EXACERBATION OF THE DIVISION OF LABOR

       

            The division of labor under state capitalism results in conflict between individuals and groups with parochial interests. One of these great conflicts is between the urban areas and the rural areas. Recently, workers in the cities have expanded their absolute income advantage over workers in the country. Furthermore, the state capitalists with interests in the cities and the Four Modernizations have chafed against Maoist restrictions which served to eradicate the difference between city and country. As seen already, firms have already gained the right to keep their profits. This benefits the large and strong enterprises of the city. In the fine style of trickle down economy the cities are told to go off and build their own economies.

 

Bringing into play the role of central cities

                        means “using economically more developed cities as

                         centers to spur on the surrounding countryside, and

                         carry out unified organization of production and

                         circulation, thereby gradually forming economic regions

                         of different scales and types, supported by the

                        central cities.”

  

This is the thrust of one of the so-called three major reforms of recent years.

            In his China’s Economy and the Maoist Strategy, John Gurley derides this kind of strategy as “building on the best.” Neoclassical economists justify this sort of development with two arguments concerning the division of labor.

            One is so-called comparative advantage. Comparative advantage is an iron-clad conservative economic doctrine of neoclassical economics stating that people or societies should only produce what they produce most efficiently relative to other societies and trade for the rest of their needs. For Third World countries this means importing manufactured goods and exporting raw materials. Economically speaking, there is no argument against comparative advantage at any given instant of time. Only historically speaking does it make sense for a producing unit to protect its fledgling industries against outside competition. Also, the political concerns that one has for the power one unit could exert over another economically is not a concern of neoclassical market theories which presume free and equal exchange.

            A second argument concerning where one invests is that of external economies of scale. Simply put, production should be located where inputs can be obtained most cheaply and easily. Also, there is something to be said for being able to sell to the firm next door. Practically speaking, Gurley points to the classic pattern of Third World development where there is an enclave of relatively modern capitalism surrounded by the poorer countryside. Looking at such places, the Maoists have a political critique of the division between cities and countryside. This division of labor is one of the very roots of classes. Only once the implications of class polarization in terms of imperialism, war, unemployment and the general anarchy of production have been assessed economically should the neoclassicals tout comparative advantage in the real world.

            Throughout the writings of recent Chinese economists one finds the conservative side of Marxist and neoclassical economic laws stressed. Xue Muqiao uses Maoist jargon to cover up what he sees as a static division between city and countryside.

 

In the past, some of our comrades harbored the

                        illusion that by that time, every department and every

                        sector of our economy would have reached the world’s

                         advanced levels of production. This is impossible, for

                         China has a large population and an underdeveloped

                        economy. Peasants account for 80 percent of the

                        population, and the levels of development between the

                        sectors of the economy are exceedingly uneven. . . .

                         and the situation is even worse with respect to

                         agriculture. . . . China’s problem lies in that between

                         70 and 80 percent of its population is peasantry, whose

                        income is low. To raise peasants’ income takes time.

                         We hope that when the urban people become

                        prosperous, their prosperity will gradually proliferate

                        to the countryside.

  

            Xue’s colors also come out when he explains how the West escaped China’s problems of conflicts among local interests: “‘Why are they [capitalist countries] free from these problems? Because their enterprises are privately owned and the state has no right to interfere.’” Xue goes on to point out that China’s national needs are “not the business” of local administrative units. A final example of how the Chinese government has come to look at the question of the division of labor is in a Beijing Review article that states that Shanghai should be developed like the Northeast in the United States! The article notes that the wealth of the Northeast took all of U.S. history until the last 10 or 20 years to spread to the South! The emulation of the capitalist countries on the question of development can leave no doubt about the CCP’s intention to oversee the economic breakaway of the cities from the countryside and developed regions from underdeveloped regions.

            Reforms concerning the central role of cities also apply to administration. By February 1984, one-quarter or 541 of China’s rural counties were administered by 121 out of China’s 286 cities in accordance with the reform. Classical tributary-style rural administration by rentier cities seems to be in the making.

            Xue makes other arguments concerning “objective laws of [capitalist] development.” Xue seems to have discovered the neoclassical’s external economies of scale to justify concentrated development.

                        To meet the requirements of large-scale

                         socialized production and the resultant specialization

                         and coordination, many enterprises in capitalist

                        countries have merged with one another to form

                        specialized or joint corporations, which extend their

                       operations beyond the limits of their respective

                        industries, regions, or nations. Although our country

has a different economic system, we are confronted with

                         the same objective requirements arising from large-

scale socialized production.

  

            Xue then discusses vertical integration as in the case of mining, coking, iron-smelting, steel-making, steel-rolling, chemicals and building-materials. This conglomerate would also have agencies for procurement of raw materials, sales, research and design. Furthermore, all the newly vertically integrated monopoly “establishments” are placed under “unified management.” Once again efficiency concerns go hand in hand with increased supervision of labor. The process of vertical integration or concentration of capital involves the breaking of worker class power and the extraction of labor from labor-power.

            More blatantly enshrining the division of labor, He Jianzhang upholds the “new policy of ‘developing comparative advantage.’” “The new policy is to promote competition and improve coordination. As a rule, every region has its comparative advantages as well as its comparative disadvantages.” “Thus, competition would compel large and small self-sufficient enterprises to practice division of labor and better coordination.” Basically, this means that the new policy is to increase trade; encourage specialization and the class polarization that goes along with the variation in the profitability of the different trades. Trade feeds the division of labor and the division of labor necessitates trade.

                                                                                                                                    

 THE ANARCHY OF PRODUCTION

 “COMPETITIVE SOCIALISM”

       

            Many foreign observers found it difficult to interpret subtle economic policy shifts in the first few years after Mao’s death, but a definitive set of economic reforms was initiated in 1979. In a book called China’s Economic Reforms several Chinese economists and officials give a candid and unofficial analysis of the new economic reforms. At several points in the book, it is noted that the book is written to explain to foreigners, especially those worried about apparent capitalist liberalization, why China is still socialist and why the reforms are good for the Chinese people.

            In explaining the new emphasis on the profitability of the enterprise and agricultural unit and the long-range view for giving all economic units financial responsibility for staying afloat, Wang Haibo claims that a socialist profit-run enterprise is different from a capitalist enterprise in five ways. First, there is public ownership and no capitalist class to enjoy the fruits of appropriation. Secondly, there is no capitalist expansion based on profits and for the benefit of capital. Thirdly, there are no capitalist deceptions, just a socialist plan. Fourthly anarchy of production is not aggravated and fifthly, there is no unemployment. Indeed, these are differences between socialist and capitalist economies. However, points two through five are easily belied in the case of China. In particular, the anarchy of production in China is a major root cause of unemployment, poor planning for what planning there is and expansion by capitalist methods.

            Indeed, the Chinese economists suggest that the market is the answer to the anarchy of production. The market supposedly provides information about various products and demands, faster than planning does. One big point of the 1979 reform was the commoditization of the means of production and consumer goods, including housing. The argument for this is that there must be “competitive socialism.” While there is commodity production, there must be competition and since commodity production must continue until at least communism, there is bound to be confusion unless competition is allowed. Stalin and in an oblique way, Mao were wrong according to the new Chinese economists.

            However, by acknowledging the supposed competition under socialism, the Chinese have acknowledged the anarchy of production. The CCP plan is to allow commoditization and competition on the basis of the search for profit. Commoditization, competition and profit are three words that by themselves indicate a reversal of the Cultural Revolution and establishment of state capitalism. Obviously each of these things existed before 1976. Nonetheless, they were not pursued in their own right.

            The Cultural Revolutionaries had a sophisticated understanding of how commoditization, competition and profit could get out of hand and run the economy beyond the conscious dictates of capitalists or consumers. Fundamentally, there exists a tension between exchange-value and use-value. The working class has an interest in the creation of use-value for consumption, leisure-time and favorable work organization. None of these things has necessary counterparts in exchange dictated by survival of the fittest.

            In contrast, Weberian sociologists and neoclassical economists alike criticize socialism as inherently bureaucratic. The case against this popular Western truism is elegantly demonstrated by some statistics on how China has changed as it has become capitalist. First, the information that the market supposedly provides better than planning is not free or spontaneously generated. In 1979 in China there were only 10 advertising enterprises. By 1987, that figure was almost 7,000. “Between 1979 and 1985 domestic Chinese advertising revenues more than doubled each year, reaching $220 million in 1986, of which $14.9 million were revenues from foreign advertisers.” In 1987, 81,000 ad industry employees helped the invisible hand reach 68 percent of China’s population through newspapers, magazines, radios and televisions. “Progress” for China on this score includes the use of lotteries aimed at attracting bank depositors. Perhaps some would argue the superiority of the advertising executive over the planning bureaucrat.

            Secondly, another colorful group of people on the rise that did not exist in Cultural Revolution China is notaries. With the rise of contracts and inheritance of property, notaries are sure to do well as people learn to distrust each other in important business matters.

            Thirdly, China’s 400 million newly created economic contracts generated 7 million disputes in 1983. Thus in one year, the invisible hand hired 10,000 judges to handle the new work. Then, every year for four years from 1983 to 1987, economic disputes doubled.

            Fourthly, The People’s Insurance Company of China increased its income in 1983 by 36% to take in over 1 billion yuan. Here the invisible hand hired 13,000 more employees to add to the previously existing 20,000. Apparently some enterprises have learned that absolute safety is no longer essential now that insurance policies cover accidents. Arson and accidental fire are on the rise.

            Finally, a side-effect of replacing state control of business with taxation is an increase in a beloved institution—the tax-collecting bureaucracy. At least 270 assaults on tax- collectors have been reported as perpetrated by people labelled criminals.

            Hence, it seems a ridiculous propaganda statement to say that socialism is top-heavy with bureaucrats compared with capitalism. What capitalism lacks in economic planners it makes up for in lawyers, judges, notaries, advertising agencies, insurance employees, tax-collectors and a host of other non- productive workers. This is not to mention managers, bankers, speculators or the hottest profession today in the United States—“mergers and acquisitions.”

             Unfortunately, atheoretical provincialism is common not only among the U.S. public but also comparative economists. Typically, national and personal incomes are compared between countries as if the speculator’s “goods and services” were comparable through the medium of money with the public health professional’s. At the same time, the contributions of socialist bureaucrats are seen as totally negative. Commodity fetishism has so permeated Western thinking, that academics usually are incapable of even considering how socialist bureaucrats might have functionally equivalent Western counterparts and what this means for comparative analysis.

            While it is often possible to accomplish the same ends under both capitalism and socialism, it is not possible to use the same means. Given the choice between bureaucratic/political alienation of socialism and market alienation of capitalism, there are a number of good reasons to choose bureaucratic alienation. Above all, bureaucratic alienation is at least as overt as market alienation and can be fought as Mao demonstrated. The social cost of using the invisible hand is that it punishes individuals who are likely to blame themselves for problems that are really systemic. Divorce, violent crimes of passion and mental illness exist in the West to degrees unknown in China even now. If socialist bureaucrats are ready political targets, the free market successfully insulates the capitalist class from blame for economic problems. Failures are more likely experienced as individual matters: workers blame themselves when they become unemployed and capitalists who go broke attribute failure to incorrect investments or the like. In free market societies, anger and frustration is more likely turned inward to result in mental illness, divorce, suicide and homicide of one’s closest associates.

            It is the accomplishment of labelling theory to show that blame the victim ideology can cause crime and mental illness without the existence of systemic causes. The mere fact that the individual is told s/he is wrong becomes self-fulfilling.

            In addition to the incidental social costs of capitalism, capitalism has the problem that it cannot create exchange for participation or self-actualization in work. It is impossible to buy a revolutionary committee by taking a cut in wages. The price of removing a capitalist from his position of power is too great, especially for those who by definition own no large blocks of stock. If it were not, the capitalist would not be a capitalist. A revolutionary committee can be established to insure favorable work conditions through political struggle—revolution.

            Workers have no interest in being squeezed indefinitely in the workplace by the capitalist and state that backs him. The worker does have an interest in the use of existing techniques of production. Unfortunately, whether the capitalist be a competitive capitalist or a state capitalist or an entire country competing against other countries, the capitalist must find the cheapest technique or go out of business. Perfectly useful capital equipment that is “out-of-date” is not useful to the capitalist who would have to hire at below subsistence wages to make a profit and stay afloat with obsolete equipment. Developing countries however, have an especial interest in utilizing unemployed labor and indigenous and other available techniques of production.

            By itself, the market will subordinate efficiency issues of employment of resources to its obsession for obtaining the cheapest technique of production. Since there is nothing inherently socialist about planning, as evidenced by Hitler Germany or Nasser’s Egypt or the Pentagon’s direction of military production, what planning China still does to offset market blindness must be examined empirically.

       

PROBLEMS IN INVESTMENT

       

            Officially the Chinese have called investment “out of control.” In fact, the CCP has on occasion stepped in to stop the rampant projects outside of the state plan that have been responsible for a run away accumulation rate of 35% of GNP. That rate compares to that of the Great Leap—a grave error according to current Chinese leaders. Many if not most of the cut projects are to go unfinished. Even the state’s Baoshan steel complex was postponed.

            In fact, while Mao admitted some error in 1958-59, the current leaders will never regain the control of investment that existed before the state capitalist revolution. Mao sanctioned single year binges in investment like 1958, largely to give the masses a chance to mobilize and learn economic skills and to forge major breakthroughs in social relations such as those obtained by women in the Great Leap. According to British economists Hahn and Matthews Mao’s view of economics has justification. “‘Investment benefits productivity largely because it provides opportunities for learning new methods’” and “‘learning theories show economies of scale from learning, quite different from the indivisibilities etc. of traditional economic theory.’” Not only are mass-mobilization investment binges justified, but also, as long as the interests of the proletariat are kept in mind, it will always be possible to recentralize and curtail investment at a national level. “In the post-Leap period the Central government was able to quickly reassert control over the economy, but in recent years it has been powerless to do so.” Calls for 20% cuts in investment and cancellation of projects like Baoshan only result in investment growth.

            1982 figures show that the problem of investment worsened despite proclaimed desires to reduce the accumulation rate to 25% and reputed parallels “to the ten years of turmoil.” “In our efforts to develop the economy there has existed an outstanding problem of excessive increases in the investments in capital construction. The investments in capital construction across the country last year totaled 55.5 billion yuan, 11.2 billion yuan higher than the previous year, an increase of 25.4 percent.” Furthermore, this is an increase on top of already high levels. 1958 and 1970 are considered two poor years by the current Chinese CP, but

                        the third setback came in 1978 when the investment in

                        capital construction increased by 12.1 billion yuan

                        over the preceding year, and the appropriation for

                        capital construction accounted for 40.7% of the

                        national spending. The accumulation rate was 32.2

                        percent and remained at 31.6-36.5 percent in the next 3

                        years.

  

In the first eleven months of 1983, capital construction increased 10.8% annually over 1982. China’s economy is dominated by the capitalist law “Thou Shalt Accumulate.”

________________________________________________________________

Year                Accumulation as % of national income

1952                                        21.4

1957                                        24.9

1978                                        36.5

1980                                        31.5

1984                                        31.2

1985                                        33.7

Statistical Yearbook of China 1986, p. 20.

__________________________________________________________________

 

            According to Zhong Jingtai, the accumulation rate dropped from 36.5% in 1978 to 30% in 1983. The evidence here stands in contradiction to this figure. Nicholas Lardy says that the Chinese arrive at their investment figures by taking reform investment rates in current price terms which cover up the inflation of consumer goods relative to producer goods.

                        Indeed, it would appear that properly measured the

                        investment rate has actually risen during the period

                        of reform compared to the average of several years

                        prior to reform, differentiating 1979-82 from a

                        seemingly similar period of readjustment (1961-1965)

                        when the investment rate fell by more than half

                        compared to the years of the Great Leap Forward (1958-

                        1960).

  

In 1984, the Chinese economists estimate that capital construction in state enterprises increased over 20% to top 73 billion yuan. In comparison, in Shezhen, Zhuhai, Shantou and Xiamen, where capitalism has its freest rein in so-called “special economic zones” investment increased 120% to 1.25 billion yuan.

            The Chinese leaders are quite conscious of the reasons why investment has gone berserk.

             In 1982, however, because of the all-round improvement

             in the national economy, there was again a sharp

            increase in extra-budgetary investments. Many localities and units had acquired increased decision-

             making power. With more funds at their disposal, they

             were able to embark on many construction projects not included in the plan.

  

The source of these funds was the profit-retention reform which every state enterprise had completed by the end of 1981.

             Extrabudgetary investment surpassed planned investment in 1982. Never surpassing 23% of total investment before 1978, extrabudgetary investment climbed with the reforms from 16.7% in 1978 to 50.2% in 1982. This has resulted in “a situation . . . in which the projects that are included in the planning are squeezed by the projects that are excluded from the planning, and key projects have been squeezed by ordinary projects. There is no guarantee for the investments in state key projects.”

            For this reason, in 1983 ministerial, regional and local government heads were made responsible for cutting back investment in their areas and insure funds for key projects. Local projects also faced a new requirement that they start with a 30% downpayment from local funds. Then, “the centre imposed a 10 percent levy on all non-budgetary funds, receiving in 1984 from source Y12 billion, an amount equal to 16 percent of all capital construction investment.” With these measures, the central government regained a portion of lost control, but still did not allocate a majority of investment funds.

            In 1984, the banking system started its easy money policy of loaning enterprises large sums for construction. This boom in bank lending started another expansionary centrifugal phase that CESRRI economists and others are currently criticizing.

            Indeed, by 1987 individual investment as opposed to collective or state investment had become significant. At 17.1% in 1982, individual investment reached 22.1% of total investment in 1987.

             To meet the demands of the market, some enterprises run behind schedule in meeting state quotas for production, quotas which run at least as low as 40% of production in one pilot project in 1980. As a result of this sort of profiteering at the expense of the state’s supposed plan, in 1981 the state had to purchase 10% of its coal allocations—30 million tons—at market price. Furthermore, the state itself has been lax recently in setting state plans for production.

                        Without state regulation the collective sector

                         tends to develop blindly, leading to waste and

                         anarchy in the economy. Such problems exist

                         now. For example, because plastic goods sell

                        fast at a profit, plastics factories have been

                        established in many places and in many

                        industries far beyond the available supply

                        of raw materials and market demand. Likewise,

                         because cigarette-making is profitable, the

                        opening of many cigarette factories under

                        collective ownership has consumed raw materials

                         intended for large, modern factories, which in

turn operate under capacity.

Yet, despite various disasters engendered by investment allocation driven by the market, the government plunges ahead. “One of the most important achievements of our reform program in recent years,” according to the CESRRI economists is the response of investment to price signals. While investment is not correlated with the growth rate of output value as of 1984, it is “correlated with the rate of growth of the profits/fixed assets ratio. (For 244 sample cases, r=0.1939.)” Saddled with a price structure irrational in capitalist terms and realistically a price structure that will never adhere to conditions even close to the free market ideal, the CESRRI economists would do better to say that the allocation of investment by the invisible hand is one of the most important aspects of capitalist production and its attendant anarchy of production.

PRODUCTION OF THE WRONG GOODS

       

            Various market forces make it difficult to produce the right things even if there is a correct plan. Recently, energy production has been one of the most important if not most important problems in China’s modernization. Beijing Review refers to it as the “great challenge.” However, while the editors of CER brag about the improvements of the current economy over that of Cultural Revolution China, their own figures show that 1977-80 production in oil grew one quarter the speed it did during the period 1966-1976. Furthermore, growth in coal production was lower in the same period. Coal is responsible for 73.8% of China’s energy consumption. Thus, it is very serious that both oil, natural gas and coal production dropped during 1980 and 1981: “as late as 1983, no less than one-fifth of industrial capacity was idle for lack of electric power.” Despite this problem and official policy, the proportion of state investment in energy declined in 1982 before rebounding in 1983 and after.

             The lack of a socialist plan extends to the question of what kinds of production take place in China. For example, while rolled steel has been overproduced for years, steel as a whole has been underproduced. “Since the second half of last year, the supply of the means of production such as steel, timber and cement has become tight.” The CCP would like to blame the steel situation and problems like Baoshan on Mao’s lingering influence, but its arguments are weak. First, this was a problem occurring seven years after Mao’s death. When does the new leadership start taking blame for China’s problems? Secondly, to blame problems on Cultural Revolution holdovers in the bureaucracy is to simply assert that class struggle exists and has been underestimated in its importance by the current government! If these holdovers from Lin Biao and the Gang of Four are not just serving as scapegoats or stand-ins for the current government that can be more safely attacked, then the CCP should recognize the obdurate nature of classes under socialism and re-elevate class struggle to its former position in China. Finally, and substantively, Mao took “steel as the key link.” Can steel shortages seven years later be blamed on Mao?

            While steel was in tight supply, the Dengists supposedly want agriculture and light industry to predominate. However, thanks to the anarchy of production, the planners can not even guarantee this.

                        A tendency has emerged in which light industry

is being squeezed by heavy industry. Light

                        industry grew by 14.1% in 1981, but last year

                        the growth dropped to 5.7%. This situation continued to

                        slow down in the first 5 months of this year, with a

                         growth rate of only 4.8 percent as compared with same

                        period last year and this figure is much lower than the

                         growth of 11.7 percent of heavy industry.

  

In 1983, light industry increased production 8.4% and heavy industry went up 12.1%. Moreover, despite repeated assertions that current China will finally put into practice the priorities of agriculture, light industry and then heavy industry described by Mao in 1958, the state has presided over an actual decrease in the proportion of investment in agriculture. Agriculture’s share of state investment sank to 6.1% in 1982—the lowest share since figures started being collected in 1953. Higher figures in 1979 and 1980 were still over 6 points below the planned 18%. As Susan Shirk says, China’s priorities in practice are now determined by the struggles of ministers in the capital. “Each minister, sitting in Beijing, is able to articulate the interests of the industry he represents.” These ministers specify what needs will be satisfied according to their individual interests. As of 1988 the centrifugal phase of reform continues to demonstrate incredible resilience and popularity. The state capitalist class is largely unified around “every man for himself” and “do your own thing” in the market. In this form of the anarchy of production, the Chinese can not even determine priorities among the general areas of agriculture, light industry and heavy industry. Growth in light industry and agriculture in particular occur in spite of supposed planning.

             The author must admit that the Chinese have recently scored a breakthrough in directing investment proportions. The percentage of investment devoted to energy, transport and communications—the major bottlenecks in the economy—increased from 28.7% in 1982 to 34.6% in 1983 to 36.9% in 1984 before falling again to 35.0 in 1985. This was after a period of decline in these sectors in 1981 and 1982. However, because of non-government investment and the increasing role of consumption or the demand-side of the economy,

                        the growth of the energy industry still fell

                        behind that of the processing industry and this

                        has aggravated the shortage of energy and raw materials

                        that appeared in 1982. The contradiction between

                        economic development and insufficient transport

                        facilities became more acute. With regards to

                        railways, more and more goods were piled up and waiting

                        to be transported. Because of an insufficient

                        handling capacity at the country’s ports, more and more

                        ships could not be unloaded in time. Consumption funds

                        increased too rapidly. . . . This has had an adverse

                        effect on state finance.

  

Whereas economists complained in the early eighties about excessive investment, now they view consumption demand, sometimes sparked non-productive investment such as housing, as the problem. Even effective rearrangement of government priorities can not set the economy in the right direction in regard to what goods should be produced.

OVERPRODUCTION

       

            Overproduction is nothing but a lack of efficient demand in economic jargon, but the problem of weak demand is never permanently resolved by a shift from profits to wages or savings to consumption because of the forces at work on the production side. In other words, China is attempting to build a middle class by increasing wages and material incentives, but the problem of overproduction just takes new forms. Demand can be jacked up with deficit spending, as China is discovering for the first time since 1949. Still, there are simultaneously three problems given new impetus by the so-called reforms—inflation, overproduction and shortages.

            The Chinese have acknowledged the existence of the anarchy of production as manifested in overproduction. “The overproduction of goods already in excessive supply remains a serious problem. Year after year the government has called for the use of rolled steel in stock, but the inventory keeps increasing.” In 1983, rolled steel production increased 5.7%. Fox Butterfield also describes overproduction:

                        A friend who was employed in a state corporation that

                        handles electrical machinery estimated it had the

                        equivalent of $400 million in stock in warehouses

                        around China. But the government budget for 1981 to buy

                        electrical machinery was only $200 million. So it

                        would take two full years of purchases just to sell

                        off their inventory, without any further production, he

                        said. An official of the State Economic Commission,

                        which oversees the economy, told delegates to the

                        National People’s Congress in 1980 that the total value

                        of goods in warehouses in China is equal to a full

                        year’s income for all Chinese wage earners.

  

Again, for the benefit of the bourgeois economists and vulgar Marxists, to ask the question of who is doing the consumption in China is to look at the warehouses and the swamps at Baoshan.

            Capital must compete and expand or die. As already seen in the cigarette and plastic examples, anarchy of production can result in redundancy of production. In such a situation, one of the competitors must go under. Thus, even if a free market without bureaucratic distortions in China became the next phase in the class struggle, eventually a renewed concentration of economic and political power would destroy the possibility of perfect competition again. Capital becomes concentrated in fewer and fewer hands thanks to centripetal forces in the economy that are the necessary complement to the centrifugal forces of the market.

             In 1980 the government closed down or suspended the

             operations of industrial enterprises which had turned

             out high-cost and low-quality goods unsuited to actual

             needs or which had long operated at a loss, but they

             were outnumbered by newly commissioned enterprises.

            Statistics from Jiangsu, Hebei, and Jilin provinces and

            from the cities of Shanghai, Tiangjin, Shenyang, Luda,

            Changchun, and Harbin showed that, while 932

             enterprises closed down or suspended operation in the

             first ten months of the year, 5,724 new enterprises

             were commissioned. At the same time, some were

            merged or switched to new lines of products.

  

            China’s economy has had waves of expansion largely because of a trend towards enterprise autonomy. Nevertheless, an undertow of consolidation exists and the state capitalist class will not expand to coopt local bureaucrats and enterprise directors forever. “Although the administrative decentralization is not economically favorable to reform, politically, it brings provincial officials into the reform coalition” according to Susan Shirk. In opposition is the “communist coalition” of heavy industry, inland provinces and central ministries, which she believes will come out on top unless there is political reform ensuring democracy. Shirk’s reform coalition must be viewed as rare in recent capitalist history, which is monopoly capitalist history.

            In China though, the reform coalition as described by Shirk has had great resilience, even in industry. Firms successfully fought for an ever greater share of profits and then got the taxation system. Next they were able to wrench a “soft-budget constraint” out of the banks. They also fought off repeated efforts to recentralize the enterprises and give the central government the lion’s share of investment again. This relative strength of centrifugal forces has colored the capitalist anarchy of production in a certain way.

             A decentralization/expansion political coalition is only viable when capitalism is still expanding overseas and exploiting new territories or when after a devastating war so many competing capitalists have been wiped out that the victors have a heyday of expansion—i.e. the post-WWII American hegemony; finally, when there are no new resources to discover and exploit in capitalist fashion we may see socialist territory carved up for capitalist exploitation. This is China’s case. Deng has handed out pieces of the economy to domestic and foreign capitalists. With the political alliance he created, Deng can start to choose amongst the forms of crisis that the market offers.

            In the current manifestation of the anarchy of production, overproduction in light industry is typical of overproduction in capitalist countries since light industry produces consumer goods.

             Eight different products—namely, wrist watches,

             bicycles, sewing machines, TV sets, beer, terylene-

             cotton fabrics, woolen fabrics and cotton fabrics have

            already exceeded the state’s plan of development up to

             1985. Unless strict control is exercised, it is

             estimated that by 1985, more than 5 billion yuan will

             be wasted in investment. Cotton curtain fabrics and

             art (printing) paper have changed from short-supply to

            excessive-supply products. Sulphuric acid and plate

             glass are now in short supply; however, since all

            localities are making great efforts to increase their

             output, their production may also go out of control.

Another example is the profitability of electric fan production that led to the creation of 22 fan factories in Wuhan alone in two years.

            This brings up the problem of waste and overcapacity.

             In a 1980 survey, Liaoning Province reported

             that in nine industries including papermaking, printing,

            knitting, pharmaceuticals, household appliances and

             food processing, “duplicative factories” accounted for

             65% of the total number of enterprises. The excess

            capacity for manufacturing television sets was

             estimated to be 50%, as a result of five additional

             plants built outside the plan.

  

In addition to the fact that television is probably as revolutionary as lung cancer and alcoholism, the overcapacity is the result of economism and the working class’s loss of control in the economy. Overcapacity coexists with urban unemployment and a peasant economy striving for industrialization.

            When there is waste and overcapacity, unemployment will result and the neoclassical economist says that the situation is less than “socially optimal.”

             Last year, of the 80 big and medium projects

            that, according to state planning, should be built and

            put into production, 33 are yet to be completed.

            Conversely, the number of general projects that should

             be controlled, increased from 60,000 in the previous

            year to 71,000 last year, and of this figure, 34,000

            were new projects that began production in the same

             year and quite a number of these new projects are

            duplicated, thus showing serious blindness.

  

            Another way of looking at the same wastage and scattering is to look at underutilization. “The proportion of large- and medium-size construction projects available for operation dropped to 5.8 percent in 1978, even lower than in 1958 and 1970.” (Furthermore, of a total of 560 large and medium scale state projects 176 do “not operate normally,” because of insufficient supplies, poor technology or insufficient sales. Thanks in part to tax exemptions and the shifting of tax authority to the local level, cigarettes and wine show a 40 to 60% after tax profit rate. Sugar earns about 150 percent. Again the Chinese CP shows awareness of the driving forces in this waste.

 

The problems of blindness and repetition in

                        construction are quite serious and this situation is

                        strongly related with current system and policies such

                         as the distribution of investments, distribution of

                         products, price and tax policy and financial subsidy.

                         For example, repetition in the building of

                        cigarette factories is closely related to the financial

                        policy of “eating from different kitchens”; the

                         building of cigarette factories will help localities

                         open up tax resources; there are a number of wineries

                        because they have to pay little tax and yet they are

                         making big profits; localities are contending with each

                         other in building textile mills because increases in

                         the purchase of cotton price are subsidized by

                         financial departments.

  

Part of the problem is that the localities are being asked to display initiative at the same time that struggle over national politics has been put on the backburner. Localities can not be expected to have the interest of China’s peasants and workers in mind when they are run by members of the state capitalist class.

UNEMPLOYMENT

       

            China’s weak employment situation is caused by overproduction. Once the market determines the prevailing techniques of production, the bourgeoisie fires unnecessary workers and puts a freeze on hiring. The competitive jungle also determines that accumulation is driven beyond the “rational” level arrived at by neoclassical economists. This can only occur at the expense of consumption.

            Although China’s economy is in an expansionary phase of the business cycle, “at present, an additional 7 million people are joining the waiting lists for jobs every year.” In 1979, 10 to 25 million workers were unemployed in China’s cities and towns. At 20 million, the non-agricultural unemployment rate would be 17 to 18%. In 1982, some cities reportedly had unemployment of 12%. Officially the overall urban unemployment rate in 1979 was 5.9% and 1.8% in 1985.

_________________________________________________________________

Unemployment in cities and towns    (millions)        %

1952                                                                3.766               13.2

1957                                                                2.004               5.9

1978                                                                5.300               5.3

1980                                                                5.415               4.9

1981                                                                4.395               3.8

1982                                                                3.794               3.2

1983                                                                2.714               2.3

1984                                                                2.357               1.9

1985                                                                2.385               1.8

1987                                                                n.a.                  2.0

Source: Statistical Yearbook of China 1986; China Daily.

__________________________________________________________________

            Since the xia-xiang movement’s end, 20 million youth have returned to the cities to find jobs. In addition, there are youth just leaving school now who are looking for jobs. Together these sources of labor-power are more than the state can afford to hire under its compulsion to use the cheapest technology.

                          It is estimated that every million yuan worth

                        of fixed assets in heavy industry can provide only 94

                        jobs, but the same sum in light industries or textiles

                         can provide 257 jobs. If heavy industry were to absorb

                         all the young people joining the labor force each year,

                         the state would have to invest 77.78 billion yuan

                        annually. Even if these young people all went into

light industries and textiles, the investment would

                         still run to 28 billion yuan a year. Under China’s

                         current economic conditions, the state is not in a

                         position to provide jobs for all these new workers.

                        However, individual businesses can be set up, making do

                         with what is available without asking the state for

                        investment or managerial personnel.

  

Such figures presume a prevailing level of technology.

            One can also expect machinery and technology to dispose of more and more peasants in the countryside.

             One commune in Anhui, for example reported

             that before the system [quasi-private

             responsibility system] was adopted the labour

             engaged in farming accounted for 81.3% of its

             total labour force. After the change this

             declined to 45.1% in 1980 and 37% in 1981.

              

Andrew Watson goes on to report that 42.3% of the original labor force in three communes in Henan is surplus labor and cites an estimate that one third of all rural laborers may be excess. Elisabeth Croll has found discussions of sending women back to the home for lack of jobs. In at least one county in Zhejiang province over 90% of female laborers had no regular assignments. Orville Schell cites Chinese figures that Zhejiang and other rural provinces have 50% of the workforce as surplus labor. In the rural areas of one city in the southeastern area of China, unemployment was 70% of a 2.3 million person workforce. As a result of the unemployment, the Chinese government has heralded the hiring of laborers by private employers. “There are 13,000 households employing 42,000 labourers, 2 percent of the rural workforce.” Most of the workers in the area are engaged in handicrafts and small domestic item production. 27% of the employers are members of the Communist Party. As justification for the private hiring of labor, some official organs offered the theory that private hiring of labor was inevitable in an immature stage of socialism.

            In industry, Beijing Review reports that as of 1988 there are 20 to 30 million surplus workers in state and collective enterprises. It reports that in one factory in Shijiazhuang in Hebei Province, workers averaged 50% of the work expected of them in an eight-hour day. In factories in Qingdao, Shandong Province and Zhuzhou, Hunan Province, a cut of one-third in the work force reportedly increased labor productivity.

            The unemployment situation has led to various forms of political resistance. One thousand unemployed rallied in Shanghai on April 13th, 1981. Other so-called redundant workers in 1981 drove managers out of their offices and damaged equipment. Disgruntled workers have killed their factory directors. Strikes and slowdowns are also apparently on the rise.

            Marxist theory would predict all these kinds of phenomena. Overproduction is caused by overinvestment. Overproduction causes unemployment. Unemployment causes a further drop in effective demand—a drop mitigated by welfare programs—and a rise in individual business. This is a powerful chain of events that entails great class struggle and a final result that tends to reinforce itself— competitive capitalism.

            Overproduction is as new as the several year string of overinvestment and the recent duplication of projects caused by the newly found autonomy of enterprises driven by profit. Of course, there will be ups and downs within the general tendencies towards overinvestment and consolidation, but without control of investment, the state can only affect the form that the crisis of capitalism takes.

            Deficit spending jacks up demand, but it puts China in the hands of foreign and domestic debtors who will struggle to suck out interest at the expense of peasants and workers. Deficit spending also introduces a complicated dynamic of fetishism into planner’s calculations, just as it does in the credit card societies of the West.

 CRIME

       

             The impact of the anarchy of production in terms of unemployment deserves further attention. Recently, China has abandoned previous attitudes favorable to a systemic analysis of crime. Facing rising crime, the state has called for stiffer punishment of criminals and greater codification. Deng has brought back public executions coordinated to be mass spectacles. According to visiting professor Liu Fong Da at Berkeley, city officials arrange shows that execute as many as one hundred people at one time. Diplomats originally estimated that China executed 1,000 or 2,000 people in the fall of 1983 with the revival of spectacle executions. Apparently, Chinese internal documents specified a quota of 5,000 executions and 50,000 arrests to be reached by the end of the year. Journalists believed, however, that Chinese officials energetically surpassed these quotas with 15,000 executions. Liu Fong Da said guesses included 80,000 and 150,000 executions. Orville Schell, who also visited China during the supposedly horrorific Cultural Revolution, said of the executions, “Never have I seen a busy street in China empty so quickly, or experienced the kind of eerie silence that hushed the crowd.”

             Despite the effort to bring an atmosphere of individual self-discipline, the CCP has admitted that 23% of criminal offenders are unemployed. A Beijing Review article recognizes that crime is a characteristic of class society but argues that in China class struggle “still exists in society to some extent.” This is to say that crime can not be attributed to systemic forces in China and to sideswipe the Cultural Revolution, which supposedly encouraged crime in its zeal for class struggle. By imposing stiffer punishments, the ruling class hopes to blame the masses for “deviance” so as to better discipline them for labor.

            This is all the more clear since the government admits that juvenile delinquency is on the increase. The deputy director of the Beijing Bureau of Public Security, Jiao Kun, in 1981 blamed the increase on the Cultural Revolution.

            The government does admit that the overall rate of street crime has grown. In 1982, the rate was 7.5 compared with 6.5 in the years 1977-79, an average of 4.5 in the years 1950 to 1965 and 2.3 per 10,000 in 1953. Non-Marxist Lynn Pan, who also links crime and corruption to the profit motive and open door, notes that a foreigner may no longer leave belongings unattended in China. Thieves operate near hotels for foreigners. The author himself observed that currency speculators abound where there are foreigners.

            Figures for the first half of 1988 show an annual increase of 36.4 percent “of serious offenses including murder, robbery, larceny and rape.” The proportion of cases against people under age 25 rose from 30 to 50% “in recent years.” The rise in juvenile delinquency experienced in 1988 makes it all the more remote that Jiao Kun’s blaming of the Cultural Revolution is anything more than ideological formalism. These kinds of increases in crime at this late a date would be hard to pin on the Cultural Revolution, even if the Cultural Revolution established “a juvenile gang subculture.” As Whyte and Parish explain, where there are legitimate opportunities to pursue non-criminal lives, the crime rate will be relatively low.

            Whyte and Parish push this theory of legitimate opportunities to include the material incentives system established by the post-Mao regime. They support the idea that restoring “systems of incentives and career opportunities that were discarded during the Cultural Revolution . . . will solve the current juvenile delinquency problems.” They cite a decrease in the crime rate in 1982 as evidence that the reforms could contribute to a decrease in crime.

            On the other hand, the reader has already seen that the officially-induced craze for money contributes to such crimes as human-trading. Therefore, the author would argue that Parish and Whyte should discard the part of their theory concerning material incentives and stick to the issue of unemployment and career security. In addition, Parish and Whyte should note that with the end of the countryside movement and an increase in unemployment under the post-Mao regime, the expected result is an increase in crime, which is what China is experiencing under the reforms.

            Unintentionally underscoring this point, the CCP has linked the rise of violent crime to economic crimes, finding that the two co-exist at high levels in some regions. Alcohol also appears to have a substantial role in crime.

            Transients encouraged by relaxation of migration regulations and urban economic opportunities also accounted for more than 55,800 arrests in 1987. There are a total of 10 million transients now in China’s 23 cities with over 1 million people. Some of these people “sleep outside railway stations or in parks.” In addition, China Daily admits that “the numbers of migrant beggars have increased in recent years.” In 1987, Shanghai authorities detained 10,000 beggars, at least 800 of which they believed were “real” beggars. Overall, the informants that Whyte and Parish interviewed agreed that those who returned to the cities illegally are the greatest crime threat in the cities.

             The trend in economic crime belies the government’s explanations for crime. In one article in the Beijing Review, China announced the closing down of all projects outside the state budget. The apparent reason was that the economy was unstable. However, the same Beijing Review reported that economic crimes had reached an all-time high surpassing that of even any time during the Cultural Revolution! The article mentioned that 30,000 people had been arrested recently and that 8,500 people had been expelled from the party in one year and four months. Their crimes were mostly smuggling, embezzlement, tax evasion and large-scale speculation. “From January 1, 1982, until April 30, 1983, 192,000 cases of economic crime—involving, among others 71,000 Party members—had come to light.” Serious economic crimes uncovered increased 54.4% in 1987 over the previous year and totalled 77, 386 cases. In the first half of 1988, the number of reported cases of financial crimes declined, but “major crimes involving large sums of money. . . [including] embezzlement, bribery, profiteering, swindling, speculation, smuggling of gold and antiques, the illegal felling of trees and tax evasion” increased over the same period in 1987. In August 1988, the CCP expelled 20,000 members for corruption and asked another 89,000 to resign. That this sort of thing is rampant in China is shown by the numbers which probably do not represent all the crimes committed by everybody since presumably every cadre does not get caught. Even more indicative is that the Beijing Review article calls for careful distinction between legal activities and economic crimes. In other words, since most of the cadres are good or comparatively good and because China gave local cadres some economic powers beyond supervision, what else could be expected from such a situation?

            By 1988, the president of China’s Supreme People’s Court, Zheng Tianxiang, said that such distinctions had gone too far toward laxity. According to Zheng, government officials are taking an increasing role in economic crime and getting away with it because court decisions are often not enforced on state bodies and enterprises. 30 percent of verdicts are ignored and some provinces the rate surpasses 40 percent because of the intervention of local officials. Also, according to Zheng, many cases never get so far as prosecution: “Last year, only 16 of the more than 3,000 cases of gold profiteering and smuggling in the country’s major gold-producing areas resulted in prosecutions.”

             What may seem to be immoral capitalistic activities have been sanctioned or overlooked by the state which is desperately decentralizing the economy in order to modernize at any expense and to recruit new members to the ruling class.

       

MENTAL ILLNESS

            According to Shanghai’s Liberation Daily, “‘the number of the city’s mental patients has exceeded 100,000 or 11.35 per 1,000 people. This constitutes a 55.9 percent increase over the figure in 1978.’”

            In 1982, China averaged 1 mental patient per 100 people. However, there was only 1 bed for every 140 mental patients.

            China’s official papers cited experts to the effect that new competitive pressures to do well in exams and business caused the surge in schizophrenia and mental depression. For example, one school district in Shanghai alone had four suicide attempts by children in June, 1986 because of exam and homework pressure. In another case, in December of 1987, a mother beat her son to death for not scoring 90 points on an examination. Overall, one survey “found nearly 30 percent of the cases of abnormal behaviour involved children.”

            China Daily points out that psychiatry as a profession did not exist until recently in China. The phenomena of widespread mental illness is so new that Shanghai only has 5,500 beds for its mental patients; even though, Shanghai is China’s largest city.

       

PARTNERSHIP WITH IMPERIALISM

       

            Earlier in the essay the Three Worlds Theory and China’s foreign policy were examined in terms of a loss of power by the Chinese proletariat over the foreign policy of China. With the events of 1976, China accelerated its descent into the U.S. imperialist camp. During Reagan’s 1984 visit to China, the Chinese used almost exactly Khruschev’s words: “The amicable coexistence of these two major nations is a very significant factor for maintaining world peace and stability.” According to Beijing Review, Deng Xiaoping “lately pointed out unequivocally: In the past we said world war was inevitable. Now we have changed this viewpoint.” Furthermore, “revolutionaries today should not use war to advance socialist revolution.” To do so would mean “‘the common ruin of the contending classes’” according to the CCP.

            Other than to say that a vanguard party is unnecessary for revolution, there is no better way to abandon Lenin than to say that “peaceful coexistence” with imperialism is possible.

            Comparative advantage and the “international division of labor” are two of the reasons the Chinese give for the partnership with imperialism. In foreign trade, the Chinese put the highest priority on energy production. Ji Chongwei explained that where China is weakest she will import.

            In a shameless reference to the “open door policy” China hopes to especially attract the United States. Since 1979, China has taken in over $8 billion in U.S. direct investment—two billion more than planned. This level of investment ranks beyond direct investment in South Africa, where U.S. financial assets combined total $14.6 billion. The coup in China has rendered U.S. imperialism the services equivalent to a successful war for a very large market, a resource including hundreds of millions of laborers for the international reserve army of unemployed and an outlet for capital.

            Often times Chinese economists sound like members of a Chinese chamber of commerce. One essay concludes: “The Chinese are trustworthy people. They will never forget or treat unfairly those friends who have lent their support to China in its endeavor toward modernization.” Another ends “great and promising prospects for cooperating with China exist for our foreign friends in these areas.”

            The Chinese now speak of “free trade” and “voluntary trade.” Self-reliance is replaced with phrases like “to maximize comparative advantages and minimize comparative disadvantages.” Why all this hype for trade?

            China’s open door policy for investments in energy makes sense in terms of the setbacks in oil and coal production. The shortages in oil and coal in turn were at least partly caused by loss of control in state investments. Despite energy problems and the supposed emphasis on energy in current planning, the proportion of energy investment out of all investments dropped from 20.6% to 18.3% in 1982. Indeed, energy as a proportion of total investment was lower than it was in 1978. A cynical economist might think that China decided to let energy production go down the drain once the decision was made to play the comparative advantage game. A believer in conspiracies might see a deal between Deng and the United States that cut the United States a strategic piece of the Chinese economy. However, by this time the truth is that “the amount of the investments in capital construction has been out of control and it is now beyond the reach of the state financial and material power. What is more serious, is that the funds have been used in such a scattered manner.” The Chinese leadership could not have planned the current economic partnership with imperialism. Rather the anarchy of production is responsible.

      China has let it be known that there are tax benefits and possibilities of total foreign ownership of enterprises set up in high technology in China. Thirty-three oil companies bid for rights to drill in a 500 square mile area in offshore China. Occidental Petroleum led two groups in the bids and guaranteed half of the $120 million to be invested in exploration. (Geoexploration consumed .5% from 1980-82. That is almost as low as the .4% low in all of post-liberation China history.) Should oil be found it will be split on terms that are not public knowledge.

            Other energy projects include oil exploration started by five Western companies led by British Petroleum and a $230 million coal mine of Occidental’s in Shanxi province. Another oil drilling project was started by Atlantic Richfield Company and Santa Fe International Corporation. The New York Times also mentioned a contract signed with American Motors Corporation to build jeeps in Peking. Transport has been China’s second greatest bottleneck and priority in foreign trade. At 9.1% of total capital construction in 1981, investment in transportation hit an all-time low in the People’s Republic. Comparative disadvantage for China seems to be the inability to invest in what it needs.

            In the future, China may outgrow its very junior role in the U.S. bloc and emerge as a fully social-imperialist country itself. Export companies, joint trade companies and banking reforms all make possible the export of capital—the quintessence of imperialism by Lenin’s definition. According to Beijing Review, “at present, China has set up 42 companies to undertake projects in more than 40 foreign countries and regions. They have signed contracts for the construction of power stations, highways, bridges and houses.”

            Overall, though, China looks more like a dependent country. Michel Chossudovsky’s book has offered an especially harsh assessment of China’s integration into the capitalist world economy. According to Chossudovsky, the current rulers in China include the state bourgeoisie with its origins prior to 1949 and its sympathies with the Guomindang, rich peasant allies of pre-collectivized China and the foreign imperialists.

             By 1979, China had already borrowed over $26 billion from Western governments. Direct foreign investment in China in 1985 alone totalled $5.85 billion, which was 120% more than the year before. Haikou on Hainan Island, Shanghai and the Shenzen Special Economic Zone have all legalized the sale of land-use rights to foreigners, who can purchase this ownership except in name for 20 to 50 years at a time and who can sell the buildings on the land so used. In 1979, China ran an internal deficit of 17 billion yuan. In 1980, it ran another of over 12 billion.

            Prior to 1976, in contrast, there was no debt to foreign countries. From 1966 to 1975, total government revenue exceeded government expenditure by 1 billion yuan. In 1976, a year of civil war and natural disaster, government expenditures exceeded revenue by 3 billion yuan. If the past pattern of revenue and expenditure had persisted, that deficit could have been overcome in another two surplus years such as 1970 and 1971. Thus, China’s debt situation is a new one that is not the result of an immediate colonial legacy. Indeed, by all accounts China isolated itself from the world capitalist system from 1949 to 1971. Even with Zhou’s preeminence in foreign policy after 1971, a real acceleration in foreign projects in China started after 1976. Whether one marks the opening to the West with the fall of Lin Biao or the fall of the Gang of Four, it is clear that internal class struggles were decisive to the new dependence.

            This book has avoided an extensive discussion of the Special Economic Zones and foreign trade because they are easy targets as bastions of outright capitalism within China. It has been important to show that even without free markets, private plots, private enterprise and the Special Economic Zones modelled on the “miracle” states of East Asia, China is a state capitalist country.

            This train of argument started with the fact that investment in China has followed the capitalist law that “Thou Shalt Accumulate.” Most of that accumulation occurs outside the state budget. Now the Chinese planning officials can not control what products or sectors—agriculture, light industry or heavy industry—they build; where they produce, the country or city; how much they produce. The terrible duplication of course is a source of unemployment. While every province rushes to have the capacity to produce cigarettes, not every province can get the tobacco. Empty plants face unemployed workers. The reserve army not only protects state capitalism, but also it serves to reinforce class polarization, income distribution and thus underconsumption. Another irony already exists in wrist watches—nobody to buy them. Finally, imperialism steps into build China where China can no longer build herself. Having capitulated to “the international division of labor” in a capitalist world, China will have to struggle to be more than a pool of unskilled labor.