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Atlantic Council and Rhodium Group announce research partnership on China’s economic trajectory

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ChinaEconomy & Business

Container barge passing by in Shanghai, China. Increasingly, the center of gravity of the global trade and financial system is shifting East, toward China, and South.

Source: Markus Winkler for Unsplash

Multi-year partnership to produce unique insights on China’s economy and implications for Biden Administration policymaking; Rhodium partner Daniel Rosen to be named as Atlantic Council Senior Fellow

WASHINGTON, DC – March 9, 2021

– The Atlantic Council’s GeoEconomics Center and Rhodium Group today announced a multi-year partnership dedicated to understanding China’s economy.

The flagship project of the partnership will be a data visualization toolset for analyzing China’s economic trajectory. Building on Rhodium Group’s extensive past work tracking China’s policy choices, the first release is scheduled for June 2021, followed by quarterly updates. The project – titled Pathfinder: Anticipating China’s Economic Future – will examine China’s economic direction in six key areas: three external (trade, direct investment, and portfolio investment) and three internal (market competition, financial system, and innovation).

This regularly updated compendium of novel indicators will anchor a new publication series that helps inform the Biden Administration’s economic approach to China, complementing the GeoEconomics Center’s current China Economic Spotlight.

Josh Lipsky, Director of the Atlantic Council’s GeoEconomics Center said, “We are proud to partner with Rhodium Group to shed light on the defining economic challenge of this generation – how to grapple with China’s power. The Atlantic Council’s growing body of work on China is designed to inform smart policymaking, and the crucial missing link in Washington and beyond is a full understanding of how China’s economy truly operates.”

We are proud to partner with Rhodium Group to shed light on the defining economic challenge of this generation – how to grapple with China’s power.
Josh Lipsky, Director of the Atlantic Council’s GeoEconomics Center

Launched in 2020, the Atlantic Council’s GeoEconomics Center is organized around three pillars: the Future of Capitalism, the Future of Money, and the Economic Statecraft Initiative. The Center prides itself on impactful data visualization projects and has a proven track record of internationally recognized work. In the past several months, the Center produced major reports on the rise of central bank digital currencies, the dramatic changes in global monetary policy, and the shifting use of sanctions worldwide.

Addressing the goals of the project, Rhodium Group Founding Partner Daniel Rosen asks,

  “Is China’s economy diverging so fundamentally from market principles that the only appropriate response is decoupling? Leaders lack a sound analytical framework for approaching this crucial question. If they over- or under-react it will have severe consequences. By fairly gauging the aspects of China’s economic system that matter most we will provide that framework.”

Rhodium Group is recognized for pathbreaking, objective analyses of what makes China’s economy tick and its implications for the United States and other market economy nations, businesses, and workers.

To integrate the work of the two organizations, Rosen will also serve as a Senior Fellow within the Atlantic Council’s GeoEconomics Center. He brings three decades of experience tracking China’s economic evolution.

For media inquiries, please contact press@atlanticcouncil.org

China is not heading toward a market economy, often due to its own policies, report concludes

China ‘is clearly not what was envisioned’ when it was admitted into the World Trade Organization in 2001, Atlantic Council and Rhodium Group find

The nation has back-pedalled from its stated economic objectives, and the US and other market economies must protect themselves when dealing with it

Jodi Xu Klein

Published: 12:01pm, 5 Oct, 2021

Shipping containers from China are unloaded at the Port of Los Angeles in California. A new report concludes that the country is not on a track to becoming a market economy. Photo: AFP

China has fallen short of meeting its stated reform goals and is not on track to become a market economy, a report assessing China’s development has concluded.

As a result, the United States and other market economies must develop commercial rules to protect their systems better when they deal with China until it becomes a more open economy, according to the report, China Pathfinder, published by the Atlantic Council and Rhodium Group on Tuesday.

The report found that while the last decade saw some progress, China’s back-pedalling from a more open economy, which began in 2016, was particularly prominent in the past year when Beijing began to crack down on private firms in the technology and education sectors and pursued a growth strategy intended to make China less reliant on the outside world.

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ALL TOGETHER NOW; 

CHINA IS A STATE CAPITALIST REGIME, WITH ELECTRICITY!

LET'S CONFIRM THIS WITH THE LENNINIST TROTSKYISTS

Lenin and State Capitalism: Debunking a Persistent Myth

Posted on April 2, 2017 by Bolshevik

Something I have run up against repeatedly over years of discussing Marxist politics in person and online is the myth that Lenin mistakenly believed socialism to be a form of capitalism. One piece of “evidence” for this claim is a quote drawn from Lenin’s “The Impending Catastrophe and How to Combat It.” In the section titled “Can We Go Forward If We Fear to Advance Toward Socialism?” Lenin argued, “For socialism is merely the next step forward from state-capitalist monopoly. Or, in other words, socialism is merely state-capitalist monopoly which is made to serve the interests of the whole people and has to that extent ceased to be capitalist monopoly” (emphasis in original).

To critics of Bolshevism, this snippet represents a damning indictment of how far Lenin departed from Marx’s understanding of socialism. The social-democratic SPGB, one the groups who frequently employ the quote to dismiss Lenin’s politics, has claimed that “Lenin knew that he was introducing a new definition of socialism here which was not to be found in Marx.” Alongside the SPGB are a large number of anarchist or “libertarian communist” websites that have latched onto the quote as indicative of Lenin’s purportedly nefarious political designs. “Lenin was clear what kind of economy he was aiming for,” claims one anarchist brochure, “a state capitalist one.” Another anarchist site buries the quote deep within a pile of other quotes supposedly revealing a direct line of development from Lenin to Stalin.

The problem with such claims is that they fail to understand what Lenin meant by “state capitalism,” and how it differed from the “state capitalism” that they claim existed under the planning framework that was constructed during the First Five Year Plan. For Lenin, state capitalism still had profit-making capitalists (and some firms under joint ownership). It operated primarily through lease concessions to foreign industrialists, made by the proletarian state, to improve or generate investment in a particular industry. It tried to encourage bourgeois co-operatives among petty producers, and was geared toward checking the worst excesses of capitalist management and enterprise by enforcing “controls” in the interests of the working class. The system was quite different than the one that prevailed from the early 1930s onward in the Soviet Union.

Even if we set aside all outside knowledge of what Lenin did or did not mean by the term, the quote in question does not say anything even remotely similar to what its cherry-pickers have claimed it does. A close textual reading makes it clear that Lenin definitely saw a link between state-capitalist monopoly and socialism (otherwise, why even bring them up in the same sentence?). But the relationship is not one of strict equation between the two, for if it were, Lenin would not have identified socialism as “the next step forward from” capitalism.  Instead, Lenin thought that the relationship was one of sharing a specific feature: the existence of “monopoly.” In contrast to “state-capitalist monopoly,” though, socialist monopoly would be “made to serve the interests of the whole people” and would no longer be “capitalist monopoly.” Far from being a revision of Marxism, Lenin’s remarks are consistent with what any Marxist would support. After all, if a governing body under socialism did not have a “monopoly” or ultimate authority over all the means of production, that by definition would point to the continued existence of private property in the means of production. And what Marxist would argue for that?

But we honestly do not need to delve into this rather monastic kind of exegesis, because Lenin, in his aptly named pamphlet “‘Left-wing’ Childishness,” discussed at length how he envisioned state capitalism functioning in the process of transitioning to socialism. Conveniently, it even contains a clear explanation of what he meant in the aforementioned quote:

“No one, I think, in studying the question of the economic system of Russia, has denied its transitional character. Nor, I think, has any Communist denied that the term Socialist Soviet Republic implies the determination of Soviet power to achieve the transition to socialism, and not that the new economic system is recognised as a socialist order.

But what does the word ‘transition’ mean? Does it not mean, as applied to an economy, that the present system contains elements, particles, fragments of both capitalism and socialism? Everyone will admit that it does. But not all who admit this take the trouble to consider what elements actually constitute the various socio-economic structures that exist in Russia at the present time. And this is the crux of the question.

Let us enumerate these elements:

1) patriarchal, i.e., to a considerable extent natural, peasant farming;

2) small commodity production (this includes the majority of those peasants who sell their grain);

3) private capitalism;

4) state capitalism;

5) socialism.

Russia is so vast and so varied that all these different types of socio-economic structures are intermingled. This is what constitutes the specific features of the situation.

… 

At present, petty-bourgeois capitalism prevails in Russia, and it is one and the same road that leads from it to both large-scale state capitalism and to socialism, through one and the same intermediary station called ‘national accounting and control of production and distribution.’ Those who fail to understand this are committing an unpardonable mistake in economics. Either they do not know the facts of life, do not see what actually exists and are unable to look the truth in the face, or they confine themselves to abstractly comparing ‘capitalism’ with ‘socialism’ and fail to study the concrete forms and stages of the transition that is taking place in our country. Let it be said in parenthesis that this is the very theoretical mistake which misled the best people in the Novaya Zhizn and Vperyod camp. The worst and the mediocre of these, owing to their stupidity and spinelessness, tag along behind the bourgeoisie, of whom they stand in awe. The best of them have failed to understand that it was not without reason that the teachers of socialism spoke of a whole period of transition from capitalism to socialism and emphasised the ‘prolonged birth pangs’ of the new society. And this new society is again an abstraction which can come into being only by passing through a series of varied, imperfect concrete attempts to create this or that socialist state.

It is because Russia cannot advance from the economic situation now existing here without traversing the ground which is common to state capitalism and to socialism (national accounting and control) that the attempt to frighten others as well as themselves with ‘evolution towards state capitalism’ (Kommunist No. 1, p. 8, col. 1) is utter theoretical nonsense. This is letting one’s thoughts wander away from the true road of ‘evolution,’ and failing to understand what this road is. In practice, it is equivalent to pulling us back to small proprietary capitalism.

In order to convince the reader that this is not the first time I have given this ‘high’ appreciation of state capitalism and that I gave it before the Bolsheviks seized power I take the liberty of quoting the following passage from my pamphlet The Impending Catastrophe and How to Combat It, written in September 1917.

‘. . . Try to substitute for the Junker-capitalist state, for the landowner-capitalist state, a revolutionary-democratic state, i.e., a state which in a revolutionary way abolishes all privileges and does not fear to introduce the fullest democracy in a revolutionary way. You will find that, given a really revolutionary-democratic state, state-monopoly capitalism inevitably and unavoidably implies a step, and more than one step, towards socialism!

‘. . . For socialism is merely the next step forward from state-capitalist monopoly.

‘. . . State-monopoly capitalism is a complete material preparation for socialism, the threshold of socialism, a rung on the ladder of history between which and the rung called socialism there are no intermediate rungs’ (pages 27 and 28).”

Lenin himself, then, is clear regarding what he meant by the quote. In a country where what Lenin called “patriarchal” production and “small commodity production” were pervasive, he envisioned “state capitalism” as a means of integrating small, isolated producers into a larger system of “national accounting and control of production and distribution.” It is in that sense, not in the sense of state bureaucrats operating as a new capitalist class, that Lenin understood state capitalism to be an important economic advance in the transition to socialism, which was viewed as something quite distinct (see numbers 4 and 5 in the quote). The idea that this stage could be skipped over, with petty producers being directly integrated into a smoothly operating planning apparatus, is utopian. Admittedly not any more utopian than the idea that workers have no need for their own state in the aftermath of a socialist revolution, or the idea that one can understand Lenin’s highly specific, contextually bound programmatic statements without having done any significant investigation into his political biography or even the history of the Russia circa 1918-1928. So, if nothing else, at least Lenin’s critics are consistent.

Certainly there are debatable criticisms that can be made of Lenin’s politics at various junctures of his life. But whatever the criticism, it should be an informed one, not the kind of dishonest distortions that have accumulated around out-of-context quotes. Such tactics do no credit to those deploying them, and short-circuit the process of intellectual and political development that must occur if socialist revolution is ever to be anything more than utopian moralizing.

Neo-Liberal State Capitalism In Asia

Reading the Right from the Left.

Free Trade Zones are the newest formation of state capitalism. Of course the contradiction here is that they pose as a form of free trade. When in fact the difference between them and state enterprizes is simply a matter of ownership. Name change really. Of course there are concrete structural differences to. But for all intents and purposes both are forms of state capitalism.

Whether they are called new economic zones; in Canada's Maritimes (dominated by call centres rather than the traditional use of these zones for manufacturing), Maquiadoras in the Caribean, Latin and South America, or Special Enterprize Zones zones in Asia and Aftica or economic reconstruction Zones in American inner cities, they remain a market distortion.

In India they are finding that the creation of these Special Enterprize Zones (SEZ) distort the market place. And since they are implemented as one of the tools of neo-liberalism to free the market of state control it is another contradiction of real existing captialism, rather than the text book capitalism of the Austrian or Chicago schools. Such text book capitalism showed its failure in the melt down of the Russian economy after its failed attempts to privatize with the collapse of the Soviet Union in 1989.


Attack on Indias economic zone plan

Since the passing of the Special Economic Zones Act in February, hundreds of businesses have rushed to take advantage of generous tax breaks, causing consternation in the finance ministry, the central bank and even the International Monetary Fund.

Special economic zones have been established in several countries, most notably in China, where they attracted the foreign investment and know-how that were central to the modernisation programme launched in 1978. However, critics claim SEZs attract investment only by offering distortionary incentives rather than by building underlying competitiveness and can delay real economy-wide reform

But economists believe the proposed SEZs are unlikely to help Indian manufacturers achieve scale efficiencies, since 133 of the 267 are less than 1 square kilometre in area. The average size is just 4.2 sq km.

“Mega-sized SEZs are the ideal solution,” said Chetan Ahya of Morgan Stanley. “We believe that in today’s highly competitive globalised world, the concept of small-sized SEZs is completely outdated.”

In a continuation of a long-running turf war with the commerce ministry, finance ministry officials said the scheme was providing unnecessary tax breaks to real estate development that would have taken place regardless of whether there was a SEZ scheme in place.

It remains the function of the state to create these zones, through cheap land, tax and regulation breaks, in particular labour laws, health and safety regulations, etc. In other words it is not about trade or even production but cheap manufacturing of goods, which can only be brought about by an attack on labours wages and benefits, which eat into surplus value (profit). When the neo-liberals call for de-regulation, ending red tape, etc. it is always the labour laws they focus on or laws that impact on workers. A couple examples from the Financial Times online should suffice to make the point.

UK in secret deal with Italy on China trade

Britain has just enough EU member states ready to support its exemption from the working time directive – seen as a vital part of Britain’s flexible labour market – but the coalition is flaky.But the proposed deal has hit a hitch: Italy has so far refused to give Britain the written assurances it wants on working hours. Communists and socialists in Mr Prodi’s coalition believe the UK’s working time “opt out” exploits workers and gives Britain an unfair advantage over countries where the 48-hour limit applies.



Another shift in ownership from an autarkic form of state capitalism to a monopoly state capitalism like India's (their so called Democratic State Capitalism) is currently occuring in China as part of its economic reforms. That is the creation of capitalist law, specifically bankruptcy law.

China state firms win stay of execution

The move, aimed at cushioning the social impact on employees of financially strained state companies, will slow the disposal of bad loans held by state banks and distressed debt companies and perhaps also reduce buyout opportunities for foreigners.

The bankrupcty law, passed in August after more than a decade of debate, is seen as crucial stage in China’s reforms as it enables creditors and investors to weed out underperforming companies by filing for bankruptcy to recover at least part of their funds.

However, the law, which is due to come into effect in June 2007, will not apply to 2,116 state-owned enterprises considered at financial risk by the Chinese authorities until at least the end of 2008.

In an interview with the Financial Times, Professor Li Shuguang, one of the authors of the new law, said that for those companies, employees’ health and wage claims would still take precedence over creditors’ claims, an arrangement that had so far slowed restructuring in some sectors.

Estimates of the claims by state employees range from hundreds to thousands of billions of renminbi, China’s currency.

In other words before the capitalist risks their investment, the public has alread invested more than the private capitalist ever would. Any change in the regulations of the state, do not minimize the state, they simply make it more open to the influence of monopoly capital for its own interest.

Private equity firms’ and foreign multinationals’ efforts to buy and restructure state companies would also suffer a setback.

Professor Li, who hosted a seminar for Wall Street analysts and investors at New York’s China Institute in September, said it was “the most important law in China’s development of a market economy”.

“It shows the central government’s commitment to introducing a market economy and to use the legal system to deal with the issues arising from a market economy. That would have been unthinkable 10 or even five years ago.”

Actually the most important development of the Chinese economy in its transition to monopoly corporate state capitalism from the autarkic variety was the opening up of the banking system to foreign investment and the development of a stock exchange.

The later was further enhanced by China's take over of Hong Kong one of the biggest market exchanges in the world. While the PR was that this was the end of British colonial rule over the island and the end of the age old battle between China and Britain which began during the opium wars, Hong Kong's value was its investment and banking window onto the monopoly capitalist world.

A major portion of the foreign investment in China consists of Chinese private capital
recycled through Hong Kong. The importance of Hong Kong for the growth of nonstate
enterprises in China lies in its efficient financial markets and legal system.
A Proposal to Privatize Chinese Enterprises and End Financial Repression
Cato Journal -Volume 26 Number 2, Spring/Summer 2006

This new bankruptcy law however is a major and significant change for enabling foreign captial to buy and operate state enterprizes, not create new ones with their own capital. In other words a Public Private Partnership (P3) the keystone of the neo-liberal economic reforms in this period of globalization.

Foreign Direct Investment, FDI in China is not being invested in new enterprize zones nor in the developing private sector. Rather it is focused on Partnerships in existing State Enterprizes or SOE's as they are called. This means that Western corporate monopolies financial and manufacturing, are partnering with existing state enterprizes awaiting the day they can buy them at fire sale prices.

The market reforms in China, as they have been applied elsewhere, once again shows the textbook liberaltarian idealists of the Von Mise institute and the neo-liberals at the CATO institute overlook the key determinant of the capitalist market that is the labour theory of value.

For them labour is reduced to an input value not unlike raw materials and technology. It is a form of variable capital investment. More importantly for this form of liberal economics, cost, price and consumption rule. Yet in reality, by their own admission labour value is the key to capital creation. Even in China during this transisition from the autarky of State Capitalism to a privatized state capitalism.

The key here is that the two components of liberalization are P3's in State industries and the transfer of the responsibility of social benefits to the State.
What makes private industry competitive is its ability to keep wages and benefits low even more than a cheap tax regime. The lattter is gravy.

China has allowed both private industry and its own state enterprizes to transfer their responsibility for wages and benefits to the state. Ironically the state has no infrastructure for the delivery of unemployment insurance, health care, welfare or social assistance, pensions etc. because these orginally had been the responsibility of the State enterprises.

With Dengs capitalist reformation the result was an uneven playing field. Free Trade Zones and private companies were allowed to exploit the vast labor market with low wages and no benefits. While the state enterprizes were expected to carry on with higher wages and benefits.

This produced the false impression that private enterprize and Free Trade Zone businesses are more productive than state owned enterprizes. They are not more productive, they are more profitable because they keep more of the surplus value of their labour due to lower wages and no benefits.

The sources of the Chinese economic miracle are well known. The
rise in rural incomes, with the adoption of the household responsibility
system (the shift away from collectivized farming) and the bonus
from the demographic transition with a fall in the dependency ratio
(the ratio of children and the old to workers), led to a marked rise in
savings rates.

A monumental unintended consequence of the decollectivization
of agriculture was the initiation of a boom in small-scale,
nonfarm rural enterprises, which began with Deng Xiaoping’s injunction
that it was virtuous to be rich. Local party officials took this to
heart, becoming directors and managers of township and village enterprises
(TVEs).

With the rise in farm incomes, the pent-up demand for manufactured
goods and housing was met by the TVEs, which were run as
profit-making capitalist enterprises, even though they were collectively
owned. They provided the local authorities with “extrabudgetary
revenues” and gave officials legal opportunities to become
rich.

Unlike SOEs, the TVEs did not carry any welfare responsibilities
and were free to hire and fire the abundant local labor. With Deng’s
creation of the Special Economic Zones in China’s southern rim in
the early 1980s, the TVEs—and later individually owned private
firms—became the spearhead of a Dickensian capitalism.

These nonstate enterprises have made China into the processing
center for manufactured goods in the world. Success has occurred by
using cheap labor in the Chinese countryside along with foreign technology,
and relying on self-financing from household savings and
enterprise profits, along with foreign capital from the Chinese diaspora
and a myriad of multinationals, and engaging in fierce locational
competition promoted by local municipal authorities.
This labor intensive industrialization is now spreading inland along
the Yangtze (The Economist 2004: 13).

These spin-offs from the decollectivization of agriculture were
aided by the massive buildup of infrastructure by the state.

Labor intensive export industries were further helped by domestic price
reforms and by one of the largest unilateral liberalizations of foreign
trade in history.

The rapid export-led industrialization in the private sector is based
on processing imported components with domestic and foreign
capital and technology, and cheap domestic labor.

In the pre-reform period (before 1978) China’s development strategy
provided only limited urban employment opportunities. Consequently,
the government assigned several workers to the same job,
leading to a large labor redundancy in the SOEs. As these industrial
workers only received a low wage to cover current consumption, the
government also had to cover their pension, health, housing, and
other social expenditures from the SOE revenues, which were mandated
to be remitted to the government.

In the reform period, the SOEs have been responsible not merely for wages but also for these “social” benefits, which has imposed a “social burden” on them that is absent in their non-SOE cousins. This burden has grown in the reform
period as wages and benefits paid by the SOEs have grown by 16 percent per annum between 1978 and 1996, while their output grew by 7.6 percent per annum (see Lin 2004).

A Proposal to Privatize Chinese Enterprises and End Financial Repression
Cato Journal -Volume 26 Number 2, Spring/Summer 2006

The new bankruptcy law as well as reforms to State owned companies, the ability to layoff and fire workers, reductions in wages and benefits, and a shift of the responsibility for these to the State, are being implemented in China. The profitability of SOE's is reduced because of the surplus value absorbed by labour.
Again it is not investment, nor techology nor the bueracracy that is the source of profit it is labour. In the case of the newly privatized corporations if the costs were the same they would actually be making less profit for Chinese investors as the techology and marketing aspects of these companies are in the hands of their foreign investors.

The fact is that both the private sector and the state owned enterprizes are kept afloat by the Chinese people by low wages and the banks investing their savings in these companies.

The key to the historic development of capitalism was the privatization of agriculture. The end of the commons and the creation of the encroachment acts. Historic capitalism developed in England before its advent anywhere else in the world. Because of the privatization of agricultural production. This has occured in China with the Deng reforms, privatization of land is the modern equivalent of the English encroachment acts, thus creating a capitalist economy regardless of the politics of the State.

The state can call itself anything it wants, communist, socialist, democratic, republican, blah, blah. The political ideology of the state is is irrelevant to capitalism as a system. Capitalism created the state in its image, for the centralized accumulation of capital. Its political forms regardless of the propaganda of the left and right, are neccasary for the primitive accumulation of capital. If a state is authoritarian at first, as the state was prior to the advent of capitalism, then it will be liberalized as it creates its own bourgoise, the private owners of wealth. Which accounts for the development of the national state in the 19th century and its further development in the 20th.

As long as the state functions to provide private land and labour for those with inherited wealth, then the economic system is capitalism. In the case of China instead of inheriting land, labour and wealth from ones aristocratic and fuedal status and holdings, the inheritance came from ones position in the Communist Party of China.

China’s task of moving from the plan to the market was much easier than that of the other
socialist transition economies of Russia and Eastern Europe because of differences in their
initial conditions. Russia and Eastern Europe had about 90 percent of their labor force in
industrial SOEs, while most of China’s labor force (80 percent ) was in agriculture. For
Russia and Eastern Europe the only route to a market economy was a “big bang” to
dismantle SOEs, which resulted in short-term losses in output and employment. In contrast,
China, by replacing its rural communes with the household responsibility system, all
but in name restored privately run and owned family farms. This Chinese rural “big bang”
led to a rise in output and allowed China time for gradual reform of its inefficient stateowned
industrial enterprises.

A Proposal to Privatize Chinese Enterprises and End Financial Repression
Cato Journal -Volume 26 Number 2, Spring/Summer 2006

China's advantage over India as stated at the begining of this article, is a matter of land. Both countries have labour capacity, manufacturing base, but it is land capacity that restricts India's ability to compete with China for manufacturing. Which is why India's techonolgical development has been centred, like our own in the Maritimes, around call centres, and the outsourcing of IT and software development, as well as phamaceuticals. Such tertiary businesses do not need large amounts of land, and with cheap labour can provide for high rates of profit.

India is the world's fastest wealth creator
So, where is the growth going to come from? The answer is infotech (IT), pharma and textiles. With more wealth, the investment pattern too is expected to change from predominantly cash deposits (which constitute over 60% of the AUM in India, China and Korea) to equities and more sophisticated instruments.

China is becoming like its neighbours , Korea and Japan, a market driven state capitalist economy. India is developing as primary resource based manufacturing economy; steel and developer of tertiary industries in its fordist economy.

The neo-liberal shaping of state capitalism in both China and India into market states relies soley on its devaluation of labour, not tax or land incetives.

See

China

India

Marx

Capitalism

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State Capitalism in Russia—a theory that has stood the test of facts

Tony Cliff’s book State Capitalism in Russia is set to be republished. Sarah Bates examines the theory and explains why it remains a vital work—despite the passing of the Stalinist regimes

The Prague spring in Czechoslovakia, 1968 revolted against Stalin’s state capitalist agenda.

Tuesday 16 August 2022

Issue 2818

Many regular Socialist Worker readers will rightly associate the theory of state capitalism with debates about the nature of Stalinist Russia. It was, after all, an attempt to explain how the degeneration of the 1917 Russian revolution created a society that had more in common with Western capitalism than it did with genuine socialism.

Tony Cliff, the founder of the Socialist Workers Party tradition, developed the theory in the 1940s. At the time, revolutionary socialists were at loggerheads over whether or not Russia was a new form of society.

Using Marx’s analysis of capitalism, and the most detailed research available on Russia, Cliff argued that it was not. However, his theory state capitalism was always more than a way of understanding what forces drove the economies of Russia and Eastern Europe.

It explained the Marxist critique of capitalism and helped resurrect the genuine tradition of socialism from below. And, its application was not restricted to Russia, its satellite states, China and Cuba and so on.

It was also relevant to the West, where many on the left argued that socialism could come through parliament and state ownership of the means of production. In short, it was applicable in all cases where it was thought socialism could be implemented “from above”.

Arguments of that nature are still very much with us today. That’s why it’s a good thing that Cliff’s book, State Capitalism in Russia is now being republished.

Cliff started with an analysis of what happened to the Russian Revolution. When workers took power there in 1917 it sent shock waves around the world.

For the first time ordinary people were in the driving seat, taking over their workplaces and creating Soviets where collectively they made the decisions about how society would run.

An entire empire was now in the hands of revolutionaries. But the Bolshevik party leaders of the revolution were internationalists before all else.

The old Russian empire was a “prison house of nations”, they said. Those states within it that wanted to break away were free to do so.

And, they were clear that the revolution would have to spread to more economically advanced countries to survive. But in the 1920s, as civil war and foreign invasions ravaged the fledgling state, workers’ power and the ideals that flowed from it, would fade.

The Russian Revolution was worth it—it gives hope of a better future

Many of the most committed workers perished on the frontlines fighting imperialists and counter-revolutionaries. The factories, which had been the heart of the revolution, were decimated by war and famine.

The soviets, once alive with fierce debate, became moribund rubber stamps for officialdom. A growing bureaucracy emerged to take the place of workers’ control, and it was from this layer that Joseph Stalin drew his power. After Lenin’s death in 1924, Stalin and his supporters set about killing and repressing the original revolutionary leaders to sure up power for themselves.

In 1928, Stalin set out to transform Russia’s economy using a “Five-Year Plan”—a rapid process of industrialisation he hoped would allow Russia to compete with Western economies and their war machines.

It was to swallow up more than a fifth of Russia’s entire national income and only increased in later plans. This followed his decree that early revolutionary internationalism was to be abandoned and replaced with the new doctrine of “socialism in one country”.

That meant industrialisation was to take place in Russia in isolation from the rest of the world. This could only be done by extracting huge surpluses from the peasantry—and by forcing peasants off the land and into the factories.

Stalin’s bureaucracy played the role of the capitalist ruling class, and pitted itself against workers and all their revolutionary achievements. In this dynamic, the elite did not own the means of production, the state did. But then comes the question, who owns the state? The answer, of course, is the ruling class.

So the state, rather than private capitalists, accumulated capital and competed for dominance on the global markets. But, unlike Western capitalism, it did so without internal competition.

Nowhere was the struggle with the West as evident as it was in the accumulation of military hardware. To match the West for every tank, gun and missile, production was ramped up massively and workers were given targets to double or triple production over the course of the five years.

By 1938, some 29 percent of total construction was munitions. Cliff argued, “The armament industry occupies a decisive place in Russia’s economic system.”

During this time, working hours went up, pay went down and conditions became increasingly punishing. A government-issued decree on 1 August 1940 said that during harvest, agricultural work should “begin at five or six in the morning and end at sunset.”

But there was already far worse going on than simply long hours. By 1931 there were nearly two million people in forced labour camps. The one-time leader of the Yugoslav Communist Party, Anton Ciliga, was held in Russian concentration camps for many years. He estimated that the number of prisoners at the height of the purges of the 1930s reached about ten million.

With camps, severe rations and a police state to ensure “order”, Stalin drove a bulldozer through everything won in the revolutionary period. Starvation ran rampant, and people were forced to live in squalor. “The accumulation of wealth on the one hand means the accumulation of poverty on the other,” wrote Cliff.

Yet while the majority of people suffered, a layer of state bureaucrats were living in luxurious conditions. Russian income tax data shows that people received an annual salary of anything from just 1,800 roubles to a whopping 300,000 roubles. It was a society of “privilege and pariahs”.

“A senior government official, a director or a successful author, has a house in Moscow, a summer house in the Crimea, one or two cars, a number of servants, and so on, as a matter of course,” said Cliff. “Even during the [Second World] war, when in the face of the emergency, all efforts were made to get the maximum production out of the workers, there existed extreme differences in the conditions of different classes.”

Cliff argues that through these methods Russia became a “modern industrial economy concentrated in the hands of the state, under the direction of a ruthless bureaucracy.”

“Much more blood flowed during the primitive accumulation in Russia than in Britain,” he wrote. “Stalin accomplished in a few hundred days what Britain took a few hundred years to do.”

This could only be achieved if the Russian ruling class used the bulk of the surplus they extracted from workers to further build up industry. This was exactly the same process that Karl Marx had outlined in his book Capital.

There he showed that competition between capitalists to sell commodities led to each undertaking “accumulation for the sake of accumulation”. This had a double significance. It would lead to a new period of massive economic crises, but also it meant building up a working class capable of overthrowing the ruling class.

Why the Soviet Union fell 30 years ago

No secret police force or gulag prison could indefinitely pacify that working class. In State Capitalism in Russia, Cliff set out Marx’s theory of capitalist crisis, and showed how it applied to the “socialist” states.

He argued that state capitalism would eventually crack under the weight of an economic crisis. And its roots would be similar to those of the crises of Western capitalism.

So, when the Berlin Wall collapsed in 1989, taking all the other Stalinist states with it, Cliff was not surprised. Nor was he when it became clear that in countries, including East Germany, workers had played the decisive role in overthrowing the regimes.

The resilience of Cliff’s theory meant the Socialist Workers Party he helped lead was, unlike most of the left, far from demoralised by the events. Instead they were seen as a vindication of Marx’s theory of capitalist crisis—and the ideas of socialism from below.

The lessons of Russia’s descent from revolutionary workers’ state to failed state capitalism may seem somewhat obscure after Stalinism’s demise. But the horrors committed in the name of socialism have an enduring and still damaging legacy.

As Alex Callinicos writes in the new introduction to State Capitalism in Russia, “Cliff’s book was decisive in showing how it is possible to continue being a Marxist despite the horrors of Stalinism.”State Capitalism in Russia by Tony Cliff, with a new introduction by Alex Callinicos, £10 available at Bookmarks the socialist bookshop.

China’s champions of state capitalism

Eighteenth National Congress of the Communist Party of China (Pic: Wikicommons/ Dong Fang)

Tuesday 29 June 2021

Issue 2761
Alex Callinicos

Zheng Zeguang, the Chinese ambassador to Britain, recently tweeted a picture of him visiting Karl Marx’s grave in Highgate, London. This was to celebrate the centenary of the foundation of the Communist Party of China (CPC).

From any standpoint the CPC’s is an extraordinary story. Starting as a handful of persecuted radical intellectuals meeting in semi-colonial Shanghai, to becoming the ruler of the second biggest economy in the world.

The politics of the CPC’s triumph are relatively clear. Within a few years of its formation, the party was at the centre of a huge and militant workers’ movement sparked by a police massacre in Shanghai. It was allied to the mainstream nationalist movement the Guomindang, led by Chiang Kai-shek. But in 1927 Chiang turned on the CPC and slaughtered its activists.

Driven from the cities, the CPC re-emerged eventually in the mid-1930s as a rural guerrilla force led by Mao Zedong. Mao skilfully exploited the disastrous Japanese attempt to conquer China from 1937 onwards to force Chiang increasingly onto the defensive. Mao manoeuvred between the efforts to control him by the two emerging superpowers, the Soviet Union and the United States. Sometimes he leaned towards one, and sometimes towards the other.

Imperialist

In October 1949 the CPC took power and proclaimed the People’s Republic of China. Mao declared, “The Chinese people have stood up!” But his prime objective was to free China from the imperialist powers that had dominated and partitioned it in the 19th century. This meant, above all, achieving economic self-sufficiency—not workers’ self-emancipation.

Tony Cliff wrote in 1957 that “the thread running through the entire economic and political development of Mao’s China is the effort of an elite to goad the people into building a magnificent economic-military machine on a backward, narrow agricultural foundation.”

As Isabella Weber puts it in her important new book How China Escaped Shock Therapy, “The Mao era price system functioned as a central mechanism to squeeze resources for urban industrialization out of the countryside.

“Agricultural purchase prices were kept below their value, peasants working the same hours as urban workers achieved a lower material living standard.” Despite many upheavals, this drive to build state capitalism laid the basis of a modern industrial economy by the time of Mao’s death in 1976.

But China remained a very poor country—with no significant increase in its share of global output since the revolution.

Mao’s eventual successor Deng Xiaoping decided both to encourage peasant production by relying more on market mechanisms and to open up to global capitalism.

1949 — Mao & the Chinese revolution

Two crucial decisions took place under Deng. First, as Weber shows, the regime did not give way to the siren song of neoliberal economists. It did not embrace “shock therapy”—switching overnight to an entirely unregulated system of market prices. This reflected the determination of the CPC leadership to retain overall political and economic control.

Secondly, the regime allowed Western transnational corporations to use China as a low-cost platform for producing goods for the world market. It was this move that eventually led to China becoming the world’s largest manufacturing and exporting economy.

But—to the fury of Western politicians—the CPC is still in control. Under president Xi Jinping, the regime has become ideologically shriller, geopolitically more assertive, and domestically more authoritarian than Deng thought prudent. The party-state bureaucracy continues to dominate the economy. It does this directly through state owned enterprises and indirectly via influence on nominally private corporations.

China’s capitalists are among the richest and most powerful in the world, but they are still tied to the CPC by multiple visible and concealed links. And China is ever more clearly the US’s greatest rival. This is why president Joe Biden says the US must win the 21st century from Xi’s “autocracy”.

But Wall St doesn’t seem to mind the CPC’s continued hegemony. The big US banks are pouring into China to reach its vast pool of savings.

The love affair between Chinese “communism” and Western capitalism isn’t over yet.

THE ORIGINAL STATE CAPITALIST THEORY/THEORISTS

Marxists.org

https://www.marxists.org/archive/james-clr/works/1950/08/state-capitalism.htm

State Capitalism and World Revolution - Marxists Internet Ar... 

CLR James and Raya Dunayevskaya (Johnson-Forest Tendency), 1950. State Capitalism and World Revolution. Source: State Capitalism and World Revolution, ...

Marxists.org

https://www.marxists.org/archive/dunayevskaya/works/1941/ussr-capitalist.htm

The Union of Soviet Socialist Republics is a Capitalist Soci... 

... Johnson-Forest Tendency.” For an account of what led to the breakup of the ... State Capitalism or Bureaucratic State Socialism? Comrade [Max] Shachtman[6] ...

Cosmonautmag.com

https://cosmonautmag.com/2022/08/revolutions-are-made-they-dont-just-happen-a-look-into-the-problems-of-the-johnson-forest-tendency

A Look into the Problems of the Johnson-Forest Tendency 

Aug 25, 2022 ... CLR James, Raya Dunyevskaya, and Grace Lee State Capitalism and World Revolution State capitalism and world revolution – CLR James.pdf (libcom.

Libcom.org

https://libcom.org/article/what-was-ussr-part-i-trotsky-and-state-capitalism

What was the USSR? Part I: Trotsky and state capitalism - Li... 

Apr 9, 2005 ... Since the Johnson-Forest Tendency quickly broke from Trotskyism by ... In PDF format. Animal Farm. Understanding left cults (SWP, SP, Spiked ...