The fact that China has had a remarkable
economic performance over the last two decades or more is absolutely undeniable.
She poses a potential challenge to the hegemony of the mightiest capitalist
economy of our time, the U.S. This cannot but be welcomed by all progressive
people, since it breaks the unipolarity of the current power structure
in the world, and hence can act as a restraining force on imperialism.
There is however another side to China's economic performance which is
a source of some disquiet. While China has experienced rapid economic
growth, enormous improvements in the material productive forces, and hence
has emerged as a big economic power, her achievement in terms of improving
the welfare of the people has clearly lagged behind. True, she may not
have poverty on the scale we have in India. True, the Chinese population
may not experience absolute deprivation to the extent that one finds in
other third world countries of Africa and Asia. But, two points can be
safely made: first, her remarkable achievements in terms of economic growth
have not been transformed into anything like commensurate welfare improvement
of the people, as had happened in the Soviet Union even in the face of
enormous strains; and secondly, considerable deprivation still exists
in China.
It may be thought that the persistence of deprivation in China is only
a temporary affair, something that would vanish the moment the authorities
decide to use the great material achievements of that economy for the
benefit of the people; that China is at the moment simply concentrating
on growth, and will take up the issue of distribution in due course; and
that it is all a mere matter of sequencing. This however is wrong in my
view for two reasons: first, in any growth process, no matter how it is
propelled, if the distribution of the benefits are highly uneven to start
with, then the beneficiaries of this process become crystallized into
a strong vested interest opposed to any future effort at redistribution;
hence the idea of "growth today and distribution later" is an
untenable idea. Secondly, the nature of Chinese growth, which relies heavily
on external markets, has an intrinsic tendency to breed social inequality,
and consequently the persistence of deprivation. The elimination of such
deprivation will come in the way of the sustenance of this growth performance
itself on the basis of the current strategy. Of course this growth performance
on the basis of the current strategy may collapse for other independent
reasons anyway, such as a slump in the capitalist world economy, on which
China has become so heavily dependent; or the imposition of protectionist
restrictions on Chinese goods in the markets of the advanced capitalist
countries. But even if none of these factors intervened, and even if the
impressive growth performance of China continued, nonetheless the deprivation
we notice in China would still continue, since the logic of the Chinese
growth strategy entails the persistence of such deprivation.
The reason is as follows. While China's growth is propelled by the growth
of manufacturing exports, China is not the innovator of the technologies
used in these manufacturing sectors. The success of China’s export drive
arises therefore from the fact that she can produce manufactured goods
at much lower prices than in the West, even while using the same technologies
as are available in the West. In other words, she is a successful exporter
because her effective wage rate is significantly lower than in the West.
If this gap in wages between China and the West got closed, or even significantly
narrowed, then her growth strategy will no longer be successful. Now,
in the West in the current epoch of "globalization" the wage
rate of workers has been virtually stagnant. As a result, Chinese wage
rates, which necessarily have to remain persistently lower than the Western
ones for the success of her export-led strategy, cannot increase much
either. No matter how high the rate of growth of labour productivity in
China in the export sectors, since this rate of growth of labour productivity
is more or less what obtains in the West (because China is not an innovator
and only adopts technologies innovated in the West), the growth rate of
China's wage rates cannot move out of sync with that of Western wage rates.
If the latter are stagnant then so must China’s be, even though labour
productivity everywhere is rising at a fantastic rate.
This is exactly what we find happening. Even though Chinas manufacturing
sector has a growth rate of nearly 12 percent per annum over the last
several years, her rate of growth of manufacturing employment has been
no more than 1 percent over this same period. The reason is that her rate
of growth of labour productivity in the manufacturing sector has been
extremely high, around 11 percent. And an important contributing factor
towards this is that, whether China likes it or not, she has to keep adopting
technological innovations introduced in the West, which typically tend
to be labour-productivity-augmenting (as Marx had argued), if she is to
remain a successful exporter, and that these innovations, once introduced
in the export sector then spread to the rest of the economy. In short,
once China has opened herself up to unrestricted international trade,
she has little control over the pace of structural-cum-technological change
in her economy. But this implies, first, that she continues to be afflicted
by unemployment, under-employment and the existence of huge unabsorbed
labour reserves, notwithstanding her extremely high growth rate (unlike
the Soviet Union and the Eastern European countries which, by cutting
themselves off from the world economy, had succeeded in absorbing their
labour reserves and had even experienced labour scarcity); and secondly,
that she continues to have low and relatively stagnant wages, notwithstanding
the high labour productivity growth, since wages in the competing sectors
are also stagnant in the West.
All this is not to say that there is no scope for any increase in wages,
but that the constraints of an export-oriented economy restrict this scope.
There is however one other obvious way that the welfare of the Chinese
people could be increased without impinging on her international competitiveness.
And this is by increasing not the wage rate paid to workers by the enterprises,
but by increasing the social wage, through for instance the provision
of collective consumption facilities. China, as is well-known, has accumulated
huge foreign exchange reserves. Unlike the foreign exchange reserves of
India which have been built up primarily through the inflow of foreign
finance, China’s reserves have come mainly from her own enormous current
account surpluses. China in short is lending huge sums of money to the
advanced capitalist countries, especially the U.S. If instead of handing
over a part of output each year to the advanced capitalist economies of
the world, and holding their IOUs in the form of reserves, China could
use her resources for enhancing transfer payments to the working people
and for public investment for enhancing collective consumption (both these
avenues together enhance the social wage), then there could be substantial
improvement in the quality of life of the people. But this will entail
a reduction in her export surplus, and hence possibly in her exports.
China’s export-orientation makes her persist in adding to her reserves
instead of enhancing the social wage.
China is not the first country to do this. Earlier when Germany and Japan
used to run huge export surpluses vis-à-vis the United States,
they too were averse to enhancing domestic demand instead of piling up
foreign exchange reserves. This represents a neo-mercantilist outlook,
which goes with a desire for economic strength in preference to an improvement
in the welfare of the people. China too is afflicted by the same desire,
born perhaps out of a strong sense of nationalism, but clearly distinct
from a socialist outlook.
Unlike what the Indian neo-liberals suggest, what characterizes China’s
strategy is not neo-liberalism but neo-mercantilism. Not only is there,
contrary to neo-liberal tenets, no significant opening up as yet to international
financial flows (as distinct from FDI), which enables the State to retain
its autonomy vis-à-vis international finance capital; but there
is an emphasis on export surpluses reminiscent of mercantilism of yore.
Of course, all this may change. There is no one single strategy that one
can identify as China's "reform" strategy. Even within the post-Mao
period, China’s "reforms" have gone through several changes.
First, it was a case of expanding agricultural production through breaking
up the communes, even while retaining communal ownership over land and
communal control over water-works. This was a period when industrial growth
was essentially home-market-based, and hence agriculture-based. Subsequently
there was a shift of emphasis towards Township and Village Enterprises
which catered to the export market but on the basis of local production
with relatively simple technology. In the later period there has been
greater emphasis on the special economic zones and somewhat more sophisticated
production technologies. Indeed in contrast to the first phase of post-Mao
reforms, when the peasantry was a beneficiary, we now have a situation
where China’s economic strategy has led to peasant resistance. (There
were 79000 incidents of clashes between the militia and the peasantry
last year, which made the Communist Party of China adopt its policy of
building a "socialist countryside", entailing larger expenditure
in the countryside). Likewise there have been significant changes between
the Jiang Zemin era and the Hu Jintao era. So, whether China’s growth
strategy continues to be neo-mercantilist remains to be seen. But neo-mercantilism
necessarily implies in the current context, i.e. in the context of high
unemployment and stagnating wages in the advanced capitalist world, a
persistence of deprivation among the people.
The clearest evidence of such deprivation is to be found among the workers.
The condition of miners working in the numerous private mines that have
mushroomed all over China, encouraged by local governments, is well-known.
It is only recent intervention by the central government that has succeeded,
according to Chinese official sources, in bringing down somewhat the very
large number of mining deaths. The migrant workers constitute another
significant site of deprivation. There are 180 million migrant workers
in China who work in the cities but have not permanently severed their
ties to the countryside. They work in extremely difficult circumstances,
have dwellings that are 3metres by 3 metres per capita, and are without
much social security or trade union rights. The migrant construction workers
were not even paid for a long time by unscrupulous private employers,
but the State is now taking some steps to make the employers pay both
current wages and the arrears.
There is a view within China that if land is made a saleable commodity,
through the transfer of ownership rights to individual households, then
the migrant workers can sever their ties from the countryside by selling
off their land, and can become a permanent urban-dwelling proletariat,
which would improve their social position and bargaining strength. Others
disagree, and argue that this would remove whatever social security that
access to land-use still provides the Chinese rural population, and hence
even the migrant workers, as a legacy of the Chinese Revolution; they
see it as a measure of counter-revolution which would lead to large-scale
expropriation of peasant property by a new segment of urban rich, keen
on benefiting from the construction boom and from real estate speculation.
What course China takes in the months to come remains to be seen. But
those who talk of a "Chinese model" and eulogize it, usually
as a means of pushing neo-liberal policies in our own country, are way
off the mark. China herself is engaged in an intense debate about her
development trajectory, which perhaps is the most positive aspect of contemporary
China, much more so than her growth rates.