Note: Response to /u/Hot_Introduction9918’s “rebuttal” here.
As the story is constantly told in western media, China was poor and communist, then they abandoned communism for capitalism, and then they had growth. Therefore, it is free market economics that made them the powerhouse they are today. This narrative is repeated endlessly. Even in articles that are not about the Deng Xiaoping reforms, they will still reiterate this as if it’s a well-known fact.
According to the World Bank, China has lifted 850 million people out of poverty. When you point this number out to critics of China, they will insist that China’s economy was plummeting into poverty and that opening up, the “restoration of capitalism” as some would put it, saved China.
There are two levels in which this narrative is demonstrably incorrect. The first is that there was low economic growth prior to the Deng Xiaoping reforms. The second is that China ever “restored capitalism” at all. This is a misleading argument used by liberals to try and claim the development of China is due to capitalism and not due to their actual economic system.
Here is the GDP growth for Mao’s China and post-Mao China.
It is true that GDP growth is higher post-Mao. However, GDP growth under Mao averaged 7.26%, which is over twice the GDP growth of the US., and in fact higher than China’s GDP growth today. The more interesting thing here is not the lack of growth under Mao, but the greater stability in growth after the reforms. The reforms ultimately brought stability, which is something we will get back to.
Another argument people will put forwards is that all the people lifted out of poverty were lifted out of poverty after Mao, therefore, socialism failed China and capitalism is what lifted them out of poverty.
This argument is just silly as Mao inherited one of the poorest countries in the world. Mao came to power in 1949. Between 1900–1948 the country was engulfed in poverty and famine. Let us simply take a look at few. Here I will simply go off the Wikipedia page List of famines in China and if the body count is within a range I will take the middle of the range.
- 1907 Great Qing Famine — 25 million dead
- 1920–1921 North China famine — 0.5 million dead
- 1928–1930 Chinese famine — 3 million dead
- 1936–1937 famine — 5 million dead
- 1942–1943 famine — 2.5 million dead
Total = 36 million dead from famine between 1900–1948
If we divide this number by the amount of years, fourty-nine, we find that about 735,000 people died of famine per year on average before Mao even came to power.
In the year 1952, shortly after Mao came to power, the GDP per capita was about $54 (Source: National Bureau of Statistics of China). The current GDP per capita of Haiti as of 2019 is $754.6 (Source: World Bank). That means the GDP per capita of China was about 7% the GDP per capita of Haiti today! The extreme poverty of China was indescribable, it was known as “the sick man of Asia” for a reason.
Mao was not a miracle worker. He could not have achieved a prosperous society overnight. This, seemingly, is what people expect of him. If he did not immediately end all poverty overnight in one of the poorest places on the entire planet, then somehow he must have not accomplished anything.
Yet, he did accomplish many things. As we already saw, economic growth was quite high despite the recessions. Here is a graph of the raw GDP up until the 1978 reforms.
More than just raw economic growth, living standards were also skyrocketing during this time period.
“China’s growth in life expectancy at birth from 35–40 years in 1949 to 65.5 years in 1980 is among the most rapid sustained increases in documented global history”
— “An exploration of China’s mortality decline under Mao: A provincial analysis, 1950–80”, Population Studies
The fact is, even under Mao, the economy and living standards were accelerating at an unprecedented pace. The reason people were not lifted out of poverty under the Mao era is because that takes time. Even with a fast growing economy, it would’ve taken decades to lift the living standards up to get above the World Bank poverty line. Mao, like the rest of us, could not live eternally. He could only set the wheels in motion, and it would inevitably be leadership after his death that would see the full results.
In fact, the amount of privatization that has taken place since 1978 is a bit exaggerated. While public sector size has reduced, these numbers do not include the massive collective sector as well. They also ignore that the public sector was nowhere near 100% to start with.
This data is outdated, and it is also measuring by GDP output, which tends to skew better towards private property since they work for a profit while the public sector doesn’t necessarily do so. The GDP produced by the private sector is likely much higher today. However, I only show these numbers to demonstrate that the
If we want an idea of modern distributions of employment, it is hard to find data on this. Business Insider claims 50% of workers work for the public sector. The World Bank claims 43% of workers work in the private sector. That leaves a gap, which likely belongs to the cooperative sector. Sixth Tone claims that 117 million households are part of farming cooperatives, which would explain the gap.
That is hardly the rosy picture liberals paint of China as a “free market” country. If we lump together the cooperative and the public as “collective,” then the stark contrast between the socialist market economy and a capitalist system like the US becomes very clear. The International Labour Organization lists US public employment at about 15.8%, and given the US has no real “cooperative sector,” it is safe to assume the rest of the economy is in the private sector. Let’s also not forget that the private sector is not fully private either as there is not private ownership of land in China, most the private sector is in the urban sector and urban land is public.
However, China did make reforms, and these reforms did lead to, on average, higher growth. Did this prove China abandoned socialism for capitalism, and that capitalism creates faster growth? No, not at all.
Often when liberals make this claim, they exaggerate. I have heard many times liberals not simply say China “opened up,” but more than that, they will say China is “one of the freest markets in the world,” or that China is a “free market economy.” Some even describing China as “neoliberal.”
This is nonsense. China has one of the largest public sectors in the world. 50% of the entire workforce works in the public sector. China has about 776 million workers in its workforce. That would place the number of workers in the public sector at around 388 million, which is a larger population than the entire population of the United States.
In fact, the only two countries with a larger percentage of workers in the public sector are Belarus at 50.6% and Cuba at 77% (Source: International Labour Organization). Cuba is officially socialist according to its constitution, and Lukashenko has constructed a market socialist economy in Belarus (Source: “The Market-Socialist Country”, Problems of Economic Transition). Supposedly, according to some liberals, the third country in the top three countries on earth in terms of public sector size, all three of which are socialist, is actually “free market capitalist.”
Not even the private sector in China is free.
“It appears that the CPC’s integration policy towards private enterprises has effectively utilized both ‘top-down’ organizational infiltration and ‘bottom-up’ political integration. In doing so, the CPC maintains its control over private enterprises. Not only does it consolidate the governing legitimacy of the Party, it also enables private businesses to fulfil its social function. The policy helps the Party successfully prevent the formation of non-institutionalized powers outside the system.”
— “The Chinese Communist Party’s integration policy towards private business and its effectiveness: An analysis of the Ninth National Survey of Chinese Private Enterprises”, Chinese Journal of Sociology
We can see this in practice as billionaires are regularly arrested, some even executed.
“In most places, being ranked by a prominent magazine among the wealthiest people in the country constitutes a great honor. Not in China. Such lists, known as bai fu bang in China and published in Forbes and its Chinese equivalent Hurun, are described instead as the sha zhu bang: ‘kill pigs list.’
In the last fifteen years, China has produced greater overall wealth than any other country. The number of its billionaires has gone from a mere 15 to around 250 in just six years, but for a number of these people this vaulted status is short-lived. According to one study, 17 percent of those on the list end up squealing their way to court or end up in jail. If they’re lucky, those who are caught are investigated and jailed. Some are even executed.”
— The Atlantic, “Why Do Chinese Billionaires Keep Ending Up in Prison?”
Recently, billionaire Jack Ma recently had his initial public offering cancelled personally by Xi Jinping after he dismissed government regulations.
“Xi has not been a fan of the ascendance of big private businesses that rack up wealth and power in the country, as they are seen as posing a challenge to his authority, The Journal said.At a conference in Shanghai on October 24, about a week before Ant was set to go public, Ma dismissed global banking rules, saying they were unsuitable for healthy innovation…Ma also criticized the regulators who enforce a set of international banking rules as “an old people’s club,” The Times reported.
Xi and other government officials who read reports about Ma’s speech were enraged by the comments, The Journal reported. On Xi’s instructions, Chinese regulators investigated Ant’s offering, and the IPO was suspended on November 3.”
— Market Insider, “China’s Xi Jinping personally halted Ant’s record-breaking $37 billion IPO after boss Jack Ma snubbed government leaders, report says”
Even the right-wing Heritage Foundation’s Index of Economic Freedom rates China as “mostly unfree.” This index is largely meaningless, but it just goes to show that this claim that China is “free market capitalist” is so disconnected from reality that not even the Heritage Foundation can get on board with it.
It is important, however, to discuss why the reforms took place. For this, I would recommend my other post here on why Marxian economists defend the transition from private to public property over the means of production. The important bit to note here, however, is that this comes as a direct consequence of the development of markets. Without the development of markets, the transition is impossible. Colloquially, you will often hear Marxists describe this concept as “capitalism lays the foundations for socialism.”
China, as we already established, was not a developed market economy after Mao came to power. In fact, neither was Russia when the Bolsheviks came to power. This was a problem which Lenin had recognized and sought to find a solution to. The solution he proposed was his New Economic Policy. This would be a brief “state-capitalist” transition period in order to develop the economy enough in order for the transition to socialism to be possible.
“Capitalism is a bane compared with socialism. Capitalism is a boon compared with medievalism, small production, and the evils of bureaucracy which spring from the dispersal of the small producers. Inasmuch as we are as yet unable to pass directly from small production to socialism, some capitalism is inevitable as the elemental product of small production and exchange; so that we must utilise capitalism (particularly by directing it into the channels of state capitalism) as the intermediary link between small production and socialism, as a means, a path, and a method of increasing the productive forces.”
— Vladimir Lenin, “The Tax in Kind”
The section here on developing the productive forces is crucial in Marxian economics. All transitions from one economic system to the next depend on the level of the productive forces. I explain this in my other post here.
This economic policy lasted from about 1921 to 1928, when Joseph Stalin abolished it, believing that they had a sufficient level of productive forces, and began to transition the country towards socialism. However, in the process of doing so, he found that, in fact, they were not fully developed, and it was impossible to transition to a fully socialist economy. Unlike common misconception, not all property in the USSR was made into public property, and there was, indeed, a market sector even under Stalin.
“…Engels speaks of mastering “all the means of production,” of taking possession of “all means of production.” Hence, in this formula Engels has in mind the nationalization not of part, but of all the means of production, that is, the conversion into public property of the means of production not only of industry, but also of agriculture.
It follows from this that Engels has in mind countries where capitalism and the concentration of production have advanced far enough both in industry and in agriculture to permit the expropriation of all the means of production in the country and their conversion into public property. Engels, consequently, considers that in such countries, parallel with the socialization of all the means of production, commodity production should be put an end to. And that, of course, is correct.
…But here is a question: what are the proletariat and its party to do in countries, ours being a case in point, where the conditions are favourable for the assumption of power by the proletariat and the overthrow of capitalism, where capitalism has so concentrated the means of production in industry that they may be expropriated and made the property of society, but where agriculture, notwithstanding the growth of capitalism, is divided up among numerous small and medium owner-producers to such an extent as to make it impossible to consider the expropriation of these producers?”
— Joseph Stalin, “Economic Problems of Socialism in the USSR”
Even in the Soviet Union, they were forced to conclude that they had not developed enough to make all property public. Some will point out that in the Soviet Union, the market sector was converted into a sector of worker cooperatives, while in China, the market sector is regular old bourgeois private property. However, the distinction is really not relevant towards the construction of socialism. This I something I went into more detail in this post.
We see, then, that the transition to socialism is not an instantaneous jump. Many Marxists envision capitalism as building the productive forces slowly, and at some point, a threshold is reached, and there can be an instantaneous jump from pure capitalism to pure socialism. In practice, however, we know this is not true. Just because a threshold has been met to begin transitioning the economy to socialism, it does not follow that this means we can transition the economy to pure socialism.
Different sectors of the economy develop at different rates, and thus, different sectors are capable of being expropriated into the public sector at different rates. This was actually the intention Marx had originally envisioned for the transition period. He had argued that if his communist party managed to ever come to power, they would not simply outlaw private property immediately. This is a misconception. Marx argued that private property would be expropriated gradually while also focusing on rapid economic development.
“The proletariat will use its political supremacy to wrest, by degree, 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 productive forces as rapidly as possible.”
— Karl Marx & Friedrich Engels, “Manifesto of the Communist Party”
Notice how it does not say “instantly” but “by degree,” that is, gradually. Not just gradually, but alongside increasing “the total productive forces as rapidly as possible.” Marx fully expected there to be a private sector for along time alongside the public sector. This is made even more clear in a later work.
“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.”
— Friedrich Engels, “The Principles of Communism”
It becomes clear, then, that simply pointing to the fact China has a private sector is not alone enough to demonstrate they have abandoned Marxism or socialism, since Marx precisely expected there to be a private sector for a long time. Private property passes into public property gradually through a series of interconnected steps, not a sudden jump from a pure private economy to a pure public one. As Engels put it, dialectics knows no hard and fast lines.
“For a stage in the outlook on nature where all differences become merged in intermediate steps, and all opposites pass into one another through intermediate links, the old metaphysical method of thought no longer suffices. Dialectics, which likewise knows no hard and fast lines, no unconditional, universally valid ‘either-or’ and which bridges the fixed metaphysical differences, and besides ‘either-or’ recognises also in the right place ‘both this-and that’ and reconciles the opposites, is the sole method of thought appropriate in the highest degree to this stage.”
— Friedrich Engels, “Dialectics of Nature”
This still leaves some questions unanswered, however. The 1978 reforms were not China gradually expropriating private property, but privatizing. In a sense, a step backwards. Was this step backwards an abandonment of Marxism and a return to capitalism? No.
China, like the Soviet Union, did not try to immediately to jump to socialism. Mao initially as well had a “state-capitalist” transition period with private businesses and some markets.
“The present-day capitalist economy in China is a capitalist economy which for the most part is under the control of the People’s Government and which is linked with the state-owned socialist economy in various forms and supervised by the workers.”
— Mao Zedong, “On State Capitalism”
However, this period did not last long. In 1958, Mao had tried to establish large-scale public ownership throughout the country. As it is well-known, China’s economy went into serious recession during this time period. Given its already immense poverty and history of famines, this led to a famine.
China has not had a single year of recession since reforming. Most capitalist economies have economic crisis on a regular basis, but the last recession was in 1976. Under Mao’s administration, there were recessions. If you were to remove the recessions, the GDP growth under Mao would be roughly the same as it was after Mao. The purpose of the reforms was to resolve the cause of these recessions.
“What merits our attention here is that our socialist state was established by a proletarian party that has a grasp of historical materialism and is dedicated to communism. With such a party controlling the state power, it is possible for our country to promote changes in the relations of production according to its own will. If, instead of proceeding from realities, we try to change the relations of production according to our wishful thinking, the result may be that the relations of production will go beyond the requirements of the growth of the productive forces, which may thus be disrupted. In 1958, for instance, people’s communes, “large in size and having a high degree of public ownership” as Mao Zedong put it, were set up throughout the country, and there rose the premature “communist wind” characterized by the attempt to effect a transition to communism. All this made agricultural production drop greatly.”
— Xue Muqiao, “China’s Socialist Economy”
Economist Xue Muqiao here is arguing that Mao attempted to rush the transition to full socialism long before China actually had the productive forces ready for it. Doing so leads to economic difficulties, and Muqiao blamed the well-known 1958 recession on this cause. The reforms, in some sense, were a step backwards, to make the development of socialism in China more inline with their actual level of economic development, to avoid these kinds of disruptions.
Since they took a step backwards, does that mean they returned to “state-capitalism”? No. It is important to stress that China is not a state-capitalist economy. It was state-capitalist in the early 1950s. Today it is not. It is an economy centered around public ownership and economic planning.
“In recent years there have been a few commentators — both at home and abroad — that have asked if what modern China is doing can really be called socialism. Some have said we have engaged in a sort of ‘capital socialism;’ others have been more straightforward, calling it ‘state capitalism’ or ‘bureaucratic capitalism.’ These labels are completely wrong. We say that socialism with Chinese characteristics is socialism…an economic system in which publicly owned enterprises are the principle part, which develop side by side with diverse forms of ownership.”
— Xi Jinping, “Xi Jinping in Translation: China’s Guiding Ideology”
The conclusions Chinese economists reached, after analyzing their level of development, is not that they needed to return to “state-capitalism.” This period was only for very early development, it lasted in the Soviet Union only for about seven years. As we have already seen, the economy was growing fast under Mao, so by Mao’s death, there was already large-scale productive forces. There was no need to return back to capitalism.
Rather, they adopted what is referred to as the “socialist market economy” (SME). This system still retains public ownership and economic planning as its basis, but alongside other forms of ownership. Not just bourgeois private property, but also worker cooperatives, as roughly half of all rural families are members of a co-operative in China.
Chinese economists introduced a new stage in the transition period from capitalism to communism. Rather than a transition to “socialism” then to “communism,” they split up the socialism period into two separate stages, those being “the primary stage of socialism” and “developed socialism.” After analyzing the current level of development of China’s economy, they came to the conclusion that they did not need to return back to state-capitalism, but that they were in the primary stage, and could therefore adopt a SME.
“Due to the hasty and early entry into socialism, we didn’t accumulate enough experience to enable us to have a very clear understanding on the issues of social development. Throughout the ‘Great Leap Forward’ and the People’s Commune Movement in 1958, there had occurred a blind optimism of targeting ‘the realization of communism in our country, which is no longer a distant future’, and thus made a serious and erroneous estimation on the development stages of socialism….As Deng Xiaoping pointed out: As early as the second half of 1957 we began to make ‘Left’ mistakes. To put it briefly, we pursued a closed-door policy in foreign affairs and took class struggle as the central task at home no attempt was made to expand the productive forces, and the policies we formulated were too ambitious for the primary stage of socialism. After the 3rd Plenary Session of the Party, after the comparison of our both positive and negative experiences, the Chinese Communist Party has gradually made a scientific conclusion that China is in and will be in the Primary stage of socialism.”
— Xu Hongzhi & Qin Xuan, Basics of the Theoretical System of Socialism with Chinese Characteristics
Eastern Europe may have returned to capitalism, but China did not.
“A number of theories have been developed from China’s economic transformation…These new theories are consistent with the fundamental core of Marxist economics, reflecting changing realities in Chinese society today…China’s ongoing economic transition has followed neither the ‘Washington Consensus’ of neoliberalism nor the ‘shock therapy’ practiced in the former Soviet Union. Rather, it has been unfolding through a process grounded in the actual requirements of China’s social progress. Its emergence as an economic giant and its remarkable achievement in the global marketplace represents a distinctively different path of growth and an alternative model of development…After the death of Joseph Stalin, especially in the 1970s and 1980s, the Soviet Union and Eastern European socialist nations embarked on the so-called market-oriented reform. This was not a mere abandonment of the Stalinist model, but rather a turn towards a capitalist system. The economic transition in China that started from the Third Plenary Session of the Eleventh CPC Central Committee, however, has not taken the road of the former Soviet bloc countries, but a socialist path with Chinese characteristics based on the idea that China is still in the primary stage of socialism.”
— Hong Yinxing, “The China Path to Economic Transition and Development”
Some may have read this far but may not yet be convinced. I have also heard the argument that even if all this is true, China’s reform is an ongoing process. In other words, they are constantly privatizing, so the fact China’s economy is to a large degree public today does not mean much, because in the distant future, it will be capitalist.
This is completely untrue. Back in 2015, Foreign Affairs declared “the end of reform in China.” This seems to be the common consensus, most analysts agree that in China, the reform period is not going any further
“…when I say that it’s the end of China’s post-1978 reform era, I’m not simply talking about the political shifts. I’m also talking about fundamental economic and social changes.”
—The Diplomat, “Carl Minzner on China’s Post-Reform Era”
“The era of Deng Xiaoping, who brought China the reform and opening-up policy in 1978, is over. This is now the era of Xi Jinping.”
—EJ Insight, “China: Deng Xiaoping era ends with start of Xi era”
Not only is the reform period over, but it has reversed. China today is currently strengthening its public institutions sector. In fact, China is today the least “open” it has been since the beginning of the reform period.
“…when China was forced to keep the door more open, it was in a weaker position relative to the forces outside — the West in general and the U.S. in particular. But when the conservative forces inside China gain strength while the West appears to be in decline, those forces are far more likely and able to close the door again, as is happening right now…Economically, the door is much less open, probably the least open since the reform era began nearly four decades ago. There is a growing consensus that China today is the least open since the end of the Cultural Revolution.”
— Minxin Pei, The Atlantic, “China Is Not a Garden-Variety Dictatorship”
“Hundreds of Chinese companies have revised their corporate charters to allow a deeper management role for the Communist Party, a sign the ruling party is tightening its control over the private sector.”
— Nikkei Asia, “Chinese enterprises write Communist Party’s role into charters”
“…Xi [wound] back some of Deng’s liberal economic reforms, by solidifying greater Communist Party sway over the country’s private sector. Companies have been under growing pressure to increase the role of the party inside their organizations — part of Xi’s overall efforts to entrench Communist Party control across the country.”
— CNN, “China sparked an economic miracle — now there’s a fight over its legacy”
As we can see, there is no evidence to suggest China will abandon its SME model any time in the near future. It, in fact, only appears to be doubling-down on it.
Eastern Europe tried the return to capitalism, and it destroyed them economically. I wrote more on this here in comparing the economic growth to post-Soviet eastern Europe as well as some modern capitalist economies to the China and countries following similar models to the SME.
It is undeniable that the SME is a better economic model than a return to neoliberal capitalism as what occurred after the dissolution of the Soviet Union. When eastern Europe and China faced economic difficulties, the former implemented the recommendations of Washington, the latter implemented the recommendations of Marxian economists. The former had their economy destroyed and have fallen behind the rest of the world. The latter only begun to accelerate at an even faster rate.
There is this notion that just because China’s growth increased somewhat from privatization, therefore, it should abandon socialism entirely, because mass privatizing would only create further growth. However, this is not the case. China’s system works because it is socialist. For example, public land ownership is crucial towards China’s economic development, and privatization of land would likely lead to a 36% reduction in China’s GDP.
“China’s public land ownership system consists of state land ownership and collective land ownership. Urban land belongs to the state, and rural and suburban land belongs to rural residents collectively, except for the land owned by Land system and economic growth the state as stipulated by law…In terms of the right to land development, the Chinese government has a stronger hold than the governments of other economies. Although nonpublic land ownership countries (such as the United States and France) have also adopted land control measures to restrict private land rights (Ma, 2013), their capabilities are incomparable with those of the Chinese government…With other conditions remain unchanged, under the non-public land ownership system, GDP decreases by 36%, and the output value of the ‘industrial sector’ and the ‘commercial sector’ decrease by 42 and 25% respectively. Fiscal revenue decreases by 38%, and infrastructure investment and stock capital decrease by 40 and 41%, respectively. The decline in GDP has led to a 34% drop in household welfare, which is measured by the per capita consumption level in the steady state.”
— “How the land system with Chinese characteristics affects China’s economic growth — an analysis based on a multisector dynamic general equilibrium framework”, China Political Economy
It is not capitalism that developed China. As Xi Jinping put it, “the capitalist road was tried and found wanting.” It is specifically because it is socialist, because Chinese leadership listened to their Marxian economists and not Washington, that they maintained their high levels of growth. Socialism developed China, not capitalism.
