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Essay Number 17
May 2003 

Is Any Juice Left in Agricultural Reforms in China: Can "the Engineers" Solve the Contradictions?

by Satya J. Gabriel


There is no movement
that does not bring change,
no moment
that does not bring metamorphosis.

Rural China was the focus of my early interest in the Chinese economy. More particularly, I was interested in understanding the role of productive self-employment (which I termed in my dissertation the ancient class process, partly as a sort of jab at the teleology at the core of classical Marxism and partly because Marx, in one of his own teleological hiccups, described productive self-employment as the ancient mode of production) in shaping social life in China and of the dynamic interaction of that social life with productive self-employment. My first visit to China in 1983 came during a period when the Chinese authorities were legitimizing the countless acts of deviance that had sprung up during the commune-era when millions of farmers were producing output which they either consumed, traded, or sold outside of the official/legal distribution channels (which were controlled by government appointed commune administrators and purchasing agents in state-run merchanting operations). During the intervening years the communes were dismantled (in 1985) and self-employment was not only legalized but became the norm in rural China.

Recently, the growth in capitalist employment in agriculture has increased dramatically, as has the degree of unemployment in rural areas. Nie and Bao, in their article on surplus worker migration in The Rural Problem at the Middle Stage of China's Industrialization (Beijing: China Planning Press, 1996), argued that rural China has from 80 to 150 million surplus workers (this concept of surplus workers has gained increasing use as capitalism has become more pervasive in all parts of China).[1]  Based on data from the China Statistical Yearbook, one can estimate that the labor force in China should be approaching 740 million this year (2003), of which a little over 71% is employed in the rural areas, mostly in agriculture. This estimate would not include children who are employed in agricultural work. Some have estimated the total amount of agricultural employment (including children) could be as high as 900 million. The potential for new additions to the capitalist labor market in China are simply astounding. (A side effect of this: In a more competitive, less state regulated and subsidized, labor market, wages for Chinese workers could fall substantially.)

The early period of reform (when rural China made the transition from state feudalism to ancientism/self-employment) saw an explosion in agricultural output and related surplus value. And you did not need a spreadsheet full of data to know that incomes in rural China were growing rather rapidly. It was quite visible. You could see the new multi-bedroomed white stone houses being built by the peasants. You could watch them carrying new television sets on their shiny new bicycles or pulling refrigerators on carts. But over time, particularly as more capitalist production was introduced, the growth in agricultural incomes, output and surplus value has slowed (and, perhaps even more problematically, the amount of arable land is being diminished as new capitalist industrial "parks" are created on what had been farmland), bringing back an old dilemma for the Chinese authorities. In a country of about 1.3 billion people, growing enough food is never a minor matter. And, in addition, there is the problem of keeping up the rapid economic growth that has come to be expected by the Chinese population, needed to absorb the aforementioned surplus population created by the expansion of capitalist labor markets, and increasingly seen as the primary raison d'être of the Communist Party of China (CPC).

The CPC has recognized, since before the 1949 Revolution, the need to simultaneously solve the problem of generating an agricultural surplus to help finance the modernization and industrialization of the country while allowing farmers and their families to retain sufficient resources to meet their consumption needs and invest in agriculture. In an effort to solve these problems, the CPC-led government has continuously transformed economic processes in agriculture, political processes shaping rural governance, and cultural processes by which the official ideology of Beijing is transmitted to the rural public. The basic mechanism for capturing a portion (or all of) the agricultural (and rural) surpluses available for investment in industrialization and infrastructure development has changed several times, from taxes on a portion of the surplus generated by self-employed (ancient) farmers after the post-1949 land reform, to the feudal mechanism of direct appropriation of the entire rural surplus during the era of the communes (initiated during the Great Leap Forward), to the return to taxation of a portion of the surplus generated by self-employed farmers and a growing number of capitalist farmers in the post-1978 Reform Era. During the self-employment periods, both prior to 1958 and since the post-1978 reforms, the government has also made use of the so-called scissors effect by which the state's power over input and output prices is used to price agricultural outputs below value and, thereby, to extract an additional portion of the surplus from ancient farmers.

Ironically, the combined effect of the price scissors (which, on the output side, has been restricted somewhat by the government's maintenance of only a limited monopsony over agricultural outputs, primarily grains and rice) and taxation of a portion of agricultural surpluses of rural direct producers has generally resulted in more surplus resources going to the state than the direct appropriation of the entire surplus under the feudal system. In other words, if Y is the surplus that farmers produced when given the power to be the first appropriators of that surplus and Z is the surplus produced by the collective of feudal producers under the commune system, then Y exceeded Z by such a large factor that µY > Z (where µ = the average tax plus scissors rate on the farmers' surplus). In addition, the size of the consumption fund generated by rural direct producers to meet their own family needs, call this X, has grown substantially over the similar consumption fund generated on the communes, call this Ž. Thus, X + Y > Ž + Z by a substantial factor, representing the incremental growth in value and incomes (X + Y - Ž + Z) generated by the shift from feudal relationships (the commune system) to a mixed ancient and capitalist agricultural environment. It turned out that class process mattered when it came to the size of the surplus generated by direct producers. Not only did class matter but the impact of this class process transformation/transition was measurable (although we would caution that this approach oversimplifies, as we economists are known to do quite frequently, and ignores the other panoply of changes that accompanied the change in class processes --- history is always messy in this way and multicollinearity is always lurking in the shadows, if not making a very public show of itself). This was a critical lesson learned by the pragmatic modernists and has shaped their policy approach to not only agriculture but industry as well.

The "Four Modernizations" strategy, which originated with Zhou Enlai but is more closely associated with Deng Xiaoping, lives or dies with the success of generating and capturing a relatively large surplus value (a significant portion of which must be realized in hard currency to finance the purchase of foreign technology). Industrial growth, particularly the rapid increases in surplus generated by the town-village enterprises (TVEs), discussed in essay 14, but also due to the resurgence of the state-owned conglomerates (SOEs), discussed in essay 13, and the growth in private and joint venture firms are certainly playing an important role in generating the surplus necessary for the technological and infrastructure transformation implied by the "Four Modernizations," but we need to keep in mind that nearly half of all Chinese direct producers continue to work in agriculture. Agriculture remains, therefore, a critical source of productive employment and surplus labor.  And we must not forget, as the CPC leadership is quick to remind us, China remains a "less industrialized" nation, despite the rapid physical transformation in the coastal regions, especially the large cities on the coast, and therefore has a long way to go before the process of modernization reaches a point where a slowdown doesn't pose a serious threat of reversal. In other words, the "modern" capitalist economy has developed rapidly but is, by no means, fully rooted. It's easy to see this if you travel beyond the boundaries of the coastal areas and into the hinterland (or even into select districts of the major cities). It is doubtful that the "Four Modernizations" can be extended to this hinterland without successful development ("modernization") of the agricultural sector.

Indeed, if agriculture fails to generate sufficient surplus, it becomes very problematic to continue the current rapid national economic growth, particularly as the demands of a growing urban managerial class places increased pressure on distributions of the industrial surplus. The competition over shares of this growing surplus may further intensify, as various recipients fall under the spell of the new culture of conspicuous consumption. As the claimants to portions of the surplus attempt to gain higher amounts, increased pressure will be brought to bear on direct producers, in both agriculture and industry, to produce higher levels of surplus value. One way to achieve this increase in surplus value is to raise productivity (in both agriculture and industry) so as to lower the relative cost of meeting the consumption needs of direct producers. Raised productivity can be achieved by applying more advanced production techniques and means of production, i.e. modernization. In other words, the very process of "modernizing," that is packaged with conspicuous consumption in order to generate the necessary support from the most educated portions of the population (who are most likely to benefit from higher distributions of surplus value), creates pressures for more modernization.

There is, however, a risk that the pressures to raise the surplus available for distribution will negatively impact the value generated to meet the consumption needs of direct producers. This risk is particularly acute in agriculture, where many direct producers are still disorganized self-employed farmers and an increasing number are wage laborers. If, in the extreme case, agriculture fails to meet the basic consumption needs of the rural population (X falls below some critical threshold Þ, which is itself constantly changing and influenced by the same cultural dynamic that raises demands on surplus value generated in both self-employment and state and private capitalism), the centrifugal forces always present in the Chinese countryside could surface in the form of disruptive protests that threaten the continued monopoly control of government by the CPC. Chaos is the primary worry for both the CPC leadership and many within the more formally educated population (the "intelligentsia"), particularly those who have benefited from recent economic growth by receiving residual benefits in the form of distributive payments from the surplus of TVEs or other industrial firms.

Thus, the current iteration of the pragmatic modernists ("the Engineers"), led by Hu Jintao (the new primus inter pares within the CPC), must negotiate the next stretch of the River by touching a brand new set of stones (experimental policies and programs) designed to garner an even greater surplus available for their modernization project. Among the problems that need to be solved: finding the catalyst to increase that portion of the agricultural surplus that goes to investment in more advanced agricultural techniques and related means of production without diminishing the surplus captured for industrial and infrastructure modernization. Given China's entrance into WTO, failure to modernize agriculture may result in China's farmers losing a large percentage of the urban market for their output. It hasn't happened yet, but that seems to be the result of official foot dragging on compliance with WTO provisions related to agriculture (to the ire of the United States and other nations hoping to crack the domestic Chinese market for agricultural goods). Any losses to foreign agricultural enterprises could have devastating consequences in rural China, reducing incomes, raising unemployment further, and generating more opposition to the CPC.

By all indications, a sizable number of rural farmers are already unhappy with both central and local government policies (as well as corruption by local officials that represents an additional drain on the surplus value generated by self-employed farmers). If rural farmers fail to realize sufficient value in sold output to meet the aforementioned Þ level of consumption, whether this failure is due to WTO related competition or other factors, there could be a widespread crisis in rural China. But that's the worse case scenario. More likely, problems will develop more gradually, as agricultural incomes fall farther behind industrial incomes and overall unemployment grows from redundancies in both the rural and urban sectors. Indeed, there seems to be widespread agreement that the level of redundancies in agriculture far exceeds the level in industry (where the state-owned enterprises were generally regarded as bloated with redundant workers). If these rural producers and urban workers join their comrades in unemployment the so-called reserve army of unemployed (an alternative name for surplus workers) could become a tidal force in Chinese politics, culture, and economics.

Perhaps that is precisely why the government is stalling on implementing WTO provisions related to agriculture, to provide farmers with more time to prepare and hoping to keep acceleration of the unemployment rate and the social impact of overall rising unemployment to a minimum. Indeed, once WTO related competition hits the Chinese economy with full force, severe limits will be imposed on any rise in agricultural prices (a rise in such prices is often seen as a temporary panacea to agricultural problems --- helping to both raise income levels and encourage more productive investment in agriculture) and some prices may even fall.

What is the solution? It would be wonderful if Chinese farmers could be equipped with technology that would allow them to raise their productivity levels to something close to that of Japanese farmers (according to Fang Gang the productivity in grain production in China is already comparable to that of American farmers). But this is a pipe-dream. How do you raise productivity without a significant rise in the surplus value invested in agriculture? The pragmatic modernists reformed the Chinese economy to guarantee an outflow of surplus value from agriculture to finance modernization of industry and expansion and modernization of infrastructure (mostly in urban areas). Today and for the entire reform era, the percentage of social investment going to agriculture has been a fraction of the amount of surplus generated in that sector (and less than 2 per cent of the total). According to Fang Gang, writing in the China Rural Survey, "If agriculture's share of national investment were to be brought in line with its share of national income, farm investment would have to rise to over 300 billion yuan (at 1994 prices), or ten times its current level." It's a catch-22. In order to raise agricultural productivity surplus value would need to be transferred to agriculture (presumably from industry) but, even if there was a political will to do this (which there clearly is not), the result would be a sharp slowdown in the modernization of industry (with the concomitant slowdown in productivity improvements and "competitiveness" in that sector). WTO related competition will take its toll, either in agriculture or industry or both. There is simply no apparent resolution to this contradiction. But rest assured, the Engineers are going to come up with something. Right? After all, if they could dam the Yangzi River, then anything is possible.


[1] Capitalist firms in china, as elsewhere, tend to employ far fewer workers per investment outlay than enterprises of self-employed producers or family-based enterprises (whatever the class process underlying the family enterprise). This is indicated by the relatively low employment elasticity of investment in capitalism. Thus, as capitalist firms make up a larger share of investment spending in China, then employment growth slows. It is likely that this trend will both increase the unemployment rate over time and make it increasingly difficult to absorb unemployed workers for any given amount of overall investment spending in the Chinese economy. The potential for this leading to social unrest is of no small importance in analyzing the stability of Chinese society going forward.

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Copyright © 2003 Satya J. Gabriel, Mount Holyoke College. All Rights Reserved.

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