Julian Gewirtrz’s “Unlikely Partners” charts, with an extraordinary attention to detail, these world-historic decisions and focuses on the role that foreign economists played in these early stages of China’s transformation. But while the declared focus of the book is on the foreign-to-Chinese interaction and cooperation, with the high point (extremely well described) being a week-long cruise-seminar in August 1985 along the Yangtze river on a luxury boat with about a hundred Chinese and foreign economists participating, among whom the most important for Chinese later reforms proved to be Janos Kornai, Wlodimierz Brus and James Tobin, the book is more than that. It documents almost 15 years (from Mao’s death to 1992) of discussions and policy decisions about the “goal model” of Chinese economy: relations between the government and enterprises, role of the plan and the market, ownership structure, macroeconomic policies and the like. Practically, the entire “new” Chinese economy, from the Central Bank to the Special Economic Zones to state conglomerates was “invented” then.Global Inequality
It is thus an indisputably necessary book for anyone who wants to learn more about China and about that extraordinary period of intellectual ferment....
But I’ve also been wondering whether there are other, more purely economic consequences: what do Chinese leaders think are the fundamentals of socialism that they cannot abandon and still call themselves socialist? So far, I’ve come up with two answers. And as so often, one of Deng’s own pithy comments provides the best summary. In a 1985 interview with American journalists, Deng said: “In the course of reform we shall make sure of two things: one is that the public sector of the economy is always predominant; the other is that in developing the economy we seek common prosperity, always trying to avoid polarization.” I think that’s exactly right.
I would propose, then, that in practical terms the “socialism” part of “socialism with Chinese characteristics” means 1) a continued large role for state-owned enterprises, and 2) generous regional development policies aimed at offsetting the inequalities produced by market forces.…
The economic model that China’s post-1978 leaders have been working with owes a lot to Lenin’s New Economic Policy of the early 1920s in Russia. To recover from the excesses and economic disasters of the early Bolshevik period, Lenin proposed a mixed-economy model, in which market mechanisms and private firms play a major role but SOEs occupy a strategic position (the famous phrase “the commanding heights” is often attributed to Lenin at this time, but it appears only in fragmentary form in his collected works; Nikolai Bukharin, the theorist of the NEP, should probably get the credit). This mixed model did not last long in Russia, but it has persisted for some decades now in China [since introduced being by Deng]…
Here a good guide is John G. Gurley’s 1970 essay “Capitalist and Maoist Economic Development,” a treatment of Maoism that is unusually sympathetic. Gurley introduced a distinction between capitalist “building on the best” (investing in the places and people with the greatest comparative advantage) and Maoist “building on the worst” (deliberately investing in the places and people that are disadvantaged). Here’s how he summarizes the difference:Andrew Batson's BlogCapitalist development, even when most successful, is always a trickle-down development. …. In many ways, then, Maoist ideology rejects the capitalist principle of building on the best, even though the principle cannot help but be followed to some extent in any effort at economic development. However, the Maoist departures from the principle are the important thing. While capitalism, in their view, strives one-sidedly for efficiency in producing goods, Maoism, while also seeking some high degree of efficiency, at the same time, in numerous ways, builds on “the worst.” … Maoists build on the worst not, of course, because they take great delight in lowering economic efficiency, but rather to involve everyone in the development process, to pursue development without leaving a single person behind, to achieve a balanced growth rather than a lopsided one.
Beijing Renmin University professor Zhao Xijun breaks it all down: "The timing of the 13th five-year plan is crucial, because by 2020, the nation is supposed to have met its first centenary goal, marking the 100th anniversary of the party's founding [in 1921], to complete the building of a moderately prosperous society."
Yet how’s that superhuman task to be accomplished? Essentially, by Beijing shifting the focus from labor intensive manufacturing leading to exports, the basis of the model so far, towards a service/consumption economy, with a key role also for modernized agriculture.Meet Liu He.
Everyone in Asia knows how Chinese manufacturers have been steadily losing that famous “competitive edge,” as labor and land costs rise, especially in the developed Eastern seaboard. So Xi’s “new normal” implies a complex process of transferring jobs from manufacturing to the service sector. That also implies increased Chinese innovation in technology, industry, design and business management.…
…the man with the plan: Liu He, one of Xi’s top economic advisers, an industrial economics graduate of Renmin University with a Masters in public administration at Harvard.
Liu He also happens to be the vice-director of the National Development and Reform Commission, the all powerful agency that creates policies for China’s economic and social development.
And he is the cherry in the cake, a zombie killer.
“Zombie killer”, in a Chinese pop context, means someone who wants to close down for good dodgy businesses known as zombie enterprises.
So naturally Liu He is a man they love to hate, as many of the zombies are powerfully-connected state-owned companies (SOEs). Local governments refuse to close them down because they fear bad loans spiking up; rising unemployment; and a huge drop in their local fiscal take.
On the record, Liu He is totally pragmatic; he insists China needs “market-oriented reforms, more management focus on supply, intensified efforts in shutting down zombie firms and an end to overcapacity.” But this structural adjustment must be gradual; the CCP is terrified of unemployment and social instability.
As if his zombie business was not enough, Liu is also head of the General Office of the Leading Group for Financial and Economic Affairs, China’s number one economic policymaking body chaired by, who else, Xi.
Liu He was instrumental in approving China’s 4 trillion yuan stimulus package in 2009, which was Beijing’s counterpunch against the 2008 Wall Street provoked global financial crisis.
So he will be the go-to man for all economic policies, and how fast they should advance. But top Chinese economists stress that everything related to hardcore politics and governance of SOEs will be handled by CCP bigwigs, if not Xi himself.…RT
When I moved to live in Asia in 1994, out of Paris, my first port of call was Singapore. That was at the height of the Asian miracle. Full immersion meant learning everything that revolved around Lee [Kuan Yew] — and from Lee himself. Ideology, and political gaps aside — for instance, he was not exactly his usual razor-sharp about Iran or Russia or Latin America – Lee arguably knew more about China than any outside observer/analyst.
Asia Times
After all, it was Lee who dazzled the Little Helmsman Deng Xiaoping in person, in the late 1970s, prompting Deng to launch a modern China conceived as a sort of “a thousand Singapores”; sterling economic success under tight political control. President Xi Jinping, crucially, admires Lee as “our senior who has our respect.”
As Lee tells it, when he was asked by Chinese think tanks about “peaceful rise” as the new Chinese mantra, he responded with “peaceful renaissance, or evolution, or development. A recovery of ancient glory, an updating of a once great civilization.” Not accidentally, “peaceful development” was adopted by the previous Beijing leadership.
Now that the non-stop hysterical meme across the West is the “China threat,” or, extrapolating from the South China Sea disputes, “China aggression,” it’s quite enlightening to come back to the Grandmaster for some sobering China-related hard facts. Call it the Grandmaster’s concise China, and concise China-US, most of it compiled at Lee Kuan Yew (MIT Press, 2013). No meaningful analysis of China is possible without it.
Why are the primary voices of US capitalist opinion in such an uproar? Why do they so greatly fear that the leader of the People’s Republic of China may revive anti-capitalist and anti-imperialist sentiments that once defined Chinese politics?
The implications of such a reality, if it is indeed true, are huge. China is the center of world industrial production. It has a rapidly growing and globally connected economy, with worldwide relationships that are beyond calculation. If China is indeed having a revival of Marxist-Leninist ideology and Mao Zedong Thought, this is no laughing matter for all who take world events seriously. If China is once again going down the revolutionary road, the centers of finance, the Pentagon, and the very global role of the United States are all now facing a bigger threat than ever.
Just as the halls of power echoed with “Who lost China?” in 1949, the recent declarations of the capitalist press indicate that they are undoubtedly now echoing with “Who lost China, again?” and “Why didn’t we see this coming?”…New Eastern Outlook
China’s economic performance after the beginning of its 1978 reforms simply exceeded the experience of any other country in human history. To give only a partial list…
But while in one sense Deng Xiaoping "returned to Marx," he necessarily had to resolve many problems of a modern economy Marx never envisaged. Purely theoretically, a number of these had been analyzed by Keynes in the 1930s. Keynes’ fundamental conclusion was that investment played the determining role in the economy, "the fluctuations of output… depend almost entirely on the amount of current investment" (Keynes conclusion has since been comprehensively confirmed by statistics). As, in a modern economy, investment is financed by borrowing, Keynes advocated very low interest rates to incentivize investment. But Keynes judged these alone would be insufficient to stably maintain an adequate investment level.
It was therefore necessary for the state to play a direct role in setting the level of investment: "I am… skeptical of the success of a merely monetary policy directed towards influencing the rate of interest… I expect to see the state… taking an ever greater responsibility for directly organizing investment." Keynes noted: "I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands."
But if the "the current volume of investment" were to be set, Keynes realized this meant a large state investment role: "I conceive… that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment."
Keynes noted such a "somewhat comprehensive socialization of investment" did not mean eliminating the private sector, but socialized state investment operating together with a private sector: "This need not exclude all manner of compromises and devices by which public authority will co-operate with private initiative… The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government." Keynes, consequently, envisaged an economy in which a private sector existed but in which the state sector was sufficiently dominant to set overall investment levels.
But Keynes’ analysis remained purely theoretical. It could not be implemented in the West for an insurmountable reason – which is why the West’s "Keynesianism" bears little relation to Keynes’ own writings! Capital investment is "the means of production." If the most basic investment decisions were not taken by private capital, it would no longer be a capitalist society. Keynes had developed an incisive theoretical analysis, but which could not be implemented in the society in which he lived.
Problems which were insurmountable for Keynes were, however, no problem for Deng Xiaoping – as he did not intend to create a capitalist society! To be clear, there is no evidence Deng Xiaoping’s economic concepts were directly influenced by Keynes. But ideas Deng Xiaoping was entirely familiar with from Marx led to the same economic structure as Keynes. The state would retain ownership of large scale (i.e. socialized) economic sectors, thereby giving it the ability to regulate the investment level, while smaller scale economic sectors (non-socialized production) could be released to the private or non-state sector. The state therefore did not need to own the overall economy, just to own enough to set the overall investment level.Online University of the Left
Thomas Piketty’s new book on inequality, Capital in the Twenty-First Century, has stirred renewed and widespread interest in growing global inequality. Although the title of Piketty’s book is provocatively similar to Marx’s magnum opus, Das Kapital, Piketty openly rejects Marx’s work because it fails to incorporate empirical evidence (he also reveals in an interview that he hasn’t read it all). By contrast, using copious empirical data based on surveys and tax records, Piketty points out that capitalism fundamentally leads to inequality, since the profit rate grows faster than income and output. Piketty’s work revives the debate over the “social state” versus pure capitalism and, as we discuss in this article, can be used to highlight the enormous change of course in China’s political economy and the predicament of growing inequality in the country today....
China chose its own form of (dare-we-call-it) capitalism, a socialist market economy, which incorporated both government intervention and market movements. This form of state capitalism has ultimately rejected the target of economic equality, which was an important component of Maoist ideology (however muddled the latter became over time). In a perverse display of economic modernization, “the people” – that is, the lower classes and particularly the peasantry – have been entirely stripped of economic and social power, while those with capital have gained power in multiple avenues: economic, social and political. The economic “feudalism,” which Mao strenuously opposed, has regrettably taken root.
In China, the socialist market economy has, as in other nations, developed into a “patrimonial capitalism” (Piketty’s term for unequal capitalism in the West), in which wealth is handed down from one generation to the next. Although millions of Chinese were pulled out of poverty by growing wages attributable to sheer economic growth, a searing inequality has now arisen. This can be attributed to the uneven growth of returns to capital versus output (i.e., profit versus wages) that Piketty underscores in his book. The horror of rampant poverty, in which individuals were forced to “eat bitterness” in the name of egalitarianism has, in China, given way to the devil of pervasive capitalism, in which the poor remain underfed while the wealthy fatten themselves in luxury. It appears that, after all of this time, neither Mao nor Deng had the whole answer when it came to economic dogma. So what is the solution to China’s problems associated with equality versus growth?
Piketty, without intending a policy prescription specific to China, provides a middle way between these two extremes [of Mao and Deng] that is eminently applicable to China today.Unfortunately, she is out of paradigm, although technically China is not a currency sovereign in that it pegs its currency to the dollar, albeit it increasing amounts of float as the economy becomes less export dependent.
An increase in taxes on the wealthy would increase government funds used to finance social programs.
Enforcing tax laws and curtailing the use of loopholes in wealth holdings would provide the state with more funds, which it should use to expand social services as it grows.The Dipolmat
