979 -- and that, in itself, says quite a lot about how development in China was progressing at this time. Even as Guangdong was pressing Beijing for formal latitude to manage its own affairs and attract foreign investors, the first contacts between the province and foreign investors were already being made.

These areas were granted exceptional conditions to attract foreign investment, but they could also be easily quarantined from society as a whole. The latter point conveniently placated party conservatives, who worried that the populace might succumb to the corrosive effects of capitalism. Ironically, potential foreign investors shared their appreciation; to them, Deng's enclave strategy offered a vital degree of protection against political backlash from the Maoists. To be sure, the SEZs needed time to show results, but that was not a problem. Reform in China was supposed to be slow; the country had experienced tumult enough. The main thing was that the cornerstones of a new economy -- one driven by efficiency rather than ideological correctness -- had been laid. The new revolution could begin, albeit in its own, cautious way.

No one embodied that revolution better than Rong Zhiren. The restaurant that he opened in that spring of 1979 proved a big success. Three years later, by now an affluent Guangzhou entrepreneur, he received the privilege of meeting Deng Xiaoping at a social event for Guangdong Province luminaries. The fact that a local businessman was deemed worthy of such a gathering said a great deal in itself; a few years earlier Rong would have been imprisoned for the same activities that now gave him prestige. Deng, he says, always remained an example. "I took heart from his three-time rise and fall," Rong says. "Deng's return [in 1977] sent me an important message." If you persevered, you had a chance to do more than just survive. You might even prosper.