An insight into the socialist market economy

This year marks the 40th anniversary celebrations of the reform and opening up and the development of the socialist market economy (which is different from a capitalist market economy). As part of the celebrations, 100 people who have contributed significantly to the reform and opening up were nominated for awards. As the People’s Daily reports:

The award candidates come from a wide range of professions, including scientists, economists, grass-roots Party cadres, model workers, state firm managers, and private entrepreneurs.

Feedback is being sought until 30 November, after which the final list will be announced. Nothing remarkable in such an exercise, although some attention has been directed to the nomination of the drivers of China’s world-leading e-commmerce, such as Ma Yun (also known as Jack Ma) of Alibaba. Everyone in China knows that he is a long-standing member of the communist party, so nothing new there.

More significantly, the award exercise opens a window into the functioning of China’s socialist market economy. Although proper research goes much deeper, engaging with Marxist economists in China, the following, from the People’s Daily, is a helpful start. It concerns what may be called an enmeshed economy, where state, society and economy are so intertwined that it is almost impossible to speak of separate entities.

Party not meddling in running of firms: experts

The Communist Party of China (CPC) branches inside private companies help enhance corporate management and improve teamwork without meddling in decision-making processes, and concerns over any executive affiliated to the Party reflect a lack of knowledge about how the Party functions at the grass-roots level, experts said on Tuesday.

Jack Ma Yun, founder of Chinese e-commerce giant Alibaba Group, was identified as a Party member on Monday, which sparked heated discussions online. Some media reports said it was an example of how the Party penetrates into every aspect of Chinese business.

This is actually not the first time it has been revealed that Ma is a Party member, media reports said. When the Zhejiang Merchants Association was first established in October 2015, Ma was appointed as the first head of the organization and introduced as a Party member.

Those who are worried that growing Party branches and committees inside private companies might jeopardize the interests of shareholders or affect decision-making have no basic knowledge about how grass-roots Party cells operate and what their roles really are, Su Wei, a professor at the Party School of the CPC Chongqing Municipal Committee, told the Global Times on Tuesday.

“Before the CPC implemented the ‘Three Represents’ and allowed private entrepreneurs who had met the requirements to join the Party back in 2001, the number of private businessmen who were Party members accounted for a large proportion of the total number of private entrepreneurs. And many had already become Party members even before they started their own business,” Su said.

It is unknown whether Ma joined the Party before he started Alibaba. The e-commerce firm was contacted by the Global Times but did not comment on this matter by press time on Tuesday.

Membership of the Party and corporate management are two unrelated things, Su noted. “The board of shareholders is in charge of decision-making and daily operations, while Party cells are set up to make sure the company’s operations are in line with the principles and policies of the CPC,” he said.

China recently released a trial regulation for Party branches stating that Party cells inside private firms can help guide and supervise enterprises to follow the country’s laws and regulations and safeguard the legitimate interests of all parties, according to a document released on Sunday.

The cells will also contribute to team building inside companies and boost corporate development, the document showed.

“It’s crystal clear what role Party branches play in private companies,” Su said, noting that Party cells are not established with the aim of replacing management teams or meddling in decision-making processes.

Party benefits

Alibaba established its Party branch in 2000 and upgraded it to a Party committee in 2008 due to the company’s growing number of Party members, according to media reports. Alibaba now has nearly 200 Party branches and about 7,000 Party members. Ma highlighted the importance of Party construction work with younger generations, pledging to explore Party building inside high-tech firms in the new era.

Over the past few years, more and more private companies, especially tech start-ups, have set up Party branches and committees to improve management and enhance team building. Some entrepreneurs also admitted that Party members, who are usually hardworking employees, have become role models at workplaces.

“We hire graduates every year and some of them are Party members, who usually work hard and are eager to learn, creating a positive work environment,” Liu Ren, vice general manager of Dailywin Watch Group, told the Global Times Tuesday.

Tech firms such as iFlytek and smartphone maker Xiaomi have been strengthening their Party construction work. “The rapid development of iFlytek is thanks to the correct guidance of the CPC and the hard work of Party comrades, who are also the backbone of our management team,” Wu Dehai, Party chief of the CPC committee of the company, told the Global Times in a recent interview.

The trial regulation for Party branches said that if there are at least three Party members in an organization, it should set up a Party branch.

The private sector is a key part of China’s reform and opening-up, and it has been developing with Chinese characteristics, Su noted.

“The interests of shareholders of listed private companies do not contradict the core interests of the CPC, as the Party also wants to pursue opening-up and economic growth,” he said.

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4 thoughts on “An insight into the socialist market economy

  1. One feature of capitalist crises is that the growth of economic output in physical terms and the profitability of individual capital-owners suddenly seem to become incompatible. Individual capitalists and shareholders suddenly perceive it as more profitable (or perhaps less *un*profitable) to layoff workers and cut production. This shatters the earlier apparent harmony between the interests of the individual capitalists in realizing a monetary profit and the interests of society as a whole in expanding production of useful things in physical terms.

    For the interests of shareholders in China to never contradict the interests that the CPC has continually growing economic output, at least one of two things must be happening in China:
    1. Production on average in China never becomes unprofitable in monetary terms (i.e. there are never any *generalized gluts* of overproduction that makes production in general unprofitable, i.e. specific businesses might lose money, but the average rate of profit remains always positive, and for every business that closes and every worker laid-off there is demand for that worker at at least one other business that is still making a profit and expanding its output). Empirically, this seems to be the case so far in China, so my question in this case would be: how does China do it? What would Western countries need to do differently in order to ensure that in Western countries it is never individually more profitable for the average capital-owner to decrease output, layoff workers, and hoard money? I.e. how has China seemingly avoided crises of generalized overproduction?
    2. Production becomes unprofitable in monetary terms for capitalists in China in general, but those capitalists are persuaded somehow to either not care as much that they are losing money and they keep their production going at a loss, or Chinese capitalists do care that they are losing money and would like to layoff workers and decrease output, but feel like there is nothing they can do about it—i.e. they feel like they have no legal choice but to continue production at a loss (perhaps due to State pressure?) Is this China’s contingency plan for if, somehow, production in general should happen to become unprofitable for a period of time at some point? (i.e. if China should happen to experience a crisis of generalized overproduction)…or is the CPC’s plan counting on their ability to continue preventing such crises of generalized overproduction from breaking out in China in the first place?

    1. There is much debate about such matters in China. Simply put, companies do go bankrupt – as the recent troubles of the Bike Share company Oppo indicate. (I could add many examples, such as the closing down of dirty power plants for environmental reasons.) Further, in order to ensure that the state owned enterprises remain the core economic drivers, they have been substantially reformed in order to ensure that the bottom line remains healthy. A few that have been unable to do so have been shut down. This was a systemic problem with the older SOEs under the former version of the planned economy, with many of the behemoths losing track and indeed not needing to make sure they were economically viable.
      Some have suggested that the way economic crises are averted in China is to shift production internally to areas (west, southwest, northwest) that have lagged behind the growth in the east. But now a whole range of other approaches are used so that this practice is not so important now.
      For example, the SEOs are shifting to what might be called public-private arrangements. I write ‘what might be called’ since it is becoming apparent that the distinction between public and private is increasingly irrelevant in China. The example in this piece, where ‘private’ companies like Tencent have CPC workers and party branches, is another dimension. State and economy, public and public, are increasingly enmeshed with one another. This is one aspect of a new definition of a socialist market economy.
      More importantly, the primary purpose of all companies is not to maximise returns for share-holders. Of course, they need a healthy bottom line in order to keep functioning, but the primary focus is what may be called the common good. This is not merely a communist focus, for it also comes from the Confucian texts. In the Book of Rites, Confucius uses at one point a four-character phrase: ‘all under heaven is as common [tianxia wei gong]’. Ever since the early 20th century, this has become a phrase on everyone’s lips (from Sun Yat-sen onwards). One area where it shows up today is in the prime purpose of economic activity.

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