Two sea changes in world political economy…

April 30 2015

Originally published in Political Affairs

The class struggle is essentially over control of the surplus. At no time is this more evident than during periods of capitalist crisis.

Peoples Bank of China - Not Wall Street

A socialist revolution transfers control over the surplus from the capitalist class to the working class, even though the latter may not rule directly. In Russia, the transfer occurred in November 1917 (and reversed in 1991); in northern Vietnam the transfer took place in August 1945; in northern Korea, in May 1948; in China in October 1949; in Cuba, in the fall of 1960; in Laos, in December 1975. It has also occurred in several others states, including Albania, Yugoslavia, the GDR - states that later fell to counter-revolution, like the USSR. The struggle for power is difficult enough, governing afterwards is even more challenging.

However, following the transfer of power, the new state - backed by its army - can allocate and reallocate the surplus both to address needs of the new social system and to keep unavoidable economic imbalances from ballooning into crises. That ability to reallocate surplus is why economies formed by socialist revolutions are not cyclical, in distinct contrast with boom-bust capitalist economies. But the non-cyclical economies are part of a single world economy; they cannot evade comprehensive challenges -- economic, political, environmental, military, value and others -- until capitalism is no longer a significant force in the world.

Capitalist economies, on the other hand, are regulated by the boom-bust laws of commodity production and exchange elucidated by Marx. The capitalist class and its state do not control a capitalist economy, but the class does appropriate what surplus is generated. The capitalists' one goal in life is their personal enrichment, and maintaining their power and ability to exploit.

The exploiters view their system's periodic busts as crises of 'overproduction' - more commodities have been produced than they can sell profitably. Workers and oppressed experience the same crises as rising unemployment, misery and conflicts.

As mentioned earlier, at no time is the contrast between the two social systems more visible than in periods of crisis. The Soviet Union, for example, grew at a 9% rate through the Great Depression years, while capitalist economies tumbled from crisis to crisis-and to war, including on the Soviet Union.

The first sea change since 2008
The difference between the two systems has led to two sea changes since September 15, 2008. This was when the general crisis of capitalism - which is still unfolding -- openly hit the imperialist center. Although the Chinese state is a product of a socialist revolution, it was not immune to the crisis. Some 24 million Chinese workers producing for export lost their jobs in a few weeks after the bankruptcy of Lehman Brothers, Merrill Lynch, AIG and other Wall Street stalwarts. This was because demand from capitalist countries suddenly collapsed.

The Chinese state responded with a genuine stimulus program, based on its existing five-year plan. It accelerated several state-controlled projects, including development of rural infrastructure; launched the construction of millions of homes; the expansion of mass transit in cities all across China; and the development of a remarkable high-speed rail network. (The bullet-train network grew from zero miles at the start of 2008 to a remarkable 10,000 miles today; the trains currently average over 200 miles an hour, with 300mph trains in development.)

China's leadership also mandated that banks direct nearly all loans to projects consistent with the five-year plan and the corresponding stimulus. This meant lending primarily to state-owned and state-controlled enterprises, and cutting loans to private businesses. (A 'shadow banking' system arose to lend to private businesses, albeit with limited funds and high interest rates.) In just five months after Lehman collapsed, nearly all 24 million workers in China had regained their jobs, and the economy was soon growing at a 9% annual rate. Unemployment did not skyrocket, and has actually dropped since the end of 2008.

The first sea-change then is the significant relative strengthening of the state sector in China since 2008, and consequently the relative weakening of the private sector. Inevitably, this has led to heightened resistance from domestic and international exploiters and their representatives.

A second sea change since 2008
After the crisis, tens of millions of workers in capitalist countries also lost their jobs. But the ruling class and its states directed their resources to cover the capitalists' losses and bad debts, not to address unemployment or meet human needs. In sharp contrast with China, there was a near-halt in productive investment in capitalist countries -understandably, since from the exploiters' point of view, the problem was massive "over-investment" (as in the auto industry), and the resulting losses. For the capitalists, charity starts at their home - and ends there.

Industrial production plummeted in capitalist countries after September 2008, while unemployment skyrocketed. By March 2009, industrial production in Japan was down 34.2% compared to a year earlier; in the euro zone, it was down 20.2%; in Britain, it was down 12.4%; in the USA, it was down 12.5%. (In China it rose 7.3% in the same period.) Real unemployment in most capitalist countries remains higher today than in 2008. Most jobs that have opened since then are temporary, part-time, low-paying or 'informal'. Oppressed nationalities, women, youth, unionized, migrant and older workers have been hit especially hard. Capitalist states' "stimulus" efforts, such as the US Federal Reserve banks' "quantitative easing" programs, have been directed primarily to cover the ruling class's losses and bad debts.

In the US, it has been estimated that the state apparatus (mainly the Fed and the Treasury) has transferred some 18 trillion dollars since 2008 to the ruling class's main properties, especially its banks and insurance companies.

Five years after the crisis of 2008, industrial production had not recovered in most imperialist countries. In 2013, Japan's industrial production was down 17.1% from its 2007 level. (Japan is now in its third consecutive 'lost decade'.) Industrial production in Europe fell 9.3% between 2007 and 2013. In the USA, industrial production was down 1.2% in the same period. (Production in the US has now slightly exceeded its 2007 level, partially thanks to the enforced destruction of production in Japan, Europe, Iran, Iraq, Libya, and other countries.) Furthermore, without China and Vietnam's rapid growth in purchases (imports) from capitalist countries, there is reason to believe that the entire capitalist world would now be in all-out crisis.

The contrast between the US and China since 2008 is remarkable. In 2007, the UN estimated industrial production in China at 62% of that of the US. Four years later, in 2011, China's industrial production had risen to 120% of the US level. (It now almost certainly exceeds 150% the US level; furthermore, UN calculations ignore unequal exchange, which skews estimates of US industrial production upwards.)

On three basic measures of industrial activity -- steel , copper and cement - China's production or consumption nearly equals or exceeds that of of all capitalist countries combined. Even more important, the number of regularly-employed industrial workers in China now appears to exceed that in all capitalist countries combined. (This is in part because informal and self-employment has become pervasive in capitalist industry - construction, even mining and manufacturing.) The large concentrations of industrial workers in China is unparalleled.

The second sea change since 2008, then, points to the significant relative strengthening of the international working class through the five states where it holds power; and the significant relative objective weakening of the world bourgeoisie. As Lenin predicted, far from reconciling themselves to the superiority of working-class rule, the accomplishments of China, Vietnam, Laos, etc., the exploiters' resistance has only multiplied.

The question now is how these relative gains in the objective strength of the international working class are used. They can be mobilized to complete humanity's transition from capitalism to socialism, or to maintain the status quo. The latter course will lead humanity to catastrophe.

Why the future of humanity will be written in China
It was once said that the future of humanity would be written in the USA. The two main reasons were the size of 'manifest destiny' America, from sea to Gulf to shining sea, and the superior productivity of labor in the US. Things have changed.

Today, the overall productivity of labor in manufacturing in China appears consistently higher than anywhere in the capitalist world, rich or poor. (Agricultural productivity remains a major weakness.) One reflection of this is that China's share of world exports has continued to grow after 2008, even though hourly wages have climbed, and are now eleven times those of Bangladesh, for example and four times those in India.

China's productivity in manufacturing has been achieved thanks to planning; its superior educational system; its unparalleled infrastructure; and its social system's capacity to maintain domestic demand, in sharp contrast with the boom-bust cycles and deepening poverty in capitalist countries. (The Soviet Union unfortunately did not achieve capitalist levels of productivity.) This, then, is a first reason why the future of humanity will be written in China.

A second reason is that size matters. China's population is over four times that of the US.

A third reason is China's social system, formed by its 1949 socialist revolution, which permits it to plan and allocate and reallocate the surplus to address imbalances and social needs.

The fourth reason, still emerging, is the considerable recent strengthening of Marxism in China. This is reflected in its English-language Marxist journals, such as Marxist Studies in China, the World Review of Political Economy and International Critical Thought, published by organs of the Chinese state or the Communist Party of China; and even more so in the boom in Chinese-language work devoted to advancing Marxism and its application. Marxism inexorably points to the need to complete humanity's historic transition, through comprehensive strengthening of the domestic and international working class, and its conscious unity.

… Guest post by W. Halabi, Communist Party Economic Commission

The rest of the article concerns the key problem of organization and the role of the Communist Parties worldwide. The full article can be found at: http://www.politicalaffairs.net/two-sea-changes-and-the-most-difficult-problem-in-working-class-political-economy/

P.S. - The most humorous article today in Bloomberg is by Michael Shuman, who titled his commentary: “What if China is Exempt from the Laws of Economics?” The title itself (and following commentary) is so self-unaware as to be an example of bourgeois blockheadness. As if ‘economics’ was not actually political. As if it was some kind of science and the Chinese are exempt from the laws of this ‘science.’ Almost like gravity. Capitalist neo-liberal economics is an ideology, not a science. https://www.bloomberg.com/news/articles/2018-01-24/what-if-china-is-exempt-from-the-laws-of-economics

Red Frog

January 25, 2018