The Political Economy of Counterrevolution in China: 1976-1988 (Industry)

THE OWNERSHIP COUNTERREVOLUTION IN INDUSTRY

“The enterprises have acquired the ability to improve and develop themselves and manage to act as legal persons with certain rights and duties.” (He Wei, “The System of Socialist Public Ownership Should Have Various Forms,” Renmin Ribao, FBIS, 1/8/85, K17)

PROFIT IN COMMAND

State capitalism is more easily seen and apparent in the industrial sector than in the agricultural sector, if only because agriculture has a more individualistic character. Whereas the peasants are an incoherent group with widely differing interests, except in relationship to the state and urban areas, the local enterprise officials are a more readily identified group associated with the power of the post-1976 ruling coalition. If agriculture has been handed over to the private interests of peasants, industry has been wrested from the control of local producers by local officials, especially enterprise directors. Decentralization of power from central ministries to local officials in this case coincides with a decrease in worker control.

The state’s most important change in the class relations in the factories is the use of profit criteria in industrial production. Indeed, the Chinese media is campaigning for the use of profit as an index. For example, one article proclaims the “Profit Rate of Capital is the Comprehensive Target of Assessing the Operation and Management of Enterprises.”

The link of the profit motive to production is not just a matter of policy proclamation. A survey of 429 enterprises in 27 cities conducted by the China Economic System Reform Research Institute (CESRRI) found four empirical links between the new policy and production. First, the correlation of the increase in profit retention by the firm allowed by the state and the “increased rate of growth profits realized was 0.57” in 1984. Secondly, the correlation between increased profit retention and growth of per capita bonuses in the firm was 0.29. Thirdly, “the annual growth rates of product value and of profits” showed a correlation of r=0.3249. Fourthly, the correlation between profit and investment in fixed assets is 0.1373. All four correlations involving the influence of the state’s allowing increased retention of profit with profit growth, bonus growth, product value growth and investment rates are statistically significant.

The management of the factory is now evaluated by the profit rate of the factory. This brings up the other most important change in China’s economy—competition that is also openly advocated by the government. A management that does not squeeze profits out of the workers will be replaced through mergers, closings or appointments as will be seen later on.

The profitability criteria has been employed to obtain specific results. For instance, to encourage competition and innovation, the government allowed 100 pilot enterprises in 1978 to keep the profits that they obtained from the independent development of new technology or equipment for two years. Furthermore, the easiest way to obtain the money to reinvest in such new equipment and technology was to produce over quota where factories retained about 15% of their profits.

The original reforms were to allow this profit retention, especially for overquota production. This undoubtedly put the squeeze on management and the workers. The firms were ready for the next step.

The local enterprise directors in league with local party officials in search of taxable revenue struggled for and obtained a greater share of profit. This reinforced trends since the early 1970s to remove the central government from some of its responsibilities and liabilities. The vested interest of local party officials of obtaining price flexibility for their taxable enterprises also guaranteed that price competition would not be simple market competition. State monopoly capitalists rise above the fray to destroy the market that engendered them.

THE NEW PROFIT SHARING AND LOCAL INTERESTS

When the pilot projects in Sichuan were spread across the country in 1979, the profit retention system was used. Now, China has moved into taxes instead of profit retention, which was in place in 80% of state enterprises by 1982. Although it is difficult to document the actual struggle that must have been going on between factories and the Center there have been some revealing statements as to why the tax system has been adopted. With taxes, officials hope to eliminate “the jockeying to seize and misappropriate a part of the profits.” The CESRRI survey of 429 enterprises shows that “in 1984 alone, enterprises were able through ‘negotiations’ with these higher-ups” to raise their share of retained profits “from 19.36 percent to 21.59 percent.” They also managed to increase the share of retained profits disbursed as bonuses “from 25.43 percent to 36.70 percent.”

Apparently, the Center believes the local state capitalists will find a tax fair if they retain a greater share of the profits. Also, the tax system is reasoned to be less egalitarian and more in line with the recent outlook on incentives. The tax system will give the strong enterprises an added edge. Under the initial reforms, and to the extent they were abided by, profits retained were too small to affect the competition amongst firms. Now the big firms will keep a large portion of their large profits and small firms will keep a large part of their small profits. This absolute advantage for size will tend to speed up the process of concentration of capital under the heads of managers who can drive the enterprise for profit. It supposedly helps in technical innovation as well for firms to have the ability to make large investments. Finally, the Center believes that the tax system will actually increase state revenue as enterprises perform better with the new incentives.

The state’s share of GNP had reached an all-time low of 25.5% in 1982, down from 37.2% in 1978. The state’s share of GNP continued to hover around 25% in l983 and 1984. In 1983, industrial taxes collected increased 6.2%, but industrial production was up 10.2%. By 1984, the institutional struggle between local and central state capitalists had turned slightly to the Center’s favor. “The profits and tax payments contributed by the industrial enterprises included in the budget have increased by 11.6 percent over the corresponding period of last year, exceeding the 10.5 percent growth rate of the total output value of industry calculated on the same base.” Moreover, according to Susan Shirk, the Finance Ministry will not stand for deficits or inflation in the coming reforms. Overall though, lest anyone think the marketization phase ended in 1984, the Central Committee did pronounce once again in October, 1984 that industrial reform would proceed.

The share of the profit going to the central government, enterprise and individual is stated in the slogan “big, medium-sized and small slices.” The tax ensures that the “state will be able to get the biggest slice of the newly increased net income.” The same article accounts for the “failure of the state to get the biggest slice of the increase in profits because, if it raises the profit targets, the enterprises will take action to protect the interests that they are already entitled to.” An example of how the new commodity relations and opening for the Law of Value is expressed in everyday life is offered by a Mr. Ma Shengli of a paper factory in the city of Shijiazhuang:

“The State handed down [1984—ed.] a profit target of only

170,000. Low enough, you’d think, but still the factory

wouldn’t accept it. Back and forth we argued, insisting they

lower it to 140,000; one thing for which there’s never a

shortage of verve, I tell you, is the haggling you engage

in with the State!”

Implied in these last two paragraphs about the new property relations is that there was considerable ambiguity and flexibility in the profit-retention scheme of previous years that allowed enterprises to retain more profits than they should have according to state regulations. Whereas the reform started out with a profit-retention system of 2 or 3% of over quota production profits, as of March 1983 the tax rate on profits left most enterprises 45%. Given the incentive to hide taxable income and the weak position of the central government in this centrifugal phase, the figure actually might be higher. Reform showpiece No. 1 Cotton Mill of Sichuan appears to have evaded 2.4 million yuan worth of taxes. The tax evasion turned up in one national investigation totalled 1.3 billion yuan. As in the case of the turn to family farming, the turn to profit retention by the enterprises and bonus disbursement enjoyed spontaneous support at the grassroots level.

The new tax system is the most important part of the deal that Deng made with industrial state capitalists to join the so-called reform coalition. The bounty of the tax system will extend the state capitalist class to include party officials and factory directors who dispose of the after-tax profits. The state capitalist class will gradually remove managers influenced by Mao. Only the very best exploiters will remain thanks to the government’s closing and merging of firms that fail to make profits.

BARRIERS TO COMPETITION: LOCAL PARTY OFFICIALS AND INFLATION

Local party officials are central to understanding the impact of the so-called reforms on competition and the intensifying anarchy of production. Henan Province gets 30% of its revenue from cigarette production. Understandably, Henan officials are not anxious to allow outside competition or central government takeovers or shutdowns of cigarette plants. In Shanghai, which is China’s largest and most successful industrial city, local party officials have not been anxious to abandon a proven formula for success. A survey of 115 Shanghai factories in 1985 showed that only 15% of the factories had implemented Deng Xiaoping’s reform giving state enterprises autonomy and responsibility for themselves. Christine Wong has pointed out that there is neither plan nor market in China because local officials erect protectionist barriers. These barriers prevent the market from doing all the wondrous things it does in economics classrooms.

Small plants enjoy flexible prices with the consent of local officials. Local officials also have increasing control over allocation. By 1982 they controlled 49% of total coal production, 47% of steel production, 43% of lumber and 75% of cement. These figures all exceed their counterparts for 1965 and 1980.

With profit in command, price competition causes misallocation. Taxes on cigarettes and wine amounted to 40 to 60% before the reforms. Then local officials wrested tax exemptions from the central government. Now the local cigarette and wine enterprises pay the taxes to local officials. It is little wonder that a liaison between local officials and enterprise directors has developed thereby bringing about unprecedented production of these unhealthful goods.

Wine and cigarette production provides insight into the causes of the anarchy of production. “So many small [cigarette] plants had been set up in the tobacco-growing provinces of Henan, Shandong, Yunnan and Guizhou that the amount of tobacco shipped out of these provinces declined from 300,000 tons in 1978 to only 100,000 tons in 1980.” “In the wine-making industry, a 1980 survey found over 12,000 distilleries had been added in 17 provinces during that year alone.” Chinese economist Xue Muqiao, who is one of the handful of top leaders in the government, notes that every official supports his own factory against exports from other localities. Furthermore, with the restriction of export of tobacco, “large plants in Shanghai, Tianjin and elsewhere” operated “far below capacity.”

None of this can be attributed to the Maoist economic strategy. First, with politics in command, wine and cigarette production was not a priority. Secondly, there was no profit motive and no government mechanism to enforce “survival of the fittest.” Thirdly, property relations between the central and local government were combatted, not overlooked. Democratic centralism did not encourage “every man for himself” and there was no profit retained by the enterprise or individual workers to dispute. Finally, where there were allocation problems, the Center had the ability to intervene where the initiative of the masses was not enough. In 1958, the number of commodities under central control was reduced by 75%. However, because the government was not a coalition of contending property interests, it was able to restore central control at “the 1957 level by 1963.” The Maoists had allocative flexibility—options that as will be seen in the section on anarchy of production can never be regained by the post-Mao leaders.

Up through the mid-eighties, planning was supposed to play the main role in the economy and the market the supplementary one, so “conservative” bureaucrats seemed justified in taking over firms when competition had taken its course. Cigarette production was taken over by the central government in 1982. The state capitalists must undercut their own efforts to set up a perfect market. Cut-throat price competition results in anarchy, which brings about so-called imperfect competition.

Inflation also forces the state monopoly capitalists to destroy the market. The Center wants “fiercer competition on the market,” which reputedly compels “enterprises to work harder to improve quality, increase the variety of products and reduce costs,” but the coup’s legitimacy stemming from promises to raise living standards is undercut by inflation. Already officials have to assure the public that inflation, which only started with post-Mao reforms, is not going to be of the runaway kind that existed before Liberation. According to the CCP, inflation was running at 7.3% in 1987. Running at over 20% in 1988, inflation according to Prime Minister Li Peng has become the state’s top priority. Li Peng, who China-watchers are saying is benefitting at the expense of Zhao Ziyang because of inflation, says price controls are not desirable. Apparently the CCP is studying the idea of using more subsidies to consumers.

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Year “General indexes of retail prices”

“Preceding year = 100”

1966 99.7

1967 99.3

1968 100.1

1969 98.9

1970 99.8

1971 99.3

1972 99.8

1973 100.6

1974 100.5

1975 100.2

1976 100.3

1977 102.0

1978 100.7

1979 102.0

1980 106.0

1981 102.4

1982 101.9

1983 101.5

1984 102.8

1985 108.8

Includes “list prices, negotiated prices and market prices”

Statistical Yearbook of China 1986, p. 535.

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Inflation has had a demonstrated ability to slow the onslaught of a faction of the CCP that wants a free market economy. In 1979, inflation was 15%. In 1980, it was somewhere between 15 and 30%. The inflation hit middle class goods including pork, beef, poultry and eggs at a rate of 30% in 1979 thus undercutting the effective demand of the recently strengthened middle classes. In 1980, foodstuff prices rose another 13.8%. Given the choice between price flexibility and damaging its political base, “the State Council, recognizing the seriousness of the situation, issued an edict strictly limiting price increases.” According to coup apologist Victor Lippit, “the effect of this was, however, was to limit the flexibility and decentralization that economic reform was intended to bring.” Thus, inflation is one manifestation of capitalist crisis that the Chinese leadership has on occasion preferred to suppress by choosing dislocations in the economy instead.

Although it is tempting to sensationalize the problem of inflation in China, it is still a limited problem. A July, 1985 CESRRI survey found that 46.5% of urbanites thought the price reform caused their standard of living to go down, but 90% of those urbanites who believed their living standard was going down did not believe it was “going down greatly.” Only one in five city dwellers have experienced a decline in living standards thanks to inflation according to a more recent analysis. Inflation’s shock value comes from the fact that the Chinese people lived many years without inflation under Mao. It is also a political obstacle to the faction of the state capitalist class that would prefer an instant free market economy.

Inflation is also used politically to argue against easy money as the source of excess demand. It has become a saying that enterprises use their own money for employee welfare and borrowed bank funds for expansion. The CESRRI economists have detailed the ways in which they believe that bank lending has been too liberal. In response to these criticisms, The People’s Bank of China increased interest rates on September 1st, 1988 and it cited inflation as the reason. One year deposits now receive 8.64% interest, up from 7.2%. Eight year deposits receive 12.42%, up from 10.44%. Meanwhile, the bank increased the lending rate from 7.92% to 9% for one-year loans.

The existence of interest rates for loans to firms is in itself a very important mechanism to ensure economic competition in exchange-value terms—capitalist competition. With interest rates directing capital investment, political/use-value considerations take the back seat. Interest rates establish a certain minimum level of success in exchange-value terms that firms must achieve in order to obtain funds to expand and not generate losses. Like a sports official that sets qualifying times for competition, the state bank sees to the weeding out of weak competitors while giving other firms the chance to be on the top of the heap.

CENTRIPETAL FORCES: THE UNDERTOW OF THE CONCENTRATION OF STATE CAPITAL

If one examines the state capitalists’ methods of coercion of labor in industry, one sees that workers do not control production. In the first place the consolidation aspects of the reforms have served to reinforce hierarchy and to squeeze more labor out of labor-power. One might be surprised to know that despite intentions to decentralize the economy and eventually give the market a greater role, the CCP has followed its old dictum of “one step backward, two steps forward.”

The step backward is centralization that results in the formation of monopolistic trusts—trusts that some day may include entire ministries of the government. Indeed, the young CESRRI economists and social scientists, who are gung-ho for creating markets for capital, labor and everything in-between, oppose the scattering of investment that has occurred with the creation of the political coalition for capitalist reform. They complain incessantly about things like “one-kick” blast-furnaces, so-named because they are small enough to be knocked over with one kick. Western observers who used to link the interests of heavy industry with Hua Guofeng may be disturbed to find that the most liberal of economists support an increase of centralization of investment in heavy industry. Ironically, at least initially, the so-called reforms have implemented one part of the Maoist vision—the decentralization and spreading of industry into the countryside.

The consolidation there has been has occurred by efficiency or profit criteria. Institutionally speaking, this means that those firms that squeeze the most out of the workers, manipulate prices or get lucky vis-a-vis the price structure the most will win the struggle for survival, partly by making enough profits to justify paying interest on loans for expansion. Those that have the best rapport with the local government officials or are run by competent government officials will do best via price competition. Thus, given the institutions that fix prices in China and given the economic power of enterprises, especially larger ones, telling officials to pursue profit criteria is to tell them to obtain “distorted” prices from price-setting officials and to influence the administration of the supply of industrial inputs.

When profit is not in command, prices are still established through institutions, but there is no competition for survival, career success or expansion that exerts pressure on prices and allocation. Under Mao, profit was not the “nose of the oxe.” Furthermore, career opportunism was denounced; one’s worth was determined by political and ideological criteria and the slogan was “fight self and revisionism” and “serve the people.”

Today’s slogan is “enrich yourselves.” The new line is that “we should break with the convention of discriminating against businessmen and despising those who are good at doing business.” A factory director under these conditions can only be expected to bribe price-setting officials; embezzle state funds; coerce the workers; cheat on taxes and otherwise fight to expand his/her firm. A successful factory director can take over other firms in mergers and eventually be hired by the state when it takes over the enterprise. A small enterprise becomes a large one as a small fish grows into a shark. “In 1980 over 5% of state enterprises underwent mergers or integration with others, and in 1981 even more were affected.” By 1988, the CCP was admitting that mergers were done explicitly by exchange-value criteria and not for reasons having to do with direct social utility. For example, in Wuhan 27 factories “on the verge of bankruptcy. . . merged with local profitable enterprises.”

The issue is not bad prices or bad planning. The issue is the power than can be exerted by officials and the structural compulsion to use that power in dog-eat-dog competition.

Rosalie Tung sums up this development.

To increase efficiency, the government has also

decided to establish specialized companies. On

the basis of statistics from twenty-eight

provinces, municipalities, and autonomous

regions, some 19,300 enterprises had been

reorganized into 1,900 specialized companies or

general plants by the end of 1980.

Tung goes on to explain the basis of this new efficiency in a newly merged Nanjing Radio Corporation that used to be thirty- eight separate units.

The corporation operates under unified

management, but production is organized

according to each member factory’s speciality.

Major decisions are made by the board of

directors in consultation with the factory

director, deputy directors, chief engineer,

and chief accountant of the respective member

factories.

Tung has delineated the organization of the newly consolidated state run enterprises. The board of directors is at the top and the factory director is below.

The contention here is that the board of directors is definitely part of the state capitalist class in China and that depending on local circumstances so is the factory director. A factory director who is a technician and still works in the factory as a technician is petty-bourgeois. An old revolutionary committee leader who now serves as something of a lower level manager is petty-bourgeois. Factory directors who are removed from production are part of the state capitalist class. They can be knocked down a peg in a merger if they have not been extracting surplus fast enough. It is a difficult issue to divide up the factory directors because China is in such a state of flux and reorganization and because China’s class structure is becoming more hierarchical, layered and complex. Generally and increasingly though, the factory directors belong to the state capitalist class.

This is a good place to explain some of the rightist codewords for class struggle. “Unified management,” has come to mean unity among managers and an end to supposedly anarchist mass-mobilization techniques. Local initiatives by the masses are brought together under state capitalist control.

“System of responsibility” means there is hierarchy that leads away from the masses. For instance, in the case of the Beijing Internal Combustion Factory, “since the reorganization, the factory director is no longer responsible for running the day-to-day activities of the factory. His primary responsibility is to study policies relating to production and management.” Removed from production, this factory director is a member of the state capitalist class, who does not serve primarily as a technical professional.

“Vertical integration” and “consolidation” mean concentration of state capital. “In 1979 the government consolidated some 25,000 to 50,000 marginal enterprises into 970 specialized companies, each with decision-making powers to suit local requirements.”

Perhaps the best example of the concentration of state capital is in cigarettes and wine where centrifugal forces associated with the post-Mao reforms resulted in tremendous wastage and duplication. The State Council had to shut down 183 cigarette plants that were off the state budget—as most investments are these days as will be explained in the section on the economic implications of the counterrevolution. Also, 60 were taken over by the state. In addition, to build any further wineries, one must have permission from the Light Industry Ministry.

Consolidation occurred even in the earlier years of so-called industrial reform. In 1981 over 1,000 factories were shut down for reasons of inefficiency. In 1985, a survey of factory directors shows that concentration of state capital is still the preferred way to go. 88% indicated willingness to belong to larger cooperative units. 54% expressed a desire to merge or start joint-ventures with other enterprises.

Hence, local officials do not always win in struggles for autonomy against other officials. With the new push for competition and profit, central authorities must resolve more conflicts amongst various parts of the government. Intelligence expert and professor Michel Oksenberg spoke to officials in China and discovered how lower level conflicts found their partisans at higher levels of government.

Large numbers of interagency and interprovincial disputes

cascade upon the State Council. In fact, a major structural

weakness of the Chinese bureaucracy is the inadequate

means for resolving interagency disputes. The SPC [State

Planning Commission] and State Economic Commission

do act as filters. They are forced to become embroiled in

disputes, according to my interview sources, because most

interagency differences involve either efforts to alter the

plan in midcourse or instances of nonfulfillment of, or non-

compliance with, the plan.

Oksenberg does not intend to lend fuel to the Marxist fire, rather to point out the organizational interests that result in a kind of pluralism in China.

An even stronger impression I gained was that each agency

has its own sense of mission and purpose, or “organizational

ideology.” On only a very few occasions did I leave an interview

doubting that were it not for that agency, the Chinese economy

would collapse, that this agency played an indispensable role

in maintenance of the economy, be it setting prices, allocating

labor, designing and approving capital construction projects,

setting the budget, or making the plans. My interviewees were

impressive in delineating the turf of their “system”

nationwide. The boundaries tended to be expansive, intruding

into other chains of command at lower levels.

The question that is left open is whether this kind of organizational turf-building has been constant in China or whether this is a recent phenomena created by so-called liberalization.

Susan Shirk argues that recent interagency conflicts are a product of the so-called reform:

The recent economic reforms have increased competition

throughout China’s economy. Enterprises want to break into

new domestic or international markets—and protect their

old markets—in order to earn more profits and foreign

exchange.

The evidence that she provides includes competition between the Ministry of Machine Building (MMB) and the Ministry of Light Industry (MLI). The MMB attacked the MLI’s monopoly on washing machine and refrigerator sales and won a share of that market. Competition like this has had results contrary to stated policy including the expansion of heavy industry at a faster rate than light industry and a blocking of foreign trade.

Perhaps in an effort to standardize procedures for settling intra-governmental conflicts, China has wrestled with a new bankruptcy law. The bankruptcy law has faced both leftist opposition and rightist opposition. On the left, there are those who point out that it means economic insecurity and unemployment for workers. On the right, some have argued that allowing bankruptcy to occur before full-fledged price reform would mean punishing some enterprises for a price structure that is irrational even in capitalist terms.

The bankruptcy law is the expression of the ruling class’s will that competition not occur strictly amongst government ministries, which fight to extend their turf through government decisions at the highest levels. The free market which quickly became the norm for agricultural production has also penetrated the industrial sector:

This process of liberalisation was in operation as early as

1980 when iron and steel enterprises sold 2.91 million tons

of steel in the free market (11 per cent of national steel

output). State enterprises under the First Ministry of Machine

Building sold (in 1980) nearly 50 percent of its total output

on the open market.

Since August of 1986, the Chinese government also allowed 28 state-owned enterprises to face the possibility of bankruptcy. Two actually went bankrupt and four are still on the “danger list.”

In the countryside, where conditions come closer to the bourgeois free market ideal, over one million enterprises went bankrupt from the beginning of 1986 to February, 1988. That represents “about 7 percent of the rural ventures that have sprung up in the past nine years.”

One last point about so-called consolidation is that the term is used to refer to labor discipline, as in the case of 185 factories in Jiangsu Province.

The rate of attendance has generally exceeded 95 percent, a

rise of 2-3 percent compared with the period before the

consolidation; the utilization rate of work hours has

generally risen by 3-5 percent, reaching 80 percent or so; and

labor productivity has generally risen by about 10

percent.”

This very neatly encapsulates the intention and effect of the reforms in industrial organization-getting labor out of labor-power through the use of state power.

One might object that an increase in the utilization rate of 3 to 5% is really nothing since the “chaos” and “anarchy” of the Cultural Revolution made workers supposedly so lazy. However, even Sun Jen at the Labor Bureau admits that there was at least slow productivity growth between 1966-76. According to Samir Amin, labor productivity grew 2.5% per annum from 1966 to 1970 and 1.8% per annum between 1971 and 1975.

Ultimately, the management shake-ups, profit-searching, consolidation and market decentralizations can only be attributed to class struggles in which the state capitalists are competing amongst themselves and seeking to compel laborers to work in the interests of the ruling class. The author will dispel any remaining doubt that the workers have lost control of production in the section on trade unions.

CENTRIFUGAL FORCES: MARKETIZATION

“All enterprises have their own comparatively independent economic interests. . . The enterprises have thus become both the producers and operators of commodities.”

(He Wei, “The System of Socialist Ownership Should Have Various Forms,” Renmin Ribao, FBIS, 1/8/85, k17)

“Reform of the price system is the key to reform of the entire economic structure.”

(“Communique of Third Plenary Session of 12th Central Committee of the Chinese Communist Party,” FBIS, 10/22/84, k9)

“Prices will respond rather quickly to changes in labour productivity and the relations between market and supply and demand and better meet the needs of national economic development.”

(Ibid.)

The Marxist Law of Value states that commodities exchange in proportion to the socially necessary labor time embedded in them. Under capitalism, exchange serves to mystify the exploitation of labor-power by the capitalists. The distribution of wealth and income only appears fair under capitalism because labor appears to be exchanged for money on mutually agreeable terms. In reality, as Marx showed in volume one of Capital, the capitalist buys the potential to do work—labor-power— and coerces surplus labor out of the worker, so that exploitation occurs outside the sphere of exchange.

Socialism halts exploitation by abolishing the bourgeois right to private property and hired labor. However, the remaining of two bourgeois rights is left open as an arena of class struggle. That arena is the right to pay according to work. The legacy of previous class society assures that any relatively new socialist society has workers unequal in educational background and work experience, for example. Thus some workers will contribute more socially necessary labor time in production than others. Under socialism “to each according to his work” is the dictum, so some workers and strata—technicians and administrators especially—will receive more pay than average.

Pay differentials are accompanied by prestige differentials amongst jobs. Other issues included under bourgeois right include the deference from workers people in certain jobs can acquire. The right to respect, deference and other behaviors are largely a matter of custom derived from previous class society.

Pay differentials are not the object of mere wage struggles under socialism. According to the Shanghai school of political economy, under socialism the bourgeoisie tinkers with bourgeois right in distribution in the hopes of bringing about qualitative retrogression in the arena of socialist ownership.

When advocates of maintaining and increasing the bourgeois right to remuneration by work reach high party and government office, they are called the state capitalist class. In their positions in the state, which itself is a legacy of class society, the state capitalists are in a position to tinker with socialism and turn the tide quantitatively at first and then qualitatively against socialist ownership.

This then is the reason the discussions in China since the Cultural Revolution have often been called the transition debate. During socialism the dictatorship of the proletariat aims to prevent the bourgeoisie from dominating the state as part of a state capitalist class. Wage issues are inherently political issues of the revolution because the party guides wage policy and the state administers it. The struggle over the group of issues having to do with bourgeois right under socialism is the most central to continuing revolution or retreat (quantitative) and eventual counterrevolution (qualitative).

According to adherents of the Shanghai school, proletarian dictatorship roots out bourgeois right in all of the superstructure and forces the bourgeoisie to accept the restriction and destruction of the role of the Law of Value. The final task of socialism is the complete destruction of the role of the Law of Value and the elimination of all aspects of bourgeois right, which otherwise serves as a material basis for counterrevolution.

Communism can only begin with positive and conscious distribution according to need. Exchange is either non-existent or enacted in violation of the Law of Value, which is oblivious to need. Classes cease to exist because their material basis is destroyed. With the overcoming of remaining antagonistic divisions in civil society the state ceases to have a reason to exist. No one wants power over another and power as such becomes unknown.

The current Chinese government has a different view. “Nearly three decades of experience shows that observation of the law of value results in economic growth.” Moreover, the new government has glorified one of the two major rights of the bourgeoisie—the right to remuneration by work. In fact, Beijing Review not only guarantees “to each according to his work,” but also literally promises that income gaps will expand.

By 1988, a Beijing Review editor admitted that “a few years ago, there was much talk about the defects of absolute egalitarianism. . . . Now it is the problem of large gaps in income.” According to Dai Yannian, the average worker in a state-owned enterprise makes 1400 yuan a year—2000 to 3000 yuan when one counts various fringe benefits and subsidies. Yet,

about 10 percent of the nation’s 12 million self-employed

industrial and commercial workers earn over 10,000 yuan

a year, and 1 percent of these earn far more—up to

hundreds of thousands of yuan.

Beijing Review has started boasting of the existence of millionaires such as Liu Xigui, who has hired 100 drivers and loaders for a private transport business that has over 3 million yuan in fixed assets and an annual profit of 1 million yuan.

“Selling what is in demand, and producing what sells, is an objective law of development,” according to the ruling class. Furthermore, the CCP has adopted the neoclassical outlook on insatiable desires: “The basic aim of socialist production and construction is the satisfaction of the ever-increasing material and cultural needs of the people.”

In fact, one market advocate in an article praising the new labor contract system saw that it was necessary to make clear that China’s contract system did not mean labor-power was a commodity. “If labor contracts are treated as labor task contracts, and regulated according to civil or economic law, then the labor force will be used as a commodity, and hired labor will be created, which is in basic violation of the nature of our socialist society.” Thus, it was deemed necessary to distinguish among the various means of coercing labor out of labor-power in China. However, some other Chinese have not been so clear about what the turn to the market means. One Chinese economist of high standing called for the day “all economic relations become commodity in nature.” Chinese officials recently wonder out loud whether or not “to boldly open the real estate market, the consumers’ labor service market, and the investment market, which were confined in [the] past.” In sum, the post-Mao leadership has two factions: one that follows Chen Yun believes that a mixed economy with planning predominant is best; another faction would like to pursue a free market outright.

New regulations have opened many other markets for the first time already. Regulations issued in May, 1984 state that once state quotas are fulfilled or if the state refuses the product of an enterprise, the enterprise is free to do as it pleases. Carl Riskin has pointed out that like progressive piece-rates, above-quota sales on the free market do not conform to the principle of “to each according to his/her work” because prices on the free market are generally higher than those fixed for quotas. This means work beyond a certain level will receive greater remuneration than work below that level.

State regulations also state that firms can sell means of production for prices within 20% of the state price or negotiate with buyers and can choose any supplier of raw materials including non-state suppliers. Also, as in the case of the collectives, property may be leased out to other firms or individuals given the permission of the CCP.

In 1988, the CCP had plans to open futures markets for long-term delivery of produce, pigs, grain, cotton, ramie, nonferrous metals, silk and rabbit fur. It has also had on-again, off-again flirtations with opening a stock market. Initial trials enjoyed great success in collecting funds for enterprises.

The big drive for the market has meant an increase in the number of workers employed solely in selling. In this way a friendly local party committee is indispensable for an enterprise, both to secure necessary inputs and for staff to find buyers.

Chinese factories have a whole category of

employees just to help them cope when they can’t get

what they need from the plan. They are called cai gou

yuan, literally, “purchasing agents” or “buyers,” though the

way Chinese described their functions they might better

have been termed “fixers.” Another article in the People’s

Daily estimated that every day 50,000 to 60,000 buyers

arrive in Peking and Shanghai on urgent errands for their

factories.

To make life easier for consumers, China has been letting individuals work in retail sales and services. By the first quarter of 1981 there were 600,000 handicrafts and retail businesses run by individuals, up from 100,000 in 1978. The total number of licensed private enterprises in China reached 1.5 million by 1983. By the end of 1986, there were about 20 million self-employed businesspeople.

Among those people seeking private businesses are doctors. By 1988, one-fifth of all doctors and nurses had private practices. They performed trendy operations to give Chinese people Western-looking eyes, Western-looking noses, breast implants and even longer legs.

While the private sector in industry accounts for less than one percent of China’s industrial output value, it has shown the fastest growth. By 1988, there were about 225,000 private enterprises with eight or more employees, 16 on average for a total of 3.6 million employees. New regulations protect private enterprises and allow inheritance.

Along with the extensive growth of the collective sector, the private sector’s growth accounts for a decline in the relative role of state-owned enterprises in industry. By 1981, the state enterprises employed only 42% of the employees in industry.

The state, though necessary under socialism, involves hierarchical relations that compose a material basis for state capitalism. Government officials who set prices are vulnerable to bureaucratism—isolation from the masses. They may work for their own interests and the interests of those who are willing to bribe and otherwise influence the top officials to work for capitalism. That is why Mao claimed the continuous need for seizure of state power by the working classes.

In China today, purchasing agents are regarded as necessary to oil the works because of the difficulties in the supply market that enterprises face. According to the CESRRI economists, the free market has relatively little influence over the supply of inputs for production. Yet, recently, individual entrepreneurs fill in where planning has been increasingly thrown out. Private enterprises have an official role supplementing the planned economy. Already millions of people are doing the work that used to be that of planners. If Chinese capitalism opts for the free market, the entire society will become involved in unconsciously filling in for planning.

It is ridiculous to call China a planned economy for the single fact that only 30 to 40% of industrial output prices (by sales volume) are fixed. The rest float within a certain range or operate within the free market entirely. In addition, state-owned enterprises only obtain from 20 to 40% of their raw materials at state-fixed prices and “generally, almost all the raw materials needed by collectively owned enterprises are bought at market prices.” A Political Bureau meeting in August 1988 confirmed that all but “a few important commodities” would be left to the free market in the 1989-1993 period.

TRADE UNION FARCE

“The factory director or manager alone assumes full responsibility for directing the production, management and operation of his enterprise.” (Jin Qi, “Reforming Enterprise Leadership System,” Beijing Review, no. 25, 1984, 4.)

The role of trade unions in China is highly touted for public consumption lately. No longer are trade unions just another organization practically superfluous as in the Cultural Revolution when workers were supposed to concern themselves with administrative and political matters, not just traditional union issues.

The trade unions are represented as the vanguard of the working people in an article titled “Trade Union’s Role in Socialist Society”: “Lenin said that the trade union should be the vanguard of the working class and a link between the worker masses.” Furthermore, “trade unions must stand at the forefront of the socialist democratic movement led by the party and become the core of this movement.” However, even if it were true that a big role for the trade union in enterprise control and representative “democracy” were indicative of socialism, China today still would not be socialist.

The post-Mao leaders recognize that one-man management is nothing new. Jiang Yiwei, “deputy director of the Institute of Industrial Economics,” admitted that “leaders of independent enterprises might ‘become a new privileged stratum or even become capitalists.’” That is why Jiang Yiwei talks about election of representatives of workers and staff.

Having abolished the Cultural Revolution revolutionary committees that ran production, the post-Mao administrators argue against supposed anarchy. “The administrative command of the factory director is an important aspect in any change in the enterprise leadership system in that it is essential for the establishment of an authoritative chain of command and the combination of democracy and centralism.”

Responding to letters from factory directors and managers “to ‘free them from their bonds,’” Beijing Review published an article specifying the powers of factory directors derived from the State Council’s “Provisional Regulations on Greater Decision- Making Powers for State-Owned Industrial Enterprises.” “The factory director or manager has the right to appoint or dismiss cadres under him.” Also, “the factory director has the right to reward and punish his workers and staff, with promotions, wage hikes, or even disciplinary dismissal.” They “have the right to reject forced assignment from higher agencies or individuals.” Finally, “factory directors may promote 3 per cent of their workers each year.” No where in the whole article titled “Businesses Enjoy Expanded Powers” are the unions or Workers’ Congresses mentioned.

In place of the mass-mobilization approach of the revolutionary committees, industrial management offers spurious workplace democracy. In the first place, workers’ congresses elect the factory directors, not the trade unions themselves. The congresses are selected by the trade unions and meet only when necessary. Secondly, once elected the director is subject to party approval. Thirdly, if the director disagrees with the Congress’ resolution, he may choose not to implement the resolution. In this case, the party again is the final arbiter. Finally, the CCP has not been quick to undermine its own prerogative. The actual implementation of the reform is not widespread. The Cultural Revolution’s influence is one problem as opinion-makers are quick to denounce anything smacking of anarchism and instability.

Perhaps more importantly, the ruling class is already too unwieldy of a political coalition to subject itself to elections. On the one hand, there is the element that wants a free market established everywhere. On the other hand, the intelligentsia, factory directors and technocrats are happy with their newly found status and power in the post-1976 regime and do not want to make the link between free markets and free elections. A CESRRI survey of factory directors found that two-thirds opposed democratic management; 73% favor strict work standards over helping workers gaining satisfaction or arranging work for workers; 57.4% believe that their decisions cannot be changed despite criticism from lower levels; a majority feel that workers are irresponsible because of their “weak” or “very weak” sense of collectivism and overall picked “high wage and fat bonus” as the most important thing for workers in a list of 11 aspects of job satisfaction.

Martin Lockett and Craig Littler have investigated the supposed trend to election of enterprise managers. They found that official figures put election of factory directors occurring 11% of the time in state enterprises as of June, 1982. Moreover, their own investigations failed to turn up elections of any kind in Guangdong Province. In Sichuan, only one factory director was elected out of approximately 400 experimental enterprises as of 1981. In some places, elections were tried out and abandoned with apparently no clear reason. Lockett and Littler cite the Chongqing Clock and Watch Company. Overall, between 1980 and 1982 there also appears to have been a decline in the number and percentage of state industrial workgroup and section leaders elected.

Besides participation in management, the workers have lost other important means of acting as masters of their own work. First, they no longer are allowed to strike. The 1978 Constitution contains a new clause which “prohibits any person from using any means whatsoever to disrupt the economic order of the society.” If trade unions are to become vehicles for worker mastery of production, then how are they to exert any power? One can not help but draw the parallel to corporatist states. The unions are set up by the state to perform various tasks to ensure production, but then they are denied any real power to act in workers’ interests. In South Africa, there are also trade unions. They are recognized, but not allowed to negotiate or strike.

Secondly, the Chinese government intentionally portrays itself in the official press as something with its own prerogatives. There is a concerted campaign at this moment to link worker gains to productivity.

Henceforth, the increase in peasants’

income should rely mainly on production

development, and the increase in

workers’ income should rely mainly on

enhancing productivity. Only thus can we

gradually change the tendencies that the

proportion of the financial income in the

national income shrinks year after year,

funds are excessively scattered, the scale

of investment in fixed assets swells

excessively, and the accumulation rate

continues to rise.

Financial income here refers to the income of the state. Thus the state itself is attempting to increase its income and has directly tied that income to restriction of the income of workers and peasants.

Other articles stress the relationship between firing of workers and the state’s income. An opinion in the China Daily surmised that if all the surplus laborers were fired, enterprise profits would increase so much that they would deliver 20 to 30 billion yuan more per year in taxes to the state.

Production for production’s sake and growth for all is the line being pushed on the unions whose duty it is to “do well in production and to safeguard the interests of the state.” For power and the means of coercion, the manager has usurped some of the Party’s role and the state’s income. The state loses local control and must make up for its loss of income by trying to exact more from the workers and peasants. Rather than use Cultural Revolution methods of political campaigns to achieve the working classes’ ends, the state tries to coopt the factory managers. As the number of coopted rises, the number of managers is whittled down by mergers and shutdowns.

In conclusion, the relationship of the workers, their trade unions and the workers’ congresses to factory managers ultimately brings up the question of their relationship to the state—a relationship of exploitation by the state capitalists. The role of the trade unions and worker congresses is only a big myth of worker power and growth for all. It is quite fitting that the article on “Trade Union’s Role in Socialist Society” ends with a paraphrase from Deng. “We should focus on three matters—seeking a quick development of social productive forces and gradually improving the people’s living standard, economically; perfecting the state’s democratic and legal system, politically; and training a large number of fine, skilled personnel, organizationally.” Deng means pull the cart; wear blinders and we will tell you how to get there.