the political economy of china's economic reform

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The political economy of China's economic reformVictor D. LippitPublished online: 11 Aug 2006.

To cite this article: Victor D. Lippit (2005) The political economy of China's economic reform, Critical Asian Studies, 37:3,441-462, DOI: 10.1080/14672710500200474

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Lippit / China Roundtable

China and Socialism Roundtable

THE POLITICAL ECONOMYOF CHINA’S ECONOMIC REFORM

Observations on China and Socialism

Victor D. Lippit

In China and Socialism: Market Reforms and Class Struggle, Martin Hart-Landsberg and Paul Burkett present a withering critique of China’s market re-forms and development strategy. To assess their critique, I believe it is essentialto provide a somewhat fuller discussion of the context within which China’s re-form strategy emerged than appears in the work of Hart-Landsberg and Burkett.My discussion of this context appears after a brief discussion of their mainpoints, and is followed in turn by a more detailed evaluation of the specific as-sertions they make. Although I am sympathetic to the spirit of their critique, Ibelieve that in the last analysis they are unable to offer any genuine alternative tothe development strategy China has pursued and that their analysis of the con-sequences of that strategy is in many respects deeply flawed.

The Main Thrust of the Hart-Landsberg and Burkett Critique

Hart-Landsberg and Burkett argue that China is not to be celebrated as a devel-opment model. They claim that the market socialism originally proclaimed asthe basis of China’s economic reforms has led instead to a restoration of capital-ism. In the process, they see China’s people having become worse off in numer-ous ways, ranging from growing inequality to lagging consumption and ruralstagnation. The Chinese economy, in their view, is beset by problems that in-clude inflation, instability, unemployment, and overproduction, all of whichmake possible the onset of a serious recession.

Critical Asian Studies37:3 (2005), 441-462

ISSN 1467-2715 print/1472-6033 online / 03 / 000441-22 ©2005 BCAS, Inc. DOI: 10.1080/14672710500200474

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Internationally, their analysis suggests that the growing foreign direct invest-ment (FDI) China has received has made it the victim of foreign economic domi-nation. Further, they argue that the export-led development model China haspursued damages workers and worker communities in East and Southeast Asia,and indeed throughout the world. In their view, global capitalism is incapable ofaddressing poverty meaningfully, whether in China or elsewhere. Ultimately,they view China’s economic reforms as destructive and argue that China’s de-velopment depends upon and intensifies labor repression and exploitation.Without being at all specific, they counterpose to the Chinese developmentmodel a vision of socialism based on the power of the associated producers andtheir communities. Their critique of the Chinese model is meant to alert thoseon the left to what they feel are the disastrous consequences of the Chinese de-velopment model, and to encourage them to return to efforts to build a social-ism that is consistent with their vision.

Economic and Social Conditionsunderlying China’s Economic Reform

When the People’s Republic of China was established in 1949, almost 90 per-cent of China’s population lived in rural areas and agriculture accounted for 65percent of national income. The communist regime under Mao proceeded tocreate a diversified industrial structure through a system of central planningmodeled on the Soviet system as well as a uniquely Chinese system of collectiv-ized agriculture (the commune system), and laid the groundwork for the excep-tionally rapid economic growth that was to characterize the reform period,which began at the end of 1978. Even so, much of the period between 1949 and1978 was marked by dramatic conflict over economic and social policy, and bymassive social upheavals. Of particular importance for the socialist project, ru-ral and urban incomes were stagnant during the last two decades of this pe-riod.1 Economic growth was sustained by extremely high levels of capitalaccumulation, which absorbed resources that might otherwise have beenused to improve popular living standards. The growing inefficiency of the cen-trally planned economy left the regime with a choice between improving livingstandards and pursuing the most rapid growth it could manage; the choice ofcourse was to pursue growth at all costs, and the costs were indeed severe.

During the Great Leap Forward (1958-60), it is estimated that close to 30 mil-lion people died of starvation, either directly or through disease to which malnu-trition contributed.2 Two decades later, despite recovery from the agriculturalcollapse brought on by the Great Leap Forward, conditions in the countryside re-mained quite difficult. In January 1979, some thirty thousand farmers went toBeijing to protest living conditions and to seek help. “A journalist from AgenceFrance-Press depicted them ‘as straight out of a Goya painting — sick, oncrutches, dressed in rags and tatters, and wretchedly poverty stricken.’”3 TheState Council estimated that 250 million people (30.7 percent of the rural popu-lation) were living in poverty as late as 1978. By 2001, the number living underthe poverty line was estimated at 30 million, or 4 percent of the rural popula-tion.4 Using a different poverty measure (based on the number of people living

442 Critical Asian Studies 37:3 (2005)

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on less than $1 a day, measured at purchasing power parity), the World Bank es-timates that the number of people living in poverty fell by about 400 million be-tween 1981 and 2001.5 Although Hart-Landsberg and Burkett correctly point tomany of the shortcomings of the reform era, they neglect to give credit for theregime’s many achievements during this period, with this sharp diminution inpoverty one of the most significant among them.

Mao’s economic strategy of mobilizational collectivism was certainly con-trary to Marxist principles in that it was based on a belief that human will andmass mobilization could replace development of the productive forces as thebasis for communist institutional change. Nevertheless, the economic changesinstituted under Mao did provide the basis for rapid economic growth and ris-ing living standards once market forces were unleashed during the reform pe-riod. In the five years from 1978 on, rural incomes roughly doubled, and theyhave continued to rise since then, albeit at a much slower pace — and not as rap-idly as urban incomes. Still, to take just one measure, two-thirds of rural house-holds owned black-and-white television sets and a fourth owned color sets in1997.6

Economic Conditions and Performancein China during the Reform Era

During the reform era that began at the end of 1978, economic growth in Chinahas averaged more than 9 percent, and per capita growth in gross domesticproduct (GDP) has been about 8 percent; such dramatic, sustained growth in alarge country is unprecedented in human history. Growth in GDP in 2004 was9.5 percent despite China’s efforts to cool its economy to avoid a hard landing.7

Inflation in December 2004 was 2.4 percent year-over-year, which is encourag-ing. In 2004, fixed asset investment was roughly one-half of GDP, after growing27.7 percent in 2003 and 25.8 percent in 2004. The government is seeking tomove to a more balanced growth path, trying to limit capital expenditures andpromote domestic consumption; retail sales in December 2004 were up 14.5percent from December 2003.8

Chinese government projections are for real growth to cool slightly, but re-main at the high level of about 7 percent per year over the next fifteen years. Chi-nese Vice Premier Huang said in Davos, Switzerland, at the end of January 2005that China’s per capita GDP will triple between 2003 and 2020, toppingUS$3,000 by the latter year.9 Goldman Sachs, one of the leading U.S. investmentbanking houses, expects China to pass the United States in GDP by 2041, andthat in 2050 the world’s top three countries in GDP will be China, the UnitedStates, and India, in that order.10 Most economists predict that it will take Chinatwenty to forty years to pass the United States, but some see it happening in fif-teen years.11 China’s “middle class,” about 100 million in 2004, is expected toreach 200 million by 2010. By 2015, according to internal government projec-tions, China expects to have 300 million people (a number larger than the entireU.S. population) with a per capita income in excess of US$5,000. These figuresare before allowing for an increase in the value of the Chinese currency (therenminbi), which is quite certain to come about in the not-too-distant future.

Lippit / China Roundtable 443

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These aggregate figures suggest that China has experienced dramatic im-provements in both popular living standards and poverty reduction, corepoints that Hart-Landsberg and Burkett fail to acknowledge in their critique.Moreover, additional gains of a substantial order can be anticipated over thenext fifteen to twenty years. Further, the new administration of President HuJintao and Premier Wen Jiabao has indicated some shifts in development priori-ties to place greatest emphasis on unemployment, regional disparities, and theenduring poverty of farmers.12 A major effort is now under way to alleviate someof the imbalances created by following a growth strategy that has focused onChina’s coastal region. The rural areas in central and western China havetended to lag considerably behind the coastal region, where FDI was most easilyattracted, and where township and village enterprises (TVEs) have flourished.

Initiatives meant to alleviate the imbalance include opening China’s westerncities to foreign investment on the same terms they can enter the coastal region,massive infrastructure expenditures to “open up” the west, and a greater com-mitment to rural development in the state budget, with funds allocated for thispurpose rising from 120 billion yuan in 2003 to 150 billion in 2004.13 Despite itseconomic accomplishments and continued favorable prospects, and despitethe shifting emphasis reflected in current policies, there are indeed severe con-tradictions and problems to which Hart-Landsberg and Burkett correctly point.A consideration of their critique, however, suggests that while some elementswithin it are fully justified, others require a more nuanced perspective.

A More Detailed Evaluationof the Hart-Landsberg and Burkett Critique

In their first chapter, Hart-Landsberg and Burkett discuss China’s rise to modelstatus. They portray the struggle as one between capitalism and socialism, with-out spelling out what they mean by socialism. They lament the TINA (there is noalternative) to a neoliberal capitalism position, and argue that the Chinese re-forms have nothing to offer to “those interested in radical change toward aworker-community-centered economy” (24). Further, they criticize the Chinesegovernment for its willingness “to deliver large supplies of cheap and produc-tive labor power” (22) to transnational corporations investing in China. Theseassertions warrant closer examination than Hart-Landsberg and Burkett them-selves provide.

Although China’s economy differed from that of the Soviet Union during theMaoist era, especially in the agricultural sector, it broadly adhered to the centralplanning system pioneered by the Soviet Union. Under that system, there wasn’teven a hint of worker control in either country. Planning was carried out cen-trally and resources were allocated according to party priorities. Work unitsthroughout the society had party units whose job it was to see that party priori-ties were respected, regardless of what the local preferences of workers andpeasants may have been. Such a system cannot be called “socialism”; my ownpreference is to use the term “statism.” The actual contest in China was not be-tween capitalism and socialism, but between capitalism and statism. I wouldgive Deng Xiaoping and the reformers under him more credit for pursuing mar-


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ket socialism than do Hart-Landsberg and Burkett, but they are absolutely cor-rect in arguing that the dynamic of market socialism is such that it is an unstableform that must lead, at least in a developing society, to capitalism (Mao was cer-tainly correct to anticipate this).

The idea of a “worker-community-centered economy” is certainly attractivein the abstract, but the phrase is problematic in several respects. First, it over-looks the fact that it is quite common to find substantial differences of interestamong workers, between workers and peasants, and between workers andtheir communities. During the Maoist period, for example, peasants regardedworkers as a privileged class, with lifetime employment, pensions, health care,and other benefits not available to them. More generally, peasants who produceand sell food have an obvious interest in high food prices, while workers do not.Among workers, those who work in the transport industry are likely to benefitfrom high transport prices, while those who do not will be hurt as the cost oftravel and the cost of the goods they buy both rise. More broadly, the assump-tion of a commonality of interest among workers — and between workers andpeasants — requires much closer consideration than it ordinarily receives onthe left.

In similar fashion, potential conflicts between communities and workerscannot be overlooked. Workers in highly polluting factories, for example, mayprefer their jobs to unemployment even while their workplaces foul the sur-rounding communities with air and water pollution. The concept of a worker-community-centered economy is also problematic because no method for ratio-nal economic calculation has yet been devised for such an economy. The ques-tion remains, then, as to whether such an economy is feasible. My own view isthat it is not at present feasible, but may become so in the future, when capital-ism gives way to post-capitalist society. Since the process of accumulation is cap-italism’s historic “task,” and since this is unlikely to be completed for severalcenturies, communities such as those envisioned by Hart-Landsberg and Bur-kett are not realistic alternatives to the market-reform-driven economy thatcharacterizes China today.14 In this sense, there is indeed no alternative; China’sreforms have been at the expense of statism, not socialism. If, however, the au-thors were to choose as their target the market fundamentalism that oftendrives institutional change in contemporary China, their case would be muchstronger.

In health care, for example, official policies have been shameful. The systemof rural clinics and “barefoot doctors” (paramedics) that existed in the country-side in the Maoist era, for example, has been dismantled in favor of a fee-for-ser-vice system. Hundreds of millions of poor people, mainly rural, will not ordi-narily seek medical care from doctors or hospitals; according to a 2001government survey, 60 percent of rural residents avoid hospitals altogether be-cause of the expense.15 In the countryside, 90 percent of the population nowhas no health care coverage, while “in the cities, nearly 60 percent are uncov-ered. Out of pocket spending on health care is soaring.”16 A system of rural clin-ics to provide public health services, take care of simple problems, and refermore complex cases to hospitals could be established at relatively low cost. By


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choosing to rely instead on market forces, China is literally dooming millionsunnecessarily.

In 2000, the World Health Organization (WHO) ranked China 144th out of191 countries in public health services. This was behind some of Africa’s poor-est, and compares to India’s ranking of 112th despite having half of China’s GDPper head. In life expectancy, infant mortality, and childbirth deaths, China’s re-cord is very good, with life expectancy for girls now seventy-three at birth andfor boys seventy. However, there is a great difference between the richer andpoorer parts of the country, and health indicators have changed little despitethe country’s astounding growth over the last quarter century.17 Millions are dy-ing because they cannot afford health care, while millions of others haveslipped back into poverty due to health care costs. “Urban hospitals, thoughmostly still state-owned, now receive only about 10 percent of their operationalfunds from the state,”18 with the rest of their funds coming mainly from the salesof medicines and tests. “The WHO says that China is the only country in thewestern Pacific region which relies on patients to finance childhood immuniza-tions. Not surprisingly, many peasants now avoid such treatment.”19

This critique of the Chinese health care system and its outcomes sounds, ofcourse, very much like the critique that Hart-Landsberg and Burkett are making.The remedy, however, is not to look toward some ideal state ruled by the work-ers and their communities, since such a state has never existed and could not ex-ist at this time, given (1) the differences of interest among workers, (2) the dif-ferences of interest between workers and communities, and (3) the absence of asystem of economic calculation that would make such communities viable. Cap-italism will have to play out its historic role before it can be supplanted. The taskof the left is to minimize the damage it does before capitalism disappears fromthe scene, and to support the most humane forms of capitalism possible in theinterim. Welfare-state capitalism of the continental European variety may be thebest that can be done at present, and even many developing countries have na-tional health care plans. China’s shortcomings in this area cannot be defended.

If we look for the reasons underlying China’s policy choices, they may per-haps be best explained by the presence of market fundamentalism (a belief inthe market system as always desirable and an inability to grasp the pervasivenessof market failures) combined with a commitment to being the most aggressivedevelopmental state possible (very much in the East Asian tradition).

In their criticism of China’s encouragement of FDI, Hart-Landsberg andBurkett interpret this as subjecting the nation to foreign domination. In truth,China has derived enormous benefits from FDI, and has shown how astute gov-ernment management of such investment has allowed it, by and large, to servethe interests of the nation as a whole — as well as the workers and their commu-nities. Where companies possess more advanced technologies than China,China normally insists on technology transfer as a condition of investment.Thus, for example, when General Electric wanted to sell “high-tech electricitygeneration turbines…[the company] had to agree to share sophisticated GEtechnology with two Chinese companies that wanted to eventually make theequipment themselves.”20 More generally, “General Electric Co. has 27 labs in


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China working on projects from composite-materials design to molecular mod-eling,”21 and many leading technology firms are following suit. China, more-over, is putting itself in a position to derive maximum benefit from such re-search and development commitments:

Since 1985, China has repeatedly declared its resolve to reach technologi-cal parity with the West. Between 1992 and 2002, the latest period for whichfigures are available, Beijing has more than doubled the proportion of grossdomestic product it spent on research and development, while the levelstagnated in America. China boosted its output of PhDs in science and engi-neering by 14 percent a year, while the number of U.S. grads fell. Its technol-ogy-intensive exports grew by 22 percent annually, while exports of U.S.high-tech goods have declined. Today, moreover, while American universi-ties award 25 percent of all their PhDs in science and engineering to Chi-nese citizens, Beijing is sparing no effort to lure many back.22

The extraordinary economic growth that China has experienced over the lastquarter century is closely tied to the establishment of the Special EconomicZones in 1980, and the progressive steps China has taken subsequently to openup its economy to foreign investment. This is responsible both directly and indi-rectly for a large proportion of the jobs China has been able to create during thisperiod, and the expanding research and development activities undertaken byforeign firms in China has meant that those jobs range across a broad spectrumfrom the unskilled to the highly skilled. Foreign companies also provide ser-vices of critical value to China. China is just beginning to take its environmentalproblems seriously, for example, and the Taihe landfill plant, built by Onyx, asubsidiary of the French water firm Veolia, handles all of the solid waste ofGuangzhou, the largest city in China’s southeast, the center of the Pearl RiverDelta industrial buildup, and a city suffering from severe pollution problems.The foreign company has handled all of Guangzhou city’s solid waste for thepast two years. Each hour 140 trucks snake into the site, bringing 7,000 tons ofrubbish a day from the 9.9 million inhabitants of Guangdong’s capital. In Octo-ber delegates from 300 other municipalities [visited] Taihe, promoted by cen-tral government as a role model of technology.

Smart cards record each truck’s load since Onyx charges by weight.Unrippable German fabric lines the crater into which the waste isdumped, stopping leachate — a toxic black liquid — from leaking into thegroundwater, as it does at almost all Chinese-run sites. Most landfill inChina is wet (solid rubbish, such as old TVs, is scavenged), and the Taiheplant collects a full 1,300 tons of the black liquid daily. Chemical and filtra-tion systems to neutralize it are its biggest cost. Expensive too is the extrac-tion equipment to gather another by-product, methane gas, which Onyxplans to feed into generators that will supply electricity to the local grid.Finally, the waste is topped off with plastic caps, deodorized and land-scaped, while a crystal-clear fountain at the entrance tinkles with thecleaned-up leachate.23

I have cited these two examples at some length in an attempt to substantiatemy argument that the simple dismissal of all foreign business activity in China as


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subjecting the nation to foreign domination, an assertion that recurs in themonograph by Hart-Landsberg and Burkett, provides a rather misleading char-acterization of its impact. The creation of millions of jobs, the reduction in pov-erty and the amazing economic growth that China has experienced would beunimaginable in the absence of foreign business investment in China. This isnot meant to deny the existence of numerous problems at foreign-investedfirms, but simply to suggest that on balance their overall impact has been posi-tive, and that the existence of a strong state such as China’s makes it possible fordeveloping countries to turn the profit thrust of foreign firms to the advantageof recipient countries.

Hart-Landsberg and Burkett’s Treatmentof China’s Economic Transformation

In their second chapter, Hart-Landsberg and Burkett argue that “China’s marketreform process has led the country not toward a new form of socialism, butrather an increasingly hierarchical and brutal form of capitalism.…We believethat the Chinese experience represents a strong argument against the viabilityof market socialism as a stable and progressive form of workers’ empowerment”(26). Part of their assessment is clearly correct. Market socialism is indeed unsta-ble (mea culpa) and must lead to capitalism in developing countries. As theynote, China initially attempted to limit private enterprises to seven employees.In a country with vast underemployment, however, as was true of China at thestart of the reform era (and as is still the case), it is not feasible to enforce suchlimits. If the government closes down firms that exceed the limit, where will theemployees find work? State-owned enterprises were (and still are) hugely over-staffed, and could not productively employ additional workers.

Further, once market reforms begin, they lead inexorably to further reforms.The logic of a market system, for example, requires that firms be competitive.Since the state-owned enterprises (SOEs) have excess staff and legacy costs as-sociated with retirement, health care costs, and other benefits for retiredworkers, as well as for current ones, there is no way in which they can competewith private enterprises, both foreign-funded and domestic. The SOEs havebeen supported by loans made by the state-owned banks that could not be re-paid. This in turn put at risk the viability of the entire Chinese financial system.Moreover, the practice of the state labor bureaus assigning workers to enter-prises for lifetime jobs could not be sustained, both because it made them im-mediately even less competitive and because it deprived them of the flexibilityrequired to thrive in a competitive system. Thus a labor market that did not re-quire a commitment of thirty-five or more years on the part of employers hadto be developed. Hart-Landsberg and Burkett are completely correct, then, intheir argument that market socialism is an unstable form that must give way tocapitalism, at least in developing countries. In the industrialized countries,where the expansion of GDP and employment opportunities is not of thesame priority, a different outcome may be possible, but not in a country whereimproved living standards and employment are as needed as they are inChina.


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Their argument that China’s is “an increasingly hierarchical and brutal formof capitalism” is much more questionable. Primitive accumulation and earlycapitalist development have been extremely harsh in all countries that have ex-perienced it. It is not appropriate to measure conditions in China against the de-veloped capitalist world, but rather against those prevailing in the more devel-oped capitalist countries when they were in their own early-development stagesand when they were undergoing their own industrial revolutions. Moreover, ifone compares China today with China in the Maoist era, it seems to me impossi-ble to make the case that Chinese society is “increasingly hierarchical,” and no-where do Hart-Landsberg and Burkett even attempt to make that case. Rather,the scope for individuals to make critical decisions concerning their own liveshas clearly expanded considerably since the reform era began, from careerchoice among young college graduates to the freedom for the rural populationto move from the countryside to cities in search of improved employment op-portunities. It is of course true that power remains concentrated in the hands ofthe party-state, but that power has, for the most part, become less intrusive dur-ing the reform era.

In their discussion of the reform era, Hart-Landsberg and Burkett make nu-merous errors of fact and interpretation. They claim, for example, that by theend of the 1980s, “those in possession of contracted land had full rights to…sellit” (34). This is incorrect. Land in China remains owned by the state and one ofthe subsistence guarantees peasants retain is a right to work their share of vil-lage land. Hart-Landsberg and Burkett also dismiss the TVEs, arguing that they“never functioned as vehicles for worker empowerment or socialist advance-ment,” and that the wages they pay are low (35). These comments miss the criti-cal role that TVEs play in improving rural incomes and welfare in China, espe-cially in the regions in which they flourish (within the coastal region and in thevicinity of major cities).

Although the TVEs are indeed owned by the local villagers and townshipmembers, control remains in the hands of local government and party officials.Their existence, however, is highly correlated with rural prosperity. Althoughthe wages they pay are indeed low, the jobs in them are generally much pre-ferred to agricultural work, and in some cases each family in a village has a rightto employment before more than one from the same family can be employed.With wages low, they are often quite profitable; the profits are generally rein-vested in expanding the number of enterprises (thus further increasing thehighly prized employment opportunities they offer), in improving public ser-vices (such as water supply to households, improving schools and roads, andsometimes even housing), and in paying for government services that wouldotherwise have to be paid for by fees imposed on the peasants. As elsewhere inChina, there is sometimes corrupt misuse made of TVE control by local officials,but on the whole, the prosperity of coastal rural China compared to central andwestern rural China is clearly linked to the vital contribution the TVEs havemade. The assertion made by Hart-Landsberg and Burkett that the TVEs thrivedue to the dissolution of the commune system and the impoverishment of indi-vidual farm families (35) is simply incorrect.


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In discussing the current stage of the reform program (1991 to the present),Hart-Landsberg and Burkett make a number of general allegations that warrantclose scrutiny. They maintain that

[i]n reality, privatization in China has been driven by the exercise of classpower and the nature of the reform process itself…China’s reform pro-gram has undermined the viability of state planning and direction of eco-nomic activity, thereby encouraging the adoption of a growth model de-pendent on foreign capital and exports — the same kind of growth modelwhose contradictions were revealed by the 1997-98 East Asian crisis. (44and 50)

The first part of this quotation raises issues that are in reality quite distinct.Hart-Landsberg and Burkett are quite correct in attributing the process of pri-vatization to a dynamic inherent in the reform process itself. Market reforms doindeed tend to require an ongoing reform process to prove successful. Thus, forexample, if private firms are allowed to compete with SOEs, they in turn must bereformed to be successful in a competitive environment. And if the state-ownedbanking system has its loans directed for political reasons to shoring up theSOEs, and they are incapable of being profitable in a competitive environment,then China’s entire financial system will be put at risk as nonperforming loansreach astronomical levels. This of course did happen, and requires the reformand privatization of the banking system to prevent a national financial collapse.In this way, the logic of market reform requires an ongoing reform process to besuccessful.

The assertion about class power, however, is puzzling. There is no serious at-tempt at class analysis in the Hart-Landsberg and Burkett monograph, so theirmeaning is by no means clear. The party-state bureaucracy does have greatpower in China, and we have numerous examples of corruption at all levels.However, China is not a Zaire or Haiti, in both of which endemic corruption re-sulted in appropriation of the entire economic surplus for personal use. In-deed, had that been the case in China, the dramatic growth in GDP during thereform era could never have occurred. Further, just as we have anecdotal de-scriptions of corruption, we also have evidence of community-oriented entre-preneurship at the TVE level and of serious commitment to the elimination ofpoverty and the development of the lagging central and western parts of thecountry at the national level. In the case of Russia, one can certainly make theclaim that a robber baron capitalist class emerged to assume a dominant roleduring the reform period,24 but with the exception of isolated cases, nothingcomparable took place in China. The claim that class power drove the privatiza-tion process in China does not appear to be correct, and Hart-Landsberg andBurkett provide no evidence to substantiate their claim.

The second part of the quotation gives rise to a number of issues as well.Hart-Landsberg and Burkett are correct in saying that China’s growth model hasbecome increasingly dependent on foreign capital and exports. This is indeedprecisely the growth model that brought success to the Asian “tigers” (South Ko-rea, Taiwan, Hong Kong, and Singapore) while China was still caught up in thethroes of the Cultural Revolution. Overall, China’s exports amount to about 30


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percent of its GDP, which is higher than the United States and Japan, but not farout of line in relation to much of Europe or rapidly developing Asia. The fact isthat China has skillfully used the desire of foreign capital to find low-cost pro-duction sites and potentially tap the giant emerging domestic market of China,creating jobs, raising incomes and acquiring technology and managerial skills inthe process. There are risks in this development model, as there are in all suchmodels, but thus far China has managed to use the model skillfully to promotefar more rapid development than would have been possible in its absence.

The use of this model certainly did not undermine the viability of state plan-ning, nor did it undermine state direction of the economy. Central planning hasproven itself to be a highly inefficient form of resource allocation in both the So-viet Union and Maoist China. As economies grow and become more complex,moreover, the inefficiencies grow disproportionately. This is reflected in agrowing number of investment dollars required for each incremental dollar ofoutput. Given the extreme commitment to economic growth in both MaoistChina and Soviet Russia, the portion of national income that could be devotedto improving living standards remained extremely low as a consequence. As faras the direction of the economy is concerned, there is no evidence that the di-rection of China’s economy was constrained by its reform program. Rather, thereform program was introduced precisely because it made possible the attain-ment of state objectives, including a supercharged rate of economic growth, thealleviation of poverty, and the dramatic improvement in living standards that asizable portion of the population has already attained and that promises tospread through the remainder of the population over the next few decades.

This is not meant to imply full agreement with the policy choices of the Chi-nese regime. The Chinese government made a conscious decision to build onthe more developed and promising areas along the coast first, since these couldmore readily attract overseas Chinese and other foreign investors and bringabout more rapid growth. The policy aims to achieve the most rapid rates ofgrowth by letting wealthier areas retain and reinvest locally the surpluses theygenerate. This in turn implies growing inequality during the current stage of de-velopment, and allowing near-poverty conditions to continue in much of the cen-tral and western parts of the country. My own preference would have been to al-low a somewhat more modest growth rate so that more resources could havebeen devoted to supporting the poorer rural areas in the interior, where addi-tional spending on health and education would have been especially desirable.

The choice that China has made has been to maximize growth and now, withthe additional resources that growth has made possible, to turn its efforts to de-veloping the interior. Although I believe the human cost of that choice has beenconsiderable, it has been the conscious choice of a developmental state, notsomething imposed on China by its reform program. Further, given the im-mense problems that China confronted at the start of the reform era, one canunderstand that a plan to maximize growth rates would also be appealing as away to create jobs and thereby limit the potential for social explosions. Contraryto the claim made by Hart-Landsberg and Burkett, the 1997-98 East Asian finan-cial crisis was not the result of FDI and exports. Rather, it reflected the inflow of


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short-term financial capital that suddenly flowed out. Factories and other realinvestments cannot be pulled out overnight, and China has wisely restricted thetrading of its currency on the foreign exchange markets, so it is not subject tothe same sort of financial crisis that devastated its neighbors in the 1990s.

The Domestic Contradictions of China’s Transformation

In their analysis of the domestic contradictions of China’s transformation,Hart-Landsberg and Burkett present an argument that is correct in some re-spects, but not in others. The greatest deficiency of their analysis, however, liesnot in particular errors but in the overall context within which they evaluateChina’s economic and social transformation. Their picture of China’s transfor-mation is unrelievedly grim. They point to rising unemployment, deterioratingworking conditions, workplace fatalities, the collapse of the public health sys-tem, the loss of the social safety net, growing government indebtedness, struc-tural problems that threaten “serious recession” (66), rising worker protests,and industrial inefficiency associated with severe capacity underutilization asprovinces and localities duplicate one another’s factories. It is not possible toaddress all of these issues in detail here, although some will be taken up. Itshould be kept in mind, however, that the primitive accumulation that began inthe Maoist period is continuing in the reform era, and that the various social illsthey note have been characteristic of the early stages of capitalist developmenteverywhere. In this regard there are two sets of questions to be considered.First, was there an alternative development strategy? And second, has the strat-egy adopted been carried out in such a way as to minimize the harmful results towhich they point?

Hart-Landsberg and Burkett conclude their chapter with a call for a “returnto a vision of socialism based on the power of the associated producers” (76).Since such a socialism has never in fact existed, their call for a return to a visiondoes not offer much concrete guidance for an alternative strategy. Certain as-pects of the Maoist strategy are extremely attractive, including especially its em-phasis on equality. Yet we should not forget that this same strategy condemnedsome 30 million people to starvation during the Great Leap Forward, left a leg-acy of 250 million people living in poverty as the Maoist era drew to a close, andended with two decades of stagnant wages and peasant household incomes.Moreover, the commune chairmen were unelected party officials, responsibleto their superiors and not to the commune members, just as the party cellswithin each industrial enterprise were responsible for seeing to it that party pol-icies were adhered to rather than for representing the interests of the workers.In the case of China, it is important to keep in mind that the restoration of capi-talism has come at the expense of statism, not of any genuine socialism.

With regard to the other set of questions, I find much more common groundwith Hart-Landsberg and Burkett. There is a kind of market fundamentalism inChina that drives market reform to unnecessary extremes, deeply damagingpublic welfare in the process. Moreover, the commitment to the most rapidgrowth possible, frequently has results that are equally damaging. Some of the


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problems that Hart-Landsberg and Burkett point to are structural, and some areassociated with the system of incentives that has grown up to guide official ac-tion in China.

In order to take advantage of local initiative and local understanding of theconditions of production, as well as to minimize the costs of bureaucracy, Chinahas allowed localities to retain a large share of the income they generate, dimin-ishing the resources that flow to the center. Moreover, local officials know thattheir careers will be advanced by initiating and speeding up development pro-jects in their districts, rather than by leaving more income in the hands of localresidents or by providing more social welfare benefits to those in need. Thusthe central government has limited resources to improve social welfare or tosupport the development of the lagging central and western regions of thecountry. Further, the power of officials at all levels to guide resource allocationwith little effective oversight opens the door to corruption. This is indeed awidespread problem in China, but as I have noted, it has not been significantenough to slow China’s dramatic economic growth.

Hart-Landsberg and Burkett raise many legitimate issues, but their failure toput them into their proper context is highly misleading. They say, for examplethat “the dismantling of the state sector has led to severe problems of unem-ployment” (58). It is true that tens of millions of people have been dismissedfrom state-owned enterprises; most of these but not all have been able to find al-ternative sources of employment. It is also true that some 114 million peoplehave moved from the countryside to urban areas in successful pursuit of em-ployment. Until recently, the state subsidized the money-losing SOEs on a mas-sive scale, requiring the state-owned banks to lend them funds that could neverbe repaid. At present, the state is in the process of bailing out its banks by trans-ferring billions of dollars to them.25

Since state funds are limited, the question is whether they should be used tocontinue to subsidize those SOEs that are not adding value in production, orwhether they should use funds for other purposes, such as infrastructure pro-jects in the western and central parts of the country, adding jobs and contribut-ing to rural development there, for the nascent social security program China isattempting to establish, or for other social purposes. In addition, the financialcondition of China’s banks had deteriorated to such an extent that a national fi-nancial crisis could not be ruled out. It is in this context that the decision to cutback on subsidizing SOEs must be understood. Workers laid off from SOEs doindeed feel a sense of betrayal since they believed they were getting lifetimejobs. It should be noted that those laid off are still formally attached to their for-mer production units for a period of two or three years, during which time“most of them receive a living allowance (less than the local minimum wage)and may also enjoy some welfare benefits in kind, such as housing and subsi-dized health care. At the end of 2000, there were 8.6 million laid-off workers,around 44.5 percent more than the registered unemployed.”26 While the re-structuring of SOEs may be necessary, it does appear that considerably moremight have been done to ease the fate of those affected.


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When they point to harsh working conditions, Hart-Landsberg and Burkettare right on the mark. It is doubtful that working conditions in China today areany worse than they were in the United States and Europe when they were un-dergoing their own industrial revolutions, but nevertheless they are very bad in-deed. An account of a typical young woman working in a coastal factory pro-vides some flavor of just how poor conditions are:

She worked on an assembly line at a factory in China’s Pearl River Delta,testing hand-held games, digital clocks and electronic calendars. Herworkday stretched fourteen hours and ran seven days a week; a rare Satur-day afternoon without overtime was the only break, she says. Dinner wasrice, a meat or vegetable dish and watery soup. Workers slept twelve to aroom, their beds crowded near the toilets. She made $50 to $80 a month,depending on overtime.27

Safety conditions in Chinese enterprises are also appalling. The death ratedue to accidents in China’s coal mines, for example, is one hundred timeshigher per ton of coal produced than it is in the United States, and ten timeshigher than in India. In 2004 more than fifteen miners a day were killed; Chinalost four times as many coal miners in that year as America lost soldiers in Iraq.28

Miners are routinely forced to go down into mines where conditions are knownto be unsafe. Mine owners, factory owners, and local officials all put their em-phasis on meeting and exceeding production and profitability targets, at the ex-pense of workers. With 1,113 miners killed in the first three months of 2005, a20 percent increase from the comparable 2004 period, the central governmentwas considering enhanced safety requirements.29

If we compare contemporary China with the conditions portrayed in Marx’sCapital, or in fictional form in Upton Sinclair’s The Jungle or Emile Zola’s Ger-minal, then it appears to fit right in with the classical patterns of worker abuseseen in the early stages of capitalist development. Even though the Chinese gov-ernment has done far better in certain other areas, to which I will turn below, itshould be able to secure significantly improved working conditions and requirelocal officials to see to it that existing regulations are more strictly enforced.First, however, the claim of Hart-Landsberg and Burkett that China’s emergenceis damaging working people in neighboring countries and indeed throughoutthe world must be addressed.

The International Contradictions of China’s Transformation

Hart-Landsberg and Burkett correctly point to many domestic contradictions inChina’s development program, while failing to propose any serious alternative.Their analysis of the international contradictions, by contrast, is far weaker.They maintain that (1) “China is taking up a rising share of an increasingly stag-nant total of regional exports” (82), (2) “China now represents a very seriousthreat to the continued viability of the region’s other export-led economies”(83), (3) “China’s rise cannot be understood in isolation from its negative effecton other countries in the region and the world” (87), and (4) “it is hard to seehow China’s new role in the regional economy can possibly support a positiveprocess of economic development for Southeast Asian countries” (93). They go


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on to argue that besides harming its Southeast Asian neighbors, China’s emer-gence is harmful to South Korea, Japan, and North America. Their analysis isfaulty in the extreme.

A more appropriate understanding of the impact of China’s emergencewould emphasize its positive impact on the world economy, and especially onits neighbors. Since 1990, Europe and Japan have been mired in sluggish eco-nomic growth, and the world economy has had just one locomotive driving it,the United States. After a quarter of a century of dramatic economic growth,China has reached a point where it has become quantitatively significant as asecond force driving world economic growth. It is of course true that Chineseexports compete in the American market with those of its neighbors to varyingdegrees, and initially many were apprehensive about the potential impact ofChinese competition. This competition is forcing China’s neighbors to pursuerevised export and development strategies. These include increasing exports toChina, focusing on more sophisticated products, moving into new areas (likebiotechnology and medical products) and further developing tourism. The databelow indicate that for the most part China’s neighbors are making the requiredadjustments with a high degree of success, directly contradicting the Hart-Lands-berg and Burkett assertions.

[In 2003] Malaysia, Thailand, Singapore and the Philippines all saw ex-ports to China swell by more than 50 percent, helping to change percep-tions of China from potential threat into land of opportunity.…For now,the biggest problem is simply keeping up with demand as China’s relent-less industrial expansion absorbs larger quantities of material. During thefirst nine months of 2003, China bought more than $15 billion worth ofmachinery and transportation equipment from Southeast Asia, accordingto Goldman Sachs, a leap of more than 70 percent from the same period ayear earlier. Over the same period, China’s imports of minerals, oils,chemicals, plastics and rubber from Southeast Asia jumped by half, to $6.4billion.30

Between 2000 and 2004, Asean exports to China and Hong Kong grew from $36billion to $85 billion.31 Between 2001 and 2004, Singapore saw its exports toChina increase from $9.5 billion to $26.0 billion.32 In 2003, China-Asean tradesurged 42.8 percent year-on-year, with China’s imports up 51.7 percent to$47.33 billion and exports up 31.1 percent to $30.93 billion, giving Asean a fa-vorable trade balance of $16.4 billion.33 In 2004, China-Asean trade grew a fur-ther 35 percent to $105.9 billion.34 Chinese President Hu Jintao predicted thatChinese trade with the Asean countries would nearly double to $200 billion by2010, when the China-Asean free trade agreement is expected to be fully in ef-fect.35

The stimulus created by China’s emergence is also playing a major role in theeconomies of South Korea and Japan. China’s imports of heavy equipment andmachinery from Japan and South Korea helped revive those industries in2003.36 In 2004, China, including Hong Kong, passed the United States as Ja-pan’s biggest trading partner, with two-way trade amounting to $215.4 billion.37

Excluding Hong Kong, Japan’s exports to China grew by 20.5 percent, while its


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exports to Hong Kong grew by 10.9 percent; together their imports exceededtheir exports to Japan. By contrast, Japan’s exports to the U.S. rose 2.3 percentin 2004, while its imports shrank 1 percent.38 Indeed, the health of the Chineseeconomy has become crucially important to Japan, as well as to other Asianeconomies.

An abrupt slowdown in China also would hurt economies elsewhere, es-pecially in Asia, where exports to China rose 40 percent on average lastyear. A recent study by J.P.Morgan Securities said a hard landing in Chinacould drag down Japanese growth to 1.9 percent in 2005 and 0.6 percentin 2006, from a predicted 3.7 percent this year. Should China engineer asoft landing, Japan would expand at 2.5 percent or more during the nextfive years, J.P. Morgan said.39

It is true of course that Hart-Landsberg and Burkett look beyond the nationaltrade statistics in arguing that workers abroad are hurt by the Chinese develop-ment model. The problem with this argument is that it lacks all nuance. Ofcourse workers who lose their jobs, including those in North America, will behurt. At the same time, it should be kept in mind that China did not start the pro-cess of outsourcing, nor did it invent the forces of globalization and technologi-cal change that have contributed to it. Factory work is declining in most of theindustrialized countries as automation proceeds in tandem with outsourcing.These are forces that will certainly continue. If jobs were not outsourced toChina, they would go to other countries where production can be carried outmore cheaply.

If we consider the impact of China’s emergence on workers in the UnitedStates, we must recognize that it is a mixed one. Low-cost Chinese goods havelimited inflationary pressures in the United States, making possible extremelylow interest rates. While some workers have lost their jobs, many more havebeen enabled to buy houses, cars, and electronic goods thanks to low prices andinterest rates. Overall, living standards for workers as well as for others in thepopulation have risen.

According to the latest figures from the Bureau of Labor Statistics, realwages of private-sector workers [in the United States] are up 3.3 percentsince 2000. At the high end, real wages rose 5.1 percent for managers and3.1 percent for professionals despite the recession [of 2001] and pressurefrom information-technology jobs transferring out of the country. At theless-skilled end, over the past four years there has been a 4.1 percent realwage increase for clerical and administrative support workers, a 3.2 per-cent gain for less-skilled blue-collar workers, and a 6.7 percent jump fortraditionally low-paid health-care workers. These are solid improvements,even compared with the boom years of 1996 to 2000, when private sectorwages showed a 5.4 percent increase.40

The challenge facing countries like the United States is not from some perni-cious development model China has devised. The growth in world trade is not azero-sum game in which some countries (and their workers) are destined tolose out. Two-thirds of U.S. jobs are already in the service sector, and these jobsface much less international competition. U.S. spending on basic education at


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all levels, and on basic research is woefully inadequate; numerous jobs could becreated in these areas, and by improving the quality of education the UnitedStates would retain an edge in more sophisticated knowledge-based products,even while creating a work force with the skills to adapt to inevitable changemore readily. With rapidly aging populations, moreover, most of the Westerncountries, including the United States, will require many more health careworkers. The problem is not a Chinese (or Third World) threat as such, it is thelack of vision regarding the broad economic restructuring that will be requiredof the industrialized world as Third World development proceeds.

Conclusion

In their conclusion, Hart-Landsberg and Burkett sum up their critique of theChinese development model. They argue that China’s development is “basedon historically specific conditions that have allowed it to attract abundant for-eign investment and maintain very low wages” (109). They repeat their claimthat China’s development is “part and parcel of the uneven development andoverproduction of capital on a world scale” (109), hurting working peoplethroughout developing East Asia, Mexico, Japan, and the United States. PraisingChina’s export-led model legitimizes neoliberal success criteria, they maintain,and “purges concrete class analysis from Marxism” (110).

Hart-Landsberg and Burkett go on to reiterate that the social ramifications ofChina’s policy include growing unemployment, inequality, insecurity, cutbacksin health care and education, worsening oppression of women, marginalizationof agriculture, and a multiplication of environmental crises, all of which are “es-sential preconditions and inevitable outcomes of China’s capitalist develop-ment” (110). Further, they go on to say, “To endorse China’s growth suc-cesses…is to endorse a development model that pits Chinese workers againstworkers in other countries in a competitive race to the bottom that has nothingto do with any progressive development of productive forces holistically con-sidered” (112). They propose an alternative development strategy that wouldnot be based on “profit-driven export activity — [but on] alternatives that servethe needs of human development” (112-13), with production driven by use val-ues rather than by market forces.

In truth, China’s development has been a messy business, mixing extraordi-nary success in some areas with serious failures of vision and execution in oth-ers. Hart-Landsberg and Burkett choose to focus on the failures, attributingthem to the restoration of capitalism and China’s reinsertion into the world ofglobal capitalism. Those who give more credit to the successes of the Chinesemodel tend to compare contemporary China with the conditions that existed atthe start of the reform era, to compare it with less-developed countries that havedone far worse, and to take into account the fact that China has laid the founda-tions for far greater prosperity over the next fifteen to twenty years. Hart-Landsberg and Burkett also reiterate their claim that China’s emergence hassubmerged working people elsewhere in the capitalist world economy, andcounterpose their vision of a needs-driven development strategy as opposed toa market-driven one.


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In concluding this critical evaluation of their work, I would like to focus onthree main areas. First, I would like to restore some balance to their assessmentof China’s development experience. Second, I would like to add some summarycomments to my criticism of their conclusion that China’s emergence has onbalance hurt working people elsewhere. And third, I would like to providesome perspective on their argument that production should be needs-drivenrather than market-driven. If the latter were possible, it would indeed providean attractive alternative. Unfortunately, it has not worked when tried (includingduring the Maoist period), and there are sound reasons for thinking that it issimply not practicable during the current stage of world development.

Turning first to the issue of unemployment and underemployment, it mustbe recognized that China faces an overwhelming problem with some 114 mil-lion migrant workers, underemployment in the countryside that may reach ashigh as 200 million (the number who could discontinue agricultural activitieswithout production falling), and underemployment in the remaining SOEs thatis still in the millions, despite their downsizing, and the officially unemployed.This problem remains acute in China, and the administration has erred if any-thing in trying to address it too vigorously, doing everything possible to maxi-mize production and job-creation, and failing in the process to uphold safetylaws and other worker-protection regulations.

The floating population and the growth of TVEs provide two major examplesof what China has done with respect to job creation. During the Maoist period,the hukou system of household registration prevented surplus labor in rural ar-eas from moving to the cities in search of employment. Although that system isstill in effect, it has been eased sufficiently to allow rural workers to move to cit-ies in search of employment; 114 million have found jobs. They still face, for themost part, awful working conditions and discrimination in eligibility for urbanservices. The point remains, however, that they move voluntarily to escape con-ditions that are still worse in the countryside.

At the same time, China has carried out a program of rural industrializationthat is unprecedented in its success in human history. Based on the team andbrigade-level enterprises that appeared in the communes in the Maoist era, theTVEs have expanded vigorously in the reform era, providing employment andprosperity in the rural regions near the coast and near big cities where they areconcentrated.

In 1978, less than 10 percent of the rural labor force was engaged in indus-trial activities, and the nonfarm sector contributed only 8 percent of ruralincome; by 1996, 30 percent of the rural labor force was working in localindustry, and nonfarm income accounted for 34 percent of total rural in-come. This remarkable growth…has brought more equal income distribu-tion at the local level…In the period 1978 to 1997, the number of rural en-terprises increased from 1.5 million to 20.2 million, and the number ofworkers hired increased from 28.3 million to 130.5 million, or from 9 to28 percent of the rural labor force.…In 1978, rural enterprises createdonly 24 percent of total gross rural output; by 1995, their contribution hadincreased to 79 percent.41


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There was indeed some overexpansion of rural industry in the 1990s and somesubsequent consolidation, but it remains nevertheless a key part of the Chinesedevelopment model and one that developing countries with surplus popula-tion in their agricultural sectors would do well to emulate.

Inequality has certainly grown in China during the reform period, but itshould be noted that much of this reflects the dramatic industrialization that hastaken place in coastal China, and the fact that rural areas, especially in the centraland western regions, are lagging far behind. China has made a decision to maxi-mize its growth rate and employment opportunities by building on the regionsthat were most favorably situated. One could well argue that China should havesettled for a somewhat slower rate of growth and done more to improve educa-tion and health care in the poorer rural regions (and I for one would certainlyagree with such an argument). At the same time, it is important to recognize thaton balance conditions in rural areas have been improving — average rural in-comes rose by 21 percent in the five years to 2004, for example, even though theylagged the average rise in urban incomes of 56 percent42 — and that the new re-gime’s emphasis on rural and western development promises to speed up thelagging regions now that a substantial capability to provide resources for this ef-fort has been built up in the more advanced regions of the country.

Hart-Landsberg and Burkett are certainly correct, as I have noted, in theircriticism of China’s health care cutbacks, but their reference to cutbacks in edu-cation is almost totally off the mark. It is true that school fees are preventingsome of the poor from attending school, and this is most certainly unaccept-able. At the same time, the vast majority of children in China are attendingschool, and the quality and accessibility of high school, college, and graduateschool education are vastly improved.

Since the late 1990s, public universities have undergone rapid expan-sion.…Private-sector schools, both Chinese and foreign, have also prolif-erated. With all this expansion, more than 17 percent of the country’s col-lege-age students can now find places in universities. The number ofuniversity graduates has exploded from 1.5 million in 2002 to 2.8 millionthis year. In 2005 the system is expected to produce 3.4 million.43

It should be kept in mind that during the Cultural Revolution, the colleges wereclosed altogether for a while and graduate education was eliminated in favor ofan apprenticeship program. With regard to gender inequality in China, itshould be noted that this is not something invented during the reform era, andthat in 2001, the ratio of female to male enrollments in primary and secondaryschool was 98 percent, up from 81 percent in 1990.44

The intense emphasis on maximizing industrial growth rates has had an im-pact on China’s environment that is in many senses disastrous, and Hart-Landsberg and Burkett are quite right to bring this up in their critique. Overall,however, a more accurate picture of China’s development process requiresboth greater nuance and an understanding of the constraints that it confronts.Their argument that China’s emergence has negatively impacted the rest of theworld also requires greater nuance, but here on balance its deficiencies aremuch greater, as I believe I have already shown.


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The final issue to address, then, is whether a non-market-driven alternative isfeasible. One would certainly hope that that will be the case in the distant fu-ture, when human development moves into its post-capitalist phase, but thereare sufficient reasons for believing that such an alternative is not viable at pres-ent. The reasons can be divided into three categories. First, despite efforts in theSoviet Union, Maoist China, and elsewhere to dispense with the market, the re-sults were deeply unsatisfactory. Central planning is exactly what it sounds like:a system of highly centralized control that is quite remote from anything resem-bling control by the direct producers. Moreover, it has proven unable to in-crease living standards appreciably over time.

Second, there are theoretical reasons that preclude success in any such at-tempt. I have already noted the lack of any basis for rational calculation. Systemsof decentralized planning have been proposed, but similar problems would ap-pear in addition to numerous new ones: if the direct producers do not all hap-pen to think alike, how would the rights of minorities be expressed, and whatshould be done about individuals unwilling to spend much or most of their freetime attending the workplace or community meetings that would be requiredto make the innumerable collective decisions necessary?45 And third, Hart-Landsberg and Burkett’s sketchy picture of an alternative approach that Chinamight follow, reveals the problematic character of their analysis.

What is the alternative they suggest? They propose “an autocentric integra-tion of domestic needs, domestic demand and domestic resource use” (113),with international trade emerging only in an ancillary fashion. They write:

For example, the creation of a national health-care system would requiredeveloping a construction industry to build clinics and hospitals, a drugindustry to treat illnesses, a machine tool industry to make equipment, asoftware industry for record keeping, an educational system to train doc-tors and nurses, etc., all shaped by the developing needs of the people onlocal, national and regional levels. The requisite mobilization of resourceswould clearly hinge upon a high degree of popular enthusiasm for andparticipation in the development process. (113)

Attractive as it may appear on the surface, this proposal is devoid of any sem-blance of practicality. Where would the resources come from? For each drugthat gains FDA approval in the United States, an average of $802 million isspent.46 Making a virtue of necessity, the Maoist regime did attempt a program of“self-reliance,” with investment funds coming from a process of primitive accu-mulation that squeezed the peasantry, pushing literally hundreds of millionsinto deep poverty and tens of millions into starvation. In its final two decades,Maoism proved unable to improve popular living standards and left China’s ed-ucational system in a shambles. Why would one expect a system that relies onsqueezing the direct producers to elicit their enthusiastic support? Hart-Landsberg and Burkett do not, of course, call for a return to Maoism, but any at-tempt to implement their proposals would inevitably run into comparable con-straints.

If human life on earth is to continue, capitalism will ultimately have to be re-placed by post-capitalist society. Hopefully, this will be possible, even if it re-


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quires waiting until capitalism has transformed the whole world in its imageand the scourge of underdevelopment no longer exists. Meanwhile, primitiveaccumulation and early capitalist development are proceeding throughoutmuch of Asia. The point is not to propose a utopian image of workers, peasants,and their communities carrying out the development process because that isnot feasible in practice or in theory at the current stage of human development.Rather, the point is to minimize the evident abuses and injustices associatedwith capitalist development in China, and indeed everywhere in the world.

Notes

1. Between 1957 and 1976, real wages in the state sector actually fell by 14 per-cent on average. Between 1957 and 1975, costs of production in Chinese agri-culture rose much more sharply than output, leading to a fall in income formany production team members. In the agricultural sector as a whole, averagepeasant incomes rose by only 22.2 percent during this period, but that increasewas heavily skewed in favor of suburban communes where township and vil-lage industries were able to flourish. Victor D. Lippit, The Economic Develop-ment of China (Armonk, N.Y.: M.E. Sharpe, 1987), 150, 178-181.

2. Carl Riskin, China’s Political Economy (Oxford: Oxford University Press,1987), 136.

3. Quoted in Thomas B. Bernstein and Xiaobo Lu, Taxation without Representa-tion in Contemporary Rural China (Cambridge: Cambridge University Press,2002), 44.

4. Yan Hao, “Emerging Urban Poverty in China,” in Emerging Urban Poverty andSocial Safety Net in East Asia, ed. Zhang Yunling (Beijing: World Affairs Press),323.

5. “A Survey of India and China,” The Economist, 5 March 2005, 6.6. Bernstein and Lu, Taxation without Representation, 186.7. Wall Street Journal, 26 January 2005, A2.8. Ibid.9. Associated Press, 29 January 2005, cited in Yahoo! Finance.10. Wall Street Journal, 24 January 2005, A2.11. Ibid.12. “A Survey of India and China,” The Economist, 5 March 2005, 4.13. Wall Street Journal, 4 March 2004, A14.14. I make this case more fully in my book Capitalism (London: Routledge, 2005),

especially in chap. 1.15. The Economist, 21 August 2004, 20.16. Ibid.17. Ibid., 21.18. Ibid.19. Ibid.20. Wall Street Journal, 26 February 2004, A1.21. Business Week, 31 January 2005, 22.22. Ibid.23. The Economist, 21 August 2004, 55.24. See, for example, the persuasive argument developed by David Kotz in Revolu-

tion from Above: The Demise of the Soviet System (New York: Routledge,1997).

25. In late 2003, the Chinese government was forced to pay out $45 billion to shoreup Bank of China and China Construction Bank. In April 2005, it had to divert$30 billion from its foreign exchange stockpile (of over $600 billion) to sup-


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port Industrial and Commercial Bank of China, which had some $85 billion innonperforming loans outstanding (Business Week, 9 May 2005, 52).

26. Yan, “Emerging Urban Poverty in China,” 344.27. Wall Street Journal, 8 November 2004, A1.28. The Economist, 4 December 2004, 43.29. Wall Street Journal, 6 April 2005, A9.30. Asian Labour News online, 6 February 2004.31. Progressive Policy Institute, 23 March 2005: http://www.ppionline.org/ppi_ci.

cfm?knlgAreaID=108&subsecID=900003.32. Ministry of Trade and Industry, Singapore, Economic Survey of Singapore

2004, Statistical Appendix.33. URL: http://www.china.org.cn/english/BAT/86603.htm.34. URL: http://www.travellodge.info/business-china/2005asean.htm.35. Japan Today online, 28 April 2005.36. URL: http://www.uschina.org/statistics/2004tradeperformance.html.37. Wall Street Journal, 27 January 2005, A10.38. Ibid.39. Wall Street Journal, 11 June 2004, A2.40. Business Week, 6 December 2004, 124.41. Justin Yifu Lin and Yang Yao, “Chinese Rural Industrialization in the Context of

the East Asian Miracle,” in Rethinking the East Asian Miracle, ed. Joseph E.Stiglitz and Shahid Yusuf (New York: Oxford University Press, 2001), 143 and145.

42. Wall Street Journal, 15 October 2004, A12.43. Business Week, 11 October 2004, 63.44. The World Bank, World Development Report, 2004 (Washington D.C.: World

Bank, 2003), 254.45. See, for example, Thomas E. Weisskopf, “Toward a Socialism for the Future, in

the Wake of the Demise of the Socialism of the Past,” chap. 14 in Radical Politi-cal Economy: Explorations in Alternative Economic Analysis, ed. Victor D.Lippit (Armonk, N.Y.: M.E. Sharpe, 1996). The section on “participatory social-ism” is especially relevant (329-35) .

46. This figure is from a widely cited 2001 study by the Tufts Center for the Study ofDrug Development. Costs are rising steeply with the increasing cost of clinicaltrials and a falling success rate. Another study, carried out by the consultingfirm Bain and Co. estimates the cost to be $1.7 billion. Since they use differentmethodologies, the two studies are not directly comparable. See Lippit, Capi-talism, 166.

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the political economy of china's economic reform

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