Reply to Heiko Khoo on China’s Political Economy, Peter Glover, on behalf of the Editorial Board. Reproduced from Issue 1 of the journal

[The original article by Heiko Khoo is here]

At the heart of this discussion, I believe two important theories are confused. My contention is 1 ) Heiko Khoo doesn’t fully understand Preobrazhensky, and 2) Preobrazhensky doesn’t fully understand Marx. In this article I deal primarily with the first point. I elaborate the second point in another article.

Is China a “Transitional Economy”?

Heiko Khoo says: “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.”

Heiko Khoo explains that the co-existence of commodity with the “social product” in the transition towards socialism is entirely in accordance with Marx’s thinking. But more than that, he views Marx’s thinking through the prism of Preobrazhensky. Marxist World has significant differences with some of the ideas formulated by Preobrazhensky. He departs from Marx in important ways. For example he appears to have a linear view of the development of capitalism and the transition to socialism. He describes this process in several places in his book, The New Economics: “In general the war period revealed with complete clarity whither the system of monopoly capitalism is tending; it showed quite clearly that the present day economic system is objectively ripe for socialist planned production and that everything depends only on the coming of the master, that is, on the action of the working class.”.

During the First World War, the state and state-planning played an important role in the economies of the warring states, playing the greatest role in Germany. Preobrazhensky saw the state capitalism of the war economies as part of an historical trend. State planning seemed like the inevitable next step after state capitalism in replacing commodity production.

Marxist World rejects this teleological approach and this extremely narrow definition of socialism. However, if one accepts Preobrazhensky’s premises that state planning equals socialism, as does Heiko Khoo, does the planned economy dominate the Chinese economy? Preobrazhensky accepted that commodity production can exist alongside the “social product” in a transitional society, provided that the state was in control. But is the Chinese state in control?

The subordination of a plan to the private sector is a myth. The state plan has gone. Planning in China is much more like regulation. China, like every advanced country sets broad targets from everything from CO2 output to the number of state dwellings to be built. China’s regulation is not unique. The EU, for example has massive regulatory powers. One example: The European Central Bank (ECB) is the central bank for Europe’s single currency, the euro. The ECB’s main task is to maintain the euro’s purchasing power and price stability in the euro area. But that doesn’t make the EU a Socialist proto-state, despite what some Tories think. There are countless other regulatory features of the EU.

“What, then, do planners do in China? The answer is: not as much as they used to. In fact, it’s difficult to refer to today’s economic agencies as “planners”; instead, they look like “regulators”—and increasingly similar to the regulatory agencies we see elsewhere in the world. The state still sets prices for a restricted number of goods and services, but the list is no longer unusual by emerging market standards… the former State Planning Commission has been renamed the State Development and Reform Commission, and former industrial line ministries have been reformed into industrial regulatory agencies, or else simply disbanded and folded into the new Ministry of Commerce. China does still adopt a Five-Year Plan every half-decade, but that document now looks less like a detailed line-item plan, and more like a statement of broad development goals.” (Anderson, 2006)

Contradiction

What is a contradiction in class society? For Marx it described a phenomenon that was something sharp and antagonistic. Heiko Khoo’s concept of contradiction is the opposite. Assuming that China is not capitalist, then, with the growth of market penetration in China over the last three decades, one would suppose that contradictions would have grown to incredible proportions. But Heiko Khoo’s concept of primitive socialist accumulation – the co-existence of commodity production and the social product – does not describe a concept of contradiction but one of symbiosis. As long as surplus can be pumped out of the private sector to support the state sector then there is no contradiction at all. The state sector, according to this logic, needs the private sector. If there is no private sector then there can be no surplus, and therefore no social product and no socialism. The more capitalism there is, the more the surplus and the stronger grows communism!

What Did Preobrazhensky Mean by Co-existence?

The concept of “state versus private” is not used in the same sense by Preobrazhensky and Heiko Khoo. Firstly, Preobrazhensky saw the co-existence between state and private sector as the co-existence of peasant production in the vastness of Russia alongside the development of the state-owned industrial sector. It was a problem of town versus countryside. Also, Preobrazhensky anticipated the possibility of a capitalist restoration even on the basis of small scale peasant production: “Without a rapid development of the state economy there cannot be a sufficiently rapid development of peasant cooperation, unless this cooperation is to mean cooperation directed against us.” Secondly, Preobrazhensky saw the peasant economy being eventually absorbed into the growing state sector; “…the peasant economy is drawn more and more into the socialist orbit, the frontiers between the classes will be obliterated and will disappear in classless society.”

Heiko Khoo’s idea of state versus private is not the contradiction of town and country, nor of peasant and worker. The agricultural sector, although large, accounts for less than 1 0% of Chinese GDP, compared to 33% of GDP in 1 983. The real contradiction in China is between an ever shrinking state sector, now less than 30% of the economy, and the enormous multi-billion dollar capitalist enterprises dominant in every area from the countryside to the city. Heiko Khoo accepts that there is a contradiction between state and private. In the 1 920s, Trotsky and the Left Opposition in the Soviet Union were desperately concerned this form of contradiction, about the rise of capitalist relations under NEP potentially leading to a restoration of capitalism. Where, therefore, are the capitalist uprisings against the transitional “workers’” state in China? After three decades of capitalist growth there is no “White Terror”, no uprising, no passive mass resistance, no withholding of “surplus” from the state sector, not the slightest hint of mass resistance to “socialism” from capitalists in China. Individual capitalists may be punished as they are in the West, but there is no collective class resistance. The resistance takes the form of working class not capitalist resistance against capitalism and the capitalist state. The graph below illustrates this point.

China strikes

(source: China Labour Bulletin. 2016)

Transition to What?

Heiko Khoo says: “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.”

“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)”

“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.”

A “transitional economy” is not an end in itself. Although composed of features of capitalism and socialism, the key word in the phrase is “transitional”. There is a direction in which such an economy is travelling. It isn’t enough to say that a transitional economy is composed of two contradictory features. One must go further and explain how that contradiction will be overcome.

“Developing Productive Potential”?

Heiko says that where capitalist productive potential has not been fully developed the socialist state may have to support its “introduction”. This is a revealing but unintentional admission. He admits that capitalism has a role in developing the productive forces, even under socialism. What does the full-development of “capitalist productive potential” look like? This phrase is confusing because it does not distinguish between a largely agricultural (peasant) society and a society where urbanisation (proletarianisation) has travelled a long distance. Since capitalism is based upon an ever increasing growth of abstract wealth (M-C-M’), in theory there is no end to the development of the capitalist productive forces. Even if the peasantry has all but disappeared it would still be possible to argue that capitalism has latent productive potential. Heiko’s argument is not an argument for socialism but an argument for state-regulated capitalism.

Taxing the Peasants

Heiko Khoo bases his view of the nature of contemporary China on Preobrazhensky’s idea of “primitive socialist accumulation”. This means extracting a surplus from pre-socialist formations in order to develop the “socialist” part of the economy. What pre-socialist formations was Preobrazhensky referring to? “The second question to which we must pay attention here is that of taxing of the private economy in the interests of developing industry. If say, our peasant economy…yields an income three times as big as before the war, which is by no means a utopian prospect…then why should we not take one and a half times as much from it as capitalism took? Or to take an arbitrary numerical example: if capitalism took, say 20 roubles, from 100 roubles of peasant income, why cannot the state take 30 roubles from an income of 300 roubles?” Obviously he is referring to a relationship between industry and agriculture, between worker and peasant. He was referring to taxation and a price scissors between industrial and agricultural products, not a relationship between socialism and giant capitalist industries. The pre-socialist formation Preobrazhensky was referring to was that of the peasant, not the capitalist multinational. In 1 926, the peasantry were not expected to disappear in the cataclysm of forced collectivisation. Instead a progressive tax was suggested to fund the growth of heavy industry. Preobrazhensky, nor anybody in the Bolshevik leadership, envisaged handing over the vast swathes of state production to capitalism. Even Bukharin’s instruction to the peasants to: “Enrich yourselves!” was an over-reaction to the previous period of food requisitioning during War Communism.

What Was the Bolsheviks’ Attitude Towards the NEP?

In the “Platform of the Joint Opposition” written in 1927, which was signed by Preobrazhensky, the extent of commodity production in Russia in the mid-twenties was described thus: “In spite of the comparatively swift reconstruction process in agriculture, the commodity production of [the] peasant economy is very low.” Yet still the Left Opposition saw the growth of a wealthier layer amongst the peasantry as an extremely serious problem, even with the development of commodity production at this extremely low level. They saw the failure of industry, inevitable without assistance from a European socialist revolution, leading to an unavoidable alliance between the poor peasants with the richer: “In the class struggle now going on in the country, the party must stand, not only in words but in deeds, at the head of the farm-hands, the poor peasants, and the basic mass of the middle peasants, and organize them against the exploiting aspirations of the kulak…Agricultural credit must cease to be for the most part a privilege of the well-off circles of the village.”

An extension of capitalist relations in agriculture was ruled out by Trotsky and all of the Bolsheviks outside of the Stalin and Bukharin faction. The idea of capitalism gaining a foothold in the cities was out of the question.

Furthermore, as far back as 1922, Preobrazhensky (1965) in particular was not calling for the lid to be lifted off the free market – in fact it was just the opposite. The earliest comprehensive critique of the NEP came in March 1922, when the Leftist economist, E.A. Preobrazhensky, submitted a set of theses to the Central Committee in advance of the Eleventh Congress, warning of an “emergence of an agricultural bourgeoisie.”

The fear of capitalist restoration was not a theoretical problem: “It has been estimated that between January 1925 and August 1927 there were 1,838 acts of terrorism in the countryside against party and soviet officials…in Irkutsk Okrug, we are told that “bands operated and rural communists were forced to arm themselves with guns when working in the fields” and a German traveller in south-western Siberia at this time reported that rural party members were frequently assaulted and in danger of being killed by the well-off peasants who, the party claimed, operated out of churches.” (Hughes, 1991)

In his detailed study of Siberia under the NEP in the 1920s, James Hughes sets out the scale of the problem of the growth of capitalist relations both within the Communist Party and without:

“The Party leadership was sensitive to the charge of “kulak infiltration” of rural cells made by the Left opposition…at the Third Krai Party Congress (1927), Syrtsov sent out mixed signals in his keynote address. He attempted to neutralise claims made by the Siberian Left Opposition about “kulak growth” by asserting that they had exaggerated the political and economic power of the kulak stratum, yet he himself talked about a “commonwealth of cooperation” between the kulaks and the party in the countryside.” (ibid)

The Communist Party cannot be immune from changes in society. Changes in the Communist Party in the Soviet Union have been documented elsewhere but Hughes explains that the change in composition of the Communist Party of Siberia during NEP took place very quickly and was extensive: “… a large number of rural communists fell into the well-off or kulak stratum…”

Outside of the formal party and state soviet structures too, fears of the rise in capitalist relations held by the Left Opposition were well-founded: “In contrast to the rural soviet, the communal gathering, the regular assembly of the male heads of farming households in a given area attracted the best, most respected and well-off peasants for its elected offices.” (ibid) Bureaucratised as they were, even the Soviets in Siberia were becoming sidelined by an informal capitalist network. One very obvious parallel can be drawn between the USSR and China today in this respect. I used a quote in my last article that neatly sums up the symbiotic relationship between capitalism and the Chinese Communist Party: “I appointed myself Party Secretary of Haier so I can’t have any conflicts with myself, can I?” (Zhang Ruimin, Chief Executive of Haier, China’s largest white goods manufacturer)

Trotsky and Foreign Trade

Heiko Khoo uses a phrase used by Trotsky to justify his claim that a “socialist state” promotes commodity production. This phrase is clearly out of context. Trotsky saw that there would be an increase in the size of the peasant economy, especially after the years of War Communism, not that there would be a gigantic privatisation programme nor the development of an indigenous capitalist class. Trotsky also believed, along with the other Bolsheviks, that the only way for the workers’ state to survive was for the socialist revolution to spread internationally. This isn’t mentioned at all by Heiko Khoo. But it was ABC for all of the Bolsheviks- except Stalin whose project, just like the Chinese bureaucracy, was for “socialism in one country”. In the short term Trotsky thought that to protect the state sector against the encroachment of the private sector it was vital to maintain a state monopoly of foreign trade. It wasn’t only Trotsky who thought this as essential for the survival of the Soviet regime; so did Heiko Khoo’s guide and mentor, Preobrazhensky. Preobrazhensky (1965) pointed out that: “The monopoly of foreign trade and the socialist system of protectionism is a defence of the socialist economy…” When we look at the vast export base of the private sector both foreign and domestic in China, can we be in any doubt of the immense difference between Heiko Khoo’s assumptions and those of Preobrazhensky?

China share of exports

Heiko Khoo himself is a columnist for the state news website china.org.cn which reproduced a Government White Paper in 2011 that tells us the destruction of the state monopoly of foreign trade along with the planned economy has been a smashing success… for capitalism: “Before China adopted the reform and opening up policy in 1978, its foreign trade was governed by mandatory planning, and the state absorbed both the profits and the losses of enterprises. Since the reform and opening up policy was initiated, China’s foreign trade system has completed the transformation from mandatory planning to giving full play to the fundamental role of the market – from state monopoly to full openness.”

It would be helpful, perhaps, if Heiko could share his ideas on Preobrazhensky not only with Marxist World but also with his fellow columnists.

State and Socialist Planning

Heiko Khoo says: “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.”

This is quite easy to refute. China’s urbanisation has been phenomenal but is not unparalleled. The United Nations’ “World Urbanization Prospects” report of 2014, states that between 2014 and 2050: “India is projected to add 404 million urban dwellers, China 292 million…”

In India, the banks were nationalised in the 1960s. Despite India’s urbanisation and the importance of the state in banking, India is no socialist economy!

Heiko Khoo says: “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.”

Socialism presupposes a non-existent, not a waning, private sector. Neither is there a “law of planning”. There are only principles. Heiko Khoo is saying is that an increase in the influence of commodity production is likely in a transitional economy. But, even supposing that a “transitional society” assumes an expanding level of commodity production, surely this must also imply a declining proportion of commodity production over time and a decrease in its significance. Otherwise the transition logically cannot be in the direction of socialism but of capitalism. Extracting surplus from a private sector to a “socialist” sector loses all meaning when capitalist relations continue to grow at a faster rate than “socialist” relations. “…by 2012 the share of industrial output of SOEs (state owned enterprises) was down to 24 percent. The share of urban employment by SOEs was down to 18 percent in 2012, from 99 percent in 1978; privately owned firms accounted for virtually all of the large growth in urban employment since 1978.” (Cooper, 2014)

The idea that the large state involvement undermines the “law of value” in China is also extremely contentious. Heiko implies that the subsidised state sector extracts the surplus generated in the private sector to a qualitatively different extent than the capitalist world. The facts suggest otherwise; “…in any given year an average of 28 per cent of the US listed companies lost money that aggregated to an average of about 1 per cent of US GDP. This picture was not so different from that of China in the same period when, on average, and over the same years, 34 per cent of state-owned firms lost money in any given year in an amount that aggregated to 0.5% of GDP.” (Anderson, 2006)

Take the USA: the Emergency Economic Stabilization Act of 2008 authorised the US Treasury to spend up to $700 billion to purchase distressed assets that included Fannie Mae, Freddie Mac, AIG, General Motors etc. Despite the huge involvement of the US state, not just in bailing out individual companies but in bailing out of the entire capitalist system when Lehman Brothers collapsed, nobody but the Tea Party would suggest that the US state is somehow “socialist”.

Heiko Khoo says: “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.”

This replication of power relations clearly isn’t working as there has been a precipitous decline in the proportion of the population in government employment: “The government, including the Communist Party, employed just over 42 million people in 2011, a large number it is true, but only 31 per thousand of population, compared to 95 in France, 75 in the United States, and 38 in Mexico and Turkey. China raised 22 percent of GDP in taxes at all levels of government, much lower than the levels in rich countries and even lower than the 28 percent average for emerging markets and developing countries.” (Cooper, 2014)

Heiko Khoo says: “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.”

The relationship between the “law of primitive socialist accumulation” and the sources of finance of that accumulation are also extremely interesting to explore. Preobrazhensky (1965) tells us: “Our entire credit system is subordinated to the law of socialist accumulation…”

Even supposing that to have been true, is that the case in China? If we look at just one aspect of this, the direction of the flow of loans, we can see easily the largest proportion is directed towards private business:

China flow of bank loans

“By 2011 the original four state owned banks accounted for only forty four per cent of the assets of the banking system…” (Lardy, 2014)

“…most detailed surveys reveal that state commercial banks are more than happy to lend to large, established private players. Indeed, they compete aggressively for the business. By the same token, banks have proven themselves very reluctant to lend to smaller SOEs without visible cash flow.” (Anderson, 2006)

The “Transitional” Approach

Heiko Khoo says: “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.”

“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.”

Heiko Khoo’s conclusion that the Chinese state has a uniquely independent existence is very similar to the position of the Socialist Party/CWI. Socialist Party Executive Committee member Lynn Walsh’s “transitional” approach defines China as hybrid: “China is no longer a planned economy, but it is not yet a fully capitalist economy.” (Walsh, 2008)

Both Lynn Walsh and Heiko Khoo have left another important factor out of the equation in evaluating the nature of the Chinese state. A society cannot just transition one way and then another as it pleases. Marx’s Capital explains this to us and gives us the necessary tools to understand where we are. Labour power is now a commodity just as any other. This is the way that surplus is extracted in China. It is not a question of the state extracting surplus from the private-sector, it is about capital extracting surplus value from the working class. The looting of the state economy by those with power and influence was the underlying cause of the Tiananmen Square protests. The violent attack by the bureaucracy on the working class cleared the way for the full scale capitalist exploitation we see today. The bureaucracy’s smashing of working class resistance at Tiananmen was the defining counter-revolutionary moment. There is no transitional road back from that point.

A workers’ socialist revolution is on the agenda for the Chinese working class. Such a revolution will pose before the working class the overthrow of capitalism and the guardians of capitalism in the shape of the Chinese Communist Party. Because of this, there has to be an open debate about how to organise a revolutionary organisation and what tactics this organisation should adopt to advance down this road. A socialist society would sweep away commodity production, the law of value and socially necessary labour-time, and would be the most important step to freedom for nearly a century.

References

Anderson, J. 2006. How to Think About China, UBS Investment Research

China Labour Bulletin. 2016. Strikes and protests by China’s workers soar to record heights in 2015, http://www.clb.org.hk/en/content/strikes-and-protests-china%E2%80%99s-workers-soar-record-heights-2015

Chinese Government. 2011 . Reform of and Improvements to China’s Foreign Trade System, http://www.china.org.cn/government/whitepaper/2011-12/07/content_24093576.htm

Cooper, R. 2014. China’s Growing Private Sector, Caixin Online, http://english.caixin.com/2014-1030/100744910.html

Glover, P. 2015. Overcoming contradiction in China, http://marxistworld.net/2015/11/overcoming-contradiction-in-china/

Hughes, J. 1991 . Stalin Siberia and the Crisis of the New Economic Policy, Cambridge University Press

Jonathan, A. 2006. Five Persistent Myths About China’s Banking System, Cato Journal, Vol. 26, No. 2 (Spring/Summer 2006), http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2006/5/cj26n2-4.pdf

Lardy, N. 2014. Markets over Mao: The Rise of Private Business in China, Peterson Institute for International Economics

Preobrazhensky, E. A. 1965. The New Economics, Oxford, Oxfordshire, Clarendon Press. Trotsky, L. 1927. Platform of the Joint Opposition, https://www.marxists.org/archive/trotsky/1927/opposition/ch03.htm

United Nations 2014. World Urbanization Prospects, http://esa.un.org/unpd/wup/highlights/wup2014-highlights.pdf

Walsh, L. 2008. The Character of the Chinese State, Socialism Today Issue 122 October 2008

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1 Comment

    • Michael Pröbsting (RCIT)

      I strongly support the viewpoint that China has become a capitalist country. In fact it would be absurd to speak about a “deformed workers state” or even a “socialist country” given the fact that China has become home of the largest number of billionaires in the world. (See e.g. http://www.thecommunists.net/worldwide/asia/china-s-billionaires/) In fact China has become a capitalist Great Power, i.e. an emerging imperialist country. I would like to draw comrade’s attention to a number of documents in which I have dealt with this issue using many facts and statistics and where I also replied to various critics. (See the subsection of our website dedicated to the issue of China and Russia as emerging imperialist powers, http://www.thecommunists.net/theory/china-russia-as-imperialist-powers/)

      reply

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