China a Capitalist or a Workers’ State? (May 2009 unpublished)

China a Capitalist or a Workers’ State?
Socialism is a system where economic and social planning is administered and checked by democratic workers’ control of production, distribution and exchange. The lowest level of Socialism can only begin when social revolution overthrows capitalism in the richest countries of the world where the productivity of labour is highest.
Stalinism is a system of bureaucratic administration in a society where social revolution placed the commanding heights of the economy in public hands but whose average level of productivity of labour is lower than the average in the wealthiest capitalist countries. It is by definition a transitional society between backward capitalism and socialism, thus it inevitably combines elements of capitalism and elements of socialism. Stalinist states administer planning bureaucratically, without fully replacing markets as the primary mechanism of exchange and quality control.
The lack of democracy under Stalinism was not the only reason for economic stagnation. This was also caused by, a. Autarchy, b. State Control of Prices and c. Excessive Nationalisation. The removal of these three economic restrictions boosted the economy of China and revealed in a new way the inherent superiority of the planned economy.
a. Autarchy prevented technological exchange and distorted the productive system within the narrow limits of the backward national economy. China joined the World Trade Organisation and its control of foreign trade is limited. However control of the state and government and public ownership of the banks and the largest enterprises, all act as powerful levers to prevent cheap imports from undermining state planning. The benefits of participation in the world division of labour; include the use of the law of combined development through access to the latest science and technique and its application throughout the planned economy.
b. State Control of Prices when applied generally inevitably creates shortages and corruption. In a transitional economy state control of prices should be an economic tool used cautiously and strategically. The complexity of forecasting the impact of price controls can create grotesque distortions even in spheres where general consensus on price control may exist. Take rent control, when rents are set too low, revenue will not cover maintenance, improvement, or new construction costs and a black market will evolve. The law of value cannot be abolished by fiat it can only be overcome through the production of abundance.
c. Excessive nationalisation undermined the ability to meet simple consumer demands in the retail and services sector. It was often impossible to legitimately get elementary goods and services e.g. plumbing, mechanical repair of consumer goods or vehicles, goods dependent on individual aesthetic or culinary taste, quality escaped the grasp of bureaucratic control like a shadow.
Since 1978 China changed from an almost completely state owned and autarkic economy, to one in which public ownership dominates the commanding heights, the capitalist sector plays a major role and the economy is integrated into the world market.
This particular balance of economic forces corresponds closely to transitional economy model proposed by Preobrazensky, the main economic theorist of the Left Opposition in the USSR in the 1920s. Marxists often mention the New Economic Policy carried out in the USSR as a necessary retreat; but fail to concretely address the importance of identifying what was necessary. What balance of property relations should exist in the transitional epoch and by what means should the Socialist sectors be strengthened and the capitalist exploited, controlled and eventually eliminated? Preobrazensky addressed these questions in his book New Economics, in a way that bears strikingly resemblance to China’s economy today. When he wrote this book the threat of capitalist restoration hung over the USSR, it was the criticisms by the Left Opposition, adopted in a caricatured form, that prevented capitalist restoration in the USSR in 1928. Today China, Cuba, North Korea and Vietnam all stand on the precipice; pro-capitalist forces internally and externally are pushing for social counter-revolution. Marxists must engaging the questions confronting these societies and in this way defend of the planned economy.
This discussion takes us into the domain of the practical steps needed in the revolutionary programme and policy of a workers’ state. It is these issues that are at the core of the debates inside the Communist Parties and root of the class conflicts in society, in China, Vietnam, North Korea and Cuba. Indeed, the same issues are at the heart of the reasons behind catastrophic collapse of the planned economies of Eastern Europe and the USSR twenty years ago.
In most countries our programme for the economic organisation of a workers state calls for public ownership of the commanding heights of the economy. Marxists have never argued for total nationalisation of the economy even in advanced capitalist countries.
Bureaucratic control of the workers’ state caused mismanagement and corruption; excessive public ownership was a major contributory factor within this. Small and intermediate scale companies should never have been nationalised. It follows that where such companies were nationalized they should be privatized as a necessary retreat. Lenin was not afraid to invite capitalists to invest, install one-man management in the factories and promote inequality in wages. Lenin and Trotsky did not envisage the decades of existence of bureaucratic workers’ states, but they did foresee that the USSR had to combine the capitalist and socialist tasks of the revolution.
The democratic planning system of a workers’ state must focus its attention firstly on the administration of the banks and through them on the core industries and services. The nationalisation of the banks provides the means for a workers’ state to take control of the economy through a national economic plan.
In China, Vietnam, Cuba and North Korea, public ownership of the banks and the commanding heights of the economy is what identifies these countries as workers’ states and planned economies. In China and Vietnam there is a large legal private sector, in Cuba and North Korea there is a large illegal private sector, in the form of the black market.
Large private sector enterprises and the individual acquisition of capital have created a politically dangerous merging of interests between sections of the ruling bureaucracy and the capitalist class in both China and Vietnam. The command economy of Cuba is just as subject to capitalist forces as China and Vietnam, perhaps more so. In Cuba everyday life is impossible without participating in the black market. The distortions in the economy that are the result of excessive state ownership, autarchy and price controls are the breeding ground for petty capitalist gangsterism to flourish. The illegal enrichment of the few lays the foundations for the growth of capitalist forces, particularly as trade with the United States is relaxed and émigré money moves in seeking out local black-market ‘business’ partners. Cuba faces an imminent threat of capitalist restoration because its economy is so tiny that its public sector can be swamped in a matter of days. Cuba’s banking system is based on an artificial currency exchange so it cannot survive in the world market. Price controls and bureaucratic planning distortions mean that reforms will inevitably cause further dislocation and will strengthen pro-capitalist forces. Marxists in Cuba should encourage a discussion of China’s economic success explaining that it is based on public ownership of the commanding heights. This discussion can only assist the Cuban, Caribbean and Latin American revolutions to avoid the Stalinist path of excessive nationalisation, autarchy and bureaucratic administration. Marxists must explain the need for a minimum programme of public ownership of the commanding heights, democratic control by the workers over the state and major enterprises, and a thoroughgoing internationalist policy. Marxists explain that private enterprise and initiative should be supported in a transitional Socialist state, this can includes foreign investment, joint ventures, individual and cooperative private ownership. To argue for complete public ownership is an ultra-left sickness that has nothing to do with Marxism.
In North Korea the bureaucracy followed precisely such a path, everything was state owned. One would think that no serious Marxist defends the prohibition on peasants owning and raising their own pigs? Yet we read on Marxist.com that all measures by the government of North Korea that permit private incentive must be reversed! Marxists do not shy away from participation in discussions of how to develop the productive forces using capitalist methods, investment and individual incentive. We are serious revolutionaries aware of the problems of everyday life caused by over-centralised and over nationalised economic structures. The active democratic participation and supervision by the masses is the mechanism of democratic control over the petty private sector, not prohibition.
A workers’ state under workers’ control and democratic planning in the richest countries of the world would still need to identify which proportions of state, collective, private and foreign capital would be most effective for development. In a society where the bourgeois mode of production is underdeveloped and where peasant and petty individual production predominate, a prolonged period of transition necessitates a balanced and gradual transformation from individual to social production, thus also from private to public ownership. The accumulation of ‘socialist type’ productive forces in the commanding heights of the economy is the primary means of socialist accumulation in a transitional society that seeks to move from a predominantly pre-capitalist to a socialist economic formation.
If it is true that the state sector owns and controls the commanding heights of the economy then the classical Marxist position of unconditional defence of the planned economy and political revolution to establish a workers’ democracy still hold good for China. However, given the changed global balance of forces and the potential scope for engaging in fraternal discussion with the Communist Party members it would be counter-revolutionary sectarianism to call for the overthrow of the Chinese Communist Party. Our relations to the Cuban Communist Party should serve as an example and a lever in this respect.
Given the development of the productive forces at such rapid speed and the progress this has brought for the broad masses, it is inevitable that this reflects itself in widespread support for the Chinese Communist Party. This would be the case even if China were capitalist, as the Communist Party would be regarded as a sort of bonapartist-reformist party presiding over the state in a prolonged economic upswing (the greatest in human history).
We must arm socialist forces inside the Communist Party with a Marxist programme, policy and theory; oppose pro-capitalist forces and support workers’ struggles for democratic control and supervision over the administration of the state and society; and support measures to reduce inequality and realise the constitutional rights of the workers as ‘masters of the state’.
The deep-seated hatred of the new rich and particularly of corrupt bourgeois forces in the party and state must be turned into action to reduce inequality. This means a fight to limit inequality in individual wealth through progressive taxation, a cap on the income of officials and state employees by legislation and anti-corruption agencies. Enforcing such measures by democratic supervision and control will find a wide constituency of support within the Communist Party and amongst the workers and peasants.
Marxists seek to turn the trade unions and the Staff and Workers’ Representative Councils into fighting working class bodies to protect public property and take over administration, through democratic control of the commanding heights of the economy.
We support the organisation of the peasant poor in alliance with honest cadres, militant Communists, soldiers, veterans and the working class, to democratically supervise administration and accounting, fight corruption and graft, and subject planning to democratic control to serve the aspirations of the masses.
The appearance of child labour, slave markets, Dickensian factories, etc. does not determine the character of the state. Slave labour contributed to the formation of capitalism, it also played an important role in the development of Siberia in the 1930s. Marxists determine the character of a social system by the dominant sectors of the economy. The USSR was a workers’ state in 1917 regardless of the fact that the majority of the masses were peasants barely crawling out from serfdom; the state was a workers state because the commanding heights were under the control and ownership of the state.
Exploitation is inevitable in the transitional epoch between capitalism and socialism. The law of value, that socially necessary labour time determines price, remains the dominant economic law. Socialist accumulation by the state allows the amelioration and amendment of this law, but the overcoming this law is only possible when socialist productivity of labour surpasses that of capitalism. Socialist policy in the transitional epoch inevitably involves exploiting pre-socialist economic forms to accumulate capital to develop large-scale enterprises in the public sector.
Social production is the production of large-scale industry for large numbers of consumers, e.g. steel, coal, iron, electricity, transportation and infrastructure etc. This is the sphere where a transitional society needs to socialize production and thereby amend and adjust the impact of the law of value. This may be done for example, by setting prices of steel at a level that increases demand for construction; by providing cheap transport; supporting state driven investment policies and above all through state banking serving the plan.
Individual production, the production for small numbers of consumers, by artisans, workshops, food outlets, small scale farms, design, plumbing repairs, car mechanics etc. These spheres should be private or cooperative, (which is a form of collective private operation) in the transitional epoch and for the foreseeable future. The nationalization of individual production has a negative impact on the overall economy and leads to bottlenecks for consumers and industry. The detailed planning of each and every product or service is impossible under bureaucratic or workers’ control. It is not possible to foresee each and every time a plumber needs to fix your drain, nor to bureaucratically plan excellent cuisine in a restaurant, for this a great chef and a well organised division of labour is required. Recipes and cookbooks are not enough to produce excellent dishes, as anyone who has eaten school meals, or the food served to us at the world events in Barcelona can confirm!
The evidence and arguments used as the basis for ‘China’s Long March to Capitalism’ were both misleading and false.
Specifically
1. Instead of being bound to capitalism through property ownership, the Peoples’ Liberation Army is totally divested from business.
2. The capitalist class has neither, a high membership of or dominant influence within, the Communist Party
3. The cause of rapid economic growth between 1978 and 2005 was not impulses from the pre-1978 era but the dynamics of an economy in which the commanding heights are state-owned.
4. Capitalist property is subordinate to state property in the commanding heights and banking. At no stage has the Chinese Communist Party abandoned its commitment to the dominance of public ownership.
5. The post 1949 ruling bureaucracy was not and is not a continuation of the Mandarin bureaucracy
6. The regime is not more repressive than 20 years ago, it is false to characterise China as composed of the worst of capitalism and the worst of Stalinism.
7. Independent and comprehensive research shows that leftwing tendencies inside the Communist Party, led by lower level cadres, organize over 66% of strikes, demonstrations and revolts, within the villages, townships, cities and state enterprises. To present this section of the CCP as pro-capitalist means to alienate us from the leadership of the real social movements of the workers and peasants in China today.
Various objections to these arguments have been raised,
1. Many studies claim China is capitalist
The fact that most bourgeois analysts fail to understand the processes taking place in China as the economic dynamics of a workers’ state is because the concept of a workers’ state in their theoretical frame is a “centrally planned economy” with almost 100% state ownership and all or most prices fixed by the state. In addition, some ultra-left Maoists in China say the country is capitalist, Mao characterised the USSR as capitalist in 1961! Marxist must judge the issue according to Marxist criteria and not be swayed by appearances and fashion.
2. China has been affected by a crisis of overproduction
Planned economies, even in a healthy workers’ state will experience crises and periods of overproduction, particularly in the transitional epoch between capitalism and socialism, as the laws of the global market inevitably impact on the national economy. The fact that China is a major importer and exporter obviously means that capitalist crisis on a world scale adversely affects China. Only complete autarchy can avoid this. In addition as long as there are market relations expansion and contraction will follow capitalist laws, but these laws can be counter-acted by planning to limit and overcome crises, through the domination of the dominant economic levers governing finance, investment and the key means of production in state hands.
3. Chinese workers work in capitalist factories and are brutally exploited.
It is true that Capitalist relations dominate in many sectors of the economy and the law of value operates as the primary determinant of the price of labour power. A transitional society inevitably operates according to this law. It is true that in China far more people are directly subject to capitalist exploitation than in the former USSR or in China from 1949-1978. In all transitional societies the accumulation of capital for socialist type production by state owned enterprises necessitates the exploitation of man according to the law of value and the primitive accumulation from pre-socialist economic systems. Taxes on private enterprises, state ownership of the banks, and similar measures permit capitalist operations to be exploited as the means of accumulation of resources for state enterprises. In addition technological innovation produced under capitalism can be replicated, saving time in research and development costs.
4. The health, education and welfare system of the revolution has been eroded.
There has been a failure in heath, education and welfare reform in China, leaving basic services, particularly in rural areas at a miserably low level. This failure is a reflection of the misuse of power and planning errors of the ruling bureaucracy. The inadequate social welfare provision is one of the issues that can and does galvanise social discontent of the masses to demand the Communist Party ‘serve the people’. It does not however invalidate the claim that China remains a bureaucratically deformed workers’ state.
5. The Maoist forms of collectivism and social life have been undermined.
The specific form of urban power and control in Maoist China was based upon a system known as the Iron Rice bowl. This in essence was a cradle to the grave welfare system for the working class in state owned enterprises. This system was predicated on the hukou population registration system, which prevented migration from rural to urban areas. This meant that the modern socialized sector of the economy was entirely limited to urban conurbations. The peasantry outnumbered the proletariat and thus the move to socialism was postponed until some unknown epoch when the distinction between town and country would magically disappear. Whilst the move to abolish the Iron Rice Bowl was in many ways regressive, the result has been improved productivity and the strengthening of the most important state owned enterprises.
6. The market has replaced the plan as the central mode of distribution and allocation of goods and services even within the state sector.
The distribution of goods even in a healthy workers state will be predominantly by means of the market i.e. governed by the law of value. A workers’ state can amend the law of value through its control of the commanding heights of the economy and investment, taxation and credit policy. The less invasive the less bureaucratic, the more the development of the productive forces can lay the foundation to ameliorate and overcome the law of value, through attaining abundance. The struggle for socialistic principles in economy is one of generations even in the most advanced countries. However socialistic principles can be applied to specific spheres of economic priority, like universal healthcare, education, or welfare services.
7. The state sector is being developed to foster a powerful indigenous ruling class.
The state sector is the core of the Chinese economy and the Communist Party is dependent on this sector for its legitimacy and power. There is corruption and graft inherent in the mixture of bureaucratic power alongside market relations and world trade. This does not mean that the state sector is a nursery for capitalism, there is no indication the party intends to cede its power to the capitalists in the state sector, on the contrary, there is every reason for the party not to cede this power as with it would go the raison d’etre of Communist party rule.
8.The creation of billionaires and paupers and increasing inequality is clearly a capitalist tendency.
The increasing inequality in China is undoubtedly a powerful evidence for the creation of capitalist forces. When combined with political power and economic combinations with overseas Chinese capitalists and multinational capitalism, it is clear that the forces moving China on the path to capitalist restoration are powerful. However economic inequality itself is not proof of a completed capitalist restoration. The capitalists do not command the party or the state apparatus and are subject to repression. The fear of reaction by workers and the peasant poor is the main pressure on the party to limit its collusion with the capitalists. The bureaucracy fears the social discontent and increasing objective strength of the proletariat within society and it is this that holds the leadership of the bureaucracy in check.
9. The Communist Party is run by a corrupt, self-seeking caste, interested only in enriching themselves and anchoring their powers in capitalist property relations.
China’s Liberation was led by the Communist Party, which was composed of a range of forces, from heroic selfless revolutionaries to honest and dishonest bureaucrats. The tendency for members of the party and bureaucracy to seek to anchor their privileges in capitalist property is strong; the party survives however, by its claim to represent the workers and the poor. This contradiction causes periodic purges and rectification campaigns. The most recent rectification campaign involving over 70 million members was in 2004-6, all party members were subject to inspection, compelled to study Marxist and Maoist texts, and to engage in self-criticism and public self-criticism over several months. If such methods were the cause of China’s uniquely rapid economic growth then Capitalists parties around the world will begin to emulate the Chinese Communist Party!
10. China is not only exploiting Chinese workers but is also exporting capital and exploiting workers all around the world, they act as an imperialist country, particularly in Africa.
The export of Capital from China has been primarily carried out by State Owned Enterprises to secure the strategic assets required by the Chinese state for planned development. The deals made with national governments tend to exchange skills of Chinese state owned enterprises for raw materials and resources central to national strategic objectives. The Chinese in Africa are engaged in state construction projects, civil engineering, infrastructure provision and road building. This has certainly brought benefits to many recipient nations whose normal terms of trade with Imperialist capitalism means pieces of paper are exchanged for raw materials or commodities and the rulers of the exploited nations deposit these pieces of paper in imperialist banks. Stagnation and decline often characterised the economies of Africa. Many people used to accuse the USSR of exploiting its satellites and there certainly were occasions where Soviet or Russian national economic interests were placed above the collaborating countries. Did this make the export of capital from the USSR a form of imperialism?
11. The transition to capitalism was gradual and was only completed in recent years this is why China has not experienced booms and slumps of Capitalism until now.
As China has experienced more rapid and smooth growth than any other country in history from 1978, it is evident that until recent times the dominance of planning was the basis of this growth. Some argue that the shift to capitalist dominance was a recent phenomena, thus it is argued that the present economic crisis is the first truly capitalist crisis in China since 1949. Planned economies can certainly suffer internal crises, like that the Great Leap Forward or the Cultural Revolution. However, they can also suffer cyclical booms and slumps in demand, if significant proportions of their economy is organised on the basis of the market. The integration with the world market brings impacts caused by global capitalist crisis. The advantage of the public ownership of the commanding heights and state planning is revealed in the ability to shift towards state investments to ameliorate and overcome the impact of market fluctuations or declining export demand. As capitalist companies close, state companies invest and sustain demand through the main sectors of the economy starting with the banks.
CLMC’s thesis rests on a theory that the class character of China’s bureaucracy is capitalist. However analogy replaces evidence as proof. In the late 19th and early 20th century the feudal state bureaucracy in Germany and Japan encouraged capitalist development through state support and nationalization, ‘therefore’ this is what China’s Communist Party is said to be doing, nurturing Chinese capitalism to become strong with the power of the central state.
Despite the formal appearance of similarity, the analogy is fundamentally flawed. With the feudal state introducing capitalism you were dealing with a historically dying system promoting a more progressive socio-economic system. With China we are dealing with a more progressive socio-economic system, the planned economy, introducing a more reactionary and backward socio-economic system, capitalism.
The theory of the Permanent Revolution contends that the progressive phase of capitalist development on a world historic level ended with the first imperialist war in 1914-1918. The bourgeoisie proved incapable of carrying through the bourgeois democratic revolutions in countries that came late to capitalist development. The tasks of the bourgeois democratic revolution in less developed countries fell to the proletariat to complete. This did not exclude exceptions to the rule in some countries that experienced rapid industrialisation in the 1970s and 80s, like South Korea, Taiwan or Malaysia. China is not just some minor ‘exceptional’ country, it has the largest population on earth and experienced social revolution in 1949 precisely because capitalism was unable to develop the nation and solve the tasks of the bourgeois democratic revolution.
If one contends that China today, can and has developed more rapidly under capitalism than under the planned economy (albeit under Maoist mismanagement) then there are serious question marks over the entire thesis of the exhaustion of capitalist potential for all of the former Stalinist states and all of the less developed capitalist countries. This poses a question over the nature of the epoch we live in. The fastest growth rate in history has been attained in China as it introduced capitalism over the last 30 years, is such growth attainable in Africa, Latin America, India, Asia and the former USSR if they emulate the Chinese model? Indeed is this not inevitable?
We answer with an emphatic no! China’s growth rate has been attained by concentrating public ownership within the commanding heights of the economy, by strengthening the economic efficiency of the large-scale state owned enterprises and by subjecting the planning to the law of value, creating a flourishing market in which the state uses its control of the commanding heights to exercise more effective planning control. The state budget and public ownership of the banks and the commanding heights enable the system to be planned better than the Maoist system pre-1979. China was characterised by complete public ownership of all economic activity, small and large scale.
None of this leads one to praise the form of the dictatorship, inequality, corruption, nepotism, exploitation or the undermining of the welfare system etc. characteristic of the last 30 years. Indeed almost everyone accepts that precisely these processes have slowed down the rate of growth! The need to eliminate all these hindrances to development is a powerful argument for democratic control of administration of the government and economic planning system.
Democratic workers’ control of public resources in China would focus priority on eliminating corruption and reducing inequality, between rich and poor, urban and rural, east and west.
The Chinese masses demand immediate and drastic improvement in health, education and pensions, the protection of the peasant against the speculator, the worker against the exploiter. They desire balanced economic development taking account of the long-term environmental costs affecting the quality of the life of the masses and their children.
Marxists must understand and assimilate the practical experiences of the transitional economy in China, which provides powerful and practical arguments for the defence and promotion public ownership of the commanding heights of the economy.