China and Socialism


Posted to on August 1, 2004


If any confirmation of the correctness of Marty Hart-Landsberg and Paul Burkett's "China and Socialism" (a book-length article in the July-August 2004 Monthly Review) was needed, you can look at the heartrending Aug. 1, 2004 NY Times article on the suicide of Zheng Qingming. This 18 year old peasant youth threw himself into the path of an onrushing locomotive because he lacked the $80 in fees to continue with college. It is the first in a series of NY Times articles dealing with class divisions in China, a country in which 85 million people earn less than $75 per year.


I strongly urge everybody to get a copy of the current MR since it is high time that the left come to terms with what is happening in China. In this post, I am recapitulating some of their main arguments for the benefit of Marxmail subscribers outside the USA who may have difficulty purchasing a copy.


Not only do Marty and Paul put the nail into the coffin of Chinese "socialism"; they pose broader questions about how to understand problems of development. I can think of nothing since Robert Brenner's NLR article on the world financial crisis that makes as big a statement as their article and hope that it opens up some dialog on the left about the issues it poses. This post is a first step in that direction.


In part one, Marty and Paul discuss "China's Rise to Model Status." Obviously, one would expect people like Stephen Roach of Morgan-Stanley to hail China's "unwavering commitment to reform." However, China has also ingratiated itself as a model to so-called progressives like Joseph Stiglitz who was profiled in the Nation Magazine of May 23, 2002 titled "Rebel With a Cause". Referring to Stiglitz, Eyal Press tells us that:


"He also believes the spread of global capitalism has enormous potential to benefit the poor. As an example of a country that has successfully integrated into the global marketplace--but in a manner that defies the conventional wisdom of the Washington Consensus--Stiglitz points to China. China has adopted privatization and lowered trade barriers, he argues, but in a gradual manner that has prevented the social fabric from being torn apart in the process."




I guess throwing oneself into the path of an onrushing train does not constitute a rift in the social fabric.


When Stiglitz was in Beijing in July, 1998, he "called China by far the most successful of the low-income countries' in moving to a market economy." With 85 million people making less than $75 per year, one would dread less "successful" examples.


Moving along, one encounters a fondness for the Chinese development model among the "market socialist" academic left. In the 1993 Rethinking Marxism, Victor Lippit considers China as an exception to the capitalist triumphalism that was sweeping the world. He hoped that a mixture of state and privately owned enterprises could be a formula for success.


Although somewhat noncommittal on the exact character of Chinese society, Walden Bello has been one of the most outspoken defenders of the development model which he describes as "a successful revolutionary nationalist struggle that got institutionalized institutionalized into a no-nonsense state," whatever that's supposed to mean. In defending China's policies against people like Lester Brown, who invoke neo-Malthusian arguments against them, Bello writes:


"China is one of the world's most dynamic economies, growing between 7-10% a year over the past decade. Its ability to push a majority of the population living in abject poverty during the civil-war period in the late forties into decent living conditions in five decades is no mean achievement. That economic dynamism can't be separated from an event that most of us in the South missed out on: a social revolution in the late forties and early fifties that eliminated the worst inequalities in the distribution of land and income, and prepared the country for economic take-off when market reforms were introduced to the agricultural sector in the late 1970s."




In other words, socialism in China was a kind of training wheels that helped the country prepare for the turbo-capitalism of the recent period. One wonders if Zheng Qingming felt a part of this dynamism, especially in light of a verse he composed:


Do not toady to those above.

Do not flatter the rich.

Do not cheat the poor.

Make way for a new generation.


While I appreciate Marty and Paul's decision to challenge precepts about "market socialism," especially in relation to China, I wonder if this trend all that powerful in the academy. As one who tries to keep track of academic fads, I don't recall that many articles in praise of the Chinese CP over the past 15 years or so in obscure journals on the left. By and large, "market socialism" was a kind of utopian socialism that turned Mondragon and other such worker-owned or operated firms as a kind of model for the transformation of capitalist society. I think most left academics viewed China as mutating rapidly toward capitalism, but held out the hope that aspects of the "iron bowl" could remain. I would have put myself in this camp around 5 years ago, but made up my mind that this was a lost cause after the Chinese CP began considering capitalists for membership.


In the next part, Marty and Paul take a close look at the economic transformation of China in terms of the underlying logic of "market socialism" rather than as a function of the greed or bad faith of people at the top. In other words, once China committed itself to market solutions to long-standing economic problems, all "the same old crap" was destined to reappear.


At the close of the Mao era, China faced serious problems that stemmed from an overly centralized planning apparatus. There was underproduction in one sector and overproduction in the other. There were also investment imbalances. Deng proposed that the country solve these problems by using market mechanisms. This restructuring of the economy took several stages to implement.


In the first stage, which lasted from 1978 to 1983, they adopted a labor market in urban areas. This demonstrated their willingness to tackle one of the major challenges of market socialism, namely the need to discipline the working class. As Wlodzimierz Brus once pointed out, without a market in labor, it is next to impossible to streamline an economy. Of course, once you introduce such a system, the employers gain enormous leverage over workers. If you can threaten an unruly worker with dismissal, they tend to keep quiet. Since independent trade unions are illegal in China, the powerful have enormous leverage over the working class. In this period, workers began to be hired on a contract basis. By April 1987, the state-owned enterprises were using 7.5 million contract workers, about 8 percent of the industrial workforce.


In the countryside, radical measures were instituted to decollectivize agricultural production. By 1983, approximately 98 percent of all peasant production was being done by family-based households. Even though production was done on collectively owned land, you essentially had private enterprise since the individual farming family soon began hiring wage workers and subletting land to tenant farmers.


Also, around this time, township and village enterprises (TVE's) began cropping up. Apparently, these were considered a positive development by those inclined to market socialism. By 1993, these enterprises numbered 25 million and employed over 123 million workers. There was no such thing as job security on them and workers had little bargaining power on wages or working conditions. In the more recent past, the TVE's have been superceded by pure capitalist enterprises.


In addition, the doors were thrown open to foreign investment. Four special economic zones were set up that soon became a model for all future enterprises. Although workers were exploited to the hilt by foreign firms, there was little returned in terms of technology transfer or foreign exchange. This did not daunt the Chinese government from throwing the doors open even wider. Zhao Ziyang, then the secretary general of the CP, declared that China should become an "export-oriented" economy, hence gratifying the Thomas Friedmans of the world.


In this stage, the government also took the next logical step and introduced market pricing. This, of course, soon led to inflation as prices rose by 18 percent in 1988 and 1989. Despite these structural problems, the Chinese economy began to gather the momentum of a runaway train and soon tied South Korea as the nation with the fastest GDP growth in the world. One must assume that this rapid growth combined with the socialist demagogy of the party leadership convinced some on the left to make allowances for China.


In the period from 1991 to the present, Deng Xiaoping launched the next phase of economic restructuring--using the catch phrase "as long as it makes money it is good for China." This is when privatization of state-owned enterprises (SOEs) begins to accelerate. These facts stick out. By the end of the 1990s, SOEs employed only 83 million people, which is just 12 percent of the total employment in China and only 1/3 of urban employment. As of 2001, state enterprises accounted for only 15 percent of total manufacturing and less than 10 percent of employment in domestic trade. These figures are borne out by tables appended to the article, which are in themselves worth the price of the MR.


In part 3, Marty and Paul look at the domestic consequences of the transformation of the Chinese economy. This involved an increase in worker insecurity as the number of SOEs fell from 100,000 to 60,000 between 1995 through 1999. This translates into massive unemployment. From 1996 to 2001, some 36 million state-enterprise workers were laid off; over the same period collective farms let go of 17 million workers. These are the official figures. However, the government disguises unemployment by considering only workers under 50 (for men) or under 45 (for women) as officially unemployed. In addition, if your employer is a SOE that has stopped operating, you are not counted. This also leaves out the immense number of rural workers who are simply too marginalized to count.


Not only has unemployment increased, so has inequality. The Gini coefficient for China rose to 0.46 in 2000. This surpasses the inequality level in Thailand, India and Indonesia. Most observers suspect that the coefficient may be as high as 0.50, which puts China in near Brazilian and South African levels. (According to Wikipedia, The Gini coefficient is a measure of income inequality developed by the Italian statistician Corrado Gini. The Gini index equals Gini coefficient times 100. The Gini coefficient is a number between 0 and 1, where 0 means perfect equality--everyone has the same income--and 1 means perfect inequality--one person has all the income, everyone else has nothing).


With growing poverty and a withering safety net, social indicators have declined as well. Public health-care covered 90 percent of the population in 1978, but only covered 4 percent in 1997. Today the World Health Organization rates China last in terms of access to medical care among developing countries.


In the next section, Marty and Paul deal with the international ramifications of China's transformation. In a nutshell, they regard the hypergrowth of the Chinese economy as something that cannot be viewed in isolation from the development requirements of neighboring states. As should be obvious to anybody who lives under capitalism, there can only be winners and losers. If China is "winning" today--even on a highly distorted basis--, other nations have to lose. With a race to the bottom, foreign investment will always be persuaded to leave some place like Mexico and flow to China. So, looking at capitalism as a world system, China's gain can only be understood in terms of some other country's loss.


The rapid take off in China, especially in the high tech arena, has a lot to do with the rapid influx of foreign capital. Foreign-based companies accounted for 81 percent of all high tech exports in 2000. This means that Singapore, Malaysia and South Korea are all feeling the pinch. While some economists, including some progressives, view China as a locomotive for growth in the region, Marty and Paul remain unconvinced.


In Malaysia, for example, 16,000 jobs have disappeared from the country's high tech production hub as new investment flows to China. A J.P Morgan report states that China's growth in high technology has "eroded" Singapore's status as an electronics exporter. South Korea has found it profitable to relocate in China as well where militant unionized workers are not a problem. Samsung, Daewoo and LG Electronics now make half their goods outside of Korea, many in China.


Although Japan is often seen as a strategic partner for China, the benefits of such an alliance will be lost no doubt on Japanese workers who will increasingly see their jobs disappear to China. Under newly instituted WTO rules, it will be much easier for Toyota and company to relocate where they can save 10 to 20 percent on manufacturing costs. The World Bank predicts a major contraction of automobile production in Japan, just around the time when a 10 year old slump appears to be ending.


Quoting from their conclusion, Marty and Paul make a point that is crucial for understanding the drawbacks of seeing China as some kind of model--either socialist or as a nationalist development schema:


"First, as we have seen treating China as a success story tends to draw attention away from the uneven and combined development of capitalism. The search for national models based on national economic and competitive criteria implicitly suggests that different countries can simultaneously achieve China-like economic successes based on their simultaneous adoption of China-like economic policies. But this is a fallacy of composition insofar as China's growth has been based on historically specific conditions that have allowed it to attract abundant foreign investment and maintain very low wagesóconditions that include the contradictory development of capitalism in other countries.


"China's growth has been both cause and effect of the growing problems of FDI- and export-led growth in East Asia and Mexico, as well as of the contradictions of capitalist 'maturation' in the developed countries, especially Japan and the United States. Its national competitiveness should not blind us to the fact that its rapid industrialization has been part and parcel of the uneven development and overproduction of capital on a world scale. Unfortunately, when progressives engage in a shared competitive search with neoliberals for national economic successes (and failures), they end up evaluating individual countries in isolation from the wider logic and dynamics of capitalism, or uncritically taking the latter as natural givens. The case of China shows how this approach can lead to progressive support for policies and regimes that are destructive of the interests of working people."


To this I would only add amen.