The Socialist Welfare State: A Brief (and Intriguing) History

‘Do you think Europe – especially Scandinavia – is more socialist than China?’

This question used to be more common 7 or 8 years ago. But it came up recently while I was in Yunnan province, in the far southwest of China. It is of course connected with the impression that Scandinavia had a developed welfare system, which some seem to think indicates a socialist influence. And Scandinavians love to cite this one, although by now it is wearing quite thin.

The ‘Scandinavia had’ is quite deliberate in my earlier sentence, but to understand why requires a brief history.

The first country in human history to develop what I have elsewhere called a ‘domestic state’ was the Soviet Union. It happened under Stalin’s watch. In the 1920s, many regulations had been promulgated concerning education, healthcare, pregnancy preparation, maternity leave, childcare, divorce, guardianship and so on (although not unemployment benefits, since there soon was full employment) – the full gamut of matters that had been regarded until then as the domain of the ‘family’, no matter how extended it may have been. But it was only in the 1930s that they could be enacted in a realistic manner. Why? Only with the massive ‘socialist offensive’, with its twin programs of comprehensive industrialisation and agricultural collectivisation, did the Soviet Union have the economic resources to implement them in full. This is not to say that many problems did not happen, for the Soviet Union was making a tumultuous leap to becoming a superpower. As Mao put it later, ‘Progress and at the same time difficulties – this is a contradiction’ (1957). But the contradiction was a feature of a leap into the future.

What did some of the capitalist countries do? They realised that workers were increasingly drawn to the Soviet Union’s model. So the bourgeois governments borrowed some features and sought to institute what became known as the ‘welfare state’. But it was a warped version, predicated on the slogan, ‘from the cradle to the grave’. The state would take care of you, especially if matters beyond your control dealt you a bad hand.

Why warped? The way it was implemented in Europe (and even in the United States for a while with the ‘new deal’) was to neutralise any push by workers and peasants to alter the system itself. A bourgeois state would provide, so why bother with any revolutionary desires. Even more, it became a mechanism for ensuring that everyone in the state’s population remained – or could be retrained – to be productive, and thereby also remain consumers. Crucially, this altered form of the welfare state was restricted to full citizens, producing the framework for the xenophobic charge that ‘immigrants’ want to avail themselves of the benefits of a system to which they were not entitled.

This history has a further twist or two. After the symbolic ‘fall’ of the Berlin Wall in 1989, most countries that had a version of the bourgeois welfare state no longer felt the need to support it. The alternative model of the Soviet Union had imploded, so country after country systematically began to dismantle the ‘welfare state’. So-called ‘cheats’ became the target, such as the demonised ‘single mother’ with multiple offspring who ‘milked’ the system for her benefit. The rhetoric was relentless, ensuring that one plank after another of the bourgeois welfare state was removed. Even Scandinavia began to follow suit, albeit belatedly with the turn of the millennium.

Meanwhile, what was happening in China? Let us deal with the facts rather than mythology. After the communist revolution, a system had developed that may be called ‘Owenite’ (after Robert Owen’s model factories in the UK of the 19th century). Large conglomerates were established, around factories, publication houses, state-owned-enterprises (SOEs) and so on. In these conglomerates, people had everything: accommodation, jobs, dining halls, hospitals, shops, childcare facilities, funeral services … It was dubbed the ‘iron rice bowl’ – a term that originated outside China.

But they were grossly inefficient, sucking up resources, breeding familial corruption and giving little back to the overall system. In the 1980s and into the 1990s, Deng Xiaoping bit the bullet: the conglomerates would have to face the realities not of a ‘planned economy’ but of a ‘socialist market economy’ that has its own distinct Chinese articulation. Many went bankrupt, since they could not manage in the new order. Others thrived, like the Xinhua News Agency. In the process, mistakes were made: workers lost their jobs and were not compensated; farmers lost the healthcare to which they had become accustomed; retirees could no longer rely on the conglomerate to provide for them.

China first had to get its economic act together. As it did so and the resources became available, a whole new system began to be implemented. Farmers who had lost healthcare found a different model in its place. Retirees began to notice that the state was offering a leaner and more efficient system for their security. Workers who had lost their jobs were compensated. In short, a new model of the socialist welfare state was being systematically and carefully rolled out, with an eye on accountability and efficiency. But it goes much further, with a concentrated effort to lift the final 30 million people out of poverty. In short, it is clear that the socialist state has to ensure that it has the resources before implementing such policies.

The upshot: in the current situation we find ourselves at an important crossroads. As the neo-classical model of a capitalist market economy seeks to dismantle ever more vestiges of a bourgeois welfare state that was a response to the appeal of the Soviet Union (of increasingly distant memory), China is gradually and patiently implementing a whole new version of a socialist welfare state.

It should be no surprise that over 87 percent of people in China approve of the direction in which the most powerful socialist country in human history is headed, even while fully aware of the many problems they face.

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A Marxist Trap? The Danger of Economics Imperialism, or, How to Understand a Socialist Market Economy

I am slowly thinking through a framework for understanding a socialist market economy. Historical investigation reveals that market economies have appeared at earlier points in human history, such as ancient Southwest Asia and the ancient Mediterranean. In these contexts there were market economies, but not capitalist market economies (or a capitalist mode of production, as Marx puts it). Instead, the Persians had what may be called a military market economy, while the Greeks and Romans had a slave market economy.

The obvious point from this historical work is a profound mistake in current debates, which is to equate ‘market economy’ with ‘capitalism’. Let me change the terms to indicate how serious the mistake is: it as though one were equating ‘mode of production’ with ‘capitalism’. In fact, the danger – especially for Marxists economists – is that if you make this equation, you end up with a version of economics imperialism.

To explain: this imperialism first arose from the context of neo-classical economics, in which the specific history of the emergence of this particular branch of economic analysis, if not the history of its topic (capitalist mode of production), was conveniently erased. The result was a universalisation of the specific assumptions of capitalist market economics so that you could apply these assumptions to human economic activity throughout history. Thus, if you have markets in the ancient world, they must be capitalist. Or if you have markets in a socialist economy, they must be capitalist.

I have encountered a number of Marxists who make a similar mistake. They assume that ‘marketisation’ and ‘market economy’ mean capitalism. They use this assumption to hypothesise that China is a capitalist economy because it has markets. By now the trap is obvious: it might be described as a Marxist version of economics imperialism.

While thinking through some the implications of this move, I decided to reread a crucial section of the third volume of Capital. In chapter 36, entitled ‘Precapitalist relationships’ (pages 588-605), Marx examines markets in their earlier forms. He writes of a range of features found in ancient markets, whether Greek or Roman or European feudalism. Here we find commodities, money, capital, merchants, industry and usury, but Marx is very careful to point out that all of these individual components did not make up a capitalist mode of production, or – as I am putting it – a capitalist market economy. Why? The relationship between these various items and their social determination meant that they may have comprised components of a slave or feudal mode of production, but certainly not a capitalist one – which requires a very different organisation.

Extrapolating from this historical work, this means that you may find some or more of these items under socialism in power, but this does not mean you have a capitalist market economy. It is a very different reality, for which ‘socialist market economy’ is the best name.

The next step in thinking through a socialist market economy is to analyse the distinction between a ‘planned economy’ and a ‘socialist market economy’ (a crucial change made in the Chinese constitution in 1982). Currently, my sense is that a planned economy is one phase of the wider reality of a socialist market economy, but I have more work to do on this question. The mistake in this case is to equate a planned economy with a socialist economy.

Xi Jinping’s Boao Forum speech: key ideas

The texts of this speech will be available soon, in many languages. In his first major international speech after being re-elected president, Xi Jinping presented a keynote at the Boao Forum, held in Hainan Province. It is known as the ‘Asian Davos’. A few of the key observations, remembering that 2018 celebrates forty years of the ‘reform and opening up’. Let me add that we are planning a conference later this year called ‘The Marxist Philosophy of the Reform and Opening Up’, especially since Marxism has become again the focus of so many researchers and the best students.

The reform and opening up, initiated by Deng Xiaoping in 1978, has significantly unleashed and enhanced productivity in China, blazed a path of socialism with Chinese characteristics, demonstrated the strength of the nation, and actively contributed China’s share to the world, according to Xi.

Over the past 40 years, China has recorded an averaged annual GDP growth rate of around 9.5 percent, fostered a middle-income population of 400 million, and lifted more than 700 million Chinese people out of poverty, accounting for more than 70 percent of the global total.

China contributed over 30 percent of global growth in recent years.

Hailing it as “China’s second revolution,” Xi said the reform and opening up had not only profoundly changed the country but also greatly influenced the whole world.

In terms used for none other than Chairman Mao (although the background picture of this blog suggests an older history):

As the country’s helmsman, Xi launched the new round of reform and opening up, the largest in scale around the globe, at a time when the giant vessel of China has entered “a deep-water zone.”

And any country that seeks to isolate itself will be consigned to the ‘dustbin of history’:

“Humanity has a major choice to make between openness and isolation, and between progress and retrogression. In a world aspiring for peace and development, the cold-war and zero-sum mentality looks even more out of place.”

“We must dispel the clouds to see the sun, as we say in Chinese, so as to have a keen grasp of the law of history and the trend of the world.”

Xi said we live at a time with an overwhelming trend toward peace and cooperation as well as openness and connectivity.

Xi said we also live at a time with an overwhelming trend toward reform and innovation, adding that those who reject them will be left behind and assigned to the dustbin of history.

No prizes for guessing to whom he might be referring. Sourced from Xinhua News and Global Times.

Tibet pulling its weight as part of China

In his book on China’s ethnic minorities, Colin Mackerras writes in regard to Tibet: ‘However, what strikes me most forcefully about the period since 1980 or so is not how much the Chinese have harmed Tibetan culture, but how much they have allowed, even encouraged it to revive; not how weak it is, but how strong’. But cultural realities can never be separated from economic questions, especially in light of the Chinese Marxist emphasis on the human right to economic wellbeing.

What do Tibetans themselves have to say about all this. An insight is provided by Tibetan delegates as the two sessions of parliament this year in Beijing. As the Global Times reports:

Kelsang Drolkar, a deputy of the National People’s Congress (NPC) and a village Communist Party chief in Chengguan district of Lhasa, told the Global Times on Monday that she was glad to see Tibet has not become a forgotten area when the country is moving forward to a moderately prosperous society.

National policies, as well as support from other regions across China, have helped the region achieve tremendous changes in the medical, economic and education sectors, and made local people “live a happier and safer life,” she said.

Tibet registered 10 percent GDP growth year-on-year last year, marking the 25th straight year of double-digit growth. Its GDP reached 131.06 billion yuan ($20.5 billion) in 2017.

In 2018, Tibet set a target to achieve GDP growth of about 10 percent, with an 18 percent increase in fixed-asset investment as well as increases of more than 10 percent and 13 percent for urban and rural per capita disposable incomes respectively, the Xinhua News Agency reported.

In 2013, the average yearly income in her village was 10,540 yuan per capita. That number almost doubled last year to 19,550 yuan, Drolkar said.

The Chengguan district has implemented a 15-year compulsory education system from kindergarten to high school. Last year, 93 students from the district were admitted by universities across China, with government covering most of their tuition, Drolkar said.

Bilingual education in schools also contributes to ethnic unity in the region, as learning Putonghua helps Tibetan people understand more about the country and its policies, she said.

Other NPC deputies from Tibet praised past legislative work on national security.

“Laws on national security, counter-espionage, anti-terrorism, activities of overseas NGOs, cybersecurity and national intelligence have provided significant legal support to safeguard national security and the country’s core interests,” Sodar, an NPC deputy and head of Tibet’s higher people’s court, said at a Monday group discussion during the ongoing session of the NPC.

The legislation also provided powerful legal support to combat separatists, terrorists and the Dalai Lama clique, said Sodar.

Tibet had a prospering economy in 2017, with about 44,000 new market entities established in the region, according to local authorities.

The figure brought the total number of registered businesses in the region to 227,000, a year-on-year growth of 19.1 percent, according to Xinhua.

Even the World Bank is starting to take notice: China’s ‘unprecedented poverty reduction’ and the role of the CPC

A detailed report from the World Bank, called Towards a More Inclusive and Sustainable Development has been raising interest in some quarters. Among many features of the report, it notes that China’s policies have enabled the “extreme poverty rate, based on the international purchasing power parity (PPP) US$1.90 per day poverty line, to fall from 88.3 percent in 1981 to 1.9 percent in 2013. This implies that China’s success enabled more than 850 million people to escape poverty.” Over the last four decades, 7 out of 10 people who moved out of poverty were Chinese. The report does not hesitate to point out that this is “unprecedented in scope and scale.” This figure is up from the 600-700 million mentioned earlier, which has already been called one of the greatest human rights achievements in world history. The aim in China – in line with the target of a “moderately prosperous society” by 2020 – is to enable the remaining 25 million to escape poverty.

Add to this the systematic growth of welfare and social protection, with the result that the Gini coefficient has been falling since 2008:

China has made remarkable progress in putting in place the core elements of a social protection system. Since the 1990s, China has introduced an array of social protection programs at a speed that is unprecedented internationally. Among other reforms, these include pension and health insurance programs for urban and rural populations; unemployment, sickness, workplace injury, and maternity insurance for urban formal sector workers; and the dibao program, a means-tested national social assistance scheme that now covers around 60 million people. This is a feat that took decades to achieve in OECD countries, and one that many middle-income countries have not realized.

A key component here is the CPC, or in World Bank speak, “China’s unique governance system”:

China has built well-functioning institutions, in unique and context-tailored forms, through a long process of institutional evolution. China’s cadre management system is a good example. Drawing on a long legacy of high state capacity, China has refined its cadre management system to shape the core of a high-performing bureaucracy by integrating features of party loyalty with professionalization of the civil service in a unique way. This has been critical to unlocking growth, promoting results through competition among local governments and anticorruption policies designed to prevent abuse of office. The cadre management system has built strong upward accountability and has provided incentives through promotion and rewards to bureaucrats and local officials in return for their attainment of growth and job creation targets. This system differs significantly from the typical Western governance model and has allowed China to find a unique way of “discovering” growth-enhancing policies through local experiments.

Much more in the report, but it errs in calling this a “market-based system,” assuming that it is a capitalist market economy. Of course, it is not, for China has developed a socialist market economy, which the report actually outlines in some detail. The report also outlines the challenges ahead, of which the government is acutely aware.

Incidentally, it is worth noting that the EU now recognises that China is a socialist market economy, although the EU errs in understanding this system in terms of government “intervention” in the market.

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).