More on China: A Reply to Carlos Martinez’s Reply

Carlos Martinez has posted a thoughtful, measured response to my recent article raising questions on the soundness of the “Chinese road to socialism.” I’m appreciative that he accepted my arguments as constructive and comradely. I’m happy that Martinez-- one of the most ardent defenders of Socialism with Chinese Characteristics-- is open to a respectful and frank exchange. I hope others will engage in a similar fashion.

We have several points of disagreement, both factual and theoretical. 

I challenge China’s foreign policy. I believe that the PRC’s departure from the proletarian internationalism that served as the foundation for the Communist International and for a united and fighting world Communist movement has frequently placed it on the wrong side of history. 

From the break with the Soviet Union, China has fallen short on international solidarity and opposition to the imperialist system. Driven by anti-Soviet animus, China sowed disunity among Communists and anti-imperialists and placed unnecessary obstacles in front of support for the heroic Vietnamese struggle against US imperialism (for example, instigating a break with the Japanese Communist Party). China forged an unholy rapprochement with the US leadership at a critical juncture of that struggle. The leaders valued discrediting Soviet and Cuban assistance to countries seeking liberation or advancing an independent course over advancing the struggles of those countries. China invaded Vietnam in 1979. The PRC justified these retreats from a class-based policy by adopting a non-Leninist Three World Theory that equated US imperialism with Soviet “social-imperialism.” 

With the demise of the Soviet Union, the post-Mao PRC embarked on a foreign policy devoid of class alignments and class interests. In place of constructing policy around the interests of the working class, China defines the central contradiction to be between the US and its closest allies and a vague “Global South,” a slippery concept that includes the greatest, most powerful rival to the US, other emerging economic powerhouses, and the poorest, most economically deprived countries; countries ruled by tyrants, by popular regimes, or by bourgeois democracies; and countries defiant of the US, countries allied with the US, and countries supplicant to the US. In short, there is no discernable basis-- certainly no class-based relationship-- linking these varied countries together today. Moreover-- paradoxically-- China has unqualified and economically productive relations with both sides of the “contradiction.” 

Accordingly, China is absent from international campaigns against egregious violators of even the most basic moral values, like the economic boycotting of the genocidal regime in Israel. It is not so much that PRC foreign relations are consistently malignant as it is that they are incoherent and disappointingly neutral from a class perspective.

This incoherence is witnessed in China’s lack of militant engagement with the burning international issues of the left at this moment: the Israeli genocide, the current US war with Iran, the exercise of the Monroe Doctrine in Venezuela, or the strangling of Cuba. Is this what the left accepts as fighting the imperialist system? 

Far too many on the left pretend that defanging or diminishing the influence of the US-- like dismantling the British empire-- will put an end to imperialism. For them, China’s intense competition with the US is the same as anti-imperialism. Of course, Marxists should not believe this simplification. Since Lenin’s polemics against Kautsky, Marxist-Leninists have understood that it is capitalism that gives birth to imperialism and that the surpassing or defeat of one imperialist country-- whether it be the British Empire, the Japanese Empire, the Nazis, or the US-- does not signal the end of the imperialist system. Other capitalist countries will seek dominance and risk war to achieve it. Only the ending of capitalism will bring that victory. Even long before Lenin, Marx and Engels affirmed this conclusion broadly in the Communist Manifesto:

In proportion as the exploitation of one individual by another is put to an end, the exploitation of one nation by another will also be put an end to. In proportion as the antagonism between classes within the nation vanishes, the hostility of one nation to another will come to an end. CM (International Publishers), p. 28.

It is this unbreakable link between the existence of capitalism and the exploitation of other nations that liberal and social democratic commentators fail to see or acknowledge. Instead, they urge support for one “better” nation over another in the rivalries intrinsic to the imperialist system. Nor do the Chinese Communists, in word or deed, acknowledge this relationship. How could they, without denouncing their continued participation in the global capitalist system of commodity production and exchange?

Fifty years from now, will people remember the Chinese Communists for the hundreds of thousands of Chinese volunteers who died defending their neighbor, People’s Korea, and resisting the designs of the bloodthirsty, mad imperialist, General Douglas MacArthur? Or will they remember them for the 26 loans to Kenya totaling $6.2 billion at a more favorable rate than that offered by the World Bank or the IMF?

*****

I wholeheartedly agree with Carlos Martinez that, in the end, our difference turns on whether the ruling Communist Party of China can successfully tame capitalism in order to construct the material conditions for a socialist state without being devoured by rapacious capitalism. In my words, the question becomes: Can and should a Communist Party “manage” capitalism? In Martinez’s words, the relevant answer lies in “which class holds state power…”

The most common response to this question-- one which Martinez gives-- is to cite the period after 1921 in the Soviet Union: the period of the New Economic Program, or NEP. In that period, the Soviet leadership adopted policies that re-introduced private businesses, relatively open markets, and foreign investment into the Soviet economy. From this fact, defenders of “socialism with Chinese characters” argue for the historical legitimacy of China’s opening to the global capitalist market and its rapid expansion of capitalist production relations.

Indeed, the NEP policy enjoyed the authority of the Party’s leader, V.I. Lenin. But unstated is Lenin’s resolve to abandon it once the war-torn Soviet economy was back on its feet, understanding that NEP was transitional. NEP was accompanied by severe imbalances (the so-called scissors crisis), massive inequalities, corruption, and political instability. With the withdrawal of NEP, the Soviet Union returned to the path of a balanced growth of the productive forces under socialist relations of production. As E. H. Carr wrote in his careful study of the period:

But the idyllic picture of a predominantly peasant country painlessly evolving towards socialism under the gentle pressures of NEP was disturbed by the strained relations between the agricultural and industrial sectors of the economy, whose persistence still constituted the root of the trouble. It had been comfortably believed or hoped after the twelfth party congress that the price scissors would widen no further and the situation gradually right itself. The opposite happened… By this time [October, 1923] other unmistakable signs of a grave economic crisis had begun to appear… The industrial trusts, relying on the strengths of their financial positions and of their monopoly sales organization, and on the market provided by the new ‘middle class’ which NEP had created in the towns, continued to force up prices and were content to hold back goods… The economic crisis of 1923 clearly differed from the preceding crises through which the Soviet regime had passed since 1917…

…what happened in 1923 was in this sense a crisis of NEP-- ‘the first crisis’, in Rykov’s words, ‘which has driven a wedge between workers and peasants’... A History of Soviet Russia: The Interregnum 1923-1924, pp 95-97.

The Soviet leadership moved on without NEP, adopting a five-year plan guided by central planning in 1928.

Peoples’ China has hewed to an NEP-like project for nearly half a century and now has the world’s largest or second largest economy; yet we know of no clearly defined path to the final expropriation of the expropriators or even a promise forthcoming of the definition of such a path.   

China’s NEP-like approach and Martinez’s defense of it stands on a promissory note: The Communist Party holds state power and, representing the working class, guarantees both that capitalism will not be restored and socialism is in China’s future. However, it is a promissory note, but-- by no means-- a guarantee.

Two points need to made:

1. Holding state power is not a sufficient condition for a party to stay on the socialist course, as the experience of the USSR and the Eastern European socialist countries demonstrates. While capturing state power may well be-- as many of us believe-- a necessary condition for achieving socialism, what a ruling party does while in power determines whether a country goes toward or away from a socialist future. If the Gorbachev era teaches us anything, it is that building socialism is a fragile project and a party-- even a Communist Party in power-- can go off the rails. 

2. The class partisanship of a Communist Party is not a given. Parties reflect the class structures of their respective countries at various times; parties reflect their membership composition; and parties reflect the ideological orientation of their leaders. These factors can be decisive.

In the case of China, the percentage of workers in the Communist Party has steadily declined between 2008 and 2023 (see below) as has the percentage of peasants. 

Source: Intra-party statistical communiqué of the Communist Party of China 图解：中国共产党党

Those losses have come with the gain in influence of managers and professionals among party members. Clearly, this trend would suggest that the Party, as the safeguard of the interests of the working masses, may be growing weaker. Workers represented well below 10 percent of members in 2023, and peasant membership has slipped below that of professionals and managers, a category that represents the largest employment category among those reported.

This dramatic growth of party membership by the upper strata began with the “opening” and continues in the Xi era. To be fair, under Xi’s leadership, efforts have been made to educate and integrate this stratum into party life; but, nonetheless, the shift from a party of workers and peasants to a party of managers and professionals (and “public servants”) is a disconcerting trend. Further, these trends challenge Martinez’s presumption that the Chinese Communists’ firm rule over China guarantees a socialist path. A similar trend was exhibited by the CPSU up to the dissolution of the USSR. To the question “which class holds state power?” my answer is “I’m not so sure…”

If Western accounts are to be believed, corruption has become rife within the Communist Party. To the credit of General Secretary Xi, the Party has mounted powerful campaigns against this abuse of power, employing harsh measures to even those high up in state power. This is laudatory. But the existence of widespread personal enrichment is a worrying sign of ideological rot.

*****

I share with Martinez an admiration for the late, outstanding British-Indian Marxist R. Palme Dutt. Martinez recently (June 27) spoke about Dutt’s legacy, delivering the R. Palme Dutt Memorial Lecture 2026 in London.

Dutt famously wrote a pamphlet in 1967 entitled Whither China? in which he questioned where the People’s Republic was headed, given the break with the international Communist movement and the chaos of the Cultural Revolution. I have tried to follow Dutt’s approach in my own writing about People’s China, neither condemning nor endorsing the Chinese Communist Party's chosen road, but skeptically raising queries about dangerous turns and risky detours in the journey. I first expressed my fidelity to Dutt’s approach in 2011 in The Chinese Puzzle and most recently in People’s China: What Lies Ahead. 

For his lecture, Martinez does not shy away from Dutt’s critical views expressed in 1967, seven years before his death. He cleverly entitled the lecture: What would Rajani Palme Dutt Have Made of Contemporary China? 

We can’t know, but it would be helpful if we carefully attended to Dutt’s thinking.

Martinez dismisses Dutt’s critique of the Three Worlds Theory, maintaining that it continues to find resonance today, though he restates it in a form radically out of focus with current realities:

But the notion of the principal contradiction in global politics as being between oppressed and oppressor nations; and identifying the main arena of struggle as being in the Global South rather than in the industrialised North; and furthermore highlighting the possibility of establishing a modus vivendi with the ‘Second World’, or the ‘intermediate zone’, and helping to draw it away from a dying hegemonism – all that remains valid and useful for understanding the world today.

In Whither China? Dutt discredits the Three Worlds Theory or even any contemporary revisit to it:

This geographical theory of the battle between “cities” and “rural areas”, drawn from the experience of the Chinese revolution, and transferred to the world scale, plays straight into the hands of the current reactionary imperialist theories which seek to deny the Marxist class analysis of the contradiction between imperialism and socialism as the main world contradiction, and to substitute a picture of the conflict between the “haves” countries (in which they [the Chinese] include the Soviet Union in the same basket with western imperialism) and the “have not” countries. Thus this theory, while professing to give a clamorous voice to the anti-imperialist struggles of the peoples of Asia, Africa, and Latin America, in reality disrupts them from unity of the world socialist front which is the indispensable basis for their victory, and thereby renders them vulnerable to imperialism. Whither China?, p. 27.

Would Dutt withdraw this argument today? I think not. We live in a world where Pakistani workers or Bolivian workers have more in common with the forgotten workers of the deindustrialized North than with their native bourgeoisies or the corrupted tyrants that rule their countries. Their fate depends more on distinguishing between the various classes arrayed with and against them than in a battle of their respective bourgeoisies for a more favored place in the imperialist hierarchy, as the Three Worlds Theory would suggest.

Dutt was an uncompromising partisan for socialism, as a look at his many writings demonstrate. And he makes his views on what constitutes socialism crystal clear. In a series of lectures collected under the title, Problems of Contemporary History, he writes:

For the innocent victims of this terminology game, who may be confused by the supposed identity of large-scale monopoly capitalism and socialism, the simplest rule of thumb test to judge the economy of a country is to enquire whether there is a Stock Exchange. There are Stock Exchanges in Stockholm, in London, in Paris and in New York. But there is no Stock Exchange in Moscow or Pekin or Warsaw or Prague or Budapest. In other words, the economy of the Western countries, however elaborate the social democratic dressing and facade, is based on stocks and shares; that is, on the private ownership of the means of production; on incomes derived from ownership; on rent, interests, and profits drawn on the basis of ownership by a minority class from the labors of the entire population. In socialist countries there is no need of a Stock Exchange…

To a socialist audience such an explanation may seem elementary to the point of childishness. But to the general Western reading public, especially the bourgeois intelligentsia, mystified by reactionary apologists (often professing to hold “left” opinions and regarding themselves as far to the left of reactionary out-of-date Communists) this game of terminology has been carried to such an extent that an elementary explanation of this type is necessary. Problems of Contemporary History, p. 76.

Sadly, today, stock exchanges are a reality in Moscow, Beijing, Warsaw, and Prague-- a testament to the retreat of real-existing-socialism. However, the game is far from over. The setbacks to socialism are more than matched by the decline of a decadent, dysfunctional capitalism. But our setbacks should not lower our expectations for the emancipatory, liberatory power of socialism. We should never simply declare victory and accept what we have and call it socialism. 

On the other hand, we must concede that others may see a different road to our goal and pursue it in different ways.

Like the great Marxist, R. Palme Dutt, we should not be afraid to challenge those approaches. All ideological perspectives, political programs, and policies should be rigorously put to the test of reason and history. 

Though Dutt subjected the Chinese revolutionary project to sharp and-- I believe, justifiable-- criticism, he made an important qualification to be kept in mind:

...our international duty, irrespective of any difference on policy or tactical questions with the Chinese leadership within the international communist movement, is to maintain solidarity with China and the Chinese people and the Chinese revolution against the aggression of U.S. imperialism. Whither China?, p.47-48. 

Greg Godels

zzsblogml@gmail.com

Where is the Economy Headed?

Headlines such as “World Stocks Fall to Two-Year Low” that appears in today’s (October 30) Wall Street Journal have many wondering if the tepid recovery from the 2007-2008 crash is finished. Since mid-Summer, the Shenzhen Composite, FTSE 100, Stoxx Europe 600, and other benchmark exchanges have steadily declined, with the US Standard and Poor’s joining them over the last few weeks. As author Akane Otani notes: “After a punishing October, major indices in Europe, Japan, Shanghai, Hong Kong, Argentina, and Canada are languishing in correction territory-- a drop of at least 10% from a recent high. The US is teetering on the edge of joining its peers…”

The Stock Market Fetish

Like Gross Domestic Product (GDP) and the Unemployment rate, composite equity performance is a limited measuring stick of the economy’s health, though it is favored by popular mainstream pundits and celebrity economists. As such, all three become the grist for the bourgeois political mill. Invariably, they soon obscure more than they enlighten.

So what do the markets tell us?

In some parts of the world, they signal that stimulus programs have failed to revive stagnant economies (e.g. EU, Japan). Additionally, measures of manufacturing growth have declined for nearly every segment of the global market since the beginning of the year (emerging markets, EU, Japan, etc., excepting the US).

Last week’s EU quarterly GDP figures confirm the European Union’s persistent stagnation: the aggregate growth for the European Union’s 19 members was a mere 0.6%, the lowest in 5 years.

For the US stock market, on the other hand, highs and lows are more intertwined with policy decisions, financial manipulation, and speculation. Thus, the market euphoria of the last few years did not reflect real economic fundamentals, and the current volatility does not foretell an imminent collapse. Instead, US stock exchanges have thrived on nearly free money and a Federal Reserve that removed all of the “asset” flotsam and jetsam lingering in the wake of the 2007-2008 collapse. But the usual shakeout of less profitable, damaged firms was incomplete, thanks to the availability of money at interest rates suppressed by the central bank, the Federal Reserve. The low interest-rate environment was especially favorable to high-tech firms (slow to show sufficient revenue growth), emerging markets (hungry for low interest foreign loans), and small capitalization enterprises that should have sunk into oblivion because of investment unworthiness after the meltdown.

For the behemoths of monopoly capital, low interest rates in the wake of the crisis allowed for an orgy of mergers and acquisitions and stock buybacks that electrified equity markets without creating any socially useful results. In others words, the era of interest-free money buoyed up a leaking capitalist ship that predictably converted the gift into market “value” and profit.

Wiser heads in the Federal Reserve understood that if it continued to be a wet nurse for mature capitalist enterprises, asset inflation would continue unabated. Investors would wake up and see that there was no ‘there’ there and punch a hole in the market bubble.

Consequently, the Fed began a program of gradual interest-rate increases to slow the promiscuous borrowing that was fueling asset inflation. Industries like Technology, Finance, and Communication were particularly vulnerable to this program since their earnings growth stood well beyond their more modest growth of revenue.

Nothing shows the weakness of the overheated market more than the Initial Public Offerings (IPOs)-- the first stock offerings of newly public companies. So far in 2018, fully 83% of IPOs have been conducted for companies that have lost money in the last 12 months, a figure greater than that leading to the dot-com crisis year of 2000.

It is no wonder that the Federal Reserve, fearing an asset bubble, has put the brakes on. And it is no wonder that capitalists are caught between the responsibility of managing capitalism as a system and the ecstasy of operating with free money, the contradiction between systemic discipline and unrestrained accumulation.

Leading Indicators?

But if the stock market is a not-so-reliable guide to the health of the US economy, what are more reliable markers?

On the surface, the US economy is uniquely healthy in the midst of global stagnation or decline. The television hawkers of economic news herald the GDP growth rate in the second (4.2%) and third (3.5%) quarters of this year, numbers well above the post-crash averages. Similarly, the pundits are in awe of the officially reported low unemployment level. And they point to the less impressive, but welcome growth of wages in recent months as further evidence of a vibrant economy. They are less forthcoming-- embarrassed, perhaps-- about the explosion of already robust earnings (profits) in 2018.

Likely, this photo-shopped picture of the US economy will benefit Trump and his candidates in the elections. The warm and fuzzy picture is conveyed by the so-called leading indicators. But if we open the hood and look more closely at the capitalist economic engine, we get a somewhat different picture.

Behind the 2018 GDP growth are several contingent factors, including the Trump tax cut. But unacknowledged by many is the increase of government spending, largely military. Nearly half of the year-to-year growth-rate increase through April was accounted for by government spending alone, two-thirds of which was directly for the military. The bipartisan endorsement of an obscene military budget pumps up Trump-era growth as it has for many previous Presidents (remember Reagan?).

Fully 1.22 points were added to the 4.2% 2nd-quarter growth solely from global trade, the overseas purchase of US products like soybeans before the onset of the Chinese retaliatory tariffs.

And third-quarter GDP growth was equally a result of consumer spending (highest growth since 2014) and the aforementioned growth in government spending.

Despite the hollow celebration of rising wages, the aggregate numbers mask an important reality: Labor Department figures show that the greatest growth in weekly earnings accrue to the bottom 10% of earners (+5%) and the top 10% (+3+%), while 80% of US workers now see their incomes grow at a level only marginally above their cost of living.

While growth in income for the bottom 10% is welcome, it results only from the tight labor market in low-paying jobs, the largest source of job growth since the crash. The pressure on that segment underscores the hollowness of the employment recovery.

The US capitalist “recovery” has relied on the availability of low-wage labor. The collapse of 2007-8 generated a veritable ‘reserve army of unemployed’ willing to accept low-paying jobs, absent union militancy. Consequently, the capitalists have felt no need to invest in productivity-enhancing equipment-- it is cheaper to hire minimum-wage workers than invest in new machinery. Therefore, the last decade has experienced tepid growth in labor productivity demonstrated by 32 straight quarters (8 years!) of sub-2% productivity growth, but strong profitability, unprecedented in the post-World War II era.

Most of the growth in consumer spending is fueled, not by workers’ pay, but by additional borrowing and more people working more hours. US household debt hit a new high in the 2nd quarter; debt continues to rise faster than income for the average US citizen.

Fundamentals

Contrary to the promises of the Trump Administration, the deep cut in corporate taxes along with the 21% increase in profits in the 3rd quarter have produced little increase in business investment. Growth in business investment was a mere .1% in both August and September.

A key measure of core industrial production—durable-goods orders excluding military orders-- declined 0.6% in September.

Retail spending-- a core element of consumer spending-- rose by only 0.1% in both August and September.

Two other critical components of consumer spending-- auto sales and home sales-- are flashing danger. Auto sales declined steeply by 6% in September, after a mostly sluggish year.

And home sales, a huge element in the US economy has tanked. New-home sales declined in September by 5.5%, the slowest rate in 2 years, and the latest month of a four-month slide.

Existing-home sales, a far bigger part of the housing market, declined by 3.4% in September, the latest month of a seven-month slide!

What to Expect

While it is true that Trump has been somewhat corralled into being a conventional right-wing Republican, but with his own uniquely vulgar and infantile stamp on the Presidency, he retains unconventional elements of populist nationalism-- the tacit confession that the empire is in trouble and the need to “Make America Great Again.” Both stances play into Trump’s economic policy in unusual and contradictory ways.

Like archetypical right-wing President Reagan, tax-cutting and deregulation drives a Corporation Über Alles approach. 

Like Reagan, the current Administration uses defense spending as the central stimulus for the economy. Since such a policy needs powerful enemies, the two parties have collaborated to concoct Russia and China as the countries to play the role of bitter enemies. The threat of war against China and/or Russia justifies far more spending and weapons sales than a war against Islamists in sandals or weak countries with ancient Soviet equipment.

Trump’s nationalism rejects alliances, pacts, and submission to international constraints, regulation, or authority. Instead, it embraces the economics of sanctions and tariffs; it substitutes the blatant behavior of a bully for the formerly fostered notion of global cooperation. If other countries deny US hegemony, the US will demonstrate it forcefully.

To the chagrin of the Democrats, the popular perception of the booming US economy has calmed corporate fears of Trump’s recklessness and emboldened Trump’s advisors and supporters.

But behind the appearance of economic exuberance is an economic engine running out of gas: key fundamental markers for consumption and investment are slackening, profits are threatened, and major political stumbling blocks lie ahead.

Despite record-breaking profits, compensation costs for capitalist enterprises are eating into those profits. The low unemployment rate has spurred an intense competition for workers. With fewer unemployed available, firms are offering higher wages, salaries, and benefits to wrest employees from other firms.

Further, the rising interest-rate environment is tacking on additional borrowing costs to overall costs, cutting into corporate margins.

And the relatively slow corporate-revenue growth, especially in Technology and Communication, is squeezing profits as well.

The explosive growth of Federal debt further challenges the Trump economy, though only for those wedded to conventional economic dogma. Because of the tax cuts, the deficit expanded by 17% in the fiscal year ending in September to the highest level in 6 years. With rising interest rates, deficit growth will only accelerate. The debt scolds in both parties will be screaming in chorus for budget cuts and spending limits (as they did so often during the Obama Administration). Of course they will argue for the cuts to come from programs and institutions that serve the people. The scourge of austerity will descend again over the economy, producing the readily predictable result of dampened growth.

The Trump Administration is battling the Federal Reserve over the issue of interest rates. The Fed is attempting to raise interest rates to take the oxygen out of the economy and evade speculative bubbles. Trump, on the other hand, wants low rates to pump oxygen into the economy to secure the continued growth that he has promised. Neither approach will save the economy from the turmoil ahead.

Next year will bring stagnation, if not economic decline, for the global as well as the US economy. Inevitably, capitalism will attempt to place the burden of the system’s failure onto the backs of working people. It will sell austerity as the palliative for that failure, another sign of the bankruptcy of the system.

Some will fight to fix the capitalist system, to reform it. Others will struggle to replace it. The goals should not be confused. They are different projects. Only one can promise a humane, peaceful, and sustainable world.

Greg Godels

zzsblogml@gmail.com