Tuesday, March 6, 2018

Will bourgeoisie ever rule the Chinese state?

[I am publishing early and somewhat modified versions of self-contained sections  from my forthcoming book “Capitalism, alone”, Harvard UP, hopefully 2019. They may be a bit longer than my usual posts. This is the first such piece. All comments are welcome]

China is not the West. But what exactly is the difference, in the long-term context, between China and the West? This is a huge question that has recently (by recent, I mean the past two decades) acquired additional importance due to the rise of China, its contrast with the West in terms of the organization of its economy,  and much better historical data we now have. Here I would like to make use of an interesting take on that issue made by Giovanni Arrighi in his Adam Smith in Beijing: Lineages of the Twenty-First Century.

Arrighi starts from a dichotomy that I think he was the first to have defined in a series of articles, between Smithian “natural” path of development of capitalism and Marx’s “unnatural” (the term is Arrigihi’s) path. Smith’s natural path, “the natural progress of opulence” in the terminology of The Wealth of Nations, is that of a market economy of small producers that grows, through division of labor, from agriculture into manufacturing and only later goes into domestic trade and eventually into long-distance foreign trade. The path is “natural” because it follows our needs (from food to textiles to trade, from village community to town to faraway lands) and thus does not jump over the stages. Throughout—Smith is careful to mention—the state lets market economy and capitalists thrive, protects property and imposes tolerable taxes but does maintain its relative autonomy when it comes to economic and foreign policy. (This is why, in one part of The Wealth of Nation Smith praises The Navigation Act, entirely based on the argument of national security while in the other part of the Wealth of Nations, perhaps having forgotten that he praised it, he savages it on the grounds of monopoly.)

Arrighi summarizes it thus: “The Smithian features…[are] the gradualism of reforms and state action aimed at expanding and upgrading social division of labor; the huge expansion of education; the subordination of capitalist interest to the national interest and the active encouragement of inter-capitalist competition” (p. 361).

Marx’s approach in contrast was that he took what he observed in Europe in his time to be a “normal capitalist path”. But what Marx thought of “normal” was a system which, in Smith’s words applied to Holland, (1) inverted the natural progress by developing commerce first and agriculture last, a system that was thus ”unnatural and retrograde” and where (2) the state had lost its autonomy to the bourgeoisie. 

In fact, capitalist interests became dominant in running the states in the West, from Marx’s time all the way to today, both when it comes to economics (think of the tax cuts under Trump) or foreign policy (think of the Iraq war profiteering). Capitalists took over the state and, famously as Marx wrote, the government became “a committee to manage the common affairs of the bourgeoisie.” Such a path inverted Smithian “natural” development, by jumping the stages and going into long-distance trade and colonialism before it laboriously and sufficiently developed local production. Most importantly, however, Marxian path differs from the Smithian in that there is no state autonomy vis-à-vis bourgeoisie. Since European capitalists thrived in conditions of conquest, slavery and colonialism, they needed the state for such an “excentic” development, that is, for the projection of power abroad, and thus had to “conquer” it. This made the European path aggressive and warlike.  

Arrighi believes that what we hold today to be a standard capitalist path is  the one described by Marx. (Peer Vries in his excellent “Escaping poverty” defines capitalism as rational profit seeking plus commodification of labor plus projection of power outside.) But that path was specific to Europe and cannot be generalized or “deified”. An alternative path, much closer to Smithian, was followed by China, from Song to Qing dynasties. There, market economy was even more developed than in Western Europe (probably until about 1500) but commercial interests were never able to organize themselves sufficiently so that they could come even close to dictating state policy. The authoritarian state left rich merchants in peace so long as they did not threaten it, in a word so long as they did not “grow too big for their boots”. But it always kept a wary eye on them.  

As Jacques Gernet writes in Daily life in China on the eve of Mongol invasion 1250-76 (p. 61ff) regarding the Song China, many merchants did became rich but they failed to create a “class”, like the Third Estate in France or similar propertied classes elsewhere in Western Europe that managed to first win political representation and later power. In China, by contrast, there was a strong central government from the start to check the power of merchants or anybody else. A similar theme is reprised by Debin Ma in his paper on fiscal capacity of the Chinese state and the Great Divergence (“Rock, Scissors, Paper”): “…in China, the precocious rise of absolutism [centralized state based on hierarchically-organized bureaucracy] with the absence of any representative institution ensured that the economic rents from the control of violence were firmly in the hands of political interest divorced  from those of commercial and property interest” (pp. 26-7). It was surely not a government at the behest of the bourgeoisie.

This leads us to the present-day China. The current Communist-party dominated government, and the distribution of political power between it and the already formed capitalist class, is reminiscent of this traditional relationship. The government is helpful to the interests of the bourgeoisie but only so long as these interests do not run contrary to the objectives of the state (that is, of the elite that runs the state).

The distinction between state-owned, purely privately-owned and a myriad of ownership arrangements in-between (state-owned corporation raising private capital on the stock-exchange, communal property mixed with private property, state firms with foreign private participation etc.) is quite blurred in today’s China. Communist-party organizations exist within fully privately-owned companies. For sure, they may be useful for capitalists to the extent that they are able to coopt such organizations to lobby the party-state on their behalf. But differently, their presence can also be enervating as they are yet another constituency to be pleased and bribed or another body that could, if such is the political climate, turn against capitalists. And do that regardless of what formal ownership structure and the rights are.

Even the Chinese official statistics have difficulties catching the distinctions so numerous are the forms of ownership, and so many are different rights of ownership from ability to dispose and sell the assets to usufruct only. This multitude of ownership and corporate structures was one of the main headaches for the unconditional partisans of the Washington Consensus who insisted on the importance of clearly defined property rights for growth. It was impossible to fit China with its myriad of property relationships into the neoliberal straightjacket. Moreover some of the most murky types of ownerships, like Township and Village Enterprises, registered the most spectacular rates of growth. (M. Weitzman and C. Wu had an excellent paper on that).

But will Chinese capitalists who exist and thrive in this jungle of ownership types and uncertain property rights, forever acquiesce to that particular role where their formal rights can be limited or revoked at any moment, and they are under the constant state tutorship;  or will they as they become stronger and more numerous, organize, influence the state, and finally take it over as it happened in Europe?  The European path as sketched by Marx seems in many respect to have certain iron logic: economic power tends to emancipate itself and to look after, or impose, its own interests. If capitalists have economic power in their hands, how can they be stopped? But, on the other hand, almost two millennia of that uneasy and unequal partnership between the Chinese state and Chinese business represents a formidable obstacle, knit of tradition and inertia, that might keep the state autonomous and on what Arrighi calls the Smithian path.

Thus the question of democratization of China needs to be posed in a very different fashion from what we normally do; the key question is whether Chinese capitalists  will come to control the state and, in order to do so, use representative democracy as its tool. In Europe and the United States, that tool was used by capitalists very carefully; it was administered in homeopathic doses as the franchise expanded often at the snail’s pace, and was retracted whenever there was a potential threat to property-owning classes (as in England after the French Revolution or in France after the Restauration, or in Hungary and somewhat less in Austria throughout the existence of the Dual Monarchy). But by 1918, it was politically impossible to continue with the imposition of literacy tests or income censuses, and even the Southern United States were ultimately pressured by the Civil Rights Act of 1965, to stop using a variety of means to disenfranchise voters. Chinese democracy, if it comes, would thus be, in the legal sense, of one-person one-vote, that is, of the kind observed elsewhere. Yet given the weight of history, the precarious nature and still limited size of the propertied classes (one study of the middle class in China puts it at 1/5th of the urban population), it is not sure whether it could be maintained. It failed in the first two decades of the 20th century, may it be re-established with greater success one hundred years later?  

Saturday, February 17, 2018

How is the world ruled?

It is Saturday evening and snowing in New York. I have nowhere to go, I do have things to do (my book!) but my memories take over.

Like for example, the simple question of how is the world ruled. I think that lots of misunderstanding among people in the world comes from inability to visualize how organizations and countries are managed: people either overestimate their singularity of purpose and scheming, or try to convince themselves that there is a full freedom of action and that things are decided on merit. Neither is true. The truth is complex, elusive and lies somewhere (somewhere!) in the middle: it is what Nirad Chaudhury called in a broader context of human history “Libertas in imperio”.

I can describe it, I am afraid, best using the examples that I know well, from my life and long association with the World Bank.

Proposition 1. The world is ruled by a cabal.
Around 1989 when Yugoslavia was in its death-throes (which were not obvious to the naïve types like myself) when on vacation there I wrote an article for an economics and politics weekly in Belgrade that argued that the best privatization strategy, under the last (sensible and brilliant) Yugoslav PM, Ante Markovic, should be such that vouchers  be distributed to all citizens of the country and citizens be allowed to buy shares in enterprises in whatever part of the country they wished. It was an utterly quixotic proposals because the national nomenklaturas were precisely then working on the break-up of the country and the last thing they wanted was to cooperate with each other which they would have to do if their citizens owned shares in companies in the other republics. So, the proposal was dead on arrival.

But one afternoon, in the weekly’s nice boarding room, I explained the proposal in detail to one of weekly’s main writers on social issues.  The writer was a Serbian fascist (I am using the term not in a derogatory but strictly political sense) enamored with Italian fascism. (German was I think a bit too heavy for his taste.) He was a painter, who studied and lived in Italy, was proud of his relationship with MSI leadership, admirer of Mussolini. He also looked the part: could have been on any of the bas-reliefs that adorn Euro city near Rome: tall, well-built, square-jawed, straight posture, walking always straight with head held high. A real bell’uomo. In Rome in 1934, he would have been Mussolini’s favorite barbarian painter.

But he was, when at home, a Serbian nationalist.  So after carefully listening to me and basically nodding his head during most of the conversation, a couple of days later he came with a stinging two-page attack on my proposal titled “The World Bank sends its CIA spy to sell Serbian enterprises to foreigners”.

Now, was he mad? Not at all. He was, I am convinced, a smart guy, but he saw the world and organizations in it as an immense plot within which everything was strictly hierarchical:  ordinary people had no ideas or will of their own. So if I was  then in Belgrade arguing X, it must have been not only cleared by my superiors, but ordered by them.  And by superiors’ superiors and so forth all the way to the US Secretary of the Treasury, and perhaps Wall Street and perhaps the Jews.

The truth was that I was even risking reprimand from the World Bank because I had no business doing anything with Yugoslavia, publishing articles or creating trouble while on vacation.

But what was the reverse of this view?

Proposition 2. The world is ruled on merit.
This is the view that many people hold about their own involvements and that of institutions they work for. (Academia is a bit different, so I will leave it out). But this view of moral and intellectual rectitude is widely shared in think-tanks (and I worked in one in Washington), international organizations and probably many others (like Oxfam, Medecins sans frontiėres, Open Society etc.).

But is it true? Here I could ply the readers with numerous examples, but I will choose the one that, like the Belgrade story, sticks in my mind.

I was in the Research Department, and thus fairly independent from World Bank’s hierarchy, but it was desirable that I spend a given number of weeks annually working on concrete “operational" issues. It happened that the offer that I got involved a study of how heating and transportation subsidies in a Central Asian country affected its income distribution. It was easy to do and I promptly came back with the conclusion that they were pro-poor and should be kept.

But this was not the policy of the World Bank. The year was 1994 or 1995 and everybody believed in Fukuyama and Larry Summers. So the decision or rather the diffuse feeling (because you do not need a formal decision on matters like these to know what the “correct” answer is) was made before the report was even started that the subsidies should be eliminated. The leader of the group, not the most brilliant person, was smart enough to know what the desired conclusion was and that his/her career would be helped if the empirical analysis supported it.

So when it did not, he/she totally ignored it, and after several endless meetings where I was supposed to be somehow convinced that the data must surely be wrong, that part of the report was either not included or totally ignored. (I cannot remember what happened.) Because I was not brave or stubborn enough, I gave up a (hopeless) struggle after a couple of attempts and went back to my numbers and equations.

I was outside that particular hierarchy; so I was relatively free. But I then thought: let’s suppose that I was hierarchically under the project leader and that I was courageous enough to stick to my guns. What would have happened? My arguments would have been ignored; I would not have been demoted or fired. But in my next annual review, I would have been given the lowest possible grade, salary increase would be nil, my promotion prospect would be zero, and the explanation would never address the substantive issue: it would be that I was not collegial, failed to work in a team spirit etc. It could be even that I would have been asked to attend “team building” seminars like the Soviet dissidents were sent to psychiatric asylums.

The problem would never even be mentioned to have consisted in a disagreement on substance. Rather it would have been treated as some  maladjustment problem on my part; perhaps I was harassed when young or had a difficult childhood. Because, of course, the institution is not closed to different viewpoints and welcomes diverse opinions and “vibrant” or “robust” (these are the preferred terms) dialogue.

This is how the weeding out of undesirable views would have proceeded.  

So who was right: the Mussolini’s admirer or the Washington consensus believer? Or nobody. Your call.