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The U.S. Economy and China:  Capitalism, Class, and Crisis

By Martin Hart-Landberg, Economic professor Lewis and Clark College, Portland, Oregon.  Published in Monthly Review, Vol 61, No. 9 February 2010, pgs 14-31. On line at   CONDENSED BY JK--below

It has been put forward that China’s position in the world markets is a miracle of capitalism.  This and other gross distortion are laid bare in the article below and at the same time the article exposes poverty of the workers and the flow of wealth of a small clique who have formed a tight relationship with the Chinese government--much like that which is occurred in the U.S. and other nations where corporations dominate the economy--jk  

“{The corporate media} encourages people to see the U.S. industrial problems, falsely, as the outcome of a contest between China and the United States, in which the Chinese government has boosted the well-being of its citizens at U.S. expense through “unfair” practices” (p. 14).  This media spin is substantially incorrect:  the citizens of China have not benefited, and the growth of their industry is a result of global corporations and finance moving to China.  China’s role in this is as an abettor not the principle.  They have provided the resources for manufacturing, cheap skilled labor, few workers rights and environmental laws, good an infrastructure, and such.  If not china, then India, Singapore, Thailand, and others would replace fill the vacuum in this global economy.    

Martin Hart-Landberg points out that the foundation for this growth occurred under the communist regime. “Starting with an industrial base smaller than that of Belgium’s in the early 1950s … China emerged at the end of the Mao period as one of the six largest industrial producers in the world….   Moreover China was forced to and did develop its own technological capabilities.” (p 16)  This foundation under communism would have permitted China to compete with the West through development of their own products.  However, this technological start has been undone. 

Shortly after Mao died, the Communist Party (led by Deng Xiaoping) decided to radically increase the economy’s reliance on market forces[1].  Now, for example, 88 percent of high-tech exports are foreign produced (merely filling orders for foreign companies).     This is one of many examples of the result of globalization which makes it necessary for large manufacturers to move to China or other countries with cheap skilled labor. 

Moreover this boom in manufacturing has failed both to increase the wages of workers or provide more jobs.  “According to the International Labor Organization (ILO), total urban (regular) manufacturing employment actually declined over the period 1990-2002 from 53.9 million to 37.3 million…. The average manufacturing wage in China was only 60 U.S. cents an hour, compared with $2.46 an hour in Mexico.  Above all, Chinese labor policies have been designed to attract foreign investment and boost the export competitiveness of firms operating in China. ” (p. 21).  

As can be expected a nation with low wages and high exports would have a private consumption as a very low percentage of GDP.  “Chinese wages as a share of the GDP have fallen from approximately 53 percent of GDP in 1992 to less than 40 percent in 2006.  Private consumption as a percentage of GDP has also declined, falling from approximately 47 percent to 36 percent over the same period.  By comparison, private consumption, as a share of GD, is over 50 percent in Britain, Australia, Italy, Germany, India, Japan, France, and South Korea….. As The Economist magazine explains, Although the share of income going to working people has fallen in many countries over the past decades, ‘nowhere has the drop been as huge as in China.’” (p. 21-22) 


As a consequence “anger by steadily deteriorating living and working conditions (including the market reform-driven dismantling of national health, housing, and retirement protections), growing numbers of people (in both urban and rural areas) have demonstrated a willingness to confront their employers and governing officials in defense of their rights….  Large scale public disturbances have increased to 58,000 in the first quarter of 2009.” (p. 22).   The Party’s determination to sustain the country’s export-oriented growth strategy means that it can do little to respond positively to popular discontent.  The state began rescinding many of the laws worker protection even before the end of 2008.  It did so to protect corporate profits hard hit by the downturn in exports caused by the growing world economic crisis.  It also ordered local governments to freeze locally established minimum wages.” (p. 23). 

The article goes on to note that because of accession to the WTO in 2001 there was a fundamental change in research and development in which the role of government in industry wide R&D was radically reduced.  This assured that China would remain a manufacturer for and not a developer of domestic and export items.  “… Any industry that wants to develop its own technology or markets has encountered increasingly greater barrier. BusinessWeek proves supportive evidence for this point, noting: “Delve beneath the muscular statistics and hype about advances in strategic industries, and China doesn’t seem so prepared to catapult into a role of global economic leadership…. China exported $416 billion worth of high-tech goods in manufacturers and the likes of Nokia, Samsung, and Hewlett-Packard and China is an electronic lightweight….. Most mainland companies mine existing technologies and compete on high volume and low cost in commodity goods…. The Chinese economy is slowly but steadily increasing its dependence on foreign technology, production, and markets--a trajectory that bodes ill for Chinese working people.” (p. 25-26).        

Financing the resulting trade deficit also required ever greater foreign borrowing, especially from China, which helped accelerate the financialization of the economy and put additional limits on U.S. fiscal and monetary policy. Taken together, these trends contributed to a weaker, more unbalanced and unstable growth process, laying the groundwork for the current crisis.

Chinese production has also generated massive new wealth; but as in the United States, much of this wealth has flowed to a relative few, causing an explosion of inequality and the formation (or solidification) of new class relations in China.  China has 250,000 U.S. dollar millionaire (excluding their primary residence), and this “0.4 percent of China’s total household held 70 percent of the country’s wealth…. The number of U.S. dollar billionaires has grown from zero in 2003 to 260 in 2009.” (p. 26).  Like in much of the recently industrialized world those who become wealthy are related to Party members.  Many of the children of leading Party officials (known as princelings) were appointed to key positions in ‘China’s’ most strategic and profitable industries:  banking, transportation, power generation, natural resources, media, and weapons.  Once in management positions, they get loans from government-controlled banks, acquire foreign partners, and list their companies on Hong Kong or New York stock exchanges to raise more capital.  Each step of the way the princelings enrich themselves--not only as major shareholders of the companies, but also from kickback they get by awarding contracts to foreign firms.  Thus more than 90 percent of China’s richest twenty thousand people are reported to be related to senior government or Party officials.”  (p. 27).      

With both governments committed to maintaining the power existing power structure, a power structure that they both are supported by and part of, one cannot expect change until crisis produces significant revolutionary forces.  The current crisis didn’t and both governments acted to shore up the existing system:  China undid labor laws, and the U.S. made a massive infusion of funds to the financial sector.  Given both governments’ commitment to globalization through the signing of WTO treaties the present course will continue.  Moreover given that nearly every nation is part of these treaties and has been locked into the global economy, the continued decline of standard of living in the developed world will continue as well as the stagnation and decline in the underdeveloped world.  There has been a steady growth of the giants of finance and industry over the last 2 centuries, and it has accelerated since the 2nd World War.  This will continue.  These corporations are the ones that benefit from globalization.      

 America has survived import waves before, from Japan, South Korea, and Mexico. And it has lived with China for two decades. But something very different is happening. The assumption has long been that the US and other industrialized nations will keep leading in knowledge-intensive industries while developing nations focus on lower-skill sectors. That's now open to debate. “What is stunning about China is that for the first time we have a huge, poor country that can compete both with very low wages and in high tech,” says Harvard University economist Richard B. Freeman. “Combine the two, and America has a problem.”1

This one-two punch is said to have devastated the U.S. manufacturing sector, driving firms out of business and undermining both manufacturing employment and wages. Families were forced into greater and greater debt to sustain consumption. And, as a growing share of consumer spending went to the purchase of goods produced in China (and other countries), government efforts to boost employment and production became increasingly ineffective.  Made even more ineffective when the trade barriers were removed and when the labor market was flooded with illegal workers and the elderly because of the declining value of pensions.   

The article ends with a call for workers to organize to demand a living wage.  There is significant labor unorganized unrest, in China, but not in the U.S.[2]  Any major changes in China would result in the exodus of foreign contracts.

[1]   “It claimed that such a step was necessary to overcome the country’s growing economic problems, which were alleged to have been caused by Mao’s overly centralized system of state planning and production…. Deng and his followers greatly over-stated the severity of existing problems and more importantly, ignored popular calls for an exploration of other, non-market reform responses.” (p. 17)   

[2]   In the U.S. the corporate media has sufficiently changed beliefs so that the dismantling of the unions and labor movement has been swallowed with hardly a belch.  Conditions must approach those in China before workers will take to the streets.  With the failure of communism in Russia and China and the growth of a global economy with its political, military, and economic arms the conditions for the working masses ought to continue its present course:  We are headed into the dark ages of capitalism.

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Teddy Roosevelt's advice that, "We must drive the special interests out of politics. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being. There can be no effective control of corporations while their political activity remains."