Nowhere has this been more the case in Japan, whose economy has remained in the doldrums ever since its bubble burst in 1990. For seventeen years straight, quarter after quarter, Japanese land prices fell, and so did stock market prices – and hence, the collateral pledged as backing for loans. This quickly left Japan’s banks with negative equity. The Bank of Japan’s response was to devise a way for them to rebuild their balance sheets – to “earn their way” out of the bad loans they had made.
The policy was not to revive the faltering domestic market in Japan or its industrial corporations. From 1945 through 1985, Japanese had a model industrial banking system. But in 1985, U.S. diplomats asked Japan to please commit economic suicide. Angered by the striking success of Japanese industry, U.S. officials asked their compliant Japanese counterparts to raise the yen’s exchange rate so as to make its industrial exporters less competitive, and in due course to flood its own economy with credit so as to lower interest rates, thereby enabling the Federal Reserve to flood the U.S. market with enough cheap credit to give a patina of prosperity to the Reagan Administration. This policy – announced in the Plaza Accord of 1985 – led economist David Hale to joke that the Bank of Japan was acting as the Thirteenth Federal Reserve District and the Japanese government as the Republican Re-election Committee.
Japan flooded its economy with credit, lowering interest rates and fueling the world’s largest real estate bubble of the 1980s. The stock market also soared to reflect the rise in Japanese industrial sales and earnings. But after the bubble burst on December 31, 1989, the mortgage debts and stock that that Japanese banks held in their capital reserves fell short of the valuation needed to back their deposit liabilities. To help bail out the banks, Japan’s government urged them to engage in what has become known as the “carry trade”: lending freely created yen credits to foreign financial institutions at remarkably low rates, for these borrowers to convert into other currencies to buy bonds or other assets yielding a higher rate. If the domestic Japanese market lacked credit-worthy borrowers, let them lend to foreigners. As a new source of revenue for the banks in place of loans to domestic real estate and industry, low interest rates enabled them to flood the global economy with credit. This served global finance by providing speculators and “financial intermediaries” with an opportunity to get a free arbitrage ride.
Borrowing rates remained high within Japan itself. As veteran Japan watcher Richard Werner (author of Princes of the Yen) recently described the situation to me, “while Japanese small firms were killed by the continued refusal of banks to expand credit (and many a small firm president was killed by having to sell a kidney to the loan sharks he was forced to resort to), foreign speculators received ample yen funds for a pittance.” The silver lining to this credit creation was that Japanese exporters were aided as the conversion of yen into foreign currencies drove down the exchange rate. (Yen credit was “supplied” to global currency markets, and was spent to buy and hence bid up the price of euros, dollars, sterling and other currencies.)
So the yen remained depressed, helping Japanese sales of consumer goods, while foreign borrowers were enabled to ride their own wave of asset-price inflation. Speculators could borrow at only a few percentage points interest in Japan, and convert their debt into foreign currency and lend to equally desperate countries such as Iceland at up to 15 per cent.
Hundreds of billions of dollars, euros and sterling worth of yen were borrowed and duly converted into foreign currencies to lend out at a markup. Arbitrageurs made billions by acting as financial intermediaries making income on the margin between low yen-borrowing costs and high foreign-currency interest rates. As Ambrose Evans-Pritchard wrote over a year ago in the Financial Times, “the Bank of Japan held interest rates at zero for six years until July 2006 to stave off deflation. Even now, rates are still just 0.5 per cent. It also injected some $12bn liquidity every month by printing money to buy bonds. The net effect has been a massive leakage of money into the global economy. Faced with a pitiful yield at home, Japan's funds and thrifty grannies shoveled savings abroad. Banks, hedge funds, and the proverbial Mrs Watanabe, were all able to borrow for near nothing in Tokyo to snap up assets across the globe. BNP Paribas estimates this "carry trade" to be $1,200bn.”
All this was conditional on the ability of lenders to get a continued free ride. Now that the free lunch is over, Japan’s postindustrial mode of rescuing its banking sector is coming home to roost. It is doing so in a way that highlights the inherent conflict between finance capitalism and industrial capitalism. Whereas industrial expansion is supposed to keep going – and can continue to do so as long as markets keep pace with production – debt bubbles end, usually abruptly as we are seeing today. Now that Iceland has gone bust, Hungary looks like it is following suit.
As global currency markets no longer provide the easy pickings of the last decade, the yen carry trade is being wound down. This involves converting Icelandic currency, euros, sterling and other non-Japanese currencies back into yen to settle the debts owed to Japanese banks. This repayment – and hence re-conversion into yen – is pushing the yen’s price up. This threatens to make Japanese exports higher-priced in terms of dollars, euros and sterling. Last week, Sony forecast that its earnings will fall as a result, and other Japanese companies face a similar squeeze in sales, not only from rising yen/dollar prices but from the global slowdown resulting from two decades of pro-financial anti-labor economic policies.
Evans-Pritchard rightly accused the world’s central banks of having created this mess. “It was they – in effect governments – who intervened in countless complex ways to push down the price of global credit to levels that warped behavior, as the Bank for International Settlements (BIS) has repeatedly noted. By setting the price of money too low, they encouraged debt and punished savings. The markets have merely responded with their usual exuberance to this distorted signal. Private equity was tempted to launch a takeover blitz at a debt-to-cashflow ratio of 5.4 because debt was made so cheap. The US savings rate turned negative because interest rates were held below inflation.” He should better have said, asset-price inflation. Gains for wealth-holders at the top of the economic pyramid polarized economies. What was rising for the bottom 90 per cent was debt, not asset-price gains from easy money.
Extract from Scrawny Geese; No More Golden Egg Scenes From the Global Class War By MICHAEL HUDSON
China's economic growth rate has fallen for the third quarter in succession, amid fears that the economy could be heading for a severe downturn.
The National Bureau of Statistics said the economy had grown at a rate of 9% in the three months to September - down from 10.1% over the previous quarter.
"The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate," he said. "All these factors have started to release their negative impact on China's economy."
Many claim that Chinese domestic consumption will take up the slack due to export slowdown. This is unrealistic. As Walker of Asianomics points out, the UK alone consumes more than China and India combined.
China’s economy has been driven by investment and exports, not by domestic consumption. In fact, consumption in China has failed to keep pace with economic growth, which is why the trade surplus has continued rising.
There’s another problem. The credit boom has finally erupted in widespread inflation. The costs of commodities and wages of semi-skilled workers have been soaring. This leaves authorities with little choice but to tighten monetary policy into a slowdown.
After falling for years, Chinese export prices to the US have started to climb. The combination of rising inflation and the revaluation of the renminbi against the dollar means that China in some sectors is losing its position as the world’s low-cost producer.
But a sharp economic slowdown will dampen the demand for commodities and bring more bad news to Shanghai’s beleaguered stock market. It also makes a revaluation of the renminbi less certain.
As economist Andrew Hunt points out, the Chinese business cycle normally ends in devaluations, not revaluations, of the currency. Yet in April some $50 billion (Rs2.16 trillion) of hot money entered China in the belief that a revaluation was a sure bet. It’s difficult to think of a better way for Beijing to punish noisome speculators than by frustrating such expectations
A Meeting in Utrecht on the 21st of October by Professor Pau yu Ching and another in London on the 23rd October by Nickglais address the question of the social character of contemporary China. Both speeches are posted here below.
October 2008 also sees the publication of Professor Minqi Li's new pathbreaking book about the Rise of China and the demise of the Capitalist World Economy published by Pluto Books.
Professor Minqi Li deepens the Marxist Leninist Maoist analysis of global capitalism and China's role in the world economy has the global crisis of capitalism unfolds before our eyes.
Today we have the spectacle of the Chinese Premier Wen Jiabao in Beijing saying financial innovation needs to be balanced with regulation and acting as a saviour of Global capitalism.
We at Democracy and Class Struggle place our trust and confidence in the Chinese working class and peasantry and not the capitalist elite in China who are joined at the hip to global capitalism to renew the struggle for socialism in the 21st Century after absorbing the lessons of 20th century defeats.
Deepen your knowledge of Marxism Leninism Maoism by reading the two contributions below and buying Professor Minqi Li's new book this month.
Speech delivered by comrade Nickglais to meeting in Conway Hall London on 23rd October 2008organised by Second Wave Publications and Distribution
Let us look at China's Response to the current economic crisis. Has the crisis of global capitalism made the Communist Party of China think of a return to socialism and regulation and control its capital markets ? .
Here is the Chinese State Council response as reported in Time Magazine by Bill Powell its Shanghai correspondent. on Tuesday October 7th 2008
" Earlier this week Beijing sent a clear signal that, notwithstanding the mess in the U.S. and Europe, it still seeks to develop, slowly but surely, a more sophisticated capital market. China's State Council has approved a plan to allow margin trading and short-selling, giving domestic investors in China's A-share market "new opportunities to hedge and leverage their positions," says Jing Ulrich, head of China Equities at JPMorgan Securities in Hong Kong".
We should remember that short selling has been banned in UK and US and Australia and nobody today needs reminding of the effects of margin trading and leverage has contributions to the current crisis.
Is this action of the Chinese authorities an aberration or is it part of something much more profound and fundamental relating to contemporary power and class relations in China ?
Lenin in the Three Sources and Three Component parts of Marxism written in 1913 said something which many comrades need to be reminded of when trying to understand China.
"People always have been the foolish victims of deception and self-deception in politics, and they always will be until they have learnt to seek out the interests of some class or other behind all moral, religious, political and social phrases, declarations and promises"
Let us follow our Chinese Comrade Pao-yu Ching to understand the class basis of the current leadership of the Communist Party of China today.
If we trace the origins of the Deng Xiaoping Reforms after Mao’s death. The reform formally began after the Third Plenary Session of the Eleventh Congress of the Chinese Communist Party in December of 1978.
When Hart-Landsberg and Burkett explain how Deng began the Reform and how the capitalist restoration has continued for the past thirty years, they searched for reasons beyond personal greed and explained that the capitalist restoration, once started, generated “structural contradictions” that have kept it going.
We, of course, have to look for reasons other than personal greed to explain the political, economic, and social development in China or in any other countries; however, Hart-Landsberg and Burkett seemed to imply that the Reformers did not have a clear idea about their Reform programs and that they indeed have been “crossing the river by touching the stones” – a famous saying of Deng Xiaoping and – and once the Reform got started it seemed to generate enough contradictions to keep it going.
However, if we look into the history of class struggle in China, we would reach a very different conclusion. Deng’s Reform programs--the dismantling of the Commune, the privatizing of state-owned enterprises, the Labor Reform, the opening up of the economy to foreign investment, and many others--all have their origins long before 1979. Deng and his predecessor and mentor, Liu Shaoqi, tried repeatedly to institute these programs since the 1950’s. Therefore, contrary to what Deng openly said, the Reform that began in 1979 not only had a clear direction but also a well-planned road map.
One example of this plan is the history of the post 1979 Labor Reform that Hart-Landsberg and Burkett documented. Contract Labor instituted in 1986 was part of the overall Labor Reform that abolished the permanent employment system in State-owned enterprises, and it has its origin in the 1950’s. Pao yu Ching wrote the following in “Labor Reform - Mao vs. Liu – Deng” in 1993:
...The Labor Contract System, implemented since the beginning of the Reform, did not originate with the current reformers. As early as the 1950's Liu Shaoqi began advocating the advantages of the Contract Labor System. An essay from the recently published Labor Contract System Handbook revealed the history of Liu's attempts to institute temporary contract workers in state owned factories.
The essay stated that in 1956, Liu sent a team to the Soviet Union to study their labor system. Upon its return, the team proposed the adoption of the Contract Labor System modeled after what the Soviet Union had adopted. However, when the changes were about to take place, the Great Leap Forward started, thus interrupting its implementation. The essay continued in stating that in the early 1960's Liu again attempted to change the permanent employment status by adopting a "two-track system," enterprises were to employ more temporary and fewer permanent workers, and the mines were to employ peasants as temporary workers.
Then, in 1965, the State Council announced a new regulation on the employment of temporary workers, indicating that, instead of permanent workers, more temporary workers should be hired. The regulation also gave individual enterprises the authority to use allocated wage funds to replace permanent workers with temporary workers.
Again, according to the author of this essay, the Cultural Revolution interrupted Liu's effort to reform the labor system, and, in 1971, large numbers of temporary workers were given permanent status. Although Liu could not fully implement his labor reform, he had "experimental projects" going on here and there, and before the Cultural Revolution began, large numbers of temporary workers had been hired.
The author of Labor Contract System Handbook expressed his regrets that these earlier efforts to institute labor reform failed, and he stated that if there had not been the Great Leap Forward and the Cultural Revolution, it would have been possible to carry out these Labor Reform long before the current time.
In fact, Liu-Deng and their allies had a plan to develop capitalism in China since the 1950’s. The afore-mentioned Labor Reform was only one of the many projects they prepared to carry out . Their plan to develop capitalism in China before 1979 consisted of projects to be implemented in every economic, political, social, and cultural sphere writes Pao yu Ching.
That was and is the precise reason for the past and current class struggles in China.
China started its economic reforms by abolishing the people's communes. Suddenly, without the collectives, the peasants had to privately purchase seed, fertilizer and water rights, and to pay higher taxes to support a large cadre of local party officials.
But the prices of farm products were kept low, forcing many to work as migrant workers in the cities. Others followed when their land was seized for urban and industrial development. Once in the cities, they were given neither residential status nor legal rights and protection, but they were nevertheless expected to be gainfully employed.
Otherwise, under the "custody and repatriation" laws, beggars, vagrants and those with no employment were repatriated back to their villages, held at detention centers, or even used as forced labor. The Chinese version of the English "enclosure" process created approximately 150 million impoverished migrants who had to sell their labor cheaply in order to survive.
Meanwhile, state enterprises were slowly privatized. Their employees no longer enjoyed the guarantee of "the iron rice bowl" and had to find jobs on the open labor market. The masses of rural migrants, joined by growing numbers of laid-off state enterprise workers, provided China with an endless supply of cheap labor.
There is some plausibility (but wrong) in calling China State Market Socialist in the early years of the Deng Reforms when you just had a few isolated Special Economic Zones and there were limits on the size of private enterprise in China but by 1992, if you use the intellectual apparatus of Marxism ,what you see is the extention of Market Reforms to the rest of the Chinese Provinces and wholesale dismantling of the State sector with an attack on collective property and the wholesale implementation of the Guangdong free market model for the whole of China.
We see entirely new production relations emerging in China in the 1990's. The end of the Danwei or work unit which combined production and consumption,education and health the separation of the means of production from working people with privatisation of State assets.The laying off of the old working class in the factories and in the mines the use of hired gangs from the countryside with no knowledge of mining causing one of the highest mining accident rates in the world.
This is evidenced by persistent labor safety violations that have led to spectacular industrial accidents, including gas explosions, mine cave-ins and flooding that killed 100,000's of people every year. While China accounted for 80 percent of the world's total coal mining-related deaths it produce only 35 percent of the world's coal.
Comrade Gong Xiantian in his famous open letter about the Property Law informed us that the ouput from the State sector is below 17% of total output in China and that basically the market has put itself in command and not the party and the people as in the past.
The creation of a new working class based on super exploitation in the new factories of peasants pouring in from the countryside without rights of residence in the factory towns and cities basically second class citizens depriving them of access to education and health services which are just provided for locals..
Discussion has started in China to privatise land has they have already done with industry hopefully this will re-energise the peasants and workers to combine and re-establish the fight for socialism.
Production relations in China have changed in most dramatic way in the last 30 years, The means of production have been wrested from the working class and privatised.The most equal country in the world in 1978 is now heading for the inequality of South Africa and Brazil..
Take the State Industry sector the Govenor of the Central Bank of China Zhou Xiaochuan boasts how one third have been fully privatised one third put on hold for potential buyers and one third closed. Even nominal State shares in privatised companies are scheduled to be sold by State to pay pensions.
The Township and Village Enterprises built up in Mao's time and which formed the basis of China's economic growth have become private property in most cases taken over by a local bureaucrat has his own possession.
The robbery of public assets and public property by powerful individuals in China is one of the biggest expropriations of the working class in history and the new bureaucrat "cadre" capitalists are not satisfied with that now they are eyeing the land for privatisation.
According to a report by the China Rights Forum, only 5 per cent of China's 20,000 richest people have made it on merit.
More than 90 per cent are related to senior government or Communist Party officials. The richest among them are the relatives of the very top officials who had used their position to pass the laws that have transformed state-owned industries into stock holding companies, and then appointed family members as managers. In this way the children of top party officials – China's new "princelings" – took over China's most strategic and profitable industries: banking, transportation, power generation, natural resources, media, and weapons.
Once in management positions, they get loans from government-controlled banks, acquire foreign partners, and list their companies on Hong Kong or New York stock exchanges to raise more capital. Each step of the way the princelings enrich themselves not only as major shareholders of the companies, but also from the kickbacks they get by awarding contracts to foreign firms. to call this "socialism with Chinese characteristics" is a joke.
The Chinese Princelings are the direct equivalent of the Russian Oligarchs.
I have to say that the China Rights Forum is correct and their position is validated by my personal experience in China..
There are clearly voices in China in the Society the State and even the Communist Party not just unhappy with this turn of events but seeking to re-orientate China away from the market direction which has now run its course - and put Socialism back on the agenda but they have a tough time as the bureaucrat capitalist elite is firmly entrenched in the Party and State machine.
Just for you to know how tough it is here is an example of a political and labour rights activities in China in the early 21st Century.
1. Let us look at case of Yao Fuxin from Liaoning in 2003
Yao Fuxin was the leader of large-scale worker demonstrations at Liaoyang Ferro-Alloy Factory after it declared bankruptcy and failed to make wage/benefit/ pension payments to workers.
Leader of "All-Liaoyang Bankrupt and Unemployed Workers' Provisional Union." He was convicted with Xiao Yunliang of subversion by Liaoyang Intermediate People's Court and sentenced on May 9, 2003 to seven years' imprisonment.
His appeal was rejected by Liaoning Higher People's Court on June 27, 2003. Serving sentence in Lingyuan No. 2 Prison, where he reportedly suffered a heart attack in August 2005.
This is not untypical of what happens workers leaders in China.
Status: Due for release on March 19, 2009.
2. The Zhengzhou 4
It was in Zhengzhou on September 9, 2004,on the 28th anniversary of Mao's death that a worker activist Zhang Zhengyao, passed out a leaflet Mao Forever our Leader attacking the Communist Party and government for deserting the interests of the working classes and taking part in widespread corruption
His flyer also denounced the restoration of capitalism in China and called for a return to the "socialist road” taken by Mao. Both he and the coauthor of the leaflet, Zhang Ruquan, were arrested, after police raided their apartments. Their case soon became a cause celebre in China, with many leftists from all over the country traveling to Zhengzhou to protest outside the closed trial of the two in December 2004.
In 2004, when they were each sentenced to three years in prison.together with Ge Liying and Wang Zhanqing—who assisted in the writing and printing of the leaflet, and who have also been harassed by the police—these worker activists have come to be known as the "Zhengzhou 4.”
A petition letter, to President Hu Jintao and Prime Minister Wen Jiabao, calling for their release, attracted over 200 signatures—about one half each from inside and outside China. This was an unprecedented show of support for leftist workers, especially given the potential risk for those who signed it, uniting Chinese intellectuals and activists with their international peers.
Though the government did not respond directly to the letter, Zhang Ruquan was later released from prison, ostensibly for health reasons, which some activists believe was at least partially a result of the pressure generated by the petition and other related solidarity activities, such as the posting of sometimes quite lengthy information and analysis regarding their case on left websites.
The Zhengzhou 4 represent the refusal of workers in China to passively accept the new conditions imposed on them by the party and state, the persistence of Maoist ideology and activism in their ranks, and the growing support which they are gathering from others throughout the society and even abroad.
But this case also brought out the divisions as well as the renewed strength of the Chinese Left. It was mainly the younger leftists who took the lead in signing the Zhengzhou 4 petition letter, using the internet to circulate it widely, while criticizing those among their elders and mentors who, at least at first, had tended to hold back. For the young generation, solidarity with workers who were taking a public stand on the left took precedence over concern with having the exactly correct "line.”
For the older leftists, on the other hand, past divisions and struggles over ideology and policy often prevent the ability to unite for common action. In their case, it is harder to lay aside historical conflicts in order to face the new conditions of the present.
3. The Yantai case .
In 2008 the case of rank and file union activism in China can be seen in Yantai. In the North-Eastern Chinese port city of Yantai there are workers' willing to struggle for two years for their right to form their own union that will stand up for their rights.
The company in question is Ole Wolff (Yantai) Electronics Ltd, a Hong Kong and Danish co-owned company that produces cell phone speakers, receivers and other electronic productions.
"It is the first Chinese independent trade union to be set up through strike in China"
The OleWolffYantaiTrade Union has taken a oppostional stance towards both the company and the local union branch.
It describes itself boldly as a "red union" (i.e. Socialist) while dismissing the All China Federation of Trade Unions has a "yellow union"
The union's internet blog has article, entitled: "Where there's oppression, there will be resistance!" .Class Struggle is alive and well in China.
The movement for Socialist Renewal in China is young like the new century but it will grow and win back the lost positions of the last 30 years in the economy in the the party and society in China has it gains clarity abouts its defeats and its future.
But this in no way is helped by describing contemporary China has socialist - primary stage of socialism - socialism with Chinese characteristics, in fact it is essential to understand the capitalist character of contemporary China has many in China are now recognising as a pre condition for that essential vital Socialist Renewal that China needs to undergo.
The rebirth of Chinese Socialism is the rebirth of the Marxism Leninism Maoism and and has Henry CK Liu writes on his essay on Mao and Lincoln :
"The full impact of Mao's revolutionary spirit is yet to be released on Chinese society. A century from now, Mao's high-minded principles of mass politics will outshine all his neo-liberal critics".
Sources : Pao-yu Ching, Professor Emeritus of Economics, Marygrove College in Detroit USA - The Orgins of the Deng Reforms - the Labour Reform
Zhou Xiaochuan Govenor of Peoples Bank of China speech at World Bank
Gong Xantian Law Professor in Beijing Author of the famous Open Letter
Part of letter on Political Economy Reserch on Internet
China Study Group on Internet Source for information on Political and Labor
Activism in China. Mike ServethePeople on Yantai workers.
Prof. Pao-yu Ching speech at NDFP office in Utrecht 21 st October 2008.
It has been over thirty years since Deng Xiao-ping began his capitalist Reform; here are some of the voices of the Chinese people.
Ordinary Chinese people ask: “What good is the health care reform? Now we can no longer afford to see the doctors.”
And: “What good is the education reform? Now we can no longer afford sending our children to school?”
Tens of millions of workers laid-off from former State enterprises say: “You took the factories we built with our blood and sweat and sold them to new capitalists, or foreigners; destroying buildings and machinery and then taking the land; you squandered away our country’s wealth and left us nothing to survive on.”
Peasants say, “We worked so hard for 30 years to build socialist agriculture and overnight we are back to pre-liberation days.”
Progressive intellectuals say, “The Reform has cloaked itself in socialist clothes but in fact it is capitalism of the worst kind – turning an independent socialist China into one that is increasingly polarized between the rich and the poor, and one that is dependent economically and politically on Western powers.”
With the exception of perhaps a very small minority, Chinese people agree that the current regime is corrupt to the core.
The Reform has cost human lives and caused human suffering, wasted China’s precious resources, devastated the environment, and turned China into a neo-colony of foreign powers. China has transformed from a socialist country, which supported oppressed people all over the world into one, which is allied with the oppressors in Asia, Latin America and Africa in order to acquire resources and expand its economic and political influence.
On the other hand, the Reform has taught Chinese people what capitalism really is all about. Thirty years after the capitalist Reform began the majority of workers and peasants have not only endured much suffering but also have realized that if the capitalist Reform continues, their sons, daughters and grandchildren will have no future. Progressive intellectuals have also realized that the future of China is indeed at stake. With this real life education Chinese people have finally understood the meaning of the two-line struggle and Mao’s warning of the return of the bourgeoisie.
I. China’s economy – imbalanced and unsustainable
Thirty years after the Reform began, China’s economy is grossly imbalanced, making it impossible to continue along the path set forth by the reformers. China’s economy is out of balance with the rest of the world and as well as domestically.
Internationally, China in the past 15 years has maintained very large trade surpluses, especially with the United States. China’s foreign exchange reserves increased rapidly since the early 2000s, then until this summer, accelerated in the past three years – from $659 billion in March 2005 to 1,682 billion in March 2008 – a 155% increase in only three years1. By the end of the third quarter of 2005 China became a net capital exporter.
China, Japan, South Korea and other Asian countries with United States trade surpluses have in fact loaned the US money in order for the US to buy their products. Common sense tells us this practice cannot be sustained for an extended period of time. Also, it is grossly unjust for the Chinese people. China is still a poor country that needs capital for its own development and for the immediate needs of its people – such as clean water, basic health care, and basic education to export its capital, yet a great part of China’s capital has been exported most of which goes to the United States, the richest country in the world. China’s trade surplus accelerated until it reached 11% of its GDP in 2007 meaning during that year, 11% of what China produced was not consumed domestically, nor was it invested in China or spent by its government; the net export of 11% of the GDP was simply changed for additional foreign exchange, which amounts to a stack of foreign IOU’s, sitting idly in China’s Central Bank.
Obviously, the gross imbalances would have to be dealt with2. The adjustment of China’s economic imbalances with the rest of the world started this past year, when the growth of China’s exports slowed, from over 20% to 7% a year from June 2007 to June 2008 (http://business. theage.com. au/business, July 11, 2008). According to Bai Jing-fu’s report, 60% of China’s GDP growth came from the growth of its exports3. Therefore, lower growth rates of exports slowed the growth rate of China’s industrial production to the lowest point in the six years (http://bloomberg. com, September 11, 2008). China’s currency, the RMB, has been devalued by 18 percent since July 2005, thus raising the price of China’s exports (http://iht.com, July 10, 2008). The prices of energy and raw materials China needs to import for its exports have increased significantly. Also, Western nations have stepped up their efforts to restrict Chinese imports. Finally, the global crisis of capitalism has slowed down the demand for Chinese exports. The repercussions of the slowing down of China’s export growth have been serious especially in the coastal region where most export industry factories are located. Many factories, which have served as contractors for foreign multinationals to produce shoes, clothing, toys, furniture and consumer electronics, were earning very thin profit margins to begin with, and now many are losing money and have to close their doors. There were many large laid-offs in these factories.
China’s domestic economy has also been imbalanced. The high rates of GDP growth have been fueled, on the one hand, by the fast growth in the export sector and, on the other hand, they have been the result of high growth rates in investment – especially the tremendous investments in infrastructure by different levels of government. The share of GDP that goes to domestic consumption is extremely low by any standard. Bai Jing-fu estimated that the domestic consumption share of GDP for 2003 was merely 43.4%. Another more recent figure given by Xin Zhiming of the People’s Daily was even lower – a mere 37%, almost 5% lower than the 41.6% of the investment share of the GDP (http://chinadaily. cn, December 11, 2007). This distorted distribution of the GDP is another way to show the extremely unequal income distribution, and concretely it means that except for a rich minority, the majority of the working population cannot enjoy what their labor has produced due to low wages, lack of benefits, and low earnings from farming.
The imbalances of China’s economy both externally and internally mean that, as the recent development has proven, more severe adjustments are yet to come, and that it is not sustainable. There are other equally important factors for the un-sustainability of China’s capitalist Reform. One of these factors is the deterioration of China’s agricultural production (See Section III), and the other is the depleted natural resources and the devastation in China’s natural environment caused by the Reform (See Section IV).
II. What has Reform meant for workers and other urban dwellers?
After the Reformers broke up the communes, they started to fundamentally change the relations of production in the industrial sector. Labor reform was a necessary component of that change. The goal was to dissolve the permanent employment system and turn workers in State enterprises into wage laborers and their labor power into a commodity.
The Reform first attempted to change the basic eight-grade wage system by adding bonuses to entice workers to compete. Workers resisted this change by sharing the bonuses equally to compensate for rises in the costs of living. They also resisted the Reformers’ attempts to replace monthly wages with piece-work wages, because they recognized it as a tactic to divide them; workers learned a great deal during the Cultural Revolution about how material incentives could be used against them.
During the 1980s the Reformers were able to gradually change workers’ permanent employment status by assigning temporary contract status to newly hired workers. The big push came in the early 1990s when large-scale privatization and restructuring of the former State enterprises began, and by 1999 the percentage of workers in former State enterprises (including a small number of urban collectives) decreased to 47.5%. This great wave of lay-offs and/or forced retirements from factory closings and restructuring threw tens of millions of workers out on the street. The majority of these workers were paid only a small severance pay. Many of them lost their pensions or only receive a meager amount to barely keep them afloat. These pensions – 500 RMB to 600 RMB a month often have to be stretched to support the workers themselves and their unemployed sons and/or daughters.
Most of the laid-off workers also lost their benefits, and with the cost of medical care skyrocketing, most can no longer afford any medical care. Hospitals, which have been changed into profit making institutions, charge a great deal of money to run mostly unnecessary tests before dispensing expensive imported medicine, so that doctors can receive bonuses. Without health insurance or any preventive health care, people often delay seeking treatment until their minor medical problems progress into major emergency cases. When they are finally rushed to the hospital, they are refused admission unless they pay a large sum of money up front.
The housing reform began before the big wave of laid-off and sold each housing unit, which workers and families lived for decades, to the workers. But once housing was privatized, factories no longer provided housing for its workers as they had done during the socialist era. Since the end of the 1990s, only a little more than half of the workforce was still employed in the formal sector. Today workers are lucky if they still hold regular jobs, and their wages are often too low to afford rent. The cost of housing has increased by between fifty and a hundred times, and rent has closely followed. Younger workers either continue to live with their parents or have to double up in very crowded quarters.
Those who work outside the formal sector find whatever odd jobs they can to support themselves and many of them live on or below subsistence levels of income. A lot of them work as small vendors selling food or other low cost items on the street4. Many others are also hired for a few hours or a few days at a time.
These temporary and casual jobs pay below subsistence level wages – usually about half of the minimum wage of regular workers in the formal sector. Successful food peddlers may earn a higher income, but to begin with they need capital and may have to pay high rent for a small space to do business. They also have to endure the harassment from the police. In order to avoid arrest, they have to use a substantial portion of their income to bribe corrupt police. People no longer see the police as their protectors but rather as abusers, who do not hesitate to use brutal force to evict people and charge people large fines and pocket the money.
In addition to workers who lived and worked in China’s urban areas, more than 200 million migrant workers from the countryside have flooded into the cities looking for work. The majority of female migrant workers have been hired by export industries located in coastal areas or work in the service sector including domestic work for rich families. Most of the male migrants work for the construction firms. These workers are forced to leave home, because (as described below), they can no longer subsist on what they earn from growing crops. Migrants come to the cities and take the hardest, dirtiest, and most dangerous jobs to send money home in order to support their families. Since they do not have legal urban resident status, they are often mistreated or abused by their employers and owed back wages. If a family migrates together, their children cannot attend city schools for lack of legal status. Factories in the export industry provide often dangerously over-crowded dormitories, and those who work in construction often are forced to sleep in tents near the construction site. The treatment they receive in their own country is not too different from the treatments that undocumented foreign migrants receive around the world.
Even more critical, workers in China have lost the dignity and respect they once had. In the socialist era they were referred to as the “masters” of the country and had a lot of power to make decisions and control their workplace. During the Cultural Revolution, most factories went through struggles to eliminate unreasonable rules and regulations. Workers were empowered to speak out against management and did not fear dismissal or punishment. Workers had a high level of political consciousness and debated important issues amongst themselves.
The status of workers in society and in the workplace has sunk to a pre-Liberation level. Workers are constantly afraid of losing their jobs. Older unemployed workers are outraged when the former State enterprises that they built with many decades of hard work are squandered away by the privileged few, who have connections with the politically powerful. They feel a very strong sense of injustice. A former model worker now in his seventies told me how they used to volunteer for overtime work on Sundays without any overtime pay or bonuses. He also said that older workers in his factory routinely went to the factory on Sundays and holidays just to make sure everything was all right. They put forth best efforts and treated the factory as their own. When the Reformers claim that State enterprises were inefficient due to lax and lazy workers as an excuse to institute the Labor Reform, these workers are infuriated.
At the same time that workers lost their health insurance, they have been increasingly subjected to hazardous and toxic working conditions. Many high-tech firms, which relocated to China to take advantage of the low wages, also went to escape environmental regulations in their home countries. The loss of lives and injuries caused by working in unsafe and contaminated environment are staggering. People of different ages work without any protection to extract toxic metals from hazardous electronic waste exported by the United States, while miners work in dangerous coal mines suffering high fatality rates. According to the official record in 2003, four miners died for every million tons of coal mined, ten times the death rates of all Western countries as well as Russia. (China.org.cn)
In addition to a small minority of extremely rich people – corrupt bureaucrats and the new capitalists – who live extremely luxurious lives, there is also a segment of the urban population, around 20% to 30% who have also lived well in the past 30 years. Some are professionals who work for large domestic and foreign businesses. They receive high salaries and are able to afford a high standard of living comparable to the so-called middle class in Western countries. Not only are their salaries high, they also have large expense accounts, which they use to enjoy expensive meals in upscale restaurants. Most of these people own lavishly furnished apartments and many also own a car. Others in this class of the urban population are current or retired middle level government bureaucrats, including university professors. The government deliberately favored these intellectuals in order to buy their support. They also enjoy high salaries and (unless retired) sizable expense accounts. Majority of these “middle class” individuals are very satisfied with their lives and support Reform policies. However, they are not a homogeneous group; despite their rather comfortable living, a small but growing number are increasingly critical of the Reform and have recently become very vocal, voicing sharp attacks.
The opinions of the well-to-do urban population are bound to change when they experience the increasingly worsening economic crisis. Some of them have already started to complain about the government’s lack of action when they lost their savings in the stock market, which fell about 60% in the past year. The impending bursting of the housing market bubble, the increasingly depressed economy and the ongoing higher cost of living is going to further hurt the interests of this group.
III. How have the peasants suffered under the Reform?
The Reformers moved to dissolve the commune as soon as they consolidated their political power in 1979. The Rural Reform first used higher grain purchase prices to entice peasants to leave collectives and go out on their own, so they could pocket the extra income from selling their crops themselves. Peasants took the bait and worked hard to increase production, resulting in a substantial gain in crop production from 1979 to 1984. By 1984, the land had been largely redistributed to individual peasant households.
After the communes were dismantled, China’s agricultural production continued to increase for a short period of time then it has stagnated. One reason is that the agricultural infrastructure built during the commune years began to fall apart and there has been very little investment available in agriculture for even any kind of repairs. In addition, the collapse of the communes has meant that labor can no longer be organized for such agricultural infrastructure projects. Moreover, agricultural machinery bought by production brigades and communes began to age quickly, and individual peasant households did not have the money to invest in new ones. Moreover, in some areas, such as the Yangtze Delta, where land was been subdivided into small strips5, it is no longer possible to use agricultural machinery. Peasants in these areas went back to the ancient ways of farming their land before collectivization, each with simple farm tools. In central and northwest China, where individual land plots average around one mu (1 mu equals 0.067 hectare), major crops (wheat and corn) are still harvested by combines. Private individuals invested in combines, and they harvest (or hire drivers to harvest) crops from farm to farm, charging 40–45 RMB per mu. Combine owners can earn tens of thousands of RMB during the harvest season, and make a substantial profit6.
Another very important factor has been the rapidly shrinking arable land, which has been diverted to industrial and commercial uses and has also been abandoned by peasants because of the low return on farm production. As explained below, natural disasters, both floods and drought, and environmental pollution, have claimed large areas of land and exacerbated problems in agricultural production7 (See Section IV). Moreover, after the large outflow of productive labor from the countryside to the cities, there have been labor shortages in China’s countryside. China has also started to import more grain and other agricultural products since 2003, to meet one of the conditions required for China's ascension to the World Trade Organization. (See Ching, August, 2008)
In the late 1980s, peasants’ lives, especially those who sell crops as their main source of income, have become poorer and more precarious. As the government took further measures to liberalize the agricultural market, the price of crops fluctuated, while the price of agricultural inputs continued to rise. Beginning in the 1990’s increasing number of people started to migrate to cities. Today many of the 320 million peasants who still depend on selling crops as their main source of income suffer from a low and unstable income with little hope for a better future. Moreover, until recently, the peasant population had a heavy tax burden. Even though the central government eliminated taxes on agriculture two years ago, local governments have continued to collect high fees and other levies.
The burden of such collections is too heavy for the peasants to bear. In the past two decades more and more people have been forced to migrate to cities to work and sent money home for their families to survive. As stated earlier, today, nearly 200 million peasants work as migrants in cities. This shows that China’s agriculture can no longer support its rural population; just like other Third World countries, poor migrants in the cities are the sign of agricultural bankruptcy.
While younger and stronger family members leave to find work in cities, the children, the elderly, and the weak have been left behind, subsisting mainly on the money sent home. A recent report indicated that one of the three biggest barriers to agricultural production is the shortage of labor. The other two are the high price of inputs and backward agricultural infrastructure. The report said that without the labor, even if peasants could afford to buy fertilizer, they have no way to transport it or to apply it to their land. (Jing-ji can kao bao, March 26, 2008)
The cooperative hearth care system that was set up as soon as the commune system was established collapsed as communes were dismantled. After the breaking up of the commune system over 20 years ago, former commune members lost their health and other benefits that had carried them through hard times. As far as health care is concerned, peasants in the countryside suffer even more than city residents. According to the Status of Rural China – 2003 –2004, participation rates for peasants in any kind of insurance are very low. In 2002, the participation rate for the rural population in old age insurance was 7.7% but only 1.4% of the insured actually received an old age pension (about one tenth of 1% of the rural population)8. Only about 5% of rural residents participate in cooperative health insurance, because they cannot afford the high premiums and co-pay. In 2002, 170 million people were affected by natural disasters, but only 9.4 million, about 5%, received any kind of disaster relief (Li, 63).
The absence of any preventive healthcare has meant that infectious diseases, such as tuberculosis, schistosomiasis, and many others, which were basically wiped out in the 1950s, have returned in full force9. In addition, new infectious diseases, such as HIV/AIDS and SARS have caused suffering for tens of million people, not only from the effects of the disease, but also from government denials and cover-ups, and the low priority government places on public health.
After the collapse of the communes, the rural education system organized and managed by the communes also fell apart. The commune welfare fund, which supported elementary and secondary schools in the countryside, is gone. Support from the Central government, which paid for building schoolhouses and teachers’ salaries, was also reduced or completely cut off. (There is currently a plan for the Central government to increase its spending on education in rural areas.) Some rich villages have built their own schools, but the many more poor villages do not have the resources. In the early 1990s their schoolhouses were already falling apart, badly in need of repair. Many teachers continued to teach even when they did not get paid for many months, until schools in many villages closed down altogether.
After thirty years of hard work, peasants in China are again on their own, often working with primitive tools, and they are helpless when disasters, either natural or man-made, strike. The government no longer supports nor protects them. Instead, government bureaucrats collect fees and evict them when they make deals with developers.
IV. Thirty years of Reform has devastated China’s environment and depleted China’s natural resources
China has limited natural resources and very scarce arable land. Any sustainable development has to be based on the conservation of natural resources and arable land. Thirty years of capitalist Reform has implemented policies opposite to what is required for a country without plentiful natural resources to develop.
China has only 9% of the world’s arable land and has to feed 22% of the world’s population. Its per capita arable land is only one third of the world average. As stated earlier, significant land loss occurred since the Reform began through converting agricultural land to industrial and commercial use, as well as due to land abandoned by peasants. The speed of land loss has accelerated from a yearly loss of about 335,000 to 469,000 hectares in 1981 to 1984 to a yearly loss of 2,546,000 hectares in 2003, equaling 2% of the total arable land.10 In 2006, Worldwatch estimated that the total land loss since the Reform to be around 7% of the total arable land. (See Worldwatch, 2006, 15)
The average water available per person in China is 2,200 cubic meters, a quarter of the world’s average. The high growth of industrial production and urbanization has increased water usage, drawing water away from agricultural irrigation and rural residents. According to the Ministry of Water Resources, factories and urban residents used 34% of the total water supply in 2004, up from 25% in 1998. (Bloomberg.com, February 22, 2006) Since the late 1990s, more than 300 of China’s 617 major cities have faced ongoing water shortages. Studies show that with water demand for residential use continuing to rise, less and less water will be available for agriculture. Moreover, the problem of water shortage has been compounded by serious water pollution. The Water Resources Ministry stated in its publication, China’s Water Resources 2000, that of all the water in China’s rivers, a total length of 114,000 kilometers, only 28.9% is of better quality (ranked class I and II), and 29.8% is of lesser quality (ranked class III). About 16.1% of water is dangerous for human to touch (class IV) and the rest, or 25.2% of all water in rivers, is too polluted to use for any purpose (class V). The serious incidents of chemical spills in the Song-hua River and the cadmium spill by a zinc smelter in the Yangtze River caused international attention and alarm.
The dwindling water supply from rivers became critical when in the late 1990s the Yellow River, which provides water needed by 170 million people in this region, ran dry (not reaching the sea) for a record breaking 226 days. Not only is water supply from rivers dwindling, China is also rapidly depleting its groundwater from overuse. The Ministry of Water Resources stated that the fast rate of ground water depletion has increased the risk of earthquakes and landslides and speeded up the already serious problem of desertification. (Bloomberg.com, February 22, 2006)
As the rate of export growth has accelerated since the early 2000s, China’s energy consumption has also increased rapidly. China’s oil consumption increased 100% and its natural gas consumption went up 92% from 1990 to 2001. China’s oil consumption surpassed that of Japan in 2005 and became the second highest oil consumer in the world, second only to the United States. In order to produce huge volumes of exports, during the same period (1990 – 2001), China’s consumption of steel, copper, aluminum, and zinc increased 143%, 189%, 380%, and 311%, respectively. (See Bai’s Report, point 5)
The tremendous consumption of these metals, lax environment regulations, and corrupt government officials has all contributed to the devastation of China’s environment. The situation with air pollution and ground pollution are just as serious as the water pollution. Of the 20 most polluted cities in the world, 16 are in China. Air pollution has caused serious respiratory diseases for city dwellers, and water and ground contamination are more damaging to the rural population; in some villages, cancer rates are 20 or 30 times the national average.
The over-consumption of natural resources and the deterioration of China’s natural environment are the direct result of China’s mindless strategy of pursuing high rates of GDP growth via accelerating growth of exports. More and more people are now aware of the adverse consequences of this strategy of pursuing growth at any cost. Opposition voices have pointed out the dangers of the Reform strategy of pursuing this kind of growth, and more and more people are organized to oppose actions such as setting up polluted factories in their communities. V. Chinese people are fighting back
As I stated above, the Reform has educated the Chinese people on what capitalism really is through their experiences during the past thirty years. No one really believes anymore that China is still a socialist country. The attacks launched by the Reformers on China’s working population have been brutal and relentless. The process of destroying the socialist economy by forcing former State workers into waged labor in the industrial sector, and forcing peasants off the land to work as migrants is similar to the primitive accumulation phase of early capitalist development in European countries. There is, however, an important difference: primitive accumulation in Europe was able to release labor from the control of the feudal lords. In China, workers and peasants have already gone through thirty years of socialist transformation, and they know what they can accomplish by working collectively under the leadership of the real Communist Party following the proletarian line of Mao Zedong.
In the past 15 years, more and more people have been organizing themselves in resisting Reform policies. Many laid-off workers take over their factories to protest against their sale and/or closing. Older workers forced into retirement have protested against authorities for back wages and for better benefits. Peasants protest against land confiscation without adequate compensation and against factories being built in their neighborhoods that cause serious pollution. Many people both in urban and rural areas have protested against the brutality of police and local officials. In 2005, the official numbers of demonstrations involving 100 or more people reached 200 to 300 a day, or 74,000 over the year. By 2006 the figure reached over 90,000, after which the government stopped publishing the data – undoubtedly because the number has continued to rise.
Also important is the increasing numbers of intellectuals who have risen to challenge the many lies broadly spread by the Reformers. Many of these intellectuals were fooled in the early stages of the Reform, believing the line that the Reform was “socialism with Chinese characteristics” . Many, including some who had joined the 1989 student movement (ending in the Tiananmen Massacre), also believed that the free market approach would solve many of China’s problems.
In the last 15 years, progressive intellectuals started to challenge the Reformers by refuting many lies told by them. For instance, the Reformers claimed that there was little development during the socialist era, but these intellectuals proved that the opposite was true by publishing data showing tremendous accomplishments during the thirty years before the Reform. The Reformers have also falsely claimed that China’s development based on self-reliance during the socialist era was self-imposed isolation, which led to China’s backwardness. These intellectuals have repudiated such claims, accusing Reformers of being over-dependent on foreign capital, foreign technology, and foreign markets, handing the country over to the foreign monopolies, and causing China to lose its economic and political autonomy.
In the past two years, discussion and debate in China, online, in publications, and in public forums, have been lively and intense. The scope and the depth of these discussions and debates have been much wider and deeper than anytime since the Reform began. Attacks on the Reform have also become much bolder and more direct, putting those who still advocate continuing the Reform on the defensive.
In a letter written and signed by 170 prominent people in September 2007, and submitted to the Delegates of the upcoming 17th Congress of the Chinese Communist Party, the signatories openly charged that power holders of the Chinese Communist Party no longer represented the interests of China’s proletariat, and that they betrayed the principles of Marxism, Leninism, and Mao Zedong Thought11. Developments in the past two years show the forces opposing China’s capitalist Reform are gaining strength. Although there is no doubt that the struggle for socialism in China, like elsewhere is going to be long, hard, and treacherous. China’s socialist legacy and the theory and practice Mao left behind will carry the struggle to triumph in the end.
Contribution from Stepandav on Pau yu Ching article :
Tuesday, October 28, 2008 Chinese People: "The Regime is Corrupt"
"Ordinary Chinese people ask: 'What good is the health care reform? Now we can no longer afford to see the doctors.' And: 'What good is the education reform? Now we can no longer afford sending our children to school?' Tens of millions of workers laid-off from former State enterprises say: 'You took the factories we built with our blood and sweat and sold them to new capitalists, or foreigners; destroying buildings and machinery and then taking the land; you squandered away our country’s wealth and left us nothing to survive on.' Peasants say, 'We worked so hard for 30 years to build socialist agriculture and overnight we are back to pre-liberation days.' Progressive intellectuals say, 'The Reform has cloaked itself in socialist clothes but in fact it is capitalism of the worst kind – turning an independent socialist China into one that is increasingly polarized between the rich and the poor, and one that is dependent economically and politically on Western powers.' With the exception of perhaps a very small minority, Chinese people agree that the current regime is corrupt to the core."
So states Economics Professor Pau yu Ching (now teaching in the U.S. of course) in her article, Thirty Years of Capitalist Reform published at Political Economy Research. She thoroughly documents how China is no longer a "socialist country, which supported oppressed people", but is now one aligned with international oppressors "to acquire resources and expand its economic and political influence". Nonetheless she shows that the Chinese people have understood from 30 years experience with Deng Xiao-ping's capitalist Reform "Mao’s warning of the return of the bourgeoisie".
I want to outline for you her argument because I see the activism Professor Pan yu Ching describes so vividly alive in China today exemplifies exactly a communist people's task "to bring the communist hypothesis into existence in another mode" (to quote from the article by Alain Badiou I introduced in the last post, and will continue to do so in what follows). Integral to that objective is to support the Professor's theme regarding the cultural identity of the Chinese people, that is, I would describe, as carrying forward the creative capacity of Maoism - a not extinguished excess yet vital despite the oppression of the regime's Reform.
Pau yu Ching's characterization of the Chinese economy as "out of balance with the rest of the world and as well as domestically":
Internationally trade surpluses she documents as "a 155% increase in only three years". China has "in fact loaned the US money in order for the US to buy their products". Obviously this is unsustainable, and more importantly "grossly unjust for the Chinese people". It is unjust, as she itemizes the unmet needs of China's poor, because China is now an exporter of the majority of its net capital to the world's richest country. In 2007, 11% of the GDP was simply changed for additional foreign exchange, which amounts to a stack of foreign IOU’s, sitting idly in China’s Central Bank". Now, in the last year, she references that the regime is rushing to correct this gross imbalance by rapidly slowing exports "from over 20% to 7% a year from June 2007 to June 2008"; and that has resulted in slowing "industrial production to the lowest point in.. six years", plus export prices have increased due to the RMB being "devalued by 18 percent since July 2005" along with a number of other international financial changes negatively affecting China.
The regimes strategy, combined with the effects of global financial crisis, by slowing demand for Chinese exports is generating serious domestic consequences, factories "are losing money and have to close their doors". The domestic imbalance stems from the original reasons for the tremendous GDP growth rates of the preceding period: Pan yu Ching quotes extensively from authoritative reports how the GDP's explosive growth was produced "on the one hand, by the fast growth in the export sector and, on the other hand, they have been the result of high growth rates in investment – especially the tremendous investments in infrastructure by different levels of government. The share of GDP that goes to domestic consumption is extremely low by any standard".
Professor Pau yu Ching's analysis of the economic situation in China concludes with a statement of its meaning highly germane to the stated purpose of this posting: "concretely it means that except for a rich minority, the majority of the working population cannot enjoy what their labor has produced due to low wages, lack of benefits, and low earnings from farming". I suggest the economic situation is ripe for the Chinese people to enact the next phase of Maoism, its unique contribution in fidelity to the communist hypothesis re-iterated by Badiou: "What is the communist hypothesis? In its generic sense, given in its canonic Manifesto, ‘communist’ means, first, that the logic of class—the fundamental subordination of labour to a dominant class, the arrangement that has persisted since Antiquity—is not inevitable; it can be overcome". The professor pinpoints the crux of the matter in her conclusion about the economic situation and so...
From Pau yu Ching's piece on what the Reform meant for workers and other urban dwellers and farm workers:
It meant immediately an end to the communes to turn workers "into wage laborers and their labor power into a commodity". Despite resistance by the people, the Regime forced "large-scale privatization and restructuring of the former State enterprises". The result was a "great wave of lay-offs and/or forced retirements from factory closings and restructuring threw tens of millions of workers out on the street".
What happened to them? Many did not even get pensions that were in any event too meager to sustain their families, and most had lost medical benefits. This was quickly an area of exploitation as hospitals were "changed into profit making institutions.. unnecessary tests before dispensing expensive imported medicine, so that doctors can receive bonuses.." Then housing reform: sale of units "workers and families lived for decades, to the workers". Housing suddenly became a new expense, where was the money to come from? Even now, "workers are lucky if they still hold regular jobs, and their wages are often too low to afford rent.. [y]ounger workers either continue to live with their parents or..double up.. [t]hose who work outside the formal sector find whatever odd jobs they can to support themselves and many of them live on or below subsistence levels of income.." Agricultural jobs no longer provided a sustainable way of life for most, "more than 200 million migrant workers from the countryside have flooded into the cities looking for work". In short, the most dangerous and dirty work and the most exposed to mistreatment, exposed because they have no legal residence status. The "treatment they receive in their own country is not too different from the treatments that undocumented foreign migrants receive around the world". International corporations have rushed into China to take advantage of low wages and to avoid regulative costs associated with environmental and labor controls."The loss of lives and injuries caused by working in unsafe and contaminated environment are staggering."
The effect of the Reform has a terribly significant impact on the Chinese psyche, characterized by anger, resentment and fear. The situation: "workers in China have lost the dignity and respect they once had. Workers are constantly afraid of losing their jobs. Older unemployed workers are outraged when the former State enterprises that they built with many decades of hard work are squandered away by the privileged few, who have connections with the politically powerful".
Living in Beijing, I have seen the situation first hand. Ironically, I benefit from it - for example the medical and dental costs are for me very nice compared to the U.S.. From my 22nd story luxury apartment I look out my window to see the workers living in their tents on the site of the construction of yet another huge complex for the likes of me, the small minority of the rich and the upper-middle class. I utilize the cheap domestic help. I benefit from the low prices in the service sector - the hair salons, the inexpensive restaurants, the food and other vendors on the streets. I witness the street vendors of simple commodities around the subways, often fleeing suddenly at the approach of bribe seeking police. I often circumvent various bureaucratic hassles and costs from State employees willing to expedite my problem to gain a little bit more to supplement their meager wages - its common knowledge that nobody in the bureaucracy lives on their salary alone. Daily, I watch BMWs, Land Rovers, Mercedes, see shoppers in the luxury malls and the flaunting behavior of "a small minority of extremely rich people – corrupt bureaucrats and the new capitalists – who live extremely luxurious lives".
My day job is doing corporate training, rewarding and interesting work with professionals who work for large domestic and foreign businesses. These are included in "around 20% to 30% [of the urban population] who have also lived well in the past 30 years". These clients are the middle-aged management people who enjoy a "standard of living comparable to the so-called middle class in Western countries". Another part of this middle-class "are current or retired middle level government bureaucrats, including university professors. The government deliberately favored these intellectuals in order to buy their support". Most of these people "are very satisfied with their lives and support Reform policies". But not all of them.
I can add something to the observations of Pau yu Ching about the middle-class. At the lower end of this group are the many young people, the cream of the university graduates working in the large domestic and international corporations. They are the majority, actually, of my corporate training classes. Relatively speaking they make good money, but they are also subjected to very excessive hours of work and the requirement to attend my classes (which they gladly do), but its additional time they must devote above and beyond the work day and believe it or not they sometimes pay part of the costs out of their own pocket. More often than not they are also supporting their parents who have been abandoned by the regime. They are the hope of their families and they aspire to join the ranks of their elder cadre. Its about the money - not many are interested in political matters, they are generally cynical in private and focused on their opportunity rather than the general plight of the peoples of which they are not unaware. But not all of them.
Of the middle-class, Pau yu Ching states: "they are not a homogeneous group; despite their rather comfortable living, a small but growing number are increasingly critical of the Reform and have recently become very vocal, voicing sharp attacks". I would not say myself its yet a matter of political activism exactly, "its the economy stupid" but "opinions of the well-to-do urban population are bound to change when they experience the increasingly worsening economic crisis.. the government’s lack of action when they lost their savings in the stock market, which fell about 60% in the past year. The impending bursting of the housing market bubble, the increasingly depressed economy and the ongoing higher cost of living.."
Pau yu Ching goes on to provide a highly detailed account, historical and statistical references on the catastrophic decline in the rural areas and the environmental impact of unbridled industrialization. These are the crimes on the ground and important as they are for understanding the stage of this theater, I want to focus on the political ramifications explicit and suggested by her essay. Returning to Alain Badiou's exposition earlier in the blog, the information above can be seen in a broader historical perspective. Popular uprisings up to the latter part of the 18th century failed, was followed by a period of uncontested imperialism, then successfully challenged beginning in 1917 by socialist regimes. This challenge continued to its latter period, including the Maoist revolution and communist form, the global uprising in 1968 and until the Chinese Cultural Revolution. It was then superseded by the beginning of the Reform. As Badiou puts it, the pre-reform stage of fidelity to the communist hypothesis "proved ill-adapted for the construction of the ‘dictatorship of the proletariat’ in the sense that Marx had intended—that is, a temporary state, organizing the transition to the non-state.. the Cultural Revolution and May 68, in its broadest sense—can be understood as attempts to deal with the inadequacy of the party".
So now China has experienced 30 years of this Reform, and the results: what Badiou describes of the current global situation - "In many respects we are closer today to the questions of the 19th century than to the revolutionary history of the 20th. A wide variety of 19th-century phenomena are reappearing: vast zones of poverty, widening inequalities, politics dissolved into the ‘service of wealth’, the nihilism of large sections of the young, the servility of much of the intelligentsia". I said earlier, I think Pau yu Ching's essay suggests the people of China have the potential of carrying forward the creative capacity of Maoism - a not extinguished excess yet vital despite the oppression of the regime's Reform. On what do I base this?
Her essay concludes with The Chinese People Are Fighting Back. Supported by her forgoing analysis she posits that the Reform "is similar to the primitive accumulation phase of early capitalist development in European countries.. however, an important difference:.. workers and peasants have already gone through thirty years of socialist transformation, and they know what they can accomplish by working collectively under the leadership of the real Communist Party following the proletarian line of Mao Zedong". Pau yu Ching points out in specific instances: "laid-off workers take over their factories to protest against their sale and/or closing.. workers forced into retirement have protested against authorities for back wages and for better benefits.. Peasants protest against land confiscation without adequate compensation and against factories being built in their neighborhoods that cause serious pollution.. Many people both in urban and rural areas have protested against the brutality of police and local officials..official numbers of demonstrations.. reached [in 2006] over 90,000 [a day!]".
Also,the workers are not alone. There are ".. increasing numbers of intellectuals who have risen to challenge the many lies broadly spread by the Reformers..fooled in the early stages of the Reform, believing the line that the Reform was 'socialism with Chinese characteristics'.. who had.. believed that the free market approach would solve many of China’s problems. The progressive intellectuals have begun to systematically refute the lies of the regime: "there was little development during the socialist era.. development based on self-reliance during the socialist era was self-imposed isolation, which led to China’s backwardness". Refuting this operation of the Ideological State Apparatus (Althusser) the progressive intellectuals have produced volumes of contradictory evidence and have gone on the attack "accusing Reformers of being over-dependent on foreign capital, foreign technology, and foreign markets, handing the country over to the foreign monopolies, and causing China to lose its economic and political autonomy.." In September of 2007 a large contingent of progressive thinkers submitted a letter to the 17th Congress of the Chinese Communist Party charging "the Chinese Communist Party no longer represented the interests of China’s proletariat, and that they betrayed the principles of Marxism, Leninism, and Mao Zedong Thought".
I found myself a little short of climax at Pau yu Ching's last line: "China’s socialist legacy and the theory and practice Mao left behind will carry the struggle to triumph in the end". There is more in what she said than she said. I take recourse at last in Badiou. The critical question is to what modality China's socialist legacy will carry the struggle. I can't believe what was meant was a repetition of the earlier phase of Maoism that proved inadequate. Rather the stakes for the Chinese Maoist today in the chaos of the Reform depend on maintaining the conditions for Mao's creative and still existent vision of the communist hypothesis. A task Badiou asserts can occur "through the combination of thought processes—always global, or universal, in character—and political experience, always local or singular, yet transmissible, to renew the existence of the communist hypothesis, in our consciousness and on the ground."
But how, and how within the cultural context of China? Badiou formulates the general direction of world communist activism: "it will involve a new relation between the political movement and the level of the ideological—one that was prefigured in the expression ‘cultural revolution'..the proposition that the subordination of labour to the dominant class is not inevitable—within the ideological sphere.". The movement against the corrupt regime of China, I think this means, is a revolt against the regime's Ideological State Apparatus. Is this not what was said by Pau yu Ching in reference to the progressive intellectuals?
Like all English speaking expats in China I just spent months with the regimes CCTV9 apparatus bombarding me with "One World, One Dream", the export of its domestic promulgation of nationalist fervor with its unfortunate patriotism. Obviously as any thinking person can see from the information above there is not even a unified world within China. Of course its not just China. The idea of globalization in the sense touted is also a sham of capitalist parliamentarians too. Badiou: "The simple phrase, ‘there is only one world’, is not an objective conclusion. It is performative: we are deciding that this is how it is for us. Faithful to this point, it is then a question of elucidating the consequences that follow from this simple declaration... A first consequence is the recognition that all belong to the same world as myself.. we can agree and disagree about things. But on the precondition that they and I exist in the same world." Now this is entirely different. This is not serving the purposes of a national regime, or any version of elitist oligarchy.
Now it gets tricky though. The performative aspect of creating "only one world" means no division established on the basis of any race or creed, or specific cultural group; or even an oppressed minority - political, sexual or whatever. Our topic is the people of China and their cultural identity bound to the communist hypothesis manifested in Maoism. This is an actuality not subject to dismissal, nor should it be. The real facts of the Chinese people's experience and enduring fidelity to Maoism has been clearly elucidated by Pau yu Ching. Culturally China carries the creative capacity of Maoism - a not extinguished excess yet vital despite the oppression of the regime's Reform. The emphasis of Badiou is not calling for the rejection of this core identity, but its expansion in a new phase of Maoism:
".. identity is the ensemble of properties that support an invariance.. Defined in this way, by invariants, identity is doubly related to difference: on the one hand, identity is that which is different from the rest; on the other, it is that which does not become different, which is invariant.. The affirmation of identity has two further aspects. The first form is negative. It consists of desperately maintaining that I am not the other.. The second involves the immanent development of identity within a new situation... not through any internal rupture, but by an expansion of identity."
What is the social character of contemporary China ? Is it capitalist, socialist or some new hybrid of the two?
Nickglais has visited China in 1983 and lived and worked there from 1992 to 2000 and have frequently visited China since.
Worked in the area of building financial and commodity trading systems. Member of the old CPGB in the 1960's and 1970's but left to join anti revisionist groups.
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Under the proposed $250 billion plan, the Washington Post reports, there is a risk that banks will take the new government capital and use it to bolster their balance sheets but still not resume lending. The Treasury is not getting any specific contractual guarantee to prevent that from happening.
The Wall Street Journal reports the move to partially nationalize the banks “intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.”
This begs the question we are told this is a liquidity crisis but banks will not lend to the people overburdened with debt - be it personal or corporate debt even if they get the government money.
The underlying debt problem is not solved by these liquidity measures has the banks will reap the benefit.
Until there is a massive write down of the underlying debts in the economy this problem will get worse has the current course inflates the problem and does not tackle the debt problem.
Stockholm Sweden - Paul Krugman, the Princeton University scholar and New York Times columnist, won the Nobel economic prize Monday for his analysis of how economies of scale can affect trade patterns and the location of economic activity.
Krugman has been a harsh critic of the Bush administration and the Republican Party in The New York Times, where he writes a regular column and has a blog called “Conscience of a Liberal.”
He has come out forcefully against John McCain during the economic meltdown, saying the Republican candidate is “more frightening now than he was a few weeks ago” and earlier that the GOP has become “the party of stupid.”
The 55-year-old American economist was the lone of winner of the 10 million kronor ($1.4 million) award and the latest in a string of American researchers to be honored. It was only the second time since 2000 that a single laureate won the prize, which is typically shared by two or three researchers.
The Royal Swedish Academy of Sciences praised Krugman for formulating a new theory to answer questions about free trade.
“What are the effects of free trade and globalization? What are the driving forces behind worldwide urbanization? Paul Krugman has formulated a new theory to answer these questions,” the academy said in its citation.
“He has thereby integrated the previously disparate research fields of international trade and economic geography,” it said.
The award, known as the Nobel Memorial Prize in Economic Sciences, is the last of the six Nobel prizes announced this year and is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel’s memory.
Besides his work as an economist at Princeton University in New Jersey, where he has been since 2000, Krugman also writes about politics and inequality in the U.S. and other topics for The New York Times. He has also written for Foreign Affairs, the Harvard Business Review and Scientific American.
Commenting on the global economic meltdown, Krugman told a news conference in Stockholm by telephone from the United States that some of his research was linked to currency crises and related issues.
“This is terrifying,” he said, comparing it to the financial crisis that gripped Asia in the 1990s.
He said winning the Nobel award won’t change his approach to research and writing.
“The prize will enhance visibility,” he said, “but I hope it does not lead me into going to a lot of purely celebratory events, aside from the Nobel presentation itself.”
Krugman’s work on new trade theory garnered him the John Bates Clark medal from the American Economic Association in 1991. That prize is given every two years to an economist under the age of 40.
The citation said Krugman’s approach is based on the premise that many goods and services can be produced at less cost in long series, a concept known as economies of scale. His research showed the effects of that on trade patterns and on the location of economic activity.
In contrast to his treatment of U.S. financial officials, Krugman has praised leaders in Britain for their response to the global financial crisis.
In an Oct. 12 article on the New York Times’ Web site, Krugman wrote about the global financial meltdown and its reach into Europe, saying that British Prime Minister Gordon Brown and Chancellor Alistair Darling “defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up.”
Whereas U.S. Treasury Secretary Henry Paulson rejected a “sort of temporary part-nationalization” involving governments giving financial institutions more money in return for a share of ownership, the British government “went straight to the heart of the problem ... with stunning speed.”
Krugman said the major European economies have “in effect declared themselves ready to follow Britain’s lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts.”
“And whaddya know,” Krugman continued, “Mr. Paulson — after arguably wasting several precious weeks — has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities.”
The Nobel Prizes in medicine, chemistry, physics, literature and economics will be handed out in Stockholm by Sweden’s King Carl XVI on Dec. 10, the anniversary of prize founder Alfred Nobel’s death in 1896. The Nobel Peace Prize is handed out in Oslo, Norway, on the same date
Political Economy Research is happy that the Economist the Republican's hate the most has got the Nobel Prize for Economics but we remember when Milton Friedman won the prize - so the Nobel Institution just goes with the flow and neo liberalism has lost its appeal even for the Nobel Institution.
We are also pleased with the news that our favourite Economist Michael Hudson at Michael-hudson.com has had 2.7 million viewers in the last week. That means there are a lot of better informed people out there about this current economic crisis .
A Minsky moment is the point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments. At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity.
The term was coined by Paul McCulley of PIMCO in 1998, to describe the Russian financial crisis, and was named after economist Hyman Minsky. The Minsky moment comes after a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation using borrowed money.
Political Economy Research puts a premium on clear explanations especially at this time when were are being heavily sold anti working class solutions to economic problems and it is gratifying to see some University Professors like Kotz and Wolff demystifying the crisis for ordinary people.
Clarity on the crisis is a pre condition of ensuring that its perpetrators on Wall Street and Washington pay the price and not hard working people.
Democratic Congress member Dennis Kucinich was one of the leading congressional opponents of the Wall Street bailout. In an interview with the website Truthdig, Kucinich called the bill “the largest single act of class warfare in the modern history of this country.” He continued, “The Democrats have unfortunately become so enamored and beholden to Wall Street that we are not functioning to defend the economic interest of the broad base of the American people. This is an outrage. This was democracy’s Black Friday.”
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