Marxism and China. The Transitional Economy

posted 17 Aug 2010, 13:55 by Admin uk   [ updated 3 Mar 2011, 04:02 ]

Marxism and China.

The Transitional Economy A reply to Comrade Jeppe and the IMT

by Heiko Khoo


I read with interest the latest ‘contribution to the discussion’ on China from the IMT. [a] It is is written by comrade Jeppe Druedahl and claims to be an investigation of the ‘precise dynamics of a transitional society in the hands of a bureaucracy’, a matter of considerable interest to me.   


Comrade Jeppe sticks to the standard introduction, which includes the obligatory placement of the Chinese revolution in second place to the Russian as ‘an historical event’. In my decades in the IMT I always wondered who came third? Perhaps the IMT could award a prize both to the third greatest event in human history and to the person who names it? I am sure the revolution concerned will be most honoured by the IMT’s bronze medal. Why not give it to Chavez for his efforts in Venezuela?  


Comparing India and China and the roots of present day growth in China.[b]


The success of the ‘former planned economy’ created by the Chinese revolution is said to be revealed by a comparison of per capita GDP with that of India, comrade Jeppe claims today it is almost 60% higher in China than in India’.    


Here are the statistics in US dollars from 2009  

IMF                 World Bank     CIA                 

China               3,678               3,687               3,600


India                1031                1,122               900

(accessed 23.25 August 5th 2010)


                        IMF                 World Bank     CIA

China               6,567               6,675               6,600


India                2,941               3,248               3,100

(accessed 23.26 August 5th 2010)


 As the figures above indicate, the lowest differential calculated by the World Bank at nominal rates shows that China’s per capita GDP is over 328% higher than that of India.

The lowest differential calculated in GDP per capita using PPP is also from the World Bank but is over 100% greater than that of India, not 60% as comrade Jeppe claims.

Why would comrade Jeppe use such incorrect data and present it as the figures for ‘today’? The secret might lie in the desire to make the data fit the theory.

Let us see what this theory is that requires such a grand distortion of the facts.

We are told that the Only way ‘one can explain’ China’s economic superiority over India is 'the fact that China had benefited enormously from its previous period of having a planned economy. The high level of growth today must also be seen in the light of the important economic steps forward (industrialization, increasing level(s) of education etc.)' (my emphasis)

This same claim was made in “China’s Long March to Capitalism’. The basis for this argument was an argument that I made under the pseudonym Qiu Lihua in an article for Socialist Appeal in 1992. In that article I stated:

“To be sure the gross value of agricultural output grew from an average of 4.3% between 1971-1978 to 7.5% between 1980-1982 and 13% between 1982 and 1986. Much of this growth was due to the irrigation projects and fertilizer supplies undertaken and made available in the mid 1970’s.”[c] This article did not seek to explain generic economic progress by foundations from the Maoist era. It was not a discussion of industrial development.

To state that the development that we have witnessed over the last thirty years is the product of “industrialization, increasing levels of education” from the Mao era, has no basis in fact. The most rational explanation for using this argument is an attempt to make the facts fit a false theory.

Surely comrade Jeppe is aware of the destruction of the educational system during the Cultural Revolution? What 'increasing levels of education' were produced by disrupting all urban schools for six years, closing most schools down between 1966 and 1968, and closing nearly every university for six years?

Having set up his article with some false data, and a correspondingly false theory, the article begins a long meandering pathway into esoteric questions. It starts with something called the ‘first law of dialectics’, continues with the ‘basic’ and ‘total misunderstanding’ by ‘some Marxists’, who remain nameless throughout. Apparently their ‘total misunderstanding’ concerns the theory of the permanent revolution. As I read on I lost track of why exactly these comrades are so ‘totally’ wrong but I admit feeling relieved that someone is putting them right at last. Some dialectical terms and many citations of Trotsky later, we find China is mentioned again. It is asserted that rapid Chinese growth over the last decades definitely does not mean, that “the capitalist economic system is still fully capable of developing the forces of production on a world scale”. Not knowing the significance of this statement answering ‘some’ who are ‘totally off the mark', I skip over these perplexing words to find something of real substance. Ah here it is! “What has happened in China is only to a very small degree a real qualitative development of the forces of production”. It is then claimed that because China imported and copied from advanced capitalism, and apparently this means growth was 'simple quantitative expansion' 'and in any case the potential was huge' for such importing and copying.

What does this “simple quantitative development” consist of? The ‘simple quantitative development’ heralded the most rapid development of the productive forces of any country in human history over the last 30 years; the creation of the world’s largest export industry; the largest steel industry; the largest car industry; housing, feeding and clothing a quarter of mankind; and carrying through the most rapid reduction in poverty; and the most rapid urbanization of any major country in history.

This is apparently “only to a very small degree qualitative” and after all “the potential was huge”. Was the “potential not huge in India, Africa and Latin America? Does the theory of the permanent revolution not apply to countries where ‘the potential is huge’? Why did no other capitalist country of comparable size develop in such a ‘simple quantitative’ way as China has done? Was the key the remnants of the pre-1978 Maoist era coming into play again? If so why were the former states of the USSR unable to carry through such a 'simple quantitative expansion'? Surely the USSR had also “benefited enormously from its previous period of having a planned economy” ?

Comrade Jeppe seems about to get to the heart of matters when he says, “Let us now turn to the beginning of the process of the restoration of capitalism in China in the end of the 1970’s.”

Normally when someone says, Now let us turn to…you think they mean immediately, not so comrade Jeppe, our guide is about to take us on a long march through…Russian history. But if we fast-forward 5 Trotsky quotes and 36 paragraphs, our journey finally arrives back in China. I must say I find it a little strange that Trotsky merits 38 mentions in an article about a China that he never lived to see.

Now don’t get me wrong I find the discussion of the NEP in the 1920s to be highly relevant to China’s development, but the entire argument is set up by comrade Jeppe so as to view everything in China through the prism of how well it conforms to Trotsky’s views on Russia between 1921 and the 1930s, and not to the practical and theoretical significance of the NEP era to China. This is a blinkered and sectarian methodology.

Inside the IMT the era of the New Economic Policy was always presented only as a retreat forced on the USSR by the failure of revolutions in the most advanced capitalist countries. Studying the NEP was not considered important to the study of transitional societies as capitalist enterprises were largely eliminated in the USSR, Eastern Europe and China. The IMT argued that all that was needed in these countries was workers' control to make them flourish.

This was not the argument made by Preobraszhensky, he argued that ‘New Economics’ would be the standard form of transitional economy. His study of the contradictory dynamics of the USSR enabled him to abstract the laws of economic motion in transitional economies moving towards socialism. He identified the struggle between the law of value and the planning principle as the terrain by which primitive socialist accumulation gradually conquers capitalist and pre-capitalist economic formations and through quantitative accumulation, lays the foundation for qualitative accumulation and the domination of the laws of planned economics.

Comrade Jeppe measures the veracity of the argument that China is capitalist by determining how closely China approximates to his own interpretation of the New Economic Policy in the USSR and not by an analysis of what actually is happening in China. Thus the first half of the article is taken up with the USSR in the 1920s.

Once presented, comrade Jeppe’s model of the NEP is cajoled into playing the role of an ahistorical universal judge and jury that delimits the scope of ‘acceptable’ ‘concessions to capitalism’. China is then compared to this ‘ideal type’ construct. According to the IMT the Chinese NEP continued from 1978 to approximately 1999, might there be something positive to learn from such a long experiment? The IMT’s method, which sees the entire process since 1978 as a process of continuous regression, excludes any serious investigation of these issues.

When discussing the development of the Chinese economy in this era the IMT comrades present an image of a gradually withering planned economy and the pheonix like rise of the bougeoisie. No explanation is given as to what were the alternative methods for developing the economy. In fact no economic policy is proposed at all, instead a political prescription, workers’ control and management is the exclusive response to economic problems.

IMT theory holds that everything would have been fine in the USSR from the 1920s onwards, if only the workers would have maintained control and revolutions in the advanced countries suceeded; then the NEP could have been avoided or abandoned in favour of complete public ownership and socialist democracy. How could the USSR or China create modern industrial plant, machinery, logistics, transport by simply merging tiny enterprises into giant ones? Lenin was only able to ponder this question but in his article On Coooperation[d], he did not resolve it. No matter what form of democractic control were in place the task of economic development through socialist accumulation could not be attained without a prolonged epoch of the New Economics.

The fundamental tasks of the bourgeois revoution remained to be carried out in the USSR in the 1920s and 30s, they could not be lept over even with help from revolutions in advanced capitalist countries. Similar tasks remain to be carried out in China today. For example the greatest wave of rural-urban migration and proletarianisation in history is happening right now in China, could this really be skipped over by some magical means under workers’ control?

The IMT leadership are confused in determining what criteria they should use to determine the class character of the Chinese state. There is the issue of the relative percentage of GDP produced by the state and private sector, which seems often to be their primary determinant. However for convenience sake this critera is abandoned at will. Thus at the 2009 World School and in their original reply to our documents the IMT leadership argued that some capitalist economies also can have high percentages of state ownership, they cited the examples of Iran today and Italy under Mussolini. Thus even if China had 90% state ownership it would not undermine the argument of the IMT leadership that the Chinese bureaucracy have ‘gone over to capitalism’. One wonders why they bother to engage in such laboured attempts to prove the Chinese economy is run by the private sector when no matter what evidence there is to the contrary, it can be made to fit a ‘China is capitalist’ theory? It seems the main purpose is not to prove the validity of their arguments but to suffocate and strangle the counter-argument.

Until a few years ago it was accepted inside the IMT that power was exercised by the Chinese state which represented the working class in a deformed bureaucratic form. State power in the last instance being composed of the armed forces defending existing class relations. The argument made by Fred Weston in his opus magnum China’s Long March to Capitalism, was that the state apparatus had become capitalist. He claimed that the armed forces were embedded in capitalist enterprises, the Communist Party was controlled by the interests of capitalist businessmen and women, and the raison d’etre for wider state bureaucracy was said to be, to nurture and defend capitalism.

In response to this contention I explained that the changing objective balance of class forces meant that the rising capitalists were too weak to seize state power and were thus subordinate to the state bureaucracy. The bureaucracy in turn was hindered in its freedom of movement towards capitalism by the rising numerical and social specific weight of the working class.

In pre-revolutionary Russia the bourgeois were to weak to lead the bourgeois revolution, they feared the very working class which they had organised in modern industry. The workers championed progressive change, and thus the bourgeoisie leant on the Tsarist state for support against the working class.

In China today the working class are too powerful and the bourgeoisie are too weak for them to take over the reins of state power and establish a stable bourgeois democratic regime. Thus the state bureaucracy balances between the classes, leaning first on one, then the other.

The IMT leadership argue that the state bureaucracy is ‘nurturing’ a weak bourgeoisie, ‘moving towards capitalism’, heading down the ‘road to capitalism’, and ‘consolidating capitalism’. All these are arguments with slightly different meanings, however none of these phrases actually means that the state is already a capitalist state. The government of the United States and Britain for example, can in no way be said to ‘move towards capitalism’ or ‘consolidate capitalism’ or ‘nurture a bourgeoisie’, the state is capitalist full-stop. It is a useful linguistic trick to silence those inside the IMT who question how far ‘on the road to capitalism’ China has gone, to be able to speak of an unfinished process, at the same time as speaking of the process being complete.

The Chinese bureaucracy reflects societal pressure from the working class and the peasantry as well as from the bourgeoisie. The instruments of state power which sustain and consolidate the rule of the bureaucracy are also those which bind the bureaucracy to take action aimed at improving the living standards of the masses and carrying through development of the national infrastructure. The intervention by the bureaucracy to counteract the crisis affecting world capitalism enabled China to grow rapidly despite the global capitalist reccession. The attainment of the goal of exceeding 8% growth is verification, in the deepest world reccession since the 1930s, of the fact that the planning mechanisms at the disposal of the government are sufficient to, elaborate accurate forecasting, draw up interventionist measures, and mobilise the resources to implement them. Their success is confirmation that planning retains its dominance over the decisive levers of economic power.

The Communist Party retains the symbolic and actual levers of political and economic power; it retains control of the army, police, judiciary, party and government founded on adherence to a constitution and legal superstructure based on ‘socialism’ i.e. an economy dominated by public ownership in the commanding heights of the economy and the banks and under the control and direction of the state bureaucracy. This is inscribed in the following articles of the constitution.

“Article 6. The basis of the socialist economic system of the People's Republic of China is socialist public ownership of the means of production, namely, ownership by the whole people and collective ownership by the working people. The system of socialist public ownership supersedes the system of exploitation of man by man; it applies the principle of 'from each according to his ability, to each according to his work.

Article 7. The state economy is the sector of socialist economy under ownership by the whole people; it is the leading force in the national economy. The state ensures the consolidation and growth of the state economy.

Article 12. Socialist public property is sacred and inviolable. The state protects socialist public property. Appropriation or damage of state or collective property by any organization or individual by whatever means is prohibited.

Article 15. The state practises economic planning on the basis of socialist public ownership. It ensures the proportionate and co-ordinated growth of the national economy through overall balancing by economic planning and the supplementary role of regulation by the market. Disturbance of the orderly functioning of the social economy or disruption of the state economic plan by any organization or individual is prohibited.

Article 16. State enterprises have decision-making power in operation and management within the limits prescribed by law, on condition that they submit to unified leadership by the state and fulfil all their obligations under the state plan. State enterprises practise democratic management through congresses of workers and staff and in other ways in accordance with the law.”[e]

Surely these are not the legal foundations of a capitalist economy? Surely one can struggle alongside anyone who defends these parts of the constitution?

There are political forces which advocate a bourgeois-democractic state, demand ‘free elections’, a parliamentary system, a bourgeois legistature and a state apparatus serving these private capitalist interests. This is the essence of the programme advocated by Charter 08.[f] One of the main reasons that such forces remain weak is because the majority of the bureaucracy does not support their programme. The privileges of the bureaucracy as a whole are based on the present balance of forces. Popular opinion in urban China is overwhelmingly egalitarian, pro-constitution, pro-socialist, pro-Communist Party and pro-central government. This limits the freedom of movement of the bureaucracy.

The verification of a scientific theory requires that it can put forward hypotheses based on the observations and see if they come true. The documents that J. Clyne and H. Khoo wrote two years ago concerning the direction of events in China between 2008 and 2010 were verified by the facts. The same cannot be said of the hypotheses of the IMT leadership.

For four years the IMT leadership have argued that China is about to collapse economically, it would sink in the face of a ‘humdinger of a crisis of overproduction’. The IMT claimed the economy was overwhelmingly dependent on exports and was suffering from countless bubbles in housing and shares etc. [g] According to comrade Jeppe the state sector is too small and too profit oriented and independent to be part of anything that can be called a state planning system. Each and every time the IMT made predictions they were based on the latest forecasts from western investment banking analysts like Stephen Roach and Stephen Green and institutions such as the World Bank. These analysts claimed that China would never make 8% growth in 2008 or 2009, because the market can’t be beaten, but they were wrong and the market was beaten.

Does this not show that the Chinese state is able to plan the rate of economic growth and expansion? Have the levers of economic power in the hands of the state not been proven to be sufficient to determine the rapid rate of expansion in the biggest recession since the great depression? One might think that Marxists would see in this a confirmation of the fundamental theories of Marxism as to the superiority of state planning over the capitalist market, alas some cannot correct errors when they stare them in the face and choose instead to compound one error by piling more on top.

The IMT leaders made some arguments to explain China’s ability to defy their theories. They are as follows.

1.     Other capitalist countries have also grown.

2.     There were special circumstances due to the accumulated reserves.

3.     The crisis will come sometime soon it has just been temporarily delayed.

In reply to 1. There were no other (significant) countries, whose growth was said to be so dependent on world trade, that were able to sustain such high growth rates. 2. With regards to part 2 one can only respond speculatively, I believe that if the reserves were not there, the state would have increased its role by other means, i.e. by expropriation and complusion and thereby ensured the position of the bureaucracy remained secure though social stability and self-preservation based on an extension of state ownership and planning. 3. A scientific theory must correspond to observation and be able to draw up hypotheses about the likely processes. When a theory is confounded by reality an unlimited delay in its realisation is probably a refutation of the hypothesis itself.

Not having seen a planned economy that looks like China’s before, the leadership of the IMT assume it can’t be a planned economy. Like the mythical European who first saw a giraffe they exclaim “I don’t believe it!”[h]

However as China behaves differently to capitalist laws, new, vague and confused theories were conjured up under the pressure of our criticism. The problem is that China’s significance is so overwhelming in the present epoch that inconsistent theories will generate confused and incoherent analysis, explanation and prediction. The way out of this connundrum chosen by the IMT leadership, was to falsify the argument of their opponents, knock down the falsification, purge those who disagree, and then pretend that the argument is about whether China is ‘capitalist or communist’.

Thus it has become impossible to change a theoretical error because it is accepted not on the basis of verifiable evidence capable of identifying the means of its disproval, but on the basis of faith in the leadership’s interpretation of sacred texts. As a subtext, the unfortunate problem is that the leader of the IMT, Alan Woods, refused to take a stance on the issue of China being capitalist. In fact in several speeches over the last two years he claims China is not yet capitalist, nowhere has he written a single paragraph presenting his own justification for the China is capitalist thesis. So it is natural that there is considerable confusion inside the ranks of the IMT. This is because Alan Woods has never studied China and for some reason he seems to be afraid to dedicate time to such study. This would be fine, if around him Alan Woods were to nurture a second layer of leadership, assisting the IMT to study and write on China (and other areas of the world) but this is not done.

Comrade Jeppe knows that there is a need go beyond the arguments from the IS which were written in reply to documents from myself and Jonathan Clyne. After all, if the analysis contained in China’s Long March to Capitalism and the second document from the IS [i]were correct and coherent, why the need to pen another article on the same subject? Comrade Jeppe knows that the concept of the nature of the transitional economy lies at the heart of the debate, but this terrain is a closed book to most comrades and is one totally ignored in the official IMT response to our arguments. Sadly comrade Jeppe crafts his arguments in the manner of a child trying to fit a square into a star shaped hole with a hammer.

Thus for comrade Jeppe the critera for determining whether China has a planned economy is not determined by an analysis of the observable process in China over thirty years, but in relation to how well it fits the NEP between 1921-1928 over seven years!

There is no means of countering the assertion that China is capitalist because it is taken as an article of faith, supposedly proven by his sources. These sources claim that the majority of industrial production is produced by private companies, (including foreign companies) and that state companies function independently of central control and produce for exclusively for profit.

China’s concrete reality over the last two years during the world’s deepest recession since the 1930s is completely ignored! There has been a colossal and planned expansion of the economy and of the state sector of the economy! In addition Comrade Jeppe sloppily presents a false figure for China’s growth for 2009 of 7.7% [j] Maybe this (like the 40% error about the China/India comparison) was just a slip of the finger on the keyboard, but does the editor of not know the true figures or check the facts? Evidently not! Will this figure be corrected when these comrades check them? Or will it be too embarassing for them to correct their facts and figures if the wrong person points them out?

In fact the last two years have seen the greatest public sector investment in China since the Chinese revolution of 1949 and the biggest expansion of the state sector since the late 1950s. Anyone with open eyes can see this. But what do such facts matter when compared to the grand tried and tested method of quoting Trotsky from the 1930s!

If our arguments are so easy to disprove and the willingness within the IMT to debate is so open, why not be honest and state what our ideas are? Why not publish the documents of the different sides of the debate inside the IMT from 2008-9 on Then anyone can decide which analysis proved to be most accurate? Why not even acknowledge that your article is a response to our arguments?

The four rules of abiding by the NEP outlined by comrade Jeppe are a confirmation of all that is wrong with his method, based as it is on assertions backed by quotes.

1.     The statement that the NEP in the USSR was “controlled by a party of and for the working class” is an empty phrase, which is also not true. The period is precisely the era when Lenin and Trotsky saw that the party was being driven and not driving the bureaucratic apparatus.[k]

2.     The claim that the state controlled the most important productive forces, during the NEP in the USSR is not backed by any evidence and nor is the claim that comparatively the Chinese state controls less of the Chinese economy today. In fact it is blatantly obvious that the Chinese state hold more mechanisms of control over the economy and society that did the Soviet state in 1921-28. China has industry whereas the USSR in the NEP had barely any heavy industry.[l] The NEP was abandoned precisely because the Kulaks and NEPmen wielded so much control over the economy that the bureaucracy and the revolution itself was threatened. This hardly concurs with the idea that the NEP had the decisive levers of economic command at its disposal. The fact is that agriculture played a vast role in the economy and industry was unable to produce goods to exchange in sufficient quality and quantity for the peasant to voluntarily exchange. Forced collectivisation and super-industrialisation was the bureaucratic response to the fact that the state did not have the most important productive forces at their disposal.

3.     In the NEP the state is said to have had complete control over credit - China is said not to. Then how to explain the massive rise in credit from state banks allocated to primarily to state projects by plan during the last 2 years?. This state control and command over credit enabled China to exceed its target growth of 8% for 2008 and 2009. This was driven by what the IMF called, “An extraordinary credit expansion. Chinese banks extended new loans of 31 percent of GDP in 2009” [m]

4.     The issue of the state monopoly of foreign trade is thus the final frontier where all IMT comrades can sit on a high horse and pontificate that this is proof that China has no planned economy. In fact the USSR barely had any foreign trade, secondly, foreign trade by definition moves over borders, thus there are myriad means of controlling the most important elements of foreign trade, for example; customs and taxes on imports, exports, transport, port usage, import controls, export prohibitions, etc. and that is in addition to currency controls. The state monopoly of foreign trade is not a Marxist principle; it is a form of socialist protectionism to facilitate development without external capital undermining your economy. The Chinese state has been very successful in extracting more from foreign investors than they get from China. Investment into China is controlled by a myriad of measures; from concessions to determine where capital is invested; to prohibitions on advertising through state monopoly; and constant Intellectual Property Rights ‘violations’ of private companies and multinationals. The state monopoly of foreign trade is one type of protective measure whose use is determined by economic structure and development,it is not a defining characteristic of a planned economy.


“To leave error unrefuted is to encourage intellectual immorality” Karl Marx


[b] Although I took up this issue already in my Critique of the IMT’s position, the arguments made seem to have passed the comrades by. So let me deal with them again as they are presented by comrade Jeppe.






[k] In the words of Woods and Grant “The state was no longer under control of the Communists, of the workers” p115 Lenin and Trotsky What They Really Stood For, p115

[l] ibid. p187 where Lenin is cited stating that the primary problem for civilised existence is the lack of heavy industry. In other words the state did not control “the most important productive forces”. These productive forces did not as yet even exist!

[m] p4. IMF China Country report July 2010