China and the law of value

In his latest blog post Mike Roberts looks at the contradictory character of the Chinese economy, and concludes that whatever it is it's not predominantly capitalist. Among other things he discusses the role of the law of value in China.

http://thenextrecession.wordpress.com/2012/03/23/which-way-for-china-part-two

I made the following comment:

Thanks, Mike. You've opened a door here that has been very firmly shut for far too long. A door on a China where capitalism has not been restored, and where a restoration would make no economic sense. As you say about the World Bank report: "The report is also totally blind.  It wants China to abandon its current economic model and publicly-controlled financial system, which brought it successfully through the world financial crisis, and instead adopt the very model that led the US and Europe into disaster." Not to mention the Soviet Union - Russia is still recovering from its restoration, and two decades have passed.

So I'll stick my foot in the door and ask you for some clarification. You write: "So the Chinese economy is affected by the law of value.  That’s not really surprising.  You can’t ‘build socialism in one country’ (and if a country is under an autocracy, by definition).  Globalisation and the law of value in world markets feed through to the Chinese economy.  But the impact is ‘distorted’, ‘curbed’ and blocked by bureaucratic ‘interference’ from the state and the party structure to the point that it cannot yet dominate and direct the trajectory of the Chinese economy." You also write: "But the vast majority of employment and investment is undertaken by publicly-owned companies or by institutions that are under the direction and control of the Communist party. The biggest part of China’s world-beating industry is not foreign-owned multinationals, but Chinese state owned enterprises."

Is public ownership of the vast majority of companies and institutions and control of these by a single party enough to make a country non-capitalist?

If not, what else is required?

Is the only thing blocking the operations of the law of value in China interference by the state and party? If so, can a mode of production be changed and preserved by political decree?

As I understand it, the law of value operates most powerfully when the whole of an economy (pre-eminently the world economy, but to some extent a national economy) is commoditized. Land, means of production, labour power. Surplus value is generated by every (productive, market-oriented) interaction between labour and the means of production, and this surplus value is transformed into various kinds of capitalist surplus (rent, profit, interest) over the whole economy and equalized out into chunks proportional to capital invested. So where do the boundaries go between commoditized and non-commoditized production in China?

And what happens with surplus that isn't transformed into profit? Assuming normal conditions of production won't this mean that wealth equal to the average rate of profit (on the whole) remains within the system of production to be reinvested, or distributed as revenue not on the basis of ownership of a certain amount of capital but on quite other grounds? How do you view this "invisible" surplus? Disappearing completely into corrupt political and management pockets? Being ploughed back into production to a degree unmatched in capitalist economies?

Or, and this could be even more important, serving to pump up a credit system backed by real wealth in a way that is totally incomprehensible to mainstream economics (let's make that "to all economics except orthodox Marxism"). For decades now bourgeois economists have been gaping in disbelief at the "bad debts" incurred by non-capitalist economies like the Soviet Union and China, and predicting their imminent implosion. It hasn't happened.

One last thought in relation to all this... If underdeveloped and constantly embattled non-capitalist economies like the Soviet Union and China can easily outperform their underdeveloped and embattled peers (Indonesia, Brazil, India, for instance) over decades (not to mention the example of Cuba in relation to its peers in Central America and the Caribbean), and beyond this challenge the developed and "embattling" imperialist countries (the US, Europe, Japan) enough to keep them on their toes, mind their behaviour and strive to compete... well, if this is the case, what kind of impact would a non-capitalist state have if it arose in a relatively advanced and strategically robust country? Like Britain or Sweden?

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'Waistline' persisted in his technological fetishism, but also made a point about the law of value that I commented on:

Waistline, please give us the relevant quotes from the GP. 

You write: "As I understand things Marx directly states that the law of value will still operate under socialism, but not communism. This is stated in Critique of the Gotha Program." But "operating under" and "dominating" are not the same thing. And Marx never thought they were.

Under slave-ownership the law of value operated wherever commodity production and exchange were present. Notable in manufacture for the market, commerce, and money-lending. But it didn't determine the whole economic process. It was even more strongly present under feudalism, most especially in the capitalist enclaves of the city states (ex-Roman municipalities) like Florence, Venice or Augsburg. (Henri Pirenne is good on this.)

Under capitalism the law of value determines the whole process (and we can sharpen this to say that if you deny the viability of value as the fundamental theoretical concept underlying the economic analysis of capitalism, you're floating free in space untethered from reality, and might as well be a marginalist instead of a shame-faced pseudo-Marxist).

As the development of the forces of production make the class struggle more and more a desperate rear-guard action by the bourgeoisie, as they fight like cornered rats to keep the proletariat from power and the forces of production from developing unfettered by the constraints of bourgeois production relations, then the law of value becomes sidelined to an extent varying with the degree of oligopoly, the impermeability of political economic barriers between countries, and most particularly with the presence of countries based on a non-capitalist (proto-socialist) mode of production. 

Mike is one of the few professional economists in a position to help us determine the progress of this tug-of-war between production and circulation on the basis of the law of value, and production and circulation beyond it, on the basis of cooperative planning in the perspective of a whole economy run and operated by freely associated producers. To determine the proportion of the world economy driven by the one or the other system of organizing the social production of humanity.

Understanding the character and trajectory of China today is as important for the emancipation of the working class worldwide and thus humanity as understanding the Soviet Union was after 1917. 

Which is why this discussion we are having right here and now is so crucial.

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Waistline later provided a useful quote from the Gotha Programme:

What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges. Accordingly, the individual producer receives back from society — after the deductions have been made — exactly what he gives to it. What he has given to it is his individual quantum of labor. For example, the social working day consists of the sum of the individual hours of work; the individual labor time of the individual producer is the part of the social working day contributed by him, his share in it. He receives a certificate from society that he has furnished such-and-such an amount of labor (after deducting his labor for the common funds); and with this certificate, he draws from the social stock of means of consumption as much as the same amount of labor cost. The same amount of labor which he has given to society in one form, he receives back in another.Here, obviously, the same principle prevails as that which regulates the exchange of commodities, as far as this is exchange of equal values. Content and form are changed, because under the altered circumstances no one can give anything except his labor, and because, on the other hand, nothing can pass to the ownership of individuals, except individual means of consumption. But as far as the distribution of the latter among the individual producers is concerned, the same principle prevails as in the exchange of commodity equivalents: a given amount of labor in one form is exchanged for an equal amount of labor in another form.Hence, equal right here is still in principle — bourgeois right, although principle and practice are no longer at loggerheads, while the exchange of equivalents in commodity exchange exists only on the average and not in the individual case. In spite of this advance, this equal right is still constantly stigmatized by a bourgeois limitation. The right of the producers is proportional to the labor they supply; the equality consists in the fact that measurement is made with an equal standard, labor.
http://www.marxists.org/archive/marx/works/1875/gotha/ch01.htm

I replied: 

Waistline, thanks for the quote from the Gotha Programme.

What I'd like to point out here is that the remarks here are against utopian anarchist dreams of "from each according to his ability, to each according to his needs" the day after the setting up of a proto-socialist society. There are two axioms underlying everything Marx wrote. One is "Nothing comes of nothing" (no profit out of thin air for insubstantial things like "abstinence" or "responsibility") and the other is "Like exchanges for like" (in capitalist society based on the law of value, in aggregate, all commodities produced are exchanged against commodities of equal value).

Which means, in relation to the quote from the Gotha Programme, that the "deductions for the common funds" are equal to the surplus value of the whole of social production measured using the bourgeois yardstick of socially necessary labour time. This surplus value is gigantic, equivalent to the total profit appropriated by capitalists (and their governments) and "reinvested" (often in luxury buildings, the pyramids of our day), consumed as revenue (and how), or destroyed in war. So although associated workers "only" receive the equivalent for their labour power seen as a commodity, in part their labour power brings them much more wealth under the associated mode of production, and in part they receive vast wealth from the common funds in the form of education, health care, culture, public amenities etc etc.

In the initial stages of the non-capitalist mode of production, this pattern of production and distribution will be hugely distorted (birthmarked, gory, deformed) by the relative lack of development of the forces of production and by the immense superiority in terms of wealth and power of the remaining imperialist countries dominating the world economy. We saw this in the Soviet Union, and we are seeing it in China.

But since the capitalist mode of production is fighting an historically losing war against the socialist mode of production, our proto-socialist system is far stronger than decaying imperialism, DESPITE ALL APPEARANCES TO THE CONTRARY. These appearances are peddled by all bourgeois ideologists (including economists) as the truth. Our task as revolutionary Marxists is to expose this surface lie and prick it like a bloated wobbly bubble of sewer gas. The stench will be awful, but the view will be clear.

Waistline then added:

Choppa Morph, if you are not a police agent then stop your insults and personal attack. I suggest not using the weapon of personal insult on this blog. Since you started this cop, you really do not want to engage men in a contest of personal insults . . . .Cop Morph. 

And I responded:

Thanks for calling me a cop ;-) Next time back up your problems with my style with quotes and not just impressions. 

And when the hell did you ever see a cop argue about Marx's economic theory at this level in these terms??? And if you do find one, recruit the bastard!

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Raved commented:

Getting back to China. Marxists who deny that the law of value prevails in China are proposing a hybrid economy where the LOV is subordinated to the plan. This is possible briefly in a healthy workers state. Not so in a bureaucratically degenerate workers’ state. There can be no efficient allocation of labour time when the plan is managed by a bureaucracy. Stagnation follows. Hence the bureaucracy’s interest is to convert itself in a capitalist class by opening up to the LOV operating on the global market. Once the state officially allows the LOV to enable global prices to apply to China capitalism is restored. Since that state is already centrally organised and can manage to combine cheap labour with advanced technology the rate of exploitation and accumulation is extraordinarily high. Only on that basis can we explain China’s remarkable growth rate and expansion into the global economy. China is not only capitalist, it is super-capitalist, and hence imperialist.

I then responded to him and Waistline:

Waistline - It's not a question of you and me "simply having different points of view", it's a question of you and Marx having different theoretical understandings of the relationship between means of production and modes of production.

Raved (and I'm sorry I got swept past your first comment, so to say) - In China (as was the case in the Soviet Union) we have proto-socialism - a situation in which the mode of production is fundamentally non-capitalist, but in which (to use Preobrazhensky's term) primitive socialist accumulation is taking place in the teeth of political and economic aggression from an imperialism that still dominates the world economy. The process is further distorted by political and economic aggression WITHIN the new state where the interests of imperialism are promoted by its counter-revolutionary agents in the bureaucratic regime - as Trotsky spells out in The Revolution Betrayed. However, as long as the bureaucracy (and its twin the military) as a whole is predominantly dependent for its power and privileges on the non-capitalist state, it will defend this state. It is tearing itself to pieces this way and will either be dissolved by a resurgent revolutionary socialist workers movement or capitulate to imperialism and consummate the political counter-revolution with full restoration, that is a socio-poltical counter-revolution, as happened in the USSR/Russia. Trotsky makes this alternative very clear in the Transitional Programme of the Fourth International.

You write that this view holds that China is "a hybrid economy". That is correct as long as we remain clear that this involves a single dominant socio-economic system incorporating elements of another system within it. That is, not so much a mongrel, as a root system and stem with an alien organism grafted onto it. You also write that in this view "the LOV is subordinated to the plan". This, however, is nonsense if you equate a non-capitalist society with a smoothly functioning plan. If a non-capitalist society is equal to your idea of "the plan" as the "efficient allocation of labour time", then imperialist corporations are non-capitalist because they allocate labour time with extreme efficiency (within certain bounds), and we have never ever seen a non-capitalist society of any description because we have never seen such efficient allocation of labour time in any existing society.

This is perverting both Marx and the evidence of our own eyes.

First our own eyes - we see China allocating labour time more efficiently than comparable capitalist countries (eg India) and even than imperialist countries, while avoiding (as Mike R and Hydeparkspeakes note) the catastrophic crises of overproduction these other societies have suffered. Not very efficiently compared to a perfectly efficient allocation, but MORE efficiently. As a whole.

And secondly Marx, because as I showed by the quotes from Capital III ch 27, he already saw the non-capitalist character of the operations of joint-stock companies before 1867. That is, a hybrid economy dominated by one mode of production (capitalism) but with a new and superior mode of economy grafted on to it (or growing within it), that is the economy of associated producers. So he had no problem whatever envisaging this kind of setup. If imperialism is a duck with a swan grafted on to it (or a dragon pregnant with a unicorn ;-), then non-capitalist societies, proto-socialist systems, are swans with ducks grafted on to them (or unicorns still fighting their way free from the stinking placenta and rotting remnants of the dragon they have emerged from).

This is the economic side of things. The political is very important too. Despite all appearances and a judgement that a political counter-revolution had been carried out in the USSR, Trotsky in the Revolution Betrayed insisted that it is still a workers state, ie non-capitalist. While others were claiming it was fascist or state capitalist. (Or if they were Stalinist stooges, fully-fledged socialism.) We have since seen a genuine socio-economic counter-revolution in Russia, and the convulsions involved. There is no principled difference between Trotsky's insistence that the Soviet Union was still a workers state and our insistence today that China is still a workers state. Neither you nor anyone else has yet demonstrated that a socio-economic revolution has taken place in China. Capitalist techniques including certain legal entitlements to profit, sure, but nothing turning the country inside out as happened and is still happening in Russia.

Until you can prove beyond reasonable doubt that this has happened then either you hold that China was never a non-socialist society, or you are wrong about its recent history.

So convince me.

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