There are often attempts in the west to depict China as capitalist rather than socialist. After decades of China going from strength to strength on macroeconomic criteria – and in view of its undeniable achievement in reducing poverty at a rate unmatched in recorded human history – some on the right wish to deny that this could have been accomplished through socialism and so instead claim China to be capitalist. At the same time, there are those on the left who wish to distance notions of socialism from China’s economic system.
I view the question in terms of Marx’s ‘law of value’. If the law of value were universally applied to an economy, production would only occur when expected to be profitable for private owners of the means of production. Such a system might be characterized as pure capitalism. A form of state capitalism might apply, even in the absence of private ownership of the means of production, if government nonetheless acted as the collective capitalist, appropriating surplus value. This notion of state capitalism might make sense if applied to a currency-using government (such as a member government of the European Monetary Union) or to a government that chooses, for whatever reason, to abide by a commodity standard (such as the aborted gold standard of a bygone era). Since such a government is revenue constrained, accumulating savings in its currency has meaning. But the notion of state capitalism seems to be largely inapplicable to a currency-issuing government for the simple reason that saving in the currency of issue is meaningless to the currency issuer.
If pure capitalism is taken to refer to a system in which all production is subject to the law of value, a country can be deemed more or less capitalist according to how much of its activity is subjected to this law and regarded as non-capitalist (though not necessarily socialist, as non-capitalist societies existed before capitalism) to the extent that it overrides the law of value.
Most countries are currently a mix of capitalism and non-capitalism in the sense that they all override profit considerations some of the time. The main way societies do this within the monetized sectors of the economy is through government, including by situating some activity within a public sector and by providing support to a not-for-profit sector. In addition, the profit criterion is routinely overridden outside the monetary sphere, such as within families. A voluntary sector may also be significant.
Even so, in most countries the law of value is currently permitted to dominate the monetized sectors of the economy. Only in a few countries – which, in my view, currently includes China – is this not the case.
From a Marxist perspective, to the extent decision-making is subservient to the law of value, the economy will be prone to periodic crises brought on by the ‘law of the tendential fall in the rate of profit’. A society that mostly or entirely overrode the law of value would not be prone to crises of this type (though, of course, it could have other kinds of crises). For instance, the Soviet Union was impervious to the Great Depression.
Viewed in terms of the law of value, it is doubtful that China can be described as capitalist, at least for now. Public investment and public enterprise play the dominant role in the economy. Private enterprise that does occur is financed by publicly owned banks and often under the direction or strict regulation of government. In short, the law of value is overridden to a substantial degree. Just as the Soviet Union was impervious to the Great Depression, China was largely impervious to the Great Recession.
The governments most able to override the law of value indefinitely are currency issuers, though all governments override the law in varying degrees. As a currency issuer the Chinese government is not impeded by the law of value unless and to the extent that it chooses to be. The Chinese government has no need – nor use (at least domestically, in relation to its population of 1.4 billion) – for monetary profit nor income (nor value). By imposing and successfully enforcing payment of taxes in its currency, it ensures acceptance of the currency. This enables it to command resources and activate production. This is so without regard to profitability.
Not only can a currency issuer such as the Chinese government override the law of value but the prominent role of government spending, public investment and public lending in China is likely a big part of why its macroeconomic performance outstrips the west in which governments voluntarily hamstring themselves in various ways, behaving as if they are revenue constrained. Subservience to the law of value results in chronic underinvestment in basic research, infrastructure and anything else that is not directly profitable to private owners of the means of production.
Whether any of this makes China socialist is an open question. I tend to view it as socialist at the moment, but am not overly confident that the country will remain socialist. Once government has used its capacity to drive growth, an opportunity is created for the results of all that effort to be placed in private ownership. This seems to be what happened in the Soviet Union. Assets that were developed over decades in the public sector were subsequently privatized. From the perspective of the general population, this amounted to decades of effort for very little in the end, though it did of course deliver free housing, education, health care and many other benefits before the betrayal occurred. The same betrayal occurs in all countries on a smaller scale every time something developed in the public sector is subsequently privatized. Opportunistic elements within the Chinese elite may pursue a similar course – perhaps they are already doing so. It is hard to say from the outside looking in.
Whether socialist or not, I do think the tendency to refer to China as capitalist is, at least for now, misleading. It implies, from a Marxist perspective, that China’s system is vulnerable to the internal contradictions of capitalism and will eventually come undone as a result of these. However, within ecological limits and in the absence of nuclear intervention from the outside, China – or any other country, if it chooses – can continue along its chosen path indefinitely so long as it remains willing to override the law of value as and when necessary. The only kind of society the law of value ultimately brings undone is the one attempting to obey it (that is, the society that tries to confine its economic activity to for-profit production at all costs, no matter how futile the exercise becomes). A society that is willing to override the law of value at will can fail for other reasons, but its problem will not be falling profitability, because it will have no need to care about that.
For related reasons, the attribution state capitalist, sometimes used on the left, also seems misleading when applied to China, because the notion of a currency-issuing government appropriating surplus value – as opposed to a physical surplus – and functioning as a capitalist does not make much sense. So long as the Chinese government remains capable of enforcing taxes and other obligations denominated in its currency, it will always be able to command resources and control or direct production if it so chooses. Surplus value, to a currency issuer, is meaningless. A physical surplus is of course created in production. But this is true of any society that has developed economically beyond the level of merely meeting physical subsistence requirements. The creation of a physical surplus does not make a society capitalist.
It may be that China is socialist, just not in a way that some western socialists would embrace. Just as the capitalism of the US, UK or client states like Australia falls short of the capitalism of Scandinavian countries when viewed in terms of quality of life for the majority of citizens, it may be that the socialism of China, for all its achievements, falls short of what socialism can be.