The Socialist Market Economy: Philosophical Foundations

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

A personal example, to begin with: in 2018, I purchased a Xiaomi laptop and a second Xiaomi phone. It soon became apparent that the laptop was far superior to my earlier Apple Macbook (that I had unfortunately come to use) and that the phone was simply a better device than any Apple or indeed other phone you can find. But who or what is Xiaomi? It is a Chinese hi-tech company that aims at producing the best quality products at reasonable prices. Most will probably have heard of Huawei, which now leads the world in its technological prowess. But Xiaomi is arguably better still. And both are increasingly better than anything you can find elsewhere.[1] At a Marxist philosophical level, this development may be described not as mere ‘catching up’, but as one element of a dialectical leap into the future.

How and why has this happened? Most obviously, it is the result of forty years of the reform and opening up, which has followed its own path and continues to do so. At a deeper level, it is but one manifestation of a socialist market economy. Given that developments in this economy are rapid indeed, and that specific analyses of the situation will be out-of-date in a year or two, this paper seeks the enduring philosophical foundations of the socialist market economy. 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.[2]

Let us begin with a number of theses, which will be explicated in what follows:

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. The purpose of ‘all under heaven is as common [tianxia wei gong]’.

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.[3] 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, 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 .

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 perhaps the most difficult. 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, 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 each of the propositions mentioned earlier.[4]

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

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 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.[5]

In China, the 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.

  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 – as Ken Surin points out – 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.

  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. The BRI approach – even as it deals with inevitable problems such 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)[6] 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? No, 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).

  1. The purpose of ‘all under heaven is as common [tianxia wei gong]’.

The previous point brings us to the basic purpose of a socialist market economy. A four-character phrase (chengyu) is apposite: all under heaven is as common (tianxia wei gong). It comes from none other than the Confucian Book of Rites (1885, 364-66).[7] Subsequently, it became a favourite phrase of Sun Zhongshan (Yat-sen) and the CPC.

How does it 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,[8] environmental improvement, education, guidance and improvement of public opinion, core socialist values,[9] 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.[10]

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 ‘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,[11] and so on, relate to one another and function quite differently.

Conclusion: How Did the Socialist Market Economy Arise?

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’,[12] 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 and warnings 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. To engage successfully with China in the current situation , it is necessary to understand how this socialist market economy works.

Bibliography

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———. In press. ‘The State and Minority Nationalities (Ethnic Groups) in China’. In The Palgrave Handbook of Ethnicity, edited by Steven Ratuva. Singapore: Palgrave Macmillan.

Fine, Ben, and Dimitris Milonakis. 2009. From Economics Imperialism to Freakonomics: The Shifting Boundaries between Economics and Other Social Sciences. London: Routledge.

Harvey, David. 2007. A Brief History of Neoliberalism. Oxford: Oxford University Press.

Huang, Yasheng. 2008. Capitalism with Chinese Characteristics: Entrepreneurship and the State. Cambridge: Cambridge University Press.

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———. 1937 [1965]. ‘On Contradiction’. In Selected Works of Mao Tse-Tung, Vol. 1, 311-47. Beijing: Foreign Languages Press.

———. 1957 [1992]. ‘On Correctly Handling Contradictions Among the People’. In The Writings of Mao Zedong 1949-1976, Vol. 2, edited by John K. Leung and Michael Y. M. Kau, 308-51. Armonk: M. E. Sharpe.

———. 1957 [1999]. ‘Guanyu zhengque chuli renmin neibu maodun de wenti’. In Maozedong wenji, Vol. 7, 204-44. Beijing: Renmin Chubanshe.

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———. 1894 [2004]. ‘Das Kapital. Kritik der politischen Ökonomie. Dritter Band. Hamburg 1894’. In Marx Engels Gesamtausgabe, Vol. II:15. Berlin: Akademie Verlag.

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Xi, Jinping. 2017a. Juesheng quanmian jiancheng xiaokang shehui, duoqu xinshidai zhongguo tese shehuizhuyi weida shengli (2017.10.18). Beijing: Renmin chubanshe.

———. 2017b. Secure a Decisive Victory in Building a Moderately Prosperous Society in All Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a New Era: Report to the 19th National Congress of the Communist Party of China, October 18, 2017. Beijing: Foreign Languages Press.

[1] Given their increasing obsolescence and decreasing market share, why do people still buy Apple products? As an Indian observer put it recently: ‘I am sick of the United States forcing obsolete and ridiculously expensive technology on the rest of the world at gunpoint’

[2] 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.

[3] 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).

[4] 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.

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

[6] 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.

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

[8] They are thus part of the comprehensive poverty alleviation campaign, which has lifted more than 700 million people out of poverty over the last forty years, with another 20 million to go by 2021. Not only has this created a whole new socialist ‘middle class’ (the term is not the best, given its associations) and increasing recognition as the major human rights achievement of the twentieth and twenty-first centuries.

[9] 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.

[10] 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.

[11] 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.

[12] 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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