A clear understanding of the truth of 'State Capitalism'

[TaiShang]

Opinion: A clear understanding of the truth of 'State Capitalism'

Qiu Shi
2018-09-04

Editor's note: The article was first published in Truth Seeking magazine in Chinese on September 1. The article reflects the author's opinion, and not necessarily the views of CGTN.

One of the so-called arguments used by the United States in waging a trade war against China is that it has labeled China's economic system as "state capitalism", which is not new. In fact, this is not the first time for the West to do so.

I. Which economic system is the real "state capitalism"?

State capitalism is reflected in two aspects: First, the control of state power over enterprises. In the words of Lenin, "state capitalism is a kind of capitalism in which the state power directly controls these or those capitalist enterprises in the capitalist system", second, the state's supervision and regulation of capitalist economic development.

RMB

As Lenin put it, "monopoly capitalism is changing to state monopoly capitalism because many countries have begun to implement social regulation of production and distribution due to the circumstances."

Although the US is known as the representative of the free market economy and laissez-faire capitalism, in fact, the role of the state in economic development is also very obvious and important in the US. Therefore, the so-called pure free market economy and laissez-faire capitalism never really existed, and the capitalism we have seen in reality is closely interwoven with state capitalism.

II. What is the intention of the "state capitalism" arguments?

The purpose of the "state capitalism" arguments is very clear, that is, to leverage the opposition between the so-called "state capitalism" and "lasses-fair capitalism" to justify capitalism and create favorable public opinion for curbing the development of developing countries, especially China.

On the one hand, they try to shift and conceal people's doubts about the inherent ills of the capitalist system, and ascribe the crisis of the capitalist system caused by the basic contradictions of capitalism to the threat of "state capitalism."

People lay underneath the iconic Wall Street bull during a rally against the proposed government buyout of financial firms on September 25, 2008, in New York City. /VCG Photo.

On the other hand, they directly point at socialism with Chinese characteristics, unscrupulously try to distort, smear and vilify the socialist market economic system of China. They attempt to dent people's confidence in the socialist system with Chinese characteristics and the socialist market economic system, and to force China to give up the proven successful development path and socialist system, so as to ultimately curb the development of China.

III. Distort the socialist market economy as economic hegemonism

Market economy and capitalism are two different things. The market economy is a way of resource allocation, which can be combined with the capitalist system as well as the socialist system.

Protest against the proposed government buyout of financial firms September 25, 2008, in New York City. /VCG Photo.

The capitalist market economy and the socialist market economy have something in common- it's the way of resource allocation and commodity economy relations. In the meantime, we must realize that the market economy is a social and historical concept that may show different characteristics in different social systems and at different stages of development.

It is even more mistaken to equate the active role of the government with "state capitalism". The relationship between the government and the market is the subject of the evolution of the modern market economic system.

The government and the market are complementary to and inseparable from each other, which is the law of the development of market economy in socialized mass production.

IV. "State capitalism" in socialist revolution and development

Historically, socialism and "state capitalism" are not unrelated. What China has experienced over the years has shown that once the socialist transformation has been completed, the socialist basic system with public ownership as the main body established, and a socialist society formed, state capitalism as a transitional economic system would complete its historical mission and withdraw from the historical stage.

The socialist economic system with Chinese characteristics and the socialist market economic system with Chinese characteristics have brought into play not only the strengths of the market economy but also the advantages of the socialist system.

It has realized the proper combination of the government and the market, fairness, and efficiency, development and stability, and autonomy and openness, has promoted sustained and sound economic and social development, and has made great achievements that have attracted worldwide attention, benefiting all Chinese people and making important contributions to the development and progress of mankind.

https://news.cgtn.com/news/3d3d414d7859544f79457a6333566d54/share_p.html

@Cybernetics , @Tshering22 , @sinait , @powastick

 

[Tshering22]

In my view, state capitalism that is followed by China is pretty practical. It keeps government employees on the edge and at the same time the target is to generate profits or lose a job. In my country, which is a mish-mash of capitalism and socialism, the private sector works extremely hard while the government employees are immune to any changes in their job scenario.

1- In India, no government employee can be fired. (unless there is a criminal case)
2- Many times, their salaries are better than private sector, especially in the mid-senior ranks.
3- Fixed work time and no need to do any overtime.

Now there are some sincere government officers as well; but most of them never rise in ranks because they are ready to call out the corruption and mismanagement. These people sadly remain at intermediate-senior roles and retire.

However, your system is far more efficient in managing the existing resources and generating massive tangible work and profits at the same time.

 

[sinait]

Opinion: A clear understanding of the truth of 'State Capitalism'

Qiu Shi
2018-09-04
Editor's note: The article was first published in Truth Seeking magazine in Chinese on September 1. The article reflects the author's opinion, and not necessarily the views of CGTN.

One of the so-called arguments used by the United States in waging a trade war against China is that it has labeled China's economic system as "state capitalism", which is not new. In fact, this is not the first time for the West to do so.

I. Which economic system is the real "state capitalism"?

State capitalism is reflected in two aspects: First, the control of state power over enterprises. In the words of Lenin, "state capitalism is a kind of capitalism in which the state power directly controls these or those capitalist enterprises in the capitalist system", second, the state's supervision and regulation of capitalist economic development.

As Lenin put it, "monopoly capitalism is changing to state monopoly capitalism because many countries have begun to implement social regulation of production and distribution due to the circumstances."

Although the US is known as the representative of the free market economy and laissez-faire capitalism, in fact, the role of the state in economic development is also very obvious and important in the US. Therefore, the so-called pure free market economy and laissez-faire capitalism never really existed, and the capitalism we have seen in reality is closely interwoven with state capitalism.

II. What is the intention of the "state capitalism" arguments?

The purpose of the "state capitalism" arguments is very clear, that is, to leverage the opposition between the so-called "state capitalism" and "lasses-fair capitalism" to justify capitalism and create favorable public opinion for curbing the development of developing countries, especially China.

On the one hand, they try to shift and conceal people's doubts about the inherent ills of the capitalist system, and ascribe the crisis of the capitalist system caused by the basic contradictions of capitalism to the threat of "state capitalism."

People lay underneath the iconic Wall Street bull during a rally against the proposed government buyout of financial firms on September 25, 2008, in New York City. /VCG P
On the other hand, they directly point at socialism with Chinese characteristics, unscrupulously try to distort, smear and vilify the socialist market economic system of China. They attempt to dent people's confidence in the socialist system with Chinese characteristics and the socialist market economic system, and to force China to give up the proven successful development path and socialist system, so as to ultimately curb the development of China.

III. Distort the socialist market economy as economic hegemonism

Market economy and capitalism are two different things. The market economy is a way of resource allocation, which can be combined with the capitalist system as well as the socialist system.

The capitalist market economy and the socialist market economy have something in common- it's the way of resource allocation and commodity economy relations. In the meantime, we must realize that the market economy is a social and historical concept that may show different characteristics in different social systems and at different stages of development.

It is even more mistaken to equate the active role of the government with "state capitalism". The relationship between the government and the market is the subject of the evolution of the modern market economic system.

The government and the market are complementary to and inseparable from each other, which is the law of the development of market economy in socialized mass production.

IV. "State capitalism" in socialist revolution and development

Historically, socialism and "state capitalism" are not unrelated. What China has experienced over the years has shown that once the socialist transformation has been completed, the socialist basic system with public ownership as the main body established, and a socialist society formed, state capitalism as a transitional economic system would complete its historical mission and withdraw from the historical stage.

The socialist economic system with Chinese characteristics and the socialist market economic system with Chinese characteristics have brought into play not only the strengths of the market economy but also the advantages of the socialist system.

It has realized the proper combination of the government and the market, fairness, and efficiency, development and stability, and autonomy and openness, has promoted sustained and sound economic and social development, and has made great achievements that have attracted worldwide attention, benefiting all Chinese people and making important contributions to the development and progress of mankind.

https://news.cgtn.com/news/3d3d414d7859544f79457a6333566d54/share_p.html

I had always wondered how does one compete with 1.4 billion people whose capability is not below yours, that works with a fraction of your costs.
The way the US has chosen, use underhand methods and smear tactics.
Credit must be given to Gordon Zhang that the US had waited until now.
The US was waiting for Gordon Zhang's et al China collapse theories to come true.
I guess the US has realized that Gordon Zhang is a fraud.
.

 

[TaiShang]

In my view, state capitalism that is followed by China is pretty practical. It keeps government employees on the edge and at the same time the target is to generate profits or lose a job. In my country, which is a mish-mash of capitalism and socialism, the private sector works extremely hard while the government employees are immune to any changes in their job scenario.

1- In India, no government employee can be fired. (unless there is a criminal case)
2- Many times, their salaries are better than private sector, especially in the mid-senior ranks.
3- Fixed work time and no need to do any overtime.

Now there are some sincere government officers as well; but most of them never rise in ranks because they are ready to call out the corruption and mismanagement. These people sadly remain at intermediate-senior roles and retire.

However, your system is far more efficient in managing the existing resources and generating massive tangible work and profits at the same time.

I think developing nations, including India, should not really fall for the market fundamentalism as promoted by the West. Internal structural problems, including those performance and efficiency related ones you mentioned, must be effectively addressed (including in Mainland China, which, although is making progress, still needs more in terms of bureaucratic efficiency), but, overall, the state's role in overseeing and managing the macro economy must be ensured.

I took US Public Policy class in master's back in 2010, and it is incredible how big the US federal government is (health, education, housing, infra etc). They definitely do not do (or did not do) what they preach to others.

For instance, housing, the state in a developing country cannot leave the entire housing industry to speculators and profit-oriented constructors. There must be some public content in every national affair.

Perhaps, more importantly, developing countries must not be scared of proposing their own way of doing things, and see if it is working or not. Maybe, what has not been preached by the Chicago School or Washington Consensus can be the life saving formula in a developing country.

I guess one of China's major advantages (peculiarity) is its conceptual courage. We need to have the courage to create and define our own concepts. We cannot keep borrowing from the West concepts (including key concepts such as development, security, governance and power) that come from their own experience and serve their own interests.

@Cybernetics

 

[Tshering22]

For instance, housing, the state in a developing country cannot leave the entire housing industry to speculators and profit-oriented constructors. There must be some public content in every national affair.

I agree with you completely here.

This is exactly what has made housing super expensive in India's leading cities. Except Mumbai, there is no shortage of land anywhere else in the other 10 top cities in the country. There is tremendous amount of land available here since they are contiguous cities within in-land states (unlike Mumbai which is a peninsula hanging in the sea).

But due to market speculators and profit-seeking property conglomerates, housing prices are exorbitantly high, often being 100X more than a well-to-do middle class Indian's salary. I know there is demand but most of it is unrecorded and prices are escalated through 'word of mouth' culture. People inflate the prices of the houses they paid to brag about their social and financial status and builders just add up more and more for newer houses.

Perhaps, more importantly, developing countries must not be scared of proposing their own way of doing things, and see if it is working or not. Maybe, what has not been preached by the Chicago School or Washington Consensus can be the life saving formula in a developing country.

Indeed. I firmly believe that housing should not be left to free market. Instead, dedicated architectural research and innovation labs need to be set up to determine the most cost-effective, fine-quality and timely methods of construction possible and implemented across the residential sector.

Free-market can always exist in the commercial real estate space for offices, companies etc.

I guess one of China's major advantages (peculiarity) is its conceptual courage. We need to have the courage to create and define our own concepts. We cannot keep borrowing from the West concepts (including key concepts such as development, security, governance and power) that come from their own experience and serve their own interests.

And that is exactly what we Indians admire. You'll be surprised but even the most ultra-nationalist Indian here admires China and openly does so. They appreciate your ability to not consider yourself any lesser than US and negotiate on equal terms, while being able to make money out of them.

I for one, appreciate China's economic policies with respect to infrastructure, job creation and urbanization as well as fighting pollution and environmental contamination.

 

[Cybernetics]

Although the US is known as the representative of the free market economy and laissez-faire capitalism, in fact, the role of the state in economic development is also very obvious and important in the US. Therefore, the so-called pure free market economy and laissez-faire capitalism never really existed, and the capitalism we have seen in reality is closely interwoven with state capitalism.

US is relatively free-market and has periods of relative lassies-faire capitalism but it is not a pure free market system as people promote it to be. In fact the US bureaucracy is quite large proportionally and has certain socialistic tendencies. At key points the US government uses a heavy hand to adjust any problems.

Laissez-faire economics can only occur for short periods of time because it requires strict and unrealistic conditions. Many nations chose to use government intervention during crisis since the cost of continuing on the original path would be too high.

"Economic distortions occur due to laws and regulations", this is a common critique of government intervention, which is true. We also have to keep in mind that human progress was a product of the optimal rules and regulations (based on environment) that we have discovered through a process. We need rules and regulations to create an economic system suitable for its users. In the end the system is used to serve the people, different societies may have different preferences. Vast majority of people prefer to live in civilization and not the wild, an important reason being is that civilization has a system and is enforced else entropy devolves a system into something closer to the wild. Certain amount of chaos and wildness is good to stimulate the system's growth but too much would destroy it.

Free market in its primal form is chaotic with jungle laws. Through the inputs (these inputs need to be remembered by the system) and interaction of participants optimal paths are found and becomes relatively more organized though never fully. To protect what is deemed optimal, laws and regulations are needed. This cannot be done by market forces alone as people have different personalities, time horizons, and motivations. If the optimal path requires a lot of work and a long time before profit can be made, some short termed people can choose to speculate or cheat others. It is impossible in reality to have everyone have access to all market information to make the right decisions, this asymmetry enables detrimental short term activity to survive.

In a realistic economic system, a small number of users have access to most of the information and networks (Pareto principle). Over time this group would acquire most of the wealth and would use their power (under a weak non-independent government) to entrench themselves, worsening the wealth gap and structural informational asymmetry. This would be protecting capital in principle but eventually infringe upon the ability of the bulk of economic participants to properly participate in the system. Every society has its own set of rules as to what is acceptable and ideal treatment of the individual, eventually free markets under some structural conditions would infringe upon those acceptable limits. This in turn would necessitate a counter balancing force, often in the form of government laws and regulations to prevent the situation from getting this bad in the first place. One method is to transfer wealth from those that benefited disproportional more to those that benefited less. Another more effective method would be to remove as much of the structure asymmetry as possible, this would necessitate some wealth transfer but less so. Removing structural asymmetry requires the government, this can be in the form of education (not just for children/youth), subsidies for small companies, and laws conducive to the development of those less fortunate (not free lunch). Over doing anything isn't good, the key is balance.

It is not about the amount of laws and regulations but the quality and relevance of those laws and regulations. A flexible/responsive system to adjust laws and regulations would have a good chance for longevity.

China for example recently put very strict regulations upon recyclable imports as a measure to protect the environment and worker safety. It is counter to free market principals but in the end does the Chinese society feel it's better off due to it? Some jobs are lost but they can be absorbed by other industries that China is currently developing and make the environment cleaner as a result. A free market perspective would ask "wouldn't people make the best choice and transition on their own free will once these new better industries are created?" Yes and no, some would transition but many would stay because it is human nature to do what is comfortable even when there are better options from an outsider's perspective. Humans often need necessity to push them to improve, creating the saying "necessity is the mother of invention". It is not just an economic issue but also a public goods issue, others demand a better environment, thus some people requires a push into other industries before the market forces them. In the end we should ask not did we follow market principals but are the stakeholders better off as a result? In fact market interactions on the micro level is a process of negotiating the terms of each stakeholder but through markets often we fail to capture all the stakeholders and the whole picture due to structural asymmetry.

 

[TaiShang]

US is relatively free-market and has periods of relative lassies-faire capitalism but it is not a pure free market system as people promote it to be. In fact the US bureaucracy is quite large proportionally and has certain socialistic tendencies. At key points the US government uses a heavy hand to adjust any problems.

I guess the 2008 bail-out of the "too big to fall" was a perfect example of socialist state capitalism (in favor of the privileged classes, of course, not for the mass). Or, food-stamps can be considered another example of the state subsidizing the losers (albeit subsidy involves keeping them at the sustenance level).

 

[PeaceGen]

I guess the 2008 bail-out of the "too big to fall" was a perfect example of socialist state capitalism (in favor of the privileged classes, of course, not for the mass). Or, food-stamps can be considered another example of the state subsidizing the losers (albeit subsidy involves keeping them at the sustenance level).

http://www.slate.com/articles/healt...t_and_socialist_reforms.html?via=gdpr-consent

Why Does China Not Have Famines Anymore?
Two competing explanations for the end of 2,000 years of starvation.
By Brian Palmer

Employees of the Shin Chiao Hotel in Beijing in October 1958. The Great Famine, which began that year and lasted three years, was probably the deadliest famine in human history.

Photo by Jacquet-Francillon/AFP/Getty Images

Essayist Gerald Early said that the history of the United States will one day be reduced to the Constitution, jazz, and baseball. If someone had made the same summary of Chinese history 30 years ago, the trio would likely have been the Great Wall, Maoism, and famine. Over the past 2,000 years, China has suffered almost one famine per year. Severe drought killed as many as 13 million Chinese in the two-year famine beginning in 1876. The 1927 famine killed as many as 6 million. There were significant famines in 1929, 1939, and 1942. The Great Famine, which began in 1958 and lasted three years, was probably the deadliest famine in human history, killing between 30 and 45 million people. The causes of Chinese famines have varied, ranging from drought to hoarding to Mao Zedong’s horrifically misguided food procurement policy, which took food from the mouths of the people who grew it, concentrating deaths in traditional farming areas.

For most of China’s history, famine was just an extreme version of the normal state of affairs. As recently as the late 1970s, 30 percent of China’s population was undernourished. Grains supplied the overwhelming majority of their calories. One in 3 children under the age of 5 had stunted growth.

It’s almost hard to believe how different today’s China has become. By 2005, fewer than 1 in 10 Chinese people were undernourished. Consumption of meat nearly doubled and fruit consumption more than tripled in the past three decades. Birth weights have risen, and the average 6-year-old child is two inches taller today than in the 1970s. (Pause on that incredible fact for a moment.) China feeds 20 percent of the world’s people using less than 10 percent of arable land, with plenty of food left over to export. Food has fueled the Chinese miracle.

How did China go from barely surviving to a nation with a food surplus? There’s a short version and a long version, and the difference really matters—even for Americans.

Ludwig von Mises. Chinese farmers under Mao were organized into collectives that worked common land. The manager of the collective made planting decisions and assigned duties, paying no heed to market signals or the particular skills of individuals. At harvest time, the collective sold a portion of its crop to the state at fixed prices, then divided up the remainder among the farmers based on the number of hours worked. Hard work changed an individual farmer’s fortunes very little, so no one worked very hard and the farms weren’t very productive.

Everything changed in 1978. A collective in the village of Xiaogang secretly agreed to go capitalist. The group’s output surged so dramatically that it caught the attention of the evil communist authorities. The Xiaogang dissidents feared they would be executed. Rather than punish the heroic Xiaogang collective, however, Beijing recognized their genius and adopted reforms. Farming families across China took quasi-ownership of plots of land and were granted more freedom to sell their yields on the open market. That single change created incentives to work hard and make investments for future productivity. And everyone lived prosperously ever after.

You hear this version of the story quite often in the media. NPR portrayed this secret agreement in Xiaogang as the catalyst that lifted 500 million Chineseout of poverty. Jikun Huang of the Chinese Academy of Sciences and Stanford economist Scott Rozelle wrote in a report for the World Food Programme that the impact of the reforms “could not have been more dramatic” and the “rise in the vibrancy of the rural economy was one of the triggers of the rest of the economic reforms in China.”

The capitalist fairy tale version of the Chinese miracle has a rather simple lesson for the rest of the world: Create the right incentives, and hard work and human ingenuity will solve all the other problems. “We all secretly competed,” a Xiaogang farmer told NPR. “Everyone wanted to produce more than the next person.” When people talk about this version of the Chinese miracle, the implication is that capitalism itself is miraculous.

There’s a lot of truth to this tale. Agricultural productivity rose at a meager 2.7 percent per year from 1970 to 1978. In the five years following the reforms, the growth rate surged to 7.1 percent. Overall GDP also spiked. The reforms encouraged individual members of farm families to take up non-agricultural employment, diversifying and lifting household incomes in rural areas.

The full story is far more complicated than a simple capitalist fairy tale, though. It involves prudent planning, heavy investment in infrastructure, and state subsidies. It doesn’t give you that warm, self-satisfied feeling of Western philosophical triumph. But you ought to hear it anyway.

In fact, Chinese authorities recognized the poor productivity of their farming collectives long before 1978 and set in motion a series of changes that would take years to pay off. Beginning in the 1950s, the central government worked to bring Chinese farming practices into the 20th century. Just 18 percent of Chinese farmland was under irrigation at the beginning of the technological overhaul. Heavy investment in water infrastructure began more than a decade before de-collectivization. Today, more than one-half of Chinese farmers work irrigated fields, making the country one of the most intensively watered farming economies on the planet. At the same time as the investments in irrigation began, China accelerated research on new varieties of grains, fruits, and vegetables that could, when paired with improved irrigation, produce more food on less land. Many of these varieties didn’t become available until just before the capitalist reforms of the late 1970s.

Chinese central planners can also take credit for some of the investments made by Chinese farmers themselves. Around the time of the reform, the Chinese government increased the amount it paid farmers for their crops by around 25 percent. In a single year, Chinese farm income surged massively due almost exclusively to government policy. Many of the farmers put some of their capital windfall toward the purchase of chemical fertilizers, which flooded the Chinese market around the same time, further enhancing productivity.

Sheer luck played a major part in the incredible Chinese agricultural surge as well. Beginning in 1982, China saw some of the best years of farming weather in recorded history. Unless you think that was God’s way of endorsing the capitalist reforms, that change artificially inflated early 1980s productivity and magnified the positive effects of both the infrastructure investments and the capitalist reforms. Productivity decelerated a few years later, when the weather took a turn for the worse.

Scholars continue to argue over how much of China’s agricultural turnaround was due to the capitalist incentive structure, how much resulted from earlier investments, and how much was a trick of the weather. Some say the end of collective farming accounted for nearly three-quarters of the improvements in productivity, while others say it was responsible for no more than one-third.

It’s fine to treat China’s food revolution as a fairy tale. The changes were so dramatic that it’s hard not to. But let’s make sure we get the moral of this story correct. Changing the incentives isn’t a magic trick that can turn any lagging economy into a global juggernaut. Investment in infrastructure, research and development, and putting money into the pockets of workers work wonders as well. And a little sunshine doesn’t hurt, either.

goes to show not all things western are evil.

 

[GeraltofRivia]

It has another well known name: Keynesian economics.

 

[T-Rex]

US is relatively free-market and has periods of relative lassies-faire capitalism but it is not a pure free market system as people promote it to be.

Nowhere will you find pure form of free market economy because if that happens the state will cease to exist. The idea is used to understand different types of economies.

 

[gambit]

I read many versions of 'understanding' of communism during the Cold War. All of them said communism is good.

 

[TaiShang]

Nowhere will you find pure form of free market economy because if that happens the state will cease to exist. The idea is used to understand different types of economies.

The main message in the article seems to be that concepts such as "laisses faire" or "state capitalism" are all constructs for some geopolitical ends. One is used to make things look pretty (although in reality them may be bad, such as US bail-outs of corrupt finance companies who stole people's retirement benefits), the other is used to make things look like bad (although they may be good in reality, such as China's state-led poverty elimination or housing program).

In themselves, they are just constructs. But, they can easily be weaponized by capable actors to be used as political tools.