Strange Bedfellows?
The Transition from State to Private Capitalism in China: The Network of
Distributive Class Payments, Modernization, and Growth of the "
New Social Strata": Is Capitalism in China to Stay?
by Satya J. Gabriel
"Since China adopted the policy of reform and opening-up, the composition
of China's social strata has changed to some extent. There are, among
others, entrepreneurs and technical personnel employed by scientific and
technical enterprises of the non-public sector, managerial and technical
staff employed by foreign-funded enterprises, the self-employed, private
entrepreneurs, employees in intermediaries and free-lance professionals.
. . . Most of these people in the new social strata (emphasis
added) have contributed to the
development of productive forces and other undertakings in a socialist
society through honest labor and work or lawful business operation. They
work together with workers, farmers, intellectuals, cadres and the
officers and men of the PLA. They are also working for building socialism
with Chinese characteristics."
Jiang Zemin,
from his speech at the meeting
celebrating the 80th anniversary of the founding of the CPC
There has been a proliferation of alternative types of economic
organizations within the Chinese economy since the beginning of the
reforms in 1978/1979. It started out as illegal to engage in a wide range
of entrepreneurial activities and has evolved into a relatively wide open
environment where many individuals engage in self-employment (the ancient
class process whereby the person creating value is also the first receiver
of that value) and an increasing number hire others to produce value in
capitalist firms. Indeed, not only are new capitalist firms being started
at an increasing rate (with the red tape associated with starting a
business having declined much faster than anyone expected), but the older
state capitalist firms have been morphing into private capitalist firms,
creating a tidal shift in control over surplus value (both in terms of
decentralization and de-statization). But China has gone through a number
of sea-changes in class terms since the 1949 Revolution. Why are we to believe that this
current sea-change is more permanent than past ones?
We can't be sure. But there are indications that not only are
capitalism
and self-employment (ancientism) becoming deeply rooted in the Chinese
economy but that, as indicated above, the prevalent form of capitalism has
shifted from a state to a private form. And as private capitalism grows, it creates a dynamic
that fosters further growth, displacing its cousin
state variant form of capitalism, as well as alternative class processes, including
self-employment.
Capitalism in contemporary China is manifest in a rich array of private,
municipal, and state-owned capitalist firms (and hybrid firms, such as
joint ventures). As has been pointed out in
previous essays, the state and municipal owned firms have increasing taken
on many of the characteristics of their privately owned cousins. While
all capitalist firms share a common form of surplus value creation,
appropriation, and distribution, state capitalist firms have been defined
(Stephen A. Resnick and Richard D. Wolff,
Class Theory and Practice) as a
form of capitalism wherein the firm is an integral part of the state
bureaucracy and the appropriators of surplus value are state-appointed
functionaries. This is a stricter definition than one I had been
using. I had previously defined state capitalism as simply the marriage
of capitalism and state-ownership.[1]
But I would agree with Resnick and
Wolff that this stricter definition makes a lot of sense. It does get to
the heart of the material difference between state and private capitalism,
which is not simply ownership, but the issue of relative autonomy. A
state capitalist firm is simply a component in a larger bureaucratic
structure, with objectives and activities constructed in the context of
the goals of the larger bureaucracy. The state capitalist firm enters
into agreements only if those agreements are consistent with the dictates
of the bureaucracy. Thus, commitments of future surplus value are made in
this context. This reduces the likelihood of creating allegiances and
actions by internal and external agents that would undermine the state
form of capitalism (although this is not
guaranteed).
But what of the firm that is merely state owned, but
has been separated
from/is independent of the bureaucratic structure. In particular,
what happens when the Chinese SOEs are transitioned to corporations where
the government is simply an owner (and often not the sole owner) but the
board of directors and senior management are no longer state
functionaries? This has clear implications for the operational decisions
made within the firm and the nature and extent of the binding agreements
linking the enterprise to receivers of surplus value within and without
the enterprise. Indeed, a firm can be state-owned and yet have an
independent ability to enter into such binding agreements that result in
future claims on enterprise surplus value so long as the senior management
and/or board of directors (depending on the legal context of the firm's
operations) are not state functionaries (subject to the commands of the
state bureaucratic hierarchy).
The restructuring of the state-owned enterprise
(SOE) sector has quite definitely resulted in a shift from these
enterprises being a functional part of the government bureaucracy (under
the State Council (with management functions delegated to the State-owned
Assets Bureau)) to being relatively autonomous corporations
where the state is simply a majority (and external) shareowner.[2]
SOE senior management is engaged in making
the sorts of binding contracts that one would expect from a private
capitalist firm. Using the strict Resnick-Wolff definition of state
capitalism, China has already undergone a transition from state capitalism
to private capitalism (after having earlier, even if recently, undergone a
transition from feudalism to state capitalism in industry and feudalism to
ancientism/self-employment and capitalism in agriculture).
To the point, boards of directors of state-owned corporations have become
the first receivers of the surplus value generated in those enterprises
and are responsible for entering into contractual relationships that shape
the investment portfolio and operational strategy of the enterprises and
future claims to enterprise surplus value. The fact that boards of
directors and their senior management must do this in the context of
policies set by the state does not change the fact that the agents
responsible for such decision-making are no longer state
bureaucrats. After all, all private capitalist enterprises, no matter
where in the world they function, are subject to such contexts.
The power to shape the binding agreements and surplus value commitments of
the SOE makes it possible for SOE boards of directors to secure conditions
for the existence of this new form of capitalism, to reproduce it over
time, and perhaps even to expand and enhance it. Thus, the restructuring
of SOEs from inside the state bureaucracy to outside this bureaucracy has
far reaching implications for the future direction of reform. In other
words, the very fact of the relative autonomy of boards of directors gives
the boards powers to shape Chinese society in ways that weaken the power of the
state to alter the initial conditions that gave the boards their relative
autonomy in the first place.
The glue linking the objectives of the capitalist enterprise to internal
and external agents is the distributive payment of surplus value, where
the board of directors shares surplus value with these agents in return
for the agents taking actions necessary to the reproduction of the boards'
ability to continue receiving surplus value. The spread of private forms
of capitalism, including state owned firms with private appropriators,
results in the creation of an expanding web of such relationships. As
private capitalist firms become more pervasive in China, the behavior of
these agents who receive capitalist surplus value from private capitalist
firms will become increasingly important factors in the overall social
life of China. The creation of this distributive relationship between
private capitalist firms in China and both internal and external agents
allows for the coordination of actions designed to foster a
pro-private-capitalism Chinese social formation (in the form of
pro-private-capitalist cultural, economic, and political policies
originating from a wide range of social sites, including the various
levels of government/state).
As local officials fall under the spell of these distributive payments out
of private capitalist surplus value, there will be a stronger tendency for
those officials to act in defiance of goals and objectives set in Beijing
when such goals and objectives are contrary to the conditions necessary
for the health and prosperity of private capitalism. In other words, the
creation of a distributive class relationship between local governments
and private capitalist enterprises makes it all the more difficult for the
central government in China to assert its primacy over public
policies. This is, then, one of the forces generating a higher level of
regionalism and localism in China.
The coalescence of power in the corporate sector is reinforced by the
absence of independent labor unions. Chinese corporations operate in an
environment where the wage laborers
generating the necessary surplus to meet the aforementioned
internal and external demands and secure close ties to external agents are relatively
weak, represented in collective bargaining by branches of the All China
Federation of Trade Unions (ACFTU), a government controlled entity that
is, for all intents and purposes, a component of the state bureaucracy. The
cooperation of the ACFTU with internal management of majority state owned
enterprises facilitates keeping rates of exploitation relatively high and
providing a means for making these firms more competitive as the Chinese
economy is opened to external competition, as well as increased varieties
of internal competition.
Let's not lose sight of the original motivation for the Communist Party of
China (CPC), under the leadership of the pragmatists, taking
a pro-private-capitalist approach. The goal was to generate sufficient
surplus value to speed-up the modernization of Chinese industry, the
military, research and development, and
agriculture (The Four Modernizations). The fact that private capitalism has produced relatively
large increases in surplus value, with average annual growth rates
approaching ten per cent, has provided the main evidence for the
correctness of the pragmatic modernist approach and reinforced their
hold over the CPC leadership. Rapid growth coupled with the extensive
network of relationships created by continual expansion of the
distributive class process of private capitalism work in tandem to
reinforce the reform strategy and to create more allegiances to that
strategy.
It is generally understood that one of those allies is the group that
Jiang Zemin has labeled "the new social strata."
How do we make sense of the new social strata in class terms? It is, in
fact, this process of
creating a network of receivers of surplus value distributions and the
related activities of agents within that network that constitutes an
alternative way of thinking of the new social strata (which includes some
elements of the often referred to "middle class," but is not reducible to
that income defined grouping). In discussions of the "middle class,"
it is usually understood that this subset of the population is more
supportive of modernity than the poorer segments (or subsets not connected
to capitalism by surplus value distributions) and less concerned with
social welfare. This can also be said of Zemin's new social
strata. Thus, as the pragmatic modernists shift the standard
of Party success from "the iron rice bowl" (or providing broadly available
social services) and egalitarian income distribution (both of which had
been interpreted by the Maoist Left as signs of socialism) to generating
the surplus value necessary to modernization, the pragmatic modernists
might also be attempting to shift the core constituency of the Party from
the poor and working classes to this new social strata, as well as the
composite elite of private capitalists and top-level government
officials. It remains to be seen if the implicit bargain between the
pragmatic modernist led state bureaucracy, local governments, and
private capitalist directors and managers will result in a better society
for all Chinese citizens ("xia gang she hui"). The early phase of
modernization has produced
certain physical artifacts of modernity, such as new skylines in Chinese
cities, a magnetic levitation train in Shanghai, an explosion of
automobiles on the new freeways, new airports, one of the fastest rates of
absolute increase in cell phone and internet usage on the planet, a
rapidly developing (and heavily subsidized) electronics industry, among
other things, but it has been accompanied by increasing income inequality
[3] ,
social unrest related to retrenchment at SOEs, increased corruption at
local governmental levels and charges of high level corruption at the top
of the state bureaucracy, organized protests by ancient farmers who feel
pressured by everything from the just mentioned corruption by local
officials to higher costs for inputs and increased competition from
capitalist farms, and a deterioration in public health care
provision (with SARS as a possible side-effect). There is some concern
that the latter set of factors could drown out the former and
lead to social chaos and political
instability at some point in the future. But this may just be wishful
thinking from that other cottage industry --- mainstream social analysts
mimicking classical Marxists by seeing a crisis looming around every
corner. The difference is that the Marxists tend to see these crises
in capitalist social formations, in general, (or sometimes only in the
most technologically advanced capitalist nations) and the former
group only sees this omnipresent crisis potential in China.
NOTES
[1] Although neoclassical economic theory, best typified
by neoclassical microeconomics, is notoriously impoverished in terms of
providing tools for comparing institutional differences, including between
alternative types of firms, there are examples within the mainstream
literature where theorists have transcended the limitations of this
paradigm. One of the best examples is Ronald Coase who recognized the
idiosyncrasies of the capitalist firm and restricted his
theorization of the internal dynamics of the firm (which explains
the social problems that this institutional form solves) to capitalist
firms, defined in terms of their unique internally generated wage labor
employment contracts. Perhaps because he was writing at a time when
capitalism was prevalent but hardly pervasive within the industrialized
nations (many geographic spaces within Europe, the U.S., and Japan
continued to be dominated by self-employment and family firms and farms,
etc.), he understood that the behavioral characteristics of capitalist
firms were not universal. In terms of our analysis above, the Coasian
approach to the internal dynamics of the firm works whether or not the
owner of the firm is the state, a private individual, a set of private
individuals, non-state (private) institutions (whether other firms,
churches, associations, etc.), or some combination of state and private
parties. However, one should recognize that who owns would have a
determinate influence on firm dynamics and additional complexity to
analysis would take this into consideration (and not necessarily be
restricted to the simplistic dichotomy of state versus private). An
overdeterminist analysis of the firm ultimately tells us that all the
factors (various adjectives) shaping the uniqueness of a firm (or firms)
in a given historical moment and geographic space are significant factors
in shaping the specific dynamic of that firm (or firms). Time and energy
constraints limit us to some subset of factors, but there is no specific
subset that are most important.
Return
to Essay
[2] Ironically, the transition from state capitalist to
private (but state-owned) capitalist may have resulted in a relative
deterioration in the performance of many large and medium-sized
firms. Dic Lo, 1997, Market and Institutional Regulation in Chinese
Industrialization, 1978-1994, found that these sized firms did just as
well as private firms, in terms of productive efficiency,
during the period prior to the mid 1990s, which
would include the period when they were first transitioned from state-run
to simply state-owned, indicating that something happened during the
transitional period to lead to their relative underperformance. Perhaps
it was less a deterioration in the performance of these transitioned firms
than the development of closer ties between public authorities and the
newer private firms that resulted in the performance shift, as the latter
were able to secure conditions for prosperity at the expense of the older
(formerly state-run) firms.
Return
to Essay
[3] Knight and Song, "Economic Growth, Economic Reform,
and Rising Inequality in China," in Riskin, Renwei, Li Shi, ed.,
China's Retreat from Equality, point out that China's transition
from one of the world's most egalitarian nations to one of the least
egalitarian (in income terms) was relatively rapid. "The Gini coefficient
of household income per capita rose by 7 percentage points, from 38 to 45
percent, between 1988 and 1995, or by 1.0 percentage points per annum."
Return
to Essay
Previous Web Essay
Next Essay
Copyright © 2003 Satya J. Gabriel, Mount Holyoke College. All
Rights Reserved.
Permission is granted to use this text, with proper
credit to its author, for non-commercial educational purposes, provided
that the content is not altered including the retention of the copyright
notice and this statement. If you excerpt text from this or other essays
or papers on this web site, you should follow normal protocols for proper
citation. Below is an example of such a citation:
Gabriel, Satya J. "Strange Bedfellows?
The Transition from State to Private Capitalism in China: The Network of
Distributive Class Payments, Modernization, and Growth of the " New Social
Strata": Is Capitalism in China to Stay?" Satya Gabriel's Online
Papers: China Essay Series http://www.satya.us
Please make links to
this document instead of
copying it onto your server. For permission to use it in other ways please
contact the author by e-mail.
|
