The Socialist Market Economy: Philosophical Foundations (updated)

This is the text of a paper, to be delivered at a conference in 2019. It is the fullest expression of my thoughts on a socialist market economy, forming the framework for an eventual monograph.

Let me begin with a personal narrative for a moment: my background is steeped in the Western European tradition. Apart from personal circumstances, as a child of Dutch immigrants, this includes the study of the European Classics, theology, and Marxist philosophy, all premised on the core principle that one must study such traditions in their original languages. Yet, as I develop a rather large project called ‘Socialism in Power’, I find increasingly that the frameworks that derive from the anomalous historical and cultural context of the western peninsula of the Eurasian landmass (also known as Western Europe) are unhelpful at least and misleading at worst.

On Dismantling False Universals

A few examples. Currently, I am working on a couple of books concerning the socialist state. I soon found that much of the ‘state theory’ that derives from a Western European context is unhelpful. These categories include:

  • The separation between state and society and the consequent category of ‘civil society’ (or more properly bürgerliche Gesellschaft, bourgeois society, of which the ultimate expression is the lynch mob (Losurdo 2011)).
  • The framework of bourgeois or liberal democracy that is so often assumed to be a universal ‘democracy’, with its strange notion of ‘democratisation’.
  • The consequent categories of party-state, authoritarianism and dictatorship.

Related but distinct are a number of other near useless frameworks:

  • Ontological transcendence and immanence, a distinction which shapes European cultural assumptions to the core.
  • The Western European tradition of human rights, with its focus on civil and political rights, which simply cannot make sense of alternative traditions of human rights (such as a Chinese Marxist one).
  • Identity politics as a logical absurdity of liberalism, in which one can choose one’s gender, sexual preferences, ethnicity and now even age.
  • The notion of sovereignty, which arose in the struggle between European states (Westphalia) and applied – mostly – to each other, but had no bearing on colonised countries.

The list could go on, which is based on extensive prior research, but let me focus on the shortcomings of the tradition of neo-classical economics:

  • The separation of ‘state’ and ‘the market’, assuming that the latter is a distinct entity with a life of its own.
  • The related category of government ‘interference’ with ‘the market’ from time to time.
  • Whenever one finds ‘market relations’, one has a form of capitalism (even 6,000 years ago).
  • The tendency among some Western Marxist economists to retreat from the initial wide historical framework of Marx and Engels and restrict themselves with analysing the workings of the capitalist market economy.[1]

Why are they less than helpful? As Igor Diakonoff (1999), the Soviet-era specialist on ancient Southwest Asia observed, European history is in many respects an anomaly. However, the history of European colonialism has made this anomaly a norm, which we are still struggling to discard. But this does not lead us to sheer relativism (with its attendant opposite, the universal). Instead, it is necessary to distinguish between false and rooted universals. A false universal neglects or forgets its specific origin and context, asserting that it is absolute and singular. By contrast, a rooted universal, or contextualised commonality, always remembers its specific context, for only in this way can the history, promises and limitations of the universal be kept in mind. This means that universals can and do arise in different contexts and cultures, and that they may apply with different emphases to all peoples.[2]

In light of the above, the following analysis of the socialist market economy constitutes another effort at constructing an approach from the ground up, one that is not beholden to frameworks and categories derived from the western peninsula of the Eurasian landmass. It seeks primarily the underlying patterns or philosophical foundations, albeit with relevant historical and empirical data. This task entails a number of steps, beginning with Marx’s third volume of Capital, moving through some historical examples of market economies, to principles of the Chinese socialist market economy.[3]

History: From Marx in Capital III to Economics Imperialism

As Chinese political economists do, we begin with Marx (not least because neo-classical economics is woefully inadequate). Over a few important pages in the third volume of Capital, Marx examines the market economy of ancient Rome (Marx 1894 [1998], 588-605; 1894 [2004], 583-99). His concern is to trace the effects of ‘usurer’s capital’. Found in the ‘most diverse economic formations of society’, in Rome a portion of this capital leads to commodities, money, trade, borrowing, surplus and profit. In other words, we have some of the core components of a ‘market economy’. But is it a capitalist market economy? Not at all. It is a slave market economy, for its primary purpose was to find, transport and buy the labour of others as slaves. The whole market economy of ancient Rome (and indeed ancient Greece) was geared for and subordinated to this purpose. Marx subsequently outlines the way some of these components worked: usury, interest, surplus, money, labour and so on, were arranged quite differently and functioned in ways that are far from a capitalist market economy.[4] Or, if they do at times seem similar, they function in ‘altered conditions’, without a capitalist market economy (Marx 1894 [1998], 592, 595; 1894 [2004], 587, 590). Marx moves on to outline how some elements of feudal market economies worked, and then how the different constellation of a capitalist mode of production overturned and reconfigured many of these earlier features (especially usury), but the point should now be clear.

In light of subsequent research (Boer and Petterson 2017), we may add that in light of the slave market economy, the Romans invented in the late second century BCE the legal-economic category of ‘absolute private property [dominium]’. The primary reference was the ownership of thing (res), except that the object in question was a slave. The category would later be lost and recovered in a fascinating history, becoming eventually a core component of the very different arrangements of a capitalist market economy and indeed of the Western European tradition of human rights.

One could make similar points regarding other market economies throughout history, such as the tax market economy of the ancient Persians in the first millennium BCE (Boer 2015), or the feudal market economy with its prime focus on the estate’s own production, to which peasants were bound (Kula 1976 [1962]). By contrast, a capitalist market economy is geared for the production of surplus value, to which all is subordinated.

Now for the philosophical point that arises from these historical analyses: a market economy – without an epithet – is not to be equated with a capitalist market economy. To divest ourselves of this assumption, fostered as it is in so many ways, is a most difficult task. But if we do not so divest ourselves, we end up with ‘economics imperialism’, in which the assumptions of a capitalist market economy (and its attendant neo-classical economic theory) are de-historicised, de-socialised, universalised and superimposed on any historical market economy, thereby skewing analysis (Milonakis and Fine 2009; Fine and Milonakis 2009).

Instead, market economies have appeared in different forms throughout much of human history, each with a distinct focus or purpose. They may have some common components, but the way they are arranged and how they function depends upon the purpose in question. It may be tax, slaves, estate production or profit (surplus value): all else is subordinated to the purpose. This historical reality raises the possibility of a market economy under socialism, one that is geared to yet another purpose distinct from those mentioned thus far.

Principles of a Socialist Market Economy

In analysing a socialist market economy (with Chinese characteristics), let elaborate on a number of proposition.[5]

  1. The enmeshment of state and economy, to the extent that one cannot distinguish between these two realms.

It has become increasingly clear that state and economy cannot be separated from one another in China. This is not a case of state ‘interference’ in the economy (as the EU interprets ‘socialist market economy’), but that the idea of distinct and autonomous realms does not work. Instead, they are enmeshed with one another in many complex ways.[6]

A significant philosophical reason for this reality reason may be found in the Chinese tradition of dialectics, which may be summarised with the common saying, ‘things that oppose each other also complement one another [xiangfan xiangcheng]’. This rich tradition was appropriated and transformed by Mao Zedong (1937 [1965], 1937 [1952]), with the eventual elaboration not only of ‘contradiction analysis’ that is even more relevant today (Xi 2017b, 2017a), but also of the crucial role of non-antagonistic contradictions (Mao 1957 [1992], 1957 [1999]). This approach applies at many levels, including the reality of classes under socialism: that classes such as workers and farmers, or urban and rural workers, would continue under socialism is obvious, from the Soviet Union to the DPRK (which includes intellectuals in its three classes). However, the key is that the relations between such classes should – ideally – develop in a non-antagonistic and constructive fashion.

This situation has led to immense frustration among a small number of other countries, which thought that China’s accession to the World Trade Organisation in 2001 would push China towards a capitalist market economy (which they interpreted as a ‘market economy’). But China will not be moved from its own path, insisting that it is a market economy, albeit a socialist market economy in which state and economy are enmeshed with one another.

  1. The increasing disappearance or dying away of the distinction between ‘private’ and ‘public’ enterprises.

The old opposition between public (or state) and private ownership is dying (or withering) away – the allusion to Engels should be clear. This opposition has been for some time a leitmotiv of those who try to determine whether an economy is more or less ‘socialistic’, so much so that a ‘socialist’ turn involves ‘nationalising’ key industries. This model is simply unusable in China, if not misleading. Thus, the percentage of public or private ownership is not a marker of whether a national economy is more or less socialistic, nor indeed is the percentage of economic output by state-owned or private enterprises.[7]

In China, the fabled state-owned enterprises – the backbone of the economy – are undergoing a process of eradicating old inefficiencies by learning from ‘private’ enterprises and even entering into partnerships with those enterprises. At the same time, every enterprise, whether ‘private’ or ‘public’ – or rather the many enterprises which are part ‘private’ and ‘public’, village or local government owned enterprises, ‘new economic organisations’, start-ups and so on – with more than three CPC members must engage in party building. This means that they develop a party organisation with an elected party secretary. The larger the company, the larger the party membership. For example, the world’s leading online retailer, Alibaba, has more than 7,000 CPC members, with significant party building as part of its core mandate. At one level, these party organisations do not interfere with management decisions, but at another level ensure that the company adheres to CPC principles. Further, every foreign enterprise or multinational working in China must also have CPC workers and a unit within. If I add that the CEOs of China’s biggest companies are often members of the CPC (for example, Ma Yun or Jack Ma of Alibaba), then we begin to see that the distinction of ‘public’ and ‘private’ no longer works. This situation is leading to a number of creative efforts to rethink a socialist market economy, to the point of appropriating and transforming the European notion of the ‘common’ in terms of a reality that is fostered by and part of governance itself.

A further example concerns the rise of what is at times called a ‘middle class’ in China. This is an unfortunate term, since it is redolent with the anomalous history of the bourgeoisie in Europe: there it grew initially in the towns, developing a different agenda (what became known as the pernicious tradition liberalism) from the existing European states and eventually seizing power through a series of revolutions and transformations (in Germany through Bismarck). Instead, the Chinese ‘middle class’ is a socialist middle class (with ‘middle class’ functioning as a place holder until a better term is found). By this I mean the 700-800 million urban and rural workers who have been lifted out of poverty over the last forty years of the reform and opening up. Often described as the greatest human rights achievement in the twentieth century, it is a direct result of government initiative, which continues today. In other words, this group simply does not have a class consciousness comparable to the European middle class, for it is inseparable from the core government policy of poverty alleviation.[8] Or, to use a Chinese way of framing this development, it constitutes the second great leap – to economic wellbeing (fuqilai de weida feiyue), which is the core Chinese Marxist human right.[9]

  1. Instead of being an alternative to a planned economy, a socialist market economy may be seen as another form of a planned economy, in which parameters are set.

Another opposition that is losing traction in China is between a planned economy and a socialist market economy. In its old form, a planned economy was seen as a distinct and socialist alternative to a capitalist market economy. With careful and rational planning, the chaos, vagaries and crises of a capitalist market economy would be overcome with a planned economy. If one follows this suggestion, then a socialist market economy is a betrayal of the planned economy. This is not the case.

Two approaches may be distinguished in determining their relationship. The first proposes that both planned and socialist market economies are two possible forms of economies under socialism. Depending on conditions, a more planned economy may be needed at some points, while at others a socialist market economy is required. The second – and more preferable – approach is to see the two working together. Thus, while China moved only a few years ago to identifying market mechanisms as the foundational logistic reality of economic activity, it continues to set five-year plans. In their current form, these plans set parameters for the socialist market economy – most notably in in the last couple of years to focusing foreign investment in countries that are part of the Belt and Road Initiative.[10]

  1. A central role in the continued unfolding of the anti-colonial project.

The socialist market economy must also be seen as part of the much larger anti-colonial project, which may be dated in China from the efforts in the nineteenth century to repel colonial powers. Many components may be adduced, from a distinct approach to sovereignty (which entails a rejection of foreign interference at any level), through China-Africa cooperation (for almost two decades), the Shanghai Cooperation Organisation, Asia Infrastructure Investment Bank, to the Belt and Road Initiative.

Let me take the BRI as a test-case. Instead of seeing it as a form of ‘creditor colonialism’ (concerning this type of propaganda the old Danish saying is pertinent: a thief always thinks everyone else is a thief), the BRI should be seen as the latest unfolding of the anti-colonial project (Losurdo 2013). How so? First, it offers a distinctly different model of international engagement, in which the construction of infrastructure – from rail and roads to telecommunications – is central. To be added here is the simple fact that Chinese technology increasingly outstrips that found elsewhere. This approach contrasts sharply with the old model of aid, which was essentially bribery to a ruling class in exchange for compliance and altering internal political and social structures to suit neo-colonial agendas. The BRI approach – even as it deals with inevitable problems such as avoiding local corruption – has become distinctly popular in Latin America, Africa, Central Asia, Eastern and Southern Europe and the Pacific, so much so that the old colonial cabal (including Australia)[11] has changed its tune and is now offering ‘Western aid with Chinese characteristics’ – which is welcomed by China.

Why focus on infrastructure? I cannot go here into the Chinese tradition or the Marxist tradition in which liberating the forces of production is the core component of socialism in power. Instead, let us ask: what is the purpose? Is it to make these countries subservient to a new master? On the contrary, it is predicated on the position that one needs to develop basic and advanced infrastructure to improve the socio-economic condition of those involved. Or, as the Chinese Marxist approach to human rights would have it, the basic human right is the right to economic wellbeing (Sun 2014; Boer In press-b).

  1. Embodying the core Chinese Marxist human right to economic wellbeing (which may – with qualifications – also be found in ‘all under heaven is as common [tianxia wei gong]’).

The previous point brings us to the basic purpose of a socialist market economy, concerning which two concepts are pertinent. The first is a four-character phrase (chengyu): all under heaven is as common (tianxia wei gong). It comes from none other than the Confucian Book of Rites (1885, 364-66).[12] Subsequently, it became a favourite phrase of Sun Zhongshan (Yat-sen) and the CPC.

However, tianxia wei gong may also contain a problem to be avoided, for it was developed in an early imperial context and potentially gives a ruling-class perspective. It may be appropriated, but only through the core Chinese Marxist human right: the right to socio-economic wellbeing. This distinct tradition of human rights (which differs from the Western European tradition) has developed in its own way and may be compared to a tree. At its roots is anti-colonial sovereignty, the trunk is the right to socio-economic wellbeing, and the leaves are civil, political, cultural and environmental rights.[13] Not only is the right to socio-economic wellbeing embodied in the United Nations’ International Covenant on Economic, Social, and Cultural Rights (1976),[14] but it also remains a key driver for minority nationalities policy, the Belt and Road Initiative, and the socialist market economy.

How does this focus work? Many are the aspects, but let me focus here on two. The first concerns company aims and reports. Of course, they need to be economically viable to ensure their continued functioning, but profit is not the primary purpose. Instead, the companies focus on social benefit, poverty alleviation, environmental improvement, education, guidance and improvement of public opinion, core socialist values,[15] party construction, and contribution to socialism with Chinese characteristics. These are now known as ‘social responsibility reports’ and are core to any enterprise’s activities.[16]

The second example is initially more mundane, for it concerns my pay in China and restrictions on moving money out of China. When I mentioned this situation to someone in Australia, he exclaimed, ‘but it is your money; you have a right to do with it what you want’. But when I mentioned it to a colleague in China, pointing out that I would prefer to spend the pay in China, she said: ‘of course, so you should’. In other words, even one’s pay is not simply a private matter, for it should be spent in a way that contributes to the right for socio-economic wellbeing for all, or ‘all under heaven is as common’. The larger point here is that the components of a market economy (which are also not constant) are arranged in quite distinct constellations depending on its prime purpose. Thus, money, commodities, labour, even stock markets,[17] and so on, relate to one another and function quite differently.

Summary and Conclusion: How Did the Socialist Market Economy Arise?

Let me summarise the argument in terms of a number of theses:

1. Market economies may be found throughout human history, taking the form – to name a few – of tax, slave, feudal, capitalist and socialist market economies.

2. Thus, it is a form of economics imperialism to equate ‘market economy’ (minus the epithet) with a ‘capitalist market economy’.

3. The purpose of the market economy in question is crucial, for this determines the arrangement of its components.

3. A socialist market economy entails:

a. The need to develop a Marxist economic analysis, since neo-classical economic theory is inadequate.

b. The enmeshment of state and economy, to the extent that one cannot distinguish these two realms.

c. The increasing disappearance or dying away of the distinction between ‘private’ and ‘public’ enterprises.

d. Instead of being an alternative to a planned economy, a socialist market economy may be seen as another form of a planned economy, in which parameters are set.

e. A central role in the continued unfolding of the anti-colonial project.

f. Embodying the core Chinese Marxist human right to economic wellbeing (which may – with qualifications – also be found in ‘all under heaven is as common [tianxia wei gong]’).

By now it should be obvious that a number of approaches to the Chinese economy are superficial and mistaken. These include categories such as ‘state capitalism’, ‘neo-liberalism with Chinese characteristics’, ‘authoritarian capitalism’, a version of the Soviet Union’s ‘New Economic Program’, a borrowing from Yugoslavia’s ‘market socialism’,[18] if not simple hypocrisy in which one can ignore the very sophisticated debates in China today (Kluver 1996; Harvey 2007; Amin 2006, 30-34; Huang 2008). Not only are such hypotheses empirically wanting, but they are also philosophically untenable (leading to betrayal narratives, conspiracy theories and versions of Orientalism).

Instead, let us consider a number of Chinese proposals as to how the socialist market economy arose. These are samples of the extensive debate in China, upon which I have drawn for this paper.

The first suggests that the market economy in China differs little from capitalist market economies, save in one important respect: the role of the government in the economy. It should be clear by now that this suggestion does not hold up in light of further analysis.

The second is to resort to Deng Xiaoping’s breakthrough proposal that a market economy is a neutral instrument and can be used for the construction of socialism. This proposal was based on the understanding that socialism is of no worth if everyone is equal in poverty, but that it must liberate the forces of production to improve everyone’s socio-economic wellbeing.

The third draws upon the old adage, ‘seek truth from facts’. Conditions change, new problems arise for which new solutions must be sought – hence the reform and opening up, and the socialist market economy.

The fourth is that the socialist market economy draws on the increasing symbiosis (especially with Xi Jinping) of Chinese traditional cultures and Marxism. I have addressed a number of features of this symbiosis earlier, including the approach to non-antagonistic contradictions and the Confucian four-character saying, ‘all under heaven is as common’.

The fifth is intriguing: the development of a socialist market economy is as much accidental as it was planned. Thus, it arose out of the period (first decade of the twenty-first century) when neo-liberal economic policies seemed to be gaining traction. Many were the debates in China at the time, as Marxist economists warned of a drift to a capitalist market economy (against which Deng Xiaoping warned many times). That decade is decisively over with Xi Jinping’s clear rearticulation of Marxist political economy as the basis for China’s development. But the response is intriguing: instead of reverting to an outmoded planned economy, the contours of a socialist market economy arose.

The final proposal is that market economies have historically taken very different shapes and forms, determined by a primary purpose. This has been the preferred approach of this paper, although each of the preceding proposals (barring the first) also has merit. In this light, a socialist market economy constitutes a distinctly new form of a market economy.

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Notes

[1] For the sake of reference, some of the earlier works where these matters have been analysed may be cited (Boer 2014, 2018, 2017, In press-b, In press-a, 2015; Boer and Petterson 2017).

[2] Thus, as Sun points out (2014, 132-35), the idea of ‘rooted universals’ moves past the facile distinction between relative and absolute (Foot 2000, 155-57).

[3] The present paper provides a basic outline of a monograph to be written on the socialist market economy. Some areas are based on earlier research (especially the historical material), while other areas have slowly developed over the last few years. Obviously, most topics require further in-depth research, predicated on taking Chinese scholarship on such matters seriously.

[4] Or, as Kula points out: ‘in the pre-capitalist economy, market phenomena are governed by completely different laws in many cases, and … these phenomena have an altogether different effect on the remaining sector of the economy’ (Kula 1976 [1962], 17).

[5] Although comparisons with the practices of the Soviet Union are helpful to some extent, they are also fraught with traps, not least because of the different historical and cultural context of China, as well as the fact that China has developed well beyond what happened in the Soviet Union.

[6] The same can be said for developments of the socialist state (see above).

[7] In his occasional posts on China, the Marxist economist, Michael Roberts, pursues this line. See https://thenextrecession.wordpress.com.

[8] This group forms the backbone of surveys which consistently register, in international surveys, 90 percent expressing confidence in the direction China is headed (Ipsos 2017, 2018), and 84-89 percent expressing trust in the government (Edelman 2018).

[9] The three great leaps are: standing up (zhanqilai); economic wellbeing (fuqilai); strength (qiangqilai). A recent articulation may be found in Xi Jinping’s speech commemorating the 200th anniversary since Marx’s birth (5 May, 2018).

[10] This point arises from a private conversation with Ken Surin, of Duke University.

[11] This old colonial club, made up of about a dozen countries, has been fostering a ‘China threat’ line for the last few years, all the way from Huawei as a ‘security threat’ to deliberate misinformation concerning the highly successful de-radicalisation programs in Xinjiang Autonomous Region. The vast majority of countries in the world – including Muslim-majority countries – are singularly unimpressed with this effort.

[12] The text may also be found at https://ctext.org/liji/li-yun.

[13] It is possible to give only a brief sketch here, but the research behind this point may found in other papers (currently available at https://www.humanities.org.au/wp-content/uploads/2018/11/AAH-SYMP18-BOER-Chapter.pdf; https://www.humanities.org.au/wp-content/uploads/2018/11/AAH-SYMP18-BOER-Paper.pdf).

[14] Article 11(1) is relevant here, which mentions that state parties ‘recognize the rights of everyone to an adequate standard of living for himself and his family, including adequate food, clothing, and housing, and to the continuous improvement of living conditions’.

[15] As part of party rebuilding under Xi Jinping, as well as society as large, the core socialist values continue to be assiduously promoted at all levels. They appear in adjectival form: prosperous and strong (fuqiang); democratic (minzhu); civilised (wenming); harmonious (hexie); free (ziyou); equal (pingdeng); just (gongzheng); rule of law (fazhi); love of country (aiguo); dedicated (jingye); honest and trustworthy (chengxin); friendly (youshan). Needless to say, they should be understood within a socialist framework and not twisted in terms of liberalism.

[16] In some quarters, some noise has been raised concerning Chinese billionaires in a socialist society, with relation to the Gini coefficient. These social responsibility reports should indicate the role of such billionaires, and it is worth noting that the Gini coefficient, or ratio between rich and poor, has been steadily falling in China for over a decade.

[17] A more detailed examination of stock markets in China would reveal that it is common to distinguish between fluctuations on the stock markets and the ‘real economy’. The reason: the Chinese economy is not ‘financialised’, as in the United States, where the ultimate fetish of capitalism may be found – money produces money of its own accord (Marx 1894 [1998], 388-97; 1894 [2004], 380-88). In short, the stock market is not determinative of the enmeshed economic situation as a whole.

[18] Yugoslavia, in its break with the Soviet Union, developed what they called ‘market socialism’. In this case, enterprises were collectively owned but they sold products – internally to Yugoslavia and externally to a capitalist Europe – in a capitalist framework. Hence ‘market socialism’. Some suggest that the Chinese borrowed this model for their own approach, but this is not the case. As is their custom, they studied various approaches and came up with their own.

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2018: The Year Apple Products Became Obsolete

Is 2018 the year that the global symbol of U.S. technological innovation became obsolete? Or is it the year when we began to realise a reality that has actually been the case for a while?

Not so long ago, it was a given that Apple products would be manufactured in China, but that the crucial value-adding would take place in the United States’ infamous Silicon Valley. In this way, companies like Apple could maintain a stranglehold on the global supply chain. No matter that it was often Chinese whizz-kids who were actually in Silicon Valley, finding new ways to keep Apple in front and ensuring the final value-adding.

In 2018 a few small but significant shifts took place. Let put this in terms of personal experience. A couple of years ago and against my better instincts, I had accepted a Macbook Air from an employer. I eventually became used to the machine, even with its counter-intuitive and closed structures. It had a good battery and good modem inside and it seemed to work passably well for the first year or so. But it was always a frustrating piece of equipment. After a year or so, its basic clunkiness became more apparent. Despite all the vaunted hype by Apple enthusiasts, I found it no better than other machines I had used earlier.

In late 2017 I was fed up. In Beijing I bought a new Xiami laptop, which had recently been launched. At all levels, it is simple a superior piece of equipment. Xiaomi’s aim is to produce the best possible product at a reasonable price. This one was about half the cost of a Macbook Air. What had happened? I thought. Is this an anomaly? No, the value-adding had all taken place in China.

I could repeat these observations concerning the Xiaomi phones, but perhaps Huawei is a better example. In 2018 Huawei produced the world’s best smart phone, with integrated AI (artificial intelligence) and a ‘killer’ camera developed by Leica. Its global market share surged past Apple, and is now just behind Samsung. In a couple of years, it will become the world’s top-selling smartphone.

Is this a sudden development? Not at all, for the enmeshed socialist market economy of China has been in this path for a number of years. Technological breakthroughs – from high-speed trains, through bridge construction to smart phones and quantum communication – have been actively fostered. For example, for some years now more new patents are registered from Zhongguancun (near where I live in Beijing) than from Silicon Valley. While the former has been attracting more and more global talent, the latter has seen a brain drain.

In this light, the crude efforts – by one or two countries such as the United States and Australia – to suggest that Huawei, for example, is a ‘security risk’ should be seen for what they are: desperate rear-guard actions to try and restore the fortunes of companies like Apple.

The catch is that people know the technology is now increasingly obsolete and yet one is supposed to pay a premium price for such technology.

As someone from India – where Chinese high-tech products are in very high demand – put it: I am sick of the United Stated forcing obsolete technology on the rest of the world at gunpoint.

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.

The Chinese Model: A different approach to engaging with Africa

This insightful article was published recently in The Global Times. It is written by He Wenping, a senior research fellow at the Charhar Institute in China, and by Hisham Abu Bakr Metwally, an economic researcher at the Central Department for Export and Import Policy under the Egyptian Ministry of Foreign Trade and Industry.

It’s time for Europe to learn from China in engaging in Africa

The just-concluded EU Summit on migration has come up with measures like securing centers for migrants to process asylum claims, strengthening external border controls, and boosting financing for Turkey and countries in North Africa. But these are old solutions to old problems.

Since 2015, the EU has been working at full capacity to overcome the migration crisis. EU member states received over 1.2 million first-time asylum applications in 2015, more than double that of the previous year. But it seems that the European continent is still working in the same old way to try to prevent the entry of immigrants and not to address the causes of migration. Even if we assume these measures bring success in reducing immigration for some time, the EU will later be surprised when migrants use other means and methods to migrate, because the causes of migration still exist.

The root of migration is poverty. The African continent has suffered occupation and war for many decades. Many African countries have not yet been able to achieve the path of reform and development. This has put the people of these countries under unbearable pressure from poverty, ignorance and disease. They have pushed themselves into the abyss and tried to cross the border to reach Europe. They have faced danger and horror, believing a chance at a better future is worth dying for, if necessary.

With the emergence of the new system of globalization, the world became a small village and Africans opened their eyes to the luxury and good life enjoyed by Europeans, which inspired them to move to these countries. The majority of people from African countries continue to blame European countries for their backwardness and believe they should shoulder their responsibilities toward Africa. As a result of the failure of European countries to play the role that the African people were waiting for, these masses migrated to Europe to try to gain these rights. Europe, when dealing with refugees, looks at them from a perspective of human logic or empathy and does not view migration as a symptom of a disease. European countries must change their thinking and strategy to deal with the disease in order to make the causes of migration disappear.

It is time for Europe to look at the Chinese experience in Africa. The Chinese policy has always focused on development. Economic relations between Africa and China have grown enormously, especially since 2006. The African continent is playing an important role in the Belt and Road initiative. China provides infrastructure funding and a workforce, and this infrastructure allows Africa to increase its production and exports, improving the quality of life and improving the conditions of millions of Africans.

Hope is the solution. The people of the African continent need hope. At least this last summit has come out with some words about more investment in Africa to help the continent achieve a substantial socio-economic transformation. China has been focusing on African development for a long time and has seen the results. The EU should work closely with China to push for the B&R to fight poverty in Africa and promote development.

He Wenping is a senior research fellow at the Charhar Institute in China, and Hisham Abu Bakr Metwally is the first economist researcher at the Central Department for Export & Import Policy under the Egyptian Ministry of Foreign Trade and Industry.

China’s socialist model enriches global governance philosophy

I rather like this piece from the Global Times yesterday:

The most discussed challenge to liberal democracy in the West nowadays is the perceived threat of China’s rise and the “Chinese model.” That China has rapidly risen in a development model different from that of the West has startled and upset the West. Does China attempt to overthrow the Western liberal order? Would it spread its development ideas, values and political system to other countries? Such worries haunt many Western scholars, politicians and media outlets.

To figure out whether China is a threat to liberalism, the Economist initiated a debate “Should the West worry about the threat to liberal values posed by China’s rise?” as if liberal values are paramount standards that couldn’t be challenged.

After the Cold War, Western liberal democracy and the market economic system, which are built on core liberal values such as individual freedom, equality and capitalism, gained their momentum. Francis Fukuyama, an acclaimed American political scientist, even declared free-market liberal democracy would become the world’s “final form of human government.”

However, it’s absurd to hold Western liberal democracy was the “end of history.” Since the 2008 financial crisis, the Western world has undergone serious economic, political and social turbulence. Political polarization in the US, the European migrant crisis, Brexit and the rise of populism on both sides of the Atlantic all indicate the West has been mired in a liberalism crisis.

Fukuyama was compelled to revise his original opinion and turned to fear for the future of liberal democracy. He called to examine the deep structural reasons for dysfunctional democracy. Unfortunately, a more prevailing view is to blame external threats for the fall of liberal democracy, regardless of what deserves more attention is not threat from outside, but from within.

The West should make self-introspection for the liberalism crisis. Liberal ideas and institutions failed to solve the problems facing developing countries. Many developing governments found it hard to govern their country well after copying Western political systems and were plagued by political and social woes. More newly emerging countries have become skeptical about the Western model. In sharp contrast, the Chinese model is gaining popularity and giving hope to those countries longing for rapid development while maintaining independence.

The Chinese model has undoubtedly raised questions over liberal values, but it also enriches development philosophy. There is neither “end of history” nor “end of evolution” for development model. Now it’s the time for the West to seriously reflect upon its own problems and reconsider its values. What it needs to do is to improve and move forward, rather than be obsessed with past success. If it continues to defend its internal decay by fabricating external threats, liberal democracy and institutions will face a bigger crisis.

If you wish to read further, there is also an intriguing article about a Nigerian proposal to change to a one-party system and socialist economy in Nigeria.

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.

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.