User:Anarcho-Bolshevik/did capitalism help China

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The argument is as follows:

  1. Deng Xiaoping liberalized China’s economy
  2. China’s economy grew rapidly
  3. Therefore China’s poverty reduction is a result of free market capitalist policies

Let us start with the first point. While it is obviously true that the People’s Republic of China has introduced markets and privatization since Máo’s passing, this does not tell the full story. We would argue that their economy more or less resembles that of Lenin’s NEP or Máo’s New Democracy, but no-one in their right mind would say that the USSR in the 1920s or the PRC in the 1950s were capitalist countries just because they had a market, which has been stressed by socialist leaders from Deng to Fidel Castro:

So while China has introduced elements of capitalism in the 40 years since the start of ‘reform and opening up’, these do not constitute a negation of socialism, any more than they did in the New Democracy period in the 1950s, or under the New Economic Policy in the Soviet Union in the 1920s.

A socialist state run in the interests of the working class and its allies can certainly incorporate market mechanisms, as long as these operate under the guidance of the state and introduce some benefit for working people, and as long as capital is not allowed to become politically dominant. Deng Xiaoping – the political leader most closely associated with China’s economic reform – insisted that markets and socialism were not mutually exclusive: “It is wrong to assert that there is only a capitalist market economy. Why can’t it be developed under socialism? A market economy is not a synonym for capitalism.” “If markets serve socialism they are socialist; if they serve capitalism they are capitalist.”

"I think China is a socialist country, and Vietnam is a socialist nation as well. And they insist that they have introduced all the necessary reforms in order to motivate national development and to continue seeking the objectives of socialism. There are no fully pure regimes or systems. In Cuba, for instance, we have many forms of private property… Practically all Cubans own their own home and, what is more, we welcome foreign investment. But that does not mean that Cuba has stopped being socialist."

—Carlos Martinez,

For one, it is incorrect to say that Deng de-collectivized agriculture as some suggest, a better way of describing it would be re-organization, whereby the large communes were broken up into smaller cooperatives and village enterprises controlled by local governments. This view is shared by liberal economist Peter Nolan, who is widely regarded as a leading authority on China:

China’s land was never privatized, although collectivization was mainly rolled back. It remains owned and managed at the village level. Peter Nolan observes: “Public ownership of land was a powerful countervailing force to the social inequality which inevitably accompanied elements of the market reform.” De-collectivization “was not followed by the establishment of private property rights. Because the Chinese Communist Party wished to prevent the emergence of a landlord class, it did not permit the purchase and sale of farmland… The village community remained the owner, controlling the terms on which land was contracted out and operated by peasant households. It endeavored to ensure that farm households had equal access to farmland… The massively dominant form was distribution of land contracts on a locally equal per capita basis.” Even the town and village enterprises (TVEs), which became the standard-bearers of economic reform in the 1980s and which came to employ as many as 135 million people in the mid-1990s, were collectives. Nolan considers that they “resembled national state-owned enterprises, with the ‘state’ being the local community, each of which typically owned multiple establishments.”

—Peter Nolan,

In addition, the fact remains that the base of socialist production established under Máo is still completely intact, and is the leading force in the PRC’s industrial development. What this means in concrete terms is that the most strategic sectors of the Chinese economy (the "commanding heights") are entirely dominated by state-owned enterprises (SOEs), which are subordinated to the Communist Party (CCP) and the Five-Year Plan. The genuine privatization that did occur, particularly in the Special Economic Zones (SEZs), mostly applies to small enterprises, and was done in order to strengthen the hegemony of the socialist sector, delegating secondary tasks in order to reduce the strain on the state planning agencies. This is all according to British academics John Ross and Martin Jacques.

There has been very little in the way of actual privatization, in terms of transferring ownership of state enterprises into the hands of private capital; indeed, the state sector is several times bigger than it was in 1978, when the reforms were launched. Rather, private enterprise was allowed to develop alongside the state sector, and has grown at an even faster rate than the state sector (bear in mind that it started from a very low base). John Ross argues that China has grown “not by destroying its state sector but by altering the relations between the monopoly and non-monopoly sectors – rapidly expanding the latter.” Similarly, Martin Jacques explains that, “rather than root-and-branch privatization, the Chinese government has sought to make the numerous state-owned enterprises that remain as efficient and competitive as possible. As a result, the top 150 state-owned firms, far from being lame ducks, have instead become enormously profitable, their aggregate profits reaching $150 billion in 2007… Unlike in Japan or Korea, where privately owned firms overwhelmingly predominate, most of China’s best-performing companies are to be found in the state sector.”

—John Ross & Martin Jacques,

China analyst Jeff Brown also talks about this at length, the following is an excerpt from an interview about his book "China Rising: Capitalist Roads, Socialist Destinations".

"The greatest misunderstanding about China is that when Deng Xiaoping came out with his reform, everybody thinks that China became a capitalist country. Only part of the economy was turned over to capitalist practices, the vast bulk of the Chinese economy is still very much Communist. Let me explain why, first off China has no private real estate, every square inch of this country is owned by the state, people are not buying land, they're buying long-term leases up to 70 years, this has a powerful impact on keeping people from amassing tremendous wealth. Secondly, the economy, all the big heavyweight industries are all state-owned. They only allow maximum 30% ownership by non-state owners, and they have very strict stock concentration laws that prevent anybody from amassing more than a tiny percentage. That's the bulk of the economy, the rest of it is the small business entrepreneurial sector that is almost all privately owned. What the Chinese do is they turn these consumer goods, these high volume, low margin industries over to the people and let them fight it out, helping keep prices and inflation down. With the government owning all the land and the huge industrial sectors, it is still very very Communist. The other thing that makes it Communist is they still have the Five-Year Plan, just like Lenin set out. The reason why China is kicking the butt off of Europe and North America is because the government has already planned to have X number of products. This is why the mixed model of a predominately government-owned economy mixed with a vibrant lower economy in the private hands is working wonders."

Regardless of whether or not one thinks this ‘mixed model’ constitutes a form of socialism, the fact remains that there is a very meaningful difference between China and the western world that makes it impossible for the former to be considered a free market capitalist country. Chinese entrepreneur Eric Li summarized it quite well in John Pilger’s documentary "The Coming War on China":

"China is a vibrant market economy, but it is not a capitalist country, here's why. There is no way that a group of billionaires could control the Politburo as billionaires control American policy making. So in China you have a vibrant market economy but capital does not rise above political authority, capital does not have enshrined rights. In America the interests of capital and capital itself has risen above the nation, political authority cannot check the power of capital, and that's why America is a capitalist country but China is not."

—Eric Li, The Coming War on China

To give us a basic idea of how much control the party and state exert over the economy, here are some facts:

The SASAC (China’s State Assets Supervision and Administration Commission, which answers directly to the State Council) has a state monopoly in every important industry sector — here are a few: aerospace, airlines, aluminum, architecture & design, automotive, aviation, banking, chemicals, coal, cotton, electronics, engineering, forestry, heavy equipment, gold, grain,heavy machinery, intelligence services, iron, materials, metallurgy, mining, non-ferrous metals, nuclear energy, ocean shipping, oil, pharmaceuticals, postal services, rail, salt, science and technology research, ship building, silk, steel, telecoms, travel, utilities. Not only do they own all of these critical strategic sectors — out of the twenty largest companies in China, all twenty of them are controlled by the SASAC, or by local governments (with the exception of Noble Group, which is based in Hong Kong). This evidently puts the PRC government in the same position as the USSR in the twenties with the New Economic Policy, where the state retained control over the heights of industry. The key difference between the two is that although the USSR from 1921–1928 had no comprehensive system of economic planning, the Chinese government has been using Five-Year Plans ever since 1953. Another difference is that the Soviet state had nowhere near this amount of leverage. Combined with modern information technology and an extremely pervasive technical infrastructure, this ultimately puts the CPC in a much, much stronger position than the CPSU when it comes to entering into the advanced stage of socialism, and in the end, towards the realization of world communism.

This translates to the socialist sector (SOEs and co-ops) comprising 40-50% of the PRC’s economy (meaning that the PRC has the third highest public quota in the world after the DPRK and Rep. of Cuba), with the state-capitalist sector (enterprises officially owned by national-capitalists but de facto controlled by the CCP or local councils) comprising a further 20-30% and the rest consisting of small businesses and petite-bourgeois ownership (like in the NEP). For more information regarding the statistical breakdown of the Chinese economy, we highly recommend reading these two posts:

In particular, we would like to draw your attention to the following anecdote, a stark contrast between the PRC and the West:

If the US government nationalized the 1000 largest manufacturing companies, they would have approximately the same control over the American economy as the Chinese state has over the Chinese economy. If in addition, the US state owned all the biggest banks and financial institutions (and almost only lent money to state companies), and a large slice of the service and building industries, not to mention all the land which farmers till, and introduced a five-year plan, almost nobody would deny that a planned economy had been introduced in the USA.

Now all of this is well and good, but after all socialism is not just when the government does stuff, and there are many social democracies in Western Europe with strong public sectors as well (albeit nowhere near to the same degree as the PRC). Does it therefore follow that the PRC is no more socialist than Norway? Of course not, and the most obvious reason why is that the PRC’s political system has not changed one bit since Máo first promulgated the PRC constitution in 1953, with the Communist Party still in complete control to this day. By definition, the Chinese state is still a proletarian dictatorship, not a bourgeois democracy. One could go into a deeper analysis of the CCP's class character, but it is not really relevant in this purely economical discussion. However, in order for this whole argument to work it is still necessary to prove that state-owned enterprises in the PRC do not operate according to the law of value, otherwise it cannot be considered a form of socialist production.

We’ll begin by quoting an anecdote from professional journalist Caleb Maupin:

"In China they declared the new laws regarding electric cars, the government went to all the auto manufacturers in China, and it said to them that 1 out of every 10 cars that you produce must be an electric car, and next year that's gonna be 2 out of every 10 cars, and pretty soon it's gonna be 3 out of every 10 cars. Now the article about China's new energy vehicle regulations that was in The Wall Street Journal, the first sentence of it they said that by sheer force of will China has created the world's largest electric car market, and that's the reality, the government went to these car manufacturers, said this is what you're going to do, and they did it. This is starting to get to the essence of the difference between socialism and capitalism, in capitalism the government works for the corporations, and that's how it is over here, they would never make such car rules here, the automakers would never stand for it, the big oil companies would never tolerate it, but in China, instead of the government being controlled by the corporations, the corporations are controlled by the government, and that's a big difference."

We can assume from this example that Chinese enterprises do not follow the profit motive or the "invisible hand", but rather operate according to the production targets of the Five-Year Plan, and routinely make unprofitable investments for the long-term benefit of the people, which is especially apparent when looking at their environmental policy.

The question of environmental conservation is instructive. A capitalist state has very limited freedom of action on this issue, due to the short-term needs of expanding capital (for example, oil companies wield significant influence within US policy circles). A comprehensive strategy of environmental protection requires a huge investment: a production of use values that may not have corresponding exchange values; that is, production for people, not profit. In China, the government has a clear mandate to lead just such a strategy (even though there is a tension between development and conservation, both of which are essential for the Chinese people). Over the last few years, China has quickly become the global leader in environmental protection, planning to “spend at least $360 billion on clean energy projects and create 13 million new renewable energy jobs by 2020”. At the same time as investing heavily in alternative energy sources such as solar, wind, and hydropower, it is divesting from coal, cancelling the construction of 104 new coal plants last year. The government has even set up an environmental police force to ensure compliance with green policy. China’s forest coverage has increased from around 18 percent in 2007 to 21.7 percent, with targets of 23 percent by 2020 and 26 percent by 2035. On clean energy, “the United States is actually playing catch-up to China… China has taken an undisputed leadership”. On pollution, “the results suggest that China’s fight against pollution has already laid the foundation for extraordinary gains in life expectancy.” These ambitious plans can be devised and carried out precisely because of the location of political power in the Chinese working class.

—Carlos Martinez,

The socialist nature of the PRC’s economy can also be demonstrated using examples from their neighbor, the Socialist Republic of Vietnam, who have an almost identical system of "market socialism". The following explanation was provided by a Vietnamese comrade:

Also, if you want to see concretely how Vietnam is not capitalist, there's a case study of how the law of value is not the regulator of production in the socialist sector of the economy:

"Without the government’s incentives, Vietnam’s first oil refinery of Dung Quat would have had losses of VND27,600 billion (over US$1 billion) since 2010, when it began operating. In 2008, the Binh Son Refinery Co., Ltd (BSR) was established with 100% investment of the Vietnam Oil and Gas Group (PetroVietnam), with the aim to operate the production and business activities of the Dung Quat oil refinery. On May 30, 2010, Dung Quat officially transitioned to commercial operation. With huge investment and special preferential policies, Dung Quat refinery has had losses since it began commercial operation in 2010. In a report submitted to the government in mid-2015, PetroVietnam revealed the huge losses of the plant since its operation. In 2010, the refinery incurred losses of nearly VND3,200 billion, in 2011 nearly VND4,800 billion, in 2012 over VND6,400 billion, in 2013 over VND6,000 billion and in 2014 VND7,136 billion. Its total losses since 2010 is up to VND27,600 billion (equivalent to US$1.2 billion). However, thanks to the preferential policy which allows the refinery to retain import taxes, its losses fell to VND1,300-VND3,000 billion in 2011 and 2012, before earning profits of nearly VND3,000 billion in 2013, thanks to keeping the import taxes of up to VND8,856 billion. In 2014, this refinery also retained nearly VND7,200 billion of import taxes but due to the strong fall of crude oil prices, it had to extract VND1,900 billion to the provision fund so its profit was estimated at nearly VND150 billion. Thus, despite the special incentives, the refinery still had losses of VND1,048 billion since its opening. Dung Quat also enjoys corporate income tax rate of only 10% in 30 years, including full tax exemption within the first five years and 50% of tax reduction in the next nine years. PetroVietnam has the responsibility to identify, approve and grant additional charter capital for Dung Quat in accordance with current law. Accordingly, PetroVietnam uses sources from oil and gas profits to grant additional charter capital for Binh Son Refinery Co., Ltd. In June 2015, PetroVietnam asked the Government to extend the incentives for Dung Quat Refinery until 2027. If it is approved, the incentive policy for Dung Quat will last up to 17 years."

It goes without saying that this refinery is a success story. It plays an important part in Vietnam's shift from exporting crude oil (which is a primary commodity) to capital intensive petroleum production. Aside from that, it improved Vietnam's energy security, as the country gradually lessens its dependence on oil imports. It also made it to the top 10 green plants of 2018 in Vietnam. Considering that Vietnam is relatively underdeveloped, all of these achievements are only possible because the state sector ultimately operates outside of the capitalist logic of profitability. In other words, state investments overcome the law of value rather than obeying it. Heavy industry is subsidized until it is sufficiently developed, environmental standards are enforced regardless of profitability. The parent corporation is required to sustain investments if they serve the long term goal of developing the productive forces, no matter how large the losses are. This should remind people of what Stalin said in the "Economic Problems of Socialism in the USSR":

"Totally incorrect, too, is the assertion that under our present economic system, in the first phase of development of communist society, the law of value regulates the "proportions" of labour distributed among the various branches of production. If this were true, it would be incomprehensible why our light industries, which are the most profitable, are not being developed to the utmost, and why preference is given to our heavy industries, which are often less profitable, and sometimes altogether unprofitable. If this were true, it would be incomprehensible why a number of our heavy industry plants which are still unprofitable and where the labour of the worker does not yield the "proper returns", are not closed down, and why new light industry plants, which would certainly be profitable and where the labour of the workers might yield "big returns", are not opened. If this were true, it would be incomprehensible why workers are not transferred from plants that are less profitable, but very necessary to our national economy, to plants which are more profitable - in accordance with the law of value, which supposedly regulates the "proportions" of labour distributed among the branches of production."

We can apply this to our case study here. If this were left to the private sector, there would've been no petroleum production, as implied in the first article:

"Especially for petrol, Dung Quat holds an advantage compared to imported products, because it can retain 7% of import tax. Inadequacy of production capacity and efficiency of Dung Quat Refinery is more apparent when it is compared with other refineries in the region like those in Singapore, as these plants have to import crude oil, pay taxes and high shipping costs. The products of this refinery are in stock because they cannot compete with imports, leading to a risk of closure can be "urgent" as the President of Binh Son Refinery Co., Ltd Nguyen Hoai Giang said."

We don't even have to speculate, this is exactly what happened. A few years ago, state corporations, when given enough autonomy, began to invest in real estate and finance instead of focusing on their role in the commanding heights of the economy. Of course, this was eventually banned. Imagine how much worse things could have gotten if Vietnam actually turned capitalist.

Some have also suggested that the PRC’s socialist character can be demonstrated through the aspects of ‘worker control’ in Chinese enterprises, which is considered by many to be a prerequisite for socialism:

We have just one last thing to say on this point, a sure-fire way of telling that the PRC is not a capitalist economy is to observe the variance in their growth, or rather the lack thereof. That is, their economic performance is almost completely consistent and they do not experience boom and bust cycles, which are typical for free markets. This also means that the PRC was relatively unaffected by the Global Financial Crisis, which by comparison hit the western world hard.

Now, moving on to the second point. It is obviously true that the PRC's economy took off after the Deng administration’s reforms were introduced, but once again this does not tell the whole story and ignores a lot of important context. Firstly, the extent to which Deng succeeded relative to Máo is often ridiculously over-exaggerated in western discourse, the PRC's history is presented as if the economy was just a complete failure until Deng took over. Indeed, if one simply looks up the PRC’s GDP over time, which shows growth being relatively stagnant until the 1990s, this may seem convincing, but the problem with this is that GDP is a metric intended specifically for capitalist economies, and as such is a fundamentally flawed means of measuring socialist productive forces. To use another example, measurements of Ukraine's GDP presents the illusion that their economy has considerably improved since Soviet times, even though evidence on the ground clearly suggests the opposite. This is because the USSR's prices did not follow international market trends, large parts of their economy weren't monetized, and their investments were often unprofitable (e.g. free healthcare, free education etc), all of which contributed to their actual economic output being severely understated in the data. Similarly, poverty reduction statistics are often flawed as well, meaning that when China began reducing subsidies and lifting price controls, it presented the illusion that people were no longer in poverty because their wages increased, even though this coincided with goods becoming more expensive. For more information, see this article, though one must stress that we do not endorse the author's negative views of China:

Furthermore, the immediate negative consequences of the Deng administration’s reforms are often ignored, as it contradicts the western narrative. These include disunity, inequality, inflation, unemployment, corruption, worker exploitation, environmental degradation etc, all of which caused waves of social discontent at the time. Historian Jonathan Spence and Sinologist Immanuel Hsu both emphasize this in their acclaimed books, "The Search for Modern China" and "The Rise of Modern China" respectively (unfortunately we do not have links for these but one highly recommends reading them nonetheless). Of course, none of this is to deny that the reforms were a net improvement for the Chinese people, but it's still worth addressing, especially considering that literally none of these problems persisted under the Máo administration. What's also often ignored is the groundbreaking achievements of the Máo era, which are perfectly summarized by Godfree Roberts in his book "China 2020: Everything You Know is Wrong":

When Mao stepped onto the world stage in 1945, Russia had taken Mongolia and a piece of Xinjiang, Japan occupied three northern provinces, Britain had taken Hong Kong, Portugal Macau, France pieces of Shanghai, Germany Tsingtao, the U.S. shared their immunities and the nation was convulsed by civil war. China was agrarian, backward, feudalistic, ignorant and violent. Of its four hundred million people, fifty million were drug addicts, eighty percent could neither read nor write and their life expectancy was thirty-five years. The Japanese had killed twenty million and General Chiang Kai-Shek complained that, of every thousand youths he recruited, barely a hundred survived the march to their training base. Women’s feet were bound, peasants paid seventy percent of their produce in rent, desperate mothers sold their children in exchange for food and poor people sold themselves, preferring slavery to starvation. U.S. Ambassador John Leighton Stuart reported that, during his second year there, ten million people starved to death in three provinces. When he stepped down in 1974 the invaders, bandits and warlords were gone, the population had doubled, literacy was 84 percent, wealth disparity had disappeared, electricity reached poor areas, infrastructure was restored, the economy had grown 500 percent, drug addiction was a memory, women were liberated, girls were educated, crime was rare, everyone had food and shelter, life expectancy was sixty-seven and, by several key social and demographic indicators, China compared favorably with middle income countries whose per capita GDP was five times greater. Despite a brutal U.S. blockade on food, finance and technology, and without incurring debt, Mao grew China’s economy by an average of 7.3 percent annually, compared to America’s postwar boom years’ 3.7 percent. When he died, China was manufacturing jet planes, heavy tractors, ocean-going ships, nuclear weapons and long-range ballistic missiles. As economist Y. Y. Kueh observed: “This sharp rise in industry’s share of China’s national income is a rare historical phenomenon. For example, during the first four or five decades of their drive to modern industrialization, the industrial share rose by only 11 percent in Britain (1801-41) and 22 percent in Japan”. His documented accomplishments are, as Professor Fairbanks says, almost unbelievable. He: doubled China’s population from 542 million to 956 million, doubled life expectancy, doubled caloric intake, quintupled GDP, quadrupled literacy, increased grain production three hundred percent, increased gross industrial output forty-fold, increased heavy industry ninety-fold, increased rail lineage 266 percent, increased passenger train traffic from 102,970,000 passengers to 814,910,000, increased rail freight tonnage two thousand percent, increased the road network one thousand percent, increased steel production from zero to thirty-five MMT/year, increased industry’s contribution to China’s net material product from twenty-three percent to fifty-four percent. But, from Mao’s point of view, that was a sideshow. By the time he retired, he had reunited, reimagined, reformed and revitalized the largest, oldest civilization on earth, modernized it after a century of failed modernizations and ended thousands of years of famines.

—Godfree Roberts,

Moreover, it is interesting to note that despite the aforementioned flaws of GDP measurements, growth rates under the Máo administration still compare quite favorably to those after his passing, even mainstream economists admit this much:

With the Chinese economy slowing and the stock market bubble bursting, debate is raging inside and outside the country over how to ensure the world’s most populous nation remains the biggest driver of global growth. Probably the only thing all sides can agree is that a return to the collectivist totalitarianism of Maoist economics would be a bad idea. But according to research by a group of prominent economists, Chinese policymakers should probably not be too quick to rule that out. In a paper, the four economists — from the Federal Reserve Bank of Dallas, Princeton, Yale and Sciences Po in Paris — have examined productivity and growth rates in China at the height of the Maoist period and extrapolated those to predict how the country would grow between now and 2050 had it returned to those policies. They concluded that the abolition of the private sector in China and the return to a command economy would yield an annual average gross domestic product growth rate of 4 to 5 per cent between now and 2050. That was only about a percentage point less than the average growth rate they predict China will achieve if it continues with market-based reforms that began in the late 1970s and are credited with lifting hundreds of millions out of poverty in only a few decades. “Our model is essentially an accounting exercise that allows us to uncover the key factors of growth in China during and after the Mao era,” said Aleh Tsyvinski, a professor of economics at Yale and co-author of the report. “The main point of our findings is that, contrary to common misconceptions, productivity growth under Mao, particularly in the non-agricultural sector, was actually pretty good.”

Again, none of this is to deny that the Deng administration’s reforms were necessary and a net improvement for the PRC, but it is equally important to see the other side. Additionally, it's also important to recognize that the Chinese economic miracle under Deng and afterwards, as impressive as it is, only succeeded due to the immense progress in development undertaken by Máo, from which the country could build off. This included the elimination of warlordism, imperialist subjugation, feudalistic traditions, drug epidemics and starvation, as well as the unprecedented expansion of healthcare and education, as outlined above. Most importantly however, the Máo era also established the industrial base necessary for modernization. Deng himself acknowledged the achievements of his predecessor when he said that Máo was "70% good and 30% bad" (an assessment we tend to agree with). Even liberal historian Erza Vogel, another leading authority on China, admits this much in his utterly mainstream book "Deng Xiaoping and the Transformation of China":

"By the time Deng came to power, Mao had already unified the country, built a strong ruling structure, and introduced modern industry —advantages that Deng could build on."

As established earlier with the example of Vietnam, developing heavy industry is vital for third-world countries to escape perpetual poverty and dependence by shifting away from the export of raw materials, and this is exactly what Máo did with the first and second Five-Year Plans, which in turn meant that they could be competitive in the global market when Deng and others opened up the country to international trade and foreign investment:

Even according to figures released by the Deng Xiaoping regime, industrial production increased by 11.2% per year from 1952-1976 (by 10% a year during the alleged catastrophe of the Cultural Revolution). In 1952 industry was 36% of gross value of national output in China. By 1975 industry was 72% and agriculture was 28%. It is quite obvious that Mao’s supposedly disastrous socialist economic policies paved the way for the rapid (but inegalitarian and unbalanced) economic development of the post-Mao era. There is a good argument to suggest that the policies of the Great Leap Forward actually did much to sustain China’s overall economic growth, after an initial period of disruption. At the end of the 1950s, it was clear that China was going to have to develop using its own resources and without being able to use a large amount of machinery and technological know-how imported from the Soviet Union. In the late 1950s China and the USSR were heading for a schism. Partly, this was the ideological fall-out that occurred following the death of Stalin. There had been many differences between Stalin and Mao. Among other things, Mao believed that Stalin mistrusted the peasants and over-emphasized the development of heavy industry. However, Mao believed that Khrushchev was using his denunciation of Stalinism as a cover for the progressive ditching of socialist ideology and practice in the USSR. Also the split was due to the tendency of Khrushchev to try and impose the Soviet Union’s own ways of doing things on its allies. Khrushchev acted not in the spirit of socialist internationalism but rather in the spirit of treating economically less developed nations like client states. For a country like China, that had fought so bitterly for its freedom from foreign domination, such a relationship could never have been acceptable. Mao could not have sold it to his people, even if he had wanted to. In 1960 the conflict between the two nations came to a head. The Soviets had been providing a great deal of assistance for China’s industrialization program. In 1960, all Soviet technical advisers left the country. They took with them the blueprints of the various industrial plants they had been planning to build. Mao made clear that, from the start, the policies of the Great Leap Forward were about China developing a more independent economic policy. China’s alternative to reliance on the USSR was a program for developing agriculture alongside the development of industry. In so doing, Mao wanted to use the resources that China could muster in abundance-labour and popular enthusiasm. The use of these resources would make up for the lack of capital and advanced technology. Although problems and reversals occurred in the Great Leap Forward, it is fair to say that it had a very important role in the ongoing development of agriculture. Measures such as water conservancy and irrigation allowed for sustained increases in agricultural production, once the period of bad harvests was over. They also helped the countryside to deal with the problem of drought. Flood defenses were also developed. Terracing helped gradually increase the amount of cultivated area. Industrial development was carried out under the slogan of “walking on two legs.” This meant the development of small and medium scale rural industry alongside the development of heavy industry. As well as the steel furnaces, many other workshops and factories were opened in the countryside. The idea was that rural industry would meet the needs of the local population. Rural workshops supported efforts by the communes to modernize agricultural work methods. Rural workshops were very effective in providing the communes with fertilizer, tools, other agricultural equipment and cement (needed for water conservation schemes). Compared to the rigid, centralized economic system that tended to prevail in the Soviet Union, the Great Leap Forward was a supreme act of lateral thinking. Normally, cement and fertilizer, for example, would be produced in large factories in urban areas away from the rural areas that needed them. In a poor country there would be the problem of obtaining the capital and machinery necessary to produce industrial products such as these, using the most modern technique. An infrastructure linking the cities to the towns would then be needed to transport such products once they were made. This in itself would involve vast expense. As a result of problems like these, development in many poorer countries is either very slow or does not occur at all. Rural industry established during the Great Leap Forward used labour-intensive rather than capital-intensive methods. As they were serving local needs, they were not dependent on the development of an expensive nation-wide infrastructure of road and rail to transport the finished goods. In fact the supposedly wild, chaotic policies of the Great Leap Forward meshed together quite well, after the problems of the first few years. Local cement production allowed water conservancy schemes to be undertaken. Greater irrigation made it possible to spread more fertilizer. This fertilizer was, in turn, provided by the local factories. Greater agricultural productivity would free up more agricultural labour for the industrial manufacturing sector, facilitating the overall development of the country. This approach is often cited as an example of Mao’s economic illiteracy (what about the division of labour and the gains from regional specialization etc). However, it was right for China as the positive effects of Mao’s policies in terms of human welfare and economic development show. Agriculture and small scale rural industry were not the only sector to grow during China’s socialist period. Heavy industry grew a great deal in this period too. Developments such as the establishment of the Taching oil field during the Great Leap Forward provided a great boost to the development of heavy industry. A massive oil field was developed in China. This was developed after 1960 using indigenous techniques, rather than Soviet or western techniques. (Specifically the workers used pressure from below to help extract the oil. They did not rely on constructing a multitude of derricks, as is the usual practice in oil fields). The arguments about production figures belie the fact that the Great Leap Forward was at least as much about changing the way of thinking of the Chinese people as it was about industrial production. The so-called “backyard steel furnaces,” where peasants tried to produce steel in small rural foundries, became infamous for the low quality of the steel they produced. But they were as much about training the peasants in the ways of industrial production as they were about generating steel for China’s industry. It’s worth remembering that the “leaps” Mao used to talk about the most were not leaps in the quantities of goods being produced but leaps in people’s consciousness and understanding. Mistakes were made and many must have been demoralized when they realized that some of the results of the Leap had been disappointing. But the success of the Chinese economy in years to come shows that not all its lessons were wasted.

—Joseph Ball,

In other words, the PRC’s remarkable economic growth and ascendancy in the global arena could not have happened without this initial policy of state investment and protectionism, which is a point stressed to no end by South Korean economist Ha-Joon Chang in his book "Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism". He also points out that third-world countries which don't follow this path, and instead use the free market methods imposed on them by the IMF, become stuck in a perpetual cycle of poverty and dependence as a result.

As for the final point, that the success of the Deng administration’s market reforms is a testament to the superiority of capitalism in the reduction of poverty, the simple answer to this is that correlation does not imply causation. That is, there are multiple other contributing factors coinciding with the market reforms that anti-Bolshevists are ignoring for this argument to work, the most important one being the PRC’s access to the outside world. We are talking about a country that has literally never been self-sufficient in food, energy or industry (autarky has been one of the CCP's central development goals ever since the PRC was established), so naturally trade plays an enormous part in their economic growth, which these days is mostly export-oriented. This is a crucial point because China was subjected to an embargo by the west as early as 1951, and then by the Soviets in 1960, so it really isn't a surprise that their economy stagnated amidst complete isolation, and it would've happened regardless of which system they were using. Indeed, closer examination of the PRC's (and Vietnam's) growth rates over time shows quite clearly that their improvements have coincided with not being isolated, more so than any other factor. For example, the fastest period of growth in China's history was not during the modern era, but actually in the decade preceding the Sino-Soviet Split, when Máo adopted the Stalinist model with the USSR as an economic partner and GDP increased by 15-20% per annum.

In Vietnam, the "Doi Moi" market reforms began in 1986, but their economy didn't start booming until the US lifted their sanctions in 1994. It's a similar story in Cuba, where the economy experienced a small boom after Obama partially lifted US sanctions, and in North Korea, who were actually more developed than South Korea until their trade relations broke down in the 1980s.

This also means it is incorrect to attribute stagnation in the PRC to deficiencies in the centrally planned economy (the Great Leap Forward and the Cultural Revolution actually decentralized both the economy and the political system), especially considering the staggering economic growth of Soviet industrialization which literally happened during the Great Depression.

So why did the Deng administration even pursue market reforms? Well the main reason was to end the country's isolation, because the CCP understood full well that the west (more specifically, the IMF, the WTO and the World Bank) would not lift their embargo unless the PRC accepted privatization (which people would know if they read Ha-Joon Chang), hence why the Special Economic Zones were created to accumulate capital via foreign investment. Deng’s justification for this within the framework of communism was to develop the productive forces necessary for an advanced socialist society, and pretty quickly the PRC went from being completely cut off to having their economy centered around trade. This is an advantage that Máo did not have for reasons outside his control, so it's clear that the PRC’s growth has relatively little to do with the economic system. The following explanation is provided by China specialist Jenny Clegg:

China’s opening up to foreign investment and its integration into global markets is often presented by some leftists as prima facie evidence of its having become a capitalist country. Jenny Clegg points out that China’s joining of the World Trade Organisation in 2001 was seen as “the outcome of a gradual process of capitalist restoration – a final step in sweeping away the last obstacle in the way of China’s transition from socialism.” Clegg goes on to explain that WTO membership had nothing to do with capitalist restoration, and everything to do with developing China’s productive forces, strengthening its geopolitical position, and thereby building a better life for its people. China joined the WTO in order to able to “insert itself into the global production chains linking East Asia to the US and other markets, thus making itself indispensable as a production base for the world economy. This would make it far more difficult for the United States to impose a new Cold War isolation.” Further, China’s integration in the world economy has allowed it to be a part of “the unprecedented global technological revolution, offering a short cut for the country to accelerate its industrial transformation and upgrade its economic structure.” The opportunity to rapidly learn from the advanced capitalist countries’ developments in science and technology was the principal reason for ‘opening up’. Blockaded by the western countries after the revolution, and then cut off from Soviet support as a result of the Sino-Soviet split, China in 1978 was still relatively backward from a technological point of view, in spite of having made some great advances and having developed a standard of living for its people that was far ahead of other countries at a similar level of development. Deals with foreign investors were drawn up such that foreign companies trying to expand their capital in China were compelled to share skills and technology, and operate under Chinese regulation. “Foreign investment was regulated to make it compatible with state development planning. Technology transfer and other performance requirements ― conditions attached to foreign investment to make sure that the host country gets some benefit from foreign investment, such as the use of locally produced inputs, or the hiring of local managers ― were common and are still an issue of contention with the United States today.”

—Jenny Clegg,

Another important reason for the post-Máo economic boom was Smithian growth, a phenomenon whereby undeveloped economies suddenly take off after the barriers of entry into urban markets disappear and large rural populations begin flooding into the cities and towns. This is exactly why Britain, North America and the Soviet Union experienced their economic booms as soon as their respective periods of urbanization and industrialization began. In China's case, their revolution was instigated entirely by the peasantry, mainly due to the historical circumstances of Máo’s forces being confined to the countryside during the Chinese Civil War, meaning that the CCP had a distinctly rural character which was further intensified in the aftermath of the Sino-Soviet Split. Consequentially, the government pursued an anti-urban policy during the Great Leap Forward and the Cultural Revolution which prevented Smithian growth and was not reversed until Deng took over:

"Universities had been basically closed down for almost a decade. Educated youth had been forcibly sent to the countryside and it was becoming harder to make them stay. Yet in the cities there were no jobs for them, nor for the tens of millions of peasants wanting to migrate there. Further, the people who were already living in the cities, fearing for their jobs, were not ready to welcome newcomers."

This is crucial because it shows that Deng’s successes, relative to Máo’s failures, had more to do with political ideology than markets vs planning, especially considering the high rates of growth that the PRC had when they pursued urbanization with a planned economy akin to the Soviet model. In addition, economies also tend to take off when new technology begins to be transferred into domestic production, which was convenient for Deng as China was suddenly given free access to innovations from the western world, basically giving them a fast-track towards modernization like the ‘Asian Tigers’, another privilege not afforded to Máo. This also explains why the aforementioned economists predicted that the PRC would continue to achieve high growth rates even if they returned to a fully collectivized system.

"In 1978, Deng did not have a clear blueprint about how to bring wealth to the people and power to the country; instead, as he confessed, repeating a widely used saying—he “groped for the stepping stones as he crossed the river.” But he did have a framework for thinking about how to proceed. He would open the country wide to science, technology, and management systems, and to new ideas from anywhere in the world, regardless of the country’s political system."

"In 1978, because of the Soviet Union’s aggressive behaviour following the American withdrawal from Vietnam, Western countries were receptive to helping China loosen its ties with the Soviet Union. With the global expansion of trade that followed, China had access to new markets and advanced technologies—Japan, Taiwan, South Korea, Hong Kong, and Singapore—and nearby examples for how latecomers to the international scene could modernize quickly."

Finally, in addition to the PRC not being a free market capitalist economy (as we have already established), it is also a fact that their economic miracle would not have happened in a free market capitalist economy, full stop. Rather, their success is attributable to the country's socialist legacy, on top of the reasons already mentioned, so using the PRC as an example of a liberal success story is utterly delusional. Scientific socialist economics professor Woolf offers a simple explanation as to why the PRC's economy has grown so much:

"China's rate of growth is stunning, the only other country to have a story like that was the Union of Soviet Socialist Republics. Why did these two "communist" countries have economic growth so much faster than Western Europe, North America or even Japan? The answer is obvious, the number-one cause? This is a government-organized economy, they do not leave questions of investment, economic growth, building infrastructure, developing universities and technologies, they don't leave that to the market, and they don't leave it to private enterprises, they make it a priority of the whole society organized and mobilized by the government, which is why this kind of economic system has been as attractive as it has always been for poor countries who want to overcome their poverty in a short amount of time."

This draws a lot of parallels with the contentions of Ha-Joon Chang, particularly the part about government-organized systems being the most effective at overcoming poverty for developing nations. There are plenty of examples other than China to back this up as well, such as South Korea, who despite often being considered a bastion of free market capitalism did not progress significantly until the state took over the heavy industry sector and adopted Five-Year Plans. Similarly, we saw with the previous example of Vietnam that they were only able to develop heavy industry and all the benefits that came with it due to the non-capitalist features of their state-owned enterprises, hence their ascendancy would not have been possible with a free market. Indeed, this fact can also be displayed through the sheer uniqueness of the PRC’s expansion, which is literally unprecedented in modern history as Richard Woolf mentioned. In fact, between 1988 and 2008, absolute levels of poverty increased in every region of the world except China, where poverty decreases were so huge (400 million people) that they singlehandedly reversed the entire global trend. This is why it's so disingenuous of libertarians when they point to poverty reduction statistics as a testament to the free market, ignoring that almost 90% of those alleviated people come from China and Vietnam alone while capitalist countries (rich and poor alike) have remained stagnant by comparison.

The point that we are trying to make here is that capitalism has proven unable to repeat the successes of these socialist republics, and what better way to demonstrate that than by comparing the PRC with its equally large capitalist neighbor India, let us see what Martin Jacques has to say:

Comparing China’s GDP with that of India, Martin Jacques finds that in 1950 – a year after the founding of the PRC and three years after Indian independence – “the per capita income of India was around 40 per cent greater than that of China; by 1978 they were roughly on a par. By 1999, China’s was not far short of twice that of India’s and by 2009 it was over three and a half times as great.” Another decade or so later and China’s per capita GDP is around 4.5 times that of India.

Child malnutrition is becoming a thing of the past. According to the World Food Programme, between 1990 and 2010, the number of underweight children under the age of five fell by 74 percent and rates of stunting dropped by 70 percent. “Better nutrition has significantly improved the health and quality of life of Chinese children… China alone accounts for almost two thirds of the total reduction in the number of undernourished people in developing regions since 1990.” This story can usefully be compared with India, where child malnutrition is still, tragically, endemic.

—Martin Jacques,

Similarly, the quality of life in the Socialist Republic of Vietnam can be usefully compared with capitalist countries of similar economic development, particularly their neighbors in Southeast Asia, as Australian journalist Michael Karadjis observes:

"Vietnam is a “low income” country (US$430 per capita GDP), but its educational and health indicators are on par with, or better than, “middle income” countries such as Thailand ($2000 GDP per capita), China and the Philippines, and far above those of similarly poor countries, such as Bangladesh, Pakistan, Kenya and Tanzania."

—Michael Karadjis,

So why is Vietnam doing better than their capitalist counterparts? This can be explained by their socialist policies, designed to keep the economy ultimately under the control of the Communist Party and protect the lower classes from the worst excesses of free market imperialist exploitation prevalent in the Global South:

To put it simple, Vietnam had to adopt elements of market capitalism in order to build the necessary economic infrastructure to advance Vietnam’s capability to produce wealth/capital. The Communist Party of Vietnam, does this through allowing markets to exist in Vietnam, under strict state supervision or through state owned enterprises (SOE’s) in certain key industries such as telecommunications, energy, and banking (currently there are approximately 2,000 SOE’s where the state controls a majority interest, and 781 SOE’s where the state controls 100 percent. However, Vietnam does not publish a full list of SOE’s). The socialist-oriented market economy allows private capital to flourish only to the degree in which it positively contributes to the economic development of the whole country and serves the greater class interests of the working class. Within this system, the vast majority of businesses and companies are not independent of the government and are instead dominated by the workers state. It is also worth mentioning that, Vietnam is currently building a universal healthcare system. At the end of 2014, approximately 71.6% of the population had health insurance. Currently, the Vietnamese government subsidizes 80% of hospital fees for the poor and near-poor, as well as 100% for poor people and ethnic minorities living in disadvantaged areas, and 30% for workers who have average living conditions. The Vietnamese capitalist class does not receive government subsidies for healthcare. Some other points to consider are that there is a system of price-controls in place for certain products and services such as medicine, milk, rice, formula, and airline tickets, and perhaps most importantly, all land is collectively owned and managed by the Vietnamese state. If an individual wishes to “purchase” land from the state, they are only able to lease it. Property rights in Vietnam are considered some of the poorest by capitalists standards, with right-wing groups such as the Heritage Foundation classifying Vietnam as “mostly unfree” in terms of economic freedom. Price controls have also remained a powerful force in the Vietnamese economy, especially in the area of agriculture, particularly rice production. In a country where 75% of the daily caloric intake comes from rice, price controls on the rice industry remain essential to providing equitable access to rice and other goods. The role of price controls in Vietnam has also taken a different path from other socialist leaning states such as Venezuela. For example, the Vietnamese state has set price controls on the sale of rice within Vietnam at below global market values, however the export price of rice is not controlled, only the quantity of rice being exported is. This has remarkably resulted in a market equilibrium for the sale of rice in and from Vietnam, and as such, Vietnam has not experienced the shortages that other market economies often experience due to price controls (see Venezuela). In this circumstance, we can see how the Vietnamese government has centrally planned and regulated the market economy, while retaining the benefits of the market and avoiding its disadvantages. Through the introduction of markets into Vietnam, economic inequalities inevitably emerged and as such, the gap between the rich and the poor in Vietnam is substantial. This contradiction within the socialist-oriented market economy is significant, and Marxists should acknowledge this and criticize it, however it is also important to recognize that many of the Doi Moi reforms were enacted out of economic necessity in order for the survival of socialism in Vietnam. The Doi Moi reforms were also able to dramatically decrease poverty in Vietnam by more than 40% within a period of ten years, and today, the poverty rate in Vietnam is an estimated 8.4% with an unemployment rate of 2.2%.

For a more detailed summary of Vietnam's socialist policies, specifically regarding how the state helps reduce poverty in the countryside, see this post by the aforementioned Vietnamese comrade:

We can demonstrate why the economic booms in China and Vietnam could not have been repeated under free market capitalism by contrasting the reforms of Deng Xiaoping with the "shock therapy" undertaken by Gorbachev and Yeltsin in Russia, which involved the complete privatization of the economy and the disempowering of the Communist Party. Peter Nolan and Martin Jacques agree, despite themselves not being communists:

Ironically, market reforms would almost certainly have failed were they not carried out under the tight control of the government and had they not existed within the context of a planned economy. Indeed this is one reason that China’s reforms were so successful and the Soviet/Russian reforms failed. Peter Nolan, who is by no means a cheerleader for centrally-planned economies, writes: “The comparison of the experience of China and Russia’s reforms confirms that, at certain junctures and in certain countries, effective planning is a necessary condition of economic success.” Nolan points out that the Chinese state took the lead in conducting large-scale experiments and analysing the results; protecting domestic industry from the sudden appearance of foreign goods; supporting the growth of the state-owned enterprises to a level where they could become competitive in the global marketplace; investing in social and economic infrastructure (transport, healthcare, education, transport, power generation); and coordinating the different parts of the reform programme. Left to the market and an emerging class of entrepreneurs, none of this would have happened.

In 1978, China’s GDP was around a quarter that of the USSR; by the time the Soviet Union collapsed in 1991, China’s GDP was around half that of the USSR. Today, China’s GDP is nine times greater than Russia’s.

—Martin Jacques & Peter Nolan,

Additionally, although neoliberals often speculate that the PRC’s remarkable growth could still have been observed within a free market "democracy", Erza Vogel disagrees citing, among other things, the failure of Chinese pro-western capitalist leaders (Kuomintang Nationalists) prior to the establishment of the People’s Republic in eliminating the country's poverty and subjugation at the hands of foreign imperialist powers, leading him to assert that the leadership of the Communist Party was essential in facilitating Chinese development:

"He was aware that the new dynamos of Asia—Japan, South Korea, Taiwan, Hong Kong, and Singapore—were growing faster than any countries ever had. But Deng realized he could not simply import an entire system from abroad, for no alien system could fit the unique needs of China—which had a rich cultural heritage but was also huge, diverse, and poor. He realized what some free-market economists did not, that one could not solve problems simply by opening markets; one had to build institutions gradually."

"To provide order during this rebuilding, he believed there was only one organization that could manage the process—the Communist Party."

"Some Westerners were so impressed with Deng’s directness and pragmatism that they mistakenly thought he was a capitalist at heart and that he would lead China toward a Western-style democracy. He was always ready to learn, but in the end he believed he knew better than they what was good for China and it was not capitalism and Western-style democracy."

"When Deng ascended to power in 1978, he had many advantages that his predecessors lacked. In the mid-nineteenth century, few people had understood how deeply the new technology and developments along the coast were challenging the Chinese system. In the last years of the empire, the reformers had little idea of the institutional developments required to implement progressive new ideas. At the time of Yuan Shikai and Sun Yat-sen, there was no unified army and no governmental structure capable of uniting contenders for power. And after coming to power, Mao, who had no foreign experience, could not receive help from the West due to the Cold War."

"Yet all the favourable conditions that China enjoyed in 1978 would have been insufficient to transform the huge, chaotic civilization into a modern nation without a strong and able leader who could hold the country together while providing strategic direction. Deng was far better prepared for such a role than Yuan Shikai, Sun Yat-sen, Chiang Kai-shek, or Mao Zedong had been. It was he who would finally realize the mission that others had tried for almost two centuries to achieve, of finding a path that would make China rich and powerful."

"While Deng was studying in Moscow, the Soviet Union had not yet built its socialist structure. The Soviet Union was still under the National Economic Policy (NEP). Under the NEP, independent farmers, small businesspeople, and even larger businesses were encouraged to prosper while the socialist economy was beginning to develop heavy industry. Foreigners, too, were invited to invest in the Soviet Union. Deng believed, as did others at that time, that such an economic structure—whereby private enterprise was allowed and foreign investment was encouraged, all under Communist Party leadership—promoted faster economic growth than could be achieved in capitalist economies. The fundamentals of the NEP, a market economy under Communist leadership, were similar to those of the economic policies that Deng would carry out when he was in charge of China’s Southwest Bureau in 1949–1952 and those that he would reintroduce in the 1980s."

"Having been in Moscow in 1956 when Khrushchev denounced Stalin, Deng was fully aware that Khrushchev’s emotional attack had devastated the Soviet Communist Party and all those who had worked with Stalin. Although the Chinese press was filled with criticisms of Deng that portrayed him as China’s Khrushchev, long before he was sent to Jiangxi Deng had already decided that he would not be China’s Khrushchev."