ABSTRACT
Deng Xiaoping understood that microeconomic efficiency had suffered under Mao Zedong's government, which had emphasized macroeconomic performance. Thus Deng was determined to improve China's efficiency. In the process, Deng sacrificed both ethics and macroeconomic performance. Deng's primary focus was on creating more efficiency. However, Deng was pragmatic, and he knew pushing the rest of the Communist Party too hard would be self-defeating, because many in the Chinese Communist Party clung to Mao's legacy. The government under Deng did better at controlling unemployment. However, it did this by telling the state-owned banks to continue to finance economically unviable firms. Deng's encouragement of parts of the government to go into profit-maximizing businesses was unfair to private firms because the government had substantial advantages. Deng would be proud that his policies ultimately increased profit and cost efficiency. However, when there is imperfect information, profit and cost efficiency can be unethical.
