China’s economic transformation has stunned the world. The country has become one of the world’s main exporters of manufactured goods and sites for transnational corporate investment, while purportedly lifting hundreds of millions out of poverty. As a result, analysts across a wide band of the political spectrum have embraced China’s market reform strategy, promoting it as a model for other countries. Disagreements over policy do exist, but they are largely about the appropriate sequencing and pacing of the reform process. Conservatives advocate a faster dismantling of barriers to the free operation of internal and external market forces; progressives argue for caution in order to avoid a repetition of the “shock therapy” disaster in the USSR. Significantly, despite their differences over the desired pace of reform, many on both right and left now share the view, based largely on the Chinese experience, that market reforms and insertion into the global capitalist economy can, when properly managed, offer tremendous opportunities for achieving growth, development and poverty reduction.

Politically, the most crucial features of this consensus on China are its top-down vision of socio-economic change and idealized view of markets and the reform process. Both left and right agree that China’s development successes reflect the wisdom of her government leaders. This helps explain the repeated paeans to the “smartness” of the Chinese leadership. Both groups recognize that China’s rapid growth has generated economic and social problems: macroeconomic instability, rising inequality, breakdowns in the health care and educational systems (especially in rural areas), worsening environmental pollution and so on. But they tend to view these malfunctions and maladies largely as symptoms of institutional lags in the marketization process, not as organic outgrowths of marketization itself.

Naturally, conservatives prefer that China modernize in the U.S. mold and build cooperative relations with the U.S., while progressives more often champion China’s regional and global emergence as a welcome counterweight to U.S.-style neoliberal and militarized capitalism. However, both groups see China’s continued modernization and democratization as natural outcomes of the country’s market-driven economic development. This shared perspective explains why both right and left admirers of China generally treat the increasing anti-market-reform struggles of Chinese working people as disruptive and threatening to China’s future. Implicit in this perspective is the belief that there is no positive potential for popular struggles to inform our basic conceptions of development and policy.

Another important element underlying the consensus on China is the shared acceptance of the nation as the primary unit of analysis. In other words, individual country successes (such as China’s) are not seen as organically connected to the failures of other countries (e.g., the 1997-98 East Asian crisis). Rather than combining these national experiences into a vision of capitalism as an organic, global, unevenly developing system, the consensus approach tends to lead to a focus on unwise policies as an explanation of individual country failures. Presumably if all governments adopted China-like policies then all nations would develop. One consequence of this approach is that the capitalist system escapes critical scrutiny.

From a Marxist perspective, these troubling methodological features of the right-left consensus on China have a common basis: the failure to take account of the class-exploitative and alienated roots of the market and of market-driven development, and the corollary failure to choose the side of working people in the class struggle and consider development policy from their standpoint. Correcting this failure leads to a very different picture of China’s experience, one that illuminates the ongoing restoration of capitalism and resultant skyrocketing of social and ecological costs.

The consensus emphasis on elite choices is justified in one respect: it was the Communist Party leadership’s decision to move the country in a pro-market direction. At the time Deng Xiao Ping succeeded Mao Zedong there was growing worker unrest over the inefficiencies and imbalances in China’s system of production and investment. But there was no mass movement seeking to solve these problems through market forces and private enterprise. Rather, many peasants, workers and intellectuals, and their spokespersons in the Party, were calling for socialist renewal though more grassroots cooperative-democratic decision-making in economic, political and cultural arenas. Deng and his faction of the Party were threatened by, and saw partial marketization as a safe alternative to, this response. This was not stated openly, of course. Rather, market reforms were presented as a more stable and effective approach to socialist renewal than any grassroots-oriented strategy of “putting politics in command.”

China and the free market

However, while it may have been a Party-elite decision to begin marketization, market imperatives quickly became uncontrollable. Each stage in the reform process generated new tensions and contradictions that could only be resolved (given the elite’s bias against worker-community centered alternatives) through a further expansion of market power. The “slippery slope” of market reforms thus led to ever more reliance on the market at the expense of planning, and the privileging of private enterprises over state enterprises and, increasingly, of foreign enterprises and markets over domestic ones. The general direction of the reform process is captured by the following trends: the state enterprise share of industrial output fell from 64 percent in 1995 to 30 percent in 2002, while the foreign enterprise share rose to 34 percent; the manufacturing workforce fell by fifteen million over the same period; the real, as opposed to official, urban unemployment rate is now in double digits; real manufacturing wages declined over the last decade; the urban-rural income gap, once one of the lowest, is now one of the highest in the world; the share of exports produced by foreign enterprises rose from 17 percent in 1990 to 51 percent in 2001; and the country’s dependence on exports has grown to the point that export growth accounted for 74 percent of China’s overall economic growth in 2002.

The specifics of the reform dialectic cannot be fully developed here (see our book China and Socialismfor an overview), but we can highlight some of its main elements. First, increased reliance on market and profit incentives meant a greater emphasis on monetary profit and loss statements in the evaluation of enterprise efficiency. Since state enterprises were saddled with relatively high tax rates as well as employment, investment and employee-welfare responsibilities (pensions, housing, health care), they appeared increasingly inefficient compared to private enterprises. For the same reason, private enterprises grew much faster than state enterprises.

Second, the imposition of employment “rationalization” policies in state enterprises (contract labor, for example) to promote greater market efficiency encouraged the shedding of workers and increased the importance of private enterprise for job growth.

Third, the falling profitability of state enterprises led to a growing volume of unpayable state enterprise debts, which encouraged privatization of state enterprises as a way for the government to unload these debts and increase revenues.

Fourth, privatization encouraged greater reliance on foreign investors, who were often the only ones with sufficient financial resources to purchase the targeted state enterprises.

Fifth, the growing resistance of state workers and managers to market and profit-driven behavior encouraged greater state support for foreign organized production as a means to overcome this resistance.

Sixth, the growing inequality and overproduction generated by marketization meant that exports had to take a leading role if rapid growth was to continue, and this new emphasis on exports naturally meant still greater reliance on foreign enterprises, especially in high-tech industries.

Seventh, the increasing centrality of exports and foreign investment meant that China’s growth increasingly depended on accession to global trade and investment agreements, above all the WTO, which further intensified market liberalization, privatization and export pressures.

China’s new reality

In sum, without denying the importance of naked class interest, the key dynamic driving China’s transformation was the path-dependent channeling of policy options into pro-market, pro-capitalist directions. The results were increasing alienation of economic priorities from grassroots needs and capabilities, and a corrosion of the state’s ability to plan and direct economic activity, both of which only reinforced the growing dependence on markets, private enterprise, foreign capital and exports. Given these inexorable dynamics, it is disingenuous for progressive admirers of the Chinese model to confidently proclaim that enlightened Party leaders will implement social welfare and regulatory policies capable of ameliorating the human and environmental costs of market- and profit-driven behaviors.

The reality is that the reform process has progressively eroded the motivation and ability of an increasingly bourgeois Party elite to formulate and implement such countervailing policies. Moreover, the rising unemployment, economic insecurity, inequality, intensified exploitation, and declining health and education conditions for China’s non-wealthy majority are not only inseparable from China’s economic successes; they were and are essential preconditions for these successes.

It is not surprising to see the World Bank and conservative economists claiming massive poverty reductions on the basis of the growing percentage of China’s population whose monetary incomes exceed $1 or $2 per day. What is shocking is that many progressives, and even some Marxists, have echoed these claims. Apart from the massive distortions in the official Chinese data and the highly imperfect purchasing power conversions that underlie such poverty reduction figures, it makes no sense to say that people are no longer poor, regardless of their earnings, if they no longer have access to affordable housing, health care, pensions, and education. And the mass disenfranchisement of workers and peasants from these basic necessities was a direct result of the break-up of the communes and of state-enterprise employment reforms.

The official poverty-reduction figures also mask the deteriorating situation of working women who have borne a higher share of state-enterprise lay-offs and longer spells of unemployment compared to men, as well as worsening job- and wage-discrimination, under market reforms. Women have also suffered more than men from the destruction of the social safety net, which has increased their domestic workload (e.g., care-giving for children and the elderly), thereby undermining their competitive position in labor markets—accentuating their growing dependence on male incomes. The expanded and uncompensated domestic duties of women-a result of the reversal of progress toward socialist production relations—are completely unaccounted for in the official estimates of poverty reduction.

On a practical political level, it is obvious that left agreement with the consensus on China can only have a disastrous impact on international worker solidarity. Those who admire the “smart” reform policies undertaken by China’s Party-elite are implicitly endorsing the efforts by that same elite to suppress and fragment the slowly rising tide of worker resistance to China’s capitalist restoration. Far from a wise or “realistic” modernization, that elite and its international supporters are on the backward-looking side of history—the side declaring that “there is no alternative” to the market and private profit as the main organizing principles of economic and cultural life. Insofar as such elitist thinking is posed as a new “socialist realism” it can only sow confusion and suspicion among Chinese worker-community activists about the motivations of international socialists and even the meaning of socialism itself.

China’s economic transformation has not only come at high cost for Chinese working people it has also intensified (as well as benefited from) the contradictions of capitalist development in other countries, especially in East Asia. Far from simply a positive sum experience replicable by other nations, China’s increasingly export-led growth is intensifying competitive pressures and crisis tendencies throughout the region.

For example, China’s emergence as the leading export platform for transnational capital greatly accentuated the overproduction that was at the heart of the 1997-98 East Asian crisis. China’s growing export prowess is now driving an even more profound restructuring of East Asian economic activity. Chinese export successes in advanced capitalist markets, in particular that of the U.S., are forcing other East Asian producers out of those markets. They have responded by reorienting their export activity to the production of inputs for use by export-oriented transnational corporations operating in China.

Thus, all of East Asia is being knitted together into a regional accumulation regime that depends on continued China-based export success. The much slower post-crisis growth of the erstwhile East Asian “miracle” countries compared to the pre-crisis period, and the heightened competitiveness pressures that are squeezing living standards throughout the region, suggest that this rearrangement of regional economic relations is incapable of promoting a stable process of long term development.

Meanwhile, China’s export explosion was also enabled by, and has accentuated, the industrial hollowing out of the Japanese and U.S. economies as well as the unsustainable U.S. trade deficit: the two main sources of imbalances and potential breakdowns in the contemporary global capitalist economy.

In short, while the search for national development models based on national competitive criteria suggests that different countries can achieve China-like successes based on their simultaneous adoption of China-like economic policies, in reality this is a fallacy of composition. China’s growth has been both cause and effect of the growing problems of FDI (foreign direct investment) and export-led growth in other peripheral nations along with the contradictions of capitalist maturation in the U.S. and other developed countries. China’s export competitiveness should not blind us to the fact that its rapid industrialization has been part and parcel of the uneven development and overproduction of capital on a world scale. To ignore this wider dynamic is to take the global capitalist framework as a predetermined, natural constraint on development visions and policies.

Fortunately, working people in China and the rest of East Asia continue to oppose attempts by their respective states to force down their living conditions in order to achieve greater national competitiveness. For example, despite intensive government repression and ideological manipulation, Chinese workers are resisting cuts in wages, pensions and health benefits, while Chinese peasants are fighting against exploitative taxes and land grabs by private- and government-sector capitalists. Throughout East Asia, popular movements have prevented capitalists, their governments and the IMF from shifting all the costs of the 1997-98 crisis onto working people and their communities. Indonesian and South Korean grassroots and labor movements continue to press for democratic change and its extension from political and cultural to socio-economic spheres.

If these struggles coalesce, their ability to envision and fight for human need-based forms of regional development will be greatly strengthened. In this connection, China’s capitalist transformation has served to tie Chinese and other East Asian workers into common transnational investment, production, trade and financial networks, thereby subjecting them to a common set of competitive pressures. In this way, capitalist uneven development is creating a common ground for nationally based struggles to merge into a regional movement from below pressing for more worker-community centered economic relations.

Socialists inside and outside East Asia can assist this broadening and deepening of worker-community struggle by demystifying all apologetic ideologies of capitalist development, including neoliberalism and so-called market-socialism. This means uncovering the class exploitation and alienation that lie at the core of marketization and privatization policies, and debunking the myth that there are no alternatives to the market. In fact, collective/public provision of health care, education, housing, transport, water, power, land use and many other basic services has already proved more cost-effective (in terms of the rate of need satisfaction per unit cost) than their private- and market-based administration in a broad range of circumstances. This explains the deep popular opposition to privatization and marketization policies in an equally broad array of national settings. The challenge is to bring this public sector under closer worker-community control, and then extend this control to other activities. This extension can and should be informed by studies of past efforts at workers’ production control and self-management—a history that has been suppressed or distorted by capitalist media and mainstream social science.

Socialists also need to critically engage with existing popular struggles for improved work and living conditions, even when they do not explicitly demand worker-community control over production and investment. The limits, and hidden revolutionary potentials, of these movements need to be studied and interpolated in a process linking reform struggles to structural economic transformations that gear production, exchange and distribution to socially agreed upon use values rather than the exploitative and destructive requirements of competitive monetary accumulation. In short, far from undermining the relevance of Marxism, the Chinese experience highlights its critical importance as a framework for understanding and overcoming the dynamics of contemporary capitalism.

 

Paul Burkett and Martin Hart-Landsberg are authors ofChina and Socialism: Market Reforms and Class Struggle .

 

—New Socialist (UK), Issue #51