Contradictions of Market Socialism in China

Against the Current, No. 20, May/June 1989

James Petras

Question: How many workers have you fired over the last year?
Answer: None.
Q: Why? You have the backing of the party and the one-party state apparatus….
A: I don’t want any trouble. We try to re-educate the worker.
Q: What if it doesn’t work?
A: We transfer him.
Q: That’s the old system before the economic reform.
A: It takes time to change workers’ attitudes.

THIS INTERVIEW with a factory manager gives a sense of the underlying “invisible” constraints that operate in a Chinese factory.

In another factory, the manager gave the same type of response: the desire to avoid “trouble.” When I persisted, he cited the “trade unions,” “party cadres” and the “other workers” as the source of the “trouble.” Apparently the party and its affiliate organizations on some shop floors operate differently from the higher levels-at least on the issues relevant to job security.

Gradually the phasing in of “self-financing enterprises” has moved toward general implementation. Yet there is fear of a worker backlash. Discussing the issue of plant closing in the United States and China with a senior educational official who also held a high post in the party hierarchy revealed the inner tensions inherent in liberalization.

Q: I just visited a town in the United States where over 1,000 workers were laid off in three months when the plant was closed down. Will this occur soon with inefficient or unprofitable firms as China applies “market criteria”?

A: It is very difficult to imagine that happening here.

Q: Why?

A: It could cause a revolution. People are not used to massive firings. They would not accept it.

Q: Aren’t you exaggerating? How would the workers organize? There is no right to assemble or free speech in China. How could the workers communicate?

A: If a thousand workers were fired everyone would know about it, disapprove and support them. They would be joined by many other workers. It would create a dangerous situation. We don’t want to have a return to the chaos of the past. We have stabilized matters now. Now, it is not possible in China to dismiss workers as in the United States.

Q: When you refer to the “chaos” do you mean the Cultural Revolution? Could it happen again?

A: Perhaps not with the same people but the same strife.

Outsiders, particularly liberals, social democrats and leftists have always assumed that Chinese workers were atomized, terrorized and subject to the all-powerful totalitarian state. Focusing on the lack of free and independent trade unions and the right to strike, they assumed that the working class was a helpless, controlled victim of the party apparatus.

A closer view of Chinese factory reality, however, reveals that the Chinese working class operates within a tight network of relations that protect workers from firings, speed-up and arbitrary managerial initiatives. These job safeguards far exceed those found in most Western democracies and would be the envy of many unemployed steel workers.

Beneath the formal authoritarian politico-juridical structure of the one-party state is an informal but highly effective set of rules that basically establish sharp restrictions on managerial prerogatives-constraints that have not been changed on essentials, despite the legal changes found in the new “liberal reforms.” In fact the proposed “liberal” changes are not only economic reforms but can be more accurately described as socio-political measures designed to restore managerial prerogatives (to pre-revolutionary practices) and dismantle the dense network and norms that have been in place since the revolution.

The division in the domestic urban industrial economy is between liberal-managerialism and workerist solidarity. What is at stake is the attempt to restore managerial rights to fire workers, to hire temporary workers, to create a pool of unemployed workers. The managerial prerogatives (euphemistically described as providing “labor market flexibility”) are designed to implement a profound restructuring of the social relations of production. And the target is precisely the working-class culture that has defined the social relations of production since the early 1950s.

Thus far, the liberalization process has advanced at the juridical level more than at the practical. Laws provide directors with the power to fire-but very few exercise that right.

In the face of resistance from below, liberal reformers have adopted a different strategy: a) dividing new contract workers from older, established workers, thus segmenting the labor force; b) offering bonuses and economic incentives to stimulate production to individual workers; and c) applying managerial prerogatives at new sites of employment. Thus by avoiding established work centers and concentrating on new workers and plants, the “liberal reforms” are being instituted. In the older, established factory centers workers accept and welcome the new bonus systems (and greater consumer power) while continuing to support the pre-existing social net, which is in place. Some commentators argue that this is a temporary situation, that sooner or later the workers will have to choose (or better, “give up”) their employment prerogatives in exchange for higher consumer power (security versus wages is how it is put).

In the meanwhile, the liberals have avoided applying any extreme measures, such as plant closings, as overtly provocative, though they are part of the free-market economic agenda.

The major debates in Chinese policy-making circles seem to revolve around the issues of the scope, depth and terms of world-market integration. These issues define the key struggle between “nationalists” and “liberals” (what the Western press mistakenly dubs “conservatives” and “reformers”).

Insofar as there is public debate, the sensitive issue facing the market promoters is the vulnerability of the Chinese economy to the crises experienced in other Third World/Eastern European countries that have “opened to the market.” Negative trade balance and increasing debt, in a word dependency, is the major point or debate that influences the shifting policies of the policy elite.

The “special zones” for foreign investors are an expression of both the strength and weakness of the liberal marketeers-opening to foreign capital but confining their activities to particular geographic areas and specific economic activity.

The strength of the liberals is found in the general line of “opening to the outside,” supported by China’s growing links to the international lending agencies, regional banks, private financial houses, multinational banks, overseas Chinese investors plus the small but influential strata of neo-compradores who operate the growing multiplicity of consulting and marketing agencies linking China to the world (and specialized) markets. This configuration of forces bolsters the ideological posture of the liberals in the policy debates — cajoling with new offers of market or investment in exchange for a further deepening of “market relations,” or threatening to withdraw investments if the “reform climate” is dampened by excessive state regulation.

The nationalists have the backing of the great majority of Chinese industry, a substantial share of the party apparatus, broad sectors of the populace and can draw support from a long tradition of animosity to imperialism and foreign exploitation. The legacy of the past, as well as the examples of contemporary dependent Third World countries, provide some strength to the nationalist position.

The liberals position themselves as the “modernizers,” drawing sustenance from the consumerist ideology permeating Chinese society and the association of Western capitalism with increasing access to consumer lifestyles, technological efficiency and greater personal freedom. Insofar as there is a split in China among young people, it is along the liberal-nationalist continuum with the revival of socialist ideas a marginal phenomenon.

The nationalists do not oppose foreign investment for the export market; they support technological imports, accept joint ventures, even allow direct investment in new areas in which national capital is not pre­ sent. The strongest nationalist opposition is in areas where overseas imports displace local producers, or where there is foreign investment interest in competitive areas within the national economy. But both liberal and nationalist elites seem to share a common purpose in opening up the local economy to market influences. In the domestic economy, the opposition takes a different form. There is a strong workerist network that defends the bonds and norms that have satisfied the basic needs of the working class since the revolution.

The conflict between liberal and workerist orientations has not been virulent nor pervasive, but a kind of invisible presence that counsels managers to prudence. While significant changes occur at the fringes and new values of individual mobility are insinuated at the workplace, the full implementation of the liberal agenda is still pending. There are virtually no proposals to democratize the workplace as an alternative to the inefficiency and low productivity of bureaucratic-workerism.

The strong point in the argument of the liberal reformers is the poor quality of goods (lack of quality control), low output and overstaffing of enterprises. The disciplining of labor and an increase in managerial prerogatives is seen as a condition for dealing with real economic problems.

The workers’ position is to agree with all the criticism, as long as the changes do not detract from their basic position. The advance of liberal restructuring of social relations of production should not be over- or understated. It has advanced considerably in the juridical and political spheres-particularly in relationship to the past. On the other hand, in the practical, socio-economic sphere, liberal reform has not transformed the workplace. It remains distant from the market practice envisioned by its devotees.

The contradictions of the Chinese transition from a bureaucratic-workerist-collectivist to a liberal-capitalist state are indeed real. They embody classes, ideologies, values, institutions and traditions that will not be easily, nor perhaps even peacefully, resolved. The dense fabric of collectivist social practice established by almost forty years of communist rule can only be ignored by visiting Western market ideologues at the risk of provoking a major social upheaval. Most of their Chinese counterparts are much cleverer: choosing to apply changes selectively rather than rushing ahead in an attempt to implement the whole free-market agenda.

The current fashion of U.S. academic free marketeers is to describe China as a “half-way house” in which the initial “opening to the market” has to be deepened, and the regime should proceed full-speed forward if it is to reap the full benefits of its policies. This view, of course, rides roughshod over essential constituencies, like the nationalists and workers, which are essential to sustain any regime. But then these free marketeers, in their broad experience among Third World dictatorial clients, have never had to heed these constituencies.

The process of liberal restructuring in China will be far more complicated and prolonged and it is not a fore­ gone conclusion that it will be consummated, given the deeply entrenched institutional and social-class forces that form the basis of economic policy.

The strong points from which the liberals operate include the countryside, with the new leasing-of-land policy forming the basis for a quasi-private rich peasantry; and the new economic zones with the libid­inous appetite of multinational capital casting covetous eyes on the national market. Liberal strategy appears to converge on the kind of “pincer action” in which the strata of well-to-do small producers and managers of township enterprises become the subaltern allies of the private/public “export sector” in a contest to shrink the role of the large-scale state enterprises in trade, production and distribution.

Reversing Mao’s strategy of a revolutionary peasantry surrounding the bourgeois citadels in the metropolitan areas, the liberal strategy involves an alliance in which the neo-compradores of the coastal cities reach out to the affluent farmers, transport and middle persons in the countryside to undermine the social power of urban labor.

Contradiction of Market Socialism: Industry

The key elements of the Chinese economic reform in the urban-industrial economy include expanding managerial prerogatives, increasing the profitability of the enterprises, raising worker productivity and intensifying the work pace at the point of production.

Among these goals, the most basic elements in the shift toward the market is to increase the power of managers in two directions-to make them more autonomous of party-state influence and to increase their power over labor. The II empowerment” of managers has taken place at several levels: 1) the right to fire workers; 2) to tie workers’ pay to the profits of the enterprise; 3) to abolish the fringe payments and rights of labor by introducing a new category of” contract workers” who are totally dependent on managerial prerogatives; 4) to allow for unemployment as an acceptable strategy in economic policy.

Over the past several years, China has been experimenting with several different approaches to enterprise reform in order to make the factory, not the state, responsible for its management and its profit and losses. Most of the experiments were launched when the Communist Party decided to introduce the market into the urban economy three years ago. At least four categories have been tried: leasing, contract system, share-capital system and management responsibility system (China Daily, June 17, 1984: 4).*

The system that is being applied in eleven industrial centers in the country is the “factory director responsibility management system.” About 40 percent of China’s large and medium-size industrial enterprises have adopted this system since 1984. The key to this system is, according to Chinese authorities, management” power “In these enterprises directors have the right to employ and remove workers and staff members and take full responsibility for production and management (June 8, 1987: 2). The party organizations and trade unions are not to interfere with managerial prerogatives. They are to focus on “political, ideological and organizational work,” sustaining the one-party state.

The crucial question, however, is whether the “political-ideological work” can be effective if it offers no protection or benefits to the workers. The new division of labor between managers with effective control over labor and the party-state with effective control over politics seems to promise the working class none of the protection of the old system, and the harsher demands of the new. Moreover, the larger problem of the utility, and ultimately the legitimacy, of the party and trade unions may be called into question as they become Jess and Jess relevant to the day-to-day needs of the working class.

The fundamental shift to managerial power embodied in the new “reforms” is clear in the agreements accompanying joint ventures with foreign corporations, as well as in foreign owned firms: “The China Hewlett-Packard (CHP) Company has full rights in the hiring and sacking of its employees, CHP President Chining Liu said in Beijing yesterday” (June 29, 1987: 2). The government, in effect, has given free rein to foreign capital over labor. “There is no interference from the government authorities in the staffing and termination of CHP employees.”

Chinese authorities are taking the worst of both worlds-the lack of independent unionism from the communist system and managerial power from the capitalist world-to produce a system in which the workers Jose the social benefits of communism in exchange for the labor discipline of the new managerialism. By focusing exclusively on managerial powers and excluding the rights of labor in Western capitalism, the Chinese neo-liberals are fashioning a system closer to Asian authoritarian capitalism than to the modernized West.

The Hong Kong style of authoritarian labor relations is in fact cited in an illustrative case presented in the Chinese press:

“Workers at a Shengang-Hong Kong joint venture have met quality and output standards for their silk and linen garments following a Hong Kong style of shake-up of management. Our monthly production volume was just around 5,000 pieces but after the Hong Kong person imposed strict management over our workers more than 6,000 pieces are now turned out every month” (June 14, 1987: 1)

The system included fines deducted from workers’ salaries for any “substandard” items. The success story, like all of this genre, omits any mention of workers’ rights in determining working conditions or pay scales-all the reader is told is that the enterprise succeeded in its profits and production quotas.

Against this background of managerial empowerment, the regime has adopted a two-prong strategy of increasing bonus payments, trading off workers’ security and job conditions for increasing consumerism outside the workplace. (“Wages and bonuses paid by an enterprise are being set against its performance,” June 2, 1987:1). The effect is to tie workers’ wages to profits and to intensify the work process.

The bonus system is intended primarily for the permanent labor force entrenched in its employment and is designed to increase production while minimizing direct confrontation on the job-security issue. For new employees, the neo-liberals instituted a system of contract labor that now includes over 5 million workers in state enterprises. The contract system embodies in pure form all the vices inherent in the market reforms of the labor system.

Contract workers are given the dirtiest and hardest jobs rejected by other workers at lower pay. Employers violate contracts at will-evading promotion clauses, raises and medical treatment. Dormitories are “make-shift asphalt ceiling shacks, hot in summer, cold in winter and without running water” (June 10, 1987: 4). Rejected by the party, unions and workers’ congresses, the contract workers resemble their counterparts recruited by the notorious labor contractors of “feudal” pre-revolutionary China.

The segmentation of the labor force reflects the growing power of managerial strata under market socialism. Managers of “autonomous” enterprises act to maximize profits and violate labor contracts because there are no independent social or political organizations to bring them to court. The contract-labor system is probably the most offensive yet most prominent “reform” designed to maximize managerial powers, increase profits and transform labor into a malleable commodity. The contract system, with its total lack of job security, has brought in its wake the problem of unemployment. In Shenzhen, 120,000 workers joined an unemployment insurance system:

“[U)nemployment insurance was initiated … for a growing number of workers left jobless since 1983 when the city [Shenzhen) introduced a contract employment system among its enterprises.” (June 5, 1987: 3)

Contrary to neo-liberal publicists, public opposition to several key aspects of the new wage system is widespread In fact, one report on fourteen extensive surveys reveals substantial popular opposition to precisely those elements of the market reforms that attack traditional working-class socialist values. According to researchers:

“People’s dissatisfaction is concentrated on these four factors: irregularities on the part of some officials; widening gap in incomes; price rises; and the restricted flow of labor … .People, because of their sense of justice, hate officials gaining personal benefits through their power. The masses, still swayed by traditional codes and values, feel rather uncomfortable in a new economic environment.” (June 12, 1987: 4)

The researchers-clearly partisans of the neo-liberal policies-describe the new policy of promoting in­ come inequalities as an “income distribution” policy designed to “smash the big communal pot” and as stimulating workers’ enthusiasm for work In contrast to their expectations, the researchers’ surveys found “that people’s concern about the widening gap is greater than that about price rises the gap in income is widening the level of people’s consumption “

To counterworking-class egalitarian consciousness and opposition, the researchers propose that:

“Outmoded ideas about distribution should be transformed. The Confucian [sic] doctrine that ‘inequality rather than want is the cause of trouble’ resides deeply in people’s minds. Over the past three decades almost all have eaten very comfortably off the ‘big communal pot.’ So many psychologically cannot accept the widened income gaps. For this we should let people see that becoming rich is the common course for all, only some make it sooner and some later…. In recent years a number of people who earn 10,000 yuan a year have emerged. It is at them that people’s resentment is chiefly directed the majority have become rich through hard work. This group deserve(s) the government’s protection and encouragement.” (June 12, 1987: 4)

It is clear that regime promoters, in trying to defend the neo-liberal policies in the face of working-class opposition, are having to resort to bizarre ideological distortions. Socialist egalitarians are labeled “Confucian.” The social safety net and class solidarity established over the past thirty years is referred to as a mere “psychological” condition-not as political practice.

The public-relations folklore reminiscent of Horatio Alger, propagated to justify the emergence of privileged strata, is not likely to resonate among the working class. Indeed the researchers’ call for government protection-state power-to consolidate the nouveau riche is more likely to be effective than the calls for the populace to cease resenting and begin emulating the rich. The new privileged classes, as they emerge, find their spokespersons in some of the research centers: those who rationalize the growth of wealth and privilege as a “natural” course and dismiss the socialist ideology of the Chinese revolution as “outmoded ideas.”

Industrial Structure

Privatization, enterprise decentralization and managerial centralization through various schemes, including leasing and joint partnerships (collective), are promoting the rapid growth of sales and profits. Thousands of small industrial and commercial enterprises have been leased out to individuals or collectives over the past several years.

The result has been to increase competition and production. Alongside the expansion of output has been the growth of substantial inequalities between holders of leases and their workers. While some enterprises flourish, others have run into serious problems-low profitability and efficiency and more losses.

Some policymakers seek to equalize conditions between “collectives” (essentially private partnerships) and state enterprises. The move to lessen state regulation and put the collectives on a stronger basis coincides with moves to deepen the growth of private ownership.

The gross inequalities emerging from the growth of the private sector are best illustrated in a feature article, “Hardship Turns to Fortune,” which China Daily (June 3, 1987: 6) presents as a success story. The Jiale Restaurant in Beijing, run by Chen Yingfeng, employs fifteen employees and earns an average of 45,000 yuan a month. Her fifteen employees are all hired on a contract basis. They work for the first three months for two yuan each workday.

This model spokesperson for the “economic reforms,” whose income is only 750 times that of her workers, speaks piously: “Kindness can only come through kindness and understanding is more important than money.” The kindness of this entrepreneur apparently does not extend to renouncing wealth gained at the expense of her workers: “I don’t believe it is shameful to get rich through hard labor.” Especially the labor of fifteen employees.

Corruption, Pollution Lubricate Free Market

Honore Balzac once said that “behind every great fortune there is a great crime.” In China the growth of many small fortunes is leading to widespread corruption and what the regime calls “economic crimes.” An official from the State Auditing Administration, commenting on a new set of regulations to combat the rising tide of corruption noted: “Violations of economic laws and regulations, corruption, fraud, and waste have been up to such a serious degree that they are affecting economic reforms.” (June 27, 1987: 1) In 1987 “irregularities” involving 3.22 billion yuan ($865 million) were uncovered.

The increase in managerial power and enterprise autonomy also provides a favorable ambience for personal appropriation of wealth. Economic laws will continue to be bent as competition intensifies for scarce resources and as individuals strive to achieve the socio-economic rewards commensurate with their power. Along with corruption at the top, the free market has spawned an army of unlicensed private traders who equal the total of licensed sellers in Shanghai (estimates run from 70,000 to 80,000) (June 16, 1983: 3).

Reports and surveys have found that they are selling unsanitary food, driving up prices to earn more profits or cheating customers with shoddy and fake goods. None of them pay taxes and the parasitical activity has had a debilitating effect on the work ethic of the working class. The article noted the tendency for illicit trading to “lure workers to join their ranks.” Quoting one worker as boasting that, “it has not been hard raking in 100 to 200 yuan a month with my small business, which promises to be more rewarding than my factory job.” (June 16, 1983: 3)

The worker was right, of course. The free market does favor the lumpen proletariat over the wage worker, as one operates in the market, the other is subject to it. Another source of corruption and profiteering is found in what is called illicit price rises. The state, having abolished its monopoly on the marketing of production materials and having allowed local commercial departments and industrial enterprises to buy and sell goods in the “market,” has discovered that the enterprises with monopoly or oligopolistic control of productive materials have been raising prices for “profiteering reasons,” as one official complained. But isn’t that what the market is all about?

The role of the state as price regulator has diminished significantly, and in several key areas, including steel, timber, cement, fertilizer, chemical raw materials, non-ferrous metals and electricity, there have been calls for state inspections (June 8, 1987: 5). Rising prices result from monopolistic pricing and profiteering may account for a substantial part of the statistical successes celebrated by the neo-liberal ideologues. Nevertheless, the middle-term effect has been to put a squeeze on industrial enterprises dependent on these “monopoly” suppliers, as well as farmers and, ultimately, consumers, creating the basis for inflated prices and declining real living standards.

With the emphasis on the individual responsibility system, widespread theft of state property, including flood prevention equipment, mainly copper, has been reported. Farmers have damaged reservoirs by plowing the embankments and draining ditches (June 23, 1987: 1). The use of state-owned mineral sources, according to one official critical of current practices, are “regarded as meat in the ‘big pot’ which everyone can take a bite of.” (June 15, 1987: 2)

The same article notes that even state officials, alarmed by the rate of waste of minerals, are “calling attention to the huge waste, heavy losses and damage of its mineral resources.” According to the same report, “Collective-run enterprises and individuals are scrambling for mineral resources, causing huge damage due to disorderly mining and digging … .In another province, most of the 11,000 rural and private enterprises … are mining on the land of the state-run mining enterprises.

And while the market is being liberated, so is the rate of pollution. According to an article in China Environmental News, the dust and floating pollutants in the atmosphere have surpassed state limits in all of China’s major cities, and only a small amount of wastewater and residues are treated for safe disposal or recycling.

Clearly, the neo-liberal policies are undermining most of the safeguards associated with modem industrial life, as have their counterparts in the Western world. The swing from bureaucratic regulation, with its stifling of all individual initiative, to the kind of unregulated free-market expansion currently projected, is creating new sets of contradictions, pitting the new party-managerial elite against the common good.

Aggregate growth charts continue to show a robust economy. Industrial output for the first six months of 1987 rose 15%; consumer goods continued to flood the market, while exports increased by 24% over the previous year. (Beijing Review, July 27, 1989: 26-27)

This growth, impressive as it sounds, has been built on the basis of consolidating managerial power, deepening integration in the market and heightening socio-economic inequalities. The result has been that increases in enterprise output have not been accompanied by improvements in public revenue. While industrial output in China’s twenty largest cities increased by 10.4% in 1986, taxes and profits decreased by 3.2%. (June 1, 1987: 2)

The source of recent authoritarian political measures is not (as Western liberals would have it) a result of Communist ideology, but a result of the deep divisions inherent in the liberal market policies and their polarizing effect. Regimes combining liberal market economics and political authoritarianism have been the norm from Germany and Japan in the late nineteenth century to Brazil, Taiwan and South Korea in the recent period.

It is not the legacy of Marx, but the consequences of Adam Smith that propel intellectual crackdowns and political constraints. The market in China is engendering growth and inequalities, managerial freedom and public discontent: the party of neo-liberalism seeks to manage both. How it proposes to straddle its contradictions will be decided in its own authoritarian setting. What is clear, however, is that the consumerist-authoritarian trade-off that market socialism offers has no relationship to the democratic egalitarian projects of worker self-managed socialism.


Since this article was written, the regime has pushed ahead in implementing the neo-liberal policies, and the working class has responded as predicted — with a wave of strikes throughout the major industrial centers. During 1988, plant managers backed by the state-police and military-have moved to reduce the labor force by approximately fifteen million workers.

In addition, wages have been frozen while prices skyrocket, leading to a 20% reduction in purchasing power. During 1988-89 a frontal attack has been launched by managers and the state on job security, welfare benefits, maternity benefits, working conditions and women’s rights. Reports from China describe large-scale labor unrest in the industrial proletarian centers of Shanghai and Wuhan, as well as Beijing, Shenyang, Tanggu (China’s biggest port) and in the special economic zone of Shenzhen.

Strikes are an everyday occurrence throughout the special zones run by foreign capital. Managers and capitalists fire women workers after they are married. They have cut back or eliminated maternity leave and have extended the work day to twelve hours in the free-trade zone areas, many times without overtime pay.

The build-up of discontent, as well as the capitalist offensive against labor, is accelerating, and major confrontations are likely to occur sooner than was anticipated a year ago. A national movement based on the working class is likely to bypass the official do-nothing unions. What is abundantly clear from the Chinese experience is that “market socialism” is profoundly anti-working class and has nothing to do with any meaningful conception of socialism. To be a “market socialist” today in China is to back some of the most retrograde social, economic and political practices of the pre-revolutionary era.

“Economic reformers,” as the Western and Eastern apologists describe them, are in effect capitalist restorationists who are challenging the residual progressive socio-economic changes resulting from the revolution. The class lines are being drawn in the East between the managerial supporters of the market and working­ class defenders of democratic collectivism. It is time for those on the left in the West to also define themselves, because historical experience is demonstrating that one cannot be for both the market and socialism.

*Unless otherwise stated, all references and quotations are from China Daily.

May-June 1989, ATC 20

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