A Contribution to the Debate on the Character of China’s Political Economy, Heiko Khoo. Reproduced from Issue 1 of the journal.

This article considers theoretical issues discussed by Marxists studying the nature of China’s socio-economic system. It deals with the contradictory dynamics of a transitional economy under bureaucratic control and rejects the theory that China is capitalist.

The contention that China is capitalist is supported by a wide variety of facts and it is the dominant popular and academic consensus. A major problem with this is definitional. Divergent concepts of capitalism and socialism will produce a different systemic match. The categories employed determine the outcome.

I suggest that a viable theory to explain China’s contradictory dynamics should be based on a variant of Preobrazhensky’s concept of ‘primitive socialist accumulation’. And the fundamental characteristics of China’s system are rooted in the historical genesis of its bureaucratic state planning system.

Karl Marx developed abstract definitions of capitalism and communism that enable us to compare specific states with his theoretical categories. However, Marx’s writings on communism and socialism are limited to general outlines and a few specific suggestions. His concept of socialism begins with a society in which the productivity of labour equals that of capitalism, which provides the material precondition for socialism. In his speculation on the transformation from capitalism to socialism Marx envisaged an inevitable period of transition from capitalism to socialism. But he barely considered the likely consequences of a socialist revolution in an undeveloped form of capitalism.

Pete Glover uses the prevalence of commodity production in China to categorise China as capitalist. Certainly, Marx predicted that the ‘social product’ would replace the ‘commodity’ under socialism. However, his concept of transition implied that these basic economic units would co-exist for some time during the period of development of the socialist productive forces and culture – until the social product finally ousts the commodity across the board.

The Russian Revolution established the first post-capitalist socio-economic system. The revolutionary overthrow of backward capitalism was followed by a prolonged period in which the pressures of economic development gave rise to a bureaucratic system of planning and power- with all its attendant strengths and maladies.

What is the basic character of such a transitional economy? It is composed of features of capitalism and socialism. Where capitalist productive potential has not fully developed – the socialist state may have to support its introduction. Lenin referred to ‘state capitalism’ and, in order to develop the economy, he replaced experiments in workers’ control with one-man management; high wage differentials, market exchange, commodity production, stock markets and foreign investment. And he exhorted communists to ‘learn to trade’.

A socialist state promotes commodity production and the use of money to facilitate the development of the productive forces. Trotsky believed that the role of money and trade would experience an ‘extraordinary extension’ in a planned economy (Trotsky, 1999: 52). Decisions about specific policy orientation will be contingent on the balance of economic forces, political circumstances and priorities. The instruments at the disposal of the revolutionary state should be used to limit, temper, and control, the negative effects of capitalist relations – that stem from money and commodity production – when they impinge on, influence, and amend, conscious socialist planning.

In the 1920s Preobrazhensky developed a Marxist theory of the economic law governing the transition from capitalism to socialism. He called this primitive socialist accumulation (Preobrazhensky, 1965). His theory proposes that socialist economic policy in a transitional economy needs to consciously organise the accumulation of state capital. It does this by extracting a surplus from pre-socialist economic formations – exploiting the private sector until the economy outstrips capitalism.

The conflict between socialist and capitalist property relations finds expression in the dominant method of economic coordination – planning or markets. Primitive socialist accumulation regulates the economy by systematically organising the extraction of surplus from the private sector but it also needs to ensure that a proportionate balance between different sectors of the economy is established and reproduced.

Although the private sector clashes with the state they are also compelled to establish a certain modus-videndi with each other. The political and economic weakness of the capitalist class prevents it from reorganising the economy in its interests. But the economic weakness of the state economy also restricts its ability to realise its plans without private capital. A capitalist resolution to this clash of class interests takes the form of a political struggle to overthrow the state or to capture it from the inside. However, China’s capitalists are generally a pliant and subordinate force.

From a bureaucratic standpoint the outright repression of private capital may appear to offer a solution to problems generated by the clash between state and private interests. It allows bureaucratic planning to force economic growth but, without private capital, the state is entirely dependent on its own restricted resources. If the state seizes scattered private resources, it eradicates the motivation of private producers and reduces their potential long-term contribution towards the accumulation of socialist capital.

The laws of a planned economy should be governed by regularity and necessity. For example, if a socialist state decides to build a new city of a million inhabitants it has to consciously mobilise the required resources and manpower. Ideally, one planning decision connects to another, and they become unified into a coherent set of actions that create the city and its infrastructure that is fit for purpose. To build the city’s roads, houses, shops, etc. requires machinery, equipment and manpower; and the workforce needs food, clothing and shelter etc. Of course is possible to build a city by means of planning or markets and all modern cities are built by some combination of the two. However, in a transitional economy moving towards socialism, macro-level planning principles – the law of planning – based on primitive socialist accumulation will act as the main driving force building the city. Indeed, I refer to the building of cities because the process of planned urbanisation in contemporary China has no parallel in any capitalist economy, in terms of its speed and scale, and in the role of planning in driving this process.

Without the law of planning – the law of value i.e. spontaneous market relations based on commodity production, will dominate and reshape the economic activity and structure in its own image. The way that planning mobilises labour and resources, fundamentally differs to the way capitalism does. The law of value conflicts and coexists with the law of planning but is subordinate to planning principles.

Socialist planning differs from planning in a developing transitional economy. Socialist planning presupposes an advanced economy and a waning or non-existent private sector. Primitive socialist accumulation involves applying the law of planning – where commodity production is influential and may still be expanding – to replace pre-capitalist economic relations.

In the Soviet Union the collectivisation of agriculture, and ubiquitous nationalisation in the late 1920s and early 1930s, carried through primitive accumulation prematurely. This cut off the enormous potential of more gradual accumulation of private surplus that could be generated by flourishing private productive activity. The specific bureaucratic form of state capital accumulation, and the power relations that grew out of this, came to be called Stalinism.

Preobrazhensky did not investigate how the rise of bureaucratic planning in a transitional economy might itself amend the principles of primitive socialist accumulation. He viewed bureaucratic degeneration in the 1920s as containable phenomena. At the pinnacle of Stalinist bureaucratic power and planning, commodity production and the law of value were suppressed without effectively exploiting their productive potential. This system developed in various bureaucratically controlled planned economies. These were countries invariably led by communist parties, or by parties with a similar ideology and organisational power structure.

The Chinese Communist Party (CPC) established many liberated zones from 1929 onwards; and it designed and exercised local state power in them until 1949. These are the earliest and most enduring examples of isolated statelets ruled by a Communist party and its guerrilla army. After 1949, all state power passed to the CPC, and its organs of exclusive power penetrated into every institution, community and family. The economic foundation of the system was state-ownership of the commanding heights. This political-legal ownership form is also the economic foundation of socialism. In this sense it corresponds to that of a worker’s state, but one where the bureaucracy is in command of society. The official ideology continues to operate within the terms of reference of communism and socialism. This ideology is not accidental: rather, it is embedded in a specific historical relation of forces between various classes and interests. Bureaucratic power emanates from the vast panoply of the CPCs interwoven agencies of control and organisation over society.

During the economic transition from backward capitalism to socialism state planning should be organised to assist primitive socialist accumulation. Ideally this is an economy in which state ownership is unified and coordinated to effectively meet the needs of the masses. And in a communist society it is envisaged that people will administer things rather than administering people.

In China the CPC and the state bureaucracy organises society to expand its terrain of influence and power. This produces a self-replicating and automatic dynamic – to reproduce the existing correlation of power relations. The process revolves around the fulfilment of state and local planning targets and objectives, which is enforced by the punishment and reward systems for cadres.

Therefore, for example, if the party leadership demands that state enterprises function as profit-making entities, cadres can realise this demand by their own methods. So, to increase profits, state-owned enterprises borrow from state-banks at low interest and sell, for example to a local government, at a price that is guaranteed to generate the desired profit rate. What may appear to be a state enterprise functioning on profit-making principles conceals the reality of a bureaucratically manufactured illusion. Indeed, in China the overwhelming majority of bank loans are allocated to state enterprises, and this helps to manufacture their profits. In this way, the dominance of profit-driven capitalist competition in the state sector is largely a fictional appearance. And, if loans are simply rolled over, they constitute non-repayable grants designed to sustain state enterprises and thereby to protect and extend the influence of the party’s system of bureaucratic power.

It is the party’s planning policies that determine the pattern of accumulation and economic dynamics. They unify the state monopoly of power with state dominance of the economy to shape society. The dynamics of capitalism are organised by the profit-seeking investment of private enterprises. State power is subordinate to this objective and the private sector dominates the economy.

The contention that China is capitalist relies on the idea that the overall purpose of the CPC and the state bureaucracy is to serve and reproduce capitalism. This perspective is reinforced by private accumulation by party members, which is widely documented, and reaches into the upper layers of the CPC leadership and their entourage. Innumerable examples of this process are revealed in the party’s own media outlets, in scholarly research, and reports in the world’s media. However, an independent capitalist class with its own political organisations and identity is absent. The CPC and the state’s ideological idiosyncrasies remain avowedly non-capitalist – despite legal recognition of private property, and capitalists being permitted to join the party. However, it is possible to interpret this as the CPC concealing its bourgeois transformation to maintain the stability of its dictatorial rule.

The most extreme and consistent variant of this theory is that the CPC bureaucracy – as a whole – constitutes a particular and unique type of capitalist class. For example, Au Loong Yu uses Marxist theory to suggest that the bureaucracy has become a capitalist class – and one that ‘is more than capable of containing the economic cycle’ (Au et al., 2012:49) and therefore its vulnerability is political rather than economic. This corresponds closely to Nan Lin ‘s (Lin, 2011) theory that China operates a new form of ‘centrally managed capitalism’ – driven by economic growth – not the pursuit of profit. Such forced growth – with its primary emphasis on investment – was central to the dynamics of Stalinist economies everywhere, because it corresponds with the interests of all levels of the party and bureaucracy. True, capitalists also incline towards expansion and growth, but their investments are shaped by profit seeking and tempered by the risk of loss. For the bureaucracy ‘there is an almost total lack of internal, self-imposed restraint that might resist this drive. The investment hunger is ubiquitous‘ (Kornai, 2007: 163). If this system is a form of capitalism – based on the CPC and its state bureaucracy – it is a new and unique form.

If this is true, it is possible that the success of Chinese capitalism over the last 35 years will be emulated in other developing states. In which case, the ‘Beijing consensus’ may yet come to dominate the world. That is, unless the internal contradictions of this new type of capitalism, which remain undefined, produce a crisis that undermines it and gives rise to a more familiar form of capitalism.

Alternatively, a more simple explanation is that China’s system is not driven by capitalism. Indeed, the continued rule of the CPC and its bureaucracy can be attributed to its control and suppression of capitalism within the parameters of bureaucratically planned ‘primitive socialist accumulation’. I hesitate to use the words ‘primitive socialist accumulation’ because the bureaucracy manages a transitional economy, which can move towards either capitalism or socialism. In the same way primitive accumulation has a dual and contradictory character: as it can and does, facilitate both ‘socialist’ and capitalist accumulation. The legal and illegal accumulation of capital by party and state officials and their entourage is a form of primitive capitalist accumulation.

Few dispute that Eastern Europe or former Soviet States are now capitalist but China retains essentially the same system of state power intact. Bureaucratic state planning of primitive accumulation continues to drive China’s economic system. The question remains accumulation for whom?

I believe that the bureaucracy is not the working class or the capitalist class – the two classes contending for power in the present epoch according to Marx’s theory. Rather, it stands above them with a large degree of autonomy both from the workers and the capitalists – and it rules largely in its own interests. However, as it rests on state property it is compelled to defend this source of power, prestige and authority. Naturally, as private accumulation by party and state bureaucrats grows, capitalist interests are also expressed inside the party. However, the increasing size and objective strength of the working class is a powerful counter-balance – whose influence finds expression not only in social unrest but also constitutes the primary consideration driving party and state policy. Social stability is another term for keeping workers’ unrest under control, and the pursuit of growth through urbanisation is an economic means to this end. The current struggle against corruption in China can be viewed as synonymous (as far as appearances are concerned) with purging capitalist degeneration of the Communist Party which Xi Jinping describes as ‘a life and death struggle’ which will determine the fate of the party.

References

Au, L. Y., Bai, R., Jetin, B., Rousset, P., International Institute For, R. & Education 2012. China’s rise : strength and fragility, Pontypool, Wales, Merlin Press in association with Resistance Books and IIRE.

Kornai, J. N. 2007. The socialist system : the political economy of communism, Oxford, Clarendon Press.

Lin, N. 2011. Capitalism in China: A Centrally Managed Capitalism (CMC) and Its Future. Management and Organization Review, 7, 63-96.

Preobrazhensky, E. A. 1965. The new economics, Oxford, Oxfordshire, Clarendon Press.

Trotsky, L. 1999. The revolution betrayed : what is the Soviet Union and where is it going?, London, Union Books.

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