Capitalist Development and Class Struggle in China

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CAPITALIST DEVELOPMENT AND CLASS STRUGGLE IN CHINA

Li Minqi D32 North Village Amherst, MA 01002 U. S. A. Tel: (413) 546-3497

CONTENTS

INTRODUCTION CHAPTER I

1

THE DEVELOPMENT OF THE CAPITALIST RELATIONS

OF PRODUCTION

11

What Is the “Capitalist Relations of Production,” and How Is It Different from the Relations of Production in the Chinese State-Owned Enterprises?

14

Why the “Reform?”

20

The Development of the Capitalist Relations of Production

24

On the Problem of Property

29

CHAPTER II

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SOCIALISM, CAPITALISM, AND CLASS STRUGGLE

The Cultural Revolution

49

Bureaucratic and Private Capitalist Class

63

The 1989 Revolution

74

The Struggle against “Breaking the Three-Irons”

85

The Middle Class

87

CHAPTER III

FROM THE COOPERATIVE AGRICULTURE TO THE

PETTY PEASANT ECONOMY

92

The Cooperative Agriculture

93

Back to the Petty Peasant Economy

101

The Petty Peasant Economy and Agricultural Stagnation

102

Capitalism and the Petty Peasant Economy

110

CHAPTER IV

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CAPITALIST ECONOMIC DEVELOPMENT

The Material Conditions for China’s Economic Development The Establishment of the Capitalist Relations of Production China’s New Proletariat

115 122 124

Capitalism and the Pauperization of the Masses of People

138

Dependent Development

140

State and Chinese Capitalist Economic Development

145

Transnational Corporations and Chinese Capitalist Economic Development

150

CHAPTER V

154

CAPITALISM AND DEMOCRACY

New Authoritarianism V. Democracy

158

Dependent Development and Democracy

165

The “Corruption” Problem and “Social Chaos”

171

CHAPTER VI

177

THE FUTURE OF THE CHINESE REVOLUTION

The Liberal Intellectual on Market, Democracy, and Revolution CHAPTER VII

185

MARKET, PLANNING, AND SOCIALIST REVOLUTION 195

A Critique of Market Socialism

199

The Information Problem, The Motivation Problem, and the Socialist Social Relations

203

A Note on Alec Nove’s Critique of the Socialist Planned Economy

213

On Innovation

218

The Experience of Revolutionary China

222

Can the Socialist Planned Economy Work?

231

REFERENCES

239

INTRODUCTION

According to the prevailing bourgeois liberal ideology, capitalism and democracy always go hand in hand. But the triumph of Chinese capitalism is exactly based on the failure of democracy. In the 1989 revolution, it was not only the democracy or dictatorship that was at stake, but also the fate of Chinese capitalism that was at stake. On 4 June 1989, not only was the democratic movement defeated, but also was the Chinese working class defeated. The Chinese working class was defeated because they had failed to make of themselves an independent political force capable of fighting for their own liberation. Instead, they followed the political leadership of the liberal intellectuals and thus served the political interest of the liberal intellectuals rather than that of their own. On 20 May 1989 when the ruling class declared its war against people by sending army into Beijing city to enforce the notorious “martial law,” the democratic force was left no choice but either surrender or an open call for people’s uprising. A call for uprising would be responded by the working class. On the other hand, the ruling class was deeply divided, caught up in panic. The chance of success was pretty large. But the liberal intellectuals refused to take this chance. The revolution thus failed.

I began to participate in the democratic movement in 1988. At that time, like most Chinese university students, I embraced bourgeois liberal ideology. That is, on the one hand, I agreed with western-style multi-party democracy, and on the other hand, I was in favor of fullscale marketization and privatization, and the establishment of the capitalist economic system. But I began to change my mind in the 1989 revolution. At the critical time of the revolution, it was very clear that whether the revolution would end with victory or failure depended on whether the opposition would and was able to fully mobilize the entire urban working class to fight for democracy. Here we were immediately met with a problem. Anyone who had a clear

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mind could not fail to see that the ideology that the liberal opposition held was in sharp conflict with the interest of the working class. People like me who were in favor of privatization and capitalism knew very well that the working class would suffer a lot if the economic policy that we upheld was put into practice. In the “normal” time, this could simply be left aside as the unavoidable cost of social progress. But at the time of revolution, it was completely a different matter. On the one hand, you were to ask the working class to fight for your ascendancy to power with blood and life. On the other hand, if you and your kind of people were in power, in return to what the working class had done for you, you would impose the social and economic policies that would be nothing short of a disaster for the working class. How could a revolutionary who thought himself or herself to be someone struggling for social justice, freedom and the liberation of ordinary people, not to put a question mark on the ideology that he or she held in this case? Shortly after the failure of the 1989 revolution, I began to reject bourgeois liberalism and convert to Marxism. Like all Marxists in today’s world, I was faced with a series of questions. Why did the socialist revolutions in the 20th century fail to establish a genuine socialist society? How do we evaluate the historical merit of these revolutions? Why did the failure of the socialist revolutions lead to capitalist development? Is it possible for us to have a society without any exploitation, oppression, and alienation? Is there such an economic system which is not only economically productive and efficient, but also satisfies the requirement of a socialist society? At the beginning, I either failed to answer these questions or did not have clear ideas on them. I was not yet completely freed from the influence of bourgeois liberalism. And as a member of the middle class intellectuals, my perception of society was still to a large extent limited by the narrow scope of the social group from which I came. For a long time, like the liberal intellectuals, I viewed Maoist China as no more than a “totalitarian society” with little contribution to China’s social progress. Also for a long time, I had tried to find a market socialist solution to the economic problems of a socialist society. But overtime, as I gradually went beyond the narrow scope of the middle class intellectuals and bourgeois liberalism, I was able to answer the above questions much more clearly and confidently.

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Here we have a problem of the relationship between the revolutionary social theory and the scientific social theory. In an oppressive society which is divided into the oppressor class and the oppressed class, it is impossible to make an objective, scientific analysis of society if we perceive society from the standing point of the oppressor class and other more or less privileged classes and social groups (for example, the intellectuals). For the oppressor class and other privileged classes and social groups have established interest in the existing society. In an oppressive society, only from the perspective of the oppressed people who do not have any interest in the existing society, can we reach a scientific understanding of the society. Thus, as long as the society is divided into the oppressors and the oppressed, a scientific social theory must be at the same time a theory that perceives society from the standing point of the oppressed people. That is, it must be at the same time a revolutionary social theory.

While the Chinese socialist revolution failed to establish a genuine socialist society (for objective as well as subjective reasons), the revolution did bring about tremendous improvement of the material and spiritual conditions of life of Chinese working people. In revolutionary China, which, in the opinion of the liberal intellectuals and bourgeois ideologues, was a “totalitarian society” in which people did not have any freedom and rights, working people were guaranteed extensive social rights (such as the right to employment-- “iron rice bowl,” to free health care, to cheap housing, and to other basic needs) that are unimaginable for the workers in capitalist societies. The new society was thus faced with a fundamental contradiction. On the one hand, since the revolution had overthrown the old oppressive and exploitative system, and guaranteed working people extensive social rights, it was no longer possible to develop productive forces in the way in which productive forces were developed in “normal” oppressive societies. On the other hand, the revolution failed to establish a genuine socialist society in which working people had control over society and economy. Instead, a new ruling class gradually took shape. If this contradiction could not be solved, there was no way to secure the development of productive

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forces, and consequently, the survival of the new society. This contradiction could be solved either by further developing the revolution, that is, by destroying the emerging new oppressor class and establishing working people’s control over society and economy, or by returning to the “normal” status of the oppressive society and depriving the working people of their extensive social rights that they won in the revolution. Whether the contradiction was solved in the first way or the second way, depended upon real historical struggles between different classes. In China, the struggle was concentratedly expressed by the Cultural Revolution. In the official economics, this contradiction was reflected in the controversy on “planning” and “market.” According to the official economics, market is the only rational and viable economic system under the modern conditions and the “market-oriented reform” provides the only solution to the economic contradictions of late Maoism. However, there is not an economic system that operates without being under any social relations. Thus, it makes no sense if we talk about the rationality and viability of an economic system without considering the context of social relations. For example, given the capitalist social relations, productive forces can be developed only if the capitalists are allowed to exploit the workers, and consequently only the economic system that allows the capitalists to exploit the workers can be “rational and viable.” This certainly does not suggest that what is “rational and viable” for capitalism is also “rational and viable” for any other society. On the contrary, capitalist exploitation, by repressing the creativity of working people, is a great obstacle to the development of productive forces. It was only after the failure of the Cultural Revolution, with the revolutionary socialist political and intellectual force defeated, and the rule of the bureaucratic ruling class consolidated, that the “market-oriented reform” became the only politically and socially viable solution to China’s economic problems. While the official economics keeps silence on the issue of social relations, they have implicitly taken for granted the existing social relations, that is, taken for granted the rule of the oppressor class over the oppressed people. Nonetheless, the class struggle between the ruling class and the oppressed people did not

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end with the failure of the Cultural Revolution. Instead, it was impossible for the ruling class to impose the capitalist oppressive and exploitative system on working people without serious struggles. These struggles reached one climax in the 1989 revolution. The failure of the 1989 revolution has proved that the liberal intellectuals are unqualified for the leadership of the Chinese democratic movement. By following them, Chinese working people can achieve only their own expropriation. The Chinese working people must free themselves from the ideological dominance of both the ruling class and the liberal intellectuals, and make of themselves an independent political force, that is, a socialist revolutionary force. In this sense, the fate of Chinese democracy is the same as the fate of Chinese socialism. On the other hand, the failure of the 1989 revolution paved the way to capitalist development in China.

After 1989 Chinese capitalism has entered a new stage of rapid

expansion, accompanied by massive inflow of foreign capital. There is no question that the rule of the ruling class has been consolidated and Chinese capitalism is now in very good shape. But these by no means suggest that the contradictions of the existing society have disappeared or will not be developed and intensified. The capitalist system, is a socially as well as economically irrational system, and a system full of contradictions. The very success of capitalist development prepares the conditions for its failure and demise. In the context of China, capitalist development has taken the particular form of exportoriented dependent development. That is, on the one hand, the Chinese capitalist economy has become increasingly dependent upon foreign technologies and advanced capital goods, and on the other hand, to finance imported technologies and capital goods, China depends heavily upon the exporting industries which are competitive in the world market only by taking advantage of cheap labor. Chinese capitalist development is thus based on the cruel exploitation of hundreds of millions of “cheap labor,” or in other words, based on the suffering and the pauperization of the majority people. But for any social system to be sustained in the long run, it must be accepted or at least tolerated by the majority people. Chinese capitalism is thus faced with an insolvable contradiction: to maintain its economic rationality, it must undermine its social

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legitimacy; to preserve its social legitimacy, it cannot maintain its economic rationality. Unable to maintain both its economic rationality and social legitimacy, Chinese capitalism puts its own survival into question. On the other hand, Chinese working people who had made a great socialist revolution, and seen with their own eyes how the world could be changed if the oppressed people would rise up, overthrowing the rule of the oppressors and exploiters, will by no means stand the present oppressive system for a long time. Sooner or later they will rise up again, not only taking back what they have lost, but starting with a new point of departure, which will lead to the establishment of a brandly new society.

I was arrested on 15 June 1990 for an anti-government speech and was later sentenced to a two-year imprisonment for “anti-revolutionary propaganda and instigation.” I was set free in June 1992 and have since then committed myself to the revolutionary socialist activities. I began with my work by making propaganda in the oppositionist groups dominated by the liberal intellectuals in Beijing and Xian. Some of them later became my comrades. In the debate with the liberal intellectuals, it became increasingly necessary to make a systematic critique of the ideologies of the ruling class and the liberal intellectuals. I began to write this book when I was making a personal investigation of workers’ conditions in Shenzhen in 1993. Later I went to Beijing to collect reference materials from Beijing Library (The National Library of China) and The Library of Beijing University, but then had to move to Xian to avoid being disturbed by the police (I had been arrested three times since June 1992). Thus, most of the Chinese part of the book was written in Xian. In the final version, Chapter I, II, V, and part of Chapter III, IV and VI were first written in Chinese and then translated into English by myself, Chapter VII and part of Chapter III, IV and VI were directly written in English.. In Chapter I, I try to answer the following questions. Has China embarked on the way of capitalist development? If yes, why? I begin with an analysis of the contradictions of the post-

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revolutionary relations of production in China, by comparing the Chinese state-owned enterprises with the capitalist enterprises. I argue that this contradiction could be solved either by the further development of the socialist revolution or by restoring the capitalist oppressive and exploitative system. Given China’s concrete historical conditions, capitalist development became the real historical solution to the contradiction. While in Chapter I I argue that capitalist development became the real historical solution to the contradiction of teh post-revolutionary relations of production, Chapter II discusses how this solution was determined by real class struggles. I focus on the Cultural Revolution and the 1989 revolution. Besides there is a section on the the bureaucratic and private capialist class and a section on the Chinese middle class. Chapter III discusses the evolution of the relations of production in agriculture since the founding of the People’s Republic of China. Although the agricultural cooperatization failed to bring about genuine socialist transformation in China’s countryside, under the cooperative agriculture, China did have made great progress in building the agricultural productive forces. While the Chinese agriculture had grown rapidly in the initial stage of the rural “reform,” as a result of the “reform,” the Chinese agriculture was back to the status of petty peasant economy and has since then entered long-term stagnation. In Chapter IV, I try to analyze the conditions for successful capitalist economic development in China. While the Maoist period had laid down the material foundation for further rapid economic development, rapid economic development is impossible without normal and stable relation of production, either the capitalist or the socialist. China is able to make a successful transition to capitalism mainly due to China’s relatively backward economic structure, and hence relativly backward class structure. By developing the capitalist economic sector based on the exploitation of hundreds of millions of the so called “surplus labor force” in the countryside, the Chinese ruling class has actually circumvented the resistance of the working class in the state-owned enterprises and the triumph of the capitalist “reform” is thus guaranteed. In this chapter, I also argue that given China’s particular context, capitalist development takes

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the form of export-oriented dependent development and if Chinese capitalism is not able to overcome the status of dependent development, the long-term sustainability of Chinese capitalist development is put into question. Chapter V discusses the relationship between capitalist development and political democracy. I make a brief introduction of the development of political democracy in developed capitalist countries, arguing that capitalist development will by no means automatically bring about democracy, and instead modern democracy was established only as a result of the struggle by the working class against the capitalist class. Then I argue that in less developed capitalist countries, due to more intensified social and economic contradictions, capitalism and democracy are even more incompatible. In this chapter, I also make an analysis of the controversy between two groups of the liberal intellectuals--”new authoritarians” and “democrats”, which happened in late 1980s. I try to show how this controversy reflected the inherent tension between capitalist development and political democracy. In Chapter VI, I make a summary of the political and social conditions in China after 1989. I argue that the inherent contradictions of capitalist development sooner or later will lead to great economic and social crisis in which all of the existing social contradictions will be greatly intensified, opening the possibility for a new socialist revolution. Chapter VII discusses one of the most important questions for the contemporary world socialist movement--can we have an economic system which is not only economically rational and viable, but also free from all forms of oppression and exploitation? I begin with a critique of various market socialist theories, arguing that market socialism is not able to solve its inherent dilemma--to develop productive forces in a market context as well as prevent the evolution into capitalism. Then I make an analysis of the critiques of the socialist planned economy by bourgeois economists and market socialists, who argue that the planned economy is unable to solve the information problem, the motivation problem, and the innovation problem, and thus cannot become a rational economic system under the modern conditions. I argue that given the socialist social relations, there is no reason why the socialist planned economy cannot solve the

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information problem, the motivation problem, and the innovation problem, and the arguments of bourgeois economists and market socialists cannot hold water. On the other hand, whether the socialist social relations can be established depends on, on the one hand, the general development of productive forces, and on the other hand, the real historical struggles between different social classes.

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CHAPTER I THE DEVELOPMENT OF THE CAPITALIST RELATIONS OF PRODUCTION IN CHINA

Marx (1978a, 172) said: “The ideas of the ruling class are in every epoch the ruling ideas.” The idea of “reform” is exactly the ruling idea of the contemporary Chinese society. What is the “reform?” Why do we have the “reform?” And whose interest does the “reform” serve? According to the official explanation, the “reform” is to build the “socialist market economy,” to be the self-perfection of socialism, rather than the rejection of socialism. According to Deng Xiaoping:

Having more plan, or more market, is not the essential distinction between socialism and capitalism. The planned economy is not the equivalent of socialism, capitalism also has plan; and the market economy is not the equivalent of capitalism, socialism also has market. Both plan and market are economic instruments (Deng Xiaoping, 373).

And in the official opinion, the “reform” is to replace the planned economy with the market economy which is a more advanced economic instrument, so that the development of productive forces can be promoted. An instrument is what human beings can use to act upon certain objects so that certain purposes can be realized. But what objects does the market economy act upon? Unlike common technical instruments, market acts upon not things but human beings. Thus, market is not simply a kind of “economic instrument,” but also a set of relations between people, that is, a set of social relations. If market is no less than a set of social relations, then (1) for any class or social group, whether it is for or against the market economy, depends not only on whether or not the market

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economy is an advanced “economic instrument,” or the market economy helps to develop productive forces, but also on whether the market economy is in or against its own interest; (2) only under certain social relations it is right to say that the market economy is a proper instrument for promoting the development of productive forces. If market is a set of social relations, then what kind of social relations is it? Briefly speaking, in a market economy, on the one hand, every producer objectively produces for social needs (his or her product can be sold only if the product satisfies certain social needs), and on the other hand, every producer is a private producer, that is, the means of production are his or her private property, the production is his or her private business, and the products are his or her private products. The socialized production is thus in conflict with the system of private production and appropriation. This conflict leads to the following results: (1) As a result of the conflict, there is the conflict and competition between private producers, and as a result of the conflict and competition between private producers, the poor becomes poorer, while the rich becomes richer, leading to ever-increasing polarization of society. The rich ascends to the capitalist who makes fortune by exploiting other people’s labor, while the poor declines to the proletarian who has to sell labor power to make a living. Thus, the market economy has an inherent tendency to evolve into capitalism.1

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In the opinion of the official scholars, “Although due to the operation of the law of value, those people who have rich endowments tend to become richer, while those people who have poor endowments tend to become poorer, if we take the following steps: first, trying to make the primary distribution more equal; secondly, imposing progressive income tax and high-rate heritage tax, facilitated by other tax measures, and providing welfare to the low-income stratum, then the polarization of income can be prevented, as has been proved by practice (Wu Jinglian, 172).” According to the official scholars, economic laws can simply be abolished by taking some administrative or legislative measures. However, the market economy is based on the system of private production and appropriation, and both “imposing progressive income tax and high-rate heritage tax, facilitated by other tax measures” and “providing welfare to the low-

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(2) The socialized production objectively requires the free movement of labor force and means of production. But under the market economy, the movement of labor force can happen only if there is buying and selling of labor power, and the movement of means of production can happen only if there is investment of “capital.” Thus, under the socialized production, a market economy must be a capitalist market economy. There is not and will never be a “socialist market economy.” Thus, to say that the “reform” is to build “the market economy,” is the same as to say that the “reform” is to develop capitalism.

What Is the “Capitalist Relations of Production,” and How Is It Different from the Relations of Production in the Chinese State-Owned Enterprises? What is the “capitalist relations of production?” Under capitalism, those people who work do not own means of production, and those people who own means of production do not work. This is the fundamental dilemma of capitalism. Thus, it is the primary condition for capitalist production that the capitalists buy “labor” from the workers.

income stratum” infringe upon private appropriation, the “tax measures” and “providing welfare” are therefore, in the context of a market economy, in conflict with the development of productive forces. A society cannot afford this kind of conflict beyond certain limit. The so called “as has been proved by practice,” is referring to the fact that since the Great Depression, the disparity between the rich and the poor in the western countries has been more or less moderated. But first, the polarization in the world-wide has not been moderated at all and has been worsened instead. In fact, the limited improvment of the income distribution in the developed countries is to some extent conditioned by the worsening of the income distribution in the entire world. Secondly, as for the developed countries, since 1970s it has become increasingly difficult for the so-called “welfare state” to be sustained. Consequently, bourgeois economists have to talk a lot about the “dilemma”

between “efficiency” and “equality.”

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According to Marxist theory, what the workers sell to the capitalists is not “labor,” but “labor power.” Is it simply playing with words? It is not. As early as in the 18th century, a student of labor relations pointed out: “you may oblige persons to labour certain hours for certain wage, you cannot oblige them to work properly (see Perelman, 1991, 59).” In the decision on the Holden vs. Harding case, the Supreme Court of the United States concluded:

That the proprietors of . . . establishments and their operatives do not stand upon an equality, and their interests are, to a certain extent, conflicting. The former naturally desire to obtain as much as labour as possible from their employees, while the latter are often induced by the fear of discharge to conform to the regulations which their judgement, fairly exercised, would pronounce to be detrimental. . . . In other words, the proprietors lay down the rules and the labourers are practically constrained to obey them (see Perelman, 1991, 98).

If it is “labor” that can be bought and sold, why do the capitalists lay down the rules to “obtain as much labour as possible?” Thus, what is bought and sold is not “labor,” but “labor power.” What the workers earn is not the equivalent of their “labor,” but the price of their “labor power.” If the workers have to do “as much labour as possible,” then they are exploited by the capitalists. However, whether the capitalists are really able to exploit the workers, and how much they exploit the workers, are determined not only by the buying and selling of “labor,” but also by the practical struggles between the workers and the capitalists in the production process. As Marx said:

He [the capitalist] must see to it that the work is performed in an orderly and methodical fashion and that the use-value he has in mind actually emerges successfully at the end of the process. At this point too the capitalist’s ability to supervise and enforce discipline is vital. Lastly, he must also make sure that the process of production is not interrupted or disturbed and that it really does proceed to the creation of the product within the time allowed by the particular labour process and its objective requirements (see

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Perelman, 1991, 60).

Thus, for the capitalists, to make sure that the workers work efficiently, responsibly, and properly, they must rely upon a coercive management system. For the workers who are wage laborers exploited by the capitalists will not voluntarily work as expected by the capitalists. As Michael Reich said:

By entering into the employment relation, workers surrender to capitalist not only authority over the tasks they will perform, but also most of the political and civil rights they enjoy as citizens of the state. When they walk into the factory or office, they are on the private property of the capitalists, where the guarantees provided by the Bill of Rights do not apply. Freedom of speech and assembly, the presumption of innocence until proven guilty, due process, equality before the law, and other rights protect citizens from action by the state (see Perelman, 1991, 98).

Only by coercion can the capitalists have the workers be exploited. But coercion by itself cannot guarantee that the capitalists can effectively exploit the workers. For it is the workers rather than the capitalists who really participate in the production process, and consequently the relevant information (about the production process) is largely held by the workers rather than the capitalists. Without the relevant information, the capitalists are not able to effectively exploit the workers.

Therefore, with the development of the capitalist relations of production, the

production process has been constantly reorganized to reflect the needs of the capitalists. In this way, the capitalists have managed to get more control over the critical information of production, and thus weaken the workers’ control over the production process.

This can be illustrated by the numerical-control machine-tools which are used in the metal-cutting process in the machine-building industry. The operation of these machine-tools are not manipulated manually by skilled machinists, but are automatically controlled by the program on the tape. The program can be

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designed to improve the efficiency without preventing the machinists from exercising their control over the production and practicing their techniques.

For metal-cutting knowledge which is needed for

designing the program is a part of the techniques that the machinists hold . . . But under capitalist relations, it provides the opportunity to depress the price of labor power by dividing the work into many simple procedures that require no skills and techniques. This is exactly what capitalists dream of (Aaronovitch, 397).

The process of capitalist technological development is thus at the same time a process in which the workers suffer from spiritual and intelligent degeneration. The workers who have lost control over the production process, have increasingly become mere auxiliaries of the machine system, performing simple and repetitive work.

While the most advanced scientific and

technological knowledge has been embodied in the capitalist machine system, the majority people are deprived of the possibility of mental development. But in the long run, individuals’ comprehensively developed productive power and their understanding of the world are more important a productive force than the physical wealth in which the advanced technologies have been embodied. Therefore, the capitalist relations of production are the relations of exploiting and being exploited, dominating and being dominated, and oppressing and being oppressed between the capitalist class and the working class. The development of productive forces under capitalism is thus based on the alienation of human beings. But since the workers are human beings, and are living social subjects, when they “feel exploited, they take measures to try to get even.” According to a study by the U.S. Department of Justice, more than two thirds of American workers engage in counterproductive behavior. In a sample investigation, one third of the investigated workers admitted stealing from their employers. “In-depth interviews with a small sample revealed that the workers were responding to a feeling of being exploited rather than direct economic necessity (Perelman, 1991, 114).” The capitalist relations of production result in the alienation of the workers, and thus have

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to try to find ways that can help to alleviate the destructive impact of workers’ alienation on production. F. M. Scherer found that large plants usually paid the workers higher wage as payment for the higher alienation that workers experience in such environments (Perelman, 1991, 113). But higher wage alone cannot completely offset the destructive impact of alienation. To reduce workers’ counterproductive activities, there must a system of coercion. Under capitalism, there are mainly two types of coercion system. First there is the internal coercion, meaning the coercion inside the capitalist enterprises. By imposing labor disciplines, providing relevant punishments, and placing supervisory workers at production site, the capitalists directly force the workers to work in accordance with capitalists’ requirements. In the U. S. the ratio of supervisory workers to production workers in the non-agricultural workforce rose from 13.7 percent in 1948 to 20.0 percent in 1966, and rose again to 22.4 percent in 1979 (Perelman, 1991, 94). But there is a limit to the internal coercion. For the workers can avoid the capitalist coercion by leaving the enterprises where they work. Therefore, for the internal coercion to work, it must be facilitated by the external coercion. What is the external coercion? First, in a capitalist society there is always a large unemployed population that provides a reserve army of labor for the capitalists. The workers, fearing unemployment, have to tolerate capitalists’ oppression. On the other hand, while modern capitalist societies have established social welfare institutions to prevent workers’ rebellion, social welfare must not guarantee the workers a socially recognized normal standard of living, otherwise the workers will not be forced to sell their labor power to the capitalists to earn a normal standard of living. Thus, both the internal and the external coercion are indispensable for the normal operation of the capitalist relations of production. Now let us make a comparison between the capitalist relations of production and the relations of production of the (pre-reform) Chinese state-owned enterprises. In the Chinese stateowned enterprises, did the workers own the means of production? No. Did the workers have control over their labor products? No. Without punishment and supervision, would the workers self-consciously work efficiently, responsibly, and properly? No. Had the Chinese state-owned

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enterprises developed the technical processes that are qualitatively different from the capitalist technological processes, providing the workers the conditions for free spiritual and intelligent development? No. Therefore, like the capitalist enterprises, the Chinese state-owned enterprises were the institutions with oppressive and exploitative relations of production.2 But the Chinese state-owned enterprises were not simply the replicate of the capitalist enterprises. Instead, the Chinese state-owned enterprises were the product of the revolution, born of the struggle of the oppressed people against the oppressors. Historically, the Chinese state-owned enterprises were on the one hand the negation of capitalism, and on the other hand the affirmation of the historic victory of the working class. The Chinese state-owned enterprises were thus closely associated with the social and economic rights that the working class won as a result of the victory of the socialist revolution. First, in the state-owned enterprises, the workers enjoyed inalienable right to employment. The workers’ labor power was not sold to the state-owned enterprises, but had to be accepted by the state-owned enterprises. Secondly, the state-owned enterprises must provide the workers cheap housing, free health care, and guarantee their living after retirement. As long as a worker did not break the law, he or she had the right to enjoy a socially recognized normal standard of living, no matter whether the enterprise where he or she worked made money or not, and no matter how the demand of labor force was compared to the supply. Thirdly, the revolution had brought about tremendous spiritual liberation to the oppressed people. The official scholars complained: “In this country it is popular to say: workers are the

2

As the readers will find later, these are simplified descriptions without considering the actual historical evolution of the post-revolutionary relations of production. Nonetheless this paragraph and following paragraphs are intended to describe the fundamental contradiction of the post-revolutionary relations of production at the most general and abstract level. These descriptions thus serve our purpose at this stage.

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masters of enterprises, and cadres are the servants of people.

Now there is much

misunderstanding of this saying among the workers. Workers say: how can it be the case that masters are ruled by the servants, and how can it be the case that masters cannot control their servants (Li Qiang, 178)?” It was not so easy for the Chinese state-owned enterprises to have the workers accept exploitation and oppression as the capitalist enterprises.

Why the “Reform?” Why does the ruling class want the “reform?” What are the problems that can be solved by the “reform?” On the one hand, like the capitalist enterprises, the Chinese state-owned enterprises were essentially the institutions that expressed the relations of exploiting and being exploited, dominating and being dominated, and oppressing and being oppressed between the ruling class and the working class, and the institutions in which workers suffered from alienation. On the other hand, the Chinese state-owned enterprises were very different from the capitalist enterprises. Given China’s level of economic development, it was impossible for the ruling class to alleviate the resentment of the working class by paying them high wage as in the developed capitalist countries. In this case, the normal operation of the state-owned enterprises relied even more upon effective coercion than the capitalist enterprises in the developed capitalist countries. However, given workers’ inalienable right to employment, and given the extensive guarantees to workers’ basic needs, in pre-reform China there was virtually no external coercion as is in capitalist society. On the other hand, the revolution had brought about great change in the spiritual conditions of working people. As a result, the internal coercion could not be easily carried out either. According to the official scholars:

Our large and medium state-owned enterprises do not run well. This is mainly a problem of the system . .

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. This is most obviously reflected by the problem of the “three-irons,” namely, the iron rice bowl, the iron wages, and the iron chairs3 . . . Apparently, this is a wonderful system which guarantees the living and the employment of staff and workers. But in fact, under this system, the staff and workers in the state-owned enterprises, being fed by the state, become lazy and sluggish, and depend upon the state for every thing (Li Qiang, 150).

They suggested a system of “limited unemployment and competitive employment” be established:

Limited unemployment and competitive employment guarantee the rational operation of enterprises. The enterprise can dismiss superfluous persons, and improve production efficiency . . . Under the pressure of unemployment, the laborers have to work hard . . . otherwise they will be regarded as superfluous persons (Zhao Xiaomin and Jia Lurang, 330).

What is the “rational operation?”

There has never being an universally “rational

operation” which is “rational” everywhere and in every historical era. What is the most rational within one type of relations of production, can be the least rational within another type of relations of production. If as the official scholars told us, in the state-owned enterprises, the workers, “being fed by the state, had become lazy and sluggish, and depended upon the state for everything,” the Chinese economy should have stagnated long ago. But the Chinese economy did not stagnate, and had actually developed rapidly. From 1952-1978, the per capita national income grew at an average annual rate of 3.9 percent (PRC, 1985). By comparison, from 19501973 when world capitalism was in its expansionary stage, among 85 developing countries with

3

"The iron rice bowl” refers to that workers cannot be fired, “the iron wages” refers to that workers’ wages cannot be changed unless being raised, and “the iron chairs” refers to that the cadres cannot be removed from their positions unless being raised.

20

a population more than one million, only 12 countries had a growth rate higher than China. Four of them ( Libya, Saudi Arab, Iran, and Iraq) were oil exporters, the other four (Israel, Taiwan, Korea, and Greece) were the countries that had received the most U. S. assistance on per capita basis, and Puerto Rico was the U. S. colony. None of the 12 countries had a population more than thirty million (Wilber, 198). As American historian Maurice Meisner said: “Beginning with an industrial plant smaller than that of Belgium in the early 1950s, the China that was so long scorned as the ‘sick man of Asia’ emerged at the end of the Mao period among the world’s halfdozen largest industrial producers (Meisner, 1986, 438).” Is it illogical? Is it against the principle of economic science? How can the economy be developed with a system in which people “being fed by the state, become lazy and sluggish?” Either the “three-irons,” or the guarantee of employment, or the guarantee of basic needs, do not by themselves constitute an obstacle to the development of productive forces. On the contrary, to make it possible for every one to fully release his or her creative potential, these are the necessary conditions. The internal and the external coercion are indispensable for the normal operation of the capitalist relations of production, for capitalism is an alienating and oppressive social system. If this is the case, then in a society without or with much less alienation, such things as unemployment, competition, “supervision,” and “disciplines” which are considered indispensable for the capitalist prosperity and to be the source of the capitalist development of productive forces, are not only unnecessary, but actually fetterings of social progress. It is not for no reason that the guarantee to employment and the “three-irons” could work effectively in China for a fairly long period. This was possible only under certain historical conditions.

That is, with the victory of the Chinese revolution, the oppressed people, by

overthrowing the domestic and foreign oppressors, for the first time became active historical creators, and were greatly liberated in physical as well as spiritual terms. Consequently, the Chinese society which was born of the revolution was a more liberating and less alienating society than the capitalist society. The Chinese working class enjoyed much more extensive

21

social and economic rights than the working class in the capitalist countries. 4 However, these rights were conditioned by temporary social balance of power that could not sustain in the long run. Either the working people were able to further expand their social and economic rights, to such an extent that society was really under their control and the development of productive forces was really based on the universal liberation of human beings. Or the development of productive forces continued to be based on the alienation of human beings, and consequently, like in the capitalist society, the corresponding coercion systems that are indispensable for the development of productive forces in an oppressive context must be established.

The historical

condition for the “reform” is as follows: the working people failed to destroy the emerging oppressive system, the oppressive system thus became a fait accompli; on the other hand, compared to the capitalist system, this oppressive system lacked the necessary oppressive mechanisms and could not effectively oppress and exploit working people. Thus, the “reform” would necessarily lead to the development of the capitalist relations of production. Only by

4

When I was in Xian, I had some opportunity to talk to the workers in the state-owned enterprises. Many old workers told me that in 1950s workers were really enthusiastic, very different from today. At that time, they did not need material incentives, nor the supervision of the superior management. When there were problems, the workers managed to overcome the problems by themselves. These were facts rather than official propaganda. Today’s economists certainly cannot understand this. In their opinion, at that time there was a mysterious “powerful collectivist ideology,” which was simply exceptional in history and could not sustain for a long time. But how could such an “ideology” prevail in China for more than twenty years without any serious reason? In fact, the workers certainly did not work enthusiastically for no reason. Instead, as the old workers told me, at that time, the cadres took care of the workers, being the first to bear hardships and the last to enjoy comforts. “The party members are really like party members.” This was the real reason for which the workers work with enthusiasm. What the old workers said suggested that at that time we did have a type of relations of production which was completely different from the present.

22

establishing the capitalist-style oppressive mechanisms, could the existing oppressive system be consolidated and sustained.

The Development of the Capitalist Relations of Production The development of the capitalist relations of production is first indicated by the fact that the capitalist and semi-capitalist economic sectors have developed more rapidly than the state economic sector.

First, foreign direct investment directly brings the capitalist relations of

production into China. Secondly, a large number of private and individual enterprises have emerged. These are also the officially admitted capitalist economic components. Thirdly, there is the rapid expansion of the so-called rural enterprises. Officially the rural enterprises are classified as “collective enterprises.” But according to one investigation made by the Chinese Academy of Social Science in 1990, half of the registered rural enterprises were virtually private enterprises (Han Mingxi, 97). Even for those enterprises that are actually owned by the rural town and village governments, “the characteristic method of management is to lease the firm to a director whose compensation is tied primarily to enterprise results (Lippit, 1992, 133).” This is not really different from the private enterprises. According to one study of the World Bank, in the rural enterprises investigated, 60 percent of the workers were not entitled to housing and subsidies from the enterprise, 41 percent did not receive financial aid for medical care, 52 percent were not covered by insurance on the job, 60 percent did not get pensions on retirement (see Smith, 1993, 88). Apparently, the rural enterprises are much more like the capitalist enterprises than the state-owned enterprises. As is shown by TABLE 1.1, in the “reform” period the capitalist and the semi-capitalist economic sectors have developed much more rapidly than the state economic sector. By 1991 about half of the total industrial production and three-fifths of the retail trade were contributed by the capitalist and the semi-capitalist economic sectors, in which the capitalist economic sector had developed even more rapidly.

23

24

TABLE 1.1 The Composition of China’s Total Industrial Product and Retail Trade by Ownership (percent) -----------------------------------------------------------------------------------------------------------------1979

1991

-----------------------------------------------------------------------------------------------------------------Industry:

State

78.5

52.9

Collective*

21.5

35.8

0

11.3

State

54.6

40.2

Collective

43.3

30.0

Individual and Private 2.1

29.8

Other** Retail Trade:

-----------------------------------------------------------------------------------------------------------------*In 1990, 93 percent of the “collective” industrial product came from the rural enterprises. ** “Other” includes the private enterprises, the individual enterprises, and the foreign-owned enterprises. Source: ZGJJWT, number 1 1993, p.3.

The development of the capitalist relations of production is also indicated by the capitalistization of the state-owned enterprises.

First, “New workers are usually employed

according to the contract system . . . The key of the contract system is to break the system of permanent employment and the ‘iron rice bowl.’ After being employed, staff and workers are still faced with the possibility of unemployment. Thus, every one is forced to do his or her job and work hard (Zhao Xiaomin and Jia Lurang, 323).” By September 1991, there were 14.06 million contract staff and workers in the state sector, accounting for about 20 percent of the total staff and workers in the state sector (ZGLDKX, number 1 1992, p.13). Secondly, there are the “reforms” of the housing system, the medical care system, and the

25

pension system, so that “welfare is to be monetarized and service is to be socialized (Li Qiang, 152).” The “monetarization of welfare” and the “socialization of service” 5 are actually intended to push the workers in the state-owned enterprises into the labor market to compete with the workers in the rural enterprises and the private enterprises. If this turns out to be the case, then the workers in the state-owned enterprises will find their price of labor power falling sharply, with their “welfare” and “service” being taken away. Thirdly, efforts have been made to intensify the internal coercion. The official scholars admitted: “Since 1980s our enterprise management has followed a rigorous and punitive system. Fining is usually considered to be the primary method of management (Li Qiang, 173).” According to one investigation of the All China Federation of Trade Unions:

In a factory at Zhengzhou, there are 124 regulations (made by the management), in which only 4 are about rewards, while all the others are on fining. This factory also requires that in every month, every shop and team chief find three to five events, and every group chief find at least one event, in which the workers break the regulations. If they cannot find any such events, they will be fined. If they find less than required, their bonus will be reduced. In a weaving shop in a factory in Shaanxi, the regulations on fining for all working procedures adds up to more than thirty thousand words (Chinese characters). According to the staff and workers in some enterprises in Shanxi, Dandong, Shanghai, Nanchang, Zhengzhou, and Zhejiang, their pay will be cut if they take a leave to see doctors, or (if they take a longterm leave) for illness or injuries. If they take a leave for illness without the approval of the superior, it will be considered to be absence which shall be fined heavily (see Li Qiang, 171).

According to the official scholars: “the more strict and rigorous management system that

5

This should not be confused with the “socialization” in the Marxist term. Here the official scholar is arguing that social services should be provided by market on the basis of monetary transaction rather than directly provided by the state-owned enterprises to their own workers on the need basis.

26

has been established since early 1980s did play an important role in restoring the normal order of production (Li Qiang, 171).” According to the logic of bourgeois economics, workers are born to be lazy. Workers will not work unless they are threatened by unemployment and punishment, which are said to be able to increase the “cost of laziness.” However, workers are living human beings. Consequently, they will not allow others to abuse them at will and will in every possible way manifest their existence as living human beings.

Some workers say: “you fine me, all right. I do not have other rights, but I have the right to hold a slow down, and the right to waste . . . you fine me five bugs, I will make you pay me back by ten times, a hundred times.” . . . The workers are depressed and frustrated, working with low spirit. Some even hold a slow down. These have adverse impacts on the production. At a coal mine in the Yangquan city, Shanxi province, the workers’ turn out and the production had always been very well. But because there was too much fining, for a time, the workers’ turn out fell, more accidents happened, and the output also fell (see Li Qiang, 174).

Even under the capitalist relations of production, it is still necessary for the workers to have some minimum commitment to production. If workers do not want to be responsible for their work at all, then no coercive means can have productive forces be developed under capitalism. However, it is exactly the capitalist relations of production that deny the workers the appropriation of means of production and the products of their labor, and turn the labor process into a process in which labor degenerates. Under the capitalist relations of production, a worker is simply a passive “thing,” who will not work unless being coerced. In this case, class conflicts are inevitable, and these conflicts certainly have negative impacts on the development of productive forces. In the opinion of the official scholars: “sometimes punishment is necessary, because for those people with the lowest moral level or without morality at all, other methods do not work (Li Qiang, 174). It is the capitalist relations of production that turn people into someone “with

27

the lowest moral level.” For under this kind of relations of production, human beings are not regarded as human beings, but simply “commodities,” and an item of cost in production that has to be saved as much as possible.

On the Problem of Property The fundamental contradiction of the Chinese society from 1949-1979 was as follows: on the one hand, the socialist revolution failed to abolish all forms of oppression, and instead replaced the old oppressive society with a new oppressive society; on the other hand, the revolution did not simply passed power from one ruling class to another ruling class, but as a result of the revolution, a part of social power temporarily fell into the hands of working people. Thus, on the one hand, the new society remained an oppressive society, and on the other hand, it lacked the necessary oppressive means for maintaining an oppressive society. This contradiction is most obviously reflected by the fact that this society had to treat Marxism--the theory for the liberation of the oppressed people, and a theory that endangers the survival of any ruling class-as its official ideology, which was expected to play an apologist role. The contradiction of idea would not be fully exposed, be fully intensified, and thus be smashed into pieces, as along as the contradiction of reality had not yet been fully developed. However, as soon as the capitalist relations of production began to develop, and the contradiction of reality thus began to be exposed, the contradiction of idea could no longer be left unsolved. How can one on the one hand encourage the development of exploitation, and on the other hand denounce exploitation, while trying to prove exploitation is in the interest of the exploited? How can one on the one hand flirt with capitalism and on the other hand claim that capitalism is doomed to perish? Either the reality must deny the idea, or the idea must deny the reality. The development of the capitalist relations of production objectively demands the apologist theory that serves its interest, demands the “scientific” explanation of the eternity, the rationality, and the indispensability of capitalism, demands “scientifically” explaining that all the social and

28

economic systems opposed to it are ridiculous and irrational systems, and demands “scientifically” explaining that any attempt to overthrow the capitalist system and to go beyond the capitalist economic laws is against human nature and historical trend, and thus must be ephemeral and is doomed to fail. From the ruling class’s point of view, only with such a “scientific” theory, can the above contradiction be solved. The development of the official theory is thus always one step behind the development of the practice of the ruling class. Not until the antagonistic nature of the existing relations of production and the relations between the ruling class and working people had become obvious and undeniable, did the official theory conceded that the “socialist” economy was actually a commodity economy, although this was completely against the logic of the theory to which it claims to adhere. Not until the antagonism had become so intensified that the contradiction could not be solved if the social and economic rights won by working people in the revolution were not to be completely taken away, did the official theory declared that “the problem of property” was the fundamental problem, although this meant totally rejecting the theory on which it was said to be based. Nevertheless, with “the problem of property” being put forward, the official economics has finally admitted, more or less honestly, though covered by the last piece of fig leaf, that it is nothing else but bourgeois economics, and the objective of the “reform” is nothing else but developing “the capitalism with Chinese characteristics.” According to the official scholars, “the fundamental problem” of public ownership is “the absence of property right.”

First, means of production are given by society to enterprises free of charge. The enterprise thus treats the means of production as birthday gifts for which it pays nothing. Society, on the other hand, exercises its property right by doing nothing more than distributing means of production to enterprises for them to use. Secondly, while the enterprise has the right to use the means of production, it does not have the property right. But since it is easy to get access to the use right, which is, moreover, separated from the property right, the enterprise has no reason to cherish its use right, nor does it really bear any

29

responsibility for the exercising of its use right. When workers use the means of production, they use the means of production as if these were their own property. But on the other hand they do not take care of the means of production, as if these were others’ property. Thus, there is a problem of ambiguous boundaries of property . . . These dilemmas and problems have concentratedly expressed the problem of ambiguous property right and responsibility. “Every one is the master of the means of production, but no one is responsible for them.” This saying gives us a live picture of the problem. The reason for which the enterprise does not behave properly lies exactly in this problem. Property right is the foundation of microeconomic operations and thus is a necessary condition for the enterprise to behave rationally. If this problem is not solved, it is difficult to make further reforms, the enterprise will not behave properly, and economic disorder and inefficiency are thus inevitable (Song Yuan and Gong Jinguo, 95).

The official scholars fail to see or have intentionally ignored the fact that the so-called “every one is the master of the means of production” is not more than the official legal language, and in reality workers are separated from the means of production. Means of production are not used by the workers to realize their own purposes, but used by “society” to oppress the workers. The “property right” is actually an exclusive right. That is, the owner of the property has the right to exclude others from using the property for the interest of society. “The property right and the use right must not be separated.” That is, the owner of the property is allowed to abuse social wealth for his or her private interest. In the developed capitalist societies, to pursue super profit, monopoly capitalists let a large part of production capacity lying idle, no matter how many people are unemployed and how much social productive forces have been wasted (see TABLE 1.2).

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TABLE 1.2 The Waste of Productive Forces under American Monopoly Capitalism -----------------------------------------------------------------------------------------------------------------1950-1959

1960-1969

1970-1979

1980-1986

-----------------------------------------------------------------------------------------------------------------Capacity Utilization Rate of Manufacture (%) Unemployment Rate (%)

83.6

84.9

80.8

77.4

4.4

4.7

6.1

7.8

-----------------------------------------------------------------------------------------------------------------Source: Chen Baosen, 367.

[In Latin America, the] large estates, which encompass most of the arable land, are not farmed efficiently . . . Further more, much of the large estate acreage is allowed to stand idle. A 1960 study of Colombia showed that . . . the largest farmers, who own 70 percent of the arable land, cultivate only 6 percent of their holdings. In Latin America as a whole, it is estimated that only 270 million of the 2.2 billion acres of arable land are worked full-time. This obsolete landholding system together with the extremely high rate of population growth has resulted in declining per-capita agricultural output (Stavrianos, 1981, 681).

In this sense, productive forces can only be freely developed in a society where all the bars of “property right” have been removed. In this sense, the fact that “means of production are given by society free of charge,” is not a defect, but a virtue of public ownership. “These dilemmas and problems have concentratedly expressed the problem of ambiguous property right and responsibility.” How can the “unambiguous property right” be established? The modern socialized production objectively requires the means of production be used collectively by many workers. In this case, can we establish a system in which every piece of

31

means of production is used only by its owner, and is owned only by its user? If not, how can we avoid “ambiguous property right and responsibility?” According to the official scholars, “the fundamental problem” of public ownership is “the absence of property right.” The official scholars may think that capitalist private property is very reliable and “unambiguous.”

The capitalist certainly cares much about his or her private

property. However, under the modern socialized production, to make effective and profitable use of his property, he must allow the means of production to be collectively used by many worker.

The question is--why do the workers, who are the actual users of the means of

production, care about the private property of the capitalist? Of course, the capitalist can try to supervise the workers. But are the supervisors also employed workers? Then why do they care about the private property of the capitalist as much as the capitalist himself or herself? Capitalist private property is “ambiguous,” but the productive forces that it has released are infinitely greater than that under small private property which is certainly “unambiguous.” If the modern society satisfies everywhere “the necessary condition for enterprises to behave rationally,” then modern production must have disappeared long ago. In this sense, under the modern socialized production, “property right” is not much more than a imaginary idea.

Jin Liyang, who is a disciple of Li Yining (a leading official economist, and a member of the standing committee of the National People’s Congress, who is famous for his suggestion of the “corporatization” of the state-owned enterprise, which will allow individuals and foreigners to buy and own the assets of the state-owned enterprises) made following arguments in his contribution to a liberal intellectual publication.

Public property certainly has problems. First, there is the problem of free rider. Under public ownership every one eats out of one big pot (Da Guo Fan). Every one wants others to work, allowing himself or herself to enjoy the fruits without working. The result is that nobody works. “One monk carries water to drink. Three monks have no water to drink.” To solve the problem, people must try to make an

32

agreement, deciding how to measure every one’s contribution and how to make distribution according to their contribution. This is a job that costs much time and energy. And those people who do this job must be supervised by some other people who must spend some more time and energy. A lot of transaction cost thus arises. Secondly, under public property, before any external transaction can be made, the internal opinions must be coordinated, involving high cost of coordination (of the short-term and longterm interests). Thirdly, as Williamson said, private persons pay more attention to the coordination of the short-term and the long-term interests, and never forget to leave some heritage for their descendants. But under public property, this generation often does not care about the next generation, without long-term horizon. Fourthly, it results in the exhaustion of resources. If you do not take publicly-owned goods, others will take them. If you do not take advantage of public resources, others will do it. There are fishes in the sea. You do not catch them, others will catch them. The result is overfishing , with fishery resources exhausted (BIANYUAN, 14).

The modern socialized production objectively requires associated labor by many workers. Only with associated labor, can we have the large-scale modern means of production serve our purposes, can the collective and associated productive forces be fully released, and can the division of social labor be taken of full advantage. If the modern production is based on collective labor and associated labor, then is it true that no matter it is under “private property” or “public property,” the problem of “how to measure every one’s contribution and how to make distribution according to their contribution” must be solved anyway, and thus some “time and energy” must be spent on supervision anyway? American economist Samuel Bowles found that the ratio of supervisory workers to productive workers in American non-agriculture sectors was 13.7 percent in 1948, and rose to 20 percent in 1966, and reached 22.4 percent by 1979. Moreover, under the capitalist system, for supervision to work, there must be a large reserve army of labor, effectively threatening the workers being employed. In 1950s and 1960s, the unemployment rate in the U. S. was between 4-5 percent. In 1970s it rose to 6 percent and in 1980s it was between 7-8 percent. If we only take into account the unemployed labor force and

33

the labor force that is employed as supervisory workers, then one-fourth of the total social labor force is wasted! Is this “a lot of transaction cost?” With so much transaction cost paid, has the problem of free rider been solved by capitalism? An American scholar on labor research told the following story:

From their personal experience workers know that if they show their creativity in raising productivity, it is very likely that they will end up with more work with the same pay, or even less pay. Thirty five years ago, I once worked in a steel plant. Most of the machinists there that I knew personally could operate 1530 percent faster than the speed required by the management. But they were no fool. They kept the secret. They did not help to increase the armament production, but left themselves more leisure time . . . Great intelligence and creativity have been stored in American workers. But the management of private corporations have no way to exploit this potential ( “Zai Man Chang De Lao Dong Ri Zhong Xiao Mo Yi Sheng (Spend the Life in Endless Working Days),” ZHAIYI, number 22).

Economists like to criticize the soviet-style centrally planning, arguing that the planning authority is unable to collect adequate and correct information. But they fail to realize that the capitalist enterprises are faced with exactly the same problem. The capitalist needs the workers to run production. Thus, to acquire the information on production, the capitalist depends a lot on the workers. But why do the workers, who are employed by the capitalist, provide adequate and correct information to the capitalist? Why do not they take advantage of distorted information? If this is the case, then how can “private property” help to solve the problem of free rider? “Secondly, under public property, before any external transaction can be made, the internal opinions must be coordinated, involving high cost of coordination.” If a private land owner sells his or her land, he or she certainly does not need to “coordinate” with the residents on the land. If the former residential area is to be rebuilt as business area, and the former residents are forced to leave home and wander about, their losses certainly cost the land owner nothing. If a capitalist fire some workers, making the life very difficult for them, the capitalist certainly does not need to pay any “cost of coordination.” By the way, in today’s China, in the

34

craze of estate speculation, who has paid anything to “coordinate” with the local residents? To say that under private property there is no “cost of coordination” beforehand, is to say that the cost is to be transferred to other people. That is, the cost appears as social conflicts. “Thirdly . . . private persons pay more attention to the coordination of the short-term and the long-term interests, and never forget to leave some heritage for their descendants. But under public property, this generation often does not care about the next generation, without long-term horizon.” This really stands facts on their heads. Why in all capitalist countries, such activities as education, science, and culture must be undertaken by the state? Besides such enterprises as road, airport, port, communication, water conservancy, and electrical power, the investment of which usually takes a long time, with low rate of return, depends much on the investment by the state. Is this exactly because of the “short-term horizon” of private enterprises? While the private property owner may want to leave some heritage to his or her descendants, only society considers what to be left to the decendants of the whole society, taking into account not only the next generation, but also the next several generations. “Fourthly, it results in the exhaustion of resources. If you do not take publicly-owned goods, others will take them. If you do not take advantage of public resources, others will do it. There are fishes in the sea. You do not catch them, others will catch them. This results in overfishing , with fishery resources exhausted.” This is actually the same problem as that of free rider. It is unfair to attribute the problem to public property. Is the exhaustion of “fishery resources” exactly a result of the profit-pursuing activities of the private producers? In the opinion of Jin Liyang, the Chinese state-owned enterprises did not run well because they failed to solve the principal-agent problem.

Some people think that the defects of the state-owned enterprises are rooted in ambiguous property. This is not really the case. The property of the state-owned enterprises belongs to the whole people. Is not the property holder very clear? The key problem, instead, is the principal-agent problem . . . While all citizens commonly own the state-owned enterprises, they cannot do everything by themselves. Instead,

35

they can only act as the principals, and entrust the state-owned enterprises to some agents who will actually run these enterprises . . . I think that it is necessary to identify the triple-level principal-agent relations of the state-owned enterprises. At the first level, the whole people entrust the enterprises to the government, actually, to the government officials. At the second level, the government entrusts the enterprises to the directors and the managers of the enterprises. At the third level, the directors and the managers entrust detail works to the workers. Supervision is required at each level. For example, at the first level, it is really not clear who is the principal. There are 1.2 billion people in this country. Every one of them is a principal, and a holder of the state property. Thus all of them are entitled to share what is earned on the state property. Every one of them has the motive to be free rider, expecting others to take care of the state property, so that he himself or she herself can enjoy the fruits without working. This is actually the common problem of public property . . . Moreover as Buchanan and his “public choice” school point out, the government is not the god. The government is made up of common people with flesh and blood. The government officials will not self-consciously and whole-heartedly work for the interest of people. They are economic men too, and thus must be supervised by some one else. At the second level of the principal-agent relations, the government officials as principals need to acquire the information about the behavior of the directors and the managers, and make rewards and punishments based on the information that they have acquired. But the government officials cannot stand besides the directors and the managers all the time, staring at them like a tiger eyeing its prey, to see whether they work hard or not.

There are some obvious criteria of business performance, such as sales value,

profitability, that can be used to evaluate the work of the directors and the managers. But some times falling profitability may be not the fault of the directors and the managers, but due to slumming market condition, or a result of the arbitrary intervention by the government . . . The third level of the principalagent relations is usually overlooked by some economists, who think it is not more than the internal affairs of the enterprises. In fact, in the Chinese state-owned enterprises, the directors and the managers are not property owners, and are not subject to effective supervision. In this case, it is very likely for the directors and the manages to collude with the workers at the expense of the interest of the state. This is evidenced by the widespread short-sighted behaviors of the state-owned enterprises and the severe loss

36

and erosion of the state property. The government appears to be very incompetent. It is too difficult for one government to deal with about one hundred and ten thousand state-owned enterprises. Whatever the policy the superior has, the inferior always has the countermeasure.

The directors and the managers have to make compromise with the workers in the class struggle. In the language of the official scholars this is called “to collude with the workers.” Jin Liyang continued:

Under the present conditions it is really too difficult to solve the principal-agent problem of the stateowned enterprises. As a result, the property right of the state-owned enterprises is not effectively protected. The state-owned enterprises suffer from inefficiency and make enormous losses. For this reason some people suggest that the share of the state property in the whole economy is too high . . . Whether it is high or not should be judged by market . . . Let the state-owned enterprises and the private enterprises make fair competition in market. Let all types of enterprises have the same tax burden, the same conditions for loan, and are subject to the same degree of legal protection.

On the one hand, in the state-owned enterprises the workers are still more or less guaranteed the right to employment; on the other hand, in the private enterprises, the workers can be denied their right to employment at any time for any reason. On the one hand, the state-owned enterprises must take care of the workers’ health care and pay pensions to the retired workers; on the other hand, the private enterprises do not have this kind of “cost” at all. On the one hand, the state-owned enterprises must practice eight-hour working day and allow the workers to have rest on holidays and Sundays; on the other hand, the private enterprises can extend the working time to the maximum limit and the workers in the private enterprises never have holidays. On the one hand, the state-owned enterprises must provide the necessary labor protection; on the other hand, the private enterprises have no problem to make profit at the cost of the workers’ life and health . . . Therefore, if judged by market, the system which is more humanitarian, must be the system

37

that has the higher “labor cost,” and consequently the system which is less efficient. Jin Liyang concluded:

We should allow the state-owned enterprises to be taken over by the private or the collective enterprises (BIANYUAN, 16-17).

That is, privatization. According to Jin Liyang, “the key problem is the principal-agent problem.” However, do the directors and the managers of the state-owned enterprises have the right to run the enterprises because they are entrusted by the workers? Does the government become the owner of the stateowned enterprises because it is entrusted by the 1.2 billion people?

“While all citizens

commonly own the state-owned enterprises, they cannot do everything by themselves. Instead, they can only act as the principals, and entrust the state-owned enterprises to some agents who will actually run these enterprises.” That is, the workers, who also act as the collective capitalist, are opposed to themselves. As the collective capitalist, the workers first appoint “government officials” as their general manager, and then appoint “the directors and the managers” as their department or subsidiary managers, only to exploit the employed workers who are exactly themselves. On the one hand, the “1.2 billion people” are all capitalists, and only act as capitalists, caring only about their capital and profit. On the other hand, they are all wage laborers, and only act as wage laboreres, thinking only about working less and earning more money. Only those people who are filled with too much bourgeois legal ideas to understand the real social relations can imagine this kind of double personality and mental split. These people, with their poor imagination, cannot think of any type of property other than modern capitalist property, the property under which the people who own means of production and the workers are separated from and opposed to each other, as if the workers must always be alienated from means of production, and even if they were combined in the legal term, they must be separated in

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reality. Either the state is the state as what it has always been, and consequently the problem does not lie in that “every one is a principal, and a holder of the state property,” but lies in that the majority people are not “the holders of the state property” at all. Or the state is society itself, and the state property is thus the social property, and consequently the principals are also those people to whom the property is entrusted, and thus there is no need for the agents. Under social property, all workers as a whole actually control and thus “actually run” the means of production that they use. Of course, when an individual worker is concerned, he or she can only directly control and use a very small part of society’s means of production, and can not have direct control over all of society’s means of production. This is not more than the “free rider” problem. Under the modern socialized production, the final result of production depends not on the effort of any individual worker, but on the collective efforts of many workers. On the other hand, under the small production, the individual worker owns the means of production he or she uses, and the result of production completely depends on his or her own effort. In this case, the “free rider” problem certainly does not exist. The official scholars and the liberal intellectuals always follow the following logic. Workers are necessarily lazy and will by no means take care of the property that they use. Thus, to prevent the workers from being lazy and abusing the property that they use, there must be supervision. However, to have effective supervision, there must be adequate information. But the bureaucracy always find it cannot acquire adquate information. The official scholars and the liberal intellectuals have thus entered a dead end. If this is the case, then to replace “publich property” with “private property,” and the bureaucracy with the capitalist, will do no help to solve the problem, although the players of the game are changed. It is exactly because the “private property” is private, it can by no means solve the antagonistic contradiction between the “enterprise” and the workers, and thus can by no means solve the problem of free rider. On the other hand, while under the bureaucratic system, one government is deceived by one hundred thousand more enterprises, under the “private

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property” the one hundred thousand more enterprises will be deceived by one another (motivated by private profit and compelled by market competition). Therefore, the question is not whether “public property” or “private property” in the abstract, legal term. Instead, the real point, the whole point is what attitudes that the workers-the eternal subjects of all production activities--have towards production. If the relations of production are oppressive relations of production, the production process is thus the process in which workers are oppressed and exploited, and the means of production are thus the means of oppression over the workers, then why is not “working less and earning more money” the most natural and reasonable attitude that the workers should have towards production? And in this case, why do the workers “cherish,” “take care of,” and make responsible use of the means of production? If, on the other hand, the production process is not more than the process for the workers to realize their own purposes, and the means of production are thus not more than the means by which the workers can realize their own purposes, the attitudes of the workers towards production and the means of the production will certainly be qualitatively different. Is this a very logical conclusion? Only in this way can we understand the “free rider” problem. Under the capitalist system or the bureaucratic system, acting as the “free rider” is the workers’ completely rational behavior by which they try to protect themselves from being exploited. Otherwise the “free rider” problem simply does not make sense. “Every one wants others to work, allowing himself or herself to enjoy the fruits without working. The result is that nobody works.” But if nobody works then nobody enjoys the fruits. If this is the case, then why do not people “all work hard, and thus all enjoy the fruits?” “One monk carries water to drink. Three monks have no water to drink.” This is, anyway, a parable story. If the three monks really have no water to drink, they certainly will not fail to find a solution before they are thirsty to death. Does economics always assume the “rational man?” The result of acting as the “free rider” is that nobody enjoys the fruits. This is apparently irrational, why do people fail to behave rationally on this point?

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Secondly, under the capitalist system and the bureaucratic system, it is impossible to solve the “free rider” problem, even if the capitalist and the bureaucracy try to solve the problem by exercising supervision.

For without adequate information, there will not be effective

supervision. But a large part of the information has to be offered by the supervised people who certainly do not have the incentive to offer adequate and correct information to their supervisors. The supervisor thus will never acquire adequate information. On the other hand, in the case where workers themselves have control over production, the supervised can do little to deceive the supervisor. For in this case the supervisor is also the supervised. Every worker has an incentive to oppose others to act as the “free riders,” and thus every worker is also a supervisor. These supervisors, who have direct access to the information about the protection process, and thus know very well why and how some people act as the “free riders,” will not have much difficulty to establish an effective supervision system. What is “the problem of property?” On the one hand, under the modern socialized production, means of production must be collectively used by many workers, and thus it is no longer possible for a worker to individually own the means of production that he or she uses. On the other hand, the workers do not collectively own the means of production and thus are alienated from the means of production, and consequently they work for the interest of the oppressors and the exploiters rather than that of their own and thus certainly will not behave properly and responsibly in production. This is “the problem of property” that makes much trouble for every ruling class of the modern society.

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CHAPTER II SOCIALISM, CAPITALISM, AND CLASS STRUGGLE

To understand Maoist China, we must fully realize that it was a society born of a great people's revolution in which the broad masses of the oppressed people rose up to fight for their own liberation, and thus bore deeply the mark of the revolution. While under bourgeois liberty individuals are guaranteed a set of formal civil rights, the production activities on which people spend most of their disposable time are regarded as people’s “private” affairs. Without means of production, the majority people have to allow most of their living activities to be dictated by the minority of property owners. At this point, civil right is not more than the right to choose between failing to make a living or giving up freedom. It was one of the greatest achievements of the socialist revolution that as a result of the revolution, the right to employment became an inalienable right of working people. The right to employment was important not only because it guaranteed workers the “iron rice bowl,” but more importantly it allowed workers to have some control over the labor process. It was much more difficult for the managers of the Chinese state-owned enterprises than their capitalist counterparts to extend working time and increase working intensity without the cooperation of the workers. For they could not threaten the workers with firing. According to one investigation made by the Chinese Center for the Scientific-Technological Research and Development in 1986, the average effective weekly working time of the staff and workers in the state-owned enterprises was only 19.2-28.8 hours, which was only 40-60 percent of the required working time (see Zhong Pengrong, 292). That is, the workers in the Chinese state-owned enterprises could to a large extent decide by themselves the length and intensity of their work. This is a kind

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of freedom which is unimaginable for the working people in capitalist societies. For working people, the freedom over labor process is much more important and much more practical an freedom than bourgeois civil freedom, such as the freedom of speech, the freedom of press, the freedom of assembly, and the freedom of association, which in capitalist societies only the ruling class and the intellectuals who serve their interest can fully enjoy. While the socialist revolution failed to realize its original goal, the society born of the revolution was not, as bourgeois scholars said, a totalitarian society without any freedom. Instead, it had both the oppressive side and the democratic side. In fact, from working people’s point of view, it was a much more democratic society than the most democratic capitalist society.. On the other hand, while the former exploiters and oppressors had been deprived of their ownership of means of production, working people were not yet prepared for the direct control over social production. The control over society's means of production thus fell into the hands of the state, the long-standing oppressive institution in human history. A new ruling class--the state bureaucratic class--thus came into being. It replaced the old ruling class as the oppressors and the exploiters of working people Why is society always divided into the ruling class and the ruled class? Is it a natural law as inalterable as the moon revolving around the earth? What is the Marxist viewpoint on this question? Engels said:

The separation of society into an exploiting and an exploited class, a ruling and an oppressed class, was the necessary consequence of the deficient and restricted development of production in former times. So long as the total social labour only yields a product which but slightly exceeds that barely necessary for the existence of all; so long, therefore, as labour engages all or almost all the time of the great majority of the members of society--so long, of necessity, this society is divided into classes. Side by side with the great majority, exclusively bond slaves to labour, arises a class freed from directly productive labour, which looks after the general affairs of society: the direction of labour, state business, law, science, art, etc. It is, therefore, the law of division of labour that lies at the basis of the division into classes . . . It was

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based upon the insufficiency of production. It will be swept away by the complete development of modern productive forces (Engels, 1978, 714).

Thus, according to Engels, only with highly developed productive forces (as a result of capitalist development), can the great majority of people be largely freed from directly productive labor, allowing them to participate in the general affairs of society, and thus abolishing the division of classes. However, when the Chinese Communist Party came to power, they inherited from the Kuomintang regime an extremely backward semi-feudal, semi-colonial economy with little modern industry. In this case, there was the objective foundation for the new oppressor class to emerge. But this by no means suggests that the Chinese socialist revolution was doomed from the very beginning. Instead, the final fate of the revolution must be decided by real historical struggles. On the one hand, the state bureaucratic class wanted to consolidate its rule over society, and establish a “normal” oppressive society. On the other hand, the oppressed people would not allow the oppressive order to be consolidated. They would not only defend their interest that they had won in the revolution, but also further develop the revolution, overthrowing the new oppressor class. These two sides were sharply against one another, and could by no means coexist peacefully. Their contradiction thus must be solved by real struggles and it was in the Cultural Revolution, the contradiction reached the stage of total explosion, and the struggle between the state bureaucratic class and the oppressed people reached the stage of decisive battle.

The Cultural Revolution History is always written by contemporary people. From the perspectives of different classes, and to serve different political purposes, people can reach totally different explanations of history. According to the official viewpoint, the Cultural Revolution was “ten years of

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havoc,” in which the state and people had experienced terrible sufferings. For the liberal intellectuals, they do not have much common language with the ruling class except on two fundamental issues, one is the “reform,” and the other is the Cultural Revolution. According to the liberal intellectuals:

The Cultural Revolution was a wrong movement which had been started for wrong purposes and undertaken with wrong methods . . . The Cultural Revolution could have occurred for it was rooted on the one hand, in the economic and political system that had been established in China before the Cultural Revolution, and on the other hand, in the traditional Chinese culture. As for Mao Zedong himself, why did he initiate the Cultural Revolution in his late years? This reflects on the one hand, his failure to properly deal with the internal contradictions of the Chinese Communist Party, and on the other hand, his increasingly arbitrary personal style . . . All of those good opinions which were not in the favor of Mao Zedong, were considered by him to be “rightist,” “capitalist roaders,” “antiparty,” and were put under attack, leading to historically unprecedented ten years of havoc.

When Mao Zedong met with Edgar Snow in 1965, he acknowledged that there was personal cult in China, and said that China needed more personal cult, that is, the cult of Mao Zedong himself . . . When Snow met with Mao Zedong again in 1970, Mao said that when they had their last talk in 1965, he had lost control of much of the power--the provincial and local party organizations, and especially the propaganda work under the Party committee of the Beijing city . . . Mao Zedong decided that Liu Shaoqi must be driven out of office (Gao Gao and Yan Jiaqi, preface, 1-2).

In the opinion of the liberal intellectuals, the Cultural Revolution resulted first of all from Mao’s pursuit of unlimited personal power. To acquire unlimited despotic power, Mao conceived a great conspiracy. This conspiracy could be realized for under the despotic system and traditional culture, the prevailing popular psychology were blind loyalty and blind obedience.

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Let me first ask two questions. First, if Mao initiated the Cultural Revolution simply to pursue personal power, why did he mobilize the masses of people to destroy the entire state apparatus?

Without state apparatus, how can we talk about power, and about personal

dictatorship? Second, both the liberal intellectuals and the official historians fail to explain why hundreds of millions of people simply be turned crazy overnight. Did such a greatly important historical event as the Cultural Revolution occur simply because all people over the country went mad? In the opinion of the liberal intellectuals, the Cultural Revolution was a tyrannous movement which had been started for tyrannous purposes and undertaken with tyrannous methods, and the masses were simply some ignorant and mindless people that could be made use of by anyone at will. But if the masses were so ignorant and mindless, why did the ruling elite with the help of the entire state and party bureaucracy fail to make use of them? For example, there is certainly no difficulty for the party bureaucrats to claim that they are exactly following Chairman Mao’s revolutionary line and all those people against them are against Chairman Mao. Of course, Mao, with his personal power, might have no difficulty to remove several high-ranking party cadres from their positions. But if there had not been any objectively existing contradiction between ordinary people and the bureaucratic class, how could he put the entire ruling class under attack? For in a world where everyone claims he or she is on the side of Chairman Mao and use all the material and spiritual means at his or her disposal to convince or to force others to believe his or her claim, it is up to people themselves to decide who is “really” on the side of Chairman Mao, who they will fight with, and who they will fight against. Thus, no matter what Mao’s personal intention was, the very fact that the Cultural Revolution was carried out by mobilizing the broad masses of people, means that it had to reflect the feeling, the desire, and the objective conditions of life of ordinary people. Referring to traditional culture gives no help to the liberal intellectuals. First, there was certainly not a single emperor who would tell his subjects “it is right to rebel.” Secondly, in

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traditional China people were by no means always blindly loyal and obedient. They did rebel, and when they rebelled they had good reason to do so. What the liberal intellectuals and the official historians declined to say is that on the eve of the Cultural Revolution, a ruling class which was separated from and stood over the masses of people had already taken shape. This ruling class, like all other ruling classes, was by nature an oppressor class and exploiter class. All the contradictions in the Chinese society, in the last analysis, derives from this. Otherwise we would not be able to understand the contemporary Chinese history. If we keep silence on this fundamental problem, it is inevitable that we would consciously or unconsciously distort the actual history. In 1965, Mao said:

The bureaucratic class is a class in sharp opposition to the working class and the poor and lower-middle peasants. How can these people who have become or are in the process of becoming bourgeois elements sucking the blood of the workers be properly recognized? These people are the objectives of the struggle, the objectives of the revolution (see Meisner, 1986, 271).

When Mao said this, he was not happening to have some fantastic idea, and he was not simply looking for excuses to get rid of dissidents. There was indeed a “bureaucratic class,” who is indeed “bourgeois elements sucking the blood of the workers.” Let us see some facts:

[In July 1961,] Liu Shaoqi visited the Jing Bo Lake 1 and squandered four million Yuan only for his personal pleasure . . . Whenever his meal was made, the rice had to be selected piece by piece, the Man

1

A famous tourist spot in Manchuria.

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Tou2 had to be even in size, each had a weight of about one liang3, and the top of the Man Tou must be cut into cross-like flower after it was cooked . . . Fat pigs had to be carried over everyday from Mu Dan River which is two hundred and forty li4 away [to the Jing Bo Lake], and were immediately killed and cooked. In every meal, there must be fresh fishes, two or three year old young chickens, camel humps, bear palms, scallops, sea cucumbers, and Mao Tai wine (ZDJS, 15).

To meet their personal desire for pleasure, the bureaucratic gentlemen in the Shaanxi province had spared no human and material resources, especially in the difficult period of our country, squandering a great deal of working people’s blood and sweat . . . The Zhang Ba Gou high-ranking cadre guest house, which is supposed to be a sanatorium, is actually a place for the provincial cadres to have amusement and pleasure. It has an area of hundreds of mu5, with western-style houses, kiosks, and pavilions, looking magnificent. There are also pleasure boats, woods, rockery, restaurants, dance halls, theaters, rare plants, and precious flowers . . . We know that in the Xian area, people can only swim in summer. But our gentlemen had the spirit to remake nature. They wanted to swim in winter. To realize their invention, comrade workers built a “warm water swimming pool” at Zhang Ba Gou. It uses up ten to twenty tons of coal, costing hundreds of Yuan, every time to heat the water for the swimming pool. Sometimes even if only one leading cadre came with his wife and children on Sunday, comrade workers would have to heat

2

A kind of Chinese food made of wheat, with a shape similar to round bread.

3

Chinese weight unit. One liang is equal to 50 grams.

4

Chinese length unit. One li is equal to 0.5 kilometer.

5

Chinese area unit. One mu is equal to 666.6 square meters.

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water specially for his family . . . Last year we students in the Northwest Industrial University took part in the Socialist Education Movement. There was a poor peasant family, whose total belongings might be less than five Yuan. This is the life of our poor and lower middle peasants! But our bureaucratic gentlemen spend hundreds of Yuan just to have a swim! Is it really water that is in the swimming pool? I do not think so. It is not water, not at all. It is a pool of blood and sweat of working people ! (CLHB, 79)

If it were in other oppressive societies where people took oppression and exploitation more or less for granted, given the same level of social contradictions, the rulers might be able to continue to rule as they used to and the people might continue to live as they used to. But for Chinese people, with the victory of the people’s revolution in 1949, the anti-oppression, antiexploitation, anti-privilege ideas had become popular ideas deeply rooted in their hearts. The privileges of the ruling class were no longer considered to be society’s normal phenomena, and social inequality could no longer be justified.

People had seen with their own eyes that

revolution could change everything. All of those once “sacred and inviolable” things had been struck to the ground and the heaven did not collapse. Now the state bureaucratic class, following the steps of the old oppressor classes, again wanted to stand over people, how could people allow them to do so? People had overthrown an oppressor class, why could not they overthrow another? Mao (1977, 344) correctly pointed out:

If great democracy is now to be practised again, I am for it . . . the great democracy set in motion by the proletariat is directed against class enemies . . . Great democracy can be directed against bureaucrats too . . . If some people grow tired of life and so become bureaucratic, if, when meeting the masses, they have not a single kind word for them but only take them to task, and if they don’t bother to solve any of the problems the masses may have, they are destined to be overthrown. Now this danger does exist. If you alienate yourself from the masses and fail to solve their problems, the peasants will wield their carrypoles, the workers will demonstrate in the streets and the students will create disturbances. Whenever

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such things happen, they must in the first place be taken as good things, and that is how I look at the matter.

The old state apparatus was smashed as soon as the Cultural Revolution began. From the state president, provincial chiefs, to factory directors, managers, and different levels of party committees, in one word, the entire bureaucratic state institutions were overthrown by the revolutionary masses. The masses of people saw with their own eyes those once majesticlooking bureaucratic gentlemen now lost all of their power and prestige, how could they not burst with joy? What a great spiritual liberation it is!

Meisner (1986, 343) described how the Shanghai party and state bureaucracy was overthrown by the revolutionary masses:

By mid-autumn of 1966 the rebellion against established authority had spread from the schools to the factories, thus making the appearance of the actual proletariat in the drama of the “Great Proletarian Cultural Revolution.” . . . The Cultural Revolution, for the first time in the history of the People’s Republic, brought discontented workers and others the freedom to voice their grievances and the freedom to establish their own organizations, unhampered by the organizational and ideological restraints hitherto imposed by the Communist Party. The result was the spontaneous emergence of a bewildering variety of popular rebel organizations, all proclaiming fidelity to Mao and Maoist principles but interpreting those principles to suit their own particular interests. At the beginning of November several of the rebel groups formed a loose alliance under the name Headquarters of the Revolutionary Revolt of Shanghai Workers, which came under the leadership of Wang Hung-wen, a young textile worker and mid-level party functionary. The Workers’ Headquarter was the self-creation of the Shanghai workers, owing nothing to instructions from Peking . . . On November 8 the Workers’ Headquarters presented its demands to the Shanghai Municipal Party Committee, and they clearly portended the replacement of the old bureaucratic administration by new popular organs of government . . . With the victory of the Workers’ Headquarters

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in mid-November, the power of the Shanghai party and government apparatus rapidly disintegrated as rebel groups freely roamed the city to organize workers and others. The mass movement grew at a frenetic pace and on a vast scale . . . The overthrow, which would be celebrated as the “January Revolution,” was accomplished during the first week of the new year. On January 5 a dozen rebel organizations loosely allied with the Workers’ Headquarters (and with the encouragement and assistance of members of the Cultural Revolution Group in Capital) published a “Message to All the People of Shanghai” . . . and called for the unity of workers, students, intellectuals and cadres. That call for unity received dramatic expression in the next day, January 6, when more than a million citizens gathered to hold a mass meeting in the central city square, with the proceedings observed by millions of others. Mayor Ts’ao and other high party officials were denounced, removed from their positions, and forced to make public confessions of their political sins. Over the next few days lesser officials and cadres were similarly humiliated at other public meetings and paraded through the street wearing placards and dunce caps. The old regime had fallen.

Who are scared? The ruling class is scared, and the liberal intellectuals are also scared. The liberal intellectuals worry about the social order to no less an extent than the ruling class. They are afraid of the proletarian great democracy. They keep silence on the abuses that the oppressors had done to people in the entire “normal time,” but cry loudly when they see the violence that people did to the oppressors at the moment of revolution: “the party and state leaders suffered from wrongs, persecutions, and abuses . . . Liu Shaoqi, the President of the Republic, was not protected by the Constitution and laws, was framed as ‘traitor,’ ‘enemy agent,’ and ‘scab,’ and had lost any right to defend himself (Gao Gao and Yan Jiaqi, preface).” But as was said by the Red Guards, “these bourgeois gentlemen, when seeking their own pleasure, care nothing about the party’s policies, care nothing about the government’s laws, and care nothing about people’s life or death!” When people want to settle their accounts, what do they want to defend of themselves? The Cultural Revolution had almost completely destroyed the old relations of production:

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In the Cultural Revolution the old cadre system (people who were in authority) had been largely destroyed by the mass movement. The masses were out of control. In factories, old regulations and institutions had been overthrown . . . and workers often disobeyed cadres . . . production had gone out of hand, or was even paralyzed. Since cadres did not have real authority, in many enterprises production and management were out of control (Li Qiang, 162).

With the old relations of production destroyed, the new relations of production must be established in time, otherwise the development of productive forces would be paralyzed. In fact, some elements of the new relations of production did begin to emerge in the Cultural Revolution. Following are some excerpts from an investigation report on the Beijing General Knitwear Factory made by Charles Bettelheim and an investigation report on the Beijing NorthernSuburban Timber Mill included in a then official collection of propaganda materials. In the Cultural Revolution, workers “demanded participation in management, in keeping with the Anshan Constitution (Bettelheim, 1974, 21).”

Implementing the Anshan Constitution means always to put politics in command, strengthen party leadership, launch vigorous mass movements, systematically promote the participation of cadres in productive labor and of workers in management, reform any unreasonable rules, assure close cooperation among workers, cadres, and technicians, and energetically promote the technical revolution (Bettelheim, 1974, 17).

What are the unreasonable rules? The unreasonable rules were “imposed by the old management--regulations concerning work organization, discipline, etc., which reflected a lack of confidence in workers’ initiative and thus tended to preserve capitalist relations (Bettelheim, 1974, 22).”

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The old regulations and institutions followed the line of “experts in charge of factory,” and were established to control and to impose restrictions on the workers, providing (many ways to) deduct workers’ pays or to impose fines on workers. They provided for this right to this principal, and that right to that chief, but not a single right to the workers. The workers only have the right to be controlled (WANSUI, 675)

How to reform the unreasonable rules?

Each regulation was subjected to mass discussion . . . a great number of rules have already been abolished, making it possible to effect a substantial reduction in factory administrative personnel (Bettelheim, 1974, 22).

In the past the administrative structure was overexpanded and overstaffed . . . To regulate the interpersonal and interdepartment relations, there were a great number of overelaborated rules and regulations, to have different people and different departments check against each other.

In one

department, the rules wrote: “if the chief is absent for business, the vice chief is in charge of all the work; if the vice chief is absent for business, the chief is in charge of all the work.” Since the revolutionary committee was established, the administrative structure has been simplified . . . If there were not idle staff, there would be no overelaborated rules and regulations. Now there are fewer people, more work, but problems have been solved faster. Under the old rules and regulations, workshops served (rather than being served by) administrative departments.

After simplifying the administrative structure,

administrative cadres often come to workshops to solve practical problems. This is deeply welcomed by the masses of workers (WANSUI, 677).

The old quality control system did not trust the masses of workers. It relied upon a small number of inspection workers to “supervise workers,” resulting in tensions between production workers and inspection workers. Comrade workers said: “if you do not rely upon the masses, you have no way to

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improve product quality, even if behind every worker you place an inspector.” Now the new quality control system has been established. Under the new system, proletarian politics is in command, every one takes responsibility, and is to help each other, the team chief is to examine (workers’ work), and the group is to evaluate (workers’ work). The new system guarantees the steady improvement of product quality (WANSUI, 679).

At the General Knitwear Factory, the (workers’ management) teams deal with problems involving the upgrading of product quality. The system is one of self-control and each work team controls its own work.

The workers make every effort to find collective solutions to whatever problems come up

(Bettelheim, 1974, 25).

In the past, plans were made and directed by a handful of people. These plans were separated from proletarian politics, from the masses, and from reality. They are metaphysical and mechanistic. Under these plans, production had to fit quotas and norms, the productive initiatives of the masses of workers were seriously restrained, there were a lot of idleness due to poor organization and a great deal of waste . . . Now production tasks are to be discussed by workers. A planning system which relies upon the masses and combines the top and the base has been established. (Under the new system,) plans correspond to reality. Leaders and the masses have one common goal in their mind, and work together towards that common goal. The new custom of communist cooperation is emerging everywhere. Comrade workers say: “in the past everything was determined by the top and workers were only to do their work. Now planning is everybody’s business, everybody is to find solutions to problems, and production is also everybody’s business. Thus we can always finish production tasks ahead of time (WANSUI, 679).”

The workers’ management teams are also involved in planning factory output.

The workers are

repeatedly consulted before a plan is formally adopted. The planning project is scrutinized concretely in terms of how it will affect each shop and each work team. The workers divide into small groups for this purpose, which enables them to express themselves fully on the plan’s significance, it implications for

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each worker, and on possible improvements in terms of production, quality, product diversification, etc. This results in numerous exchanges between workers and managerial bodies, with the workers’ management teams acting as go-betweens. The overall plan is thus scrutinized repeatedly, and its final adoption is the outcome of a common effort by the various work teams and shops (Bettelheim, 1974, 25).

In his comments on the impact of the Cultural Revolution on the conditions of the Chinese working class, Meisner (1986, 385) said:

Possibly, as the reports of many foreign visitors suggested in the early 1970s, a collectivistic spirit and a degree of workers’ participation in management were characteristic of Chinese factory life . . . administrative and managerial cadres, having gone through the trials and humiliations of the Cultural Revolution, temporarily abandoned their more autocratic practices and bureaucratic habits, and were disposed to consult workers in more meaningful fashion than in the years before the great upheaval.

As Meisner said, in the Cultural Revolution, “mass democracy was the official order of the day.” This is the germ of the new relations of production.

This is to solve fundamentally the

contradiction that all the former relations of production have failed to solve--the contradiction between the oppressors and the oppressed. While the new relations of production had never moved beyond its embryonic stage, it provided a concrete solution to the contradictions of the Chinese society at that time, the solution which was a working people’s solution, a fundamental solution, and therefore, the only real solution. However, to build up the new relations of production and to replace the old relations of production with the new relations of production, it was not only necessary to have widespread autonomous mass movements, which were far less than sufficient.

On the basis of mass

movements, a new revolutionary party must be established. This party would take power from the ruling class and thus provide political safeguard for the transformation of the relations of production.

It is the fatal weakness of the Cultural Revolution that there was not a new

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revolutionary party. Making revolution without a revolutionary party is just like a man without brain, and revolution is reduced to little more than destruction. Without a new revolutionary party, working people could not take political power, and the old state apparatus which had been destroyed was soon restored. After the ruling class took back political power, they immediately made use of this power to take back everything they had lost in the revolution.

Moreover, the drive to reestablish labor discipline in the factories after the disruptions of the Cultural Revolution (particularly aimed at younger workers who had been the most politically radical) was followed in the early 1970s by the gradual revival of many of the old factory rules and regulations previously abolished and by a growing emphasis on specialist administrators and technical criteria . . . The factory director . . . still remained the director. In the end he was less responsible to the workers he directed than to the state and party apparatus that employed him (Meisner, 1986, 384).

On the other hand, it was impossible for the ruling class to simply go back to the conditions before the Cultural Revolution.

Like many other problems in China in the 1980s, low efficiency is one of the consequences of the Cultural Revolution. For more than ten years, Chinese workers have refused to follow the direction of the party committees in factories, refused to take care of machines. Instead they spend much of time to play cards or leave workshops to play basketball . . . Even two years after Hua Guofeng took power, western companies that have made investment in China find that Chinese workers refuse to follow the directions that they do not like . . . In the last analysis, low efficiency results from the management’s lack of power. It is almost impossible for a state-owned enterprise to fire a worker . . . A Chinese official, feeling somehow awkward, explained to a journalist: “you must understand that we cannot force workers to work (JLFS, 69-70).”

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They cannot force us to work! This is the concrete and actual benefit that revolution has brought about to the oppressed people. When bourgeois scholars denounced “low efficiency,” they did not understand that this is also democracy. What rights do bourgeois democracy provide to people? Parliamentary election? It happens only once for every few years. Freedom of speech, freedom of press? To deliver opinion in press, on radio, or on television, or to publish essays and books, are not considered to be the business of ordinary people.

Freedom of

association, of organizing political party? This has always remained a privilege of the elitists. But labor, is the most important activity that the majority people have to participate everyday. To be able to control their own labor, is thus the most important freedom and right for the majority people. The benefit that a revolution can bring about to working people will by no means be overestimated. The new relations of production failed to be established, but the old one no longer worked. People did not acquire power, but the old power could no longer rule as it used to. For the ruling class the only way out was the “reform.”

Bureaucratic and Private Capitalist Class The development of the capitalist relations of production is neither a result of people’s free choice, nor a result of the improved scientific understanding of economic laws, but the expression of the will of the ruling class. The struggle of the oppressed people against the state bureaucratic class was temporarily brought to a close by the end of the Cultural Revolution. The ruling class had won and people had been defeated. This result of the struggle allowed the ruling class to transform the relations of production according to its own will. According to the “reformers” in the ruling class:

“Objective economic laws,” at least as the reformers divined their meaning, also demanded the operation of economic enterprises on the basis of profit-making criteria; strengthened managerial authority in

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accordance with the “scientific” methods developed in the advanced capitalist countries (Meisner, 1986, 466).

Without certain historical conditions, the so called “objective economic laws” can be neither “objective” nor “scientific.” The historical condition for the “reform” was that the ruling class was able to transform the relations of production according to its own will and in accordance with its own interest, and consequently the contradictions of an oppressive system could only be solved by strengthening the oppressive mechanisms. It is from the oppressors’ perspective, that the capitalist economic management is a more advanced and scientific one than that of the Chinese state-owned enterprises. With the development of the capitalist relations of production, the rule of the ruling class has been increasingly based on the capitalist type of oppression and exploitation of working people. Consequently, the state bureaucratic class has been gradually transformed into the bureaucratic capitalist class.

Due to China’s particular historical conditions, the ruling class’s control over means of production takes the legal form of state property and “collective property.”

As has been

suggested by the Chinese experience, state property or collective property in the legal term is by no means incompatible with the development of the capitalist relations of production. For what really matters is not the legal form of property but the real social relations between different classes on the one hand, and between different groups or individual members of the ruling class on the other hand. While the development of the capitalist relations of production does not necessarily require the transformation of state property or collective property into explicit private property, this by no means prevents the members of the ruling class from accumulating their private wealth by embezzling state property in the process of capitalist development. Following are the major methods with which the members of the ruling class have accumulated their private wealth by embezzling state property in the “reform” period:

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(1)Bureaucratic Buying and Selling (Guan Dao) According to the calculation of official scholars, the total “rent” (the non-production profit that can be acquired by monopolistic power) including “price differences,” “interest differences,” “exchange rate differences,” (meaning differences between official and market prices, interest rates, exchange rates) and other items amounts to over 400 billion Yuan every year, “forty percent of which falls into the hands of the rent-seekers who have various relations with power (XHWZ No.2 1992, 56).”

(2)Bureaucratic Speculation (Guan Chao) In “bureaucratic speculation,” what is bought and sold is not ordinary goods and services, but real estate and stock. Stock is fictitious capital, the value of which can be several times or even dozens of times higher than the value of the means of production that it represents. As for the speculation on land, while land does not have value in itself, its market value can be of millions or billions of Yuan. Thus, the speed and scale of wealth accumulation with bureaucratic speculation are far beyond that with bureaucratic buying and selling.

Mr. Zhang is a son of a deputy mayor. A few years ago, following the trend at that time, he left the economic committee (a government institution) and “jumped into the sea,” setting up a trade company which was nominally state owned but actually privately owned.

His father was in charge of the

construction industry, he, naturally, focused on selling construction materials. He did not have to tell others, nor did his father. Those construction companies who “knew the smell” always came to him to buy construction materials and never bargained the prices. Within two more years, he made almost two million Yuan. In 1992 “General Manager Zhang” registered a real estate company within one week. Then he gave (the local branch) of a bank an imported car, asking for a loan of eight million Yuan . . . Mr. Zhang used the eight million Yuan to buy 25 mu of land in the Hainan province and sold it at 19 million Yuan four months later (JJC No. 3, 32).

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In 1992 the total amount of land leased by the government was 220 square kilometers, with a total income of 52.5 billion Yuan, in which the central government had got only 2.6 billion Yuan. Thus, about 50 billion Yuan had fallen into private hands. In the Beihai city, even for the best land, the government charged only 97 thousand Yuan per mu, while the highest price in the market was 1.76 million Yuan per mu. It is said: “buying and selling land is far more profitable than land development, let alone real business.” In the Haikou city, the government charged 150 Yuan per square meter for the most prosperous area. But buildings built at the area were sold at 3000-4000 Yuan per square meter. In some cities, land can be leased with 5 Yuan per square meter, and in some cities the government charges nothing (ZWFDCDB No. 20 1993, 18-20). We do not know how much of state property has been lost in the speculation on stock, but following examples can tell us something:

In Shanghai there is a Millionaire Yang, who specializes in stock business. In last March, he once threw out 6800 shares of an electronic factory. He earned 50 Yuan on every share and gained a total of 340 thousand Yuan (ZGLDKX, No. 2 1992, 15).

A newspaper journalist who knew many useful friends, managed to get some “legal person” shares. He immediately found a buyer and made a “wholesale” deal, making profit at a rate of 100 percent. For the buyer, although he had paid a high “wholesale” price, since after the shares entered market, the price would always become several times higher, it was still a very profitable business . . . Doing business like this for several times, the journalist soon became a millionaire (JJC No.3, 54).

(3)Business Run by Bureaucratic Institutions In 1992 the number of companies in the whole country increased by 220 thousand, or a 88.9 percent increase to that in 1991. “Most of the new companies are run by state institutions.”

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“More than 60 percent of state institutions run their own business (JJC No. 3, 25).”

Even China’s People’s Liberation Army . . . has opened up a string of luxury hotels, and PLA-owned factories churn out refrigerators, pianos, TV sets and passenger aircraft for the market. Some 400 armyrun factories have sales offices in Shenzhen SEZ (special economic zone) (Smith, 1993, 97).”

The business run by bureaucratic institutions, with the help of monopolistic power, is able to acquire monopolistic profit far more than normal profit.

A company managed to get some (quota of) rolled steel, and urgently needed 10 million Yuan (to pay for the rolled steel). It asked for the help of the local branch of the state bank. The director of the branch said: “recently we are short of capital. We really want to help you but we have difficulty. Nevertheless, we just made a loan of 10 million Yuan to the company run by this branch yesterday. They have not yet taken the money. I suggest you make contact with them and make this deal together.” Thus the loan finally goes to the company run by the bank branch itself. The band branch thus easily got half of the profit (JJC No. 3, 26).

(4)Comprador Capital Some members of the ruling class directly collude with foreign capital, help foreign capital to exploit Chinese people, and then share part of the super profit acquired by foreign capital. For foreign capitalists, who want to escape China’s trade control and various restrictions on investment, want to find ways of tax evasion, and want to get cheap or free land or other benefits, they need the help of some members of the ruling class who have access to power, and thus would like to see some members of the ruling class acting as comprador capitalists:

Most shocking are the number of leading revolutionaries’ sons and daughters who have taken positions with the biggest American and European banks and multinational corporations and now represent them in

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China . . . Some of them may, in spite of all temptation, still serve China’s best interests, but the majority will serve the interests of those who hire them, and unless one is naive enough to believe that there is no conflict of interest here, “comprador” is the word that describes them (Hinton, 1993, 96). Mr. Yuan, a 48-year-old Communist Party member with, according to the AP, a penchant for cellular phones and stock market deals, walks a tight rope between capitalism and communism with business cards for both. One card introduces him as deputy mayor of Dongguan City, Guangdong Province (Dongguan is one of the hottest centres of foreign investment in Guangdong). Another says he’s the managing director of Fook Man Development Co., a Hong Kong-based firm with millions in bank. Yuan also sits on the board of three other companies based in Hong Kong, is part-owner of a 500-room hotel in Los Angeles and has plans to expand his empire to Singapore and Frankfurt. Chinese call such officials ‘fake foreign devils’ after the 19th-century sobriquet for the Chinese compradors in the opium trade. Yuan doesn’t object to the appellation. ‘We’re making money,’ he answers, slapping his thigh and slipping off his loafers (Smith, 1993, 98).

The large-scale embezzlement of state property by the ruling class has resulted in a great loss of state income and wealth which is in turn one of the major reasons for the state financial crisis (see TABLE 2.1). To overcome the financial crisis, income must be increased and expenditure must be cut. How to increase income? By increasing consumer good prices. How to cut expenditure? By cutting social welfare. Under the name of the “price reform,” consumer prices have risen at an increasingly rapid rate over the past few years (see TABLE 2.1). According to the official economists, the "reform" is not to be blamed for inflation. They argue that before the "reform," people suffered from persistent shortage of consumer goods and “shortage” was in fact a kind of “implicit inflation.” Bourgeois economists are not able to understand any non-capitalist social phenomena unless they treat these phenomena as if they were capitalist phenomena. A “shortage” economy and an inflationary economy represent two quite different types of social relations. “Shortage” means that social wealth is distributed according to criterion other than money. The criterion

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could be political power, could be social privilege, but could also be social equality, or priority to the disprivileged. Inflation, on the other hand, is a distinct social phenomenon that can be found in a society where exchange value dominates everything.

TABLE 2.1 China’s Financial Deficits and Inflation, 1981-1990 -----------------------------------------------------------------------------------------------------------------1981-1985

1986-1990

-----------------------------------------------------------------------------------------------------------------Average Annual Financial Deficits (billions of Yuan)

12.2

47.5

Financial Deficits as Percentage of National Income

1.8

3.5

Average Annual Growth Rates of Urban Consumer Prices (%) 4.2

13.1*

-----------------------------------------------------------------------------------------------------------------*1986-1989 Source: Ma Bin; JJSHTZBJ No. 4 1992, 21.

After his visit to China in 1970s Bettelheim (1974, 64) made the following introduction of China’s price system at that time:

The selling price to the consumers is fixed according to a variety of policies. 1. There is no profit on essential goods; if necessary they are subsidized by the state. In the case of cereals, for instance, which are under state monopoly, the purchase price from the peasants practically equals the retail price. This means that the state assumes the cost of marketing, transportation, etc. . . . On the whole, the price to the consumers of certain essential foods has in recent years been lowered without a decrease in the purchase price from the people’s communes. The selling price of 50 kg. of rice, for instance, decreased from 17.63 yuan in 1950 to 16.40 yuan in 1970. Similarly, the purchase price from the people’s communes may be increased without an increase in the selling price to the consumers . . .

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2. Products essential to the health of the people are sold at cost price, which means that no profit is made on their sale. The price of medicine, for instance, has decreased in keeping with reduced cost price. Thus the price of 200,000 units of penicillin decreased from 2.10 yuan in 1953 to 1.23 yuan in 1970. When a social need is given priority, price gives way to free distribution, as in the case of birthcontrol devices. 3. Everyday necessities are cheap, although a profit margin is maintained. The price of 50 kg. of lump coal, for instance, decreased from 2.80 yuan to 2.50 yuan between 1958 and 1970. 4. In the case of nonessential products (transistor radios, cameras, etc.), the “historically given price” is generally maintained. Any eventual drop in the cost price of these products serves to increase the social accumulation fund. The main thing is to understand that China’s approach to prices involve not merely policies, but politics--it rests on political and social choices.

Therefore, inflation is not simply a result of unbalanced aggregate supply and aggregate demand, but the product of certain state policies. Under the name of the “price reform,” the prices of more and more goods and services are to be determined by the free market. By 1991 state regulated prices covered only 22 percent of the total sale of agricultural goods, 21 percent of the total retail transaction, and 36.6 percent of the total sale of means of production (ZGJJWT No. 1 1993, 3). Thus the prices of most goods and services are now regulated by the free market. This opens the way to more rapid increase of consumer prices, at the expense of the interest of the masses of the lower classes. Cutting social welfare: according to the calculation of the All China Federation of Trade Unions, with the retirement and pension "reform," the health care "reform," and the housing "reform" put into practice, the workers in the state-owned enterprises have to make additional expenditures which amount to 6-7.5 percent of their living expenses (ZGLDKX No. 3 1992, 13). By embezzling state property, that is, in the last analysis, by plundering the broad masses of working people, a small number people have accumulated enormous amount of wealth.

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“About 3 percent of China’s population (or 30 million people) belongs to the rich stratum. Their private savings account for 40 percent of China’s total residential savings, or they have 150 thousand Yuan of saving per head (BJQNB 28 December 1993).” In 1992 the total financial assets held by the residents in the whole country was 1,800 billion Yuan. If the “rich stratum” has the same proportion of the total resident-held financial assets as it has that of the total residential savings, that is 40 percent of the total resident-held financial assets, then their private financial assets should amount to 700 billion Yuan. If we assume that for every year between 1986 and 1993 100 billion Yuan of state property was turned into the private property of the members of the ruling class (this may well be a conservative estimation, recall how much state income has been lost due to Guan Dao--bureaucratic buying and selling, see the above text), then from 1986-1993 they would have accumulated 800 billion Yuan of private wealth. Apparently the so-called “rich stratum” is mostly composed of the members of the bureaucratic capitalist class. With the development of the capitalist relations of production in China, a small private capitalist class began to emerge in China. The private capitalist class is not a part of the ruling class. It does not have political power. It makes its fortune by exploiting employed labor. Given the contradiction between the bureaucratic capitalist class and the private capitalist class, can the private capitalist class emerge as a democratic social force? Can it provide leadership for China’s democratic movement? The following wonderful text appeared in an official academic journal:

The dominant force of a society is not necessarily the class which has the largest number of people. It is not only the number of people, but also the amount of property that matters. That is, the number of people must be counted with a weight of property . . . The propertied class who “gets rich first” out of the propertyless class, with its increasing number of people and accumulation of capital, is becoming the main stream of society, the dominant force of society. This is a good change . . . With the growth of its economic interest, the propertied class will inevitably seek to express its political opinion, to participate in

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government decision-making through various legislature institutions. This suggests that the existing constitution is becoming outmoded and the current political structure is to be transformed . . . The propertied class will not disappear again in the Chinese history. It will influence the coming one thousand years and dominate the coming one hundred years (Gu Wen).

There is no freedom of speech in China? Bourgeois democracy--bourgeois dictatorship, is on the author’s lips. The author is smart enough to invent a conception of “propertied class.” Who is the “propertied class?” Is it the bureaucratic capitalist class? The bureaucratic capitalist class is itself the ruling class, why does it need to “seek to express political opinion?” The “propertied class,” apparently, refers to the private capitalist class. Will the private capitalist class “influence the coming one thousand years, and dominate the coming one hundred years?” This is completely a wishful thinking! First, the private capitalist class is very weak and small. According to official statistics, in 1990 there were 98,000 private enterprises in China, whose total registered capital amounted to 4.5 billion Yuan (Han Mingxi, preface). While the official statistics may have substantially underestimated the economic strength of the private capitalist class, given the fact that the bureaucratic capitalist class, which has accumulated hundreds of billions of Yuan of private wealth and controls all the state property, there is no question the economic power of the private capitalist class can hardly match even an odd part of that of the bureaucratic capitalist class. A class so weak and small as the private capitalist class, wants to become “the main stream of society,” “the dominant force of society?” What a nonsense it is! True, there is some contradiction between the bureaucratic capitalist class and private capitalist class in the sense that the bureaucratic capitalist class uses political power to pursue monopolistic profit and thus hurts the interest of the private capitalist class. In this sense, the private capitalist class may have some demand for democracy. However, compared to the benefit that political dictatorship brings to the private capitalist class, the harm it does to the private capitalist class is not more than a little discount. Both the private capitalist class and

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bureaucratic capitalist class are exploiter classes and both make their fortune by oppressing working people. The lower workers’ wages and benefits, and the longer and more intensify is their work, the better for the capitalists. And the less power the workers have, the less strength they have in their struggle against the capitalists, the lower their wages and benefits, and the longer and more intensify is their work. The private capitalist class certainly wants to have political power. However, if for it to acquire political power, it must allow the working class to have political power too. This is not a good deal. The private capitalist class thinks: with democracy, can I get a higher profit rate? If with democracy, there is not any certainty that the situation will be better, and it may well be much worse, why does the private capitalist class bother itself with such a great upheaval, even rendering the risk of a revolution?

The 1989 Revolution Without many times of serious struggles, without cruel and bloody fights, no oppressive society is able to impose its oppression upon the majority people. The capitalist system is no exception to the rule. While Chinese working people had suffered from a historic defeat in the Cultural Revolution, and the revolutionary socialist solution to China’s social contradictions became an historical impossibility at the time, this by no means suggests that the capitalist “reform” would proceed peacefully and smoothly. On the contrary, Chinese working people would by no means give up their extensive social and economic rights won by the socialist revolution and allow the ruling class to impose upon them a “normal” oppressive system without serious struggles. With the progress of the capitalist “reform,” the decade of 1980s saw the continuously growing contradiction between the ruling class and working people, especially, the contradiction between the ruling class and the urban working class, the major beneficiary of the socialist revolution. This contradiction was further intensified by the approaching capitalist economic crisis. According to official statistics, in 1988, while the average nominal wage of the staff and workers

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in the whole country increased by 19.7 percent, the index of the living expenses for the staff and workers in the whole country increased by 20.7 percent (ZGJJNJ 1988). That is, for the first time in the “reform” period, there was absolute decline of the living standard of working people. China was on the verge of revolution. To make a successful revolution, there must be a correct and mature revolutionary theory and a clear and coherent revolutionary program, which reflect the interest and desire of the majority people, and thus can effectively mobilize the majority people in the revolutionary struggle. A revolutionary theory and a revolutionary program like this, were exactly what the 1989 revolution did not have. At the time, the field of ideology was almost completely dominated by the liberal intellectuals.

The leadership of the revolution naturally fell into the hands of the liberal

intellectuals. Why was there not a leftist democratic force composed of revolutionary socialist intellectuals in 1989? In the “democratic wall” movement in Beijing in 1979, most dissident activists were more or less in favor of socialism. They believed that the problem did not lie in socialism but in the lack of democracy and the lack of genuine socialism. This movement was soon repressed. In 1982, among the social science intellectuals there was a controversy on “the problem of humanitarianism and alienation.” Some intellectuals, based on Marxist ideas, argued that the contemporary Chinese society remained an alienated society. This point of view was officially declared a variant of “bourgeois liberalization,” that is, declared illegal. A country which claims itself to be a socialist country declares Marxist ideas illegal. While this sounds ununderstandable, it is quite logical. The development of the capitalist relations of production requires the ruling class establish new dominant ideology and new apologist theory. The new apologist theory shall not help people to realize the nature of the oppressive society, let alone inspire people to rebel. Instead, it must be able to prove that it is right to oppress and it is virtue to exploit. Only the western capitalist society has a ready-made apologist theory that can serve this purpose. Thus, the ruling class at first approves tacitly, then

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encourages, and then actively participates in using western bourgeois social sciences to falsify and fabricate Marxism, and then simply replaces Marxism with western bourgeois social sciences. On the one hand, Marxist ideas are said to be “bourgeois liberalization.” On the other hand, the official scholars explicitly introduce and advocate bourgeois ideology. Of course, the ruling class will not accept “total westernization,” but will “discard the dross and select the essence,” based on the consideration of China’s “national circumstances.”

For example,

economics is virtually given free hand on its way towards “liberalization.” For economics directly concerns the relations of production, that is, it is a field where the interest of the ruling class is most incompatible with the existence of Marxism, even the existence of not more than paying lip service.

By comparison, political science and jurist study appear to be more

“conservative.” The slower progress of “liberalization” in political science and jurist study does not prevent the development of the capitalist relations of production. On the other hand, if the progress is too fast, it may compromise the system of one-party dictatorship. However, even political science and jurist study must carry out some “reform.” If in the field of economics there is no longer the conception of “class,” how can you advocate the conception of “class dictatorship” in political science and jurist study? On the other hand, if bourgeois social sciences can prove that it is right to oppress and exploit, why cannot it be used to prove that it is right to practicing political dictatorship? For example, new authoritarianism serves this purpose. With the encouragement and support of the ruling class, a large number of bourgeois social scientists have emerged in China. The word of “the liberal intellectuals” refers to these people. Most of them are also official scholars, occupying key positions in academic institutions and various “thinking tanks,” playing important roles in government decision-making. In late 1970s and early 1980s the leftist democratic forces were repressed politically and academically.

To rebuild the revolutionary socialist intellectual force, new revolutionary

theories must be developed to reflect the experience of the previous socialist revolutions and to meet the challenge of the liberal intellectuals. The new revolutionary force also needs new

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strategies and tactics. It will take a long time before the new revolutionary socialist force is able to finish these works and to re-emerge as a viable political force. For China’s revolutionary socialist force, the 1989 revolution came too early, when it was not able to make even the weakest voice. The liberal intellectuals boast that the 1989 revolution was a result of their “enlightenment” movement, that is, their efforts to introduce various western bourgeois liberal theories into China. In fact, the so called “enlightenment” movement had never had an impact beyond university campus. A large part of university students did follow the liberal intellectuals and convert to bourgeois liberalism and student movements had repetitively broken out in China’s major universities since mid-1980s. However, before 1989 these student movements were never responded by the urban workers. Thus, the fact that in 1989 the event went beyond the narrow limit of student movement and developed into a popular revolution involving the broad masses of working people, certainly cannot be explained by the so called “enlightenment” movement, but has to be explained by the objective intensification of social contradictions. The event began with the student demonstration in April 1989. Through 1980s university students made up a radical social group. Capitalist development had by far brought about only limited material benefits to the middle class (the intellectuals, technicians, and managerial workers, etc.). Nor had it opened as many opportunities as expected for the members of the middle class to rise to the ruling class. The university students were a part of the middle class. For those students who had failed in social competition, their way towards the upper society had been blocked, nor would they like to go back to the rank of working people. Seeing no future, these students had accumulated strong resentments against the existing society and later became the main body of the student movement. In cities, the student movement was immediately supported by the working masses. But for almost a month it did not become a mass revolutionary movement. In fact, at a time, it seemed the student movement was coming to an end. The hunger-strike turned out to be the turning point. On May 17 millions of people in Beijing came to streets, demonstrating in support

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of the students in the hunger-strike. It was by this point the event went beyond the narrow limit of student movement and became a popular revolution involving the broad masses of working people.6 While workers had joined the revolution, they did so instinctively and spontaneously, without clear political objectives, without the political leadership of their own, and thus without acting as an unified, organized, and independent political force capable of pursuing their own political interest. Unlike the former Soviet Union and Eastern Europe, the majority of the Chinese population is not composed of the urban working class, but peasants. While the peasant class is potentially a revolutionary class, it was nonetheless not a revolutionary class in 1989. When the Deng Xiaoping regime came to power in 1979, to consolidate its social base, it took the strategy of making some temporary concessions to the peasants. The Deng Xiaoping regime carried out the agricultural reform and substantially raised the purchasing prices for agricultural goods. From 1979-1984, the average purchasing prices for 180 agricultural products had been increased by 24.8 percent (Zhan Hongsong, 119). In this period, peasants’ income had been increased substantially. The ratio of the per capita consumption of the urban population to that of the rural population decreased from 2.9:1 in 1978 to 2.2:1 in 1985 (Li Qiang, 113). We know that under capitalist development, in the long run, the discrepancy between the urban area and the rural area tends to be widened rather than narrowed.

And actually the ratio just

mentioned did begin to increase after 1985. However, by 1989 the contradictions of capitalist

6

In my opinion when the leaders of the student movement and the liberal intellectuals behind them made the decision of the hunger-strike, they did not expect the events that subsequently happened. What they had in their mind was probably not more than exercising some “moral pressure” on the government. When people did come to streets, and the democratic movement did become a revolution, they simply did not know how to handle it (if were not scare by it). They did not know how, or actually did not want to exploit the great revolutionary potential contained in the masses.

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development, as far as peasants’ conditions are concerned, had been far from fully developed. Despite the increasing inequality after mid-1980s, the living conditions of the peasants had definitely improved in 1980s in absolute as well as relative terms. Thus the peasants were neutralized and could not act as a revolutionary force at the critical time of the 1989 revolution. Without the support of the peasants, the only force on which the revolution could count was the urban working class. Only the most extensive and most complete mobilization of the urban working class could save the revolution. In some big cities, like Beijing, Shanghai, some workers organized “Workers’ Autonomous Associations (Gong Zi Lian).” But these associations never gained substantial mass support among workers.

To make things even worse, many so called “Workers’

Autonomous Associations” were soon under the control of the liberal intellectuals, and reduced to bargaining counters in the power struggle in the so called “democratic movement (Min Yun).” But among the workers there was indeed great revolutionary potential. Since the so called “reform” is by nature not more than an effort by the ruling class to consolidate and intensify the oppression and exploitation against the working class by depriving the working class of the extensive social and economic rights it had enjoyed since the victory of the socialist revolution and by establishing “normal” oppressive mechanisms, the “reform” can by no means eliminate the existing social contradictions. On the contrary it not only intensifies the existing contradictions but also brings about new contradictions.

According to one

investigation by the All China Federation of Trade Unions in 1986, with a sample of 450,000 workers, when being asked “how the relationship between the workers and the cadres have changed since the beginning of the reform,” 38.56 percent of the investigated answered “it has become worse,” 31.58 percent answered “there has been no change,” and only 26.37 percent answered “it has become better.” Some workers said: “what we earn in our work is all taken away by the bureaucrats. Nowadays the cadre is the cadre and worker is the worker, they are no longer together.” In a later investigation, some workers said: “in the Maoist era, the cadres were not to be removed from office (unless they made serious mistakes). Nevertheless, they were

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mostly selfless, were strict with themselves, set themselves as examples, and tried to serve the people. Nowadays the cadres have a definite term of office and they begin to get money for themselves as soon as they take office.” (Li Qiang, 161, 165, 167) Thus, the relations between the ruling class and the working class had substantially deteriorated since the beginning of the “reform” and the workers had accumulated enormous resentments against the existing social order. These resentments could have been translated into great revolutionary energies if there had been a well-prepared political program which was able to express the desire of the working class clearly and powerfully and thus arise extensive and active responses among the masses of workers. However, to do so would be against the logic of the liberal intellectuals. In fact, the liberal intellectuals shared the same standpoint with the ruling class on the question of “reform.” Many liberal intellectuals had directly participated in making the “reform” strategies and it was the liberal intellectuals who had laid down the theoretical foundation for the “economic reform.” What the liberal intellectuals wanted was not to deny the “reform,” nor prevent the “reform” from hurting the working class. Instead, what they wanted was to carry out the “reform” to the very end. In 1989 most of the liberal intellectuals were explicitly in favor of privatization. Shi Jie Jing Ji Dao Bao (The World Economic Herald) published many articles advocating thoroughgoing market-oriented reform and privatization. Some argued for gradual privatization by transforming the state-owned enterprises into “modern” corporations.

Some argued for

privatizing the entire state sector at one stroke-- “go over the river at one jump (Yi Tiao Guo He Shi Xian Min Ying Hua).” Even if these ideas did not immediately arise the suspect and alertness of the working class, they would certainly not be responded by them enthusiastically. The liberal intellectuals were not only unable to mobilize the working class, but actually afraid of doing so.

While the liberal intellectuals never forgot to boost themselves as

“democratic fighters,” nor did they forget even for an minute to claim that they were not at all intended to overthrow the government. They admired the “Taiwan model,” hoping that the

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government would make concessions under the pressure of student demonstrations, first allowing free speech, free press, then allowing organizing the opposition party, and gradually moving towards free election of government. Most of the liberal intellectuals believed that they must rely upon the existing government to carry out the “reform,” whether it was the “economic reform” or the “political reform.” Without the support of the peasants, nor would they want to mobilize the working class, the liberal intellectuals had no choice but to rely upon the “reformers” in the ruling class. In fact, for the liberal intellectuals, if the “reformers” could prevail over the “conservatives” in the intra-party power struggle, there would be no need for any more revolutionary movement. In fact none of the “reformist” group or the “conservative” group was more progressive or reactionary than the other. They were both a part of the ruling class, struggling against each other for power. Rather than being a progressive group, the “reformers” had closer ties with the parasitic part of the bureaucratic capitalist class, who were the biggest beneficiaries of the capitalist “reform,” enriching themselves by embezzling state property. Probably for this reason, the “reformers” were more committed to the “reform,” and under some conditions more willing to make compromise with the liberal intellectuals with the expectation of a political alliance with the middle class against the urban working class. In the ruling class, the “reformers” were actually stronger than the “conservatives.” But the “reformers” themselves were divided on the issue of how to deal with the revolution. The Zhao Ziyang clique, terrified by the turbulent revolutionary waves, prepared to make compromise with the liberal intellectuals. But Deng Xiaoping, as the leader of the “reformers,” understood that under the revolutionary situation at the time, any concession might undermine the entire existing system. Moreover, the revolutionary masses had raised the slogan of “down with Guan Dao (bureaucratic buying and selling--a kind of rent-seeking activity),” directly threatening the fundamental interest of the “reformers.”

Deng Xiaoping also knew that

repressing the revolution would not break the political alliance of the ruling class and the middle class. After teaching the liberal intellectuals and the middle class a lesson, they would rely upon

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the ruling class even more closely. The subsequent events proved that Deng Xiaoping was correct on this point. Only two more years later, after Deng’s visit to southern China in spring 1992, the liberal intellectuals immediately wrote essays and books, such as Li Shi De Chao Liu (The Trend of History), Fang Zuo Bei Wang Lu (A Memorandum against Leftism), Zhong Guo Zuo Huo (China’s Leftist Disasters), cheering enthusiastically for Deng’s attack on “leftism” and insistence on “reform,” forgetting everything in 1989. At the critical moment of the revolution, it was exactly the “reformers” who sold out the liberal intellectuals. The Zhao Ziyang clique handed out power without making any resistance. At this moment, both the revolutionary side and the counter-revolutionary side had no room to retreat and must determine their destiny with a decisive battle. However, even at this moment, the liberal intellectuals still had illusions of the “reformers.” They insisted on the principle of “peace, rationality, and non-violence,” forbidding the masses of people to rebel. They only wanted to exercise some “pressure” on the government, throwing all of their hope on the “reformers.” After May 20, when the Martial Law was declared, the opposition raised the slogan of “down with Li Peng!” but never attacked Deng Xiaoping.

At the moment when the

revolution and the counter-revolution were in a decisive battle, they did not go out to organize the revolutionary force, preparing for the life-and-death struggle, but spent all of their time and energy in collecting the signatures of the members of the standing committee of the National People’s Congress, asking for calling an emergency meeting

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of the National People’s Congress,7 as if they were playing children’s games. The political cowardice and foolishness of the liberal intellectuals were completely exposed in the 1989 revolution. The 1989 revolution and the repression of the revolution proved that capitalism, as an oppressive social system, is by nature against democracy. Only with violence and force, after cruel and bloody struggles, could the capitalist oppressive order be imposed upon working people, and was the way towards capitalist development paved.

The Struggle against “Breaking the Three-Irons” In the 1989 revolution, the working class was defeated politically. However, the ruling class had not yet won a complete victory as far as the capitalist “reform” was concerned and the capitalist relations of production had not yet been completely established in the state-owned enterprises. In 1992 the ruling class tried to complete the capitalist transformation of the stateowned enterprises once-for-all by “breaking the three-irons (the iron rice bowl, the iron wage, and the iron chair of the cadre).” This effort, nevertheless, was met with the strong resistance of the working class and ended with failure. In early 1992 the idea of “breaking the three-irons” was unanimously supported by the press in this country. For a time the cry of “breaking the three-irons” and “reforming the system” was heard all over the country. However, a series of troublesome problems soon emerged. The most radical reactions came from the fired workers. The workers in the state-owned factories had got the idea and psychology that

7

Who knows how such a meeting could help to solve any problem. Not say anything about the fact that the National People’s Congress did not have any real power given China’s political context, the supporters of the opposition might well be short of the simple majority in the Congress even at the peak of the revolution.

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they were entitled to rely and depend upon the factories (where they worked), and they were not to be separated from the factories, the idea and psychology that had been established for a long time. Thus, when they suddenly knew they were fired, they were really shocked. Some of them made radical reactions. For instance, in March 1992, a factory in Tianjin, which had suffered heavy losses, dismissed more than one thousand workers. In response, more than two thousand workers of the factory and their relatives rallied at a highway intersection bridge, and a branch of the round-Tianjin-city highway was totally paralyzed. In spring 1992, many big and medium-sized state-owned enterprises in Northeast China tried to carry out the policy of “breaking the three-irons.” Many workers were faced with unemployment. Many of them were not accustomed to the conditions of being fired, being unemployed, having payment reduced, and living on relieves and had got a great deal of resentments. Some resorted to extreme and violent measures to retaliate the factory leaders. In Jinzhou city, Qinhuangdao city, and Hefei city accidents happened one after another, in which workers whose “iron rice bowls” were broken retaliated against the factory directors or managers. In this case, the movement of “breaking the threeirons” had to end up silently (Li Qiang, 150).

The ruling class’s effort of “breaking the three-irons” was thus defeated by the working class. However, as the experience of the 1989 revolution has suggested, without a mature revolutionary socialist party directed by a scientific revolutionary theory, the working class by itself is not able to act as an independent political force and win the struggle for liberation. Without such a revolutionary party, the working class has so far only been able to make their struggles against capitalist oppression and exploitation defensively and passively. Consequently, the ruling class, with all the initiatives in its hand, has been able to keep making progress in the project of the capitalist “reform” and of depriving the working class of the extensive social and economic rights brought about by the socialist revolution, though at a pace much slower than the “reformers” have expected. To reverse this trend, and to turn the current passive, scattered struggles into an active, unified revolutionary movement with a real positive prospect, a revolutionary socialist party with the direction of a scientific revolutionary theory must be

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developed as soon as possible.

The Middle Class The middle class is an important force in Chinese politics. Marx (1967, 601) said: “The more a ruling class is able to assimilate the foremost minds of a ruled class, the more stable and dangerous becomes its rule.” No ruling class in any historical era can be freed from being corrupted by its own way of living. If the ruling class only recruits its successors from its own descendants, it will not be long before it loses the ability to rule. For a ruling class to sustain its own rule, it must often recruit the outstanding figures of the oppressed classes into its own rank. The development of modern education allows the ruling class to systematically select the outstanding figures of the oppressed classes, who make up the modern middle class. The members of the middle class participate in social administration and are prepared to join the rank of the ruling class. On the one hand, the middle class is a middle step for those from the lower classes who want to get up into the upper class. On the other hand, it acts as the reserve army of the ruling class. According to official statistics, in 1990 China had “ordinary cadres” 10.91 million, and in 1987 China had “intellectuals,” referring to the people who had had higher education, 6.59 million (Li Qiang, 231, 279). The actual scale of the Chinese middle class in late 1980s and early 1990s should be between the two numbers. The middle class is distinguished from the urban petty bourgeoisie. The petty bourgeois has his or her own means of production, relying mainly upon family labor or only employing very few workers to make a living or earn a meager profit. In China the urban petty bourgeoisie is mainly made up of Ge Ti Hu (Individual business or self-employed laborers). In 1990 there were 6.71 million urban self-employed laborers (Li Qiang, 322). By comparison, the middle class members do not have means of production. They belong to the so-called “wage and salary stratum” and make their living by selling their labor power. However, unlike the working class,

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the middle class sells a special kind of labor power, the labor power which embodies scientific and technological knowledge. With their special labor power, the middle class is thus separated from ordinary working people and become a part of the privileged classes. Some individual members of the petty bourgeoisie may rise to the private capitalist class.

But the petty

bourgeoisie as whole cannot act as the reserve army of the ruling class. For the administration of the modern society requires specialized scientific knowledge which only the members of the middle class who have had regular modern education are equipped with. The official scholars do not admit that the middle class is a privileged class. In 1980s Nao Ti Dao Gua (low pay for mental labor, high pay for physical labor) was once a quite popular topic among the official scholars. But even according to their calculation, in 1988 in Beijing, the average income of the “mental laborers” was only 5.8 percent lower than that of the “physical laborers (Li Qiang, 261).” This calculation did not include the peasants, nor did it take into account the various material privileges of the middle class, such as better housing provided by the government and more chances to go abroad and thus earn higher income in foreign countries. The official scholars explicitly reject Engels’s point of view-- “In a society organized on socialist principles, the expenses that have been spent on training knowledgeable workers are afforded by society. Thus, the result of the more complicated labor, that is, the larger value created also belongs to society.”8 They misrepresent the labor theory of value, saying: “The knowledgeable labor or the complicated labor can create more value than the simple labor. Therefore, the price of the knowledgeable labor power shall be determined by the (larger) value it creates (Li Qiang, 266).” The official scholars do not understand that “value” is not something that exists in an abstract world, but always exists in certain concrete social relations and historical conditions. Without the historical conditions in which “value” arises, the labor theory of value can tell us

8

Translated from the Chinese translation, without checking the corresponding English translation.

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nothing of the really existing society.

In a capitalist society, the price of labor power is

determined by market supply and market demand. As we have known, the labor power of the members of the middle class, is a special kind of labor power, the labor power that embodies scientific and technological knowledge. This kind of labor power cannot be produced and reproduced by the families of ordinary working people, but has to be produced by regular educational institutions. But in a capitalist society, it is actually a social privilege to have higher education. With this privilege the members of the middle class actually have monopolistic control over society’s science, arts, and culture, and consequently the supply of the special “knowledgeable labor power.”

As the private land owners can charge rent for their land

property, the members of the middle class can earn monopolistic income by selling their special labor power. But all of these depend upon the capitalist social relations, and are by no means naturally “rational and just” arrangements. In fact, in the “reform” period, with the development of the capitalist relations of production, rather than exploiting the great creative potential of the working masses, the ruling class has increasingly relied upon the middle class to perform specialized administration and promote technological progress. Consequently, the economic conditions of the members of the middle class have been substantially improved. By the early 1990s the so-called Nao Ti Dao Gua has been clearly reversed (see TABLE 2.2).

TABLE 2.2 Month Income of the Staff and Workers of the State-Owned Enterprises, July 1992 (Yuan) -----------------------------------------------------------------------------------------------------------------Service Personnel

193.5

Auxiliary Production Workers

224.5

Direct Production Workers

226.3

Ordinary Administrative Cadres

237.3

Middle Administrative Cadres

237.3

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Higher Administrative Cadres

278.0

Technical Personnel

281.0

-----------------------------------------------------------------------------------------------------------------Source: Li Qiang, 262

The middle class is not a part of the ruling class. However, as the reserve army of the ruling class, the middle class often sees the world as if it were the ruling class of the future, the ruling class in reserve. This perspective of the world is represented theoretically and politically by the liberal intellectuals. On the other hand, in a capitalist society, the positions of the members of the middle class are very contradictory and far from being stable. They can never escape social competition and in competition there must be losers. Capitalism can never allow all or most of the members of the middle class to realize their “personal value.” The following paragraph is from a letter written to me by one of my friends in Shenzhen:

Yesterday I met a man who was going to stay in the hotel where I work. He graduated from the Economic Management Department of the Southern China Scientific and Technological University. He is now the workshop manager of the Xiwei factory . . . We talked for a couple hours. He said sometimes he thought of death. Death is the best way to be released. He administers over 1,000 workers, with an admirable pay of more than three thousand Yuan a month. However, he works day after day throughout a year. He is never allowed to leave work on Sundays. He works 12 hours a day and after work he has no reliable friends to talk to. Many of his classmates have got rich. He does not want to contact them for he will feel embarrassed. He said he had become apathetic to everything . . . In Shenzhen everyone wears a mask in life. For example, for business, he has to accompany some people to have Kala OK, so that those people can have fun; and in front of workers, he has to appear to be tough . . .

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CHAPTER III FROM THE COOPERATIVE AGRICULTURE TO THE PETTY PEASANT ECONOMY

In this chapter we will discuss the evolution of the relations of production in the agricultural sector after the founding of the People’s Republic of China. The post-revolutionary Chinese economy remained a dualistic economy, that is, an economy divided into a modern economic sector and a pre-modern agricultural sector. Nevertheless, with the accomplishment of the land reform and the elimination of the pre-capitalist exploiter classes, the preconditions for modern economic development in China were prepared and consequently the modern economic sector began to play an increasingly dominant role in the Chinese economy. On the other hand, any further advance of the agricultural productive forces and relations of production would have to depend upon the material conditions which were to be provided by the modern economic sector. Thus from then on it is the development of the modern economic sector, and in the term of class struggle, the struggle between the ruling class and the working class in the modern economic sector, that would have a decisive impact on China’s social development. It is within this context that the evolution of the relations of production in the agricultural sector is to be analyzed and understood.

The Cooperative Agriculture Why the Cooperative Agriculture? As early as in 1943 Mao pointed out:

Among the peasant masses for several thousand years the individual economy has prevailed with one family, one household, as the economic unit. This kind of dispersed individual economy is the basis for

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feudal control and causes the peasants themselves to succumb to permanent impoverishment. The only method to overcome such a situation is to gradually collectivize, and the only road to achieve collectivization, as Lenin said, is through cooperatives ( see Selden, 1993, 71).

Therefore, in Mao’s opinion, as long as the Chinese agriculture is dominated by the petty peasant economy, there is no way for the peasants to be freed from “permanent impoverishment” and to be really liberated form “feudal control” or other forms of class oppression. In mid-1950s, in the debate on agricultural cooperatization, Mao made following arguments. First, Mao argued that only with the cooperative agriculture, could the Chinese agriculture go beyond the small-scale individual farming, effectively fight natural calamities, make full use of modern agricultural technologies, and thus reach a qualitatively higher level of productive forces.

These comrades fail to understand that socialist industrialization cannot be carried out in isolation from the co-operative transformation of agriculture . . . as every one knows, China’s current level of production of commodity grain and raw materials for industry is low, whereas the state’s need for them is growing year by year, and this presents a sharp contradiction. If we cannot basically solve the problem of agricultural co-operation within roughly three five-year plans, that is to say, if our agriculture cannot make a leap from small-scale farming with animal-drawn farm implements to large-scale mechanized farming, along with extensive state-organized reclamation by settlers using machinery . . . then we shall fail to resolve the contradiction between the ever-increasing need for commodity grain and industrial raw materials and the present generally low output of staple crops, and we shall run into formidable difficulties in our socialist industrialization and be unable to complete it (Mao, 1977a, 196).

Secondly, Mao argued:

What exists in the countryside today is capitalist ownership by the rich peasants and a vast sea of

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ownership by individual peasants. As is clear to everyone, the spontaneous forces of capitalism have been steadily growing in the countryside in recent years, with new peasants springing up everywhere and many well-to-do middle peasants striving to become rich peasants. On the other hand, many poor peasants are still living in poverty for shortage of the means of production, with some getting into debt and others selling or renting out their land. If this tendency goes unchecked, it is inevitable that polarization in the countryside will get worse day by day . . . There is no solution to this problem except on a new basis. And that means to bring about, step by step, the socialist transformation of the whole of agriculture together with socialist industrialization and the socialist transformation of handicrafts and capitalist industry and commerce; in other words, it means to carry out co-operation and eliminate the rich peasant economy and the individual economy in the countryside so that all the rural people will become increasingly well off together (Mao, 1977a, 201).

Therefore, after the land reform, new contradictions began to arose. On the one hand, while the socialist industrialization needed more and more agricultural products, any qualitative advance of agricultural production was no longer possible within the limit of the petty peasant economy under its traditional conditions. On the other hand, the capitalist social relations and social polarization began to develop in the countryside, and these tendencies were inherent in the petty peasant economy.

In this case, agricultural cooperatization became inevitable for it

provided the only possible solution to both contradictions. The question is while agriculture cooperatization was inevitable, whether the historical conditions for the successful development of the socialist cooperative agriculture had been prepared in China at that time.

The Failure of the Cooperative Agriculture In the opinion of the official scholars, the cooperative agriculture is a ridiculous system which is against human nature as well as economic science, and thus must be rejected altogether.

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“Go to work like a swarm of bees, work together like a tumultuous crowd, and everyone gets the same points.” This the way in which the production team (of the people’s commune) works. This way of work and distribution naturally encourages people to be lazy.

Human beings are heterogeneous. Everyone has a different schedule of time preference and different attitudes towards work. Even if with some common belief, or in response to some temporary need, people can set up some kind of on-the-same-boat cooperative relations. This kind of relations will in no way last for a long time. For collective work requires supervision, and supervision is not costless. If supervision is too expensive, it becomes a kind of luxury that people cannot afford and some ambiguity of property right has to be allowed to save the cost of supervision. But giving up supervision will lead to lower incentives of work and the “free rider” behaviors will become a common problem. This will also lead to less production.

Agricultural work is dispersed in wide-spread area.

The supervision of

agricultural work is thus very difficult or very expensive . . . even if there is the potential of economy of scale, it is more than offset by the inadequate incentives (Cai Fang, 14, 97).

True, human beings are “heterogeneous.” But this is not the point. The point is that the modern agricultural production objectively requires collective and cooperative work of many workers, whether they are “homogeneous” or “heterogeneous.” Under the capitalist agriculture, the relations between the workers and the capitalist are not only “heterogeneous” but actually antagonistic.

The capitalist agriculture certainly needs supervision, and the supervision is

certainly very expensive, given the fact that the workers, being oppressed and exploited, will by no means self-consciously work for the capitalist enthusiastically and responsibly. Despite this, and despite the fact that “agricultural work is dispersed in wide-spread area,” there is no question that the capitalist agriculture is qualitatively superior to the petty peasant economy. A question is thus raised: if under the socialist cooperative agriculture, where the workers have collective control over production, and work for their own collective interest rather than be exploited by the capitalist, and consequently they will certainly work more enthusiastically and

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responsibly than the workers under the capitalist agriculture, and consequently for the socialist cooperative agriculture to work, it certainly need much less cost of supervision than the capitalist agriculture, and if the capitalist agriculture, despite its very expensive supervision, is qualitatively superior to the petty peasant economy, why cannot the socialist cooperative agriculture work, and work much better than the petty peasant economy? On the other hand, this suggests that the success of the socialist cooperative agriculture depends on two important conditions. First, the cooperative agriculture must based on the genuine socialist relations of production, that is, working people’s control over production. Secondly, it must be based on modern agricultural technologies and equipments, which are the material foundation of the superiority of the cooperative agriculture over the petty peasant economy. As for the first condition, as we have known, in 1950s China did not yet have the material conditions for the elimination of the division of mental labor and physical labor, and consequently, the material conditions for the establishment of the socialist social relations. As a result, a new bureaucratic ruling class took shape overtime.

In this case, the agricultural

cooperatization, while indispensable for preventing capitalist development and social polarization in the countryside, had to be carried out from up to down, in a largely bureaucratic way, rather than relying upon the initiatives and creativity of the masses of peasants. On the other hand, while the agricultural cooperatization did open the possibility for qualitative progress of China’s agricultural productive forces, the progress that would never have been achieved under the traditional petty peasant economy, by the end of the Maoist era China did not yet have the material conditions to complete the modernization of the agriculture and the Chinese agriculture remained by and large a pre-modern sector. In this case, the fate of the cooperative agriculture and the socialist transformation of China’s countryside was not to be determined by the political, economic, and social conditions in the countryside itself, but was to be determined by the general trend of class struggle and the evolution of the relations of production in the entire society, which were in turn determined by

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the trend of class struggle and the evolution of the relations of production in China’s modern economic sector, the more advanced and increasingly dominant economic sector. It was not until the failure of the Cultural Revolution, with the rule of the bureaucratic class consolidated and the revolutionary socialist solution to China’s social contradictions excluded, that the possibility of building the genuine socialist cooperative agriculture was completely eliminated.

The Heritage of the Cooperative Agriculture In the opinion of the official scholars and bourgeois economists, China’s agriculture cooperative agriculture was a sheer failure and must be completely denied as a strategy of agricultural development. According to Selden (1993,16):

One vital indicator of the kind of fundamental problem that deepened through the period of collective mobilization is given by aggregate information about foodgrain output and consumption . . . per capita foodgrain production and nutrient availability peaked in 1955-1956, then dropped sharply after 1958 . . . Despite substantial famine-induced deaths, beginning in 1959 and continuing for three years, per capita food production did not regain precollectivization levels until the mid-1970s, and it was not until 1980 that nutrient availability slightly surpassed mid-1950s’ levels . . . at the most basic level of food consumption, twenty-five years of collective agriculture brought no gain.

While the cooperative agriculture failed to bring about higher per capita food production, it should be pointed out that from 1958-1978 the Chinese population had increased by 300 million, while the arable land decreased by 8 million mu1 every year. In this case the very fact that China had managed to feed 22 percent of world’s population with only 7 percent of world’s

1

Chinese area unit. One mu is equal to 666.6 square meters.

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arable land is a great achievement. In 1976, China’s food production per mu was 491 jin2, while the U.S.’s was 417 jin, Canada’s was 303 jin, France’s was 452 jin, Italy’s was 434 jin. They were all lower than China’s, which was only lower than Japan’s, which was 788.6 jin, No.1 in the world. Among China’s 1.5 billion mu of arable land, 1.1 billion mu grew food crops, and among the 1.1 billion mu, 500 million mu were marginal land that would not have been cultivated in other countries, including 50 million mu of salinized land, 80 million mu of waterlogged lowland, and 300 million mu of hillside lean land. Japan’s 788.6 jin was achieved on 44.4 million mu of arable land. In the same year in China, there were 197 counties, with a total of 68.6 million mu of arable land, that had achieved more than 1,000 jin of food production per mu. In this respect, China’s cooperative agriculture was not inferior to the agriculture of any other country (Fang Yuan, 52). To know whether a kind of relations of production is more advanced or not, we must see not only whether it has brought about quantitative growth of production in the short-period, but more importantly whether it allows the development of qualitatively more advanced productive forces. Despite the great cost and excesses of the bureaucratic agricultural collectivization, it nonetheless went beyond the narrow limit of the petty peasant economy and brought about fundamental transformation of the Chinese agriculture. According to Meng Fanqi (one of the few official agricultural economists who have some sympathy towards the cooperative agriculture), it was in the period between 1958 and 1978 that the Chinese agriculture “entered the stage of being transformed into the modern agriculture.” It was in this period that the infrastructure and the technological conditions of the Chinese agriculture had experienced unprecedented development:

(1)Substantial progress had been made in agricultural mechanization. From 1958-1978 the total

2

Chinese weight unit. One jin is equal to 0.5 kilogram.

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power of agricultural machinery equipments had increased at an average annual rate of 24.34 percent. (2)The major rivers were brought under control. Large-area irrigation networks, well irrigation, machine irrigation, and electronic irrigation were developed.

From 1952-1971

irrigated area increased form 20 percent to 78 percent of the total area of arable land. And as a result, multiple crop index increased from 130 to 185. (3)Many good varieties of crops were bred and propagated in large area. A large and complete system to propagate agriculture science and technologies had been established.

According to some western experts who visited China at that time:

[I]t was the firm view of peasants that without this new form of extensive farming [communes] they could never have dealt with the exigencies of the natural disasters (Stavrianos, 607).

Today the Chinese agriculture is much less influenced by the climate than in the past. This is not because the central government has made large investment in large-scale water conservancy projects and irrigation works, but a result of the many small works built by communes by mobilizing surplus labor force in the idle season of agricultural production (Wilber, 332).

Without the construction of infrastructure and the great progress of agricultural technologies under the cooperative agriculture, there would never have been the “agricultural miracle” in the “reform” period. By late 1970s some successful cooperatives began to embark on the way of agricultural modernization. When Hinton went back to Long Bow village in Shanxi province in 1978, he found:

In 1978, Long Bow villagers had begun the mechanization of almost 200 acres of corn with a collection of scrounged, tinkered, and homemade equipment that did everything from spreading manure to tilling

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land, planting seed, killing weeds, picking ears, drying kernels, and augering the kernels into storage. The twelve members of the machinery team multiplied labor productivity by a factor of fifteen while cutting the cost of raising grain almost in half (Hinton, 1990, 15).

Back to the Petty Peasant Economy In the former Soviet Union and Eastern Europe, the collective agriculture was largely built upon modern agricultural technologies and was apparently superior to the petty peasant economy. Therefore, in these countries, the agricultural privatization was firmly opposed by the peasants and agricultural workers. On the other hand, when the Deng Xiaoping regime began the economic “reform,” the Chinese agriculture remained by and large a pre-modern sector. Given the prevailing premodern agricultural technological conditions, and given the consolidation of the rule of the bureaucratic class and the impossibility for working people to exercise control over production, de facto privatization became the only solution to China’s agricultural problems. Unlike in the former Soviet Union and Eastern Europe, in China the agricultural privatization was to some extent welcomed by the peasants. But this fact would not change the fundamental nature of the entire “reform.”

For as a result of the “reform,” the Chinese

agriculture was back to the petty peasant economy, the nature and the tendency of development of which, being a backward, pre-modern economic sector, were not determined by itself, but subject to the nature and the tendency of development of the modern economic sector. In this case, it was the urban “reform” or the industrial “reform” that would determine the fundamental nature of the entire “reform” and consequently the long-term conditions of life (distinguished from the initial and immediate results of the agricultural “reform”) of the peasants.

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The Petty Peasant Economy and Agricultural Stagnation The performance of the Chinese agriculture was indeed great in the first few years of the agricultural “reform.”

From 1978-1984, China’s total agricultural product increased at an

average annual rate of 7.6 percent, and the food production increased at an average annual rate of 5.0 percent. By 1984 per capita food production reached the record level of 390 kilograms, approaching the world average level, and the long-term food shortage was substantially alleviated (Feng Haifa, 115, 119).

In the opinion of the official scholars, the “unusual growth”

of the Chinese agriculture was mainly a result of the “reform.” “The agricultural reform had made substantial contribution to the growth of (agricultural) output from 1978-1984. The change of productivity due to various kinds of reform contributed to 48.64 percent of the growth of output (Lin Yifu, 95).” According to the official scholars, the initial success of the agricultural “reform” demonstrates:

Family farming is the most appropriate form of operation in agriculture which does not have significant economy of scale . . . (Under family farming,) the labor force is mainly composed of the members of a family, land and capital are allocated within the scope of a family, and direct producers are also operators. This is the typical level of property operation in agriculture. At this level of property operation, great economic efficiency can be achieved in agriculture.

For the official scholars, “family farming” appears to be the perfect example of “unambiguous property.” Their worship of “family farming” has become so absolute and blind, that they simply deny there is economy of scale in agriculture:

In agriculture, land is divisible, various flowing inputs like fertilizers, pesticides, and seeds are divisible, and even tractors are divisible in the sense that we can produce tractors with small-size and smaller horse

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power . . . Therefore, in agriculture, the factors of production are not really indivisible, and there is not significant economy of scale (Cai Fang, 97, 101, 108).

The official scholars forget to mention that to make tractors more “divisible,” the cost of production (relative to productive capability) has to be increased. The official scholars refer to the experience of Japan and Taiwan where agricultural modernization is said to have been achieved on the basis of family farming. But in fact, the experience of Japan and Taiwan is more an evidence of the failure of family farming, despite using some modern technologies, than that of

its success.

The Japanese and Taiwanese

agriculture are so inefficient that they cannot survive without enormous government subsidies. In Taiwan, before 1970 95 percent of agricultural products were self-sufficient. After 1970 the self-sufficient ratio dropped to 90 percent. The Japanese government spends 1,000 billion Yen to subsidize the rice production every year. However, this cannot prevent the self-sufficiency ratio of agricultural products from dropping from 87 percent in 1955 to 72 percent in 1980 (Fang Yuan, 68; Meng Fanqi, 69) According to Meng Fanqi (57):

If we fail to choose the proper form of operation in agriculture, given the ability of the small-scale operation to accommodate certain factors of production and technologies, even with very high level of economic development, it is very difficult to adopt advanced means of production to realize the optimized composition of factors of production, and to achieve the corresponding technical efficiency and economy of scale. Given the opportunity cost of live labor . . . the total cost of operation per mu decreases with the growth of the scale of operation. The two are significantly negatively correlated. In essence it reflects the increasing optimization of the composition of factors of production as a result of the constant upgrading of the means of production.

Therefore, there is significant economy of scale in agriculture, like in other economic sectors.

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The petty peasant economy, rather than being “a level of property operation” where “great economic efficiency can be achieved in agriculture,” is subject to great limitations, and unable to “realize the optimal composition of factors of production, and achieve the corresponding technical efficiency and economy of scale.” We need to make some detail analysis of the reasons for the “unusual growth” of agriculture between 1978-1984, to see whether and to what extent the “reform” had contributed to the agricultural growth in these years. Without nation-wide materials, we will mainly rely upon some case studies. Fengyang county, Anhui province, is among the counties that first adopted the family contract system (Bao Chan Dao Hu). In 1977 the total food production of Fengyang county was 182.9 thousand tons, the highest in the pre-reform years. In 1979 Fengyang county adopted the group contract system (Bao Chan Dao Zu), and the food production in that year was 223.5 thousand tons. In 1980 Fengyang county adopted the family contract system and the food production was increased to 255 thousand tons.

During each crop season after 1979 the peasants got up earlier, worked harder, stayed longer in the fields than before and they accomplished each day much more than they ever had since pooling their land in 1956 . . . “In our cooperative days,” said Yang Chiangli, “we used to work all day, every day, year-in and year-out, but we got almost nothing done--work a little, take a break, work a little more, take another break. We felt harassed and we produced very little. What we were doing look like work but in fact we were stalling around. Now we make every minute count. Our labor produces results. We earn a good living and we have time on our hands, lots of time (Hinton, 1990, 53).”

Thus, the family contract system did have released the productive initiatives of peasants. But to achieve a high level of production, it requires not only certain level of initiatives of producers, but also certain material conditions. The most important crop of Fengyang county was rice. Rice requires water. About half of the water came from the large-scale irrigation works built by

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the mass movement of 1950s. If there had not been these irrigation works, the rice field would not have been irrigated, nor could the new hybrid seed, which had played a crucial role in the increase of the food production, have been used (Hinton, 1990, 58). The case of Fengyang county represents to a large extent the general conditions in the country. Most of the water conservancy works in the country were built under the cooperative agriculture. Without the large-scale capital accumulation and the construction of infrastructure under the cooperative agriculture, it is absolutely impossible for the Chinese agriculture in the initial years of the “reform” to have anything like the “unusual growth.” As a result of the “reform,” peasants were better motivated for production, and the productive potential of the infrastructure built under the cooperative agriculture could be fully released. In this sense, the “unusual growth,” rather than being the evidence of the efficiency of family farming, was indeed a proof of the superiority of the cooperative agriculture. If the “unusual growth” was actually a result of the large-scale capital accumulation and the construction of infrastructure under the cooperative agriculture, for the momentum of agricultural growth to be sustained, there must be new large-scale capital accumulation and construction of infrastructure. However, as a result of the “reform,” the Chinese agriculture was back to the petty peasant economy, which not only cannot make any further large-scale capital accumulation and construction of infrastructure, but actually leads to regression of China’s agricultural productive forces (see TABLE 3.1).

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TABLE 3.1 Regression of China’s Agricultural Productive Forces in the “Reform” Period -----------------------------------------------------------------------------------------------------------------1979

1987

-----------------------------------------------------------------------------------------------------------------1,000,000 hectare Areas Under Irrigation

45.003

44.403

Areas Under Mechanized Irrigation

25.321

24.825

Areas Under Mechanized Ploughing

42.219

38.393

-----------------------------------------------------------------------------------------------------------------Source: Liu, 1988, 38.

Since the liquidation of the cooperatives, construction of water conservancy works has almost ceased completely. The agricultural technology-propagating system has no way to deal with the millions of small-scale, individually operating family farms. And the petty peasant economy, with its tendency of self-sufficiency, does not have a strong demand for new technologies. In this case, the agricultural technology-propagating system is paralyzed, the propagation networks have been broken, and the technicians and workers are left idle (Meng Fanqi, 57). On the other hand, according to William Hinton, “The reforms dealt mechanization a staggering blow.” In Long Bow village, Shanxi province, under the cooperative agriculture, the villagers had made substantial progress in agricultural mechanization in the late 1970s. But when the reform, offering subsistence plots to all and contract parcels to the land hungry, broke the fields into myriad small pieces, comprehensive mechanization gave way perforce to intermittent plowing and planting. This left the peasants no alternative but to abandon most of their advanced equipment and reactivate their hoes. When the bank asked for its loan money back the village head said “take the

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machinery.” But the bank never found a buyer, so to this day the manure spreaders, the smoothing harrows, the sprayers, the sprinkle irrigation sets, the corn pickers, and the grain dryers lie rusting in the machinery yard, mute testimony to a bygone--or is it a bypassed?--era (Hinton, 1990, 15).

Of the 10,000 villages in Heilongjiang, only 181 retained collective control over machinery, that is, collective ownership and management. Twenty percent contracted their machinery to private operators and the rest, over 80 percent sold the machinery outright at sacrifice prices to those with an inside track-such as brigade leaders, their relatives, and friends. On the average the machinery brought only about one-third of its original price. If one assumes that depreciation had already exhausted a third of the value then the machinery sold at half price. However you figure it, it was a great rip-off of collective wealth, a major giveaway, and those who bought the machinery, having got it at such cheap prices, were often unprepared to pay for major repairs when the time came for that. They used the machinery, mainly tractors, plows, and a few combines, until the time came for repairs, then they abandoned it.

After reform most machinery did only a portion of the work it had done before. In almost every case the sales broke up implement sets so that the new owners could not contract any whole job, any whole crop sequence. One operator could plow for a peasant producer, another could harrow or plant, still a third might harvest, but no operator brought a complete set of crop production equipment. Thus utilization fell off sharply (Hinton, 1990, 103-104).

On the other hand, with land contracted to families, and with continuous growth of the rural population, the arable land tends to be unlimitedly divided into increasingly smaller pieces. In 1986 the arable land per rural family in the country was 9.2 mu, and in average every family had 8.49 pieces of land. That means in average every piece of land was only 1.02 mu, or 14.23 percent of the arable land per rural family of some selected Asian and African countries in 1960 (Cai Fang, 99, 102). And in 1991 the arable land per rural family in the country was 13 percent

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less than in 1986 (ZGNCJJ No.5 1993, 6). The arable land has been divided into so small pieces, that even the rational operation of the traditional small-scale farming is impossible, not say anything about the large-scale operation of the modern agriculture. The petty peasant economy is by nature a primitive, backward mode of production. It can neither carry out large-scale capital accumulation and construction of infrastructure, not accommodate modern productive forces. In the short run, by providing better motivations than the bureaucratic collective agriculture, it could bring about quantitative increase of agricultural production.

But the quantitative increase was based on the qualitatively more advanced

productive forces created under the cooperative agriculture. In the long run, the petty peasant economy will not only fail to create more advanced productive forces, but be unable to preserve the productive forces left over by the cooperative agriculture. After the productive capability left over by the cooperative agriculture is exhausted, the Chinese agriculture will be irretrievably on the decline. In 1985, China’s food production was 30 million tons less than in the last year. From 1984-1993 the total food production increased at an average annual rate of only 1.3 percent, and per capita food production dropped from 390 kilograms to 380 kilograms (ZGNYJJTJZL 1991, 32-33; BJRB 7 February 1994). The “unusual growth” is bygone, and the Chinese agriculture has entered long-term stagnation.

Capitalism and the Petty Peasant Economy Unlike the capitalist exploitation of the working class, the capitalist exploitation of peasants, happens not in production but in circulation. In a society where the capitalist relations of production dominate, but the petty peasant economy prevails in agriculture, there will be the price scissors between agricultural and industrial products. That is, whenever there is exchange between agricultural and industrial products, the industrial sectors gains at the expense of the agricultural sector. This is because the

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industrial products are produced by the capitalist sector and thus sold at prices reflecting their labor value and the agricultural products are produced by the petty peasants and thus can only sold at prices that cover the value of labor power rather than the labor value. If the petty peasants’ income is higher than their value of labor power, the labor force will flow from the capitalist sector into the agricultural sector, until the income of the petty peasants is lower than the value of labor power. Thus, the peasants can never get the full labor value of their products. Through the price scissors, the capitalist class can not only directly exploit the working class who does not own means of production, but also indirectly exploit the peasants who apparently own some means of production. But this mode of exploitation is in contradiction with the requirements of capitalist economic development. First, capitalist economic development requires constant increase of agricultural labor productivity, which is in contradiction with the petty peasant economy which prevents the adoption of modern agricultural technologies and thus prevents the increase of agricultural labor productivity. We use the following two formulas to represent the capitalist sector and the petty peasant agricultural sector:

p = pk + pk' +l p' = wl'

where p is the price for a unit of capitalist product, k is the means of production produced by the capitalist sector and consumed to produce a unit of capitalist product, k' is the means of production produced by the agricultural sector and consumed to produce a unit of capitalist product, l is the amount of labor consumed to produce a unit of capitalist product, p' is the price for a unit of agricultural product, w is the nominal wage for a unit of labor, and l' is the amount of labor consumed to produce a unit of agricultural product. Here for simplicity we assume that the production of agricultural goods does not consume any means of production.

108

If we use r to represent the profit rate of the capitalist sector, and u to represent one, then we have: p u + r = ----------------pk + pk' + wl

109

wl'k' + l ----------u-k = ------------------------------(wl'k' + l)k --------------- + wl'k' + wl u-k wk' + l / l' -----------u-k = ------------------------------------wk' k + w(u - k) ------ + --------------(l / l') + wk' u-k u-k If we assume w is constant, that is, constant rate of surplus value, since the labor productivity of the capitalist sector tends to grow much faster than that of the petty peasant agricultural sector, in the long run, with l approaching 0, l / l' will approach 0, and consequently u + r will approach one, that is, r will approach 0. Therefore, in the long run, if the labor productivity of the agricultural sector grows much slower than the labor productivity of the capitalist sector, the profit rate of the capitalist sector will tend to decrease overtime.

This will seriously undermine the foundation of capitalist

accumulation. Secondly, the constant growth of the absolute need of capitalist economic development for agricultural products is in contradiction with the limited long-term supplying ability of the Chinese agriculture. The petty peasant economy is a mode of production based on individual family and thus unable to carry out large-scale capital accumulation. On the other hand, since the value of labor power determines the upper limit of the prices of agricultural products, the investment in agriculture is not profitable for capitalists. Consequently “the state and collective investment . . . lean towards non-agricultural sectors.”

In 1979 the investment in agricultural capital

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construction accounted for 11.1 percent of the total state investment in capital construction. In 1993 it dropped to 2.8 percent. In 1990, the agricultural fixed investment accounted for 17 percent of the total fixed investment of “rural collectivities.” In 1993 it accounted for only 6.9 percent.

According to the calculation based on relevant materials, the share of the investment in agricultural infrastructure (in the total investment) has been lower than the optimal level for all previous periods. The inadequate supply of capital has been a problem throughout the process of Chinese agricultural development (LUPISHU, 234).

While capitalist economic development requires unlimited growth of the consumption of natural resources, the capitalist economy cannot produce and reproduce natural resources. Since the agricultural sector relies heavily upon natural conditions, capitalist economic development, by unlimitedly increasing the consumption of natural resources without reproducing these resources, undermines the foundation of agricultural production. For example, as a result of the rapid growth of the capitalist economy, China suffers from continuous decrease of arable land.

While the rural enterprises have absorbed more than 90 million of surplus labor, they have occupied 100 million mu of arable land . . . In some more developed areas, the rural enterprises do not care about occupying large area of good arable land (Li Yining, etc., 164).

In the year of 1992 . . . more than 24 million mu of arable land, or about 2 percent of China’s total arable land, had been occupied to build or expand various “developing zone (CKXX 7 January 1993).

Thus, on the one hand, the agricultural investment has been for a long time and continue to be short of need, and on the other hand, the productive resources for agriculture, such as arable land, are constantly decreasing. The long-term supplying ability of the Chinese agriculture is

111

thus subject to insurmountable limits. These contradictions certainly cannot be solved within the limit of the petty peasant economy. Within the existing social system, the only solution to these contradictions is to transform the Chinese agriculture into a capitalist agriculture within an as short as possible period. However, first, although as a result of the “reform,” the Chinese agriculture is back to the petty peasant economy and de facto private ownership of land has been established, the legal private ownership of land has not yet been established, nor does China now have the social conditions for the complete legal private ownership of land. Secondly, even if the complete private ownership of land has been established, as the experience of Japan and Taiwan has shown, under the conditions of petty peasant economy, land will not be completely treated as capital that can be freely bought and sold, but for peasants, will also play the function of saving and insurance. Even for those peasants who try to find a non-agricultural job, in most cases they prefer to leave the land idle rather than sell it. In this case, the transfer and concentration of land can only proceed very slowly, constituting a serious obstacle to the development of the capitalist agriculture.

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CHAPTER IV CAPITALIST ECONOMIC DEVELOPMENT

The Material Conditions for China's Economic Development From 1979-1993 the Chinese economy had grown at an average annual rate of 9.3 percent (PRC 1994). China is now one of the most rapidly growing economies in the world. The World Bank even predicted that China would become the biggest economy in the world by the early 21st century (The Economist October 1994, 4). For the official scholars, China's rapid economic growth demonstrates the great

productive force contained by "the system of socialist market economy."

Immediately after the founding of the People's Republic a highly centralized planned economic system directed mainly by administrative commands was established .. . The system had prevented the development of socialist commodity economy and had become increasingly in conflict with the ever growing socialization of production ... It prevented the rapid growth of economic construction, the comprehensive state power, and people's living standard, and the superiority of the socialist system thus could not manifest fully and effectively. Since the Third Plenary Session of the Eleventh Central Committee of the Communist Party of China, comrade Deng Xiaoping has systematically developed the theory of the socialism with Chinese characteristics. Under the direction of this scientific theory, the economic reform of our country has gradually taken the correct path of building the system of socialist market economy... Under the economic reform the economic construction, the comprehensive state power, and people's living standard of our country have been raised to a new level since 1979... From 1979-1991 the average annual economic growth rate was 8.6 percent, substantially higher than the 6.1 percent for 1953-1978... This preliminarily demonstrates the great productive force contained by the system of socialist market economy (Wang Haibo, 220-223).

115

The argument of the official scholars contains some partial truth. Above all to develop productive forces is the historical raison d'etre of capitalism. It is on this point that capitalism is superior to all previous oppressive societies. On the other hand it must not be denied that the capitalist development of productive forces is always at the expense of the basic interests of the majority people, and under capitalism the material productive forces can be developed only by devastating the most fundamental productive force— the productive force of human beings.

Moreover. the official scholars have ignored the history. Statistically the economic growth rate between 1979-1993 is three percent higher than that between 1953-1978. But statistics by themselves tell us nothing. According to Hollis Bunnley Chenery, the economic development of the developing countries tends to accelerate as their economies become more developed and begins to slow down only after they have reached a fairly high level of economic development. For economic development brings about not only quantitative increase of national income, but also qualitative progresses including the improvement of the general conditions for economic development. The later stage usually has better conditions for economic development than the previous stage. The economy of the later stage thus can develop more rapidly than that of the previous stage (see Liu Shijing and Jiang Xiaojuan). In 1980 China's GNP per capita was $304 (ZGTJNJ 1991). In Chenery's “normal pattern” this corresponds to the stage of $280-560 (see TABLE 4.1). Since China's GNP per capita in early 1980s was near three times of that in early 1950s, in early 1950s China could be placed in the stage of$100-140 in Chenery's "normal pattern." It is thus not surprising for the economic growth rate after 1979 to be three percent higher than that before 1979.

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TABLE 4.1 GNP per capita (1970 U.S. $)

The "Normal Pattern" of Economic Development Growth Rate of GNP Growth Rate of GNP per capita (percent) (percent)

100-140

3.81

1.26

140-280

4.80

2.02

280-560

5.67

3.17

560-1120

6.30

4.10

1120-2100

6.58

4.58

2100-3360

6.21

4.71

3360-5040

5.60

4.60

Source: Liu Shijin and Jiang Xiaojuan, 74. This table was probably cited from Hollis Burnley Chenery (1975). Patterns of Development, 1950-1970.

It was the three decades of economic construction under the New China that had laid down the material conditions for the economic development after 1979. (i) First, as far as the general infrastructure is considered, the 1980s had much better conditions than the 1950s. For example, in 1949 China had only 21,700 kilometers of railways and about 80,000 kilometers of road. By 1980 the total length of railways was increased to 52,00(0 kilometers, or 2.4 times of that ID 1949 and the total length of road was increased to 876,000 kilometers. or 11 times of that in 1949 (SJJJNJ 1981). (ii)China is a backward developing country where the performance of the whole economy depends

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a lot on the performance of the agricultural production. TABLE 4.2 shows that before late 1980s China's economic growth had been closely related to the growth of the agricultural production. The rapid economic growth rate after 1979 was first of all a result of the rapid agricultural growth. If the agricultural production had not reached a level much higher than that in 1950s and thus was able to provide adequate surplus products for industry and cities, it was impossible for the economy to grow as rapidly as it did in 1980s.

TABLE 4.2 Average Annual Growth Rates of China's Total Agricultural Product and National Income (percent) Total Agricultural Product

National Income

1952- 1958

4.19

10.97

1958-1965

1.01

0.08

1965- 1978

3.05

6.61

1978- 1988

6.63

9.23

Source: PRC 1985; Feng Haifai, 115.

The Chinese agriculture in 1980s had reached a much higher level than that in 1950s. But if we consider the relations of production, as a result of the agricultural reform in early 1980s the Chinese agriculture returned to the status of petty peasant economy and in this sense was not really different from the agriculture in 1950s. Nevertheless the petty peasant economy in 1980s was not simply the replicate of the petty peasant economy in 1950s. After two decades of construction under the cooperative agriculture, in 1980s Chinese peasants were undertaking agricultural production under completely new conditions (see TABLE 4.3). If there had not been the great productive capacity accumulated under the cooperative agriculture, the Chinese agriculture could only remain at the primitive level of 1950s. With that primitive agricultural conditions it is difficult to imagine how the economic miracle in 1980s could be built up. 118

TABLE 4.3 China's Agricultural Productive Forces 1952

Total Horse Power of Agricultural Machinery (thousand horse power)

250

1979

181910

Consumption of Chemical Fertilizer per

Hectare of Sown Area (kg)

0.7

109.2

Consumption of Electricity in Rural Area (million kwh)

50

Irrigated Area (Thousand Hectare)

19959

28410

45003

Source: SJJJNJ 1981, 56

(iii) Before 1979 China had taken a strategy of economic development with great emphasis on the development of heavy industry. While this strategy is now under heavy criticisms, it must not be denied that by late 1970s "the Chinese industry is no longer burdened with the backward and lopsided conditions left over by the history, and an industrial system with a relatively complete range of divisions and an increasingly rational pattern of distribution has been established (SJJJNJ 198 I. 54)." The heavy industry base built in the three decades of New China is indispensable for the rapid economic development after 1979

119

For example, "the equipments of the rural enterprises are mostly provided by the urban industry." In 1987 the purchase of the products of the state-owned industry accounted for 70 percent of the total investment by the town and village enterprises (Li Yining, etc.. 166). If China had not built up a strong heavy industrial base before 1979, these industrial equipments would have to be imported. In 1988 the total gross fixed assets of the rural enterprises was 360 billion Yuan. Suppose the 360 billion Yuan is distributed evenly between 1980 and 1988, calculated according to the exchange rate in the respective year, then 360 billion Yuan is the equivalent of about 150 billion U.S. dollars. If this amount of foreign exchange is to be financed by additional exports. China's exports in this period must be 60 percent more than the actual value. If it is to be financed by foreign debt, then China's long-term debt would have to be increased by three times. These two ways are either unrealistic or very difficult to be realized. Thus if there had not been the heavy industry base built before 1979, it is difficult to imagine that the rural enterprises could have developed so rapidly as it did in 1980s. (iv) But the greatest and most profound achievement of the Chinese revolution was the physical and mental development of the majority people and thus the great development of the productive force of human beings. Life expectancy was increased from 35 before the liberation 68 in late 1970s. Before the liberation more than 80 percent of the population were illiterate and the ratio of the students enrolled in primary schools to the children of the corresponding age group was only 20 percent. By late 1970s the student enrolling ratio for primary schools had reached 93 percent (SJJJNJ l98l, 73) and according to the population census in 1982, the adult literacy rate for male was 81 percent and for female was 55 percent. The great transformation of the physical and mental conditions of Chinese working people would definitely play a decisive role in the long-term economic development. Its significance was beyond any usual measure. 120

It is very unlikely that under capitalist development China could have made the same achievements. If there had not been the construction of agricultural infrastructure, the dissemination of agricultural technologies, and the advance of agricultural mechanization under the cooperative agriculture, then how could the material conditions for the agricultural take-off in 1980s be prepared? If there had not been the planned economy which gave the heavy industry the priority of development, then how could the conditions for the subsequent rapid industrial development be prepared? Moreover, only a country that had experienced a socialist revolution could provide the most favorable conditions for the physical and mental development of the majority people. If we corn pare China with other big developing countries with a population of over 100 million, we find that while China's GNP per capita was not much more than India's, but less than Indonesia's, and was only one sixth of Brazil's, China had the highest life expectancy, while its adult literacy rate was comparable to that of Brazil and Indonesia (see TABLE 4.4).

TABLE 4.4 Comparative Social Development of Major Developing Countries Life Expectancy (Year)* Adult Literacy Rate (%)** GNP per capita*** Male Female Male Female (U.S. dollars) China

66

69

India

50

Indonesia Brazil

81

55

304

49

51

28

183

46

49

77

57

369

60

64

76

73

1793

*China's figure is for 1981, and the figures of other countries are for 1975-80. **China's figure is for 1982, and the figures of other countries are for 1980. ***China's figure is for 1980, Indonesia's figure is for 1978, and the figures of India and Brazil are for 1979. Source: TJTY 1985; SJJJNJ 1981. 121

Therefore the three decades of economic construction under the New China had prepared the material conditions for the rapid economic development after 1979. Given these conditions. if there were appropriate relations of production, there would be rapid development of productive forces. Productive forces can be rapidly developed under either the oppressive relations of production or the liberating relations of production. But there is difference between the two ways of development. While in the former case the development of productive forces is always at the expense of the development of human beings (as far as the majority people are concerned), in the latter case the development of productive forces prepare the conditions for the development of human beings and is always conditioned by the development of human beings.

The Establishment of the Capitalist Relations of Production Whether China would adopt the oppressive relations of production or the socialist non-oppressive relations of production. is determined not by academic arguments and debates, but by real class struggles. On the one hand, in 1980s Chinese working people had not the necessary material and theoretical force to determine the direction of social development according to their own will. On the other hand, as the experience of the former Soviet Union and Eastern Europe has suggested. it was not so easy for the ruling class to conquer the resistance of the oppressed people and to make the social development in accordance with its own will either. Working people would never give up their socialist rights won by the revolution and surrender to

122

the capitalist oppressive system without serious struggles. This is the greatest and decisive obstacle to the development of the capitalist relations of production. On this point China is not really different from the former Soviet Union and Eastern Europe. Yet while the former Soviet Union and Eastern Europe have fallen into terrible economic crisis, and indeed whether capitalist restoration can succeed in the former Soviet Union is still open to question, China has apparently made a successful transition to capitalism. From Marxist point of view. this must be explained by the different class structures and thus different conditions of class struggles in China on the one hand, and in the former Soviet Union and Eastern Europe on the other hand. In China, like in the former Soviet Union and Eastern Europe, there is an urban working class, that is, the working class in the state-owned enterprises, which has played a major role in the struggle against capitalist "reform." But unlike Eastern Europe and the former Soviet Union, in China the urban working class does not account for the majority of the working people. When China began its transition to capitalism, the Chinese agriculture continued to be based on pre-modern technologies. and there was still a distinguished peasant class accounting for most of the country's population. Mere we will not discuss the uneven development of the urban and rural areas in the Maoist period. Let us simply notice that on the one hand, with the privatization of the agriculture, the agricultural economy returned to the status of petty-peasant economy and the peasants thus became "free," and on the other hand, the unequal exchange between industry and agriculture not only continued in the Dengist period but became increasingly unfavorable for the peasants after l984. Given all of these conditions, a large "surplus" labor force of over 100 million emerged in the countryside. These "surplus" people were prepared to sell their labor power according to the capitalist standards, and was going to become China's new proletariat. I call them the "new proletariat" because unlike the working class in the state-owned enterprises, the new proletariat is not protected by such 123

socialist rights as the "iron rice bowl", and instead has to accept the capitalist exploitation in a typically free market capitalist context. The existence of the new proletariat allows the capitalist and semi-capitalist economic sectors (in China, they are made up of the rural enterprises, various '-collective" enterprises. the private enterprises, the Chinese-foreign joint-ventures, and the foreign capitalist enterprises) where the normal capitalist relations of production have been more or less established to develop on a Large scale along side the state-owned enterprises. In this way the Chinese ruling class has virtually circumvented the resistance by the working class in the state-owned enterprises and the capitalist relations of production have been directly established on the basis of the new proletariat. The triumph of the “reform” is thus guaranteed.

China's New Proletariat In 1978, the agricultural labor force accounted for 71.4 percent of the total Chinese labor force. According to the official scholars, one-third to one-half of the total agricultural labor force was "surplus labor force (Li Yining, etc., 151)." Since 1979, a significant part of the agricultural labor force has moved into manufacturing and service industries. By 1988, the share of the agricultural labor force dropped to 57,9 percent (Li Yining, etc., 155). The labor force that has moved out of agricultural has been mainly absorbed by the rural enterprises, the private enterprises, and the foreign owned enterprises. In 1989, the employees and workers in the rural enterprises amounted to 93.7 million, and those employed by the individual and private enterprises amounted to 7-8 million. Besides. there were about 20 million people working outside their hometown. Among the 20 million. 4 million worked in Cuangdong province. Many of them worked in the foreign-owned enterprises (Li Yining, etc., 98). In 1989, all of these people put together added up to about 120 million. If it is increased by 10 million each year, at present it should have reached about 160 124

million. These people who have left their land and do not own any means of production, have to sell their labor power to make a living. They are China's new proletariat. Following is a short poem written by a worker in Shenzhen, which gives us a living picture of the living and working conditions of China's new proletarians. 1

The machines sound again, which forces me to get up earlier. While sitting in front of the machine, I knew my boss is by me. His vicious gaze, just like the brightness of green bills (money), we lower our head thinking about our own future. Even breaking our hands and feet, we have to smile in front of money. When we go to get our paycheck, what we face is a disdainful smile, because what we got only are the crumbs.

While the new proletarians live in terrible and miserable conditions, from capitalist point of view, it is a wonderful and "efficient" economic system. In the "reform" period, the rural enterprises. the private enterprises, and the foreign-owned enterprises whose development has been largely based on absorbing the labor force transferred from the agricultural sector have developed most rapidly. From 1979-1990, the rural

1

Translated by Jin Xiaochang and Richard Smith. 125

enterprises, the private enterprises, and the foreign-owned enterprises had accounted for 51.9 percent of China's total growth of industrial production (Guo Kesha, 187). Moreover, these enterprises are particularly concentrated in the exporting sector which plays a crucial role in Chinese economic development. In 1993, the delivery of exporting commodities by the rural enterprises accounted for 45 percent of the total purchase of exporting commodities by China’s foreign trade institutions. In the same year, the foreign-owned enterprises contributed to 27 percent of China's total exports (RMRB 14 December 1993). Thus, the rural enterprises, the private enterprises, and the foreign-owned enterprises have become the major driving force of China's economic growth. Now let us see what wizardry capitalists have used to summon the great productive forces from the underground.

(1) Prolonging Working Time

According to an investigation of one hundred private enterprises by the Chinese Academy of Social Science, of the 100 investigated enterprises, in 53 enterprises workers worked more than eight hours a day, and of the 53 enterprises, in 1~ enterprises workers worked more than ten hours a day. In 66 enterprises, the bosses never allowed workers to take holidays (Han Mingxi, 94). In Cuangdong province it is usual for the workers in the foreign-owned enterprises and the private enterprises to work more than ten hours a day. According to an investigation of 27 enterprises by the Federation of Trade Unions of Huicheng district. Huizhou city, Guangdong province. in 26 enterprises the extra working time was more than 48 hours a month. In some enterprises, it was more than 96 hours. In many cases, workers had to work day and night and were unable to have rest on Sundays and holidays (An Zi, 152). 2 2

“Extra working time” was the working time more than the normal working time which was considered to be 48 hours

a week. 126

(2) Increasing Working Intensity

In this respect there are not direct statistics. However, some indirect methods may give us some help. The gross fixed assets per worker in the urban industrial enterprises in 1987 was about l8800 Yuan, which was five times as that in the rural enterprises in l988 (Li Yining. etc.. 157). The labor productivity in the urban industrial enterprises was three times as that in the rural enterprises. If the urban industrial enterprises were equipped technologically five times as good as the rural enterprises, why was their gap in labor productivity only three times rather than five times? In the official statistics. “labor productivity” is calculated on the total number of employees and workers. Thus, if the workers in the rural enterprises work longer, it appears to be higher “labor productivity” in the official statistics, though actually the labor efficiency has not been improved. But the longer working time of the rural enterprises cannot explain all of the gap. The remaining gap has to be explained by the higher working intensity in the rural enterprises. For example, the average coal production of a worker of the seven rural coal-mines in the Yuanping county, Shanxi province in l985 was 2.2 tons. while that of the major state coal-mines in l984 was only ().903 ton. The major state coal-mines were equipped much better than the rural coal-mines, but the average production of a worker of the rural coal-mines was more than one time higher than that of the major state coal-mines. suggesting that the working intensity of the rural coal-mines was much higher (EICASS). In Shenzhen, the state-owned enterprises, the Chinese-foreign joint-ventures. and the wholly foreign-owned enterprises were at roughly the same technological level. However, in l987 the labor productivity of the state-owned enterprises was only 31999 Yuan, while that of the joint-ventures was 87787 Yuan. and that of the wholly foreign-owned enterprises was 9414l Yuan (Liu Zhigeng, 4)). This suggests that the working intensity in the foreign-owned enterprises is much higher than that in the state-owned enterprises.

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(3) Depressing the Price of Labor Power

Depressing and embezzling wage have always been capitalists' beloved ways to make their fortunes. In this respect, Shenzhen turns out to be the best in learning the “advanced experience” of capitalism, going in ahead of the age. In Baoan district, Shenzhen City, in the second half year of 1990, there were 19 factories that did not pay workers on time. The total wage that workers did n~)t receive amounted to 720, 000 Yuan (An Zi, 151). In a handbag factory, making one handbag was paid by 0.25 Yuan which was too low for the workers. The workers worked hard and did much extra work, and their average month wage exceeded the standard wage. But the boss thought this suggested that the unit pay was too high and reduced it to 0.085 Yuan. In a salt products factory in the Pinghu town, Shenzhen city, there were thirty four workers working in the package department. Among the thirty four workers, only five had a month wage between 200 and 300 Yuan, none of the other twenty nine workers had a month wage higher or equal to 200 Yuan, and the lowest month wage was only 119.73 Yuan (SZR 3, 25). 3

(4) Exploiting Female Workers and Child Workers

In the industrial campuses of Shenzhen. sometimes you can see huge streamers hung on the factory building saying that “this factory urgently needs hundreds of female workers.” Why do capitalists like employing female workers and child workers. For one thing. it is said that female workers and child workers are obedient and do not make troubles. For another thing, it is cheap to employ female workers and child workers. Many female workers and child workers working in the private enterprises have a month wage of

3

The prevailing month wage in China in 1990 was about 300 Yuan. On the other hand, the price level in Shenzhen

was one or two times higher than that of die average in China. 128

only 40-60 Yuan (Han Mingxi, 94). Business Week reports that in the Shekou district, Shenzhen city, there are 12, 000 workers working for the Kader enterprises Ltd. These workers work fourteen hours everyday, having no rest on Sunday. Most of the workers are young women aged from 17-25. There are also many child workers, the youngest of whom are only 12. The Kader executive says: “we can work these girls all day and all night, while in Hong Kong it would be impossible. We couldn't get these kind of labor, even if we were willing to meet Hong Kong wage levels (see Smith, 1993, 95).” The newspapers in Hong Kong report that child workers are widely used in the 14, 000 factories in the Pearl River valley. It is common to find that workers work ninety six hours a week. According to one investigation, in the investigated 200 enterprises in Shenzhen, 40 enterprises employ child workers who are girls from 10-12. These girls work fifteen hours a day, earning a wage which is equal to only ten US dollars a month. To save the expenditure in dormitory, the management require that two or three girls share one bed (Smith, 1993, 95).

(5) Extorting and Racketeering

in the foreign-owned enterprises in Guangdong province, new workers must pay 100 to 500 Yuan to the management as “deposit.” While it is claimed that the “deposit” will be returned to the workers after they have finished the contracts, the management can find any excuse to dismiss the workers, or bully the workers in many ways so that the workers will give up the job 'voluntarily.' and in both cases the "deposit" is seized by the capitalists. For example, the Biyuan Shoe-Making Corporation Ltd. in Hainan province fired more than two thousand workers in two years, and had peculated more than 20,000 Yuan of workers' "deposit (CRRB 10 December 1993)." Imposing fines or fees is another wise way for capitalists to exploit workers. In the Shenzhen Haite clothes-making factory, the workers must pay fee for using the bathroom, 0.1 Yuan for one person one time.

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For every time the sewer in the bathroom was blocked, every one of the more than 200 workers must pay a fine of 5 Yuan. For the workers sometimes it was so awful that the sewer was blocked twice in a day (An Zi, 153). The Tianli factory in the Nantou town, Shenzhen city. provided a fine of 5 Yuan for workers who talked to fellow workers in the working time. Once a worker who had continuously worked twelve hours and had finished the daily quota left the factory ten minutes before the required time. This was discovered by the management, and as a result, I ~ workers were each fined with 50 Hong Kong dollars. There is a factory in the Pinghu town, Shenzhen city. h April 1990 this factory had 227 employees and workers, among whom 74 were fined in this month. In June of the same year this factory had 215 employees and workers, among whom 124 were fined in the month, and among them the person with the worst luck got fines amounted to 78 Yuan in the month (SZR 3, 25).

(6) "Saving" Workers' Lives

Capitalists care about not only the absolute amount of surplus value, but also the ratio of surplus value to capital, that is, the profit rate. The profit rate can be increased by saving means of production. In the developed capitalist countries, technological progress plays a major role in saving means of production. However, for the rural enterprises, the private enterprises, and the foreign owned enterprises in China, with their obsolete equipments and backward technologies, saving those equipments and materials indispensable for workers' security and health plays a important role in their “saving” of means of production. A reader of Gong Ren Ri Bao (Workers' Daily) wrote to the newspaper: “some rural enterprises pursue economic benefit one-sidedly, overlooking workers' healthy conditions and failing to provide labor protection facilities...In the crushing workshop in a cement plant in the Fengrun county, Hebei province, the dust in the air is four hundred and twenty seven times more than the required level. In this case, the workers'

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health cannot be guaranteed at all (GRRB 11 December 1993)." In Baoan district, Shenzhen city, there had been 30 major accidents in the foreign-owned enterprises from 1989-1992, resulting in 25 deaths. An engineer, who was exhausted by extra work. lost his ring finger and little finger when he was checking a machine. Besides, his middle finger was broken, and between his fore finger and middle finger was a crevice of 8 centimeters (more than three inches). But the manager did not bother to care about it and said; 'crippling does not count, even death does not count You can sue me in the law-court, I do not care (SZR 4, 20)." In a clothes-making factory in the Changan county, Shaanxi province, the management dismissed a female worker whose right hand was broken by the machine, giving her only 500 Yuan (Han Mingxi, 327). When I was in Shenzhen I heard of a similar incident, the only difference was that the management got rid of the hurt worker with only 20 Yuan. In 19~6 in Hancheng city, Shaanxi province, there were 212 small coal-mines, in which 66. or 3 1.1 percent of the total number. were private coal-mines. In that year there were 39 accidents. causing 44 deaths and hurting 22 people. For the private coal-mines, there were 23 accidents, causing 23 deaths and hurting 22 people, accounting for 59 percent, 52.3 percent, and 100 percent of the total respectively. From January to July, 1987, there were 16 accidents in the private coal-mines. causing 17 deaths, accounting for 84 percent of the total accidents and 87 percent of the total deaths (Han Mingxi, 327). On the night of 30 May 199 1, there was a fire accident in the Xingya raincoat factory in Dongguan city, Guangdong province, burning 80 young female workers to death and heavily hurt 40 people. Richard Smith made following comments; “this kind of tragedy is. regrettably, all too common in the exportprocessing industries of southern China where the capitalists now enjoy extensive power and freedoms--and the Chinese government protects them from the workers.” The fire control bureau of (Guangdong province reported that only in the Pearl River valley, there were 1700 industrial fire accidents and explosions in 1990 131

(Smith, 1993, 95). In this case it is not surprising at all when Shenzhen was hit heavily by an explosion in 1993 and when on 19 November 1993 the tragedy of burning 82 young female workers to death happened. 4 Even Ren Mm Ri Bao (People's Daily) commented: “why did the tragedies happen again and again?...this is mainly because some factory owners overlook fire control and the security of production and do not care about the personal security of workers (RMRB 15 December 1993).” Some people may ask: if workers' rights are violated. why do not workers resort to the protection of law? In China, Shenzhen is a place with the most developed capitalist relations of production. It is also a place with the most complete official laws serving capitalist development. On 28 May 1993 the standing committee of the People's Congress of Shenzhen city passed the "Regulation on the Labor Services in the Shenzhen Special Economic Zone." The Regulation. following the model of the labor law in developed capitalist countries. provides some articles against the excess exploitation of workers by capitalists. According to the Regulation. employers must make contracts with workers before they employ workers; workers have right to participate and to organize trade union; it is forbidden to employ workers younger than 16; employers are not allowed to charge application fee or pledge when they employ workers; if workers are ill or hurt in work, employers are not allowed to cancel the labor contract medication period; after the medication period, if the worker is not recovered and the employer wants to cancel the labor contract, the employer must inform the worker one month before and must pay the worker with subsidy

4

On 19 November 1993 a very serious fire accident happened in the Zhili handicraft toy factory in

the Kuiyong town, Shenzhen city, burning 82 people to death and hurting 41 people. The investigation afterwards found that to prevent the workers from stealing, the management locked three of the four gates in the working time. Consequently, when the fire began, the workers could not find way out. Nearby the factory there were no fire control facilities, even no water pool (GRRB 4 December 1993). 132

which is equivalent to the wage of a month; the normal working time shall not exceed 48 hours a week, and the extra working time shall not exceed 48 hours a month; the extra work shall be paid with special wage which shall be 150-200 percent of normal wage. On the other hand, like all modem capitalist laws, the Regulation which flaunts freedom and equality everywhere, is actually imbued with class prejudice. On the one hand, the Regulation tries to prevent the excess exploitation of workers by capitalists. On the other hand, it safeguards capitalists' privileges and forbids workers' rebellion. According to the Regulation, the worker who wants to resign from the job must inform the employer one month before, otherwise the worker make compensation to the employer with the wage of a month; if the worker is frequently late for work. or frequently leaves early, or misses work. or saboteurs, or deliberately spoils equipments ~)r instruments, or wastes raw materials or energy, it is proper for the employer to dismiss the worker without preconditions. This actually allows capitalists to find any possible excuse to dismiss those workers who dare to make struggles. If the Regulation at least wants to flaunt some equality on paper, the bureaucratic institution does not need to flaunt anything. I knew six young female workers who worked at the Shenglong ClothesMaking Corporation Ltd. in the Huaqiao town, Shenzhen city. The workers in this enterprise worked fourteen hour every day, often did extra work throughout the night, never had holidays. having no rest even on the most important traditional Chinese festival--Spring Festival, and had never received special wage for their extra work. The six young female workers could no longer stand these conditions and had determined to leave. They informed the management one month before their planned date of leaving. However, after the one month, the management refused to return their pledge and their wage of last month (this enterprise always paid workers one month later than the supposed time). The six workers went to the labor bureau. At first, the bureau official simply did not want to listen to the workers, saying that the workers were making 133

trouble without any justifiable reasons. and demanded them be back. The workers explained and requested repetitively, and only then the bureau official agreed to send a official document to the corporation, asking them to deal with the problem properly. The management of course saw it as nothing. The workers went to the labor bureau again. This time the bureau official was more patient and told workers that they should not think only from their own standing point. Instead, he suggested that the workers should think what kind of loss their quit might bring about to the enterprise, "if every worker quits the job whenever he t)r she wants to, how can the boss run a factory?" Then he scared the workers: "you are all three “no”s-people (no civil identity no border region pass, and no temporary resident identity in Shenzhen), and it is proper to get you out of Shenzhen city." He then said that even if the boss had violated the Regulation, workers had no right to violate the labor discipline and their only right was to ask the labor bureau to deal with the problem. The six workers made repetitive requests. The bureau official finally agreed to deal with the problem. He asked the management to send a representative to discuss the problem. The representative came but denied that the workers had informed the management their intention to leave one month ago. The bureau official then asked the workers to provide relevant paper work showing that they did inform the management one month ago. The workers certainly did not have any paper work. No problem was solved again. The six workers went to the labor bureau one more time a few days later. This time they met an office head who was somehow sympathetic to them. After listening to the statement of both sides, the office head demanded the management return the pledge to the workers and pay them their wage of last month.. The management agreed. However, later the management told the workers that it was all right to give them their wage of last month, however, since they had made products of poor quality and they had missed some shifts, they must make compensation to the loss of the enterprise. In the end, every worker got only a few Yuan for their wage of last month. No one went to the labor bureau any more. The Shenglong corporation was located at 134

Huaqiao town, from which it took about one and half hours' ride to get to the center of Shenzhen city. The traffic costed 8 Yuan every one for a round trip. Every worker lost 10-20 Yuan for missing a working day. The six workers went to the labor bureau for five times but had got nothing. This case tells us for ordinary working people to make a lawsuit according to bourgeois laws, how much it costs them that they cannot afford, and how difficult it is for them to get a little justice. The case also tells us how wrong it is with the blind belief in the “rule of law". Many intellectuals ask for the “rule of law,” thinking that the ugly social phenomena will be eliminated if various “human rights” have been written on laws. In fact, there is no such “rule of law” which is independent of the “rule of people.” and bourgeois “rule of law” is not more than the “rule of rich people." In Shenzhen, there are over one million workers and more than ten thousand enterprises. But in the labor bureau, there are only about a dozen of people dealing with daily labor disputes. As a result, in reality, all those provisions in the Regulation that are in favor of capitalists will be enforced properly, while all those provisions in favor of workers almost have no way to be enforced. There have never been saviors. nor can we rely on either Caesars or gods. Only we ourselves can bring happiness to this world. There is no way for the Chinese new proletariat to secure their own interest other than to make struggle by themselves. It was estimated that in 1990 only in Shenzhen city, there was 69 strikes, involving 9677 workers (An Zi, 151). However, since there are large numbers of labor force leaving countryside to find a living. and making a large industrial reserve army of labor, capitalists are at upper hand when confronted with labor. I heard that in a factory in the Liantang district, Shenzhen city, all female workers on an assembly line went on strike, and the capitalist fired all of them immediately. Sometimes, capitalists may make some small concession to workers, and dismiss the workers' leaders after workers go back to work. In this way, capitalists not only avoid troubles but also eliminate the organizers of workers'

135

resistance. Therefore, the new proletariat are making their struggles under very unfavorable conditions. They begin with an extremely difficult situation. [n many cases, individual workers have to make their rebellions in such primitive ways as stealing products or destroying means of production. On the other hand, the ruling class spare no energy in poisoning the thinking of ordinary workers. A young female worker once told me that she knew a technician who felt resentment against her boss intentionally made a wrong designing then run away, costing the capitalist tens of thousands of Yuan. The young female worker thought that the technician lacked proper education. She said, “sometimes the boss treats the workers badly because the workers lack proper education...workers' rights shall be secured, but so shall bosses' rights." She also said, "workers are not given proper treatment. This is mainly due to bad management. Actually, we have a good boss, only the managers are unreasonable." Words such as proper “education", "good management", and the idea that "both workers' rights and bosses' rights shall be secured" are daily propagated by televisions, radios, and newspapers. However, most workers learn from their dally experience of life and do feel that they are terribly exploited. Their autonomous rebellion against the exploitation, no matter the rebellion is “proper" or not. When workers rebel. capitalists are no longer the people with “proper education,” but bite people like mad dogs. In the Taiwanese-owned Yongqi Shoe-Making Corporation Ltd. in Fuzhou, a female worker stole two pairs of shoes and was discovered. Two Taiwanese, with the help of local security guards. brutally beat her, and then put up the shoes on her neck, showing her before the public. After the Show, she was locked in a doghouse, sharing the "house" with two wolf dogs for two hours. The Taiwanese manager told the workers: "I treat you as dogs.' The factory gate was locked immediately after the workers began to work. The workers were not allowed to leave workshop even when electricity run out. Before the workers (most of whom were female) left, they had to accept body search (BKWZ 9 December 1993). The liberal 136

intellectuals say, "capitalism, according to its natural logic, leads to political democracy (BIANYUAN, 5)." The Chinese new proletariat does not have an', civil rights, and even cannot be guaranteed their personal safety, let alone “political democracy.” In fact, direct violence has always been an important capitalist "method of management." In the Haifeng Shoe-Making Corporation. Ltd. in Guangzhou, a male worker, who failed to make qualified shoes. was beaten hard, with bruises all over the body. And this was not the end. The director of the factory ordered the nearly one hundred workers on the assembly line where the male worker worked stood under the noon sun for one hour. Some workers fell in a faint due to sunstroke (An Zi, 153). This is what capitalists welcome. Capitalists are realistic people. Unlike intellectuals. capitalists do not care so much about those beautiful abstract principles as about profits. With a large industrial reserve army of labor, the new proletariat has to accept terribly low wages and inhuman living and working conditions, and is unable to organize effective struggles to secure Its own interest. allowing themselves to be exploited by capitalists to the utmost. Enormous surplus value is thus created, the machine of capitalist accumulation thus starts to work, and the “economic miracle” of Chinese capitalism is thus made out of the sweat and blood of hundreds of millions of the new proletarians.

Capitalism and the Pauperization of the Masses of People Capitalist development inevitably leads to social polarization and the relative and absolute pauperization of the masses of people. Under capitalist competition, capitalists are forced to constantly replace labor with capital. raising organical composition of capital (the ratio of constant capital to variable capital, or the ratio of the value of means of production to the value of labor power), to increase labor productivity. This is the absolute law of 137

capitalist accumulation. On the one hand, as a result of the rising organical composition of capital, employed workers are turned into unemployed workers. the industrial reserve army is rebuilt, and the balance of power between capital and labor is changed in favor of capital, and this change helps to depress the society-wide average wage. On the other hand, with increased organical composition of capital, a certain amount of capital needs to employ less workers. Both have the effect to reduce working people's share of national income. that is, lead to the relative polarization of the majority people. Take the rural enterprises for example. From 1984-1987, the gross fixed assets per employed person of the rural enterprises increased at an average annual rate of 4.8 percent. From 1988-1992 it grew at an average annual rate of 25 percent. Between 1984 and 1987 to create one job in the rural enterprises, there must be an increase of total output of 6,700 Yuan. Between 1988 and 1992 to create one job in the rural enterprises. there must be an increase of total output of 73,000 Yuan (Ma Bin and Sun Shangqing, 29). On the one hand, the total social labor force naturally increases year by year. On the other hand, the ability of social capital to absorb the social labor force decreases year by year. The result is the steady growth of the social surplus labor force. Under the current level of productivity, every agricultural laborer can cultivate more than ten mu of arable land. China now has a agricultural labor force of 340 million. and the arable land per agricultural laborer is five mu (Ma Bin and Sun Shangqing, 28). This implies that China has a rural surplus labor force of 170 million. Under the pressure of the large surplus labor force, the new proletarians are unable to make effective resistance against capitalist exploitation. On the other hand, while in the process of economic development, the relative demand for agricultural goods decreases overtime. as a result of the rising organical composition of capital, the surplus labor force cannot be transferred from the agricultural sector to the industrial or other economic sectors. Both lead to the relative and absolute pauperization of the new proletariat and the peasants, that is, the majority of the Chinese population. 138

It should be pointed out that the steady growth of the social surplus labor force is by no means an inevitable result of economic development as such. Under socialist conditions, the increase of social productivity of labor will be translated into on the one hand, the increase of people's material conditions of life, and on the other hand, the increase of people's disposable time in which ordinary people can freely develop their physical and mental potential and display their all-rounded creativities. It is only under capitalist development that the progress of social productive forces is turned into large-scale unemployment and sufferings of the majority people. In China, we can use “peasants' per capita net income,” an official statistical item, to roughly represent the conditions of life of the new proletariat and the peasants. In the official statistics, "peasants" refer to all the residents in the countryside, who are roughly composed of the new proletariat and the peasant class. If we take the per capita income of the urban residents as 100. the index of "peasants' per capita net income" dropped from 58.9 in 1984 to 39.4 in 1993. If we take the ratio of "peasants' per capita net income" to per capita national income in 1985 as 100, this ratio dropped to 69.7 in 1992 (Ma Bin and Sun Shangqing, 26). Capitalist accumulation not only leads to the relative pauperization of the majority people, but under certain conditions also leads to the absolute pauperization of the majority people. In 1989. while the Chinese economy grew by 4 percent, "peasants' per capita net income" decreased by 7.4 percent. In 1993, while the whole economy grew at a miraculous rate of 13.4 percent, peasants' per capita actual consumption expenditure was reduced by 0.9 percent (Ma Bin and Sun Shangqing. 26. 266). Therefore, capitalist economic development is inevitably at the expense of the interest of the majority people and based on the relative and absolute pauperization of the majority people. But if this kind of economic development is not in the interest of the majority people, why do the majority people need this kind of economic development? 139

Dependent Development The establishment of the normal capitalist relations of production paves the way to capitalist economic development. From 1979-1993 the Chinese economy had grown at an average annual rate of 9.3 percent. In 1994 and 1995 the Chinese economy continued to grow at a miraculous rate of over 10 percent a year, making China the most rapidly growing capitalist economy in the world. How can the “Chinese economic miracle” be explained? On the one hand, under political dictatorship, and without organized revolutionary socialist political force, working people are not able to make effective struggle against capitalist exploitation and oppression. In this case, to make a living, hundreds of millions of working people have to sell their labor power to capitalists at a terribly low price. On the other hand, as a late industrializing country, China can directly adopt advanced technologies and capital goods by importing them from the developed capitalist countries. By taking advantage of both advanced technologies and cheap labor, or in Marxist terms. by exploitation both the relative surplus value and the absolute surplus value capitalists are guaranteed super surplus value and thus super profit. This provides a very powerful motive force for capitalist accumulation. But to import foreign technologies and capital goods, there must be an exporting sector competitive in the world market, which is able to provide the necessary foreign exchange. Indeed. in the 'reform" period China's exports have grown more rapidly than the whole economy. From l980-1994 China's merchandise trade increased from $18.1 billion to $121 billion, or an increase by sixfold (PRC 1994; RMRB 2 March 1995). At the same time foreign capital has flown into China on a massive scale. By the end of 1995 a total of $133.4 billion of foreign capital has been actually invested in China (RMRB 1 February 1996). Thus the Chinese economy has been closely integrated into the world capitalist economy. The ratio 140

of China's merchandise trade to GNP now stands at about 40 percent. At the same time the Chinese economy has been reorganized in accordance with the capitalist international division of labor. On the one hand, the labor-intensive industries and some low-end machinery and electronics industries, where China with its cheap labor, has comparative advantages" in the world market, have expanded rapidly. On the other hand, the Chinese economy has become increasingly dependent upon foreign technologies and capital goods. This pattern of development is reflected by China's foreign trade in machinery and electronics products. Jin Rong Shi Bao (The Finance Times) which is published in Beijing reported by citing information from the relevant offices of the Chinese Department of Machinery Industry:

The Chinese foreign trade in machinery and electronics products suffers from following problems: First, more imports than exports, so that the trade deficit has increased substantially overtime. In 1980 the trade deficit in machinery and electronics products was $ 4.26 billion. In 1993 it was increased to $ 26.76 billion, in which the trade deficit for machinery products accounted for 90 percent and that for electronics products accounted for 10 percent. Second, high-end imports, low-end exports, and most of the major industrial equipments and key products have to be imported. In 1993 there were twelve products each of which was imported with more than .$ I billion. On the other hand, the Chinese exporting machinery and electronics products were mainly composed of low value-added consumer goods. Third, in market competition, the domestic market share of the Chinese machinery and electronics industries has declined year by year. For example, in 1980 the Chinese machine-tool industry held 95 percent of the domestic market. By 1990 it dropped to 70 percent arid in 1993 further dropped to 44 percent (Shih Chieh Jih Pao--World Daily 14 November 1995).

For private capital (in China, the foreign-owned enterprises, the private enterprises, the rural enterprises, and the state-owned enterprises are all concrete forms of private capital), the investment in these industries where China has “comparative advantages" in the world market is paid with high profit rate and

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the sales market is expanding rapidly. On the other hand, if they make investment in advanced capital-good industries or other high-tech industries, they are unable to compete with the capital of the developed capitalist countries, and many of them simply do not have the ability to invest in these industries and to afford the corresponding risks. In this case. why does private capital who always pursues maximum private profit make investment in high-tech industries rather than those industries with a good prospect in the world market? Thus, according to the logic of private capital. it 15 inevitable that China will on the one hand, specialize in labor-intensive industries and low-end machinery and electronics industries, and on the other hand, be highly dependent upon the developed capitalist countries in advanced capital-goods and technologies. In this sense Chinese capitalist economic development is actually dependent development. The pattern of dependent development can also be illustrated in the case of the computer industry. China's goal . . is to become a major supplier to the domestic and world markets of low-end PCS and peripherals, including printers, monitors, and circuit boards. Through mass exports of such products, China will be able to earn foreign exchange to import the higher end systems arid technology needed to sustain the growth of the computer industry.

This low-end production is itself dependent on imported chips:

China's integrated circuit ("IC") production ability is extremely low and limited to ICs used in consumer goods, such as televisions and refrigerators. As a result, China must import almost all the ICs needed for computer production. Although China is trying to build up its domestic IC production base, international restrictions imposed by the Coordination Committee for Multinational Export Controls (COCONI) prohibit China from gaining the technology needed to produce more complex ICs (Hui and Mckown, 1995, 17).

Chinese government officials acknowledge that in the technological term, the Chinese integrated

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circuits industry has fallen fifteen years behind the international level. While it is expected that Chinese integrated circuit production will reach 1 billion pieces in the year 2000, the domestic demand will then rise to 2 or 3 billion pieces. leaving 1 or 2 billion pieces to be imported. While the Chinese capitalist economy does take much advantage of its current favorable position in the capitalist international division of labor, for China to have successful capitalist economic development, it is no less important for China to be able to undertake independent economic policy, especially effectively protecting the domestic industries that are not quite competitive in the world market. For as an underdeveloped country. if China follows the regime of free trade, allowing its economy completely exposed to international competition. then most Chinese enterprises will simply not be able to survive the competition against developed capitalist countries. This will have devastating impact on the Chinese economy. However, with the Chinese economy being increasingly dependent upon foreign technologies and capital goods, China becomes more and more dependent on the markets of developed capitalist countries for its exports. The developed capitalist countries consequently can use trade protection as an effective weapon to force China to follow the economic policies consistent with the interest of developed capitalist countries. In this case, it will be more and more difficult for China to pursue independent economic policy. In fact, in the negotiation for China's entry into World Trade Organization, China has been pressured hard by the developed capitalist countries to open its market and has been forced to make some major concessions. Moreover, the historical tendency of capitalist technological progress is to replace labor with capital, and labor-intensive industries and products with technology and capital intensive industries and products. Therefore in the long run capitalist technological progress tends to increasingly weaken and even eliminate altogether the importance of cheap labor in capitalist production. If China is unable to develop indigenous high-tech industries which can compete effectively with the developed capitalist countries, in the long run the Chinese exporting industries will become increasingly less competitive in the world market. In 143

the case of dependent development, this will put the long-term sustainability of Chinese capitalist economic development into serious questions.5

State and Chinese Capitalist Economic Development As we have seen it is impossible for China to develop its indigenous high-tech industry under the logic of private capitalism. Under capitalist conditions only the state has the potential to go beyond the narrow scope of private capital and undertake economic strategies that reflect the long-term interest of national development. However, in capitalist societies, the state usually does not play a decisive role in social accumulation which is mainly carried out by private capital. Only under special historical conditions, given unusual balance of power in favor of the state vis-a-vis private capital, the state may play a major role in capitalist accumulation within a certain period. Thus, to know whether in China the state can play a major role in social accumulation or not. we need to analyze the concrete historical context. At the beginning of the "reform", the ruling class had inherited from revolutionary China a large state economic sector which played a central 5

While some economists argue that the advance of automation has not yet resulted in “relocation” of industries from

less developed capitalist countries to developed capitalist countries (see Castells and Tyson, 1989), it does not mean that this will not happen given further development of automation. In the long run, there is no question that with the development of automation and other technological progress, general technological ability and developed industrial infrastructure will play an increasingly important role in economic development and the importance of cheap labor will be decreased overtime. This tendency is certainly in favor of developed capitalist countries rather than less developed capitalist countries.

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role in social accumulation. However, the capitalist "reform" was met with strong resistance by the working class in the state-owned enterprises which consequently were not able to make normal capitalist accumulation. On the other hand, the rural enterprises, the private enterprises, and the foreign-owned enterprises (we refer to these enterprises as "the capitalist economic sector") began to prosper by exploiting the 'new proletariat" who was composed of the surplus labor force in the countryside and was prepared to be exploited under conditions most favorable to capital. By early 1990s the capitalist economic sector was contributing 50 percent of China's industrial production. While the rise of the capitalist economic sector helps the Chinese ruling class to make a successful transition to capitalism. it brings about fundamental change in the relations between different parts of the ruling class. With the development of the capitalist economic sector, the bulk of the social accumulation is no longer carried out by the state, but by various private capitals. The distribution of social resources has in turn been adjusted to reflect the new balance of power in the ruling class. The state income, as a share of GNP, dropped from 31.2 percent in 1978 to 16,3 percent in 1993. In the same period the income of the central government, as a share of the state income, dropped from over 60 percent to 34 percent. TABLE 4.5 shows that by early 1990s the social resources at the disposal of the Chinese state, as a share of GDP, was not only lower than those of the developed capitalist countries, but also lower than those of the less developed capitalist countries. In the gross domestic investment, only a very small part comes from the state direct investment, and the part that the state can effectively control is not large either. The total social investment is mainly composed of the self-financed investment that the central government cannot regulate directly or is very difficult to regulate (Guo Kesha. l73-l74)."6

6

“Self-financed investment” refers to the investment self-financed by enterprises, individuals, or corporations. 145

In this case the state cannot play more than a minor role in social accumulation. The logic of private capital thus prevails. TABLE 4.6 shows that China's R & D expenditure fall far behind developed capitalist countries in the terms of share in GNP as well as absolute amount. As far as the share of R & D expenditure in GNP is concerned, China even fails behind some less developed capitalist countries. This suggests that private capital who pursues maximum private profit is not willing to make investment in the R & D activities and the high-tech industries which are unprofitable. highly risky, and require large capital investment. On the other hand, it tells us that the state, without adequate financial resources, is unable to provide the support indispensable for the development of high-tech industries.

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TABLE 4.5 Central Government Revenue as Percentage of Gross Domestic Product

China*

Year

Percent

1992

17.27

United States

1990

19.63

Japan

1990

14.38

Germany

1991

30.80

United Kingdom

1991

37.05

France

1992

40.63

Canada

1989

20.12

Australia

1991

27.11

India

1991

14.74

Indonesia

1991

18.16

Thailand

1990

20.41

Malaysia

1991

28.53

Singapore

1991

32.80

Myanmar

1990

10.70

Korea, Rep.

1992

18.45

Egypt

1990

18.58

Mexico

1990

14.05

Brazil

1991

25.92

Argentina

1989

9.85

*the state income as percentage of GNP. Source: PRC 1994.

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TABLE 4.6 Expenditures on Research & Development for Selected Countries

Year

R & D expenditures

As a share of GNP

(billions of dollars)

(percent)

China

1993

3.4

0.6

United States

1988

140.0

2.9

Japan

1986

41.7

2.8

Germany, Fed.Rep.

1987

22.8

2.8

United Kingdom

1986

15.7

2.4

France

1987

16.4

2.4*

India

1988

N.A.

0.9

Singapore

1987

N.A.

0.9

Turkey

1985

N.A.

0.7

Korea, Rep.

1988

N.A.

1.9

Source:PRC 1994; Economic Report of the President 1990, 113.

Transnational Corporations and Chinese Capitalist Economic Development 148

Despite the fact that the Chinese private capital is not willing to invest in the high-tech industries and the state does not have the financial ability to support the development of these industries. The Chinese government recently declared an ambitious plan to develop "high and new technology industries." It was projected that by about 2005 the share of the “high and new technology industries” in GNP would have risen from 10 percent in 1993 to 15 percent, the share in total industrial value-added would have risen to 20-25 percent, and the share in manufacturing exports would have risen from 6.3 percent in 1994 to more than 15 percent. It is not clear how the "hi~h and new industry technologies" are defined. But it was said if China could realize the above plan, by early 2000s China would have reached same level of development that East Asian newly industrializing countries had reached by early l990s (RMRB 10 August 1995). Therefore, even if China has realized the above plan, it will still fall behind East Asian newly industrializing countries by about 10 years, let alone developed capitalist countries. To realize the above plan, the Chinese government has put most of the stake on the investment by transnational corporations. One after another the so-called "high and new technology industrial campuses" have been set up in Shanghai. Tianjin. Shandong, Jiangsu. and Shaanxi. granting foreign-owned enterprises various benefits, with the hope that transnational corporations will make investment in high-tech industries in China. While enormous foreign capital has been poured into China since 1979, the bulk of the foreign direct investment in China is from East Asian newly industrializing countries, especially Hong Kong. Macau, and Taiwan. rather than from the developed capitalist countries (see TABLE 4.7). In response to the rising labor cost and deepening economic crisis in their own countries. the capitalists in East Asian newly industrializing countries try to survive the crisis by relocating some 149

labor-intensive industries to China to exploit China's cheap labor. This kind of foreign direct investment makes little contribution to the development of China's high-tech industries.

TABLE 4.7 Foreign Direct Investment in China by Country 1992 Total

(billions of dollars) 1993

1994

11.3

27.8

33.8

Hong Kong and Macao

7.9

18.0

20.2

Taiwan

1.1

3.1

3.3

Japan

0.7

1.4

2.1

United States

0.5

2.1

2.5

Singapore

0.1

0.5

Korea. Rep.

0.1

0.4

In which:

1,2 0.7

Source: PRC 1994

Nevertheless since 1992 the investment in China by major transnational corporations based on the developed capitalist countries has increased rapidly. The investment by the transnational corporations from the developed capitalist countries has following characteristics. First, their investment projects are large in scale. While the average scale of the projects of foreign direct investment in China is between $ 1-2 million, the average scale of the investment projects by the transnational corporations from the developed capitalist countries is about $ 20 million. Secondly, they make investment in the high-tech industries and the capitalintensive industries rather than the labor-intensive industries, using the current-generation rather than the 150

obsolete technologies (RMRB 18 October 1995; Shaw and Meier, 1994). Why do major transnational corporations make investment in China, and especially, in the hightech industries? Given China's underdeveloped infrastructure and inadequate scientific-technological ability, and that cheap labor provides little advantage in high-tech industries, the transnational corporations make investment in China not because China is an efficient Site of production in high-tech industries. Instead, they make investment to exploit China's rapidly expanding domestic market (Shaw and Meier, 1994). This pattern of foreign direct investment is not the same type of foreign direct investment in East Asian newly industrializing countries and Southeast Asian countries where foreign capital makes investment to exploit cheap labor and to pursue export-oriented development. instead, it resembles a lot the foreign direct investment in Latin America after WWII when Latin American countries pursued import-substitution industrialization. In the latter case. foreign direct investment was not targeted at cheap labor but the domestic market of Latin American countries. According to Bornschier and Chase-Dunn (1985), in this case, while in the short run foreign direct investment helped to accelerate economic growth, in the long run it blocked indigenous capitalist development, intensified social inequality. and led to the shrinking of the domestic market and economic stagnation. The Chinese government has taken a strategy of exchanging the domestic market for foreign investment and technology. The Chinese government hopes that in this way China will be able to develop its high-tech industries. For this strategy to work, effective trade barriers must be established in relevant industries so that transnational corporations cannot get access to China's domestic market unless they make investment in China. However, while trade barriers may benefit the interest of some transnational corporations which make investment in China, they are against the general interest of the Capitalists in developed capitalist countries. Since China has been increasingly integrated into the world capitalist system,

151

and has become increasingly dependent upon the developed capitalist countries in technology, capital, and exporting market, China has to make more and more concession to developed capitalist countries in trade policy and regime. Recently the Chinese government took a major step in trade liberalization by declaring a reduction of trade tariffs by an average of 3() percent. This, however, has not yet made China qualified for World Trade Organization, the entry' of which is Considered very important for China's further expansion of exports. In this case, at best China can make only limited success in the 'import-substitution" in the hightech industries and will continue to depend heavily on the import of capital-goods and technologies. In the short run, the rapidly expanding Chinese market will attract large amount of capital from the transnational corporations, which will further boost China's economic growth. But in the long run, due to their higher productivity and technological level, the transnational corporations will become dominant producers in the Chinese market in certain industries. Alter they have established monopolistic control in the Chinese market, the transnational corporations will be able to pursue monopolistic profit by setting monopolistic prices. In this case, they can try to meet the increase of demand by raising prices and do not need to make further investment. On the other hand, the Chinese enterprises which fail to compete with the transnational corporations will not be able to make accumulation either. Moreover, the transnational corporations tend to adopt capital-intensive technologies which will increase unemployment and social inequality, and thus reduce working people's purchasing power. The shrinking domestic market, on the other hand, further discourages investment. Thus, as Bonischier and Chase-Dunn (1985) argued, in the long run, this type of foreign direct investment would lead to economic stagnation in the country where foreign capital had deeply penetrated.

152

CHAPTER V CAPITALISM AND DEMOCRACY

New Authoritarianism Vs. Democracy In early 1989 a controversy took place between two groups of liberal intellectuals--the “new authoritarians” and the “democrats.” In the opinion of the new authoritarians:

Under current conditions it is more practicable to have some powerful leading figures coercively advance the project of modernization than immediately adopting democracy . . . What we immediately need to do is to build up a dual society. That is, a society with a system of free enterprises in economics and a centralized system in politics.

On the other hand, the democrats argued:

In today’s China we simply do not have the social conditions under which new authoritarianism can work and promote economic liberalization . . . Blind political centralization and intervention will only lead to political corruption and economic decline.

Having been tempered in the economic reform and after several years of democratic enlightenment . . . the cry for democracy is becoming stronger and stronger. Democratization is now an irresistible social trend of the contemporary world (XHWZ No. 4 1989, 1-8).

Why did the controversy happen at this time? By 1989 the capitalist “reform” had entered the so called “crisis” stage and a large part of the working masses could hardly stand the situation any further. The liberal intellectuals realized “the reform is becoming increasingly risky day by day.” In this case, some liberal intellectuals suggested that what China needed was

154

“a political and military strong man who has certain level of modern consciousness and is able to establish authoritarian politics and stabilize social order form top to bottom with iron hands (XHWZ No. 4 1989, 2).” In the opinion of the liberal intellectuals:

We must pay cost for historical progress. In the transition from an agricultural society to an industrial society, something must perish, something must pass away, and something must be born again. All of the old social elements that are inconsistent with the requirements of modernization ultimately must be thrown away (XHWZ No. 4 1989, 6).

The liberal intellectuals speak as if they were on the side of historical progress, enthusiastically calling for the forces of “modernization” which are full of vigor and vitality and prepared to sweep relentlessly all of those rotting and filthy old influences. The so called “modernization” is simply another word for “capitalistization,” that is, the transition to the capitalist relations of production. Only with the “blood legislation” under absolute monarchy, were British working people forced to follow the “requirements of modernization.” In today’s China, as Richard Smith (1993, 99) said, “[f]or capitalist socialproperty relations to conquer China today would require the expropriation of workers from their guaranteed jobs, their right to let their children inherit their jobs, their right to housing, medical care, and many subsidies essential to subsistence--in a word, breaking their ‘iron rice bowls’. These have to be broken in order to be open them up to capitalist exploitation.” Thus, the development of the capitalist relations of production will necessarily be met with the determined resistance by the working class. Only with serious and cruel struggles, and only after one side has been completely defeated, is it decided that who is the one that is to be thrown away.

The

so called “parliamentary democracy” certainly cannot handle this kind of struggles, as the new authoritarians said, “the democratic system, under the control of the weak and incompetent, is usually unable to guarantee social order, normal life, and economic prosperity (XHWZ No. 4 1989, 2).” The British bourgeoisie was able to have the British proletariat be subordinated to

155

capitalist exploitation only with the help of the “blood legislation.” In any country, to make the transition to capitalism, it is necessary to destroy the resistance of the proletariat and other working people by force. Only in this way can the obstacles to capitalist development be cleared away. In the opinion of F. Hayek, while the market economy is autonomously created by people, the planned economy is an artificially made institution and thus unnatural. But this is simply not the case. The “modern market economy” is artificially established wherever it comes into being and for it to be established, it must always resort to force and violence, and must always tread underfoot the basic rights of the majority people.

The transition to capitalism in which

“something must perish, something must pass away, ans something must be born again”, which excites the liberal intellectuals so much, is a historical process in which the majority people are abused and disfranchised. These are exactly the “progress” and the “freedom” pursued by our gentlemen intellectuals. On the one hand, the liberal intellectuals realize that in “the early stage of modernization,” when “the middle class is too weak (the ‘middle class’ should be read as bourgeoisie),” and when people “lack democratic consciousness,” “the progress of modernization must rely upon the forces of a strong state. Only under the strong-man politics, can social development be sustained and consolidated, and can we have a relatively stable social order.” On the other hand, the liberal intellectuals worry that new authoritarianism may lead “back to traditionalism which is even more conservative and more backward (compared to Maoist socialism?--added by this author).”

In the respect of ideology, new authoritarianism usually relies upon the traditional value system, which is supposed to provide the spiritual base for social unity. But the traditional value system has strong despotic implications, both logically and psychologically. It implies concentration of power and personal cult. Moreover, new authoritarianism emphasizes strong man politics. Power is thus personalized and is not subject to effective supervision. In this case, the corruption of power and politics is inevitable (XHWZ No.4 1989, 2-3).

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The middle class has immediate material interests in the development of the capitalist relations of production, which will bring about “appreciation of knowledge.” In this sense, the middle class tends to support any kind of political system that is necessary for capitalist development, including the “strong man politics.” On the other hand, the middle class, as the “reserve army” of the ruling class, asks for more “fair” competition for the entry into the ruling class, giving the members of the middle class more opportunities to get into the ruling class. They are afraid of “the personalization of power” which may exclude themselves from political power--“the strong man politics has an instinctive apathy and dislike to intellectuals.” The controversy between the new authoritarians and the democrats reflected the political dilemma that the middle class and its political agent--the liberal intellectuals were faced with when the transition to capitalism had greatly intensified all of the existing social contradictions.

A Short History of Capitalist Democracy Bourgeois scholars often tell us that capitalism and democracy are a pair of twins. “It is the natural logic of capitalism that leads to democracy. For economic freedom cannot be consolidated without political freedom. People who have acquired economic freedom soon want political freedom and democracy (BIANYUAN, 5).” If “political freedom” derives from “economic freedom,” then if social wealth is concentrated in a group of minority people, it must be the logical conclusion that since only the minority have “economic freedom,” while the majority have not, only the minority should have “political freedom,” while the majority should not. In fact, as early as in the “enlightenment” era, many bourgeois thinkers had realized that democracy was not the ideal capitalist political system. According to Montesquieu, the republic system leads to “extreme equality,” where one tyrant is replaced by many “small tyrants.” In his opinion, political power must be held by aristocracy and bourgeoisie, and lower people should

157

not have the right to vote, for “masses are not suited to discuss important affairs.” According to American federalist A. Hamilton, masses “are not able to make judgments,” they are “arbitrary and capricious,” and they are easy to be misled, to make mistakes, and thus unreliable. On the other hand, in Hamilton’s opinion, the rich and the prestigious, though only a small part of the population, are intelligent and competent, and thus should enjoy permanent political privileges. He thought that this was the only way to “prevent those rash actions of democracy (see He Rubi and Yi Chengzhe, 207, 231).” The 1787 United States Constitution was drafted according to federalist ideas. According to Charles A. Beard:

Their leading idea was to break up the attack forces at the starting point: the source of political authority for the several branches of the government . . . And the crowning counterweight to “an interested and over-bearing majority,” as Madison phrased it, was secured in the peculiar position assigned to the judiciary, and the use of the sanctity and mystery of the law as a foil to democratic attacks. It will be seen on examination that no two of the leading branches of the government are derived from the same source. The House of Representatives springs from the mass of the people whom the states may see fit to enfranchise. The Senate is elected by the legislatures of the states, which were, in 1787, almost uniformly based on property qualifications, sometimes with a differentiation between the sources of the upper and lower houses. The President is to be chosen by electors selected as the legislatures of the states may determine--at all events by and authority one degree removed from the voters at large. The judiciary is to be chosen by the President and the Senate, both removed from direct popular control and holding for longer terms than the House. A sharp differentiation is made in the terms of the several authorities, so that a complete renewal of the government at one stroke is impossible. The House of Representatives is chosen for two years; the Senators for six, but not at one election, for one-third go out every two years. The President is chosen for four years. The Judges of the Supreme Court hold for life. Thus “popular distempers,” as eighteenth century publicists called them, are not only restrained from working their

158

havoc through direct elections, but they are further checked by the requirement that they must last six years in order to make their effects felt in the political department of the government, providing they can break through the barriers imposed by the indirect election of the Senate and the President. Finally, there is the check of judicial control that can be overcome only through the manipulation of the appointing power which requires time, or through the operation of a cumbersome amending system. The keystone of the whole structure is, in fact, the system provided for judicial control--the most unique contribution to the science of government which has been made by American political genius. It is claimed by some recent writers that it was not the intention of the framers of the Constitution to confer upon the Supreme Court the power of passing upon the constitutionality of statutes enacted by Congress; but in view of the evidence on the other side, it is incumbent upon those who make this assertion to bring forward positive evidence to the effect that judicial control was not a part of the Philadelphia programme. Certainly, the authors of The Federalist entertained no doubts on the point, and they conceived it to be such an excellent principle that they were careful to explain it to the electors to whom they addressed their arguments (Beard, 1960, 161).

Whenever the liberal intellectuals talk about “democracy,” they mean American-style democracy. The division of power between three branches and the two-chamber system are considered to be indispensable principles of democracy. But in fact, it is by no means for democracy that the United States Constitution provides these principles. On the contrary these principles are provided exactly to paralyze democracy. As Beard (1960, 161) said: “[t]he economic corollary of this system is as follows: Property interests may, through their superior weight in power and intelligence, secure advantageous legislation whenever necessary, and they may at the same time obtain immunity from control by parliamentary majorities.” If all power belongs to people, why must the parliament which is composed of people’s representatives be controlled by other branches of power? In fact, in 1787 in the United States, there were four major social groups who were disfranchised--”the slaves, the indented servants, the mass of men who could not qualify for voting under the property tests imposed by the state constitution and

159

laws, and women (Beard, 1960, 24).”

And according to Beard (1960, 250), when the

Constitution was put to popular vote, only “one in six of the adult males” voted in favor of the Constitution. The United States Constitution was not at all “an expression of the clear and deliberate will of the whole people” as said by bourgeois scholars. The natural logic of capitalism by no means leads to democracy. Under a social system where the majority are oppressed by the minority, how can the oppressors not be scared by the possible rebellion of the oppressed, and if the oppressed do rebel, how can the oppressors not do anything possible to put down their rebellion? If the logic of capitalism is allowed to be developed freely, without being prevented by any counteracting forces, it will only lead to the explicit dictatorship of a small group of upper elites over the broad masses of people. The British bourgeois revolution paved the way for British capitalist development. But it did not bring democracy to the majority British people. In the revolution, “egalitarians” who represented the interest of ordinary people, wanted to abolish the upper house which was composed of aristocrats, and establish a single-chamber parliamentary republic which was based on universal suffrage without property restrictions. But Cromwell suppressed “egalitarians” and established personal dictatorship. For the two hundred years after the “Glorious Revolution” in 1688, Britain had been a country where a small group of upper elites had monopoly over political power and there was no democracy at all for the majority people. Before the 1832 parliamentary reform, only one in thirty two of the population had the right to vote. As a result of the 1832 reform, the people who had the right to vote were increased from 500,000 to 873,000 which only accounted for one-twenty second of the population. British people had never stopped the struggle for democracy. Manchester held an assembly asking for political reform.

In 1819 workers at

They were suppressed by the

government army, with hundreds killed or hurt. In May 1838 workers all over the country held assemblies and demonstrations, asking for universal suffrage. This was the beginning of the Chartist Movement. In July, the parliament rejected the petition of Chartists. The government banned the assemblies and arrested Chartist leaders. In May 1841 Chartists again handed in a

160

petition with 3.3 signatures to the parliament and the petition was again rejected. Workers all over the country were on strike. The government suppressed the strikes and arrested more than 1,500 people. In May 1848 Chartists held national assembly at London, and handed in a petition with more than 5 million signatures to the parliament. The parliament rejected with the excuse that “many signatures are fabricated” and Chartist leaders were arrested by the government. Only after many years of struggles by the working class, in 1867 Britain made the second parliamentary reform, in which the voters were increased from 1,395,000 to 2,455,000. At that time there were 16 million adult residents in Britain.

Thus more than 13 million people

continued to be disfranchised. Male universal suffrage was not realized in Britain until 1885 and British women got the right to vote only after 62 more years (Liu Zongxu, 218-219, 299, 333334). The British political history shows that capitalism will by no means bring about democracy by itself.

On the contrary, capitalist development requires suppressing the

democratic desires of the majority people and maintaining the dictatorship by a small group of upper elites. Capitalism has to accept and tolerate the modern democratic system only after long-term sustaining struggles by the oppressed people, and especially, the modern working class. This is also reflected by the political history of other western countries. In France universal suffrage was declared as early as in 1793 in the peak of the French Revolution. But after Napoleon came to power, he abolished parliamentary democracy and established military dictatorship. After the restoration of the monarchy in 1815, political power was in the hands of “financial aristocrats.” In the whole France only 300,000 people had the right to vote. After the February Revolution in 1848, under the pressure of the working class, the Second Republic declared universal suffrage. But in May 1850 to prevent the working class and the petty bourgeoisie from taking power, the constituent assembly abolished universal suffrage. Male universal suffrage was established in France not until the Third Republic and French women gained the right to vote until 1944. In Italy constituent monarchy was established in 1870. But Male universal suffrage was not realized until 1919 and Italian women gained the right to vote in

161

1945. Sweden had its first constitution as early as in 1814, but male universal suffrage did not come until the early 20th century (Yang Zugong and Gu Xinli, 58, 66-67). The political history of western capitalist countries shows that historically modern democracy was not a natural result of capitalist development. Instead it was achieved by the working class and other oppressed people only after long-term struggles against the capitalist oppressive system. In this sense, modern democracy is itself a result of class struggles. Thus, whether democracy can survive, and can be expanded and developed, must also depend on the concrete historical conditions of class struggles. Modern capitalist democracy, which is not more than an expression of the balance of power between different classes under certain historical conditions, is by no means the highest stage in the progress of democracy that we cannot go beyond. On the contrary, being the “democracy” which is more or less compatible with an oppressive social order, capitalist democracy can only be, in Lenin’s language, “incomplete and fragmentary democracy.”1 1

The “incomplete and fragmentary democracy” is to some extent reflected by the following facts. First, under modern capitalist democracy, the legislature is the only government department which is elected by people, while the executive and the judiciary are by and large organized according to bureaucratic principles. Secondly, under modern capitalist democracy, government officials, members of parliament, and judges usually enjoy different levels of material privilege. In his critique of modern parliamentary democracy, della Volpe (1979,54) cited what he called “the greatest living bourgeois jurist” Kelsen: “Legal independence of parliament from the people means that the principle of democracy is, to a certain extent, replaced by that of the division of labour. In order to conceal this shifting from one principle to the other, the fiction is used that parliament ‘represents’ the people.” Kelsen also provided a solution to the problem, based on the experience of the 1924 Soviet constitution: “[g]iven the impracticability of direct democracy in the large economically and culturally evolved States, the effort required to establish the most regular and close contact between the popular will and the necessary representatives of the people, the tendency to down near to direct rule, does not lead at once to a removal, nor even to a reduction, but rather to a overdevelopment of parliamentarism. The Soviet constitution . . . as against bourgeois representative democracy, shows this clearly. It replaces a single parliament . . . by a system of innumerable parliaments, set over each other, those soviets or councils, which are nothing but representative assemblies. But together with this extension of itself, parliamentarism is also intensified. From simple ‘meeting of chatterers,’ parliaments must become in the view of modern communism, working assemblies. This means

162

Dependent Development and Democracy Under capitalism which is by nature an oppressive social system, democracy can only exist withing very narrow limits. On the one hand, the political force of the oppressed people must be strong enough so that the ruling class has to accept some form of democracy. On the other hand, it must not be so strong that it can no longer be accommodated within the limit of the capitalist system. If this is the case, then under the conditions of dependent development, the limits within which democracy can exist are even narrower, and capitalist democracy is even more vulnerable. We know that dependent development is based on the exploitation of hundreds of millions of cheap labor. However, if we solely rely upon the autonomous adjustment of free market, it is difficult to keep the price of labor power low enough for dependent development for a long time. Only with political dictatorship, using coercive forces to systematically destroy the working class’s resistance, is it possible to maintain for a long time a large cheap labor force necessary for dependent development. As one American radical economist argued:

Both foreign capitalists and domestic capitalists regard strong dictatorship regimes as the best safeguard of political and economic stability. In many areas in the third world, workers become increasingly militant, and the public increasingly require better distribution of economic interests, and moreover they must not be limited to enacting laws . . . but must take responsibility for their enforcement, and direct the process of the creation of the juridical order right up to the realization of their rules. Is this not simply an attempt to democratize the administration rather than the legislation? The official appointed by the bureaucracy, that is autocratically, and who has the power, within the often very extensive area laid down by the law, of imposing his will on the citizens, would be replaced by the citizen himself, who thus would become subject, not object, of the administration. On the other hand, this would be accomplished not directly but through the mediation of elected representatives. To democratise the administration is above all simply to parliamentarize it.”

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revolutionary movements are taking shape or become more active. In this case political repression is usually the best way to keep labor docile and willing to work under the wage level which allows high profit for investment.

In core capitalist countries bourgeois democracy plays an important role in

legitimacy while does little harm to capitalist economic interests. But in peripheral capitalist countries democracy usually prevents capitalist accumulation ( Thomas E. Weisskopf, “Di Guo Zhu Yi He Di San Shi Jie De Jing Ji Fa Zhan (Imperialism and Economic Development in the Third World),” in Wilber).

In late 1980s and early 1990s the wave of the so called “democratization” swept a number of third world countries. Some liberal intellectuals take this as evidence, arguing: “the strong man politics or new authoritarianism cannot work . . . Time has changed. Now it is no longer 1930s, nor 1950s. Now the trend is democracy (JJXDT No.7 1993, 45).” In their opinion, capitalist development will inevitably bring about to the development of the private capitalist class and the middle class, whose strength will be increased overtime. After the private capitalist class and the middle class have acquired dominant economic positions, they must not be satisfied with their powerless political positions and will ask for corresponding dominant political positions, leading to democratization. In a dependent capitalist society, the private capitalist class and the middle class are privileged classes without political power. On the one hand, they want political positions corresponding to their social and economic positions, and want to share political power with the ruling class. In this sense, they are democratic forces. On the other hand, the two classes are privileged classes who have important interests in the existing social system, want to preserve the existing oppressive system, and thus are willing to support the ruling class when it represses the struggle of the oppressed people. In this sense, they are anti-democratic forces. Thus, whether capitalist development can lead to democratization depends on much more complicated conditions than the liberal intellectuals have imagined. Between the private capitalist class and the middle class, apparently the private capitalist class, due to its economic interest, under the conditions of dependent development, has much more stake in political dictatorship than the

164

middle class. Nevertheless, since in China and in many third world countries, the private capitalist class is not a major political and social force, in the following analysis, we will only discuss how different relations between the ruling class, the middle class, and the oppressed people have different impacts on political conditions in third world countries (see TABLE 5.1).

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TABLE 5.1 Political Conditions under Dependent Capitalist Development ------------------------------------------------------------------------------------------------------------------------------------------Oppressed People* Middle Class** Ruling Class*** Political Conditions Cases ------------------------------------------------------------------------------------------------------------------------------------------I Strong Strong Weak ?**** Chile under Unidad Popular; Former Soviet Union and Eastern Europe since late 1980s II Strong Weak Strong Capitalist Dictatorship China since 1979; Korea and Latin America before mid 1980s III Strong Weak Weak Socialist Revolution Russian revolution; Chinese revolution IV Weak Strong Strong ?**** China between 1911-1924 V Weak Strong Weak Capitalist Democracy Turkey since 1917; India since 1948; Taiwan, Korea and Latin America after mid 1980s VI Weak Weak Strong Capitalist Dictatorship Taiwan before mid 1980s; Indonesia; Africa(?) ------------------------------------------------------------------------------------------------------------------------------------------*The working class and peasants. **Or the alliance of the middle class and the private capitalist class. ***Usually the bureaucratic capitalist class, sometimes with the participation of the private capitalist class. ****Extreme political instability and chaos.

If the forces of the oppressed people are so strong that they threaten the normal progress of dependent capitalist accumulation, then the direction of social development, is primarily determined by the balance of power between the oppressed people and the ruling class. In this case, either the ruling class, with the aid of political dictatorship, destroys the resistance by the oppressed people (shown by case II in TABLE 5.1), or the oppressed people, by making revolution, overthrow the ruling class (shown by case III in TABLE 5.1). On the other hand, case I (in TABLE 5.1) must be a transitory situation. If the force of the oppressed people are so strong that normal capitalist accumulation is no longer possible, but they are not strong enough to determine the direction of social development by themselves, and on the other hand, the ruling class does not have the necessary ability to restore “order,” then we will have case I. In this case, the middle class will play a decisive role and social development is open to all directions, depending on concrete historical struggles. In former Soviet Union and Eastern Europe, the middle class support the transition to capitalism, but without rejecting democracy. As a result, normal capitalist accumulation cannot be undertaken and the economy collapses. This kind of situation certainly cannot sustain in the long run. In Chile in 1973, it was with the acquiescence of the middle class, that Pinochet made the coup d’etat and set up fascist regime. Thus, in case I, the attitude of the middle class is crucial. Historically, in this case, it is not unusual for the middle class to reject democracy in order to preserve the capitalist system, or to choose fascism instead of socialism. If the forces of the oppressed people are not strong enough to threaten dependent capitalist accumulation, the political conditions will be largely determined by the balance of power between the ruling class and the middle class. When the middle class is relatively

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stronger, and when the ruling class is no longer able to continue its rule without changing the political system, we will see “democratization” under capitalist conditions (shown by case V in TABLE 5.1). This is what we have seen in some third world countries in recent few years. In Taiwan, there has been successful capitalist development for several decades. The private capitalist class and the middle class become increasingly strong, and finally the ruling class has to accept “democracy,” giving up a part of political power. This is the classical model of bourgeois political reform. It is also the model of “democratization” desired by the liberal intellectuals. But this model does not apply to most countries in case V. In Latin America, “democratization” is not based on the success of capitalist development. Instead, Latin American capitalism was caught up in deep crisis in 1980s. The ruling class was on the verge of bankruptcy, losing much of legitimacy, and in this case, had to make some changes in the political system. But why did the crisis in Latin America lead to case V rather than case I or III? How did the forces of the oppressed people turn from “strong” to “weak”? If there were not twenty more years of military dictatorship, the forces of the oppressed people would not be substantially weakened. And if the forces of the oppressed people had not been substantially weakened, capitalism would not be able to overcome the crisis, and there would not be “democratization” within the limit of capitalism.2 It is safe to say that in Latin America without the past military dictatorship, there would not be today’s “democratization.” If this is the case, the newly born “democracy” must be very vulnerable and unreliable. Its conditions of survival are provided by the past military dictatorship and it cannot reproduce these conditions by itself. If these conditions have been lost, then what else can be done besides again resorting to military dictatorship? Therefore, “democracy” is not, as the liberal intellectuals said, an inherent “trend” of capitalist development. At best it is one of the six possible “cases.” Moreover, purely political “democracy” will help to solve none of the fundamental problems of the dependent capitalist society. Dependent capitalist accumulation must be based on the exploitation of cheap labor. With every dependent capitalist country competing with one another in the world market, each of them wants to depress the price of labor power in its own country as much as possible. And political repression provides a much more powerful way than free market to repress the price of labor power. Thus, “democratization” by itself has not eliminated and will not eliminate the danger of political repression. Instead, since this kind of “democratization” tries to preserve the 2

After the establishment of the military regime in September 1973, the Chilean working class immediately began to suffer from great hardship. “With their political representation abolished, and their leadership decapitated, they had no means to resist a drastic reduction in real wages. (This has variously been estimated at between 44 percent and 60 percent from 1972 to 1975 with a further decrease from an index of 100 in January 1975 to 77.5 in March 1976. From 1977 real wages more or less stabilized until the severe economic down turn of 1982.) Unemployment soared to levels never before reached in the country . . . with an official unemployment rate around 20 percent (Johnson, 1985, 187)

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capitalist oppressive system, it prepares the conditions for the future political repression and military dictatorship, or by doing so, it prepares the conditions for the future revolution.

The “Corruption” Problem and “Social Chaos” Some liberal intellectuals believe that without political democracy, China cannot develop capitalism: The political reform must proceed at the same pace as the economic reform . . . After the economic reform has reached certain stage, the political reform must keep up, otherwise further economic reform will be met with obstacles (JJXDT No.7 1993, 45). Some people refer to the “four dragons” as examples, thinking that purely economic reform is possible. But they fail to see that the “four dragons” have always been based on private property and market economy. Their system does not prevent their economic take-off. But the mainland China must first reform the economic system. In the transformation of the economic system, if there is not political democracy, and the government and its officials are not supervised by people and independent opinion, Guan Dao (“official speculation”--meaning rent-seeking activities) will not be checked, corruption will prevail, and social contradictions must be increasingly intensified, until getting out of hands. As British historian Acton said one hundred years ago: “power leads to corruption; absolute power leads to absolute corruption.” This is the iron law of history from which nobody can escape. The government without people’s supervision must be corrupted, and people will not tolerate corruption and Guan Dao. These are the roots and catalysis of social chaos (Xu Liangying).

Eliminating corruption does not mean doing away with oppression. In an oppressive society, corruption is not more than the violation of the rule of oppression. For the broad masses of the oppressed people, an oppressive society without corruption is no less an oppressive society. But can we imagine that in a society where the majority people are oppressed and exploited, the government can be effectively supervised by ordinary people? Can we imagine that a society which allows a group of minority people “legally” plunder the majority people, can effectively prevent some people from plundering without following the “legal” process of plundering? What makes our liberal intellectuals so lovely is that on the one hand, they want capitalism, and on the other hand, they do not want those evils necessarily associated with capitalism. No matter what political forms it takes, an oppressive society has no way to really solve the corruption problem. This is true not only under political dictatorship, but also under political democracy, as the Italian political scandals in 1993 suggest. The corruption of Italian politics has been for a long time known to everyone. But for it has never really hurt the ruling class. Now we find that actually the whole ruling elite has been deeply corrupted. We can see from the Italian case how effective “democracy” is in solving the corruption problem. The new authoritarians criticize the democrats, saying that the democrats are too naive, and premature democracy will lead to unchecked corruption and economic stagnation. The democrats criticize that the new authoritarians are caught up in illusions, and new authoritarianism will only lead to political corruption and economic decline. But let us look around the less developed capitalist countries in the world, no matter they are under political dictatorship or democracy, how many of them have successfully solve the corruption problem? Is there any way to solve the corruption problem? Yes. That is the “tyranny of majority” which makes the liberal intellectuals most scared. Only by resorting to the “majority”, can we really have some hope to solve the problem. And only by making revolution, overthrowing the

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oppressor class, and by greatly mobilizing the political enthusiasm of the broad masses of people, can we meaningfully talk about effective supervision of government. In the opinion of the liberal intellectuals, if the oppressors do not violate the rules of oppression, practicing “fair play,” the oppressed people will peacefully accept oppression, the “reform” thus can proceed smoothly, the social contradictions thus will not be “increasingly intensified,” nor “getting out of hands,” and the oppressive society will have no troubles. With corruption, or without corruption, capitalist development objectively requires the concentration of great amount of wealth in a small group of people who thus must plunder the majority. After the Independence War, Thomas Jefferson, seeing that a small group of people made great fortunes, while many petty producers were bankrupted and unemployed, criticize capitalism being “an automatic machine that turns the majority people into the poor (He Rubi and Yi Chengzhe, 207).” In response to capitalist primitive accumulation, in America there was the struggle between anti-federalists and federalists; and in Britain there was the struggle by “egalitarians” and “diggers” (Jue Di Pai). Anti-federalists, “egalitarians” and “diggers,” all represented the interest of the majority people, making struggles against capitalist oppression. For capitalism to develop, it must destroy these resistances. To do this, it must rely upon force, violence, political dictatorship, rather than democracy. For China to develop capitalism, it must follow the same logic. On the one hand, you want to plunder the masses of people. On the other hand, you want the masses of people to be plundered freely and democratically. How is this possible? The June 4 event, by repressing people’s resistance, prepared the political conditions for capitalist dependent development in China. However, capitalist dependent development is based on on the one hand, the cruel exploitation of China’s new proletariat, and on the other hand, the pauperization of the peasants. Thus, it is based on the pauperization of the majority Chinese people. On the other hand, in a country like China, which had made a socialist revolution, and where egalitarian ideas have been deeply rooted in people’s hearts, and where people no longer believe that exploitation and oppression are something that can be justified, something that are natural, and something that cannot be challenged, there is even less reason why working people shall accept and tolerate their exploited and oppressed conditions, and there is even less reason why they will not make all possible forms of struggles to bring changes to their conditions. These are the real “roots and catalysis of social chaos.” The new authoritarians realize that capitalist development in China, and especially dependent capitalist development, will by no means be like a plain sailing. Instead, it will inevitably be met with the opposition and resistance of the majority people, the opposition and resistance that have to overcome by force and political dictatorship. On this point, the new authoritarians have deeper insight than the democrats and they are also more honest. It is interesting to see that Mr. Du Gangjian,3 who had always claimed that he had no common ground at all with the new authoritarians , recently wrote an essay arguing: “political reform in China must move forward step by step. We cannot have too much expectation of a country where even rule of law has not yet been realized.” In the opinion of Mr. Du Gangjian, it is necessary to “distinguish liberty and democracy,” “the liberty problem should not be confused with the democracy problem.” In his opinion, new authoritarianism is wrong not because “it rejects democracy,” but because “it rejects not only democracy but also liberty.” Freedom without 3

Du Gangjian is a famous liberal intellectual, holding the position of associate professor in the law department of People’s University of China, one of China’s best universities in social science.

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democracy!--what kind of freedom is it?4 According to Mr. Du Gangjian, the liberal intellectuals are faced with a dilemma. “Theoretically we have only two alternatives--democracy or dictatorship. But in reality there is the need for constitutional politics.” Consequently, “we must choose either democracy or dictatorship.” However, of democracy, “we cannot have too much expectation;” if we choose dictatorship, “the result is economic backwardness, cultural poverty, and the degeneration of the people.” “The only way out is the third choice . . . let’s turn to another perspective--the commitment to liberty and human right, and the safeguard for liberty and human right is the core of constitutional politics (BIANYUAN, 10-12).” “Constitutional politics” without democracy? “Freedom and human right” without democracy? Is this anything but the new authoritarian “open-minded dictatorship?” It is not of Chinese people, but of capitalism, that “we cannot have too much expectation.” The development of a country, in the last analysis, depends on the enthusiasms and initiatives of the masses of people. In this respect, only in a democratic society, where the majority people have control over their own fate, can the great creative potential reserved in the masses of people be fully released. Democracy, as far as it is not used to cover up the contradictions of the oppressive societies, is by no means the obstacle to development, but the most powerful motive for development.

4

In Chinese “liberty” and “freedom” are translated into one word--Zi You.

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CHAPTER VI THE FUTURE OF THE CHINESE REVOLUTION

What are the lessons that we can draw from the failure of the 1989 revolution? First, the liberal intellectuals are completely unqualified for the leadership of the democratic struggle. Following them, Chinese working people would only achieve their own appropriation. Secondly, capitalism, as an oppressive social and economic system which is against the basic interest of the majority people, is by nature incompatible with democracy in the sense that democracy means the ordinary people’s power. In the Chinese context, this was true at the time of the 1989 revolution when the transition to capitalism was met with the tenacious resistance by the working class. This is also true today when the Chinese capitalist economy has to rely heavily on the “advantage” of cheap labor to compete in the world market, and a repressive political system is indispensable for keeping the labor cheap and docile. In this case, the struggle for democracy in China, if it is to be carried out to its logical end, must be at the same time the struggle for socialism. Thirdly, working people, who are oppressed and exploited, and thus cannot go beyond the narrow scope of their personal experience of life and reach a scientific and global view of society, cannot by themselves become an independent political force and win the struggle for liberation. In this case, to build up a revolutionary socialist intellectual force which is directed by a correct revolutionary theory and is prepared to join the struggle of working people against oppression and exploitation, is the primary condition for the future socialist revolution. The failure of the 1989 revolution cleared the political obstacle to capitalist development. The ruling class has passed the crisis stage, consolidated its ruling position, gained the support of international capital, and restored relationship with the major capitalist countries. The normal capitalist relations of production have been established in China and the economy has again entered a stage of rapid expansion.

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On the other hand, the liberal intellectuals have lost most of their political influence that they had before 1989. Their exiling party abroad has bankrupted and they do not have any organized political force in China. Without any significant social base, the very existence (or extinguishment) of the liberal opposition now depends much on the diplomatic game between the Chinese and the American ruling class. But all the social contradictions remain and are to be developed. As a social system, capitalism can exist only if it is more or less accepted by the majority people. However, under the conditions of dependent development, the Chinese capitalist economy can compete in the world market only by exploiting hundreds of millions of “cheap labor.” Thus, the Chinese capitalist economy can work only by pauperizing the majority people, that is, only by turning the majority people into the opposition of itself. To maintain capitalist accumulation, Chinese capitalism must destroy its own social base; and to preserve its own social base, Chinese capitalism cannot make successful capitalist accumulation. Chinese capitalism, which cannot maintain at the same time its economic rationality and social legitimacy, is thus faced with insolvable contradictions. True, Chinese capitalism is now in quite good shape. Capitalist accumulation has never been so strong, and the vigor of the rising Chinese capitalism may have no match in today’s world. The economy has rapidly expanded for more than one decade and seems to have no difficulty to expand as rapidly for another decade. The ruling class is looking forward to the future with confidence and it seems that the century old nationalist dream of “being rich and strong” is being realized. But all of these by no means suggest that the capitalist system is freed from its inherent contradictions and the capitalist economy can move forward smoothly forever. On the contrary, “stable economic growth” under capitalism is contradiction in term. From Marxist point of view, the capitalist economy is by nature irrational and selfcontradictory. collapse.

The very success of capitalist accumulation prepares the conditions for its

Here we cannot make detail discussion of the Marxist theory of capitalist

accumulation. Let us simply point out that according to Marxist theory, capitalist accumulation

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suffers from following inherent contradictions. First, under relentless competition, capitalists have to constantly raise labor productivity by replacing labor with capital. According to Marxist theory, this leads to the rising organic composition of capital (the ratio of constant capital to variable capital, or the ratio of the value of means of production to the value of labor power). Since surplus value (profit) is created by variable capital rather than constant capital, the rising organic composition of capital sooner or later will lead to the falling profit rate. In conventional statistics this is reflected by the longterm tendency of rising capital-output ratio (for detail discussions of the tendency of rising capital-output ratio under capitalist technological progress, see appendix of this chapter). 1 In Marx’s words, if the profit rate falls below certain point, “the vital flame of production would be

1

In Maddison’s most recent book on world economic history, he provided following empirical evidence which gave strong support to the Marxist theory of falling rate of profit. If we look at the ratio of gross non-residential capital stock to GDP of major capitalist countries, in the United States, it rose from 0.95 in 1820 to 3.30 in 1913, then fell to 2.12 in 1973, then rose again to 2.43 in 1992; in the United Kingdom, it rose from 0.68 in 1820 to 0.84 in 1913, and to 1.82 in 1992; in Japan, it rose from 0.71 in 1890 to 1.77 in 1950, and to 3.02 in 1992. For France, Germany, and Netherlands, there is no pre WWII data, but for the postwar period all of the three countries show clear tendencies of rising capital-output ratio (Maddison, 1995, 36). Why does capitalist technological progress tend to be labor-saving and capital-consuming technologies (laborsaving technologies are usually capital-consuming technologies, for to save the input of labor, more advanced and more sophisticated machines must be used)? The following is a tentative explanation. As a result of capitalist development real wage tends to inrease substantially in the long run. If there is a long-term tendency for real wage to rise, capitalists who expect the increase of real wage, will have an incentive to reduce the share of labor cost in the total cost as much as possible (for the “real prices” of means of production never change). Therefore, other things being equal, capitalists will favor labor-saving and capital-consuming technologies againt other technologies (e.g. capital-saving technologies), and in the long run capitalist technological progress tend to lead to rising capitaloutput ratio.

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altogether extinguished.”

It would die out. The rate of profit is the motive power of capitalist production. Things are produced only so long as they can be produced with a profit . . . What worries Ricardo is the fact that the rate of profit, the stimulating principle of capitalist production, the fundamental premise and driving force of accumulation, should be endangered by the development of production itself (Marx, 1967, 259).

To reverse the trend of falling rate of profit, the capitalist class must manage to substantially increase the rate of surplus value. However, it is exactly as a result of the rapid expansion of the capitalist economy, the strength of the working class is increased not only quantitatively but also qualitatively. By absorbing an increasingly large number of labor force, capitalist accumulation gradually exhausts the reserve army of labor composed of unemployed population. The shrinking of the reserve army of labor intensifies the competition between the capitalists and reduce the pressure of competition on the workers. The balance of power is thus changed in favor of the working class and against the capitalist class. At the same time, capitalist development leads to increasing concentration of capital, and consequently, the workers become more concentrated and organized and their class consciousness and militancy are developed proportionately. The increase of the strength of the working class effectively prevents the increase of the rate of surplus value. It is exactly because the capitalist system has no way to free itself from these contradictions, any long-term expansion of the capitalist economy sooner or later will be replaced by long-term depressions. The world capitalist economy has repetitively fallen into long-term depressions for every few decades. In the long-term depression, all of the economic and social contradictions of the capitalist system are greatly intensified, opening the possibility of fundamental social changes. According to Mandel (1995) there is no way for the capitalist economy, with its purely “economic” mechanisms, to move out of the long-term depression

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automatically. For the capitalist system to survive the long-term depression, there must be a substantial increase of the profit rate, which requires a substantial increase of the rate of surplus value. But a fundament change in the rate of surplus value involves major political and social struggles, and there is no ex ante guarantee whether the capitalist system can survive these struggles or not.2

2

According to Mandel, the great depression of 1873-1893 was ended by a sudden upsurge of the profit rate after 1893 which can be largely explained by the imperialist conquest in late 19th century. With Africa, the Middle East, East Asia, and China taken into colonial empires or semicolonial spheres of influence, there were a qualitative growth of capital exports to underdeveloped countries and a substantial decline in the relative prices of raw materials. Both helped to bring about the upsurge of the profit rate. The competition between imperialist powers, however, finally led to the first world war and the victory of the Russian Revolution. On the other hand, the great depression in 1930s ended up with the rise of fascism and the second world war after which there were the victory of the Chinese Revolution and the establishment of socialist regimes in Eastern Europe. The world capitalist system, nevertheless, entered a new stage of long-term expansion based on a great upsurge of the profit rate after the war, the upsurge which in Mandel’s opinion, must be explained by the historic defeat of the working class in developed capitalist countries under fascism and the Cold War regime. In Western Europe and Japan, the rate of surplus value was increased from 100% to 300%, and in United States there was a more modest but no less significant increase (Mandel, 1995, 17-18). After early 1970s the world capitalist economy has again fallen into long-term decline. The latest long-term decline has already brought about great sufferings to the working people in most capitalist countries. In United States, the average real weekly earnings in private nonagricultural industries fell from $300 in 1969 to $264.22 in 1990 (in 1982 dollars, Monthly Review, December 1994, 5). In Western Europe, working people are suffering from permanent large scale unemployment. In some Latin American countries real wage for industrial workers fell by 20-60 percent in 1980s (Mandel, 1995, 159). However, the rise of East Asian capitalism, and especially that of Chinese capitalism which brings hundreds of millions of cheap labor into the world capitalist system, may have played an important role in stabilizing the world average profit rate by substantially raising

the world average rate of surplus value.

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What are the implications for Chinese capitalist development? From Marxist point of view, the current rapid expansion of the Chinese capitalist economy must be explained by the exceptionally high profit rate which is based on the one hand on the exploitation of hundreds of millions of “cheap labor,” and on the other hand on the imports of advanced technologies and capital goods. However, as we have seen, capitalist accumulation, under its own inherent logic, leads to the falling rate of profit. Sooner or later the profit rate will fall to a level where capitalist accumulation can no longer be normally carried out. Besides the contradictions from which all capitalist economies suffer, Chinese capitalism is also burdened with the contradictions which are particular to Chinese capitalism. First, as what is argued in Chapter IV, Chinese capitalist economic development is by nature dependent development which is based on the imports of foreign technologies and capital goods. China is able to finance these imports for China has a competitive exporting sector which is largely based on the advantage

of cheap labor.

Nevertheless, the historical tendency of capitalist

technological progress is to replace labor with capital, and thus increasingly weakens and even eliminates the importance of cheap labor, put the long-term sustainability of dependent development into serious question. Secondly, for capitalist accumulation to be undertaken, surplus value must not only be produced, but also be realized. However, dependent capitalist development is based on the exploitation of hundred of millions of cheap labor, and is thus based on the pauperization of the majority people. The increase of the purchasing power of the majority people thus cannot keep up with the expansion of the economy. As long as China is able to rapidly expand its exports in the world market, a relatively narrow domestic market will not set a serious limit to capitalist accumulation. But given a slowly growing world economy, China’s rapid growth of exports sooner or later will come to an end, and the Chinese capitalist economy will be faced with an increasingly serious “realization” problem which may become an insurmountable obstacle to further capitalist accumulation. All of these contradictions set an absolute limit to Chinese capitalist development. While

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we cannot predict accurately the date on which Chinese capitalism will fall into a major crisis, based on the historical experience of world capitalism, it is safe to say that it will not take more than two or three decades before the turning point comes. After this point, Chinese capitalism will enter a stage of long-term decline, in which all of the social and economic contradictions will be greatly intensified.

Whether Chinese capitalism can survive the long-term decline

depends on the concrete result of major political and social struggles. In this respect following elements will have decisive impacts on the final outcome of the struggles. First, unlike the developed capitalist societies, Chinese capitalism is supported by an explicitly repressive political system. In this case, the Chinese ruling class cannot claim as strong a legitimacy as the ruling classes in the developed capitalist countries, leaving itself extremely vulnerable when there are major political and social crises. Secondly, unlike the developed capitalist societies, Chinese capitalism which is based on the exploitation of hundred of millions of cheap labor, does not have much space to make class compromise and to alleviate class contradictions, for example, by introducing some kind of welfare state. In this case, the contradictions between the ruling class and the oppressed people will be manifested at its full scale, and thus must be solved throughly and completely, leaving little space for the reformist solution. Thirdly, different from most of the less developed capitalist countries, China is a country that has experienced a socialist revolution. The consciousness and the spiritual conditions of Chinese working people are thus incomparable to those of the working people in the countries that have not experienced such a revolution.

For Chinese working people, exploitation,

oppression, and domination are no longer unalterable principles. Instead they have seen with their own eyes how the world could be changed if the oppressed people would rise up, making rebellion and striking the oppressors down to the ground. The rights that working people have won by the revolution, must not be taken away by the ruling class without serious struggles. If these rights have been lost, as soon as the working people have gained the necessary force, they will not hesitate at all before rising up and striking the ruling class again down to the ground, and

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will not hesitate at all to restore, expand, and develop these rights. When we consider the future of the Chinese revolution, there is no reason for pessimism. The capitalist social system which is based on the exploitation and oppression of the majority people, is by nature irrational and full of contradictions. It is capitalist development itself, under its own inherent logic, that paves the way for social crisis and social revolution. On the other hand, Chinese working people, who had made a great socialist revolution, will by no means stand the present oppressive system for a long time. We have reason to believe that the next Chinese socialist revolution will not be a matter of distant future and it is the duty of our generation to make the coming great struggle. We can confidently predict, as Marx predicted after the failure of the 1848 revolution, “[a] new revolution is possible only in consequence of a new crisis. It is, however, just as certain as this crisis . . . (Marx, 1977, 297)”

The Liberal Intellectuals on Market, Democracy, and Revolution Who are qualified to solve the problems of the Chinese society? It seems that the liberal intellectuals are the first to be qualified. For they are the “official opposition (in the sense that it is recognized by all the western ruling classes),” the “only” opposition, the symbol of democracy, and the successor of the Crown. So what is the liberal intellectuals’ programme for social transformation? The liberal intellectuals said: With the deprivation of private property and economic freedom, market is closed, privileges are established, laziness is protected, and creativity is suppressed, bringing about universal poverty and backwardness. The rich countries are turned into poor countries, and the poor countries are even poorer. There is only one way out: market economy, plus democratic politics (BIANYUAN, 5).

Why do people live in poverty? According to the liberal intellectuals, this is not a result of class oppression, but a result of the revolution. The revolution takes away “private property

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and economic freedom,” and thus brings about “universal poverty and backwardness.” The remedy to this problem is “market economy, plus democratic politics.” For the liberal intellectuals, nothing is wrong with the “market economy” (capitalism) itself, and the problem lies in the lack of “democratic politics.” As long as there is “democratic politics,” even if not all the problems of a capitalist society can be easily solved, these problems in no case go out of hand. Can democratic politics help to solve the contradictions of a capitalist society? If democratic politics is turned into a weapon in the hands of the oppressed people, who in turn use this weapon to overthrow the entire capitalist social order, then democratic politics is certainly a solution to the contradictions of a capitalist society. But I guess this is not what is intended by the liberal intellectuals. Why is “democratic politics” to be added to the “market economy?” The liberal intellectuals said: “it is the natural logic of capitalism that leads to political democracy, for economic freedom cannot be consolidated without political freedom . . . property right and free market needs political safeguards, otherwise they may be trodden underfoot by the rulers who abuse power (BIANYUAN, 4-5).” Thus, for the liberal intellectuals, “democratic politics” is not more than the “political safeguard” of “property right and free market.” But is not it true that the “property right” of the capitalist class is exactly based on the pauperization of the majority people? If this is the case, is not it true that to safeguard “property right” is no less than to exercise political oppression over the majority people? This contradiction is sensed by the liberal intellectuals, who perceive that the complete development of democratic politics would inevitably endanger “property right.” For this reason, they worry that “democratic politics may set free the desire of mobs, degenerate into anarchy, and finally end with tyranny. Therefore, after prevailing over the tyranny of single person, the democratic politics is faced with the threat of a new type of tyranny, the tyranny of the majority, especially the tyranny of the moral majority (BIANYUAN, 6).” What is the “tyranny of the majority?” It does not make any sense by abstractly talking about the “tyranny of the majority.” To understand the nature of the “tyranny of the majority,” we must understand who is the

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“majority,” who is the “minority,” and what is the relationship between the “majority” and the “minority.” When the majority is being oppressed by the minority, and when the minority is exercising the “tyranny of the minority,” the “tyranny of the majority” could be nothing more than the rebellion of the oppressed people against the rule of the oppressors. To call it “tyranny,” is to say that it is against the will of the oppressors; to call it the “tyranny of the majority,” is to say that it is in the will of the oppressed people. Thus, to say that democratic politics is faced with the threat of the tyranny of the majority, is to say that the capitalist system is faced with the threat of democratic politics. For democracy, when its essence is concerned, and when it means giving power to the majority people who are under oppression, is incompatible with capitalism. It is on this point that the liberal intellectuals have shown some honest and scientific attitudes. “Market economy, plus democratic politics,” in practice, means promising people bourgeois civil rights.

There are some liberal intellectuals who are concerned with the

undisguised exploitation of the rising capitalism and the miserable conditions of working people. However, they cannot believe that this derives from the nature of the capitalist system and is indispensable for capitalist development. Instead, with good wishes, they want “humanization of competition,” and think that within the limit of a bourgeois society, workers can strive for a better term of bargaining. However, these “kind people” fail to see that the term of bargaining between capital and labor is determined not only by the balance of power between the proletariat and the capital within a particular nation, but increasingly by the balance of power between the world proletariat and the world capital. On the one hand, capital all over the world has been united. On the other hand, the proletarians of different nations continue to fight for their interest separately and thus defeated separately.

Now European workers have found that it is

increasingly difficult for them to preserve the “welfare state.” The recent debate on the “human right” problem between Southeast Asian countries and the U.S. also tells us what is going on: less developed capitalist countries, by exploiting their “cost advantage” in poor labor right, are able to somehow offset the technological advantage of developed capitalist countries, and thus

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put the labor right in developed capitalist countries into question. Of course we should and must struggle for establishing laws more favorable to working people. We cannot hope that these laws can do much in the “humanization of competition.” Nevertheless, these laws will help us to understand following facts. First, if these laws are not implemented, then these laws are not more than a heap of waste paper. Second, if these laws are really implemented, then China will be faced with great difficulty in the competition in the world market, capital will flow out, capitalist accumulation will stop, and the capitalist system will be faced with serious problems The solution to concrete problems must be found in concrete, historical conditions. Those social programmes that simply come out of imagination serves no use. For the urban working class, to preserve the social rights that they won by revolution, they must not be satisfied with these rights themselves. They can no longer expect the ruling class to grant them these rights. Consequently, they must grant themselves these rights by themselves. If the state ownership, i.e. the ruling class ownership, is not turned into the working class ownership, how is this possible? For the new proletariat, even the guarantee of eight-hour working day, the guarantee of the right to rest in holidays, and the guarantee that profit is no longer made at the cost of their lives, in the eyes of capital, are seen as terrible threats, and thus even these minimum bourgeois civil rights, cannot be achieved without endangering the capitalist property system. For the peasant class, any fundamental improvement of their standard of living, threatens to paralyze capitalist accumulation which is based on the pauperization of the majority people. Then if the power over social accumulation is not transferred from capital to working people, how can the condition of the peasants be fundamentally improved?

Finally, for the utterly destitute, if we do not

expropriate the one million millionaires, how can we save the one hundred million people from the abject poverty? Therefore, for the oppressed people there is only one solution to these problems. That is, revolution. The liberal intellectuals say that the revolution deprived people of their “private property and economic freedom.” The liberal intellectuals forget that before the revolution the majority people did not have any “private property and economic freedom.” They also forget that if there

187

had not been “universal poverty and backwardness,” then there would not have been any revolution.

The liberal intellectuals say that as a result of the revolution, “creativity is

suppressed . . . The rich countries are turned into poor countries, and the poor countries are even poorer.” But the fact is exactly the contrary. In his most recent work which is considered to have provided “the most comprehensive database available for comparative, quantitative analysis of the economic performance of nations,” Maddison (1995) provided the latest measures of real gross domestic product (GDP) based on purchasing power parity for 199 countries between 1820 and 1992. Although in Maddison’s book, the economic growth rates of some former socialist countries are substantially underestimated, his data provides strong proof that the former socialist countries, despite the many social and economic defects from which they suffered, did have made great achievements in economic development.

TABLE 6.1 Index of GDP per capita, 1950-1989 -----------------------------------------------------------------------------------------------------------------1950

1960

1970

1980

1989

Growth rates (%)*

-----------------------------------------------------------------------------------------------------------------All Capitalist Countries

100

128

174

208

227

2.13

All Capitalist LDCs

100

127

172

222

240

2.27

Latin America

100

128

178

235

233

2.20

Eastern Europe

100

141

198

238

256

2.44

China

100

143

178

238

----

2.93

Southern Europe and

-----------------------------------------------------------------------------------------------------------------*Referring to average annual growth rates from 1950-1989, for China it is from 1950-1980. Source: Calculated on the data from Maddison (1985). “All Capitalist Countries” includes all 199

188

countries except “Eastern Europe” and “China.” “All Capitalist LDCs” includes all countries of “Southern Europe,” “Latin America,” “Asia & Oceania,” and “Africa” except China and Japan. “Eastern Europe” includes USSR.

TABLE 6.1 shows that even if we include the period of 1980-1989 when Eastern European socialism was in the stage of final collapse, both Eastern Europe and China had higher growth rates of GDP per capita than either the average of all capitalist countries or the average of all capitalist less developed countries. Moreover, Eastern Europe had higher growth rates than the average of Southern Europe and Latin America, the two regions that had a level of development similar to Eastern Europe in 1950. In oppressive societies, the majority people are oppressed physically and spiritually, being deprived of the right to manifest their creative potential and to enjoy the fruits of their creation. This is the most important and most fundamental reason for which social creativity is suppressed. Bourgeois scholars certainly cannot understand this. Even when a revolution is not able to complete the entire cause of the struggle for the liberation of the oppressed people, it nonetheless makes “the black hands that used to hold a plough now holding a tablet,” 3 it turns “the earth up-side-down,” and it provides the majority people the chance to have control over their own fate. By doing this, it is enough to wipe out the dejected and apathetic mood that prevails among the people in oppressive societies. Such a society will certainly have the vitality and creativity far greater than those societies that have not experienced revolution, and have remained “normal” oppressive societies.

3

This sentence is from an ancient Chinese poem referring to the situation when the peasant rebellion army conquered the capital of the Tang dynasty (now the Xian city) and established their own regime. Here “tablet” refers to the tablet held before the breast by officials when received in audience by the emperor.

189

As Arjun Makhijani argued:

Thus, some of the reasons for the success of socialism were never appreciated. For example, there is considerable evidence that the economic development under socialism derived partly from their redistributive aspects . . . Redistribution gave that hope of better living conditions to hundreds of millions of people living in grinding poverty who were suppressed under prior regimes whenever they tried to get ahead or get a bigger share of society’s production. A substantial portion of the growth that occurred in production and consumption of essentials derived basically from the energy which redistribution gave to the poor and the investment of labor time which they made as a result (Makhijani, 1992, 64).

Thus, the revolution alone could be turned into the greatest productive forces. But the development of productive forces, by itself, does not tell us whether and to what extent it serves the interest of the majority people, whether the development of productive forces is at the expense of or provides conditions for the physical and mental development of the ordinary working people. It is in this respect that socialist development proves to be by nature superior to capitalist development. When the conditions of physical and mental development of the majority people are concerned, as Arjun Makhijani said, “on the basis of infant mortality, life expectancy, food supply and safer water the ‘winner’ between capitalism and socialism seems clear--socialism (Makhijani, 1992, 76).” See TABLE 6.2.

190

TABLE 6.2 A Comparison of Capitalist and Socialist Economies, 1975 -----------------------------------------------------------------------------------------------------------------Capitalist

Socialist

------------------------------------OECD Third World

Total

------------------------------Eastern Europe

China

-----------------------------------------------------------------------------------------------------------------Life Expectancy (in Years)

70

55

60

70

65

25

130

100

30

60

Food Calories per Person 3,100

2,100

2,400

3,200

2,200

50

65

80-90

N/A

Infant Mortality (Deaths per 1,000) Daily Supply of

Safe Water Supply (Percent of People)

90

-----------------------------------------------------------------------------------------------------------------Source: Makhijani (1992, 75).

True, the revolution, which has promised people liberation, ends with the substitution of one form of oppression for another. For the liberal intellectuals, the revolution is thus not more than a fraud, a nightmare, a dirty game in which the commitment and the lives of millions of people are sacrificed for the private power and glory of a few people. Therefore, the oppressed people are oppressed because they rebel against the oppression. This is the logic of the liberal intellectuals and this the reason for which the oppressed people must accept their fate of being oppressed. But for us, the fact that the revolution is stained by the revolution itself, simply means that the revolution must not be satisfied with the achievements that have already been made, and must go beyond itself, to reach a higher a stage. Otherwise it will not be able to

191

preserve the achievements that it has already made. As British historian E. H. Carl said:

The danger is not that we shall draw a veil over the enormous blots on the record of the Revolution, over its cost in human suffering, over the crimes committed in its name. The danger is that we shall be tempted to forget altogether, and to pass over in silence, its immense achievement (taken from Meisner, 1986, 440).

The oppressed people have no reason to regret for having made a revolution, and have even less reason to fear a revolution. True, the oppressed people repetitively rise up, only to be repetitively repressed by the oppressors. This is the history for all previous time. This historical phenomena has been referred to by some people as evidence that oppression is naturally rational and will always exist. These people have ignored that the result of all practical struggles, are determined not by academic debates and arguments, but by these struggles themselves.

The dilemma of the

oppressive society is that it can never free itself from its opposite, from the rebellion of the majority people against itself, and thus has to always put itself into question, and consequently can never prove itself to be naturally rational and to be able to exist forever.

192

CHAPTER VII MARKET, PLANNING, AND SOCIALIST REVOLUTION

Can a socialist planned economy work? For Marxism there is too much stake in this question. It is well known that for Marx a socialist society must be based on a planned economy with production for social use value rather than exchange value.

For under the modern

socialized production, only with a planned economy, can human beings have conscious control over productive forces, social relations, and thus their own lives, and consequently can they be liberated from any form of oppression, exploitation, and alienation. The question appears to be a technical problem. That is, the answer to the question depends on whether we are able to conceive some kind of technical model which shows that the socialist planned economy has the technical ability to solve modern economic problems with a reasonable efficiency. In fact, it has been treated as no more than a technical problem not only by bourgeois economists and market socialists but also by many Marxists who have involved in the controversy. On the other hand, if we accept the conclusion of bourgeois economists and market socialists that a market economy is indispensable for any modern society, we would have to agree that some form of oppression and exploitation is indispensable for human civilization, not historically, but as long as human civilization exists. In fact, in the sense that the market, according to its own inherent logic, leads to capitalist development, this is no less than saying that the prevailing capitalist system, with all of its illness and injustice, is the best of all possible worlds that we can have. Thus, the question--can a socialist planned economy work--which has so much social and political implications, is certainly much more than a technical problem. In its essence, it is more a “socio-historic” problem than a technical problem. Therefore, if the question is to be answered, it must not be answered simply in a “technical” way, but has to be answered socially and historically.

195

Related to this question, is the question why the socialist revolutions failed in the former Soviet Union, China, and Eastern Europe. We are told that the 20th century socialist revolutions failed because the socialist planned economies had failed. And their failure suggests that the socialist planned economy cannot work. It is true that the economic system of the former socialist countries failed to survive. It is also true that their economies were more or less “socialist” planned economies. But these facts by themselves do not tell us why the socialist revolutions failed and the former socialist economies failed to survive. Nor can we draw any conclusion simply from these facts on whether the socialist planned economy can work or not. Indeed to say that the economic performance of the former socialist countries was a sheer failure simply contradicts historical fact. According to a latest study on the international comparison of income and wealth (Maddison, 1995), in which the economic performance of the former socialist countries could only be underestimated, from 1950-1980, the GDP per capita in Eastern Europe (including the Soviet Union) had increased by 138 percent. In the same period it had increased in China by the same degree. This means that per capita income in the former socialist countries had grown at a rate of doubling for every quarter of century. While this is by no means a miraculous speed, it is anything but an economic failure. By comparison, in the same period, the GDP per capita for all other countries in the world had increased by 108 percent. Also in the same period, the GDP per capita of South European and Latin American countries which had roughly the same level of development as Eastern Europe in 1950 had in average increased by 135 percent, and that of Asian and African countries which had similar level of development to that of China in 1950 had in average increased by 112 percent (see TABLE 7.1). How can we maintain that an economic system that had in average made at least no less rapid economic development than the capitalist system does not work while arguing that the capitalist system is the most efficient and rational economic system in this world?

196

TABLE 7.1 Index of GDP per Capita, 1950-1989 -----------------------------------------------------------------------------------------------------------------1950 1960 1970 1980 1989

Average Annual Growth Rates(%) 1950-1980

1950-1989

---------------------------------------------------------------------------------------------------------------------1950 = 100: Eastern Europe

100

141

198

238

256

2.93

2.44

China

100

143

178

238

/

2.93

/

100

128

174

208

227

2.47

2.13

Latin America

100

128

178

235

233

2.88

2.19

Asia, Africa, and Oceania*

100

125

166

212

248

2.53

2.35

All Other Countries in the World in which: Southern Europe and

Southern Europe and Latin America = 100: Eastern Europe

112

123

124

114

123

91

85

90

/

Asia, Africa, and Oceania* = 100: China

80

---------------------------------------------------------------------------------------------------------------------*Including all Asian, African, and Oceanian countries except China, Japan, Australia, and New Zealand. Source: Calculated on the data from Table A-3(a), A-3(e), B-10(a), B-10(e), F-5, F-6, F-7 in Maddison (1995).

If the economic system of the former socialist countries did work, and had made no less

197

respectable economic performance than the capitalist system, the question whether the socialist planned economy can work has immediately got a different nature. It seems that the problem does not really lie in the lack of a technical model that can work in the real world. History has provided one as we have seen in the former socialist countries, though by no means a perfect one. Moreover it seems that the entire academic economics world, according to its presently dominant way of thinking, simply cannot understand and explain the relative success of the former socialist economies. Consequently nor can they really understand the subsequent failure of these economies. On the other hand, if we use some Marxist intuition, it is not difficult to see that the problem cannot be solved simply in a “technical” or “economic” way, and it cannot be really understood without analyzing the historically changing social relations in the former socialist countries.

A Critique of Market Socialism While for Marx market is by no means identical with capitalism, he did maintain that market relations prevail only in capitalist society.1 In fact, in Marx's opinion, the embryo of all elements of capitalist alienation can be found in the most “pure” market economy--simple commodity production. The very fact that under the market system, social productive forces appear to people "not as their own united power, but as an alien force existing outside them, of the origin and goal of which they are ignorant, which they thus cannot control..." (Marx, 1978a, 161) implies the possibility for the "division of labor" to evolve into "the division of capital and labor", i.e., the separation of labor from means of production. Therefore, a crucial dilemma of market socialism is how one can remove or at least effectively check market's inherent tendency

1

On prevails

only

when

Marx's labor

(1978,146-202).

198

idea

becomes

that free

commodity wage

labor,

production see

Cohen

to evolve into capitalism without substantially weakening the economic mechanism upon which the development of productive forces relies in the context of market system. To prevent a market socialist society from evolving into capitalism, there are mainly three methods: (1)forbidding the buying and selling of capital and labor; (2)levying progressive taxes on income and wealth to restrict social inequality within certain limit; and (3)state ownership of all or most means of production.

Forbidding the Buying and Selling of Capital and Labor Any modern economic system that is able to work must be capable of constantly reallocating social labor (live labor and materialized labor, i.e., in capitalist terms, labor and capital) so that supply and demand are kept in balance in each branch of production. Under the market system, however, except when means of production are owned by the state, as will be discussed below, the only way in which social labor can be transferred from one branch of production to another is by buying and selling capital and labor. Thus, how can a market economy work if buying and selling capital and labor has been forbidden?

Levying Progressive Taxes on Income and Wealth to Restrict Social Inequality within Certain Limit In this case, buying and selling capital and labor is allowed. In a market economy, however, one makes investment only to make profit, and one can sell his or her labor to others only when it produces profit for others. Thus, under a market economy, for buying and selling labor to work, the conditions are virtually the same as that in a capitalist society. That is, a certain level of profit rate must be secured to encourage investment, and the social welfare system must not give the unemployed population so much security that they are not willing to sell their labor power at a “reasonable” wage rate that allows investors to make profit. In this case, it is difficult to see how progressive taxes under market socialism can play a significantly different role than under capitalism. If it can not, then how can it effectively prevent market

199

socialism from turning into capitalism?

State Ownership of All or Most Means of Production If all or most means of production are owned by the state, the problem of reallocating social labor can simply be solved by state investment, and thus the problem of buying and selling capital and labor is avoided. Under the state ownership, enterprises can be run by either stateappointed managers2 or workers' collectivities.3 In both cases, as Brus and Laski (1989) argued, this model is faced with the principal-agent problem--while state-appointed managers or workers' collectivities are entrusted by the state to run enterprises, if enterprises fail, who bears the responsibility for the loss of the state property? There is a solution to the problem. If under socialism, the interest of the society is no longer at odds with the common interest of working people, then why do not workers make responsible use of the state property if they know this will improve their common interest? We will make detail discussions on this point below. Here let us simply point out that for people to make responsible use of social property, it presupposes the production for society. How can people make responsible use of socially owned means of production when they produce for private appropriation and when the production is based on antagonistic competition between private producers? John E.Roemer (1994), on the other hand, tried to solve the dilemma of market socialism by making it more like capitalism. In his "coupon socialism", every citizen is given a certain amount of coupons. The total value of coupons is equal to the total value of means of production 2

This is actually the present system of Chinese state-owned enterprises. In this case, it is not more than a state capitalist system.

3

This

is

exactly

Schweickart's

market

socialist

model--a

combination of social ownership of means of production and workers' self management of independent enterprises in market. See Schweickart (1993).

200

in the society. People can use their coupons to buy corporation shares. But they are not allowed to exchange coupons for money, and after their death their coupons must be returned to the society to be equally distributed among all citizens. "Coupon socialist" enterprises are believed to be able to run efficiently for they run exactly like capitalist corporations, based on wage labor and pursuing maximum profit. It is supposed that social polarization could be prevented by forbidding people from exchanging money for coupons. However, the corporations, the shares of which people use their coupons to buy, may fail in competition. If some corporations fail, then some people would lose their coupons, while some others, who own the corporations that take over the failed corporations, would have more coupons. Thus, forbidding the exchange between money and coupons by itself cannot prevent social polarization, even if it would work. How about another check against the tendency of social polarization--coupons cannot be inherited and must be returned to society after the death of coupons' owners to be equally distributed among all social members? First, capitalist economic efficiency is based on its ability to impose capitalist work discipline on workers. Capitalist enterprises are able to impose this discipline only because workers who have lost any access to means of production have to sell their labor power. While "coupon socialist" enterprises run exactly like capitalist enterprises, workers in "coupon socialism" are guaranteed some access to means of production. For example, unemployed workers can use their coupons to buy a company to employ themselves. Then, how can "coupon socialist" enterprises impose capitalist-style work discipline on workers? If it cannot, how can it work? Second, if the only thing that prevents "coupon socialism" from evolving into capitalism is simply an article of law that denies the right to inherit coupons, why cannot the rich minority who have controlled the most of the coupons, use their economic power to influence the legislation process, abolishing this article. Furthermore, if coupons cannot be inherited, why do coupon owners make responsible use of their coupons in their late years? What prevent them from making over-risky and irrational investments? "Coupon socialism" cannot escape the dilemma of market socialism, though it is almost indistinguishable from capitalism.

201

The Information Problem, the Motivation Problem, and the Socialist Social Relations According to bourgeois economists and market socialists the socialist planned economy cannot work because it is not able to solve the information problem. What is the information problem? For any modern economy to work, it must be able to collect and process enormous amount of information. In a market economy, this enormous amount of information is dealt with simultaneously by millions of individual producers. It is argued that if a market economy is to be replaced by a planned economy, the central planning authority must have the ability to collect and process this enormous amount of information which is previously collected and processed by millions of individual producers. The problem is not only with the “calculating” ability of the central planning authority. More importantly a large part of economic information exists in a fragmented and disperse way and can be collected and utilized only if it is simultaneously dealt with by large number of individuals. Unable to collect and utilize a large part of the economic information, the central planning authority cannot make rational economic calculations, and the planned economy thus cannot work.4

4

Roemer (1994, 44) argued that the failure of the former socialist economies was primarily due to their failure to make as rapid technological progress as the capitalist economies, and

this

problem

independent

of

(or

the

the

innovation

information

principal-agent problem).

problem)

problem

(what

was he

a

problem

called

the

But to me, the innovation problem is

not more than a particular form of the information problem.

If

the central planning authority knows all the relevant information, it certainly can order the producer to make the right innovation with the right input and within the right period of time.

202

On the

Before we analyze the information problem, let us first explain what is a planned economy. A planned economy is not an economy where everything is planned or everything is determined by the central planning authority. A planned economy is an economy in which all (or most) of the means of production are socially owned and all (or most) of the social products are directly produced for social needs rather than for exchange value and private appropriation. Given social property and the direct production for social needs, in a planned economy, it is possible for the producers to actively cooperate with one another and make use of all available techniques to coordinate their economic activities with different levels of economic planning. If this is the case, why cannot the planned economy solve the information problem? If the central planning authority, or the highest level of producers’ association, is not able to handle all relevant economic information. It can simply deal with the information that it is able to collect and process and let lower levels of producers’ associations to deal with other information, while balancing against the possible disadvantages of lowering the level of coordination. For the lower levels of producers’ associations, they can make lower levels of economic decisions based on the information available to them, and leave the economic problems they are not able to handle to the producers’ associations at lower levels or to producers--workers’ collectivities. And large number of lower levels of producers’ associations and workers’ collectivities, just like large number of enterprises in the market economy, are able to deal with enormous amount of fragmented and disperse economic information. In this way, a planned economy is able to collect and process at least no less information than a market economy.

other hand, it may be true that since innovation involves more uncertainty

and

risk,

and

requires

more

flexibility,

it

is

especially difficult for the central planning authority to collect the relevant information and to make rational decisions associated with innovation activities and the innovation problem provides one of the most striking examples of the information problem.

203

But the planned economy provides a superior way to utilize economic information. The modern socialized production objectively requires cooperation and coordination between many different producers. But in a market economy where private producers make economic decisions independently and separately, there is no ex ante coordination of economic activities and the coordination is realized afterwards through economic crises involving great losses of productive forces.5 On the other hand, in a planned economy, as far as the relevant information is available, it is possible to coordinate the economic activities of many different producers under unified economic planning, and thus avoid or reduce the waste of economic resources associated with the lack of ex ante coordination. This certainly does not mean that under a planned economy, the central planning authority is able to plan everything. But it does mean that with a planned economy, society will be able to make use of all available techniques to realize as much economic coordination as possible, while balancing against the cost of collecting and processing information.

This provides the potential to greatly improve the overall rationality of the

economy, the potential that a market economy is unable to exploit. Thus, a planned economy is able to not only handle as much information as a market economy, but also utilize the available

5

In

modern

capitalist

economies,

to

reduce

the

market

uncertainty which reflects the lack of coordination between private producers, an increasingly large part of the economic resources have been

invested

by

private

capitalist

companies

into

various

non-

productive activities, such as marketing, advertisement, and R & D activities associated with market research and sales promotion.

In

modern capitalist societies, this may be no less important a form of economic irrationality than explicit economic crises.

According to

Shaikh and Tonak (1994, 110) the rate of nonproduction labor to the total labor in the U.S. had increased from 0.43 in 1948 to 0.64 in 1987, suggesting a great waste of the social labor force.

204

information in a much more rational way than a market economy. However, the problem is not yet solved. Bourgeois economists and market socialists ask: why do the lower levels of producers’ associations and workers’ collectivities actively collect economic information and use it in a economically rational way, what is the motivation for them to do so? This is the motivation problem. Apparently, the information problem cannot be really solved if we are unable to solve the motivation problem. Under a socialist planned economy, all producers directly produce for society, and the total social products are distributed to satisfy people’s material and spiritual needs according to democratically determined rules. This raises a question: if in a socialist society, it is from the “social interest”--the total social products--that derive people’s individual material and spiritual interests, why cannot the social interest serve as an effective motivation for people, who pursue their individual material and spiritual interests, to pursue economic rationality, that is, to actively collect economic information and make rational use of it? Why is the socialist planned economy based on the production for the social interest? While the modern socialized production objectively requires cooperation and coordination between many different producers, in a market economy where every producer pursues his or her own interest, they are motivated to compete and struggle against rather than cooperate with one another.

The motivation provided by the market is thus against the logic of the modern

socialized production. This problem can be solved only if producers directly produce for the interest of society rather than private appropriation.

Thus, under the modern socialized

production, the production for the social interest is an economically much more rational way for people to pursue their material and spiritual interests. In this sense, the social interest is by itself a real material interest, as Marx (1978, 160) said: “this common interest does not exist merely in the imagination, as the ‘general interest,’ but first of all in reality, as the mutual interdependence of the individuals among whom the labour is divided.” In Grundrisse Marx (1971, 65) also argued that under the modern socialized production, “private interest is itself already a socially determined interest, which can only be achieved within the conditions established by society and

205

through the means that society affords.” If under the modern socialized production, the social interest is by itself a real material interest, and is the precondition for the realization of all kinds of individual interests, why do not people work and produce for the social interest, and why cannot the social interest be an effective motivation for people to pursue economic rationality? For bourgeois economists and market socialists this is certainly not the end of the debate. In their opinion, the production for the social interest will fail due to the “free rider” problem. That is, for any production based on social or collective property, since an individual’s wellbeing depends not directly on the particular effort of his or her own effort, but on the combined effort of all the workers in the collectivity or society, there is no incentive for any particular individual to work effectively and rationally. But the logic of the “free rider” argument is selfdefeating. It is exactly because an individual’s well being depends not on his or her own effort, but on the combined effort of all the workers in the collectivity or society, for individuals to improve their well-being, the proper strategy is a strategy based not on individual choice, but on collective choice. The question is not for any particular individual what is the best strategy for him or her to improve his or her own interest, for whether his or her strategy works depends on the behavior of other individuals, but for all the workers in the collectivity or society, what is the best strategy for them to improve their combined interest. Apparently, if everyone adopts the “free rider” strategy, which is supposed to be the individually optimal strategy, everyone will suffer. The “free rider” strategy is thus against the interest of individuals. If this is the case, why do people who are supposed to be rational beings pursuing their individual interests, adopt the “free rider” strategy rather than a collectively or socially optimal strategy? The capitalist market system is supposed to be freed from the “free rider” problem. Of course, the capitalist system provides effective motivation for the capitalists to pursue their private profits. But what motivation does the capitalist system provide to the workers who have no control over the production and are exploited and oppressed by the capitalists? What is the motivation for the workers who actually carry out the production, to actively collect economic

206

information and make rational use of it? Without effective motivation, all the workers in the capitalist economy are potential “free riders” and for the capitalist economy to work, a great deal of “transaction cost” has to be paid to deal with the “free rider” problem. For example, a significant part of the social labor force has to be unemployed to exercise competitive pressure on the employed workers who otherwise will be too “lazy.” Moreover, a significant part of the employed workers must serve as supervisory workers to enforce labor discipline rather than participate in production.6 This suggests that the “free rider” problem, rather than being associated with collective or social property, is actually rooted in the oppressive and exploitative social relations. Being oppressed and exploited, working people do not have incentive to pursue economic rationality and to be “free riders” provides a rational choice for them to improve their living conditions. If this is the case, the socialist system, by abolishing all kinds of oppression and exploitation, certainly provides a much better way than the capitalist system to solve the “free rider” problem. For the same reason, the question whether people will work for the social interest cannot be correctly answered unless we first consider what kind of social relations is under concern. Under the oppressive society, the interest of the society is not more than the interest of the oppressor class. In this case, working people certainly have no reason to work for the so called “social interest.” On the other hand, in a socialist society where working people have control over social and economic power, and the interest of the society is not more than the common interest of working people, why do not working people work for the social interest, which is also their own interest? The whole argument now boils down to the following points: is it true that in a socialist

6

For example, the ratio of supervisory workers to production workers in the U.S. nonagricultural labor force increased from 13.7 percent in 1948 to 20.8 percent in 1973, and to 22.4 percent in 1979 (Bowles, Gordon, and Weisskopf, 1983, 130).

207

society, to work for the social interest is in the interest of working people? If yes, why do not working people work for the social interest in a socialist society, and therefore, why cannot the social interest be an effective motivation for working people to pursue economic rationality? The anwers to these questions are quite obvious. A question is thus raised: how can the question whether a socialist planned economy can provide effective motivation for people to pursue economic rationality become a question in the first place, given the obvious fact that under the modern socialized production the most rational way for people to realize their material and spiritual interests is to produce directly for society, and that under the socialist social relations, the interest of society is no longer at odds with the interest of working people? On this question the Marxist point of view starts from a self-evident fact that people’s material and spiritual needs provide the ultimate motivation for productive activities and the pursuit of economic rationality throughout the entire human history. The establishment of the socialist social relations certainly will not abolish this ultimate motivation. On the contrary, by abolishing all kinds of oppression and exploitation, the socialist society opens the way for the majority people to work and produce for the interest of their own rather than that of the oppressors and exploiters. From this point of view, the socialist economic system certainly provides a much stronger motivation for the majority people to pursue economic rationality than the capitalist system and any other oppressive systems, and whether a socialist economy can provide effective motivation for people to pursue economic rationality is simply out of question. On the other hand, bourgeois economists and market socialists start from the assumption that people pursue economic rationality only when they work and produce for their private interests. It is from this assumption that the question derives--how can a society which is based on the production for society rather than private appropriation provides effective motivation for people to pursue economic rationality? But if people pursue economic rationality because they want to realize their material and spiritual interests, why does it matter that these interests take the form of the social interest or their private interests, as long as these interests are indeed their

208

own interests? The goods and services produced directly for society certainly provide no less satisfaction of people’s material and spirtitual needs than the goods and services produced for private appropriation.

Thus, unlike Marxist point of departure, the point of departure of

bourgeois economists and market socialists is not a self-evident fact, but a problematic assumption that cannot hold water without being proved.

However, rather than providing

scientific proofs for their assumption, bourgeois economists and market socialists treat their assumption as if it were indeed a self-evident fact, take it for granted, and confidently draw all of their arguments from this assumption, including the argument that the socialist planned economy cannot provide effective economic motivation and thus cannot work. It should be pointed out that not few Marxists have failed to challenge bourgeois economists and market socialists on this point. Consequently their efforts to defend the socialist planned economy (usually by inventing various technical models) have always ended in vain. For if we accept the point of departure of bourgeois economists and market socialists and agree that people can only be motivated by their private interests, the only way to solve the motivation problem is to set up various “supervisory mechnisms.” But for the planning authority to be able to exercise effective supervision, it must be able to collect and process enough relevant information and as we know, the planning authority is not able to do this by itself, and instead, it has to rely upon producers and other institutions who are under its supervision to provide the necessary information, who certainly have an incentive to distort the information. In this case, the motivation problem simply has no way to be solved. On the other hand, if we go beyond the narrow scope of bourgeois economists and market socialists, we will immediately find that what makes the motivation problem a problem is not more than the following fact: by abolishing private property and the market system, the socialist system also abolishes the economic motivation based on the pursuit of private appropriation. However, it is exactly by doing so, the socialist system also abolishes the oppression and exploitation of the majority people, and thus provides a much stronger motivation for the majority people to pursue economic rationality than the oppressive systems. Moreover, by

209

establishing society’s control over production, and by producing directly for the social interest, the socialist system opens the way for people to actively cooperate with each other and to pursue the social interest, allowing making full use of the great productive potential of the modern socialized production. Thus, on the one hand, the establishment of the socialist social relations makes it impossible for the motivatin problem to be solved in a way compatible with the capitalist or any other forms of oppression and exploitation, and on the other hand, it is exactly for this reason that it opens the possibility for the problem to be solved in a socialist way, in a way consistent with the liberation and free development of the majority people. The motivation problem is thus solved. And with the motivation problem solved, there is no reason why the information problem cannot be solved. With both the information problem and the motivation problem solved, there is no reason why the socialist planned economy cannot work. Thus, the problem has been logically solved. But for the logic to work, the socialist social relations must be established. However, the establishment of the socialist social relations depends on real historical struggles. It is these struggles rather than academic arguments that will provide the real historical solution to the question whether a socialist planned economy can work.

A Note on Alec Nove’s Critique of the Socialist Planned Economy In the opinion of Alec Nove, however, the establishment of the socialist social relations does not make much difference. The division between the rulers and the ruled is inevitable in every society. In socialist society, people will still work for their private interests rather than the social interest, not really different from that in capitalist society. It is sometimes argued by Marxist `fundamentalists' that the basic problem [of Soviet planning] lie in alienation, in the conflicts of interest between workers, management and centre; all would be well if they all identified with a common interest...Yet this line of thought contains or implies several fallacies...[It is not appreciated] that the marketless planning model is of necessity centralized (how can a purely local

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body decide what society needs and how best to provide it?), and it is precisely the vast and complex scale of operations of central planning which is a major cause of this very alienation. `Unless one is prepared to accept that the structure of regulation in interconnected production is objectively hierarchical, then the whole problem of socialist democracy can only be raised in an agitational way', wrote Baran, without, unfortunately, drawing from this the conclusions that suggest themselves. Finally, it is implied that a society can or could exist in which there would be no conflict between sectors, and between sectors and centre, not to mention individuals, over the allocation of resources. This essentially utopian part of the Marxist tradition rests, and can only rest, on a vision of abundance. There must surely be conflicts, as any materialist would here to admit, unless there is plenty for all, i.e. when the concept of opportunitycost, of choice between mutually exclusive alternatives, loses its meaning (Nove, 1980).

First, it is true that economic planning, and in fact, any administration of public affairs, is "of necessity centralized. And in the sense that these affairs are "public", that is, they go beyond the narrow individual or local visions, they can be regarded as "objectively hierarchical". But how is this related to "alienation", to the division of society into the ruling class and the oppressed class? Any society must have some people managing its public affairs. This, by itself, tells us nothing why society is divided into classes. For a group of people to become a ruling class, it is not only necessary for the public affairs to be managed by them, but also necessary for the management of the public affairs to be exclusively controlled by them, allowing them to systematically make use of their positions to serve their private interests rather than the public interest. This is possible, as is well known by Marxists, as long as there is the division of mental labor and physical labor, which excludes the majority of the population from participating in scientific and artistic activities, and from participating in the management of public affairs. The socialist society, on the other hand, by rationally making use of modern productive forces, will be able to gradually abolish the division of mental labor and physical labor, eliminating the material foundation of the class oppression. Second, Nove argued that "it is precisely the vast and complex scale of operations of

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central planning which is a major cause of this alienation." But the "vast and complex scale of operations", does not tell us how these operations are organized. In class societies, the administration of public affairs must be kept out of the control of people. As a result, it is organized as a large, complex bureaucratic structure that can make "vast and complex scale of operations" without involving people's participation. In a socialist society, on the other hand, there is no need to keep the public affairs out of people's control. Instead, the socialist management of public affairs is based on the extensive participation of ordinary people. Consequently, there is no need to set up a large, complex bureaucratic structure. How will "the vast and complex scale of operations" be organized in a socialist society? As Marx told us, they will be organized by "free association of individuals". In The Civil War in France, Marx, based on the experience of Paris Commune, made a concrete explanation of how the "free association of individuals" would work.

The Paris Commune was, of course, to serve a model to all the great industrial centres of France. The communal regime once established in Paris and the secondary centres, the old centralized Government would in the provinces, too, have to give way to the self-government of the producers. In a rough sketch of national organization which the commune had no time to develop, it states clearly that the commune was to be the political form of even the smallest country hamlet...The rural communes of every district were to administer their common affairs by an assembly of delegates in the central town, and these district assemblies were again to send deputies to the National Delegation in Paris, each delegate to be at any time revocable and bound by the mandat imperatif (formal instructions) of his constituents. The few but important functions which still would remain for a central government were not to be suppressed...but were to be discharged by communal, and therefore strictly responsible agents (Marx, 1978b, 632).

Thus, socialist society will be based on the extensive participation of ordinary people in public affairs. As a result, the problem of "the vast and complex scale of operations" can simply be solved by a kind of division of labor. All local affairs will be subjected to the direct self-

212

government of local people. A dozen of such localities will freely form an association in which an administration which is composed of delegates of these localities, who are subjected to the recall and formal instructions of their constituents, will be set up to administer their common affairs. A dozen of such associations of localities will in turn freely form a larger association organized in the same way to administer their common affairs at a higher level...so and so forth. As a result, every level of administration (including the central government) will be left with "few but important functions" corresponding to its level rather than "the vast and complex scale of operations" and thus every level of administration can be effectively controlled by the people whose common affairs it administers. Nove, however, told us that even if in a socialist society, people could have effective control over their public affairs, it would still be impossible for people to work for the social interest. For people's individual interests are always in conflict with one another "unless there is plenty for all, i.e. when the concept of opportunity-cost, of choice between mutually exclusive alternatives, loses its meaning." This "vision of abundance" was called by Nove as an "utopian part of the Marxist tradition". There can be no more vulgar distortion of Marxism. Socialism must be based on highly developed productive forces (which are prepared by capitalist development). Only with highly developed productive forces, is it possible to substantially reduce general working time, preparing the material condition for working people to freely develop their physical and mental potential and to participate in administering public affairs. But this has nothing to do with that "the concept of opportunity-cost...loses its meaning" or the so called "abundance" as understood by Nove.7 Abstractly speaking, people's individual interests

7

Rattansi (1982,185) argued that the substantial reduction of general working time was impossible as long as there was "scarcity" which, however, would not disappear so long as "technological innovation and economic growth" do not stop. "[T]he development of productive capacities generates new needs. Thus,

213

are always in conflict with one another. What is consumed by one cannot be consumed by the other. However, before anything can be consumed, it must be produced. But under modern conditions, is it true that virtually everything has to be produced by more or less social cooperation? If this is the case, then is it true that modern production will be most productive when people actively cooperate with rather than compete against one another? If this is the case, is it true that people's individual interests will be best satisfied if they cooperatively produce for the social interest rather than compete with one another for their private interests? If all of these are true, then why do not people who are supposed to be rational beings pursuing the maximization of their individual interests work for the social interest?

while

some

scarcities

are

abolished,

others

are

continually

engendered...Nevertheless, unless all technological innovation and economic growth stop it is difficult to see how scarcity as such can be abolished, a possibility that appears even more remote in the

context

of

a

potential

crisis

in

the

world's

natural

resources." Rattansi had forgotten one important thing, that "new needs" not only include the needs for the material products, but also include the needs for the development of men themselves. In a socialist society, it is completely imaginable that the increase of the productivity of social labor would be partly converted into the improvement of material life, and partly be converted into the increase of free time. If the productivity of social labor keeps growing, there will be a continuous increase of free time. In fact, it is very unreasonable to assume the contrary case, that people in socialist society would demand that all the increase of the productivity is converted into material improvements.

214

On Innovation While the innovation problem is in essence not more than the information problem and the motivation problem, it deserves particular consideration due to its importance. In fact, Roemer (1994, 37-45) argued that it was the innovation problem that had played a decisive role in the failure of centrally planned economies. Why cannot the planned economy make enough innovation? In the first place, there is the motivation problem--why do people innovate? In a capitalist society, how is the motivation problem solved? On the one hand, capitalists innovate in order to acquire super profit. On the other hand, under the pressure of competition, capitalists have to innovate to avoid failure. Thus, in a capitalist society, there are both "positive" and "negative" incentives for capitalist to innovate. To say that in a capitalist society, capitalists have incentives to innovate in no way means that capitalism is a system that is most conducive to social innovation. First, due to the antagonistic nature of the capitalist production, capitalist technological progress, rather than bringing benefit to workers, usually intensifies their sufferings and alienation. Thus, while capitalists do have incentives to innovate, their projects of innovations are often met with the resistance of workers, and there is no way for capitalists to introduce innovation without first overcoming workers' resistance. Second, while capitalists do have incentives to innovate, it is exactly the same incentives that prevents the socially rational use of innovation. From society's point of view, technological knowledge can be most rationally used only if all social members have free access to the knowledge. In the capitalist society, however, capitalists make innovation to serve their private interests. Thus, they have incentives to innovate exactly because other people do not have free access to their innovation which is regarded as their private property. Otherwise, how can capitalists make super profit? Third, to say that capitalists have incentives to innovate, tells nothing about what kind of innovation capitalists are interested in. Capitalists innovate for private profits rather than social interests. Capitalists do not have incentives to make socially useful innovation if it does not bring about profit, e.g. the innovation that improves

215

ecological conditions, or the innovation that can make labor process less alienating and more interesting. On the other hand, capitalists do have incentives to make the innovation that is socially harmful but can bring about profit, e.g. the transportation system based on private cars, which is perhaps the most expensive as well as the most ecologically harmful modern transportation system, is one of the most important innovations of the 20th century capitalism. Fourth, for a society to make full use of its innovative potential, it must allow all social members to freely develop their mental potential and participate in all kinds of innovation. But in the capitalist society the majority of the population--working people have no chance to develop their mental potential and participate in innovation due to the capitalist exploitation and oppression. Instead, innovation is restricted to be the affairs of a small group of "entrepreneurs”. Thus, under capitalism, the greatest part of the society's innovative potential is wasted. How can a socialist planned economy solve the motivation problem? In Roemer's opinion, "without the competition that is provided by markets--both domestic and international-no business enterprise is forced to innovate, and without the motivation of competition, innovation, at least at the rate that market economies engender, does not occur (Roemer, 1994, 44).” But does the society need innovation? If it does, why must it be forced to innovate? Why cannot this social need itself be a motivation for the society to innovate? Of course, by abolishing the capitalist economic system, the socialist planned economy also abolishes the capitalist motivation for innovation. But by abolishing the capitalist motivation for innovation-the pursuit of private profit, the socialist planned economy also abolishes capitalist motivation to exploit and oppress working people, liberating the greatest innovative potential in the society; by abolishing the capitalist motivation for innovation, the socialist planned economy also abolishes those innovations that, while bringing profit to capitalists, will not do any good to society, and opens the way to all socially useful innovations; by abolishing the capitalist motivation for innovation, the socialist planned economy also abolishes the capitalist motivation to prevent the free access of all social members to all technological knowledge. While the socialist planned economy abolishes the capitalist motivation for innovation, by establishing the social ownership

216

of means of production, and by abolishing the class oppression, it also provides the socialist motivation for innovation. If in a socialist society, people will self-consciously work for the social interest, and innovation does bring about social benefit, why do not people actively make innovation? Moreover, in a socialist society, it is not a small group of "entrepreneurs” but all working people who will actively innovate. The motivation problem, however, is not the only problem that, in the opinion of bourgeois economists and market socialists, leads to the failure of the planned economy in the field of innovation. There is also the principal-agent problem (Brus and Laski, 1989, 132-149; Stiglitz, 1994). Innovation is by nature risky and associated with many uncertainties. In a planned economy, anyone who makes innovation does not risk his own property. On the other hand, it is exactly because there are many uncertainties associated with the innovation, it is virtually impossible for the planning authority to distinguish objectively unavoidable losses from those losses brought about by bad decision-making. Thus, it is not able to use punishment to effectively prevent bad mistakes. This argument presupposes that in the planned economy people will not self-consciously make responsible use of social resources invested for innovation for there is not their own property at stake. But if in a socialist society, the interest of the society is not more than the common interest of all individuals, and thus social property is not more than the material condition for people to promote their individual interests, why do not people make responsible use of social property? Brus and Laski (1989, 142), however, argued that "even with the appropriate socialist motivation the problem of entrepreneurship may remain unresolvable without anchoring responsibility for losses in personal stakes...it is not so much the degree of personal competence, dedication, motivation, and taste for innovations, as the conditions forcing a principal to weigh the risks against responsibilities in a real world of uncertainty." Brus and Laski seemed to argue that "anchoring responsibility for losses in personal stakes", as the condition "forcing a principal to weigh the risks against responsibilities", is an indispensable condition for the rational decision-making on risky investment.

217

What does risky investment (innovation is a kind of risky investment) mean? While in all cases rational investment means making full use of available knowledge to make maximum output out of minimum input, "risk" or "uncertainty" means that certain knowledge is not available. How can one make rational decision if certain knowledge is not available? In this case, to make rational decision is not more than to make a good guess. Apparently, whether one can make a good guess does not depend at all on whether his or her personal property is at stake (this, on the contrary, will lead him to make decisions on "emotional" basis rather than rational basis), but on one's experience, good intuition, the knowledge that one can make use of but cannot tell, etc. In this respect, a socialist planned economy is most likely to ensure that the responsibilities of decision-making on risky investment are entrusted to those who are most likely to make a good guess. It is in the capitalist society where risky investment is made of private property, the ability of which to make risky investment, is limited by its scale, that investors have to weigh the risk against their property. This, rather than being indispensable for the rational decision-making on risky investment, set a limit to the possibility of applying economically rational principles in risky investment. The socialist planned economy, by abolishing capitalist private property, also abolishes this limit. Of course, in a socialist planned economy, some risky projects of great importance should still be subjected to society's consideration which weighs the risks against possible losses of social property. In this case, the fact that these projects are of great importance itself means that it will not be difficult for the planning authority to evaluate the impact on society if these projects fail.

The Experience of Revolutionary China Will people work for the social interest? Can the socialist economy work? In this section, I will focus on the experience of revolutionary China to see how Chinese revolutionary socialists and the Chinese working people had made practical struggles to build socialist social relations

218

and the socialist planned economy. What achievements had they made in their struggles? Why did their struggles fail in the end? What lessons can we draw from their failure?

Bureaucratization, Revolutionary Politics, and Economic Planning When Chinese Communist Party came to power in 1949, what they inherited from Kuomintang regime was an extremely backward, "semi-colonial, semi-feudal" economy with very limited modern industry. Thus, the new revolutionary regime was immediately faced with the task to restore and develop productive forces as soon as possible. The question is how to develop productive forces. By abolishing capitalist ownership of means of production, and by concentrating most modern means of production in the hands of the state, it was possible for the revolutionary regime to pursue the rational allocation of productive resources in the society-wide by undertaking economic planning. Socialist economic planning, as we have seen, must be based on "the self-government of producers", which requires extensive participation of ordinary working people in economic management, and thus presupposes the elimination of the division of physical labor and mental labor. China, however, was not yet prepared in this respect for socialist economic planning. It was estimated that in Shanghai, the most advanced industrial city in China, immediately after it was taken over by communists, the illiteracy rate of all employees (including clerks and white collar workers) was 46 percent, and that of blue-collar workers was 80 percent (Andors, 1977, 48). This had some important consequences. First, without "the self-government of producers", large, complex bureaucratic structures were set up in response to the expansion of economic planning, and the state and party administration were quickly bureaucratized. Second, to administer these bureaucratic structures, many people who came from bourgeois or intellectual families but had the knowledge and expertise indispensable for economic management were recruited into the party. These people, however, joined the party not because they had revolutionary ideals, but because the party was an access to power. Third, bureaucratic planning relied upon material incentives to motivate cadres and workers. After the wage reform in 1956,

219

the egalitarian "supply system" practiced in the era of revolutionary war was replaced by hierarchical wage and bonus system. Thus, in late 1950s, a bureaucratic class enjoying certain material privileges gradually took shape. 8 On the other hand, it is very wrong to regard China's economic planning in this period simply as bureaucratic planning. While the bureaucratic class was taking shape, there were still millions of revolutionary cadres working in the state and party administration. 9 As long as a large part of the regime's power remained in the hands of these revolutionary cadres, the regime would remain largely a revolutionary socialist regime. This would inevitably have a decisive impact on the performance of economic planning. From 1953-1957, that is, in the period of first five-year plan, China's national income grew at an average annual rate of 8.9 percent, with industry and agriculture growing annually at 18 percent and 4.5 percent accordingly. Western estimation gave a bit lower rates. Bergerson estimated that the growth rate of China's GDP in this period was 8.3 percent, and Chao estimated that China's industrial growth rate in this period was 14.4 percent, 8

On the development of bureaucratization in China's first five-year plan, see Meisner (1986, 125-130).

9

Meisner (1986, 129), in his book on the history of People's Republic of China, made a vivid description about how these Maoist revolutionary cadres were like. "Ideally, the cadre is a selfless person imbued

with

the

proper

revolutionary

values

and

committed

to

the

achievement of revolutionary goals...a person who faithfully carries out party policy yet does so with independence and initiative, a person who submits to the discipline of the party organization but at the same time is intimately tied to the masses...The communist revolution owed its success in large measure to the fact that there were indeed many such Party cadres who more or less measured up to this Maoist ideal of revolutionary leadership."

220

still placing China one of the countries that had the highest industrial growth rate in the world (Riskin, 1987, 58; Chao, 1960). How could the revolutionary nature of the political power influence the performance of economic planning? As we have known, for a planned economy to work rationally, it must be able to solve the information problem and the motivation problem. Both problems can be solved if people will self-consciously work for the social interest. If the political power was to a large extent in the hands of revolutionary socialists, then the interest of the society would be in large measure consistent with the interest of working people, thus providing certain objective foundation for people to work for the social interest. On the other hand, if there were millions of revolutionary cadres and workers "who faithfully [carry] out party policy yet does so with independence and initiative" (see footnote 27), many practical problems in planned economy requiring decentralized initiatives could be easily solved. Moreover, these revolutionary cadres and workers would act as powerful models inspiring many other people to work for the social interest. All of these would remain the case only if the political power remained in large measure a revolutionary socialist power. This, however, as we have seen, was threatened by the rising bureaucratic class. Whether the revolutionary regime was able to resist the tendency of bureaucratization and retain its revolutionary nature would depend on practical struggles.

Maoist Political Economy and the Great Leap Forward In late 1950s, Mao began to pay attention to the contradictions of bureaucratic planning. In his critique of Stalinist political economy, he argued that:

The book says that material incentive to labor "spurs increases in production" and "is one of the decisive factors in stimulating the development of production"...By making material incentive a onesided absolute the text fails to give due importance to raising consciousness, and can not explain why there are differences among the labor of people in the same pay scale. For example, in scale no.5, one group may carry on very well, another rather poorly, and a third tolerably well on the whole. Why, with similar

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material incentive, such differences occur is inexplicable according to their way of reasoning. Even if the importance of material incentive is recognized, it is never the sole principle. There is always another principle, namely, spiritual inspiration from political ideology. And, while we are on the subject, material incentive can not simply be discussed as individual interest. There is also the collective interest to which individual interest should be subordinated, long-term interests to which temporary interests should be subordinated, and the interests of the whole to which the partial interests should be subordinated (Mao, 1977b, 83).

In Mao's opinion, bureaucratic planning onesidedly depends on material incentive to motivate people--it does not work. The potential of the socialist planned economy can be fully released only if we are able to raise people's consciousness, and if people will self-consciously work for the social interest rather than their narrow individual interests. Mao was very correct on these points. Yet why does bureaucratic planning fail to raise people's consciousness? Mao said:

In our experience, if cadres do not set aside their pretensions and identify with the workers, the workers will never look on the factory as their own but as the cadres...If manual workers and enterprise leaders are both members of a unified production collective then "why do socialist enterprises have to put `single leadership' into effect rather than leadership under collective guidance" i.e., the system of factory head responsibility under party committee guidance? It is when politics is weakened that there is no choice but to talk about material incentive (Mao, 1977b, 86)

It was very correct for Mao to point out that "It is when politics is weakened that there is no choice but to talk about material incentive". But what was wrong with the "politics"? Mao recognized that for workers to work for the social interest, there must be egalitarian social relations and workers' participation in management. On the other hand, Mao still thought that the problem could be solved by reviving revolutionary spirit in the party and by putting technocrats under the supervision of the communist party which was still regarded as a revolutionary party.

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The ideas of Maoist political economy were put into effect in the Great Leap Forward. First, to solve the problem of bureaucratization, the planning system was substantially decentralized. Second, material incentive was criticized and in many factories, piece-rate wage and bonuses were abolished. Third, workers were encouraged to participate in factory management (Andors, 1977, 68-96). There were some merits in the efforts of the Great Leap Forward. For example, under bureaucratic planning, material incentive is supposed to encourage people to work for the social interest. In reality, however, there cannot be "perfect" or "scientific" incentive systems. As a result, rather than encouraging people to work for the social interest, material incentive often encourages people to act against the social interest. Say, a plan based on physical output encourages people to maximize cost to maximize output. Obviously, this problem can be solved only if material incentive itself has been abolished. To abolish material incentive, however, presupposes that people will self-consciously work for social interest. This, as has been argued, is possible only if the interest of the society is no longer at odds with the interest of working people. The existence of material incentive, thus, was not the cause of the problem, but the result of real social conditions. That is, a significant part of social power was not in the hands of revolutionaries but in the hands of newly shaped bureaucratic class. The Great Leap Forward, however, tried to solve the problem not by dealing with the cause of the problem--the social power of the bureaucratic class, but by abolishing the result of the problem. Of course, it could not work.10

10

Workers'

participation

in

management

in

the

Great

Leap

Forward was largely limited at work team level. On the other hand, administrative bureaucratic

decentralization

power.

Instead,

by

could

not

doing

away

by with

itself the

eliminate

coordination

mechanism indispensable for bureaucratic planning without at the same time

constructing

new

coordination

223

mechanism

based

on

new

social

The Cultural Revolution and Its Lessons After the failure of the Great Leap Forward, Mao recognized that the problem could no longer be solved within existing power structures. In 1965, he thought that a bureaucratic class had already taken shape in post-revolutionary China. "The bureaucratic class is a class in sharp opposition to the working class and the poor and lower-middle peasants. How can these people have become or in the process of becoming bourgeois elements sucking the blood of the workers be properly recognized? These people are the objectives of the struggle, the objectives of the revolution (taken from Meisner, 1986, 271)." While he later retreated from this point, arguing that the objective of the revolution was "those people in position of authority within the party who take the capitalist road", it is clear that for Mao at this time the problem could only be solved by a struggle over political power. In 1966, Mao launched the Cultural Revolution. In the opinion of Mao and his comrades, the main target of the Cultural Revolution was "those within the party who are in authority and are taking the capitalist road (CCP, 1968, 395405).” That is, a large part of social power was no longer in the hands of revolutionaries, but in the hands of "capitalist roaders". The revolutionary force, thus, must struggle with the "capitalist roaders", seizing back power. Mao and his comrades also correctly pointed out that "[i]n the Great Proletarian Cultural Revolution, the only method is for the masses to liberate themselves, and any method of doing things in their stead must not be used (CCP, 1968, 398)." Moreover, the Cultural Revolution would not only overthrow the old bureaucratic power, but also replace it with a new people's power.

[The] cultural revolutionary groups, committees and congresses...are organs of power of the proletarian cultural revolution...It is necessary to institute a system of general elections, like that of the Paris Commune, for electing members to cultural revolutionary groups and committees and delegates to the cultural revolutionary congresses. The lists of candidates should be put forward by the revolutionary

relations, it could only lead to economic chaos.

224

masses after full discussion, and the elections should be held after the masses have discussed the lists over and over again. The masses are entitled at any time to criticize members of the cultural revolutionary groups and committees and delegates elected to the cultural revolutionary congresses. If these members or delegates prove incompetence, they can be replaced through election or recalled by the masses after discussion (CCP, 1968, 401).

On the other hand, the Cultural Revolution suffered form serious theoretical and practical weaknesses. Theoretically, Mao and his comrades failed to make a scientific analysis of the postrevolutionary Chinese society. First, rather than pointing out that the whole bureaucratic class was the target of the revolution (though Mao once thought so on the eve of the Cultural Revolution), the Cultural Revolution was targeted at a small group of "capitalist roaders", while "95 percent of the cadres" were still regarded as good or comparatively good. Second, in Mao and his comrades' opinion, what made the Cultural Revolution necessary was that "[a]lthough the bourgeoisie has been overthrown, it is still trying to use the old ideas, culture, customs and habits of the exploiting classes to corrupt the masses, capture their minds and endeavour to stage a come-back. The proletariat must do the exact opposite: it must meet head-on every challenge of the bourgeoisie in the ideological field and use the new ideas, culture, customs and habits of the proletariat to change the mental outlook of the whole of the society (CCP, 1968, 395)." By attributing the emergence of "capitalist roaders" in the party to the influence of bourgeois ideas, Mao and his comrades totally failed to use historical materialism to scientifically explain the rise of the bureaucratic class, and thus were unable to find the correct solution to the problem. On the other hand, while the only correct method of revolution is "for the masses to liberate themselves", as Lenin argued, it is impossible for working people who are oppressed, exploited, and deprived of their right to participate in scientific activities, to reach a scientific understanding of the society completely by themselves. In the post-revolutionary society, this is still the case as long as the division of physical labor and mental labor remains. Thus, masses cannot by themselves make a successful revolution against the bureaucratic class without the

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leadership of a revolutionary party which is composed of revolutionary intellectuals who are able to provide the scientific analysis of the society. With the old communist party degenerating into bureaucratic apparatus, a new revolutionary party was indispensable for the success of the Cultural Revolution. Without such a party, the Cultural Revolution could not result in any constructive outcomes and could only end in chaos.

Can the Socialist Planned Economy Work? Bourgeois economists and market socialists argue that the socialist planned economy is not able to solve the information problem and the motivation problem and it is not going to work. But even according to bourgeois statistics, the former socialist economies had, on per capita basis, developed no less rapid than the capitalist economies. Moreover, TABLE 7.1 shows that in their early stage, the former socialist economies had clearly demonstrated some superiority over the capitalist economies.

If the socialist planned economy is unable to solve the

information problem and the motivation problem, how can the early success of the former socialist economies be explained? Bourgeois economists and market socialists have made several explanations of the early success of the former socialist planned economies. First, it is argued that in the early stage of economic development, economic structure is relatively simple and easy to be managed. After this early stage, however, the economic structure will become more and more complex, making the rational operation of the planned economy more and more difficult. This argument, however, is not consistent with empirical evidence. The Chinese economy in the late 1970s might well be less complex than the East German economy in 1950s. Yet the East German economy in the 1950s worked quite well, while the Chinese planned economy was near to collapse in the late 1970s. If “growing complexity” cannot explain the later failure of the planned economy in China, obviously, nor can it explain its early success. On the other hand, "growing complexity"

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basically refers to growing division of labor, growing number of specific products, and growing interrelations between production units. That is, it is basically a problem of how to solve "millions of equations." This problem, by itself, is not difficult to be solved with the aid of modern computers. The real problem of the Soviet-style central planned economy is not this, but that the planning authority is virtually impossible to collect and make use of the great amount of fragmented information to which only the people on spot have access, e.g. the detail description of the quality or technical functions of certain products. This kind of problem is virtually as "complex" in the early stage of economic development as in the later stage. Secondly, it is argued that in the initial stage of the former socialist economies, economic growth rate was accelerated by mobilizing unutilized resources. But in the long run, failing to solve the information problem, the motivation problem, and to make technological progress as rapidly as the capitalist economies, after unutilized resources had been used up, the former socialist economies would inevitably fall into economic stagnation. It is true that making more effective use of unutilized resources contributed a lot to the early economic development of the former socialist economies. But this is certainly not a proof that these economies were irrational or inefficient. Moreover, unutilized resources by themselves cannot make economic growth. To turn unutilized resources into productive resources, there must be other production inputs, and these inputs must be organized and used in a economically rational way. The workers must know what to produce, how to produce, and how many to produce. And all of these will be turned into economic growth only if the workers more or less do what they are expected to do. Thus, to mobilize unutilized resources and to make rapid economic growth out of these resources require exactly the same thing as is required by making efficient use of the resources presently being utilized. That is, the ability to solve the information problem and the motivation problem. Thus, the question remains--if the planned economy is not able to solve the information problem and the motivation problem, how can the early economic success of the former socialist countries be explained? Thirdly it is argued that the economic growth of the former socialist countries was based

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on “extensive growth” rather than “intensive growth.” The “extensive growth” is supported by massive inputs of resources rather than technological progress and thus cannot sustain in the long run. Is this argument supported by empirical evidence? TABLE 7.2 shows that from 1950-1973, the arithmetic average of the growth rates of labor productivity for 17 capitalist countries (7 major developed capitalist countries and 10 “middle income” countries) is 4.4 percent, for 10 “middle income” countries is 4.2 percent, and for 6 socialist countries is 4.5 percent. These figures certainly do not suggest the former socialist economies were inferior to the capitalist economies in the respect of technological progress.

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TABLE 7.2 Growth Rates of Labor Productivity (GDP per Hour Worked), Selected Countries, 1950-1973 -----------------------------------------------------------------------------------------------------------------Capitalist Countries Growth Rates (%) Socialist Countries Growth Rates (%) -----------------------------------------------------------------------------------------------------------------Argentina 2.4 Bulgaria 6.1 Brazil 3.7 Czechoslovakia 3.4 Canada 3.0 Hungary 3.9 Chile 2.9 Poland 3.8 Colombia 3.3 Romania 6.2 France 5.1 USSR 3.4 Germany 6.0 Arithmetic Average 4.5 Greece 6.4 Italy 5.8 Japan 7.7 Mexico 4.0 Peru 3.4 Portugal 6.0 Spain 6.4 United Kingdom 3.1 United States 2.7 Venezuela 3.4 Arithmetic Average 4.4 Arithmetic Average for “Middle Income” Countries 4.2 -----------------------------------------------------------------------------------------------------------------Source: Maddison (1995, 79-80).

Moreover, the Soviet Union and other former socialist countries had to spend most of their R & D efforts in the military field to meet the military competition against major imperialist powers. This threw an unproportionately heavy burden on their economies whose absolute scales were much smaller than those of the major imperialist powers. They also suffered from technological blockade and restriction by major capitalist countries, and thus could not take the

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full advantage of “later comers” as some capitalist developing countries did. If this had not been the case, the rate of technological progress in the former socialist countries would certainly have been much higher. We know that for the socialist planned economy to work, it must be able to solve the information problem and the motivation problem and the two problems can be solved only if the socialist social relations have been established. The early economic success of the former socialist countries thus cannot be really understood without an analysis of the historically changing social relations in these countries. While it is true that the post-revolutionary societies in the Soviet Union, China, and Eastern Europe were not genuine socialist societies in the sense that the political and social power were not directly under the control of working people, but actually controlled by a vanguard revolutionary party which is supposed to represent the interest of working people. Nevertheless, we must not deny that these revolutionary parties, in their early stage, were indeed largely composed of genuine revolutionaries who sincerely pursued socialism and the liberation of working people (this is especially true for pre-Stalinist Soviet Union, China, Cuba, and Yugoslavia). In this case, it is not surprising that the social regimes that appeared after the revolution must be more or less revolutionary regimes pursuing the political, economic, and social policies by and large in the interest of working people. Thus, in the early stage of these societies, the interest of society was largely consistent with the interest of working people.

This provided the objective foundation for the working people in these

countries to work for the social interest. It was a historical fact that in those years we saw hundreds of millions of people working not for their private interests, but for the common interest of people, for revolution and socialism, for proletarian internationalism, and for building communism.

How could this important

historical fact not have a significant impact on the development of productive forces? It is this distinct set of social relations that can help to explain the early success of the former socialist economies. If we consider the whole historical period of revolutionary China, then this period can be

230

divided into two stages. In the first stage which was from 1949 to 1957, the old oppressive and exploitative social order had been overthrown, the political and economic status of working people had been greatly improved, and the new bureaucratic class was only beginning to take shape. In this stage, the socialist Chinese economy developed rapidly, demonstrating a clear superiority over capitalist economies. The second stage which was from 1957 (the year of the “hundreds of flowers” movement and a year before the Great Leap Forward) to late 1970s was characterized by the ascendancy of the bureaucratic class and intensified class struggles, that were climaxed in the Cultural Revolution. Despite the tremendous social turbulence in this stage, the revolutionary socialist force still held a large part of the social power, and consequently, the socialist consciousness of working people continued to play an important role in economic development. As a result, in this stage, the Chinese economy continued to grow at a respectable rate. It was only after the failure of the Cultural Revolution and the rule of the bureaucratic class was thus consolidated, that the socialist planned economy became politically and socially invalid and capitalist marketization became the only “viable” solution to China’s economic problems (the bureaucratic class certainly cannot solve the information problem and the motivation problem by mobilizing working people’s socialist consciousness). What lessons can we learn from the experience of revolutionary China? First, under a revolutionary socialist regime, the Planned economy did work, and it worked better than most capitalist economies. Then what will be the case if socialist social relations have been fully built up? The answer is self-evident: a socialist planned economy will not only work, but will work much more rationally and efficiently than the capitalist market economy in both social and economic terms. Second, whether a socialist planned economy is viable or not, is first of all, not a theoretical question, but a practical question, depending on the real historical struggle for socialism. After the revolutionary socialist force takes over the political power, the struggle for socialism has not yet ended. Instead, the revolutionary socialist force must apply correct revolutionary theories to educate and mobilize working masses, and to organize them in proper political organizations, like that of Paris Commune, to make active struggle against the tendency

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of bureaucratization and to secure the revolutionary nature of the new regime. 11 In the long run, the revolutionary socialist regime must make a through transformation of the irrational economic structure left over by capitalism so that with the continuous improvement of social labor productivity, the general working time of working people will be gradually reduced to a level that allows all social members to freely develop their physical and mental potential. 12 As a result, the division of mental labor and physical labor will be eliminated, that is, the material foundation 11

In

the

rethinking

of

Marxism

and

the

failure

of

the

socialist revolutions in the Soviet Union, China, and Eastern Europe, many socialist scholars and activists have placed more and more emphasis on grassroots movement rather than taking over the political power. While this change of emphasis is in general justifiable, there is also the

danger

of

underestimating

the

importance

of

taking

over

the

political power. It is naive to think that grassroots people’s movement and participatory democracy can prosper when the political power is still in the hands of the oppressive class. While taking over the political power is by no means equivalent to the victory of socialism, it

is

nonetheless

the

primary

necessary

condition

for

any

further

fundamental social change. 12

Dawson and Foster (1992) estimated that in 1988, “economic surplus” accounted for 55 percent of the U.S. GNP, most of which was absorbed by various social wastes, such as marketing, advertisement, financial activities, military production, etc. Besides, a large part of social labor wasted appeared not directly as “economic surplus”, but as production planned

costs,

e.g.

obsolescence,

elaborate etc.

On

packaging, the

other

frequent hand,

in

model

changes,

underdeveloped

capitalist countries, the most important social waste appears to be the

232

of class domination and oppression will be done away with. Only then can we say that the struggle for socialism has ended with victory.

large-scale unemployed or underemployed population who usually accounts for one third of the total labor force. The enormous waste of social labor

under

revolutionary

capitalism socialist

implies regime

that to

it

will

be

substantially

possible reduce

the

for

the

general

working time of working people within a relatively short period after it takes over the political power.

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