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Why China is not a capitalist country

posted 18 Apr 2012, 04:43 by Admin uk   [ updated 18 Apr 2012, 11:22 ]

  By Mick Brooks

 This article is heavily based on previous writing and research by Heiko Khoo and Jonathan Clyne. I am, of course, solely responsible for the present work.

Introduction

A new era

For the last three decades we have all been told a lie. The lie that working people have been sold is that capitalism is ‘the only game in town’. The lie appeared to gain traction from the collapse of the Stalinist economies, falsely described as socialist, after 1989. But the toxic effects of neoliberal ideology went further. It was argued that any attempt to regulate or control ‘free markets’ was bound to fail.

The working class, it was argued, had no defence against the power of capitalism. For instance part of the ideology of neoliberalism was the theory of globalisation. This argued that capital was footloose and fancy free, while workers were unable to move around the globe to improve their conditions. Any attempt to fight against an employer would immediately provoke an outflow of capital to a place where wages were lower, and would leave the workers who tried to fight back unemployed.

The consolation for this alleged complete victory of capital was supposed to be that, left to itself, capitalism was the most efficient system possible. It would deliver the goods to workers.

Now we see that capitalism, ‘free market’ capitalism, has failed utterly. The flood of financial deregulation we have seen over recent decades produced an orgy of corrupt speculation. This in turn led to a huge crash that left millions of workers jobless, millions homeless and millions more workers poorer than they had been before.

While capitalism sank into the mire, the ideology of neoliberalism became completely discredited. The same bourgeois politicians who had lectured us on the need not to interfere with the sacred workings of the free market hastened to hurl enormous sums of money, our money, at the rotten banks in order to bail them out. This was socialism for the rich.

China offers an alternative to the idea that neoliberalism is the only option available to humanity. It is for that reason that it is worth studying closely. The Chinese government intervenes extensively in the economy, and that has delivered outstanding results in terms of growth and rising living standards for most of its people. It shows that there are different ‘models’ from that of free market capitalism.

China is not a model in the sense of being a form of society we should or could try to emulate. It is an authoritarian society, no doubt about it. China remains a backward country compared with Britain or the USA.  Hundreds of millions of its people are still desperately poor by our standards, though 620 million have been lifted out of official poverty levels.

Obviously the Chinese way of doing things is not a form of society that we could import wholesale into the countries we live in even if we wanted to. But compared with the capitalist system we live under it is an undoubted economic success. China offers an alternative to neoliberal capitalism and a model to study for all those who are interested in improving their lot and changing society for the better. There are both positive and negative lessons we can learn from China’s example.

The alternative it opens up has been drawn attention to by Seamus Milne in the Guardian (China’s success challenges a failed economic consensus 18.01.12):

“It has been the slump in Europe, the US and Japan that has most dramatically underlined the yawning gap in performance between the world’s long-established economic powers and China. In the four years from 2007 to 2011 US national income increased by less than 0.6%...the EU shrank by 0.3% and Japan declined by 5.2%. In the same period, despite the decline in export markets in these economies, China grew by more than 42%.”

Problems of analysing the class or social nature of China

China is important politically, both on its own account, and as part of the world economic and political order. It is the most populous country on earth and, if the present remarkable rate of growth continues, will overtake the USA to have the biggest economy in terms of Gross Domestic Product (GDP) later this century. If we do not understand what China is, and how the Chinese economy and society is likely to behave, then we can’t understand the world we live in.

The country is mysterious and articles on China can be confusing and contradictory. There is much debate as to the validity of statistics relating to the country, Most of the writing about China, even when accurate, is superficial and impressionistic. The financial press, for instance, deals with house price bubbles and property speculation in Shanghai as if it were California. This is pure impressionism. Concepts appropriate to California are being imposed on events in China. We agree that property speculation exists in China. We do not believe that this ‘evidence’ can be used without more ado to characterise the whole country as capitalist.

This use of analogous reasoning without considering the social context is the same procedure that Marx criticised in earlier economic theory. For instance Torrens characterised a stone as capital (presumably because it was appropriated by a human being). Marx ridicules this (Capital Volume I, p.291):

“In the first stone which he [the savage] flings at the wild animal he pursues, in the first stick that he seizes to strike down the fruit which hangs above his reach, we see the appropriation of one article for the purpose of aiding in the acquisition of another, and thus discover the origin of capital.” (R. Torrens: “An Essay on the Production of Wealth,” &c., pp. 70-71.)

According to this ‘theory’, we have always lived under capitalism, from the stone age to the present.

This criticism of impressionism is also valid of many writers who regard themselves as Marxists. They simply assume that China is capitalist (or behaves like a capitalist society in any case) without ever specifically arguing the case. This kind of coverage doesn’t deal with the dynamics of the system. But that is precisely what Marxism sets out to do.

One example of the kind of writing we criticise here is that of David Harvey. Harvey is an important and influential Marxist theorist. He is a geographer, which adds an important dimension to his writing. He deals with the link between capital accumulation and urbanisation. His latest effort mentioning China is ‘The urban roots of financial crises’, an article in Socialist Register 2012 (see pp.20-5 for ‘The China story’). This develops themes from his book The enigma of capital, 2010.

One of Harvey’s key concepts is ‘accumulation by dispossession’. This appears to mean the same as primitive accumulation, a concept Marx used to explain the emergence of the preconditions for capitalist production, namely the piling up of money fortunes and the dispossession of the toiling population, forcing them to work for wage labour. Harvey correctly sees accumulation by dispossession as a continuous process under capitalism, not a once and for all period preceding the full flowering of the capitalist mode of production. He places more emphasis on this contemporary accumulation by dispossession than we would generally in the contemporary world. In the process Harvey downplays the exploitation of the working class as the key feature of capitalism today.

Harvey analyses China as being involved in a massive process of accumulation by dispossession. He perceives the peasantry as being dispossessed in preparation for their journey into the ranks of the migratory proletariat. Chinese urbanisation is seen as chaotic and unsustainable, and accompanied by massive displacement and alienation.

Harvey does not specifically characterise China as capitalist: he just assumes it. In his article he refers to the government bailout of the banks after a speculative house building bubble in the 1990s in Shanghai. He compares this with the 2008 bailout of the banks in the USA and other crisis-hit capitalist countries. He even compares the preceding Shanghai bubble with the Florida land boom of the 1920s.

Harvey’s writing on China is comparatively thinly researched. Whereas he normally engages with scholars of different opinions and shows a deep awareness of different points of view, in the case of China most of the footnotes in this latest piece refer only to newspaper reports or magazines, not to scholarly journals. This is all too typical of writing on China by outsiders.

What is socialism? Is China socialist?

What sort of society is China? Nobody in the West is arguing that China is socialist. Some members of the Chinese Communist Party (CCP) will argue that case. Other CCP members take a different view or use concepts such as ‘socialist market economy with Chinese characteristics’. The unfortunate fact is that the well informed insiders writing on China are usually pursuing their own political agendas through the ruling Party. The characterisation of China is all part of an argument within the ruling group. We can never accept people’s definition of themselves at face value in any case.

China is definitely not socialist according to Marx’s definition. It is clear (from Critique of the Gotha Programme, 1875) that Marx conceived of society going through a long phase of evolution after the overthrow of capitalism before we arrive at socialism:

“What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges.”

Marx goes on to speak of the continued existence of “bourgeois right” in this transitional phase.

Later we will see the full flowering of communism. (Marx and Engels speak interchangeably of socialism and communism. Lenin later clarified the terminology by referring to socialism as the ‘lower phase’ of communism.)

“In a higher phase of communist society, after the enslaving subordination of the individual to the division of labour, and therewith also the antithesis between mental and physical labour, has vanished; after labour has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly -- only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!”

Nobody can seriously suggest that China is as yet even on the lower rungs of this stage of transition to socialism as Marx defined it.

Is China capitalist?

The case for:

·         Rich and poor exist

·         Exploitation is a fact for millions of workers

·         China can’t be socialist because it is ruled by a one party state.

The case against:

·          China has achieved higher growth rates over a sustained period than any other country in history

·          It shows a different dynamic of development

·          The regime has managed a unique response to mitigate the effects of the recent world crisis of capitalism on China.

We propose to argue that China is not capitalist. This is a minority view. Most analyses simply assume that China is capitalist, without really bothering to argue the case. One reason people argue that China is capitalist is that the working class there is oppressed by the ruling Communist Party and have no say in their own future. This is not in dispute. But just because we see that China can be a bad place for workers to live in is not an argument that the country is capitalist. If we were to rely entirely on emotional responses rather than scientific analysis we may as well describe modern China as a slave society or a new form of feudalism.

Another reason that many feel China is capitalist is this:

 There definitely exist some capitalist-type social relations there. As we have seen, it was Marx’s view that remnants of the old capitalist order would exist for a considerable period of time after a social revolution. The real question is, not that these relations continue to exist? It is, are these capitalist relations dominant?

Some of these views that China is a capitalist country are easy to rebut:

China has got capitalists, quite a lot of them. Some of them are extremely wealthy, even billionaires. This does not mean that capitalism is the dominant mode of production in China. That is the view we intend to refute.

There are millions of wretchedly poor people in China. Workers very often feel themselves to be miserably exploited and put upon. They frequently experience the ruling Communist Party as an alien, corrupt and repressive institution, not as ‘the party of the working class’. Millions of Chinese people are involved every year in forms of active protest against policies and decisions of the regime. None of this is in dispute. None of this makes China a capitalist country.

China is not a socialist country either. We are not arguing that it is a workers’ paradise. Whether or not China is a ‘nice place’ to live in and whether workers have any say in their country’s future has no bearing on a scientific characterisation of its class character, of the underlying forms of property in the means of production that exist there.

 We have to consider the economic ‘base’ of society (the mode of production) separately from the form of government that exists. As we discuss in greater detail later on, different modes of production (such as slavery and capitalism) have had their relations of production (or property relations) defended by very different forms of the state. Whether a country is ruled by democracy or a dictatorship gives no clue as to the property relations which that state defends.

These arguments, put briefly here, will be reprised at greater length in the course of this work.

Modes of production

We present a Marxist analysis of China. Marx put the definition of a mode of production at the centre stage of his theory of history. He outlined the core principles of his analysis in the Preface to A Contribution to the Critique of Political Economy:

“In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life.”

 Every mode of production has its own dynamics. Capitalism is governed by its own laws of motion. “The natural laws of the Asiatic, the ancient or the feudal mode of production were essentially different.” (Marx Engels Collected Works Vol. 34 p.236) Quite simply, different modes of production behave differently from one another. What are China’s dynamics?

Is China an example of the capitalist mode of production? As we find out, China has features in common with capitalism and others that are at odds with it.

China since the Revolution

The 1949 Revolution

By the 1930s the Chinese Communist Party (CCP) was completely rooted in the Stalinist tradition which had captured the Communist International by that time. Mao himself was a fairly uncritical admirer of Stalin, and the Soviet Union was widely seen by Chinese Communists as a model for the coming Chinese Revolution.

But the Chinese regime had its own features from the start. The Revolution, in its later stages, took the form of a war of armies (not just a guerrilla war) and not a classical workers’ revolution. Chiang Kai Shek’s supporters fled wholesale in 1949 after the Communist victory. Mao’s army had a basis of support, sometimes for more than twenty years before the Revolution among the peasantry, in the ‘red areas’. These were established after the defeat of the 1925-27 Revolution in the towns. This first Revolution had been led by the working class but failed because of catastrophic leadership errors imposed on the Chinese Communist Party by the Communist International. Confined to the vast Chinese countryside the Communists had built little models of the kind of state machine they intended to impose nationally after victory.

The 1949 Revolution overthrew capitalism and landlordism. The Chinese Revolution actually smashed the bourgeois state more thoroughly than the Russian Revolution. In Russia the revolutionaries were forced to incorporate Tsarist officers and civil servants into the state machine after the Revolution, because of the exigencies of civil war and invasion, and the prevailing backwardness of the country.

The other crucial difference with the Russian Revolution is that the Chinese Revolution was supported overwhelmingly by the peasantry. Armies are usually autocratic organisations by their very nature. The Red Army was no different, however enthusiastic many of the soldiers may have been in the cause for which they fought. It was essentially a peasant army.

The working class didn’t intervene in the Chinese Revolution as an independent revolutionary force after the first, failed Chinese Revolution of 1925-27. That means that the only class that could have implemented workers’ democracy and planned production was sidelined from the start. China was even more backward in 1949 than Russia had been in 1917. Unlike the Russian Revolution, which began as a classic workers’ revolution and degenerated on account of backwardness and isolation the Chinese regime was bureaucratically deformed on Stalinist lines from the outset. By Stalinism we mean a form of society with post-capitalist property relations but ruled by a bureaucracy. The workers and peasants overwhelmingly supported the Chinese Revolution. They had no say in its further evolution. That was up to Mao and the other leaders of the Communist Party.

 Without the 1949 Revolution, and the accompanying agrarian reform that broke the stranglehold of landlordism and unified the country, the present growth miracle would not have been possible. This is recognised by the Marxist writer David Harvey. He explains, “The astonishing economic performance and revolutionary transformation that has characterised China since its shift towards institutional and administrative reforms from the late 1970s onwards has rested solidly on the real achievements of the Maoist period.“ He goes on to praise, “The dramatic reductions in infant mortality and increases in life expectancy” that accompanied this period after the Revolution. (The enigma of capital, p.137)

It was generally recognised at the time, both on the right and the left,  that Mao’s China was a variant of as type of society that we characterise as Stalinist (though it was never strictly ‘a society in the image of Russia’). Capitalism and landlordism had been overthrown, but from the start there was no workers’ democracy. Very few people regarded Maoist China as capitalist.

Developments since 1978

The first steps in the transformation of China in what is supposed to be the direction of capitalism were taken in 1978. These were the leasing of land to individual peasant households and the establishment of Special Economic Zones (SEZs), where foreign capital was permitted to operate. The role of foreign investment will be discussed more fully later.

It should be emphasised that these ‘reforms’ closely followed the New Economic Policy established in 1921 in the Soviet Union, when peasants were permitted to sell their crops on the market, subject to a tax in kind payable to the state. In addition limited openings for foreign capital were made available in the USSR at the same time.

At the beginning of this ‘reform’ process, nobody thought the Chinese bureaucracy was setting a course for the restoration of capitalism.  This was particularly the case as China was seen as part of a ‘socialist’ bloc (though Mao had asserted his independence from the Russians) in which the Soviet Union was the world’s second superpower. Of course the intentions of the leadership, important as they are in the historical process, are not the fundamental determinant of the social nature of a country.

After 1978 the land was operated by families rather than communally, but remained the property of the villagers. Since 1978 communes (local administrative units) have carried out periodical redivisions of the land. Initially these changes provided a huge boost to peasant living standards and unleashed a revolution in agricultural productivity. Most peasants benefited at first, but opening up to the market inevitably meant opening up inequalities between different regions and between different layers of the peasantry.

Theorists in the CCP began to speak of a ‘planned commodity economy’ or of a ‘socialist market economy with Chinese characteristics’. Though these characterisations are vague, as we explain below the existence of a market and widespread private property in the means of production among peasants and small producers are normal features of a transitional economy, particularly in a backward country.

In 1992 Deng Xiaoping declared, “To get rich is glorious.” This is often taken to be the verbal embrace of a policy aimed at restoring capitalism. In fact it bears a striking resemblance to Bukharin’s exhortation to the peasantry during the period of the Soviet New Economic Policy in the 1920s, “Enrich yourselves.” Bukharin was not actually advocating a restoration of capitalism, but a greater reliance on market methods.

The iron rice bowl was an arrangement from the Mao era where workers in traditional state owned enterprises were provided with a whole range of social services at workplace level. Over the following decades the iron rice bowl came progressively under threat for many as the state sector hived off more and more activities and the workers in these subsidiaries lost these ‘privileges’.

 In the 1980s the special arrangements for multinationals in SEZs were progressively extended to the rest of the country. Workers in the foreign owned multinationals in the SEZs were treated from the outset as proletarians pure and simple and paid as little as possible accordingly. Core workers in state owned enterprises still retain the crèche, health care insurance, pensions and other facilities supplied by the employers. Provision of such services is not typical of capitalism, particularly in a relatively backward country.

The Township and Village Enterprises (TVEs) emerged as significant over this time. Some were publicly owned by the locality. Others were private firms. As we see below, who really owns the TVEs has been a puzzle and remains so.

The ‘reform’ process was temporarily put on hold after the Tienanmen events of May 1989, which appeared to threaten the basis of bureaucratic rule. It provoked a struggle between different wings of the ruling bureaucracy and encouraged those opposed to further opening up to the market. The Tienanmen events provided food for thought for the leadership, as it coincided with the beginning of the events which caused the collapse of ‘socialism’ in the Soviet Union and Eastern Europe.

Why did China survive as a Stalinist state, unlike Russia and the East European countries? Our reply is that, unlike in Russia which had clearly slowed down almost to a halt over the previous two decades, in China the productive forces were still developing and the living standards of the majority of workers and peasants grew by leaps and bounds.

As is well known the destruction of the Soviet Union and the ‘socialist bloc’ coincided with the restoration of capitalism in Eastern and Central Europe. This took place by means of wholesale privatisation of existing state owned enterprises. Usually the beneficiaries of this privatisation were members of the old Stalinist bureaucracy, who took over ownership of these firms for a song and became immensely wealthy oligarchs and private capitalist owners. The destruction of the planning mechanism, which provided the economic links between these enterprises, produced a devastating collapse in the economy and the living standards of the vast majority. In Russia, for instance, the collapse was more severe than that experienced by the USA in the Great Depression of 1929-33.

In China by contrast there was no widespread privatisation. Though the hyper-centralised planning mechanism was reined back over time and the number of targets reduced, most industry remained state owned. State Owned Enterprises (SOEs) often hived off operations for ‘efficiency’ reasons and were progressively allowed to produce more and more for the market. Nowadays most prices are set by the market, but key product prices remain state controlled.

These changes were implemented gradually over decades. Investment continues to be guided by the availability of funds from the state owned banks rather than the direct allocation of resources as part of a central plan. These banks offer virtually no funds to private companies. The difference in performance is clear. While Russia and Eastern Europe fell into a ravine, China soared ahead.

The positive record of Chinese development in removing 620 million people from poverty in the years after the Revolution, and in particular in the present growth spurt after the death of Mao, should be applauded and stressed. Should capitalism take the credit?

The Chinese economy

The state sector

The popular image presented in western media is that the State Owned Enterprises (SOEs) are the last remaining relics of Maoism in China, soon to die out. They are the remnants of a failed system – socialism. In fact 46 of the biggest companies in the world were Chinese and mainly state-owned, according to Fortune Global 500, 2010.

We use the data from the publication of the U.S.-China Economic and Security Review Commission (October 26, 2011) called  An analysis of state owned enterprises and state capitalism in China extensively as it strikes us as the most reliable, authoritative and up to date analysis of the Chinese economy available. It declares:

“It would be a mistake to write off the country’s SOEs as dying vestiges of China’s Maoist past or to minimise the current role of the state and the CCP in shaping economic outcomes in China and beyond.” (p.4)

The state owned firms are not just being kept artificially alive by the state banks, feeding them cheap credit.  In 2003 only 87 of top 500 SOEs made a loss. China’s 1,287 domestically listed companies, most of which are SOEs, reported an average return on assets of 6.2% for the first 9 months of 2003. (Fortune Global 500, 2007)

Declared profits are actually understated because SOEs have social responsibilities to their workers such as housing, education, health insurance, pensions and de facto unemployment benefits, and are overtaxed compared to private companies and Township and Village Enterprises (TVEs).

The SOEs completely dominate the capital intensive industries in the economy. It is difficult to see how Chinese capitalists will ever be able to compete with the resources of the state in these areas. Not even foreign multinationals, with all the resources they have at their command, are able to do so.

It is also important to look at what proportion of investments is channelled through the state sector, because investments are the driving force of the economy. In 1981 – 1989 the state was responsible for 78.6% of all investments. In 1990 – 1992 it rose to 81.2 %. For 1993 – 2001 it further soared to 86.7%. It then fell back slightly between 2002 and 2005 but remains higher than it had been in 1981. (Yasheng Huang: Capitalism with Chinese Characteristics, 2008)

These figures show not only that state the plays an absolutely decisive role in the economy, but also that state investments as a proportion of all investments have increased substantially since the 1980s. This confirms that China has not been moving towards capitalism in recent decades.

If and when the Chinese SOEs which own and control the commanding heights of the economy are privatised then we could call China a capitalist country. That is not the case now and there is no indication that it will happen.

The SOEs have changed significantly. Taking welfare benefits, housing, pensions and social security into account, the total wage bill for workers in the state sector is far higher than in any part of the private sector.

China’s state owned firms compete on the capitalist world market. How would a mobile phone company in any workers’ state in the world compete with firms in the USA, Japan and other capitalist countries if not on a capitalist basis on the world market? There is no separate socialist technique for a state owned firm like China Mobile to compete with firms in the USA or Japan.

 The law of value operates on the level of the world market.  Goods made in post-capitalist countries have to compete on price and quality with those made in capitalist lands. State companies inevitably compete in the world market ‘on a capitalist basis’, buying and selling on markets with the aim of increasing the wealth of the state sector, its technology, means of production, influence, market share and the productivity of labour. That is how a transitional economy shows in practice that it is catching up and overtaking capitalism.

State Ownership of the Banks

In China three quarters of all bank loans go to SOEs, and state owned banks own the overwhelming majority of the assets in the Chinese banking system. The state banks offer cheap credit to the state sector and hardly any to the private sector. Most capitalist companies have to raise money from outside the banking system.

In effect savings are transferred from the private sector via the banks to finance the investment and social obligations of the state sector. The loan of funds through the state owned banks, rather than the direct allocation of resources through the central planning mechanism, is the predominant way that the state plans the pace and direction of economic growth

A stock exchange was set up in Shanghai in 1990, and later in Shenzen. How does this affect the picture? Most of the companies quoted on these exchanges are state owned. Equity markets are used as a means of raising revenue by selling minority shares in SOEs to domestic and foreign investors. It should be explained that shares do not actually represent part ownership of the company in China. Rather they are just a way of sharing in the profits.

Shanghai is growing as a financial centre. But there are severe restrictions on dealings in the companies quoted on the exchanges. Foreigners cannot take their money in and out at will. China still has capital controls on its currency, which is as yet not fully convertible. For China to develop a city like Shanghai as a real global financial centre, the Renminbi must become convertible in order to function as a currency of world trade. At present that is a long way off.

The private shareholders in state owned firms don’t control or own the companies they invest in. Neither do these firms act in all respects as conventional capitalist firms. Investors just have to put up with it if the company prioritises welfare or state objectives rather than investors’ interests. State owned firms are not classical profit-maximising outfits. SOE managers treat bank loans as an automatic right not a commercial agreement. It remains the case that the state owns the banks and the Communist Party controls the banks and the SOEs.

The Communist Party uses the banks to ensure they serve the Plan. SOEs are allowed to accumulate unsustainable debts if it is regarded by the ruling Party as necessary. Managers bear no personal risk for borrowing. Banks determine lending on the advice of government departments. These are not the characteristics of capitalist banks or companies. Bank lending in China resembles the European concept of grant funding rather than ‘normal’ capitalist commercial operations.

Township and Village Enterprises

The township and village enterprises (TVEs) are normally industrial businesses owned by the township (composed of about 3,500 households) or the villages (about 200 households). The local government controls the enterprises.

The origins of TVEs are to be found during the Great Leap Forward, when the rural communes created enterprises to industrialise the countryside, in the 1970s agricultural mechanisation saw such enterprises re-emerge as repair shops, food processors, and sub-contractors to urban SOEs. They grew mightily in the 1980s during the ‘reform’ era. TVEs were public sector companies that plugged a market gap to provide goods or services to needs outside of the urban planned sector of the economy. Village and township officials mobilised resources on a localised basis to meet rural demand and create local jobs.

This collectively owned sector grew rapidly – in 1978 there were 1.5 million such enterprises employing 28 million people. By 1995 there were 22 million TVEs employing 128 million people. An estimated 800,000 TVEs had been privatised by 2002. This is a huge number, but the reader should bear in mind that a TVE of the average size employs six people. Ownership restructuring, as in SOEs, has been implemented with workers, managers, townships and collectives all owning stakes in these enterprises. This is not classical capitalist private ownership, nor classic privatisation as we know it under capitalism.

From the 1990s TVEs began to change, from being collective or township property used for the development of local communities; some were simply using the pretence of a collective legal status to gain preferential state benefits and loans, and for protection in case of a change in the political environment. Private entrepreneurs are not confident of the CCP’s dedication to protecting capitalists.

Some TVEs are fully private companies. There are no accurate up to date figures on the ownership of TVEs. Generally privatisation means a mixture of ownership in which the township, village, manager and workers all own shares.

Private domestic capital

Private business was effectively eliminated between 1957 and 1977.

After 1977 private firms were permitted to soak up unemployment, but these firms were informal and lived primarily from profiteering through trade, rather than production. Hardly any of these small businesses ever grew much bigger.

In the 1980s the private sector of the economy was restricted to individually owned enterprises, street vendors and very small-scale firms. These enterprises were limited to a maximum of 8 workers including the boss. From 1988 more than 8 employees were allowed, but to this day the average workforce is only 10.

Unlike in the former USSR and Eastern Europe the private sector did not emerge from the privatisation of the state sector of the economy. Rather the private sector emerged from foreign investment and new start-ups. Private funds were raised almost entirely from outside the banking system and private sector savings enter the coffers of the state banks. Members of the Communist Party and the state bureaucracy who became private capitalists are not dominant, even though their theft and acquisition of state assets puts them in command of many of the most lucrative sectors of the private sector economy. They remain numerically and politically weak, and live in fear that their wealth will be challenged as criminally acquired property.

The private sector is dominated by small sized enterprises. Only 5% of private enterprises employ more than 500 and only 2% more than 1,000 workers. Contrast this with the state sector where 80% of workers work in companies employing over 500 workers. The number of private companies rose from 90,000 in 1989 employing 1.4 million workers, to 3.6 million companies in 2004 employing 40 million workers.

74% of private companies originated as new start ups. Only 7% are privatised state owned companies, 8% are privatised rural collectives and 11% are privatised urban collectives. The average income of an entrepreneur is $6,600 US per year (2002 figures). This gives an idea of the small scale of the overwhelming majority of private sector enterprises in China. (OECD Economic Survey China Sept. 2005 p.83-95)

The independence of private companies is limited, as many are to a certain extent dependent on the state for supplies, distribution and even customers. In many private firms the state has a minority shareholding and takes seats on the boards of these companies. Unlike in the West, proxy voting is not permitted at shareholders’ meetings. This favours those that own many shares. In China, that is often the state.

In some areas the contribution of private companies can appear to be impressive. 70% of the world lighters are made by private Chinese companies in the city of Wenzhou. However, these lighters are produced by 3,000 small firms, some specialising in components, some in final assembly. Their specific weight in the Chinese economy does not amount to much. 90% of private companies employ less than eight people. Companies like that cannot compete for influence with the giant SOEs.

This much is clear: the key industries and banks, which constitute the backbone of the economy, are state owned. The commanding heights of the economy are in state hands. The relative number of workers in the public and private sectors is not decisive. If the small and medium sized enterprises were state owned – and the largest companies and banks were privately owned, and the banks lent almost exclusively to large private companies – it is quite clear that China would be a capitalist economy even if the majority of workers worked in state owned companies. But this is the opposite of that which exists in China.

Some critics of the view that China is not capitalist have been misled by the wholesale nationalisations that took place in Stalinist Russia and various client states. The snuffing out of small business, including sole proprietorships, is by no means necessary to secure the existence of a workers’ state, whether healthy or bureaucratised. We would expect a transitional economy in a backward country to have a substantial private sector, as is explained in the section on transition.

Recently the Cuban regime has privatised hairdressing. We have to ask: what were the conceivable advantages of nationalising it in the first place? What was the point of concentrating individuals armed with nothing more than clippers in a larger workplace? What were the scale economies? There were none.

The nationalisation of small business in Russia was a panic-stricken attempt by the bureaucracy to gain political control over the petty proprietors in the view that any survivals of private business represented a threat to Stalinist rule. Other countries dominated by the Soviet Union implemented the same system. This was economically unnecessary and counterproductive. So long as the commanding heights are in the hands of the workers’ state, small business will fill in the holes in the plan executed by big firms in the same way as it follows behind big business under capitalism.

Foreign capital

Foreign direct investment (FDI) is also a part of the private sector. Is that eating its way into the planned economy? Already in the early 1980s foreign capital began to arrive from Hong Kong, Taiwan, Macau and to a lesser extent from Malaysia, Indonesia and other parts of the Chinese diaspora.

This foreign capital has been used to build factories in China’s Special Economic Zones (SEZs). Companies in these zones enjoy tax incentives and greater independence. Many of them import components from abroad, put them together in China, and export them. The whole process provides very little positive input to the development of the rest of China. The technical level of production is not particularly high. Foreign capitalists come to the SEZ because labour is cheap and because the government builds an excellent infrastructure for them.

These capitalists are in China for what they can get out of it. They give as little as they can and take as much as possible. In practice they have a license to exploit at will. They employ mainly migrant labour fleeing from poverty in backward rural areas. Many of these migrants are not allowed or do not want to officially register as urban dwellers and therefore have very few rights.

The workers lead a semi-legal existence. They work long hours, and sleep in the factory or in barracks and are subject to all kinds of abuse and harassment by the employers. This is pure imperialist exploitation, with only a limited benefit for the country. If the workers are just assembling components made elsewhere, skills and technology are not transferred to China. The Taiwanese owned firm Foxconn, which employs hundreds of thousands of workers making components for computers and applications for Apple for sale in the advanced capitalist countries, is a classic example.

But investment by the Chinese diaspora in the SEZ since the early 1980s only tells part of the story of FDI in China. Those investments that the Chinese government considers of importance for the Chinese economy as a whole, and not only as a source of foreign currency and political prestige, are subject to much greater control.

Since the mid-1990s the vast majority of the world’s largest companies have established themselves in China, most as joint ventures with the Chinese state. However, despite all the optimism, a lot of foreign companies have encountered problems in China. The Chinese government regulates entry of FDI closely. Entry of foreign firms is often conditional on the achievement of industrial policy goals as laid out by the state. Foreign firms are most welcome only when these goals cannot be fulfilled by domestic firms. For instance the Chinese leadership has the power to insist on the transfer of technological know-how.

The entry of a foreign firm can be subject to numerous conditions, for example, such performance requirements as having to use local suppliers, often designated by the government, or locating in certain areas, or setting up the local operation as a joint venture. The international monopolies have to accept a rate of profit in China that is lower than anywhere else. They simply can’t afford not to have a stake in China – the world’s fastest growing market.

There is actually some evidence that foreign capital has been withdrawing from China in recent years. Firms have given up the battle for success in the Chinese market or found the conditions imposed upon them by the Chinese authorities too stringent.

Dominated by foreign capital?

Another central myth in the financial press and beyond is that China is a vast sweatshop dominated by foreign capital and oriented towards exports as the key to success. That myth needs to be taken on and disproved. Not only are domestic firms dominant in the economy, not foreign multinationals. Investment is the driving force of economic development, not exports.

There is a widespread misperception that the country is totally dependent on export earnings to explain its astonishing growth record. In effect China is being exploited by private capitalist firms from the advanced capitalist countries as a site to export to the rest of the world. If this were the case then China would be completely dependent upon the performance of rest of the world economy and would grind to a halt in the case of economic crisis. This has not happened.

There are two things wrong with the conventional picture. First economic growth is powered by Chinese firms, mainly publicly owned. Secondly investment in China is the driving force of economic take-off, not exports to the rest of the world. Though China is integrated into the international division of labour, the Great Recession has shown that the country is pursuing its own trajectory, not helplessly dependent upon events in the advanced capitalist countries.

Jonathan Anderson (in Is China export-led?) estimates net exports as being responsible for about 9% of Gross Domestic Product (GDP). The Chinese authorities themselves announce that investment has made up about 40% of national income in recent years. The Chinese Xinhua News Agency announced recently that, “Investment accounted for 92.3% of China's Gross Domestic Product (GDP) growth in 2009.” Anderson’s 2007 paper gave advance notice that China’s economic performance would not be totally dependent on that of the advanced capitalist countries.

Crises

Under capitalism the boom/slump cycle has been a global phenomenon. Ever since capitalism first became the dominant mode of production in the world, it has been accompanied by crisis of overaccumulation. These crises, which were already documented in the Communist Manifesto, can appear every periodically every ten years or so. They can be deep or mild, but they continuously reappear. They are essential to the functioning of capitalism. The world division of labour has meant that the periodic crisis of capitalism expresses itself as a world crisis. How has China been affected by the boom/slump cycle?

The Chinese economy was completely unaffected by the world recessions of 1991-1993 and 2001-2003. India, by contrast, showed steep declines in growth during the two world recessions. There is no doubt that China was hit by the Great Recession of 2007-9. This was a much more serious recession, and China was by then more integrated into the world economy. China affected because the Chinese economy is a significant part of the world economy and a major exporter to the capitalist world. This is not in dispute. How did the Chinese leadership respond?

The difference with the capitalist world is that the Chinese government launched a huge investment boom at home to compensate for the loss of export markets. The government took steps to manage the economy, with what was in effect a Keynesian stimulus. Capitalist countries couldn’t do this. They didn’t do in the Great Recession when it could have really saved their bacon. China’s growth rate fell from 14% in 2007 to 9% in 2009 and then bounced back. For the rest of the world, growth fell from 4% in 2007 to minus 2% in 2009.

Marxists have traditionally argued that a Keynesian boost, increasing government spending to maintain the level of economic activity in a slump, won’t work under capitalism. The experience of the Great Recession confirms indeed that Keynesian measures won’t work. Yet in China reflation did, after a brief pause, maintain the giddy rate of economic growth. This is surely more evidence that China is not capitalist.

Marxists have always argued that Keynesianism won’t work to get the system out of a slump. Why not? Because what capitalists need are profitable markets in order to maintain and expand output. Simply providing a market won’t do. Keynes argued that the level of output is determined by aggregate demand. The remedy is therefore boost demand and output will follow. He was proved wrong.

In China state owned firms were simply instructed to increase investment. In other words aggregate demand was boosted – and output followed suit. The SOEs were also supplied with the wherewithal, from the state owned banks, to carry out this investment. Private enterprise followed behind, filling in the gaps.

Bubbles

The bureaucracy is well aware that housing bubbles can and have emerged in the Chinese economy. The reason is that capitalism has not been completely superseded. In the first place housing in the market is not just a commodity, but can function as an appreciating asset. Whereas the rise in the price of a commodity under capitalism is likely to be met with an increase in supply and the formation of a new equilibrium price, the rising price of housing can provide a signal to speculators that prices are likely to increase further. This is how bubbles form.

This is particularly the case since private capitalists in China are starved of profitable opportunities in production, and may well rely on property speculation to augment their incomes. There is a sensible discussion of these problems in the China Daily: European Weekly edition 20-26.01.12 by Wu Jiangang (Housing bubbles: reasons and ways out). Briefly bubbles in the housing market are a problem of the continued existence of some of the laws of capitalism operating within China. The government has intervened in the housing market to puncture the bubble that threatened to get out of control and make housing unaffordable for the millions.

Agriculture

Forced collectivisation in the Soviet Union was disastrous. It produced a famine. The ‘experiment’ demonstrated that farming should continue to be mainly privately owned in a backward country for a protracted period after a revolution.

One of the largest parts of the private sector is agriculture. This consists of hundreds of millions of peasants who have tiny plots that they lease from the state. The state is their biggest customer and distributor. Agriculture is still important to the Chinese economy, accounting for 12% of GDP and providing 40% of all jobs. Productivity per unit of land is generally high, though labour productivity in agriculture is relatively low.

Since 1978 the peasants leased land and after 1984 the communes were broken up and peasants were allowed to sell their surplus on private markets. Productivity increased by leaps and bounds. It tripled between 1978 and 2002. Many peasants were no longer needed on the farm and migrated to the towns and cities to seek their fortune as workers.

Until the 1980s the state purchased all the grain and guaranteed distribution through rationing systems. Despite individual peasant production, the state still controls Chinese agriculture through its monopoly over distribution networks and other means. In the 1980s and early 1990s, open markets became more important as the government was no longer the sole purchaser. This policy was reversed in 1998. The government retains control over the distribution of grains, but allows other foodstuffs to be sold on the free market.

In 1998 the state tightened its control over agriculture. There was an increase in government intervention in grain production and marketing. Agriculture in China, whilst dominated by private family production units at the micro level, is dominated by state purchase and distribution at the macro level. The state also intervenes to support and subsidise farming. This ensures that China is able to feed itself, and that supplies of essential grains reach the entire national consumer market. Imports and exports of grain are determined by the state and implemented by its organizations. Thus, contrary to appearances, Chinese agriculture is dominated by the state.

The commanding heights of the economy

China is not moving in the direction of capitalism, despite a small increase in private ownership of the means of production. Appearances can deceive. If the facts are put in relationship to basic Marxist theory a different picture emerges.

 

The U.S.-China Economic and Security Review Commission poses the question: “How big is the state sector in China? How big is the private sector? Ironically, given the pronouncements on the vibrancy of China’s private sector, the truth is that nobody knows for sure.” (p.6)

One reason for this confusion is the mysterious ownership of the TVEs. Another has been the policy of the state sector, since 1992 in particular, of ‘letting the small firms go’ and concentrating on building the big SOEs as national champions on the world market.

To reduce wastage and costs, state enterprises separated their total operations into independent units. Each unit would be responsible for their own staff and profits. These entities generally remain half, or at least part owned by the parent company. The divesting of subsidiaries helplessly dependent on the performance of the big firms does not of course reduce the effective power of the state within the economy.

Finally there has been a deliberate proliferation of cross-holdings of shares in companies which has made it very difficult for researchers to work out who actually owns what.

The Commission quotes Jiwei Wang, ‘A comparison of shareholder identity and governance mechanisms in the monitoring of CEOs of listed companies in China.’ China Economic Review 21 (2010): 24–37: “To ensure state control, the government limits individual shares to less than one third of the total. In other words, the state still controls more than two‐thirds of most listed companies, either through the holding of state shares by {government agencies} and SOEs, or indirectly through legal‐person shares.” (p.14)

As for the private sector: “A common mistake is to assume that any entity that is not an SOE belongs to the private sector. As noted by one China expert, ‘Share‐holding SOEs are manifestly not private actors and assessments of the corporate sector that assume so are fatally flawed from the outset’ (State‐owned Enterprises in China: Testimony of Derek L Scissors 2011).” (ibid p.10)

The Review concludes: “As shown in the table below, which is based on the strict definition of the private sector applied in the CSY (China Statistical Yearbook), the private sector shares range from 11 to 30%. “ (p.22)  And: “The observable SOE sector under reasonable assumptions accounts for nearly 40% of China’s economy...“It is reasonable to conclude that by 2009 nearly half of China’s economic output could be attributable to either SOEs, SHEs (State Holding Enterprises) and other types of enterprises controlled by the SOEs indirectly. If the output of urban collective enterprises and the government‐run proportion of TVEs are considered, the broadly defined state sector likely surpasses 50%.” (p.25)

“A singular focus on calculating the true SOE share of GDP misses the forest for the trees...The Party and state continue to maintain significant control over state and non‐state sectors alike. The dynamics of this control, and its effectiveness, are more relevant for understanding China’s economy, and its impact on the U.S. economy, than is the output share of China’s SOEs.” (ibid.)

The total control of the state sector, in other words, is much wider and more complete than the bare ownership figures show. The Chinese state retains ownership and control of the commanding heights of the economy.

The U.S.-China Economic and Security Review Commission concludes:

“The state owned and controlled portion of the Chinese economy is large. Based on reasonable assumptions, it appears that the visible state sector – SOEs and entities directly controlled by SOEs, accounted for more than 40% of China’s non-agricultural GDP. If the contributions of indirectly controlled entities, urban collectives and public TVEs are considered, the share of GDP owned and controlled by the state is approximately 50%.” (ibid.)

This is a strange capitalist economy indeed!

Chinese social classes and politics

Politics and the capitalist class

The Chinese capitalist class emerged with the ‘reform’ era. Some came from setting up small enterprises. Others acquired their wealth from the hiving off of sections of large SOEs, or from the transformation of small to medium sized state, collective and village enterprises into private and semi-private firms.

The permission of the bureaucratic apparatus is generally the condition for the existence of viable private economic entities, nurtured and sustained through contracts, finance, and patronage. In this sense the new bourgeoisie can be said to emerge from within the bureaucratic system, but it is dependent upon it, fearful of it, and dominated by it.

Some of the new capitalists are very rich. There are more than 300,000 US dollar millionaires in China. The growth of the new rich class has been extraordinarily rapid.

 However their financial and numerical growth does not reflect itself in political strength. Most of those who became capitalists as a result of the privatisation processes hold Communist Party membership as a signal of loyalty and a shield of protection, providing connections to those with political influence and power.

Capitalists from the strictly private sector tend to run small enterprises. In order to expand operations they are dependent on establishing co-operation with government entities that have access to the state banking system. Generally joint ventures involving state and private organisations are required to facilitate this private sector growth. These private capitalists are often the product of direct intervention by the bureaucracy and as such are dependent on the arbitrary whims of this same bureaucracy to survive. Central government has delegated regulatory power over the marketisation process to local government.

One consequence has been that laws are often non-existent or not enforceable. Thus, entrepreneurs face constant risks of expropriation and discrimination since they cannot rely on the legal system to protect their private property.” (Goodman-The New Rich in China 2008 p.11)

Private property rights remain insecure, despite the passing of the Property Law in 2007, which is supposed to guaranteed the right to private property. This is shown by the career of Bo Xilai, Party Secretary in Chongqing. Deposed in early 2012, Bo was accused of arresting and torturing local billionaires in order to deprive them of their wealth. According to the Financial Times there were, “Brutal purges of wealthy businessmen accused of being gangsters and heavy spending on social services and state housing.” That wouldn’t happen in Britain or the USA! The prospect of faction fighting and of policy U turns within the ruling bureaucracy means that private capitalists remain in fear for their property. There is no evidence of stability for the capitalist class in present day China.

The Chinese Communist Party

The Chinese Communist Party (CCP) is the ruling party in China today, and the only legal party. It is divided into factions and different interest groups, as you expect an organisation of more than seventy million people to be. About one in 15 Chinese are Party members. At the top level the CCP is composed of the supreme rulers of the country. There is little doubt that, at a lower level, many members regard themselves as sincere and dedicated Communists.

The CCP is an important part of the ruling bureaucracy, but they are not one and the same thing. There are reckoned to be about 40 million bureaucrats running the country. There are more than 70 million members of the CCP. The Communist Party is therefore not simply an apparatus of bureaucrats. There are millions of rank and file members, though there is a substantial overlap between the CCP and the bureaucracy. The Chinese bureaucracy is not a conscious thinking being that plans ahead. It is an apparatus of power, which responds empirically to threats to its privileges.

Russia under Stalin also had a stratum of central planners and factory managers. They led a privileged existence. Many joined the Communist Party to hold on to and enhance their privileges, which became a central organ of bureaucratic rule rather than the mass working class party it had been in 1917 at the time of the Revolution.

Nobody seriously argues that these Russian factory managers actually owned the means of production till the collapse of the Soviet Union and the Eastern bloc. In the 1990s they took over ownership of the factories as part of the mass privatisations of industry in East and Central Europe. The change in the status of these former Stalinist managers into capitalist oligarchs as a result was plain to see.

The Chinese bureaucrats are not effectively owners of the state owned means of production. They are just managers with privileges as in Stalin’s Russia.

Is the CCP a Party of capitalists?

So the membership of the CCP is wider and not the same as that of the ruling bureaucracy, though there is an overlap. There is no doubt that the CCP is the body where vital decisions are made. Has it become a Party of capitalists?

How much influence do capitalists have on policy? Certainly millions of careerists aspire to join the Party in order to feather their nests. If China is supposed to be a capitalist country then we would expect capitalists to queue up to join and dominate the ruling Party and run the country in their interests.

For many years capitalists were forbidden from joining the CCP. In 2003 the CCP constitution was revised to allow ‘entrepreneurs’ (capitalists) back in. Does this represent a fundamental change in the nature of the Party and the Chinese state?

Since 2003 there has been an increase in the number of Party members who are defined as capitalists. What does this mean? It could mean that capitalism and capitalists are increasing their influence within the ruling Party. Equally it could mean that the CCP is striving to have more say in the affairs of private capitalist firms in order to knit them closer into the Plan. Some recent utterances from the Party leadership suggest that they encourage entrepreneurs to join the CCP for precisely that reason. Who is really influencing whom? In fact the situation demonstrates the contradiction between what remains a state dominated economy run by the Communist Party and the interests of private capitalists.

The overwhelming majority of CCP members who are entrepreneurs were CCP members before they became entrepreneurs. The Party provides them with networking potential. The capitalists inside the CCP undoubtedly use their connections inside the party to promote their economic interests but they also use their Party card as a protective shield against accusations of theft and corruption. They are widely disliked because they are seen as an alien influence. Their political influence is far more limited than their wealth might suggest.

The symbiosis between the management of the economy by the CCP and the private interests of capitalists obviously provides ample opportunities for corruption. Paradoxically corruption usually occurs when economic power cannot openly be reflected in the political decision making process. If the capitalist class were the ruling class, and they had direct control over ‘their’ state, they would not need to use corruption to get their way. They could just instruct the state to do their bidding. It is because they have money and influence, but the state has different objectives, that they need to bribe officials to get their way.

What are the Party’s relations with the capitalist class? Nobody denies that a class of private capitalists exists in China today. Though more individual capitalists are now Party members, it is not the case that the CCP is dominated by capitalists in its decision-making processes. Nor are the majority of Party members private capitalists.

We then encounter a more subtle argument, dealt with in more detail in the section on state capitalism. This is that the CCP is in charge of the planning mechanism of the Chinese economy. This is true. Secondly most of the managers of the big SOEs are Party members. This is also true. Are these people collectively the new capitalist class? It should be recognised that this is actually a separate argument. The ruling bureaucracy is supposed to have become a ‘state capitalist’ ruling class, collectively owning the nominally state owned commanding heights of the economy. This state capitalist ruling class is not the same as private capitalist owners in Western lands. A third argument which we deal with later is that the ruling bureaucracy is just nurturing a nascent and feeble capitalist class.

A separate stratum of supervisors of labour exists in capitalist countries as well as in China. But these managers of capitalist firms are not by and large the capitalist class. The actual owners of the means of production in Western capitalism are for the most part completely idle. They pay other people – managers who are not usually capitalists themselves, though they certainly know what side their bread is buttered on - to supervise the firms on their behalf.

The actual capitalists own the big companies by holding shares in them. Very often they don’t even know what shares they own and pay stockbrokers to select their shares for them.

There is some shareholding in Chinese firms (sometimes in complex interlocking relations). Private holdings in state owned firms are a minority of shares, and do not give ownership rights or effective control. At present a class of idle rentiers, passive owners of the means of production who live off dividends, has not yet come into existence in China.

Where do the members of the CCP actually come from? The People’s Daily, the official organ of the Communist Party, reports:

Currently, nearly three million of the party’s 73 million members come from non-public enterprises. ...Given that 70 million party members, are or were involved in or tied to, the non private sector it is quite clear that the interests of the Communist Party remain welded to ‘public assets’.” “(October 20, 2007 People’s Daily)

So who is the party membership actually made up of? According to the Peoples Daily Oct 8th 2007:

“By June 2007, the Party had 7.96 million, or 10.8%, workers; 23.1 million, or 31%, farmers, herdsmen and fishermen; 21.3 million, or 29%, cadres, managerial staff and technical specialists; 1.6 million, or 2.2%, army men and armed police; 1.95 million, or 2.6%, students; 13.77 million, or 18.8 %, retired people, and 3.64 million, or 5%, ‘others’”.

In membership terms this is not a Party of capitalists.

What about the people’s Liberation Army (PLA)? The Chinese army is not involved in business. It therefore has no material interest in the defence of capitalism or capitalists. In 1998 the PLA was compelled to strip itself of business interests. The reason was that the commercial operations of the PLA from 1978 to 1998 spread corruption and made officers vulnerable to pressure from capitalists who they were in contact with.

State capitalism?

The fact that a majority of industry in China remains state owned but that these firms produce for the market might suggest that we have an example of what some have called state capitalism. The Economist mooted China as an example of this socio-economic formation in a recent survey on State capitalism (21.01.12). In fact the Economist is concerned to contrast and compare the performance of a state directed form of capitalism with the free market capitalism it advocates, not with state ownership of an outright majority of industry.

In reality this pure free market capitalism advocated by the Economist has only existed and only ever will exist in the pages of economics textbooks. Capitalists are not ideologues. They are practical people and will always call on the aid of the state when it suits their purposes. All capitalist countries have come into existence through the extensive use of force by the state power and continue to rely on state intervention, state support and the state monopoly of effective violence for the survival and advancement of the capitalists and their system.

All the same, the Economist is on to something. The magazine recognises that the dominant neoliberal ideology of recent decades is under severe strain. The Great Recession has demonstrated the complete failure of free market capitalism to provide full employment and rising living standards for the vast majority of their population. Meanwhile China has been surging ahead.

The Economist presents China as an alternative model of capitalist development. It is forced to admit that this model has been very successful compared to their favoured free market version. “The crisis of liberal capitalism has been rendered more serious by the rise of a potent alternative: state capitalism, which tries to meld the powers of the state with the powers of capitalism.” The Economist eschews a definition of this state capitalism and in a sloppy fashion mixes China in with countries like Saudi Arabia where a single ruling family, and therefore the state, owns the oil wealth. The Economist in its usual doctrinaire manner, predict that state capitalism will crash and burn one day.

The fact that the Economist, the US-China Economic and Security Review Commission quoted earlier and others have all characterised China as state capitalist is important (Seamus Milne calls it a “hybrid”.). They all recognise that the country is different. It is not capitalist as we know it.

 Now what is the relation of the bureaucracy to the ruling class under ‘state capitalism’? There are three variants:

·          They are the ruling class. They collectively own the means of production.

·          The state intervenes in and administers the economy on behalf of the ruling class. The Economist is actually talking about state directed capitalism in this sense most of the time.

·          They are nurturing an infant ruling class.

To take the last point first: why should the state bureaucracy nurture a ruling class that is incapable of looking after its own interests? Why not strangle the child and take its place? What unique skills and powers does the infant possess, that makes it indispensable for the future?

As we have occasion to point out the Chinese bureaucracy are a pragmatic bunch. They are motivated not by high ideals but by their own interests. They don’t believe as a group in capitalism or socialism as an ideal (though some members may believe fervently in either one of these principles); they believe above all in themselves, and calculate every move according to their survival and benefit.

We examine the connections between the ruling Party and the owners of the means of production in more detail earlier. As we know the CCP has more than 70 million members and the state bureaucracy at all levels consists of about 40 million people. So the CCP has a rank and file who are not bureaucrats. Many do not even aspire to become bureaucrats, full time state functionaries. Some members of the Party, as we see in more detail in the section on the CCP, are capitalists. We show there that the CCP cannot simply be described as an instrument of the capitalist class, private owners of the means of production.

What is the relation between the political elite and the ruling class? Marxists have drawn a clear separation between the ruling class in any mode of production and the state functionaries. The ruling class is defined by its ownership of the means of production. But if a majority of industry is state owned, doesn’t that mean that government officials own the means of production? In the Chinese context doesn’t that mean the CCP, or at least some of its members, are the ruling class?

Briefly we uphold the Marxist position that, though individual state officials may be members of the ruling class, and that owners of the means of production may have all manner of connections and influence within the state machine, there is a clear functional separation between the ruling class and its state. For this reason Ted Grant upheld the position, in a polemic on the nature of the Stalinist economies after the Second World War, that state capitalism as a system where the means of production are owned by the state cannot exist.

Lenin actually used Germany in the First World War as an example of what he called ‘state capitalism’, in other words of state directed capitalism. In such a case some state ownership may well exist, but it is a buttress to the rule of the bourgeoisie.

Lenin also used the term ‘state capitalism’ in a conditional sense after the Revolution to describe one of the transitional economic forms that emerged in the backward conditions in Russia. In Left wing childishness and the petty bourgeois mentality written in 1918 he asks, “But what does the word ‘transition’ mean? Does it not mean, as applied to an economy, that the present system contains elements, particles, fragments of both capitalism and socialism? Everyone will admit that it does.”

He then enumerates the socio-economic structures in existence in Russia at the time.

1)       Patriarchal i.e. to a considerable extent natural peasant farming.

2)       Small commodity production (this includes most of those peasants who sell their grain).

3)       Private capitalism.

4)       State capitalism.

5)       Socialism.

As instances of state capitalism he gives the grain monopoly, state controlled entrepreneurs and traders and bourgeois co-operators. From these examples it is clear that Lenin did not conceive that state capitalism could ever become the dominant mode of production in Russia after the Revolution.

Lenin makes it very clear in his 1919 lecture on The state that the state is quite separate from the ruling class. It emerges in order to defend the interests of the ruling class and does its bidding:

“It has always been a certain apparatus which stood outside society and consisted of a group of people engaged solely, or almost solely, or mainly, in ruling. People are divided into the ruled, and into specialists in ruling, those who rise above society and are called rulers, statesmen. This apparatus, this group of people who rule others, always possesses certain means of coercion, of physical force...The methods of violence changed, but whenever there was a state there existed in every society a group of persons who ruled, who commanded, who dominated and who in order to maintain their power possessed an apparatus of physical coercion, an apparatus of violence, with those weapons which corresponded to the technical level of the given epoch. And by examining these general phenomena, by asking ourselves why no state existed when there were no classes, when there were no exploiters and exploited, and why it appeared when classes appeared—only in this way shall we find a definite answer to the question of what is the nature and significance of the state.

“The state is a machine for maintaining the rule of one class over another.

Bureaucratic collectivism

Others, also understandably repulsed by the reality of Stalinist rule, toyed with the notion of a new mode of production unknown to Marx called bureaucratic collectivism. The idea once again was that a new ruling class had emerged based on the collective ownership of state owned means of production. After the workers’ revolution had degenerated along Stalinist lines, a full-scale social counter-revolution had taken place. Here is not the place to fully re-examine these old debates.

If a new form of society such as bureaucratic collectivism emerges from a social counter-revolution against a workers’ state, then presumably the process of exploitation would be different from any form of society that had gone before, and the working class would be producing surplus product for the new ruling class. All class societies rest on a surplus exacted from the toilers, but only under capitalism does it take the form of surplus value. The laws of motion of this new society would be quite different from that under capitalism, and also from a transitional economy where important vestiges of the laws of capitalism still apply.

The central problem of ‘bureaucratic collectivism’ was that a whole mode of production is supposed to have inserted itself between capitalism and socialism. Those of us who believed we lived in the era of the decline of capitalism and the dawn of a new, higher form of society were sadly mistaken. How long this new bureaucratic collectivist mode of production would survive, and where its development would take humanity, was all a big mystery. Perhaps fortunately, the collapse of Stalinism has cut short such ruminations. To our knowledge nobody regards modern China as an example of bureaucratic collectivism.

What happens to the surplus?

Marx makes it clear in the Critique of the Gotha Programme that workers will not individually receive ‘the full fruits of their labour’ after the overthrow of capitalism. There will still be a surplus, though in principle this surplus would be at the disposal of society as a whole. Under Stalinism the surplus was disposed of by the bureaucracy, who no doubt passed themselves off as the representatives of society as a whole. The bureaucracy consumed a part of this surplus. Even under a healthy workers’ state administrators and planners, who are not directly productive, would have to be fed at the expense of the associated producers.

Capitalism is a mode of production with its own laws of motion. The system is founded on the extraction of surplus value from the working class. This is achieved by economic laws unique to capitalism analysed at length by Marx in Capital. All forms of class society are based on the extraction of a surplus from the exploited class, but only under capitalism does this exploitation take the form of the production of surplus value.

 Under Stalinism the sum of wages did not just represent the value of labour power. Housing and food were heavily subsidised. This was just the residue from the Revolution, where the working class received many essentials free, because it was seen as their right.  They were after all supposed to be the ruling class, and indeed they were at the outset in 1917. We know that it is still the case in Chinese state owned enterprises that the workers receive all manner of services and support that a capitalist boss would not feel obliged to provide as part of the value of labour power. This is a significant expense. According to the World Bank (The Chinese economy; fighting inflation, deepening reform) in 1996 more than half (52%) of total SOE labour costs consisted of housing, pensions, health care and education for their employees or their families. In foreign owned firms workers are of course treated as proletarians pure and simple.

In a workers’ state wages are no longer a subsistence grudgingly provided by employers in return for the extraction of surplus value, but as part of the provision of the means of life to all the citizens. During the transition to socialism workers will still receive much of their remuneration in the form of money, but that doesn’t mean that these wages are a subsistence representing the value of labour power. Likewise the laws of capitalism don’t apply fully and the workers are not producing surplus value as they were under capitalism, even though much of the surplus may appear in a monetary form. The laws of capitalism apply here only in part. As the transition to socialism proceeds, they will be progressively superseded.

Ted Grant expresses it thus in his 1949 pamphlet The Marxist theory of the state, alternatively called Against the theory of state capitalism:

“We only have to pose the problem: what was the surplus value produced when Russia was still a workers’ state – though even then with bureaucratic deformations? What was the process by means of which, from being surplus product before 1928, mysteriously became surplus value after 1928? What was this curious unexplained process? We would like to ask a question here: did the existence of capitalism outside Russia before 1928 have a similar effect on Russia’s economy? Of course it did. In fact a far greater effect because of the weakness of the Russian economy. Why was there not capitalism in Russia then?”

This same question can legitimately be addressed to all those who believe that China has moved from a post-capitalist order back to capitalism at some indeterminate time in the recent past. The social services provided to workers in core SOEs have not been scrapped. This transformation back to capitalism would be so dramatic that by comparison the change of water and wine into the body and blood of Jesus Christ would be a mere bagatelle. Why did nobody notice it at the time?

So when is this counter-revolution supposed to have taken place? This is particularly important since China is the most populous country in the world. It is supposed to have undergone a social counter-revolution. To be fair to Tony Cliff, whose theory of state capitalism Ted Grant was polemicising against in 1949, quite dramatic changes took place in Russia in 1928. The economy took on a whole new tempo with the launch of the first Five Year Plan and the forced collectivisation of agriculture amounted to the liquidation of the kulaks (rich peasants) as a class.

No such dramatic events took place during the supposed social transformation in China. A counter-revolution is a life-or-death issue for the ruling class that is being overturned. Yet this restoration of capitalism was a completely cold process, unnoticed by anyone on the globe at the time. Is this remotely plausible?

Those who advocate that China has undergone a counter-revolution have to persuade us that this took place in a cold manner. When? Various dates are suggested: China’s membership of the World Trade Organisation (WTO) in 2001; the lifting of the membership ban on capitalists joining the CCP in 2003; and the passing of the Property Law (guaranteeing the right of private property) in 2007. What all these suggestions have in common is an advanced legal and constitutional cretinism. Signing a piece of paper with the WTO is a social counter-revolution!

We have discussed the significance of the Property Law and the lifting of the ban on capitalists joining the Communist Party elsewhere. Consider the case of the WTO. Some people argue that the nation state is powerless against the forces of global capitalism. The ‘globalisation’ perspective is part of the ideology of neoliberalism that has failed utterly. In this view China is bowing down to the global forces of capitalism represented by the WTO.

In fact the nation state is far from powerless, as the case of China shows. If a state bows down before the god of free markets, that is not because it is powerless but because that is what it wants to do anyway. Globalisation is just an excuse.

Take the case of the coalition government in Britain in 2012. It is trying to persuade the British people, with tears in its eyes, that it is only imposing unprecedented austerity because it has to show ‘the bond markets’ that it is doing its best to cut the government budget deficit. In fact the Tory-dominated coalition has long yearned to dismantle the welfare state. The crisis is just the perfect alibi.

China will have rows with other nation states on trade and other issues within the WTO. If it were not a member of the WTO, it would be having those arguments outside. Nation states defend their interests against each other in a capitalist-dominated world. The idea that joining the WTO has caused or signalled a social counter-revolution in the interior of China is ridiculous.

The working class

At the time of the 1949 Revolution, more than 80% of the population of China worked in the countryside. It remains the case that nearly 40% of the workforce is engaged in farming. The effect of the 1978 reforms has produced a huge increase in rural productivity. This has enabled a smaller number of peasants to produce the food needed to feed the cities. It has also liberated 250 million peasants to move to the cities in an effort to improve their lives.

The Chinese working class now composes almost 400 million people and continues to grow by leaps and bounds. It is the biggest working class in the world. It was declared at the end of 2011 that the majority of the Chinese people now live in urban areas.

The traditional working class in state owned industry was protected by the iron rice bowl. All their basic needs were provided by the workplace. They almost never needed to leave the work compound. No such protection was afforded to many of this new layer of workers from the villages in private industry. Breakneck industrialisation did not produce a reserve army of unemployed. Instead it mopped up the ‘surplus’ workers produced by the rise in productivity in the countryside

Family registration laws mean that everybody is either recorded as living in the towns or in the country. The ex-peasants seeking work in the big towns are registered as village dwellers. Their legal status in the cities is a grey area, which of course makes them susceptible to super-exploitation. In effect China has evolved a classic two-tier labour force with hundreds of millions of migrant workers. This is not unique.

The Bantustans in apartheid South Africa were regarded by the racist state as most black workers’ homelands. In fact they were barren; it was impossible to make a living there. The workers therefore had to seek a living in white-controlled South Africa. They subjected themselves to the oppression of the pass laws and a semi-legal existence where they could be deported back to the ‘homeland’ from a job at any time.

The status of Chinese migrant workers is not a deliberate contrivance, as it was in South Africa. But it has some of the same consequences. In fact migrant workers are reluctant to give up their registration in their home village as they would be giving up their right to land. Many see their status as urban workers as temporary.

The actual conditions that workers confront are not solely determined by their legal status of course. The supply and demand for labour, and their own struggles, are also important. The demand for their labour has been ever-growing. But the workers’ semi-legal status effectively ties one hand behind their back in struggle. It makes it much easier to victimise natural leaders and ‘troublemakers’.

The lot of migrant workers in China, especially in foreign owned multinationals and private capitalist firms, is of a standard 12 hour day working for a small fraction of what American workers would be paid for doing the same job. Often they are housed in compounds provided by employers and spied on. A system of fines like those Marx described in Victorian England is often in operation. Health and safety laws frequently go by the board, withholding wages is quite common and bribery for overtime or coveted work positions is rife.

Official government figures record that there are hundreds of thousands of local revolts against bad working conditions and other problems every year. Over recent years there has been a wave of disputes, mainly over wages, in foreign owned factories such as car manufacturers. These have mainly been spontaneous, in the sense that they have not been led by the All China Federation of Trade Unions. In fact the ACFTU has drawn the ire of militants for an at best stand-offish attitude to the workers’ struggles. The ACFTU is the only legal trade union structure in China. It is carefully controlled by the CCP and is in effect part of the ruling establishment, much as Russian trade unions were in the Soviet Union.

Another significant wave of protest movements against the regime is against land seizures by business interests. Since local authorities do not have the power to raise enough local tax to pay for the upkeep of the locality, there is pressure on the communes to sell land to business and speculators. China is a densely populated country where hundreds of millions are still dependent on farming for their livelihood. The cumulative effect of this land grab is of course to expropriate the peasantry bit by bit – unless it is stopped. There was a particularly dramatic example of this process at the end of 2011 in Wukan. The corrupt headman decided to sell the villagers’ land to a speculator. There was a huge movement against this, and the peasants took charge of the village and declared new elections.

These battles are very important. They show a working class becoming conscious of its power and a peasantry prepared to stand up for their rights. If China continues to grow, then the workers and peasants can win important concessions. But as long as the system can deliver the goods in terms of living standards for the vast majority, these struggles are unlikely to culminate in a revolutionary conflict to overthrow the system of bureaucratic rule as a whole and install a regime of workers’ democracy

Problems of transition

Bourgeois revolution and proletarian revolution

The fundamental differences between post-capitalist societies such as China and capitalist countries flow in part from the way in which one mode of production replaces another – through the social revolution that brings that mode of production into being. Marx saw capitalism emerging from feudal society over a period of centuries. The classic bourgeois revolution only took place after the rising capitalist class had built up substantial economic power.

Marx saw patches of primordial capitalism in operation long before the appearance of manufacturing capitalism or agrarian capitalism. These primordial forms were merchant capital and money lending capital. These forms of capital existed for thousands of years in the pores of pre-capitalist modes of production. They were not necessarily revolutionary in the sense that they were antagonistic to and tended to overthrow the old order of things. Rather they were parasitic on the old order. The funds of money they had accumulated however proved useful when the conditions for capitalist production began to germinate.

Elements of capitalism, including wage labour, existed in manufacturing and farming as well as in trade for hundreds of years before the great bourgeois revolutions. These early capitalists learned to adapt to an order not based on the norms and principles of capitalism. Being well to do, they used their economic power to gain political influence within feudalism. Though we know of the great bourgeois thinkers and revolutionaries such as Cromwell and Robespierre, and of their contempt for pre-capitalist modes of thinking, their attitude was not typical of these early capitalists. The latter were deferential. They were accommodating to the old order while gradually building up economic and political power in a non-revolutionary period as the productive forces developed.

It is for this reason that, even when the bourgeois revolution failed utterly as it did in Germany in 1848, many of its tasks were carried out in a caricatured form by other social forces. Bismarck was a representative of the junker landlord class. He was well aware that wars could no longer be won by knights on horses with lances, but by cannon. This artillery in turn had to be forged in the finest and most modern (capitalist) iron foundries. Hence the representative of the junkers encouraged the development of capitalism. Bismarck unified Germany, not as Marx and Engels had hoped through a democratic pan-German revolution, but under the auspices of and in the interests of Hohenzollern Prussia.

Point for point the proletarian revolution is fundamentally different. The working class has no power but its numbers and its key role in capitalist society. The workers cannot gradually build up economic and political power within capitalist society. They cannot buy the bosses out one by one. Individual enterprises such as workers’ co-operatives cannot out-compete capitalist firms. They may have the benefit of a loyal working class consumer base, but the capitalist firm can invest much more because the capitalists have much more to invest.

The advantages of socialism come from an overall plan that knits the individual enterprises together, and concentrates all the resources and determination of society behind them as according to a single will. It mobilises all human and material resources to benefit the needs of society. It allocates investment to the optimum use. In doing so it makes the efforts of each producing unit much more useful to all of us than if it were operating alone, producing for a market and oblivious to the overall needs of society. That is how socialism overcomes the central weakness of capitalism – its unplanned nature and the fact that production only takes place if it is profitable.

The working class must therefore begin the socialist transformation of society with the taking over of the commanding heights of the economy and the expropriation of the big capitalists. This will inevitably entail a clash with the ultimate guarantor of capitalist property relations, the capitalist state.

The Chinese revolution, as we have seen, was not a classic workers’ revolution. It overthrew capitalism and landlordism. In that sense alone we call it a workers’ state, because it installed post-capitalist property relations like those that would exist after a healthy workers’ revolution. The proletariat took no independent leading role in the Revolution. But Chiang Kai Shek’s state was probably smashed more completely than the Bolsheviks achieved in Russia in 1917, as we have seen.

 Mao was not committed to the foundation of a workers’ state on taking power. The Stalinist ideology he held meant he advocated a form of popular front (called the ‘bloc of four classes’). One of these classes was the democratic national bourgeoisie. Unfortunately it didn’t exist. The real bourgeoisie fled with Chiang. Faced with a power vacuum Mao installed a variant of the regime existing in Soviet Russia.

The first task of the workers’ revolution is to expropriate the big capitalists in order to prepare the ground for a planned economy. So why did this not happen in the only example of a workers’ state that Marx lived to see – the Paris Commune? The first reason for this was the leadership. The Communards were catapulted unexpectedly into power. They were mainly Jacobins, inspired by bourgeois revolutionaries such as Robespierre. In other words they were not socialists at all. The Internationalists (supporters of the International Working Men’s Association led by Marx) in Paris were in fact Proudhonists. These were moderate and utopian socialists who wanted to build up ‘labour exchanges’ and so bypass the capitalist class rather than taking it on. They were also apolitical and reluctant to challenge the existing state power. That is why the autocrat Napoleon III tolerated their existence

The second reason was that the Commune only lasted 72 days, not enough time for them to learn from their mistakes. The third point, and the most important, is that it was precisely the reluctance of the Communards to challenge the power of big capital that led to their destruction. In particular they didn’t lay a finger on the Banque de France. The Banque, situated in the middle of Paris, actually mobilised the funds to rebuild a bourgeois army that would crush the Communards, after the defeat of Napoleon III by the Germans.

The Bolsheviks also came to power in October 1917 committed to a programme of nationalising the banks, and very little else. E.H. Carr reports, “Extensive nationalisation was thus no part of the initial Bolshevik programme.” (The Bolshevik revolution 1917-23 Volume 2 p. 87)They stuck to their programme for the first months of Soviet power. The nationalisation of industry was forced on them by the exigencies of civil war and the treachery of the Russian bourgeoisie. Carr says these nationalisations were ‘either spontaneous or punitive’ (ibid). In either case they were political responses to the conjuncture, not a rational unrolling of a plan of production.

Seizing the commanding heights of the economy and expropriating the big capitalists is a necessity for the maintenance of workers’ power. This is what happened in China, despite Mao’s programme.

The transition to socialism and communism

China has some of the features of capitalism, and some features which are incompatible with capitalism. It is an economy in suspended transition. Since it is ruled by a bureaucracy that guards its own interests, it will not make the transition to socialism without a political revolution to overthrow the bureaucracy led by the working class.

As we have seen Marx and Engels insisted that a long period of transition was required before a post-capitalist society could be regarded as socialist, let alone communist. They were assuming that socialist revolutions would occur first in the advanced capitalist countries. It was a truth generally recognised by Marxists that Russia in 1917 was not ready on its own for socialism. The only hope of the Russian revolutionaries was to hang on for a revolution in an advanced country such as Germany. What was true for Russia was still more the case for China in 1949.

A period of transition was needed for two reasons. The first was that the productive forces were too undeveloped to sustain a society of relative abundance. “This development of the productive forces...is an absolutely necessary practical premise because without it privation, want is merely made general, and with want the struggle for necessities would begin again, and all the old filthy business would necessarily be restored.” (German Ideology, p.49)

The second reason is that only the revolutionary working class has the maturity and experience to run a socialist society. Yet in Russia in 1917 and China in 1949 the working class was a tiny minority of the population. In China it did not even play a leading role in the overthrow of capitalism and landlordism.

In any case capitalism imposes a worldwide division of labour. Even an advanced capitalist country could experience shortages and hardships after a revolution, since it could be wrenched out of this global division of labour and forced into isolation. This is quite apart from the problems provided by the attentions of the global counter-revolution. This is not to say that the Russian and Chinese revolutionaries should have ‘held their horses’. Russia in 1917 and China in 1949 would not have grown readier for socialist revolution by refusing to seize power. Most likely both countries would have disintegrated under the pressures of counter-revolution, with massive destruction of the productive forces and of the power and numbers of the working class.

A transitional economy

Money and the market cannot be abolished. They are a product of the overarching reality of humanity’s stay on the planet so far – scarcity. As long as we have not yet arrived at a society of abundance, money will remain as a ration ticket. In a pure communist society people will work solely because they see the task as necessary and wish to gain the respect of their fellow human beings for performing it. We cannot guarantee that everybody (for instance career criminals conditioned by capitalism) will behave like that on the day after the socialist revolution. Any attempt to ‘abolish’ money and the market will only lead to a black market and corruption. Money and the market must become unnecessary and be superseded over time, probably over generations. Trotsky explains:

“The two problems, state and money, have a number of traits in common, for they both reduce themselves to the problem of problems: productivity of labour. State compulsion like money compulsion is an inheritance from class society... In a communist society, the state and money will disappear. Their gradual dying away ought consequently to begin under socialism... Money cannot be arbitrarily ‘abolished’, nor the state and the old family ‘liquidated.’ They have to exhaust their historic mission, evaporate, and fall away. The deathblow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget our miserly attitude toward every excess minute of labour, and our humiliating fear about the size of our ration. Having lost its ability to bring happiness or trample men in the dust, money will turn into mere bookkeeping receipts for the convenience of statisticians and for planning purposes. In the still more distant future, probably these receipts will not be needed. But we can leave this question entirely to posterity, who will be more intelligent than we are.” (Revolution betrayed p.65-6)

An isolated workers’ state, where capitalism has been overthrown, will have to trade with the rest of the world if it can, and will feel the acute pressures of the world market. In particular a backward country will find home produced commodities expensive compared with those available by way of international trade. Domestic capitalism too will provide a rival to goods produced in socially owned workplaces. In a backward country in particular the public sector could easily be overwhelmed by superior capitalist productivity, which is as much to be feared as the bullets, shells and bombs of the counter-revolution.

In Stalinist Russia in the 1930s during the period of the first Five Year Plans almost all industry was nationalised. Transactions between state enterprises were managed by bureaucratic fiat as part of the Plan. Monetary relations between firms were purely a bookkeeping operation, if they existed at all. All the same there remained a sort of labour market and consumer goods market. Workers by and large went out and looked for a job rather than being subject to direction by the state. They spent their (low) wages as they pleased on consumer goods, though there were ‘distortions’ to the operation of the market. (Basic foodstuffs were subsidised and housing and some other services were very cheap.)

The continued existence of market relations is particularly important in overwhelmingly agrarian countries. In both Russia and China the peasantry was by far the most numerous class in the country. In both revolutions peasant support was vital to their success. Politically and economically it was crucial to retain that support. But this can be difficult.

 A peasant is a petty bourgeois in the classic Marxist usage of the term. Whereas capitalists live by owning and wage workers by earning, peasants both work and own (usually a small amount of land). The peasantry as a whole is being driven down to the ranks of the propertyless by the pressure of the capitalist system. Meanwhile individual peasants may aspire to the status of a small (or even a big) capitalist.  Some may even achieve their dream. As petty proprietors and traders the petty bourgeoisie has no interest in the socialist reconstruction of society and can be expected to show a fierce opposition to their own expropriation. For the sake of the support of the peasantry alone, the market cannot simply be abolished.

So these pressures from market forces cannot be ignored altogether, though they must be countered. There is thus bound to be a conflict between the law of value, expressed above all in world market prices, and the planning principle, by which the socialist government aspires to build the basic building blocks of socialism by degrees from the bones of a backward capitalist economy.

The Soviet Union during the 1920s, between the system of War Communism forced upon them by the exigencies of civil war and invasion and Stalin’s insane policy of forced collectivisation, which produced a famine in the 1930s, adopted what was called the New Economic Policy (NEP). The government retained ownership of the ‘commanding heights of the economy’ in industry, but abandoned the system of grain requisitions and allowed the peasantry to sell their products on the market, subject to payment of a tax in kind to the state. Small business also flourished amidst the market relations that were dominant outside of transactions between state owned enterprises.

Stalin’s ultra left turn at the end of the 1920s was not a product of economic calculation but of political panic. The bureaucracy feared the rising economic power of the kulaks and so throttled them as a class. In doing so they expropriated almost all small business, and produced a famine. This proved to be a blind alley.

Despite the tremendous achievements in fighting off the Nazis and rebuilding the economy after the Second World War, in the end this form of Stalinist economy could not compete with capitalist powers such as the USA.  After all Western Europe and North America were already much more advanced than Russia before the 1917 Revolution. These countries did not suffer the same extent of War damage from Hitler as the Soviet Union. The Eastern and Central European ‘socialist bloc’ collapsed after 1989 because they could not compete with capitalism as a system.

Stalinist planning was, like the compulsive nationalisation of almost all business, a caricature of the socialist ideal of an economy where production is for social use and every sinew is used in harmonious output to achieve the ends democratically decided upon. Stalin’s first Five year Plan was actually a shambles. Perceptive commentators like Moshe Lewin have written of, “The disappearance of planning in the plan.”

Trotsky had the same opinion:

“If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy. But, in reality, the bureaucracy errs frightfully in its estimate of its spiritual resources. In its projections it is necessarily obliged, in actual performance, to depend upon the proportions (and with equal justice one may say the disproportions) it has inherited from capitalist Russia, upon the data of the economic structure of contemporary capitalist nations, and finally upon the experience of successes and mistakes of the Soviet economy itself. But even the most correct combination of all these elements will allow only a most imperfect framework of a plan, not more.” (Soviet economy in danger, 1932, p.113)

He saw three conditions as necessary for real planning. “(1) special state departments, that is, the hierarchical system of plan commissions, in the centre and locally; (2) trade, as a system of market regulation; (3) Soviet democracy, as a system for the living regulation by the masses of the structure of the economy.” (ibid.)

Trotsky later warned that a plan could only be a working hypothesis:

“Administrative planning has sufficiently revealed its power – but therewith also the limits of its power. An a priori economic plan – above all in a backward country with 170 million population, and a profound contradiction between city and country – is not a fixed gospel, but a rough working hypothesis which must be verified and reconstructed in the process of its fulfillment. We might indeed lay down a rule: the more ‘accurately’ an administrative task is fulfilled, the worse is the economic leadership. For the regulation and application of plans two levers are needed: the political lever, in the form of a real participation in leadership of the interested masses themselves, a thing which is unthinkable without Soviet democracy; and a financial lever, in the form of a real testing out of a priori calculations with the help of a universal equivalent, a thing that is unthinkable without a stable money system.”(Revolution betrayed pp.66-7)

China avoided the fate of East and Central Europe. For various reasons, some being the backwardness and the sheer size of the country and the complexity of the task, China was never subject to the sheer number of plan targets and the obsessive micro-management that characterised European variants of Stalinism. Given the chaos behind the facade of planning revealed by insider accounts like Rakovsky’s 1930 Five year plan in crisis it would be correct to call these countries instances of command economies rather than instances of socialist planning.

 The main reason for China’s survival and success though was because, starting from a lower level than East and Central Europe, it continued to develop the productive forces. China moved progressively further away from an economic model based on Stalin’s Russia after 1978 and embraced many of the principles embodied in the New Economic Policy of the 1920s.

The NEP poses some similarities to the evolution of the Chinese economy since 1978, though there are of course huge differences. For instance we saw earlier that the banks themselves allocate resources to the SOEs rather than the central planning bureau doing so, as was the case in China earlier. There has also been an issue of shares in state owned firms. Private owners of these shares have no means of privatising the firms they hold shares in. They are just being tapped by the state sector for funds, and in return receive a share of the profits. The planning mechanisms are quite different from those of Russia in the 1920s, as we would expect

How would a transitional economy work? There are tremendous tensions and threats, including the ever-present danger of counter-revolution from without and alien class forces within. Political and economic considerations were thus inextricably fused. The practical conditions for the possibility of a successful transition towards socialism were laid out in the Platform of the Opposition, 1927. The programme however could only have come to fruition with an international extension of the revolution, which the Oppositionists hoped and believed would refresh the prospects for workers’ democracy in Russia. In fact the Soviet state was already under bureaucratic rule and, without an international extension of the Revolution, the prospects for Russia to make the transition to socialism were non-existent.

The theoretical outlines of the problems of transition were laid down in Preobrazhensky’s book The new economics, written in 1926 during the period of NEP. Preobrazhensky may be regarded as the ‘economist’ of the Left Opposition. The state planners could not just grab the agricultural products they wanted from the peasantry for the obvious reason that the latter would just refuse to plant. Moreover, since Russia like China was an overwhelmingly agrarian country, the Soviet government had to win the support however grudging of the peasantry. So how would the state acquire the crops they needed without coercion? They would have to trade with the peasants. How would they use the framework of a market economy (Preobrazhensky sometimes called it a commodity-socialist economy) to negate the outcomes of a market economy?

Preobrazhensky’s most important contribution to the theoretical underpinning of the Platform of the Opposition was the conflict between the law of value (the law of motion of capitalism) and what he called the law of primitive socialist accumulation. Trotsky agreed that this was the correct way to look at the problems of transition. “The analysis of our economy from the point of view of the interaction (both conflicting and harmonising) between the law of value and the law of socialist accumulation is in principle an extremely fruitful approach – more accurately, the only correct one.” (Challenge of the Left Opposition 1926-27, p.57)

The law of primitive socialist accumulation was an analogy with Marx’s process of primitive capitalist accumulation, by which he meant the preparing of the conditions for capitalist production. Primitive accumulation was the accumulation of money fortunes by the future capitalist class and the dispossession of producers to create a proletariat. These processes developed within the feudal mode of production and served to dissolve the old order. The workers’ state was to progressively wrest the initiative from the remaining forces of capitalism and build up the state owned sector at the expense of market forces, but without abolishing the market.

Trade between the state owned large scale industrial sector and small peasant production is an example of “non-equivalent exchange”. Preobrazhensky pointed out that this already takes place under capitalism. This non-equivalent exchange under commodity-socialist economy would represent a transfer of a part of the surplus generated in the private sphere to the public sector.

This is not just a matter of a rapacious grab. Preobrazhensky emphasised the dynamics of the process that, “The task of the socialist state consists here not in taking from the petty bourgeois producers less than capitalism took, but in taking more from the still larger incomes which will be secured to the petty producer by the rationalisation of the whole economy, including petty production, on the basis of industrialising the country and intensifying agriculture.” (New economics p.89)

The author gave as examples of primitive socialist accumulation railway charges imposed by state owned railways upon private producers; preferential loan treatment of state owned firms by the publicly owned banks (exactly as happens in China); taxes on profits; procurement prices for farm goods; and the state monopoly of foreign trade.

In the transitional economy as theorised by the Opposition in the 1920s the state would act as the universal buyer of farm products. It would manipulate the relative prices of commodities such as wheat and flax so as to give the peasants the incentive to produce the right quantities of these crops in order to fit in with the overall plan.

The state also imposed a state monopoly of foreign trade. Left to themselves some peasants (kulaks) were getting rich and would be inclined to buy motor cars, perfumes and other luxuries from abroad. In fact the government refused to import such fripperies, prioritising the purchase of capital goods such as machine tools. The monopoly of foreign trade thus acted as a sort of limit upon the spending power of wealthy peasants.

The idea of the state monopoly of foreign trade was to build up state owned industry so as to supply the needs of the peasantry as a whole cheaper over time, rather than allowing cheap foreign goods to destroy fragile domestic industry here and now. In the end the NEP was destroyed by Stalin, who feared the political power of the kulaks, and launched the policy of collectivisation of agricultural land to destroy them as a class. This act set back farm productivity for decades.

China and transitional economics

How does China fit in with these general laws of a transitional economy? China is open to the world economy. It is not autarchic, as the Eastern and Central European countries were to a much greater degree. (They mainly traded with each other.) There has been no bull-headed intention to disregard the laws of capitalism, which is as pointless and impossible as ‘disregarding’ the law of gravity.

China has been subject to the laws of world capitalism, but it has not capitulated to them. The Chinese government has achieved much more favourable outcomes for the country and its people by recognising that the pressures of capitalism are alien pressures. One example of such a policy has been discussed previously. The regime countered the dangers of a downturn caused by the collapse in exports as a result of the Great Recession by decreeing a shift of economic resources towards a corresponding increase in domestic investment. This is a clear instance that China is not just ruled by the laws of capitalism.

The degeneration of the Russian Revolution

The obstacle to a transition to socialism was that by the 1920s the Soviet state (as in China) was already in the hands of a bureaucracy, headed by Stalin.  A transition was blocked by the bureaucratic degeneration of the Revolution. The bureaucracy would have to be overthrown first.

Trotsky reminded us (in The Revolution Betrayed) that where there is want there will be a queue for bread. The queue will be supervised by a gendarme who will, of course, ensure that he at least is well fed. Bureaucratic rule arose after the Revolution in consequence of the backwardness and illiteracy of the country, and bit by bit infected the ruling Communist Party.

The state began to represent the interests of the bureaucracy, not that of the working class. The workers had been politically expropriated. The only gains remaining from the October revolution was the overthrow of capitalist property relations. It is in this sense that Trotsky referred to the Soviet Union under Stalin as a bureaucratically degenerated (or deformed) workers’ state. It was a workers’ state (and the workers were thus the ruling class) only in the sense that the means of production were no longer in the hands of the capitalist class.

In the Critique of the Gotha Programme Marx had already mentioned that the toilers in a post-capitalist society would continue to produce a surplus over and above their own needs, as is the case in a class society such as capitalism. If a bureaucracy rules rather than the working class directly, as in China and as formerly was the case in Stalinist Russia, then the working class has no voice in the disposal of that surplus.

The process, whereby the ruling class loses all control over the state that is supposed to protect its interests, is by no means confined to post-capitalist societies. Marx in his writings in the wake of the failed revolutions of 1848 identified the phenomenon of Bonapartism. Napoleon III, like his uncle before him, ruled France after 1851 as a dictator in his own interests.  The capitalist class were not consulted over decisions of state.

All the same Marxists characterise this as a bourgeois regime. In what sense? In one narrow sense alone, that Bonaparte and his nephew both defended forms of society in which capitalist production relations and property relations dominated.  Trotsky often called Stalinist Russia a form of proletarian Bonapartism. The working class were both the ruling class (in the narrow sense that they had overthrown capitalism) and a class oppressed by the Stalinist bureaucracy.

Contemporaries of the Bonapartes in the nineteenth century recognised this political phenomenon from history. They called it Caesarism. Julius Caesar became dictator of Rome. The governing Roman Senate of slaveholders lost all political power. Their wealth and economic power was however defended very ably by Caesar, in a situation where the Roman Republic was being torn apart. This is an instance where society was ruled by a state which defended the slave mode of production, but in which the ruling class was politically rendered voiceless.

From degeneration to counter-revolution

The countries in the Soviet bloc saw their productive potential stagnate and slip into crisis by the 1980s. By contrast growth under Mao was generally good, despite two manmade catastrophes (the Great Leap Forward and the Cultural Revolution). According to Peter Nolan between 1960 and 1981, “Official World Bank data show China’s growth...to have been 5% per annum, compared to 1.4% for low income countries, excluding India and China, and 1.4% in India, in many ways the most relevant comparator country.” (China’s rise, Russia’s fall, p.47)

Sections of the bureaucracy in all Stalinist countries aspire to own the means of production they manage. There exists a nomenklatura by which the ruling bureaucracy tries to pass on its privileges to its children. But in Eastern and Central Europe (ECE) it was mainly the managers directly turning themselves in to owners through privatisation frauds that marked the return to capitalism. This has not happened on a large scale in China.

The counter-revolution in ECE and the restoration of capitalism was accompanied by an economic collapse of catastrophic proportions. Russia suffered a bigger fall in output than at any time since the invasion of the Mongols, who left behind them pyramids of skulls. This collapse is the form taken by the happy rebirth of capitalism in the former Stalinist states. It all goes to prove the Marxist contention that capitalism has become a fetter on production, in heartbreaking human terms.

The nature of the epoch

Can capitalism develop the productive forces?

As we have seen, the progressive role of a mode of production is that for a time it develops the productive forces. The productive forces have developed faster than anywhere else on earth in China over the last 30 years. Is this because China is now capitalist? If so, that is a tremendous argument for capitalism.

Just because the productive forces are developing in China doesn’t mean that the working class won’t fight to defend their interests. The Chinese workers and peasants are doing this even as we write. But, if the Chinese regime is still relatively progressive, it is unlikely to be overthrown by workers’ revolution.   If it is still developing the productive forces then it can afford to improve the living standards of the mass of toilers, as it has already done by liberating hundreds of millions of Chinese from dire poverty.    

Marxists regard capitalist property relations as a fetter on the development of the productive forces. That doesn’t mean that we argue that capitalist countries won’t grow at all in the future. In addition it is always the case that some capitalist countries will develop faster than others, as the law of combined and uneven development foretells. The development of the productive forces is not reducible to the question ‘can the economy grow?’

The traditional view held by socialists is that capitalism cannot develop the productive forces as fast and harmoniously in the interests of society as socialism will. That is why we are fighting for socialism. That is the nub of our case for changing society.

In his Preface to A Contribution to the Critique of Political Economy Marx goes on to explain how each successive mode of production at first develops the productive forces compared with the form of society it has superseded. Then the relations of production become a fetter on further development:

“At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.

He goes on. “No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the framework of the old society.

We have to assume that those who advocate that China is capitalist are also arguing that capitalism has acquired a new lease of life. Hitherto socialists have believed that they live in a society where capitalist production relations have become fetters on the forces of production. That provides the objective conditions for social revolution. Now we are told we are mistaken. Capitalism has quite possibly only just begun on a whole course of renewed development of the productive forces. Who knows what other countries will be swept up by this process, and for how long? Who knows where it will all end up?

According to this narrative it gets worse for us socialists. China is forging ahead because it is capitalist. The miserable husk of the old Stalinist order that held the country back for so long is being progressively discarded. Not only is capitalism the (indefinite) future for humanity. The Chinese Revolution, which inspired us as a step forward in human emancipation, has proved to be a blind alley.

Those of us who believed that the social ownership of the principal means of production was a “practical recognition of the social nature of the modern forces of production” (Engels-Anti-Duhring p.384), recognition of the objective socialisation of the production process under capitalism, were wrong. Marx was wrong. We who imagined that the Revolution in China was a partial step towards a transition to a higher form of society were profoundly mistaken. Instead it represented a lower form of society, a mere launching pad for capitalism.

If other countries can develop as fast as China because they are also capitalist, then a change of society in the direction of socialism is ruled out. If the world can develop a new momentum of growth then capitalism remains a progressive system because it is developing the productive forces. That should pose a serious question to socialists – are we wasting our time?

We have to say; this is not the picture of success that world capitalism presents to the workers of the world at the present time. Despite the isolated patches of growth the overall scene is one of crisis and apparently never-ending austerity and gloom. It is therefore of general significance that we settle the question as to whether China is capitalist. If it is, China is a capitalist success story. How many other successful capitalist countries may follow her path?

 Our argument is that China has grown faster over the past thirty-odd years because it is not capitalist. We do not know how fast or in what direction the Chinese economy will grow in the future. This work does not set out to foretell the future. Its purpose is much more modest – to analyse the social and class nature of China at present from its history in the recent past. Our conclusion is that China has shown a completely different dynamic from capitalism. China is a post-capitalist society. Its economic success shows that capitalism is a fetter upon the productive forces and that Marx therefore was right when he described capitalism as a barrier to humanity’s forward march.

The role of the state

The ideology of neoliberalism avers that government is best when it governs least. As Ronald Reagan declared when he took office, “Government is not the solution; it is the problem.” This is a reassertion of the traditional liberal view of the state. The rising capitalist class developed this ideology as a weapon against the interfering tendencies of the pre-capitalist state against private capital prior to the bourgeois revolution.

The ideologists of the rising capitalist class set their faces against the feudal regimes and absolutist monarchs of Europe. Absolutist monarchs were another example of what Marxists call Bonapartism, for they gained their independence and power from balancing between the rising capitalist class and the old feudal order. They intervened extensively in the economy, taxing and spending at will.

The ideological representatives of capitalism in contrast preached freedom, by which they meant above all freedom for capitalists to do what they wanted with their money. They argued that the state should just defend private property and not interfere in the economy, as the monarchs they opposed did. Their ideal was the ‘nightwatchman state’.

Though neoliberalism returned to the old watchwords of the dawn of capitalism, and abandoned interventionist theories such as Keynesianism, the Great Recession saw the total discrediting of this world outlook. ‘Free market’ capitalism careered to ruin, and the state responded by massive and heavy-handed interventions to bail out the rich at the expense of the rest of us. Neoliberalism has proved to be a catastrophe and a farce.

This turnaround drew attention to the fact that the extent of state intervention in the economy has always been contested terrain under capitalism. A good case can actually be made out that the most successful economies under capitalism are those where the state is most interventionist. Just as hypocrisy is the homage that vice plays to virtue, so ‘state-isation’ is the homage capitalism pays to socialism.

The nightwatchman state was only ever an ideal, not the reality of capitalist class rule. The capitalists are pragmatic, and will go crying to the state to intervene whenever it is to their advantage. Violence, including state violence, has been the midwife of the birth of capitalism. Modern capitalism provides many examples of extensive state intervention in the economy.

The state and capitalist development

An extreme instance of the intertwinement of the state with the economy is provided by what is called the ‘developmental state’. The point about this is that the state intervenes systematically in the economy in order to correct the failings of free markets. A good example of this is the Republic of Korea (South Korea). Korea’s economic miracle is usually dated from about 1960. The Korean government dragged up the economy by its bootstraps, totally ignoring the advice of orthodox economists in the process.

In fact important developments before that time laid the basis for the progress since then. The Korean peninsula was the site of a vicious war between North and South in the 1950s. Both countries were used as proxies in the great power struggle of the Cold War. The Americans insisted upon land reform in the South in order to forestall the attractions of communism to the peasantry in the South. Fundamental land reform eliminates the payment of rent to the landlord class and raises the productivity of labour in the countryside by giving the peasants an incentive to raise output. The countryside can therefore feed more urban workers. The rise in productivity also allows more peasants to leave the land and join the industrial workforce. Land reform is therefore an important precondition of industrialisation.

In the most usual case the intertwinement of the landlords and capitalists as the ruling class prevents the capitalist state from carrying out significant land reform. For the same reason the ruling class is usually incapable of solving the national question. Together these are the principal tasks of the bourgeois revolution. This is the nub of Trotsky’s theory of permanent revolution, that these tasks can only be carried out when the working class is at the helm of the state. But, having taken power with peasant allies, the revolution will grow over in a permanent or uninterrupted way to carry out the socialist reconstruction of society.

In the case of Korea the susceptibilities and interests of the landlords were just thrust aside in the strategic interests of US imperialism. This remains an exceptional case. Korea began its industrialisation with five year plans. This was based on a handful of privately owned chaebol (conglomerates) which responded to government advice, direction, protection and favouritism. At one time the most productive steel plant in the world, the Korean firm Posco, was state owned and run by a retired Korean army officer. All the same, nobody seriously argues that South Korea is a Stalinist state, despite this homage paid to successful non-capitalist industrialising economies.

Korea was one of the ‘Asian Tigers’, fast-growing capitalist economies in East Asia. The others were Singapore, Hong Kong and Taiwan. They were a much-discussed phenomenon before the advent of the BRICs. There were different reasons for their take-off, but they were small countries which were seen as exceptions to the rule. And they were, and are, exceptional.

The BRICs

The advance of Brazil, Russia, India and China (the BRICs) has been adduced as further evidence that capitalism has acquired a new lease of life. Though capitalism may have stumbled in its heartlands, the BRICs are forging ahead. This is said to show that China provides an example to the rest and that the rates of growth achieved in China may be a harbinger of capitalist progress for the future. What we are saying is that China is different from the other BRICs. It has been growing fast for more than thirty years. The other BRICs have a much less impressive sustained growth record. The reason for China’s success is that it is not capitalist

 The other BRICs are indeed all growing fast at present, though all for different reasons. There is no common thread. Alex Callinicos (Bonfire of illusions, p.116) has surmised that the concept of the BRICs is a ‘broker’s fantasy’. Russia is completely dependent upon the export of natural resources, particularly oil and natural gas. The price of these resources on world markets can be very volatile. A large country like Russia cannot depend on export earnings from these resources to feed its people for ever. We should also remind ourselves that Russia is bouncing back from a terrible collapse as a result of the restoration of capitalism

 Brazil is also dependent on commodity exports for its recent spurt of growth. It is slowing down in 2012 but has grown fast in the recent past.  Its past growth record over a longer time span, in spite of its magnificent heritage of natural resources, has been poor.

India has a huge home market, but seems very dependent on the export of services to the advanced capitalist countries for exports. You cannot feed a population of 1.2 billion by providing call centres and the like. Large tracts of the country and hundreds of millions of its people are enmired in rural backwardness and see none of the benefits of the partial and one-sided economic growth that is going on.

To be sure, all these countries are growing quite fast by historic capitalist standards, but all for different reasons. One reason for their progress is their trade links to China, in effect travelling on the country’s slipstream. The BRICs are all capitalist countries and so part of the system. They are all more dependent on the rhythms of the capitalist world marker than China is. The future for world capitalism in the years ahead is grim. The other BRICs are therefore unlikely to all continue on this upward growth path in the years that lie ahead.

We expect some capitalist countries to grow faster than others. That is the way of the world since capitalism began – competition develops winners and losers. Combined and uneven development is after all a basic feature of growth and development under capitalism. Will the other BRICs pluck hundreds of millions out of poverty and begin to challenge the hegemony of the advanced capitalist countries, as China has? There is no sign of this at present.

Chinese growth feeds economic development all round the world. For instance Western Australia and Indonesia are both growing fast, exclusively on the basis of raw materials exports to China. While the area around Perth is booming, the Southern and Eastern quarter of the continent, where most Australians live, seems to be in recession. Likewise Indonesia, home to more than 200 million (mainly very poor) people is being kept afloat by exports of coal and palm oil to fuel Chinese growth.

Nationalisation and socialist planning

The percentage of industry that has been nationalised is not decisive as to the class nature of the country.  Having said that, China has the biggest public sector of any major economy in the world. As we have seen the Chinese government controls the commanding heights of the economy, if not a majority as measured by number of employees or as a percentage of GDP. China also has the fastest growing economy in the world. Surely there is a lesson there?

Though initiated by Stalin in the Soviet Union, the existence of Five Year Plans cannot be regarded as final evidence that China is not a capitalist country. We have seen that capitalist countries, such as the Republic of Korea (South Korea), used Five Year Plans as part of their drive to industrialise. But planning can be a more important lever of growth for a post-capitalist society than under state-directed capitalism. The Plan provides limits and sets directions for the operation of privately owned firms. We see that private capitalists in China have to work within the parameters set by the Plan.

Some underdeveloped capitalist countries have adopted measures of planning, in order to force a hothouse development of capitalist industrialisation.  Some other capitalist governments have intervened extensively in the economy for pragmatic political and economic reasons. Planning in China is much more significant than the partial and temporary measures taken in capitalist countries. That is because it is not a capitalist country.

Planning, as in South Korea, is the exception that proves the rule. Most capitalist countries make no serious attempt to plan the economy. The capitalist class resists the encroachments of the state upon their managerial prerogatives and potentially their profits. Capitalist countries suffer accordingly from the anarchy of world capitalism.

If the managers of state owned enterprises in China are a capitalist class or represent a capitalist class, then this is the most unusual capitalist class in the history of the world. They do what they are told by the state! It is a fundamental principle of Marxism that the ruling class moulds the state to its needs and interests, not the other way around.

Traditionally Marxists have characterised capitalism as an anarchic, unplanned society. This is not accidental. Individual capitalists undertake production solely for profit. The capitalists are not motivated to satisfy social need. Individually they cannot know how many commodities of any kind are required at any time. The result of their exertions is an unconscious worldwide division of labour imposed through the operation of the law of value behind their backs. China has to a large extent overcome capitalist anarchy by striving to plan the economy.

The mighty Chinese public sector and plan are evidence that the ruling bureaucracy has methods of controlling the economy that are not available under capitalism. Taken together, the extent of public ownership and the existence of a far-reaching plan provide powerful evidence that China is not a capitalist country.

China is a dictatorship, a one party state. There are plenty of other dictatorships around the world, capitalist dictatorships. The rule of the sword exists elsewhere in order to perpetuate the exploitation of the workers and peasants by the ruling class. For the most part these countries’ growth record is poor and the regime’s attention to the welfare of their people non-existent.

China is different. Despite its totalitarian political system, its economic performance offers a ray of light to the common people of the world. It has lifted hundreds of millions out of poverty! It shows that capitalism is not the only system possible, and not even the most efficient one. Despite its imperfections and bureaucratic distortions it shows a glimpse that a socialist alternative possible and, once implemented, that socialism will show that capitalism is a bankrupt economic and social system.

What is needed in China is a political revolution. We should not minimise the transformation in the consciousness of the masses for this to happen. But the basic structure of a planned post-capitalist economy is in place. It just needs to be democratised. The central demands will be for democratisation of the state and for workers’ control and management of industry.

This is not as monumental a task as a social revolution, which involves a massive upheaval, the abolition of an entire ruling class and its hangers on. Since the ruling ideas are always the ideas of the ruling class it also requires struggling against and eradicating all the ‘common sense’ norms and precepts that have been rooted in and permeated society for centuries as part of class rule.

It is widely understood that most poor countries, remaining on the basis of capitalism, have extreme difficulties in industrialising and steadily improving the living standards of the mass of their people. That is still the case.  Capitalism can be seen as a system that had failed most of those living in the ‘third world’, and failed workers in advanced capitalist countries too. This all remains true, and is the fundamental reason that we should dedicate ourselves to its overthrow, and to the worldwide victory of the socialist revolution.

16 April 2012


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