The crisis of state capitalism dominates global politics today. It affects not just the state capitalist giants like the USSR and China, but the “satellites” (Eastern Europe and Vietnam) and more peripheral state capitalist countries like Burma, Algeria and Iraq. The crisis in their economies is clear. The remedies proposed are familiar – market forces, privatisation, international competitiveness.
For a tendency that evolved around its unique analysis of state capitalism, it is important that our analysis today keeps up with events. So far, we have been rather overtaken by them – so overwhelming has been the speed and scope of the changes taking place. Much of our attention, not unnaturally, has been taken up by the events in Russia. But the process in China has been going on for ten years. It is a process so radical that it may not be long before we cease being able to talk about state capitalism in China at all.
I want to put forward two propositions in this article. The first is that the events in China are neither an aberration, nor something peculiar to the Chinese. They are of a piece with what is happening in the rest of the world economy. They are determined by the world market, and in the front line of world economic restructuring. The second is that the fundamental changes in China have affected not only the class structure of the country, but the make-up of the Chinese ruling class itself.
The world economy
In his two most recent books, Nigel Harris has sketched out an account of what has happened in the world economy from the mid-1970s to now.
He argues that the slump of the mid-1970s produced contradictory features in the world economy. On the one hand, there was increasing integration and interdependence between “national” economies. At the same time, individual national states attempted to increase their independence from the world economy in order to offset the effects of the slump.
The continuing development of a world production system, however, made this extremely difficult. The world market – a “genuinely independent international master of all” -continually frustrated the plans of states.
He concludes that the power of the state relative to the world economy appears to be declining. The only way that national economies could survive was to integrate themselves more thoroughly into the world order. This was both the condition of survival for the advanced economies, and the condition of success for the newly-industrialising. A new order was emerging, which pulled in some of the underdeveloped countries and some of the Eastern bloc.
The long promise of the market, of capitalism, was beginning to emerge – the competition of capitals for profits without the diversion of national identity. The system was being homogenised.
In that context, national economic development – relative self-sufficiency, the creation of a diversified economy within national boundaries – was no longer possible. Thus the current popularity of privatisation:
Privatisation was part of the process of relinquishing the aim of national economic development. That aim had made necessary large public .sectors as the prime instrument of national purposes. If development now meant the growth of the world product, with different countries playing specialised roles within it, a redefinition of the role of the state was required.
Harris does not argue that this process has reached its end-point: that nation states are no longer important in contemporary capitalism. He is at pains to point out that the state will not depart gracefully from the scene.
On the contrary, the predators grow more predatory even as their economic obsolescence grows.
He writes of the continuing tension between the world market and nation states; within national boundaries, between capital (which, generally, is not tied to any particular national territory) and the state (which is).
State capitalism asserts that, through its control of external exchanges, trade and finances, through its allocation of raw materials, capital and Iabour within its national boundaries, and through its military defence of this system, the state can bring about balanced growth; the creation of an integrated, industrial economy with its own share of heavy industry, manufacturing, etc.
This was the project in the Soviet Union and Eastern Europe, shored up with large doses of Stalinist rhetoric about “socialism”. It also became the development strategy for a number of underdeveloped countries, impressed by Russia’s economic development in the 1930s and the post-war period.
Some of these emerged from the anti-colonial revolutions, and made ritual obeisance towards “socialism”; others (for example, Brazil and Mexico) had nothing to do with socialism – for them, the strategy was known, rather more prosaically, as “import substitution”.
The high growth rates of the state capitalist economies in the early post-war years began to decline. The rigidities of the state capitalist system, their declining productivity and the world economic crisis exacted a heavy toll. The increasing integration of the world economy meant that the attempted forced march towards national economic independence was no longer possible.
And if it was not possible for the mighty economy of the USSR, it was certainly impossible for the underdeveloped countries. To survive, state capitalism in all its forms was forced to integrate. We have seen this process over the last dozen or so years. Today, we are not surprised when the Kenyan president, Daniel Arap Moi, tells us:
No country can remain economically independent without outside assistance.
Integration means opening up the economy to world trade, competing on the world market, and using the lash of competition to upgrade industries.
Increased imports of high technology goods would…upgrade the quality of domestic output, economise on the use of raw materials, and make better use of investment; increased exports to pay for these imports would force at least exporting managers to relate their output to external markets…perhaps some of the more sophisticated techniques of management might rub off on the Party cadres?
At the same time, the skills and level of participation of the workforce had to be upgraded – for the most part it was unskilled, technologically inept and indifferent to the quality of the goods it was turning out.
A change in strategy did not necessarily mean a change in goal. State capitalism did not immediately abandon its aim of a national, independent economy. It wanted to use the world market to bring it about. Harris points out that this was not on.
The deal was a bargain, not a unilateral initiative. The whip to speed growth could as easily turn into a noose to strangle.
The world market moved inexorably to choose those things it wanted from the state capitalist economies, and to abandon to bankruptcy (or its equivalent) those that it did not. It began to force them into a particular function in a world division of labour.
Once that process commenced, it developed a momentum of its own, from which a retreat was virtually impossible. Harris argues that with hindsight it can be seen that cutting off a national economy in order to achieve “primitive accumulation” was not the road to economic independence. It was only a prelude to reintegration with the world order.
When elementary accumulation was complete, the ruling orders, willingly or not, returned to the global market. Everywhere the policies were required to change…
How then did they change in China?
China after Mao
Chairman Mao Zedong died in 1976. His successors, the much-maligned “Gang of Four”, were arrested less than a month later. The new leadership that cohered around Deng Xiaoping and Hu Yaobang inherited a bit of a mess. The economy was very backward; in some areas at a subsistence level. Its productivity was very low. It was suffering repeated balance of payments crises. At the same time, China was locked into an extreme hostility to the Soviet Union, to which it would soon add war with Vietnam. A large proportion of its economy was therefore devoted to defence.
Contrary to the mythology of the Beijing regime, it was not just the Cultural Revolution and the Gang of Four that had brought China to its economic knees. It was the crisis of a state capitalist strategy for national economic development in an increasingly integrated world economy.
Chinese state capitalism had, since 1949, zig-zagged between two strategic variants. The first relied on the enthusiasm and effort of the Chinese people (either spontaneous or enforced) for economic growth. This was the era of the mass campaign, the Great Leap Forward, the Cultural Revolution – most of which ended up in some sort of economic disaster and subsequent retreat.
The second was a more orthodox, Stalinist strategy for economic development – the steady development of productive forces, primarily heavy industry.
The first of these variants was definitively thrown out with the defeat and arrest of the Gang of Four. Many writers (including our own) believed that this meant a return to the second variant – independence based on the development of heavy industry.
It was not so. The world economy of the 1980s would not allow a return to a strategy of the 1950s. The reforming wing of the Chinese leadership was under no illusions on this score. In 1981, Zhao Ziyang (then premier) told the National People’s Congress:
In economic work, we must abandon once and for all the idea of self-sufficiency, which is a characteristic of the national economy… By linking our economy with the world market…we can use our strong points to make up for our weak points…
In fact, when the reform program was agreed upon, at a meeting of the Central Committee of the Chinese Communist Party (CCP) in late 1978, it was decided to develop agriculture first, then light industry, with heavy industry coming last of all. It was also decided that in preparation for the rigours of international competition, that the forces of internal competition should be let loose – in other words, that the profit motive (particularly in the countryside) should be unleashed.
Reform in Agriculture
The people’s Communes were set up during the Great Leap Forward in order to collectivise Chinese agriculture. They would become, according to Chairman Mao, “the basic mechanism of communist society”.
The opening shot in the reform program was to abolish the People’s Communes. The land was carved up and leased to individual peasant households. Although it remained theoretically owned by the state, the private peasantry had been re-established. Prices for agricultural products went up, state procurements fell. The peasants were able to decide what to grow, and where and how to sell it.
This led to the situation where grain production (the price of which remains state-controlled) has fallen, as peasants move to more profitable, non-controlled products. The area planted for grain has decreased each year since 1979. Almost immediately, some sections of the peasantry – those with more productive land, larger families, access to transport and the urban markets – became much richer than the others. The hiring of labour reappeared.
The regime however, was not fazed by this at all. The “egalitarianism” (of poverty) which it had preached at the Chinese people for thirty years was simply abandoned. “It is only fair”, said Deng Xiaoping, “that people should become prosperous through their own hard work”. Instead, they prepared for trouble.
Symbolically (for they were never more than symbols), the National People’s Congress removed the constitutional article stating that citizens had “the right to speak out freely, air their views fully, hold great debates and write big character posters; in 1980; two years later, they removed the right to strike.
The profits made in the countryside were channelled into an explosion of rural industries – factories, transport businesses, cottage industries, construction, etc. These industries, which, according to Deng, came into being spontaneously, mushroomed out of all proportion to the rest of the economy. In 1987, they-produced one-fifth of the national output, and 12 percent of China’s exports. They have soaked up vast numbers of unemployed peasants, made surplus by the carve-up of collectivised agriculture. They are, to all intents and purposes, privately owned.
They are also sweat-shops.
[The rural industries] fall outside many of the regulations designed to protect the rights and conditions of urban workers…their record on welfare, rights and health and safety is very poor.
In Guangdong province, a government check of two hundred such rural businesses found over forty employing women as young as ten, working fourteen hours a day in “incredibly bad” conditions.
The enforced collectivisation of Chinese agriculture was very far removed from any vision of socialism: But it did produce an agricultural infrastructure – terrace walls, flood control, irrigation works, hydro systems – which could not and cannot be produced by individual peasant households. That infrastructure is therefore beginning to decay. Its upkeep is not profitable and for that reason is not undertaken. A documentary film-maker gave this account:
…there’s a reservoir near Long Bow [in Shanxi province], built during the Great Leap Forward, from which water used to be pumped to the surrounding land. But under the responsibility system [i.e. individual farming] problems arose.
The people who pumped water into the canals would do their work only if they were paid for the amount of water that left the pumping station. Long Bow, however, wanted to pay only for the water it received, since it usually got only about a third of the water that left the station; the rest leaked away, evaporated, or was stolen by villages closer to the reservoir.
There was a stalemate, and, with no water being pumped, peasants began stealing the concrete blocks that lined the canals and using them to build houses. They ripped out all the copper wiring from the motors in the auxiliary pumping stations along the canals and sold it as scrap. The irrigation system has been destroyed, and since there is no longer any collective organisation, there is no-one to rebuild it.
The heavy farm machinery appropriate to the Communes is not suitable for the individual farms – at least until the process of take-over makes them very much bigger. There are reports of earth-moving equipment and large harvesting machines being abandoned to rust – stripped of all their saleable spare parts. The responsibility system extends to the furthest reaches of the People’s Republic, and is taking a heavy toll on Chinese agriculture. William Hinton tells us:
In Mongolia, where the economy is basically pastoral, most sheep and cattle used to be owned communally, but now they’ve been divided up and contracted out to private households. The people get to keep all the wool, milk and meat for three years, and after that they have to pay the collective back, with animals of equivalent worth.
So everyone is on his own, and, of course, people are all trying to make as much money as quickly as they can, by breeding all the animals they can get their hands on to increase their herd size. The result has been severe overgrazing…much of the land has been turned into dunes…
The over-riding importance of profit by the individual, property-owning household is forcing all of the countryside into the sane sort of framework.
Reform in the cities
At the end of 1984, the CCP Central Committee met and was presented with a plan to move the reform process into the urban areas. Significantly though, the plan was first presented by Zhao Ziyang to a meeting of42 Western industrialists, bankers and economists. This was officially described as a “briefing”, but presumably had the Westerners objected strongly, the Central Committee would have been served something rather different.
The main point of the urban reforms was to allow market forces to operate in the urban industrial enterprises. Workers were to be given bonuses for hard work, but the idea of a secure permanent job (known as the “iron rice bowl”) and equal wages (known as the “big public pot”) would be abolished.
New forms of managerial organisation were introduced. Factory managers were to become the actual managers of factories – no longer acquiescing to the local CCP secretary. The idea of contract management was introduced – where individuals or groups leased an entire enterprise from the state. Naturally, this gave them a free hand, both with the enterprise and its workers.
The contract system allows managers to take on young unmarried women, and then dismiss them once they have reached marriage or child-bearing age. Finally, the urban reforms brought about the creation of contract workers themselves. In complete contrast to the “iron rice bowl”, these workers are taken on for a strictly limited period. At the end of 1986, it was announced that all new urban workers would be hired on this basis.
All of this adds up to a huge increase in control of individual managers over workers. The Central Committee’s resolution on urban reforms calls for “strict labour discipline”. Managers can now sack workers for laziness, absenteeism and “irresponsibility”. If these measures can be imposed, they will make it that much easier to rationalise production, raise productivity and increase China’s international competitiveness.
As part of the urban reforms, it was considered crucial to remove the state price controls (subsidies) on essential items, mainly food – market forces were to work their own special magic in this area as well. In 1988, after considerable experimentation, price controls on basic food commodities in the cities were lifted. Vegetable prices rose over 48 percent; inflation reached unheard of levels (it seems to have been around 23 percent for the year); and most urban workers had to be paid a monthly ¥10 bonus, simply so they could cope.
The Chinese Federation of Trade Unions estimates that the real income of the urban population is falling. There was something of a retreat. But the regime, and those who gain from the present policies, make it clear that the process must continue.
For China to compete internationally, it needs foreign investment, foreign technology and foreign management techniques. Like many other developing countries, it has established Special Economic Zones (SEZs) to help this along. The SEZs are designed to attract investors with tax holidays, exemption from duty, low rents, access to Chinese markets – and one of the lowest paid workforces in the world. The Governor of Fujian province (in which an SEZ is situated) is quite clear about this:
We are now studying the wage-rates of Hong Kong, Singapore and South Korea. We believe that our wage levels will be lower than these places. In order to protect the investors’ profitability, the wage-rate cannot be too high.
In fact the wages paid in China’s SEZs are lower than those of the Philippines, South Korea, Malaysia and Hong Kong. This is the reason that in 1987,80 percent of Hong Kong knitwear factories had moved over to the People’s Republic.
For the foreign investors, the zones are a dream come true. The level of exploitation within them is very high. Even CCP Politburo member Hu Qiao-mu was prompted to remark:
When foreign businessmen…come to our special zones they forget even the laws of their own countries.
Comrade Hu seems to have forgotten that this is precisely the aim of the zones, and their attraction for foreign investment. This is more important to Beijing than the exploitation of Chinese workers. The last word should be left to a worker in one of the SEZs:
We work more than thirteen hours a day, overtime every day, but have never received any overtime pay. The boss doesn’t allow us to drink water during working hours, we are body searched when we go off work. Our living dormitory is crowded beyond imagination… How can we bear this life?
The final area of reform should have been in the political sphere – but not very much has happened here at all. Some two and a half years ago, Deng Xiaoping was insisting that something had to be done to reform the political structure. Since then there has been a lot of talk but virtually no action.
The problem for the regime is that some – particularly students – have taken the talk a lot more seriously than others. There were mass student demonstrations in Shanghai, Beijing and other major cities in late 1986 and early 1987, under slogans such as “No Democracy, No Modernisation”. If those prosecuted are any indication, they also involved numbers of workers.
However to this point, the regime has had the last word. Firstly, it blamed most of the trouble on the hapless Hu Yaobang, and dismissed him as CCP general secretary. Secondly, in clearly vengeful mood, it announced in 1987 that student grants would be cut; that students were lazy and wasteful; that they should devote themselves to courses structured around modernisation; and that they should borrow their way through university.
The shake-up in Chinese society that the reforms have produced has, not unnaturally, occasioned considerable cynicism amongst the Chinese about their government and its system.
The legitimacy of the CCP’s rule is increasingly called into question. Unless the entire experience of the People’s Republic is to be junked, the CCP has to establish some link between what it is doing now, and what it has done before; to place the current reforms within the context of the “socialism” it has ostensibly been building since 1949.
The CCP has its experts at work on this problem. They have managed to bring forth a number of justifications, each satisfactorily draped in the language of Marxism.
The first of these can be grouped under the heading “the development of the productive forces”. In itself, this is a fairly straightforward idea – according to Deng, ‘‘The fundamental principle of Marxism is that the productive forces must be developed”.
We certainly agree with Deng, and Marx before him, that there can be no socialism based on poverty. This is in marked contrast to the ideas of Mao and the Gang, who were inclined to think that it was better to be poor under “socialism” than rich under capitalism. However, for Marxists, the importance of the development of productive forces lies in seeing it on a world scale, not a national one.
The productive forces are ripe for the transition to socialism on a world scale, not within individual national boundaries. The attempt to develop all the productive forces necessary for a socialist society within national boundaries will lead to severe distortions in the economy, and, within a world capitalist system, to an inevitable capitulation to the world capitalist market. This is precisely what is happening in China.
The second type of justification concerns the operation of the law of value. The law of value, in its simplest form, “assumes that resources are distributed throughout the economy through a competitive exchange process, at values determined by labour time”. From the idea that it is not the usefulness of products that determines their value flows the whole mechanism of capitalism – the importance of price, of profit, of market forces. The Chinese, like the Russians before them, now assert that the law of value operates within their economy – which at the same time remains socialist.
This was not the view of the founders of scientific socialism. “Value”, says Marx, “is the expression of the specifically characteristic nature of the capitalist process of production”.
The value form of products [continues Engels] therefore already contains in embryo the whole capitalist form of production, the antagonism between capitalists and wage workers, the industrial reserve army, crises.
What the operation of the law of value means in practice is outlined by Tom O’Lincoln:
…the market is not “civilised … It is a brutal mechanism for testing the productivity of each firm the hard way, with losers going broke. Workers will be forced to press each other to work harder. They will be driven to choose managers who force the pace.
The discovery that the law of value operates within societies like China is something our tendency put forward forty years ago. For us, it is evidence of the continued existence of capitalism. For the regime’s ideologists, it is evidence of China’s backwardness, and of the fact that they are living in the “primary stage of socialism”. This is the third justification.
The idea of stages in the development of post-capitalist society – a lower and higher stage of socialism, communism, etc. – is not a particularly remarkable one. But for Marxists, those stages are a way of taking that society forward – not of justifying every excrescence that backward capitalism is capable of producing, as is the case in China.
Tony Cliff argues, in his classic work on state capitalism, that a workers’ state (the lowest form of post-capitalist society) is a transition from capitalism to communism. As such, it “inevitably includes some of the features of the society from whose ruins it rises, and some of the nuclei of the future society.” But he insists on “the former being subordinate to the latter, the past to the future”. The mechanism that can bring this about is workers’ control of production – that is the bridge between the old and the new societies.
Constructing that bridge is not the project of China’s rulers. The “primary stage of socialism” is an ideological smokescreen behind which they will continue to take the measures imposed on them by the world market. To know that, we only have to look beyond the ideologists for a moment and listen to the increasing numbers of writers, economists and social scientists on the positive features of capitalism. This is the social scientist, Shao Liang:
Capitalism still has its vigour and it will develop more in the future. The trend of people’s capitalism has emerged and the difference between the classes has narrowed.
The economist Li Honglin:
If we all want to become rich we must first of all rapidly develop the total social wealth and we can only do this through competition.
If China was a society in transition, the State Commission for Restructuring the Economy would not be able to pronounce this sad verdict on forty years of “socialism”:
It is understood that under socialism there is no exploitation. But the reality [in China] forces people to cast doubts on the theory.
Downgrading education, provincial protectionism, female infanticide, the selling of children and wives, the emergence of pawnbrokers, millionaires, unemployment and prostitution – all are laid at the door of the “primary stage of socialism” – a stage which Zhao Ziyang told the 13th CCP Congress would last “at least 100 years from the 1950s.” The thoughts of one Chinese worker are very apt:
If the primary stage of socialism will take more than a hundred years, now I am thirty, I will have to live until I am over a hundred to see any sign of modern socialism. Thinking about it, that’s not much fun, is it?
Backward capitalism, trying desperately to catch up, produces some very unpleasant features. One of these is corruption. In China today, there is a distinct difficulty in distinguishing between corruption on the one hand, and a “creative application of the market socialist strategy” on the other. For example, when the reforms were first introduced, local authorities used their influence to promote local interests; whether that was corruption or not was anyone’s guess. “In Shanghai…40 percent of investment in fixed assets is said to have been spent on banquets and the like” – presumably to attract investment.
Thus evolved the phenomenon of collective crime, in which whole factories, villages and even provinces were found to be on the fiddle. Workers from a factory in Tianjin played collective truant in order to run a more lucrative fish and produce business. The officials on Hainan Island set up nine hundred bogus companies in order to import 89,000 motor vehicles, nearly 3 million TVs, 252,000 VCRs and 122,000 motor cycles – and flog them on the mainland at enormous profits.
The various campaigns waged against corruption, and the trials that have taken place, have revealed that CCP cadre and high-ranking officials are in it up to their necks. The CCP secretary in Haifeng, Guangdong province was executed in 1983 for defrauding the state of ¥70,OOO and taking bribes from escapees to Hong Kong; China’s Auditor-General, Yu Mingtao, managed to “lose” $1.67 billion in 1984; 27 CCP officials ran a fake medicine factory in Fujian for three years. And so on. Between 1982 and 1983, out of 192,000 cases of corruption, 71,000 involved CCP members. Nigel Harris points out:
Where incomes are unequally distributed, it is the better-off who have a vested interest in a black market, and in [the state capitalist economies] the better off coincide most often with Party cadres.
If it’s not the CCP, army or government cadres themselves, it’s their privileged offspring. Among the executions that have taken place, a large number have been of the sons and grandsons of the powerful – including the grandsons of Zhu De (a famous military commander), and Dong Biwu (a CCP founder member). “There is no denying, laments Beijing Review, “that our Party has its seamy side…”.
The attempt to repress the corruption, however, creates a problem of its own. The Far Eastern Economic Review warns:
…the crackdown on corruption could well hamper reforms in one vital area – the grooming of an elite management and technocrat corps.
The reason is obvious. Those – especially the young and privileged – who are involved in corruption on the grandest scale are clearly the most ambitious, most ruthless, most underhand and most devious. They are clearly the most suited to lead China’s integration into the world economy.
The dissolution of the People’s Communes has had a dramatic effect on the poor peasantry. For the Communes were not simply a method of agricultural organisation. They were also supposed to provide the “Five Guarantees” – food, clothing, medical care, housing and burial expenses. The so-called “responsibility system” in the countryside means that the peasants must now look out for themselves. Some are better placed to do so than others. In the health area, William Hsiao of the Harvard School of Public Health reports:
As a result of economic reform, collective financing and popular support for the cooperative medical system have diminished. The proportion of the rural population protected by this system has been reduced by 50 percent.
Many doctors have moved into private practice, ensuring that poor peasants are no longer able to afford health care. Free health care is under official attack as well. Song Lianshong, a vice-director in the Ministry of Public Health, tells us:
…waste can be found in many places. Doctors often write prescriptions not according to their patients’ condition but to their words. Because it is free, some patients ask the doctor to give them expensive medicine…a plan has been drafted to ask patients to pay 5 percent of their medical costs in order to connect the costs with the individual patients…
Health care, like other costly welfare systems, must be cut back for the sake of international competition. The same applies to cheap, or subsidised, housing. In 1987, China Daily, (the official Beijing English-language publication) revealed:
Chinese urban dwellers…have not realised until recently that their extremely low rents were one of the factors very much responsible for the shortage and poor housing conditions.
“The key is to make houses a commodity”, the article concludes. Rural decollectivisation has produced its own momentum, and has spread to areas that do not have official sanction. One village decollectivised a school:
One peasant took a door, another took a few beams, and a third left with the windows… The theory seemed to be that…people ought to divide up schools just like land.
And there are reports of other schools, small factories and even clinics being similarly “privatised”.
Finally, perhaps the most unpleasant in a series of unpleasant consequences: the constant wooing of foreign capital, which is not confined to the SEZs. At the entrance to the bar of the Peace Hotel (formerly the Cathay) in Shanghai you will find the following notice: “Foreigners and overseas Chinese only. Please cooperate”. A young man in Beijing remarks:
They tell us about the time before liberation when Chinese people were banned from many places in our own country. But it seems to be getting that way again.
I will now examine my second proposition, concerning the effects of the reform on China’s class structure and its ruling class. Broadly speaking, there are three groups which are doing well out of, and therefore have a considerable stake in, the current process: the rich peasantry, the independent entrepreneurs, and the industrial managers.
Three years ago, the Far Eastern Economic Review estimated that between 1978 and 1984, the average rural per capita income had risen by 165 percent. Chinese sources confirm the trend – Beijing Review reported a 100 percent rise between 1978 and 1982. But the “average” peasant income in China is an elastic concept. While, on the one hand, there are extensively publicised reports of peasant families making ¥10,000 a year, on the other hand, large numbers of peasants (some eight million at last report) exist below the poverty line – ¥200 a year.
Reporters from the People’s Daily discovered in Heilongjiang province that 60 percent of the peasants had barely enough money for adequate food and clothing. This means that, in order to produce an average of 165 percent, a section of the peasantry is doing very well indeed; and though only a section, its numbers are considerable. As Richard Gordon (the documentary-maker) puts it:
…the countryside is beginning to divide up… There are those who have already started to succeed and get a stake in the new system. And then there are those who haven’t succeeded in getting anything, and are beginning to realise that they probably never will.
The income of the rich peasantry has far outstripped that of those on fixed wages – urban workers among them. In the late twentieth century, the prospect of peasants doing better than workers seems a strange one – it is not what we have come to expect. The reason is simple. In China today, the rich peasantry are more and more able to control the surplus that they produce. As the amount taken by the state lessens, that surplus becomes greater. With the advent of free markets, the amount earned for the surplus rises. Those with transport facilities and access to the urban markets stand to make a great deal. Workers do not control the surplus that they produce. It is produced without their knowledge and taken away from them. Workers’ earnings therefore, will remain relatively stable; the amount earned by the rich peasantry has risen and will continue to rise.
This has reached the point where peasant “millionaires” have been created. In October last year, the Western press reported on Liu Xigui, of Liaoning province, who had converted his profits into a private transport business. He ended up with a fleet of 49 vehicles, a workforce of 240, and millions of dollars in fixed assets. The interesting thing about Liu is that he then applied to join the CCP, thus causing the provincial party secretary no little mental anguish: “I became rather confused as to whether or not the party should accept the owner of an affluent private business”. Which is not surprising when you consider that the CCP’s constitution declares that it should consist of the “advanced members of the proletariat”. Rhetoric aside, it is precisely on individuals like Liu that the modernisation program is based.
In his corporate plans, Liu is no exception. The rich peasantry are increasingly unwilling to reinvest in agriculture, which is not profitable enough and too risky. They are more likely to direct their investment into rural industries, construction and transportation. This has spawned a whole new breed of private entrepreneurs, who can no longer be regarded as peasants. And they are on the increase.
At the end of 1982, there were just on 2.5 million licensed private industrial/commercial enterprises, that employed some 3 million people. This was thirty-one times the 1979 figure. Two years later, there were nearly six million such enterprises, employing 7.5 million. In that year private business accounted for 10 percent of all national retail sales.
One of the most successful of the new breed is Zhang Guoxi. Based in the Jiangxi province, Zhang owns 32 factories, seven commercial companies and a whole network of cottage industries. He employs nearly 3,000 workers and has offices in Japan, Hong Kong, West Germany and the US. His products account for 80 percent of the province’s export earnings for arts and crafts.
Finally, we should consider the managers of the (theoretically) state-owned enterprises. The urban reforms of 1984, backed up by new factory managerial regulations in 1986, stipulate that enterprise directors are now the sole directors and legal representatives of the enterprise, with responsibility for management and administration. By the end of last year, all enterprises were meant to be run under the “plant director responsibility system”. The aim of this was to create
a large contingent of managerial and administrative personnel, and especially managers, who are both knowledgeable in modern economics and technology and imbued with a creative, innovative spirit and who are capable of bringing about a new situation in whatever they do.
Added to this is the contract management system (see above), in which the managers collects a percentage of the profits. The new systems have made a virtual legal fiction of state ownership and placed enterprise-wide control in the hands of individual managers. Given the pressure to make the enterprise profitable, and the workforce more productive, it follows that this layer has distinct interests of its own.
One consequence of the increasing power of these emerging layers might have been conflict with the CCP. As Jasper Becker put it in the Guardian last year:
…state cadres…are clearly feeling deeply threatened by the rise of an entrepreneurial class – who often hide behind the sign of a collective enterprise or who are contracted to run state-owned enterprises which allow them a slice of the profits…
But the possibility of such conflict is greatly lessened by the fact that the rich are members of the CCP. Zhang Guoxi, for example, is not only a party member, but the CCP secretary for his enterprises. The two most successful businessmen in the city of Wuhu are both CCP secretaries; the four richest men in a village in Shanxi all turn out to be party members. The owners of rural enterprises are more often than not CCP functionaries, while plant directors rarely reach their exalted position without CCP involvement. Within the CCP there is conflict between the emerging layers and an older generation – the generation of the 1949 revolution and post-revolutionary reconstruction. The latter are proponents of a more traditional, centralised state capitalism; they believe (quite rightly) that if controls over the economy are loosened, their own power will be threatened.
The interests of this group will be undermined by events. As the Chinese economy continues either to be opened up or forced open, the interests of the rich peasantry, the entrepreneurs and the managers will be pushed to the forefront. Those interests are based on the continued intrusion of the world market into the economy, and on the profitability of their bits of that economy on a world scale. They must be prepared to be totally ruthless in making their economy fit into the world system, and to discard all the traditions of 1949 in order to do so.
The present CCP leadership are convinced (at least publicly) that if the state-owned sector remains, China will continue to be “socialist” and they will retain control of the economy.
Deng told a Japanese delegation in 1984:
…the socialist fie state-owned] economy is our mainstay. Our socialist economic base is so huge that it can absorb tens and hundreds of billions of dollars’ worth of foreign funds without shaking the socialist foundation.
But control has already been lost on at least one occasion. After the urban reforms were introduced in 1984, a boom took off which the regime seemed at a loss to rein in. Exports fell (it was easier to produce for the Chinese market, regardless of quality or cost), the worst-ever trade deficit ensued, rural bankruptcies increased, inflation ran riot and the expected foreign investment didn’t arrive.
The 1984-85 investment boom not only took place outside central government control, it occurred despite leadership policies and regulations designed to hold industrial growth down to reasonable levels.
Furthermore, different parts of the regime were divided as to what to do about it:
The new State Council regulations are no more likely to work than the ones they supersede, because the regions and departments intended to supervise planning of investment more closely are among the main sources and beneficiaries of extra-budgetary investment [i.e. investment outside the central government’s control].
Some control was re-established after 1985. But the process has been repeated and grows more serious. Cao Jairui, a deputy director in the Ministry of Foreign Economic Relations and Trade, says:
All plans to import technology are planned, approved and governed by regulations. Yet when these plans are carried out, they turn out to be no different from a planless mess.
This simply illustrates the point that the deeper the regime enmeshes China in the world economy, the less control they have over its Chinese component. The introduction of world market forces in China is not something that can be turned on and off at will. If they are to produce their supposed benefits, they must be allowed to function according to their own dynamic. As they work their way through the economy, they develop their own agenda and their own momentum. Beijing is left issuing ideological justifications for events over which they have little control.
The regime’s bastion – the state-owned sector – is itself in decline. In 1980, it absorbed 40 percent of new workers; in 1981, it was less than 30 percent; in 1982, barely 20 percent. Economic growth in the state sector declined from 12.9 percent in 1985 to 6.2 percent in 1986. In the collective sector it also dropped from 30.9 percent to 16.5 percent. Only the individual and private sectors registered positive changes. In the first half of 1988, the number of workers in state-run enterprises dropped by 190,000, and in the collective sector by 260,000. Meanwhile workers were moving into foreign-funded companies at the rate of some 10,000 per month.
Fundamental to the successful implementation of the five-year plan is a genuine diminution of state control. Last year saw an increase in those sectors of the economy operating largely outside of the constraints of that control.
The economist Xue Muqiao pointed to “a growing imbalance between fast-growing unplanned industries and a slower moving planned sector”. In fact, the boundaries between state, collective and private ownership are increasingly fuzzy. This is best summed up, once again, by Zhang Guoxi. When asked about the classification of his enterprises, he replied:
I don’t know. Originally, this was a collective. The Government can call me what they like.
The periodic attempts to reassert some semblance of central authority are invariably seen in the Western press as the end of the restructuring process, the return to Maoism, the end of Deng, etc. It is a nonsense. The restructuring process in China must continue – if it does not, the strategy will collapse. There is no going back.
The dynamic comes not Beijing, but from outside. Each year, the World Bank calls for more liberalisation and reform. In its report in November 1988, the Bank endorsed China’s economic direction and agreed to a further $7.3 billion loan over the next three years. Vice President Attila [sic] Karaosmanoglu declared:
China is not going to turn into a market economy overnight… [but] it would be misleading to say reform is a failure or has stopped… China is continuing its efforts and deserves our full support…
There has been considerable, if unorganised, opposition to the CCP’s policies of the last ten years.
Some of this has come from within the CCP itself. At least one-third of the party’s 1984 membership was recruited during 1966-1976 – a period when the rhetoric was dramatically different. Deng warned against these elements at the end of 1983, describing them as “walking time bombs”. There have been demonstrations and riots by the young unemployed, particularly in and around Shanghai. The poor, benighted land of Tibet has erupted into serious violence more than once. There have been protests by the poor peasantry, as well as the urban poor, against the newly rich.
Most importantly, Chinese workers have staged a whole series of strikes, go-slows and riots against low wages, price rises and the abolition of permanent employment. Many of these have taken place in the SEZs.
Accordingly, the regime has prepared itself for trouble. In a central committee document in early 1987, Deng praised the achievements of the Polish dictatorship in suppressing Solidarity. At a major national conference of police chiefs last year, the Minister of Public Security, Wang Feng, declared that “China’s public order is basically stable but faces possible turmoil”. The conference studied riot control techniques of the Polish and South Korean regimes.
Repression will not solve the growing problems in China. One of the most pressing is the simple fact that, according to the People’s Daily, some 30 million workers (out of an urban workforce of 130 million) have nothing to do. Zhao Ziyang puts the number at one-third of the urban workforce. The simple solution would be to sack them and have the magic of the market sort them out. The regime, as yet, has not been brave enough to do this. It would seem that enterprises remain responsible, at least in part, for their former workers’ welfare. The director of the Tianjin Shipbuilding company has another solution:
We have two thousand women workers. I think it is better for them to go back to their homes and do the housework. The husband should work.
He is not alone in this idea – but it has yet to be implemented. In fact a lot of the talk about what to do with “surplus” workers is just that – talk. The manager of the Qingao Rubber Seal Factory sounds very radical: “If they don’t work, I won’t give them a penny”. However, he had yet to sack a single worker – including one who did nothing at all: “He comes in every day, so I have to pay him”. It’s not surprising that managers have so far refrained from fully grasping the nettle in this regard; those who have tried to sack workers have been insulted, beaten up, stabbed and bombed. But the problem must be resolved. In doing so, China’s rulers may unleash a power that could engulf them all.
I am not suggesting that what is going on in China is the “restoration of capitalism”. To do so would be to assume that existed before 1978 was not capitalism.
It was. China has never been socialist; it is not socialist now; and it is not on the road to socialism. However, the phenomenon of a country taking itself to the extremes of state capitalism, and then turning around and coming back again is something quite new. What is happening in China is a continuation of capitalism certainly – but of a different sort.
The Chinese developments are a distinct departure from the idea of socialism as the state – from the Stalinist religion of forty years and more that all that was required for socialism was an authoritarian planned economy and a hefty dose of heavy industry. But they are still a variation on the theme of socialism as the development of nationally-confined productive forces.
This project is impossible. It involves the utilisation of world market forces which, in the end, will refuse to allow China its independence, let alone its “socialism”.
In the meantime, the regime in Beijing is developing a money-based class system, which in its rigidity, its ruthlessness, and its sheer class consciousness, would not look that much out of place in Victorian England. It is predicated on the narrowest of narrow self-interest; it sees workers as the object of market forces and not the subject of history.
For Marxists, neither the strengthening of the state nor its weakening constitute socialism. For socialism is not about states, it is about human liberation. It is not about national economic development or producing more, it is about changing the way we live. Today, market forces and the dynamism of the world economy appear very strong. Yet it is that very dynamism that has brought about the crisis of state capitalism. In restructuring itself it may yet unleash forces which can destroy it and bring on the world workers’ republic.
The last word (for the moment) I will leave to Nigel Harris:
The world of states will not wither away of its own accord… Great battles will be required against states to win the new world; but the possibilities of doing so are now much enhanced by the changes that are underway.
 Of Bread and Guns, Pelican, 1983; The End of the Third World, Pelican, 1987.
 Of Bread and Guns, p114.
 ibid, p131.
 The End of the Third World, p167.
 Of Bread and Guns, p228.
 At a conference in Berlin.
 Of Bread and Guns, p180.
 This was not a new observation. Leon Trotsky wrote in The Revolution Betrayed (1937), “The Soviet products are as though branded with the grey label of indifference”.
 Of Bread and Guns, p193.
 The End of the Third World, p186.
 Orville Schell, To Get Rich is Glorious, Pantheon, 1984, p115.
 ibid., p59.
 Deng Xiaoping, Fundamental Issues in Present-Day China, FLP, Beijing, p189.
 Zhao Ziyang, cited in Leung Wing-yue, Smashing the Iron Rice Pot, Hong Kong, 1988, p64.
 Smashing the Iron Rice Pot, p65.
 Richard Gordon cited in To Get Rich is Glorious, pp71-2.
 ibid., p77.
 William Hinton, cited in To Get Rich is Glorious, p69. Yes, this is the same William Hinton who has spent the best part of 30 years warmly hailing everything that emanates from Beijing.
 The Age, 8 October 1984.
 Details on the urban reforms can be found in Progress in Urban Reform (Beijing, 1987).
 Making managers more powerful and self-reliant hasn’t always worked out the way Beijing would wish. Bu Xinsheng, factory manager, keen student of Japanese management techniques and author of the “Song of the General Shirt Factory”, was paraded around China and the world as an exemplary manager. He was renowned for harassing “lazy” workers. His grand designs on the world shirt market, however, brought the enterprise to the brink of bankruptcy.
 Smashing the Iron Rice Pot, pp62, 100. For workers’ reaction to contract management, see Progress in Urban Reform, pp47-48. [Note: this was footnote 21a in the original. Subsequent footnotes 22-83 have been renumbered as 23-84.]
 Progress in Urban Reform, p124.
 Beijing Review, September/October 1986.
 Smashing the Iron Rice Pot, p74.
 George Gorton, “China since the Cultural Revolution”, in International Socialism, 2:23, Spring 1984, p54.
 Smashing the Iron Rice Pot, p140.
 ibid., p142.
 ibid., p153.
 Any resemblance between this and the current Dawkins/ALP plans to reform Australian education is entirely deliberate.
 I am forcibly reminded of George Orwell’s remark in 1937: “In every country in the world a huge tribe of party hacks and sleek little professors are busy proving that socialism means no more than a planned state capitalism with the grab motive left intact.”
 Fundamental Issues in Present-Day China, p106.
 Tom O’ Lincoln, State Capitalism and Marxist Theory, Melbourne, 1987, p10.
 See for example Progress in Urban Reform, p127.
 Cited in Tony Cliff, State Capitalism in Russia, Bookmarks, 1988, p204.
 ibid., p201.
 Tom O’ Lincoln, “Gorbachev and the Fate of Socialism”, Socialist Action, no. 35, p7.
 State Capitalism in Russia, chapter 7.
 ibid., pp152-3.
 Guardian, July 1988.
 Beijing Review, 22-28 August 1988, pp22-3.
 Beijing Review, 9-15 November 1987, special supplement, page v.
 Smashing the Iron Rice Pot, page vii.
 Far Eastern Economic Review, 19 March 1987, p77.
 To Get Rich is Glorious, p22; Far Eastern Economic Review, 20 March 1986, p91.
 To Get Rich is Glorious, pp36, 39; Socialist Worker Review, 77, June 1985, p15; The Age, 25 November 1985.
 Of Bread and Guns, p179.
 Beverley Hooper, Youth in China, Penguin 1985, p130.
 Beijing Review, 10, 1982, cited in China After Mao, Beijing, 1984, p53.
 Far Eastern Economic Review, 20 March 1986, p62.
 Cited in To Get Rich is Glorious, p76.
 China Daily, March 1987. [date not given]
 China Daily, 21 March 1987.
 To Get Rich is Glorious, p76.
 Youth in China, pp27, 152.
 Far Eastern Economic Review, 20 March 1986, p78.
 Cited in China After Mao, p192.
 Economist, 21 September 1985, p26.
 To Get Rich is Glorious, p82.
 Lenin wrote in the 1920s, “Small production engenders capitalism and the bourgeoisie continuously, daily, hourly, spontaneously, and on a mass scale”.
 China After Mao, pp182-3.
 To Get Rich is Glorious, pp21-2.
 The reasons for Zhang’s success are not hard to find. His workers are paid according to what they produce; they are fined ¥2 for every five minutes late; they are entitled to two days off per month; and women employees are not allowed to marry for three years. All this, and more, was reported in The Weekend Australian, 8-9 October 1988.
 Progress in Urban Reform, p144.
 Guardian, July 1988.
 Fundamental Issues in Present-Day China, p57.
 Far Eastern Economic Review, 11 September 1986, p122.
 Far Eastern Economic Review, 19 March 1987, p76.
 See Peter Van Ness and Satish Raichur, “Dilemmas of Socialist Development”, in China from Mao to Deng (Bulletin of Concerned Asian Scholars, 1983).
 Youth in China, p86; Far Eastern Economic Review, 19 March 1987, p62; Beijing Review, August 1988.
 Far Eastern Economic Review, 19 March 1987, p65.
 Financial Review, February 1987.
 Let me illustrate this with some random headlines (the sources don’t matter, because they’re all the same): “Reform policies showing signs of collapse”, July 1986); “Deng’s reforms under threat” (September 1987); “Reform Setback” January 1988); “Reform Crisis” (August 1988). Various commentators got very worked up about the 13th CCP Congress (October 1987) which met in the aftermath of the student demos, and was meant to represent the highpoint of the “conservative backlash”. In fact it did little except to confirm that the reforms would continue – and made the island of Hainan into a free-trade zone to compete with Hong Kong and Taiwan. The most recent fuss has been about the National People’s Congress which met this year in the wake of the price reform mess. The central leadership’s attempts to slow the reform process were attacked by delegates, especially from the prosperous coastal regions. At the same time, the regime decided to give the Shenzhen SEZ the right to make its own laws – hardly a rigorous reassertion of central planning and direction.
 To Get Rich is Glorious, p65; Fundamental Issues in Present-Day China, p26; Smashing the Iron Rice Pot, pp60-1 ; Youth in China, p83. The Beijing press reported that a woman was accidentally knocked over by one of the city’s wealthy street traders who was hurrying out of an up-market restaurant. She demanded ¥300 compensation, saying, “It’s not because I want the money, but because you have just spent on one meal what most people earn in three months. It’s not right.”
 Space doesn’t permit any further account of workers’ struggles over the last ten years – it would also be a considerable research job. For the best information so far, see Smashing the Iron Rice Pot.
 Far Eastern Economic Review, 19 March 1987, p57.
 Reported on ABC radio, AM, 18 August 1988.
 Smashing the Iron Rice Pot, p58.
 ABC radio, 11 September 1988.
 Youth in China, p104.
 Newsweek, 1986 (absent-mindedly undated).
 The End of the Third World, p202.