Why is the debate concerning the socialist market economy settled in China?

When I asked a Chinese colleague recently about the socialist market economy, he said ‘why would you be interested in that? The debate is settled and no-one is much conerned with it’. I did point out that some international observers still do not understand the socialist market economy. For example, the EU acknowledges that China has a socialist market economy, but then misunderstands it: for the EU, it entails state ‘intervention’ in an autonomous ‘market’. Nothing could be further from the truth, for they use the framework of a capitalist market economy.

In my ongoing research, I have come across what is widely recognised as the most influential study on the socialist market economy, one that largely settled debates and defined the breakthrough. It is by Huang Nansen and entitled (in English translation), ‘The Philosophical Foundations of the Theory of the Socialist Market Economy’ (Marxism and Reality, 1994). Huang identifies two philosophical questions that lie at the basis of the theory and practice of a socialist market economy: contradiction analysis of socialist society; the relationship between universality (pubianxing) and particularity (teshuxing).

Contradiction Analysis

In terms of the first, he draws on an assumed approach that has much depth in Chinese Marxism: contradiction analysis. Briefly put, in his 1937 Yan’an lectures on dialectical materialism, one of Mao’s major breakthroughs was the necessity of contradictions after a communist revolution and during the long construction of socialism. The key text would later, with revisions, appear as ‘On Contradiction’ (1937), to be followed by ‘On Correctly Handling Contradictions Among the People’ (1957). For Huang, the important points are, first, that Mao identified the basic contradiction as one between the forces and relations of production, or between the economic base and the superstructure, and, second, that such contradictions should always be managed in a way that is non-antagonistic (feiduikangxing de maodun). While the second point is a given and remains a cornerstone today, Huang faults Mao for his misdirected application of the first. Thus, Mao felt that the manifestation of this contradiction appeared in terms of ownership: if the basic contradiction of capitalist society is between socialised production and private ownership of the means of production, then socialism should overcome this contradiction through public ownership of all means of production. The result, argues Huang, was a decline in production.

Instead, the way the forces-relations of production contradiction appears is not in terms of productive forces and ownership, but between productive forces and economic structure (jingji tizhi). With this breakthrough – enabled by the circle around Deng Xiaoping – it was possible to develop a socialist market economy. To find out how, and indeed what ‘economic system’ means, we need to wait until the next section, for he now addresses the relationship between a planned economy and a socialist market economy. Was the former a mistake? No, for it is appropriate immediately after a communist revolution, but only for a specific period. A planned economy works initially to liberate and develop productive forces, but eventually its limits appear and further development requires a shift to a socialist market economy. I am not sure this temporal argument is the best way to see the relationship between planned and socialist market economies, for they both continue to work together (more later).

Finally (for this section on contradiction analysis), does this argument entail a shift away from public ownership? Not at all, but once ownership is not seen as the primary contradiction, both public and private may develop in a symbiotic relationship, albeit with private ownership in a recognised but subordinate role. Let me add here that twenty-five years later this question takes on a whole new dimension, so it requires further work.

Universality and Particularity

The second philosophical problem concerns universality (pubianxing) and particularity (teshuxing), or what he also calls commonality (gongxing) and individuality (gexing). Succinctly stated, Huang’s argument is while a market economy is a universal or common reality, its integration with a capitalist or socialist socio-economic system evinces the particularity of each type of market economy.

This argument is based on a crucial terminological distinction, between a structure and a system. The Chinese terms are tizhi (体制) and zhidu (制度), which are somewhat difficult to translate in a way that indicates their differences, for they are often rendered with the same words in English. Tizhi in this case is a specific organisation or structure, such as an economic or political structure. Huang uses this term to speak of a ‘market economic structure [shichang jingji tizhi]’. Zhidu here refers to an overall and foundational system, which embraces the realms of politics, economics and society. To make his usage clear, Huang refers to the ‘basic economic system of society [shehui de jiben jingji zhidu]’, which may – in this context – be either capitalist or socialist. It follows that a specific structure, whether a planned economic structure or a market economic structure, may be a universal, while the overall system is a particularity.

With this distinction, Huang points out that in the past it was not common to distinguish between the two, for reasonably good historical reasons. Thus, the market economic structure was seen as inseparable from a capitalist system, while a planned economic structure was part and parcel of a socialist system. But historical developments since the Second World War have indicated the increased tendency in capitalist systems for planned structures, while in socialist systems – he notes Yugoslavia – some elements of a market economic structure began to emerge. These developments enabled the awareness of the distinction between specific structure and overall system. The outcome: it is quite possible, if not necessary, for a basic socialist socio-economic system to make use of a market economic structure. This was, he points out, the distinct insight of Deng Xiaoping and his comrades.

Of course, this raises the question: is a market economy neutral, like machinery or the natural sciences. Not at all, for as a market economy is integrated within the overall system, its nature is shaped by that system. Thus, a socialist market economy is qualitatively different from a capitalist market economy. Now the relationship between universality and particularity takes another turn: while a market economy may have a basic commonality, in terms of the means and basis for the logistic functions of a market economy, it also takes on the specificity of the system in which it is shaped, whether socialist or capitalist. The conclusion is that one may therefore speak of a socialist market economic structure (tizhi) within a socialist system (zhidu).

The final matter concerns what distinguishes the socialist market economy. Huang identifies five features: 1) It contains a multiplicity of components, but public ownership remains the core economic driver; 2) While enterprises in a socialist market economy must be viable, their main purpose is not profit at all costs, but social benefit (gongtongti fuwu) and meeting the needs of all people; 3) It deploys the old socialist principle of from each according to ability and to each according to work, limiting exploitation and wealth polarisation, and seeking common prosperity; 4) The guide for action (to parse Engels) always remains Marxism; 5) The primary value should always be socialist collectivism (shehuizhuyi de jitizhuyi) rather than individualism.

Huang closes with a timely warning: the shift to a socialist market economy is by no means easy, for it entails profound social transformation, which will entail many unforeseen problems and challenges ahead.

I have taken some time with this contribution, since Huang’s sophisticated analysis effectively summed up debates and established the philosophical foundations for a socialist market economy. Many of his insights remain valid and one can see how they have been and are implemented, albeit not without a few significant problems on the way. At the same time, it is twenty-five years since Huang’s study and Chinese socialism, let alone the socialist market economy, have taken some major steps. The tell-tale signal is the awareness that China has almost achieved the ‘great leap [weida feiyue]’ to socio-economic wellbeing, and that it is embarking on the leap to become a strong socialistically modernised society. Or, as it was put at the nineteenth congress of the CPC, China has entered a ‘new era [xinshidai]’.

At least three questions remain from Huang’s analysis: 1) The delinking of ‘market economy’ from a capitalist system; 2) The issue of ownership; 3) The shift a socialist market economy from being a component to basic logistical device. These are the subject of further analysis.

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Western aid model takes on Chinese characteristics (updated)

It seems as though the ‘Western’ aid model is suddenly being reset, as the article below indicates. Instead of the long-standing method of bribery, in which cash was handed over subject to social, political and economic changes in the recipient country, they are now starting to fund infrastructure. Who would have thought? This is starting to draw near to the Chinese approach, with one caveat: ‘Western’ countries still need to learn that they cannot interfere with the sovereignty of other countries. Of course, they have seen how well the Chinese approach works and that it is favoured by the majority of countries around the world (wherever you look a Chinese infrastructure project is underway). But these ‘Western’ countries still have a very long way to go.

This is a recent article on the topic from The Global Times (another item also welcomes the USA’s engagement in infrastructure projects, but also asks whether that weird country will actually deliver):

Australia recently announced plans to set up a A$2 billion ($1.4 billion) infrastructure aid fund for South Pacific nations, which will provide grants and long-term loans to support energy, transport, water and telecommunications projects in the region.

Further, Australia’s export credit agency – Export Finance and Insurance Corp – announced it will offer another A$1 billion to support infrastructure projects and business development in the South Pacific region.

These moves were quickly interpreted by some Western media outlets as a response to “counter China’s growing influence” in the region.

Yet, compared with Australia’s previous attitude toward South Pacific issues, and given the adjustments made by developed countries to their foreign aid, it seems that China’s aid model of respecting recipient countries’ willingness to develop independently has been widely recognized by developing countries. This recognition has also gradually influenced the traditional Western aid system.

Australia’s latest aid plan is in sharp contrast with the comments it made several months ago. In January, Concetta Fierravanti-Wells, the-then minister for international development and the Pacific, told reporters that China was funding unneeded infrastructure projects in the South Pacific, which led to “useless buildings” and “roads to nowhere.”

In April, Julie Bishop, Australia’s former foreign minister, said that her country didn’t want to see development aid turn into a burden on vulnerable economies. Using this logic, it seems contradictory for the country to change its practice of only providing grants while starting to offer long-term loans to South Pacific nations. Australia’s moves are not merely intended to react to geopolitical competition, but also to fulfill the demand of recipient countries.

The policies and practices adopted by countries of the Development Assistance Committee (DAC) of the Organization for Economic Co-operation and Development (OECD) have expanded to include what look like Chinese characteristics.

First, OECD/DAC countries have expanded the scope of development aid from projects meant to improve living standards (for example, education) to infrastructure investment. Western donor countries usually limit their foreign aid on non-production sectors, avoiding industrial projects that might pose competition to their own industries. But this deprives recipient countries of the ability to develop independently and leads to their long-term economic dependence on donor countries.

In comparison, China-funded infrastructure, such as roads, bridges and factories, has enhanced the connection between recipient countries and the world market, thus winning them recognition and prompt Western countries to pay attention to the infrastructure aid they criticized before.

Second, OECD/DAC countries have evolved from offering free aid as they did in the past to a model of providing “grants plus loans.” Since the end of the Cold War, Western countries have attached reform conditions to their financial aid.

Countries that moved toward the reform targets set by the West could get direct cash transfers, which led to excessive dependence of the recipient countries. For this reason, Western countries have to learn from China’s experience to offer preferential loans, so as to push recipient countries to take more responsibility for their own development.

Third, China’s model of respecting recipient countries’ willingness to develop independently has caused some observers to criticize and reflect on the Western development aid model. When drawing up its foreign aid strategy, China fully respects the autonomy of recipient countries in formulating and implementing their own development strategies.

Based on a detailed understanding of the development needs of each recipient country, China revises its foreign aid development plan every five years, making systematic arrangements for medium- and long-term foreign aid targets, the scale of investment, capital structure, key areas and safeguards. Aid guidelines of these countries are also formulated every five years to develop specific foreign aid policies that suit the recipient countries’ economic and social development plans.

During the preparation and implementation of aid projects, China also communicates closely with all interested parties in recipient countries to gain a full understanding of their development needs. In contrast, Western countries have long neglected recipient countries’ demand for independent development, and they have attached political conditions to aid, violating the principles of political and economic development.

Beijing’s foreign aid concepts have been different from those of the West from the start, because of China’s semi-colonial experience, its identity as a developing country and its independent, self-driven development.

Since reform and opening-up began in the 1970s, top Chinese officials have repeatedly said that China will respect the independent development of recipient countries in its foreign aid program, without attaching political conditions to its aid. This aid model has won wide recognition among developing countries, and it has also put the development of the Western-led global governance model on a path with more justice and rationality.

Narratives of Catastrophe

This article was first published in an online journal called ‘State of Nature’. As is the way of online publishing, the journal no longer exists. So here is the article, updated and revised, on narratives of catastrophe:

Reports of catastrophe seem to be all around us. It may be the urgent matter of global warming and environmental collapse, or signs of the decline of the ‘West’, or of refugees flooding the last citadels of liberal democracy, of the Eurasian integration of China and Russia, or indeed the culmination of United States democracy in President Trump. Some catastrophes come and go, while others remain with us.

However, if we look a little closer at the way these stories are told in many parts of the world, they seem to follow some familiar patterns. The imminent catastrophes might be new in some way, but the shapes of the stories are certainly not. I like to call them the narratives of Noah, Jonah and Repentance – especially in cultures influenced in complex ways by the Bible.

The Noah Story

Let me use as an example the most consistent picture of catastrophe: climate change and environmental destruction. Despite the desperate efforts of the climate change deniers, the scientific evidence is overwhelming. We have overused the earth’s resources; in fact, thinking about the earth as a ‘resource’ is part of the problem. Since the industrial revolution, the parts per million of carbon in the atmosphere have risen to dangerous levels through our thirst for fossil fuels. We have been encouraged to consume more and more, or at least those in the rich third of the world have. Needs we never thought we had have suddenly arisen, encouraged by the propaganda (advertising) industry. We use too much water, too many plastics, we fly too much, drive too much, eat too many processed foods. Our demand for ‘energy’, produced by heavy-polluting power stations, grows and grows. And when it gets hotter and hotter we simply turn the air-conditioner up. Our ‘carbon footprint’ is far too high.

The scenario here is as grim as it can get. Large-scale extinctions are already under way, clean water for human beings becomes increasingly scarce, crops begin to fail in areas that have been until now the bread-baskets of the world, low-lying coastal cities (the major commercial centres) go under water as the sea rises, diseases we never have seen become rampant, increases in starvation follow, the Greenland ice-cap melts, the Arctic becomes ice-free in summers, large chunks of the Antarctic ice shelf break away, the Gulf Stream stops and northern Europe freezes up, extreme weather events increase, such as storms, floods, and cyclones, the tropics extend their reach into temperate zones, the deserts grow, and life itself faces its biggest challenge.

But how is this story often told? One form is drawn from the age-old structure of the biblical story of Noah. Told of a coming catastrophe (the Flood) some years in advance, Jonah sets about building a massive boat according to a divine blueprint. His neighbours laugh and mock and his family thinks male menopause has addled his brain. But Noah keeps building. When the catastrophe does arrive in the form of torrential rain and subsequent flooding, Noah manages to ensure a remnant makes it onto the ark, two of some species, seven of others, as well as his own family. Eventually the floods subside and the ark finds a resting place in order to start life again (except for the fish who have done rather well).

More than one account of our impending doom has invoked this story form. The occasional Hollywood catastrophe film (meteorite strike, space invasion, monster storm and what have you) has its own version of the Noah’s ark story. Indeed, there is an environmental organisation called ‘Planet Ark’, focused on the planet as a whole, whole some in the environmental movement have called on this story as a means for ensuring some species survive.

An excellent example of the use of the Noah narrative is the ‘Survivalists’, a loose movement that shares the same basic assumptions. For them the arrival of Peak Oil and the catastrophic effects of global warming will mark the end of society as they know it. They buy land in remote areas that will be least affected by global warming, learn to become entirely self-sufficient, and seek to free themselves from oil dependence. However, this is not a collective act, done for the good of everyone. Instead, it is a retreat from the masses, a move to ensure that they will survive, even if everyone else will not. So they stockpile weapons and ammunition to protect themselves from the starving, dispossessed hordes that will soon be raiding their land looking for food and shelter. In other words, they seek to build their own ‘arks’ for the coming deluge and will fight off anyone who might want to join them uninvited.

The Jonah Story

Another version is what may be called the Jonah story, a title I draw from the biblical book of the same name. In that wonderful fictional novella Jonah is called by God to go and preach doom and destruction on Nineveh (in present-day Iraq). Jonah is less than impressed by the job description and heads in precisely the opposite direction, boarding a ship, incognito. But God is not going to let him get off the hook so easily, so he follows Jonah, brings on a great storm (as gods tend to do) and then forces him to admit to the crew that he is a prophet fleeing a less than attractive commission. They promptly toss him overboard, the storm ceases but a great fish swallows Jonah, swiftly gives him submarine passage to Nineveh and spits him out on the shore nearby. Properly pissed off by now, Jonah decides to let Ninevites have it. He strides about the city, crying out with great relish that the end is nigh, that they have only days left. Then he takes himself to a hill and finds a comfortable spot to watch the fireworks.

So also do the Jonahs among us take grim satisfaction in telling us that the world is coming to end and that there is nothing we can do about it. No-one will change, they say, people will keep on consuming far more than they should, species will keep becoming extinct, and armies will be deployed to turn back those who come hammering on the gates of the wealthy nations. No one will in fact repent, people have brought this catastrophe on themselves, so damnation to the lot of them. Like Jonah, they preach destruction to an evil generation who will not change. Catastrophe is coming, so we had better get ready for it.

Call to Repentance

Apart from the Noah and Jonah narratives, a third approach involves repentance. Indeed, the purpose of the narrative itself is to call for repentance. In regard to the environment, one book after another, or one film or documentary after another, calls on us to repent of our destructive ways. We are to assess and reduce our ‘carbon footprint’, or find eco-friendly ways to live, whether growing our own vegetables, showering less, buying carbon offsets, or indeed walking, cycling and taking public transport. Or in the case of fossil fuels, repentance requires giving up our addiction to coal and oil and finding some other energy source, whether bio-fuels, or power from sun, wind, tides and hot rocks beneath the earth’s crust. All that stands between us and redemption is a great push for innovation. If we act now and change our ways, we can still save the planet from its doom.

By now it will be clear that this narrative of imminent doom and the call for repentance is by no means new. Warn your audience of the dire consequences of their acts and call on them to change before it is too late. It was and is the favoured mode of fire and brimstone preachers, warning of torments of eternal punishments in hell should we not repent and amend our ways. I wonder whether this is the most effective way to tell the story.

Another Narrative?

What are we to make of these stories? Some will point out that they are mere fictions, scary doomsday scenarios that we should really ignore, for they are no different from many similar prophecies of the end throughout human history. The problem with dismissing these stories is that doing so denies the wall of scientific analysis which shows that climate change is a reality.

Here I want to stress that both the way we choose to tell the story and the reason we do so are as important as the story itself. I must admit that I have indulged in the Jonah narrative from time to time, telling myself it is the most realistic of the lot. People will not change, capitalism will keep ploughing on in its destructive path and so a grim forecast is the best approach. Assume the worst and then anything looks like an improvement. The Noah narrative is as grim although more individualistic and selfish. Once again, it claims to be realistic for much the same reasons as the Noah narrative but then says, ‘stuff the rest, I’m going to save myself’. As for the Repentance narrative, we need to ask, repentance for what? Is it to keep our current system staggering along with a few bandages and splints? Then I am not interested. Or is it a wake-up call to change an economic system that has led us to this point? Then I am more interested.

At least two features are necessary for such an alternative. The first is that the socio-economic conditions of all human beings – not just a privileged few – should be improved to a moderate level. If this entails that those accustomed to much need to do with less, so be it. When people no longer have to worry about adequate food, shelter and clothing, then the environment benefits.

The second is that it requires a strong state with consistent policies to bring about such change. Advocating changes in individual behaviour never works. A consideration of the history of religions is instructive in this point. Why is it that Eastern Orthodoxy dominates today in Eastern Europe and Russia, while Roman Catholicism is characteristic of the south-western Europe and Protestantism in north-western Europe, if not in areas they colonised? In the past, rulers decided and enforced their decisions. Why did Buddhism become a Chinese, Japanese and Korean religion, as well as an Indian one? Again, because rulers enforced and fostered it, so that Buddhism took on local features. So also with socio-economic systems and their cultures. Human beings will act within frameworks provided. And if the framework changes, so will human ways of being in the world.

Does this sound like a prescription for dictatorship? If we think of individual dictators, of course not. But if it is a collective dictatorship, a democratic dictatorship exercised by the vast majority, then yes.

China: how to resist currency attacks during the Asian economic crisis

Why China did not suffer any great pain with the Asian Economic Crisis of the late 1990s and now the Atlantic Economic Crisis that began in 2008? The more basic answer is that it was due to the reform and opening up since 1978 (which has its own agenda and is not overly beholden to international patterns) and its attendant socialist market economy. The specific historical reason is as follows.

As the currencies in South-East Asia plummetted, and as Moody’s threatened to downgrade the credit ratings of China and Hong Kong, the government refused to devalue. Why? One reason put forward was that China was thereby helping the struggling Asian economies to get back on their feet, since their exports were now considerable cheaper. Another reason is that the government was keen to block currency traders and manipulators from attacking its own banks.

Here the successful defence of Hong Kong and China shows how such a policy works. Many Asian countries were attacked by manipulators (George Soros was at the forefront), forcing the central banks to use their reserves, usually in US dollars, and when they were depleted, to devalue and then be forced to follow the infamous harsh measures of the World Bank and IMF. In August 1997, just after Hong Kong was finally returned to China under the ‘one country, two systems’ policy, Hong Kong was itself attacked. China immediately pledged its then considerable reserves of $140 billion (now much higher) to resist. Hong Kong threw in its own $98 billion. The result: after six weeks the attack was called off. The Monetary Authority of Hong Kong, in coalition with the Chinese central bank, had used about $30 billion to defend the Hong Kong dollar. Since that dollar had risen by $0.02, the gain was about $600 million.

As Adrian Chan concludes: ‘This ability of China’s new socialists to take advantage of the contradictions of the capitalists would probably have been cheered on by Mao’ (Chinese Marxism, p. 200).

Socialist economics: the secret to Soviet success in World War II?

What was the deep source of Soviet success during the Second World War? A number of obvious factors played a role, such as Stalin’s leadership, excellent generals, German mistakes, tough discipline, good morale, and deal of luck. But underlying it all, as Geoffrey Roberts points out, was ‘a tremendous economic and organisational achievement’ (Stalin’s Wars, p. 163).

To set the scene: by the time of the Battle of Stalingrad in 1942, the Germans occupied more than half of European Russia, about two million square kilometres. It was an area containing 40 per cent of the USSR’s population, about 80 million people. The occupied area covered 50 per cent of the USSR’s cultivated land, the production of 70 per cent of its pig iron, 60 per cent of its coal and steel and 40 per cent of its electricity. Still, by the end of 1942, the production of rifles had increased fourfold (to 6 million) compared to the previous year. Tank and artillery production increased fivefold to 24,500 and 287,000 per annum. The number of aeroplanes produced more than doubled from 8,200 to 21,700.

How was this possible? Roberts writes that it was due to the mass relocation of Soviet industry to the eastern USSR and out of harm’s way in 1941-2. One of Stalin’s first instructions after Hitler invaded was the establishment of an evacuation committee that arranged the move of more than 1,500 large industries to the east. With them went hundreds of thousands of workers and thereby the single most significant wave of resettlement in Siberia. It is not for nothing that you find cities in Siberia of more than a million people. On top of this, 3,500 new industries were established, most of them related to wartime production. It is no wonder that by the time of the battle of Stalingrad, the Soviets were able to field 90 fresh divisions, fully equipped with new weapons. Or indeed that after losing almost 5 million soldiers in the first months of Hitler’s invasion, they were able to field 11 million the following year. One million of those were women.

Initially, Roberts is in two minds on this achievement. He tends to sit on the fence, relating debates about wartime ‘free enterprise’ versus the planned economy. He mentions western aid (much emphasised in European and American accounts), but points out that it amounted to no more than 10 per cent of the total economy and that it came largely after the dire threat of 1941-2 and after victory at Stalingrad. In the end he comes down on the side of the planned economy. Stalin emphasised the need to keep the armies properly supplied, but otherwise he left the job to his economic managers. And they could do so only by means of ‘the mobilisation power of the Soviet economy’ (p. 163).

But what was that economy? Given the energetic collectivisation of farming in the late 1920s and 1930s and the Five Year Plans of industrialisation and economic transformation, the result was as full a communist economic system as one is likely to find. Does this mean that only a planned, communist economic system could have pulled it off? At the time, it seems so.

Cecil Rhodes: Colonialism as a way to forestall social revolution

In 1895 Cecil Rhodes opined as follows:

I was in the East End of London (a working-class quarter) yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for ‘bread! bread!’ and on my way home I pondered over the scene and I became more than ever convinced of the importance of imperialism…. My cherished idea is a solution for the social problem, i.e., in order to save the 40,000,000 inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands to settle the surplus population, to provide new markets for the goods produced in the factories and mines. The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialists.

(quoted by Lenin, Collected Works, volume 21, pp. 256-7)

Using capitalism to build socialism?

One to stir up the romantic Western Marxists full of resentment at successful socialist revolutions in the East:

Socialism is inconceivable without large-scale capitalist engineering based on the latest discoveries of modern science. It is inconceivable without planned state organisation which keeps tens of millions of people to the strictest observance of a unified standard in production and distribution. We Marxists have always spoken of this, and it is not worth while wasting two seconds talking to people who do not understand even this (anarchists and a good half of the Left Socialist-Revolutionaries) (Lenin, Collected Works, vol. 32, p. 334, 1921).