COVER STORY

China in a globalised world

China's post-reform growth was made possible either because of the achievements of the pre-reform economic regime or because of the continuation of certain features of that regime.

PRABHAT PATNAIK

CHINA's economic progress since 1949 is among the most significant phenomena of this century, a source of hope for the wretched of the earth that their lot too can improve dramatically within a short span of time. True, China has not been alone among th e underdeveloped countries in experiencing rapid economic progress, but its case is unique because of its size: its development makes a substantial difference to world poverty. A mythology, however, has grown up of late around China's development, which claims that it began with the introduction of "market reforms", that the earlier years were "wasted years" marked by bungling, bureaucratism, excesses, arbitrary experiments, and one terrible famine, all of which were associated with the effort to build socialism. China's pursuit of "pragmatic" neo-liberal economic policies not only has brought it prosperity but also constitutes a lesson for others who may still be suffering from a residual ideological inclination towards socialism.

This perception, which underlies such remarks as "China should be celebrating 25 years of reforms rather than 50 years of Communism", is in my view completely wrong: the contrast between a pre-reform period devoid of progress and a post-reform period mar ked by great achievements is factually incorrect; and the interpretation of the post-reform economic performance is fundamentally flawed.

China overcame poverty (as defined in Third World countries such as India) before it embarked on "market reforms". China put in place a universal public distribution system, which gave every citizen a certain minimum amount of essential commodities, befo re it embarked on "market reforms". China's stupendous achievements in terms of social indicators occurred before it embarked on "market reforms". And China, despite having an adverse land-man ratio (far more adverse than India's), managed to record sign ificant increases in food production (both absolute and per capita) through the construction of impressive water management systems under collective ownership, by mobilising locally available surplus labour, before it embarked on "market reforms". All th ese facts are well-known and have been attested to by a host of distinguished scholars (including Professor Shigeru Ishikawa of Japan). If for tactical reasons the current Chinese leadership underplays earlier economic progress, and if Western authors, e ither owing to neo-liberal ideological predilections or because of a penchant for bowing before the prevailing orthodoxy, underplay these remarkable achievements, then that is no reason why we too should close our eyes to them. In fact, in some ways, as we shall see later, the post-reform period represents a retrogression compared to the earlier years.

Even more important, however, is the fact that this perception, by attributing post-reform high growth to the so-called "virtues of the market", actually misinterprets this growth experience. China's remarkable post-reform growth (though I personally bel ieve it has been less remarkable than is usually made out) was made possible either because of the achievements of the pre-reform economic regime or because of the continuation of certain features of that regime.

THERE are at least four ways in which this happened. First, the achievement of near-universal literacy and the improvement in the educational and health status of the work-force, which were some of the legacies of the earlier years, were important factor s that contributed to the dynamism that China has experienced in the more recent period.

GAMMA
Construction work under way on the Three Gorges Dam across the Yangtze, a 1997 picture.

Secondly, there can be little doubt that inequalities in China, both inter-regional and inter-personal ones, have increased greatly in the reform years, which has been a major problem associated with the reform process. Let us, however, eschew judgment f or the present. The point is that if these increases in inequalities were superimposed on an already highly skewed pattern of income and wealth distribution, then, notwithstanding such high growth rates that China is supposed to have been achieving, soci al tensions would have become difficult to manage. The surfacing of these tensions in turn would have made these growth rates impossible to sustain. Thus China was able to sustain its post-reform growth, for whatever it is worth, because it started with a relatively egalitarian base, and that was a contribution of the earlier regime.

Thirdly, to call China a neo-liberal "model" is a travesty. China's success during the reform years has sprung precisely from the fact that it has managed to combine in an altogether novel way the virtues of centralisation with those of decentralisation, or, putting it differently, the advantages of a command economy alongside the flexibility imparted by the functioning of markets. It has been, if you like, a command economy at one remove. In periods of runaway inflation, for instance, price controls ha ve been clamped down with ease rather than resorting to drastic deflation with high social costs (as would happen under capitalism), because a large part of the economy continues to be state-owned and hence amenable to control by the party. Likewise, for eign exchange management, a potential source of serious problems in any Third World capitalist economy, has been handled with somewhat greater ease because the old system of party directives to enterprises continues to be effective. In short, China has h ad the advantage of being able to supplement the usual instruments of state intervention available in a capitalist market economy with other instruments which it has retained from its pre-reform years. In this sense, drawing a sharp contrast between the pre- and post-reform periods is altogether misleading.

Finally, the high agricultural growth witnessed in the early reform years, which provided the bedrock for the reform experiment, was made possible because the regime of collective ownership and management of the irrigation systems was not abandoned. Here again China reaped the advantages of the old collective system in terms of the irrigation works it bequeathed, and continued to reap the benefits of collective ownership of such works, even while breaking up the communes and privatising agricultural ope rations.

The new regime, in other words, was erected on the shoulders of the old one, but not after wholly dismantling or destroying the latter. There was, and still is, a peculiar symbiosis between the new and the old, which characterises the Chinese economy. Th at is why lauding its neo-liberalism is as out of place as uncritically hailing it as a socialist "model".

FRANCIS LI / GAMMA LIAISON
Modern skyscrapers and other symbols of growth in the Shenzhen Special Economic Zone. China's economic progress since 1949 is among the most significant phenomena of this century.

THE complex admixture of dirigisme and a market economy that characterises China is reminiscent of what other East Asian economies too had used to register remarkable growth rates. The difference lies in the fact that in China the dirigisme is that of a socialist economy while elsewhere it was dirigisme associated with capitalism. Notwithstanding this basic difference, the element of similarity must not be missed and this consists of the fact that the range of instruments available for intervention in t he market is much wider than under usual (metropolitan, especially Anglo-Saxon) capitalism. This admixture, particularly in the context of rapidly expanding world trade, can be a powerful promoter of growth.

Precisely as the experience of East Asia shows, however, this arrangement, this capacity to take advantage of the market and yet not be a market economy in the conventional sense of the term, can only be a transitional one. The very fact of high growth b rings about changes in the domestic social structure, in the class configuration of society, which undermines the continuance of this arrangement. Even more important, changes in world capitalism unleash new forces that make such an arrangement untenable and with this the continuation of the remarkable growth rates. East Asia has already reached a point of crisis from where a return to the earlier growth trajectory is almost impossible even if there is some recovery. China too, in my view, would find it difficult to continue with the regime it has been having and hence the growth experience that went with it. To say this is not to predict a slowing down of the Chinese economy but to suggest that China would have to adopt an altogether new course if it has to maintain its economic dynamism.

I mentioned earlier that despite market reforms China continued to have collective ownership of the irrigation works and that this contributed to the agricultural dynamism of the early reform years. Over the years, however, as agriculture has come under the sway of private ownership, the collectively owned irrigation works have tended to atrophy. A particular admixture of centralisation and decentralisation may be very fruitful in terms of growth, but it cannot be frozen for ever. Changes in class confi guration arising from this growth itself keep upsetting it, even though such upsetting has the objective consequence of choking off growth or making it more "expensive". The case of agriculture is only an illustration. More generally, as the private (or decentralised) sector of the Chinese economy becomes stronger and stronger, this very fact would restrict the ability to use party directives in special cases. The proposition that the "purity" of the Chinese Communist Party would act as a bulwark agains t China's proceeding towards full-fledged capitalism scarcely carries conviction. The Communist Party, after all, is not an entity that can for ever remain impervious to social pressures; if capitalists are on the ascendant, they would sooner or later en ter and influence the Communist Party itself. In such an eventuality, however, China would lose its current unique advantage and would not be able to maintain its dynamism.

There is a second and even more powerful reason for this and that has to do with the changes occurring in world capitalism. The ascendancy of finance and its globalisation constitute a crucial feature of the contemporary capitalist world. This has two ob vious effects. On the one hand it is responsible (among other factors) for the slowing down of the world economy, since Keynesian demand management, which worked so well in the post-War period, becomes difficult to undertake in a world of extreme financi al fluidity. On the other hand, globalised finance capital tries to break down the insulation which particular economies enjoy from its movements. It attempts to suck every country into the vortex of its movements.

NATALEE BEHRING/ REUTERS
Inside the Shanghai Stock Exchange. China's success during the reform years has been achieved only because it has managed to combine in a novel way the virtues of a command economy alongside the flexibility imparted by the functioning of markets.

Now, the success of East Asia earlier and even of China arose from the fact that they managed to insulate themselves from the movements of finance even as they pushed out substantial exports of commodities. In the new situation, however, it becomes diffi cult to sustain both these features. The slowdown in the world economy adversely affects trade performance, which then creates the condition for globalised finance to insinuate itself into the economy. Once the economy has become open to financial flows, it becomes a plaything in the hands of international speculators, and its growth atrophies. This is what happened in East Asia. The question is: will China go the same way?

China managed to avoid the East Asian contagion because, as President Jiang Zemin himself pointed out, it did not have a convertible currency and had not undertaken any significant financial liberalisation. China had, in other words, managed to keep its economy insulated from international speculative financial flows. Nonetheless it had to pay a price. While the stability of its currency was maintained, the economy had to be deflated for this purpose. No doubt the economy can experience a resumption of growth (though not perhaps of the same order as before), provided there are enough controls in place to keep it insulated from the activities of domestic and international speculators. But this would require above all a countering of the political pressu re that these groups would bring to bear in various ways, including via the Bretton Woods institutions. The only way that such pressures can be countered is by mobilising the people. But if the working masses are depoliticised, then such countering becom es difficult. And if, in addition, the government wishes to win their favour by initiating growth through inflows of short-term finance, which makes the economy vulnerable to capital flight, then that would be a recipe not only for economic atrophy but f or imperialist hegemony over China. This is not just a political necessity. It is essential for China's continued economic advance.

We are, in short, entering a new phase of world capitalism. In this phase the possibility of the diffusion of activities from the metropolitan centres to certain sites in the Third World, which was responsible for the East Asian "miracle" and which also underlay the Chinese growth performance, is restricted. On the other hand there is enormous pressure for opening Third World economies for international financial flows, which would bring in their train economic atrophy, loss of economic sovereignty and loss of control over domestic natural resources and productive assets (especially of the public sector) to metropolitan capital (or what Karl Marx would have called "centralisation of capital" on a global scale).

The days of a socialist economy achieving high growth by using the capitalist world market are over. Adopting socialist ways (which must not be taken to mean getting back to the regime that prevailed earlier) may well be the means of achieving high growt h itself in the new situation.