I need help understanding how China’s socialist market economy works

☪ Luqman ☭@lemmygrad.ml · 18 hours ago

I need help understanding how China’s socialist market economy works

Drewfro66@lemmygrad.ml · 5 hours ago

Consider this: Victorian England was the prototypical Capitalist economy, but the entire economy was not subject to the Capitalist mode of production. In parts of the empire, there were still peasants and feudal power structures; some parts of the economy were also government-owned.

What made Victorian England a Capitalist state is that the economy was predominantly Capitalist, and that the Capitalist Class was the one in charge.

In China, the majority of the economy is state-run. The state operates steel mills, mines, and farms (though many farms are also homesteads or cooperatives, from what I understand none are privately owned). Capitalists operate tech firms and consumer good factories.

darkernations@lemmygrad.ml · edit-2 15 hours ago

In addition to the other comments here, Has China Turned to Capitalism? Reflections on the Transition from Capitalism to Socialism (60 minutes): https://redsails.org/losurdo-on-china/

deathtoreddit@lemmygrad.ml · 17 hours ago

https://en.prolewiki.org/wiki/Essay:Why_China_is_not_Capitalist

pcalau12i@lemmygrad.ml · 18 hours ago

Despite common misconception, China’s socialist market economy is actually more inline with classical Marxism than historical economic systems. A lot of westerners are brainwashed by their media to believe that socialism = the Stalin Model of the USSR, that “true Marxism” is whatever Stalin wrote and because most socialist countries abandoned the Stalin Model, therefore “they abandoned Marxism and it’s a thing of the past.”

However, this isn’t actually true, but in fact modern day China is more directly what historical Marxists like Marx, Engels, Lenin, and Hilferding had openly called for rather than the Stalin Model. To understand this, you have to understand the basics of what Marxian theory says, so let me give you a brief rundown.

Marxism is basically the idea that human societies are material things just like anything else so there is no reason we cannot study them as a material sciences. If we study human societies scientifically, we can gain an understanding of how they develop and evolve. If we know this, we can use it to inform our politics, kind of like how you can use biological science to inform medicine.

But how do you actually develop a science of how human societies develop? This is where historical materialism comes into play. Historical materialism is the notion that the direct connection between humanity and nature is through production: the transformation of nature into the means of subsistence to propagate the continuation of that society. Human society thus naturally structures itself around production, and the structure of that society will depend upon the available productive forces at the given time.

The productive forces are just whatever plays a role in the production process: infrastructure, technology, education institutions, etc. Marx once gave an analogy as to how when firearms were invented, the whole structure of battles had to change, because you could not use old battle tactics in an era with new tools of battle. As the productive forces develop (new infrastructure, tech, institutions, etc) it gradually leads to a change in how society structures itself.

Engels once compared historical materialism to Darwinian evolution but for the social sciences. The comparison here wasn’t meant to draw attention to the natural selection part, but to the gradual change part. Over many centuries, how human societies organize themselves can gradually change to the point where society today looks incredibly different than how society was organized a few hundred years ago. Marx, for example, credited the dissolution of the feudal system largely to the industrial revolution, because the feudal organization of society was centered around agricultural and it required the industrial revolution to break free of agricultural-centric production, thus rendering the feudal system obsolete.

Marx also believed that eventually, too, human society would change so much that capitalism would eventually become obsolete as well. Why? His argument was effectively that if you follow any sector of the economy, it has a tendency to become dominated by larger and larger enterprises over time. Free markets are always temporary and if you follow any sector of the economy long enough it will eventually become dominated by monopolistic corporate giants. Interestingly, Marx made this prediction in a time where this hadn’t yet occurred to a high degree, but it’s obvious today it is true.

The capitalist system is based on property property, which makes sense in a world dominated by small enterprise. But as small enterprise centralize into larger and larger enterprises, capitalism becomes a less effective model. A small number of big private enterprises inherently implies an enormous stark contrast in wealth inequality, and huge wealth inequality means a huge power imbalance, i.e. as capitalism develops there will be more social instability because fewer and fewer people will control everything while the overwhelming majority of people have less and less political influence. On top of this, capitalist enterprises don’t have really any incentives to continue developing once they reach monopolistic status.

Marx did not believe in the liberal solution that you can just “bust up” big enterprises forever. Yes, sometimes enterprises become big due to bad monopolistic practices, but sometimes they become big because what they are producing is big. You can’t start a smartphone manufacturing plant in your garage, it takes hundreds of millions in capital to even begin producing smartphones. “Busting up” one of these big companies will actually destroy their ability to continue production.

Hence, Marx believed highly-developed capitalism with very advanced productive forces actually begins to outgrow the utility of the capitalist model, i.e. there is nothing you can do in the framework of capitalism to salvage it. You have to change the framework by nationalizing the big enterprises, to change their incentives and to resolve social instability by handing the power back to the people.

You have to understand this to understand China’s model and why classical Marxism is more inline with the Chinese model than historical models. You see, the point of nationalizing private enterprise is not a moralistic one, it is not because “private property = evil and bad.” Marx was not developing a moral philosophy but a scientific analysis. The point of nationalizing private property is to resolve the contradiction between big enterprise and capitalism, because the capitalist system is simply not suited for big enterprise.

Hence, in a classical Marxist framework, it only makes sense to nationalize big enterprises. It is actually in contradiction to classical Marxian economics to try and nationalize the whole economy, and in fact most early Marxists all in agreement on this. For example, if you even read the Manifesto, you will see that when Marx actually put forward policy proposals, he only suggests an “extension” of enterprises owned by the state and that the rest could come “by degrees” (gradually) alongside the development of the productive forces.

The proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total of productive forces as rapidly as possible…the following will be pretty generally applicable…Extension of factories and instruments of production owned by the State

— Manifesto

The reason he says gradually alongside the development of the productive forces is because if Marxian economics generally holds true, then over time all sectors of the economy will become dominated by big enterprise and ripe for nationalization given enough time. But this of course takes a very long time, small business sector is still very large in even very developed countries.

Marx/Engels were openly opposed to simply nationalizing small businesses because in a Marxian economic framework they have to develop into big enterprises as a result of market forces. So they have to remain on the market sector as long as that sector is dominated by small enterprise.

Free competition is necessary for the establishment of big industry, because it is the only condition of society in which big industry can make its way…Will it be possible for private property to be abolished at one stroke? No, no more than existing forces of production can at one stroke be multiplied to the extent necessary for the creation of a communal society. In all probability, the proletarian revolution will transform existing society gradually and will be able to abolish private property only when the means of production are available in sufficient quantity.

— The Principles of Communism

In fact, even Lenin agreed with this. He had said repeatedly that it would be “suicide” for any communist party to try and disperse the small producers by force and that we have to learn to live with them.

What is to be done? One way is to try to prohibit entirely, to put the lock on all development of private, non-state exchange, i.e., trade, i.e., capitalism, which is inevitable with millions of small producers. But such a policy would be foolish and suicidal for the party that tried to apply it. It would be foolish because it is economically impossible. It would be suicidal because the party that tried to apply it would meet with inevitable disaster. Let us admit it: some Communists have sinned “in thought, word and deed” by adopting just such a policy. We shall try to rectify these mistakes, and this must be done without fail, otherwise things will come to a very sorry state.

— The Tax in Kind

The abolition of classes means, not merely ousting the landowners and the capitalists—that is something we accomplished with comparative ease; it also means abolishing the small commodity producers, and they cannot be ousted, or crushed; we must learn to live with them.

— “Left-wing Communism”: An Infantile Disorder

Yes, China has a private sector, but half the private sector is self-employment, and the other half is almost entirely dominated by small enterprise. It makes zero sense in a Marxian framework to nationalize that sector, and the only justification or nationalizing it is a purely moralistic one: “private property bad.” The problem is that Marxism is a science and not a moral philosophy, and Marxian economics tells us that we have to sustain the market sector in order to maximize development. The moralists were the Gang of Four who said that they would prefer to be poor than to have a market sector.

pcalau12i@lemmygrad.ml · 17 hours ago

Long before the Chinese revolution, indeed, even long before the Bolshevik revolution, the Marxian economist Rudolf Hilferding I think did a good job in explaining in a bit more detail what a socialist economy in practice would actually look like.

Because you cannot dispense of the market sector entirely since much of it is still dominated by small enterprise and self-employment, you cannot plan the economy completely from the ground up, at least not in the current era. Rather, you would plan the economy indirectly by nationalizing all the biggest enterprises. Since the smaller enterprises are all reliant on these larger enterprises, then the entire economy could be planned indirectly without having to nationalize all the small businesses.

The socializing function of finance capital facilitates enormously the task of overcoming capitalism. Once finance capital has brought the most importance branches of production under its control, it is enough for society, through its conscious executive organ - the state conquered by the working class - to seize finance capital in order to gain immediate control of these branches of production. Since all other branches of production depend upon these, control of large-scale industry already provides the most effective form of social control even without any further socialization.

A society which has control over coal mining, the iron and steel industry, the machine tool, electricity, and chemical industries, and runs the transport system, is able, by virtue of its control of these most important spheres of production, to determine the distribution of raw materials to other industries and the transport of their products. Even today, taking possession of six large Berlin banks would mean taking possession of the most important spheres of large-scale industry, and would greatly facilitate the initial phases of socialist policy during the transition period, when capitalist accounting might still prove useful.

There is no need at all to extend the process of expropriation to the great bulk of peasant farms and small businesses, because as a result of the seizure of large-scale industry, upon which they have long been dependent, they would be indirectly socialized just as industry is directly socialized. It is therefore possible to allow the process of expropriation to mature slowly, precisely in those spheres of decentralized production where it would be a long drawn out and politically dangerous process. In other words, since finance capital has already achieved expropriation to the extent required by socialism, it is possible to dispense with a sudden act of expropriation by the state, and to substitute a gradual process of socialization through the economic benefits which society will confer.

— Finance Capital

This is basically how China ended up structuring their model in practice, despite this being written decades before the Chinese revolution. The public sector’s focus in on very large enterprises that the most companies rely on, things like heavy industry and infrastructure. If the Chinese state controls oil companies, well, most companies rely on oil, your local bouncy ball producer needs oil to make the rubber for the bouncy balls. But nationalizing a small business making bouncy balls wouldn’t achieve much in terms of economic control because no other enterprise relies on bouncy balls as an input.

This is why it is misleading when you see some left anti-communists simply quote GDP rations of the public vs the private sector to “prove” China is not socialist. It doesn’t matter as much the proportion of the GDP, but the input-output relationship between enterprises.

poo_22@lemmygrad.ml · 5 hours ago

Has China or really anyone else experimented with replacing money with any type of labour voucher system? I don’t understand why they still use money when money is already digital.

pcalau12i@lemmygrad.ml · edit-2 4 hours ago

Money is also not something you outlaw by fiat, it’s not something you pass a law to “introduce a labour voucher system.” For Marx, money is a tool used to exchange products between decentralized enterprises, but not a tool used internally within enterprises which allocates/plans the distribution of resources directly. That means money as money gradually loses its function naturally as a consequence of the centralization/socialization of production. As enterprises grow larger and the proportion of the economy dominated by small enterprises gradually decreases, money gradually circulates less and less between separate enterprises and thus it gradually loses its function as a tool of exchange between enterprises and becomes more and more merely an internal tool of accounting.

This circumstance, then, arises from the material character of the particular labour-process, not from its social form. In the case of socialised production the money-capital is eliminated. Society distributes labour-power and means of production to the different branches of production. The producers may, for all it matters, receive paper vouchers entitling them to withdraw from the social supplies of consumer goods a quantity corresponding to their labour-time. These vouchers are not money. They do not circulate.

— Capital Vol 2

For example, the USSR had no laws introducing a labour voucher system, but they did nationalize most enterprises. This meant for the majority of cases, the ruble did not actually function as money because it did not circulate between enterprises. It functioned more as a tool of accounting within the state plan, to keep track of resources given to different state-owned enterprises. The function of the ruble as a merely a voucher, a tool of accounting, arises inevitably as a result of the gradual socialization/centralization of production independent of any sort of law to implement it, i.e. from the change in the material conditions of society as a result of the development of the forces of production.

Soviet socialism, particularly following the introduction of the first five-fear plan under Stalin in the late 1920s, introduced a new and non-capitalist mode of extraction of a surplus. This is somewhat obscured by the fact that workers were still paid ruble wages, and that money continued in use as a unit of account in the planned industries, but the social content of these ‘monetary forms’ changed drastically. Under Soviet planning, the division between the necessary and surplus portions of the social product was the result of political decisions. For the most part, goods and labour were physically allocated to enterprises by the planning authorities, who would always ensure that the enterprises had enough money to ‘pay for’ the real goods allocated to them. If an enterprise made monetary ‘losses’, and therefore had to have its money balances topped up with ‘subsidies’, that was no matter. On the other hand, possession of money as such was no guarantee of being able to get hold of real goods. By the same token, the resources going into production of consumer goods were centrally allocated. Suppose the workers won higher ruble wages: by itself this would achieve nothing, since the flow of production of consumer goods was not responsive to the monetary amount of consumer spending. Higher wages would simply mean higher prices or shortages in the shops. The rate of production of a surplus was ﬁxed when the planners allocated resources to investment in heavy industry and to the production of consumer goods respectively.

— Toward a New Socialism

Of course, the ruble still at times did circulate, such as internationally or between the state sector and the kolkhoz sector, so it did not function purely as a voucher but that was its dominant characteristic. Dialectics teaches us not to think in puritanical terms, as Engels had written, everything in nature is connected by an infinite series of interconnected steps and there are no hard-and-fast lines between anything and as a result everything is always in gradual change to something else, containing internal contradictions from the previous and new system with it simultaneously. As Mao said, no system is pure, all systems always contain some aspects of the old and alongside some aspects of the new.

Dialectics thus defines systems not in terms of purity but in terms of their dominant characteristic. One kid having a private lemonade stand in a society that is overwhelmingly dominated by public ownership wouldn’t suddenly make it not socialist even though it is true that private enterprise contradicts with socialism. No, that kid would have to get their land and lemons from the public sector and would ultimately have to sell the lemonade back to the public sector since there would be no private buyers (only individuals with “money” provided to them from the public sector), and so the public sector would control both the lemonade stand’s supply and its demand, it would control both its input and outputs, so even though it is “private” it would still be under the control of the public sector due to that private enterprise operating in a country overwhelmingly dominated by public ownership.

The same is true in the reverse, things like public enterprise and worker co-operatives in capitalist societies dominated overwhelmingly by private capital end up taking on a capitalistic character. The reason Marxists say “socialism isn’t when the government does stuff” is not because public ownership doesn’t play a major role in socialism, it is just that public ownership in a society dominated by private capital will operate at the behest of private capital interests and thus would not have a genuine public and social character given that the state would ultimately be captured by capitalists.

Whether or not we will ever get to a point where truly speaking all money functioning as indeed money ceases to exist, some pure form of planet earth, is debatable. It’s hard to imagine that nowhere on the entire planet there isn’t any commodity being traded as a general commodity, but maybe that’s just a limit of my imagination. Although, at the end of the day, it really does not matter, because Marxism isn’t about reaching absolutely pure states of society. As long as this becomes the dominant characteristic of society, as long as money generally speaking doesn’t circulate as money but is largely just used as a tool of accounting, then we would have already achieved a moneyless society in a dialectical sense.

Since moneyless is a consequence of the centralization/socialization of production, then naturally to achieve a society where money ceases to generally circulate as money would require a society where enterprises are generally centrally planned and not decentralized on a market, i.e. it would require achieving the developed stage of socialism. You cannot get rid of money as long as you have markets, so it’s unavoidable in the socialist market economy.

It doesn’t really make much sense to implement a voucher system in a country that still is largely driven by markets because then people will be given certificates that can only be exchanged with public enterprises despite being surrounded by small commodity producers which they will not be able to trade with using those vouchers. It would be a disaster and lead to big resistance from the population, iirc I think in very early-stage Soviet Russia they did experiment with such a thing but abandoned it precisely for that reason, it had a huge amount of push-back because the vouchers were incredibly restrictive.

Personally, I don’t think it really makes economic sense to “implement vouchers” because if your country is dominated by money, that means it contains a lot of small producers and so introducing vouchers would be heavily restrictive on the population and have huge push back. However, if your economy is not dominated by small producers, then it also makes no sense to “implement vouchers” because people would already generally not be trading with small producers anyways, so the law would be redundant as you would just be implementing something by law that already is being carried out on the ground naturally.

If you want to reduce the usage of as money as money, to move more towards a voucher system, then the only real policy that should be done to achieve it is, in the words of the Manifesto: to increase the total of productive forces as rapidly as possible.

cfgaussian@lemmygrad.ml · edit-2 13 hours ago

This is an excellent write-up, comrade!

The only little thing i would take issue with is that i think you’re being overly critical of what you call the “Stalin model”. Different circumstances call for different approaches, and i would argue that at that time, the USSR simply had to undertake rapid collectivization and industrialization in order to catch up. They could not afford to maintain the NEP any further as the development would have been too slow.

China’s model works great for building up productive forces provided you are in a period of peace and foreign countries are willing to come and invest capital. But the USSR was far more isolated globally in the 1920s and 30s than China was in the 80s and 90s. And war was on the horizon. If the USSR had adopted in the 1930s a model like that which Deng Xiaoping implemented, they would have lost the war against the Nazis. I think you recognize this as well:

You can justify it as something temporary that the Soviets needed to do to prepare for war against Germany

And in the years immediately after the war they needed to rebuild a lot of what had been destroyed, they were in no position with much of the country still heavily affected by the war to go directly into such an ambitious transition as “Reform and Opening Up”. And then the Cold War started which meant that once again the USSR was under an existential threat and could not afford to shift to a more consumer economy, at least not until they developed the atom bomb.

But by the time that the situation had stabilized and they could have safely undertaken a Deng-style shift, Stalin was already dead, the principled Marxist-Leninists were sidelined, Khrushchevite revisionism had taken hold, and there was no political will anymore to take risks by radically reforming a system that had until then worked very well for the purpose of turning an underdeveloped, backward, agrarian society into an industrial superpower.

And from a theoretical perspective, it’s not entirely correct to say that what Stalin did wasn’t well grounded in Marx and Lenin. Lenin himself warns in “A Tax In Kind” against the corrosive influence of small business:

“But in many ways, the small-proprietary and private-capitalist element undermines this legal position, drags in profiteering and hinders the execution of Soviet decrees. […] because the continuation of the anarchy of small ownership is the greatest, the most serious danger, and it will certainly be our ruin (unless we overcome it)”

It is not contrary to Marxism to be wary of the petty-bourgeois mentality that private enterprise, even small enterprise, inevitably re-creates. The tension between private enterprise and the socialist state will always be present until one or the other is abolished. Of course if implemented carefully the strategy of a socialist state using market mechanisms to develop productive forces can be very beneficial, as we have seen from China’s stunning rise.

But the key to China’s success has been keeping private enterprise subordinated to the proletarian state and never allowing it to spiral out of control. This is a constant struggle that requires permanent vigilance. A less disciplined government than the CPC may well risk losing control, which could be fatal to the socialist project. In my view it is understandable why a socialist government would not want to take this risk unless it is very confident in itself and its ability to stick to what Deng called the “Four Cardinal Principles”:

Keep to the socialist road.
Uphold the dictatorship of the proletariat.
Uphold the leadership of the Communist Party.
Uphold Marxism-Leninism (and in China’s case Mao Zedong Thought).

dvhen@lemmygrad.ml · 16 hours ago

Thanks for this write up, it actually clarified a lot of things for me, even related to Marxism directly.

I read books slowly to educate myself on this subject but I always struggle to incorporate it in a bigger understanding as I don’t have a structured study course helping me link up knowledge of these books between them