China models a new type of socialism
China models a new type of socialism
The most advanced example of a new socioeconomic formation
Alberto Gabrielle and Elias Jabbour, in Socialist Economic Development in the 21st Century, maintain that a new type of socioeconomic formation has emerged in the world-economy. Several national economies, including China, have developed socioeconomic formations that mix socialist and capitalist modes of production in the framework of a socialist-oriented development strategy, in which the state exerts control over the national economy. This new type of socioeconomic formation, they note, must pursue its objectives in the context of a world-economy with a capitalist mode of production. See “Socialist socioeconomic formations: Lessons from real socialism in the global South,” June 7, 2022.
China’s post-1978 New Developmentalist approach
Gabrielle and Jabbour maintain that the People’s Republic, both in the time of Mao and since 1978, has forged two development projects that are developmentalist, that is, oriented to catching up with the central capitalist countries. Both development projects were essentially socialistic in nature, structurally different from advanced and developing capitalist countries. At the same time, in many aspects, China’s dynamics and institutions were not too dissimilar from the catching up policies of other East Asian countries, especially Japan and South Korea.
China has taken what Gabrielle and Jabbour call the New Developmentalist approach, which like the dependency theory of previous decades, emphasizes the tendency toward the deterioration of terms of trade for the raw materials of the developing countries. But unlike dependency theory, and consistent with the Asian newly industrialized countries (NICs), the New Developmentalist model rejects the prevailing tendency to adopt monetary policies that overvalue national currencies. Such a policy, in spite of short-term benefits, is not conducive to a high rate of investment in relatively advanced sectors of the developing economies, because it makes access to the world’s best available technologies overly expensive, weakening the capacity of national enterprises to produce tradable manufactures. There is, they maintain, mounting evidence of the long-term relation between competitive currency exchange rates and economic growth.
Gabrielle and Jabbour maintain that a competitive rate of exchange cannot be attained simply through fiscal and monetary moderation. It also requires a high degree of fiscal sovereignty. To attain fiscal sovereignty, they advocate mixed forms of property in which socialized ownership is dominant and in which the public national financial system plays the role of facilitating the services sector.
Thus, Gabrielle and Jabbour maintain that there needs to be a redefinition of what constitutes the essence of the socialist economic system beyond the notion of state ownership of the main means of production. Today we can understand socialism to include “state capabilities” or state capacities, that is, the ability of states to control asset and income flows through taxation and regulation.
New Developmentalism rejects external financing, which only works in particular situations. In general, external indebtedness leads to a long-run exchange rate appreciation. In all the successful catching up countries, Gabrielle and Jabbour maintain, domestic financing has been paramount. There generally was some form of state intervention to promote the financing of investment in key sectors driving the economy, either directly by state banks or indirectly with state subsidized credit lines operated by private banks. Gabrielle and Jabbour maintain that a strong state role is necessary, because financing and funding mechanisms do not arise spontaneously through the operation of the market.
Rural reform in China: Liberalization without privatization
New China prior to the post-1978 reform was egalitarian, made possible by China’s central planning and large public and collective enterprises, in addition to its orientation to ignore the law of value with respect to prices and wages. Gabrielle and Jabbour note that this form of socialism allowed China to feed its population (under normal circumstance), to accomplish basic industrialization, and advance significantly in social and human development.
However, as of the late 1970s, China had not been able to engineer a significant catching up process with respect to the advanced capitalist countries of the West and Japan, and it did not compare favorably with the Asian NICs. Therefore, the Communist Party of China proposed a market-oriented transformation, beginning with the agricultural sector, based on Deng Xiaoping’s understanding that the peasantry could be the starting engine of a new development strategy. Initial reforms focused on food supply restoration, designed not only to overcome scarcity but also to enable the emergence of a large domestic market for manufactured consumer goods.
Reform in the agricultural sector expanded across the country in 1978, using as a model a local experiment in Anhui province that had started in the 1970s. Contracts between peasant households and the state, which established production quotas to be delivered to the state, allowed farmers to sell the surplus in local markets. Subsequently, there was an increase in procurement prices, as well as major public investments aimed at increasing agricultural productivity. In the long-term, productivity increased, and production steadily changed from grains to higher-value cash crops.
The new project is based in local markets and family-based productive units. Regions are relatively autonomous, but not severed from national and international exchange networks.
China’s reform in agricultural was not a reversion to capitalism. The reform did not completely recreate the land market or the labor market; land ownership remained in the hands of the state. This partial restoration of the market unleased a “major and long-lasting production boom.”
The development of large-scale state-owned business enterprises
The key to economic development is not a limited state, as bourgeois and especially neoliberal ideology have it, but a strong state, a state capable of formulating a long-term development plan and implementing interrelated economic interventions in guiding the country’s development; a state capable of commanding public and private firms in implementing nationwide coordination of the investment decisions of the state’s policymakers.
The plan must be market compatible. It must be based on acceptance of the necessary relation among production and wages and other economic laws. But, as Gabrielle and Jabbour observe, the more the state can direct the economy toward a rational development plan, the more it will progressively emancipate itself from the tyranny of economic laws and attend to the human needs of the people.
Gabrielle and Jabbour maintain that, in the development of this capacity, the Chinese state has advanced more than any other. It arrived to this position through innovative market-oriented reforms of an industrial sector that had been completely dominated by state-owned enterprises and centralized managerial decisions. The reform began slowly in the late 1970s, constrained by political, economic, social, and ideological considerations. However, it began to gain strength in the 1990s.
The first market-oriented experiments were launched in six factories in 1978. They involved the application of the above-mentioned rural contract to the industrial sector, allowing enterprises to retain part of their profits for reinvestments. In 1983, the strategy was extended to the entire industrial sector. It was codified in 1984 in an industrial reform law that granted greater autonomy to managers of state-owned enterprises, allowing them sell to over-quota products at prices up to 20% higher than those fixed by the plan.
There were internal debates on the country’s development strategy from 1988 to 1992, such that the government returned to a command model in 1989. But this process was reversed in 1992 when the reformers, led by Deng Xiaoping, prevailed at the Fourteenth National Congress of the Party.
A new cycle of reforms in 1994 led to major infrastructure projects that connected the entire country, and to industrial policies aimed at entering the world technology frontier. In addition, state-owned companies were given greater access to credit, and commercial and development banks were granted more autonomy. The Company Law of 1994 sought to institutionally separate the government from ordinary management activities, which were carried out by highly trained professional administrators with a high degree of autonomy. By the 2000s, state owned enterprises had become larger, more capital-intensive, knowledge-intensive, productive, and profitable than they had been in the late 1990s. Efficiency and profitability compared favorably with that of the private enterprises, which also had gained space in the post-1978 reform.
Post-1978 China also has seen the need for monetary sovereignty, in which the government has control of the monetary system of the country. Accordingly, the banking and financial system of China are under the control of the state, so that the financial sector is enlisted to foster the development of the real economy, in accordance with the development plans of the Chinese state.
Thus, in sum, through the market reforms in its economic system of state ownership and central planning, developed in the era of Mao, China has developed a productive state-directed large industrial sector, able to dominate the domestic market and to compete in foreign markets. In abandoning the classic socialist approach of centralized planning, China did not turn to capitalism. Rather, it created space for the market in a state-directed economy, in which the state’s leaders are driven by socialist values of providing for the human needs and socioeconomic rights of all and protecting the economic sovereignty of the nation.
The question of inequality resulting from the post-1978 reforms
Gabrielle and Jabbour report that the new labor contracts resulted in the dismantling of the rural communes, which led to the rapid demise of basic social services in health. In addition, the growth of urban-rural inequality in 1980s led to massive migration to cities. They maintain that, beginning in 2004, there has been attention to rural needs, seeking to address the inequality generated by the reform. New policies and strategies have been developed with respect to taxes and medicine, the pension system, and the minimum wage. As is widely recognized, China has eliminated extreme poverty, due to a national plan dedicated to this end. In addition, institutions designed to support sustained investment in rural infrastructure, roads, and railways have been developed.
The role of the Party and the state
Gabrielle and Jabbour maintain that the Communist Party of China commands the market. They maintain that the Party, after some wavering in the 1990s and early 2000s, has been firm in upholding the principle of the centrality and preeminence of state ownership in the economy. The approach of the party is different, they maintain, from the worshipping of the market in bourgeois ideology. In China, the Party commands the market.
In explaining the commanding power of the Party over the economy, Gabrielle and Jabbour quote C. Holtz, who declares that “the Party makes and adjusts the law. I.e., the Party cannot be subjected to an independent regulatory framework and formal institutions that operate independently of the Party, and cannot submit to market outcomes created by private actors.” The Party has, Holtz says, “absolute authority.”
This may be true in a practical sense, especially with respect to economic decisions, given the strong support of the Party and allied parties among the elected deputies of the National People’s Congress. But the Holtz quotation is an imprecise and misleading formulation that ignores the structures of people’s power that have been developed since the triumph of the Chinese Revolution in 1949. More precisely expressed, the Party (through its representatives in the appropriate institutions) presents a plan to the National People’s Congress, which is the highest authority in the state. Such legislative proposals go through a process of consultation and modification in various commissions, seeking consensus, before they are presented to the People’s Congress for a vote. Thus, the post-1978 laws establishing state control of an expanding market were based on the recommendations of the Party and were enacted with the support of the elected deputies of the people. See “Political Structures in Socialist China: A people’s alternative to Western representative democracy,” October 8, 2021.
Apparently unaware or dismissive of these essential elements of the Chinese political process, Gabrielle and Jabbour believe that the dominance of the Party became not only a de facto but also an institutional reality in 2018, when the National People’s Congress modified the Constitution to state: “The defining feature of socialism with Chinese characteristics is the leadership of the Communist Party of China.” Here they misinterpret the meaning of “leadership.” The Party leads, in the sense that it educates, exhorts, and proposes. But the People’s Congress, formed by the elected deputies of the people, decide. And the administrators of the state, whose highest members are elected by the Congress, implement.
Gabrielle and Jabbouor acknowledge that “ironfisted political control” by the Party may seem unsettling from the point of view of Western corporations, but in their view, the important thing is that it works. Here they are selling the Chinese socialist project short. The Chinese system is not only advanced economically, with its process of state-directed economic development, in accordance with a long-term development plan. The Chinese system also is advanced politically, with its structures of people’s power. China, through its socialist revolution, has developed an advanced political-economic system.
It is logical and reasonable that it be so, given the interrelatedness of politics and economy. The long-lasting socialist projects in countries like China, Vietnam, and Cuba have sustained themselves not only by learning from the limitations of centralized state-controlled economies and introducing market mechanisms in a socialist-oriented and state-directed system, but also by simultaneously developing structures of popular participation and people’s power, ensuring the ultimate control of the political-economic system by the delegates and deputies of the people. These advanced socialist political-economic systems are establishing themselves precisely in the historic moment in which the political-economy of capitalism, with its anti-popular economic neoliberalism and its electoral farse in the political terrain, is increasingly making evident its decadence and unsustainability.
From the advanced socialist political-economic systems, like that of China, we learn that a strong and capable state is not authoritarian, if it is controlled by the elected delegates of the people. A strong state directed by political and social organizations of the people is not an enemy of the people, but an arm of the people, used by the people in defense of themselves against domestic and foreign exploiters.
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