Which way for China? – part one

China’s National People’s Congress, the supposed decision-making body for China’s leaders, has just finished meeting.  And the main debate (apart from behind the scenes discussions on who would take over as the new leaders from the retiring leadership) was about the state of the Chinese economy.

Mainstream economics is confused about which way the Chinese economy is going.  Some media and economists reckon Chinese growth is slowing fast from its double-digit pace seen in the last few years and indeed is heading towards a crisis or slump brought on by ‘over-investment’, a reversal of a credit-fuelled property bubble and a spiralling of hidden bad debts in the banking system. On the other hand, some economists reckon that economic growth may be slowing, but the Chinese authorities will be able to engineer a ‘soft landing’ through the easing of credit and financing of the writing-off of debt from cash reserves built up over past years.

Behind this debate on the immediate future also lies a debate on whether China can continue to grow fast through investment in industry, infrastructure and more exports or will need to switch to a consumer-led economy that imports more and supplies goods to a ‘rising middle-class’ like advanced capitalist economies supposedly do.  Mainstream economics reckons that this cannot be done without developing a more ‘market-based’ economy i.e. capitalism, because the ‘complexity’ of a consumer society can only work under capitalism and not under ‘heavy-handed’ central planning of government and state industries.

In this first part of a look at the Chinese economy, I’ll consider what will happen over, say, the next two years or so.  China has experienced truly exponential economic growth over the last decade in particular.  And that growth continued apace right through the Great Recession that the major capitalist economies suffered from 2008-9.  But now the question is: can that ‘breakneck’ pace continue or is it really breakneck?

Chinese economic growth is clearly slowing down.  In the first two months of this year, industrial production grew 11.4% yoy compared to 12.8% in December 2011, while China’s power generation increased 7.1%, the slowest growth rate in a year. Fixed asset investment, the main driver of the Chinese economy, was below historical averages. Fixed asset investment growth actually accelerated to 21.5% yoy up from 18,2% in December, although this acceleration was concentated in unproductive investment in property sectors. The comsumer weakened and passenger car sales fell 4.4% yoy to 2.37m vehicles and total auto sales fell 6% yoy to 2.95m units.  Retail sales increased 14.7% yoy in early 2012, down from an 18.1% ypy in December 2011.  Overall real GDP growth has slowed from a peak of 11.9% yoy in Q1 2010 to 8.9% in Q4’2011,  At the People’s Congress, the Chinese leaders targeted real growth at just 7.5% this year, something not seen since the depth of the Great Recession in Q4’2008.

Yet, by global standards, that’s a growth rate to envy: the US can barely manage 2%; Europe and Japan are flat at best, while even fast-growing India will not achieve that rate of growth this year.  But the Chinese economy needs to grow by at least 8% a year in real terms if it is to generate enough jobs to absorb the influx of workers from rural areas into the cities without unemployment rising.  So there would appear to be a problem ahead.  But remember, a target is just a target: China’s GDP has always grown more than projected. Take a look at the chart below. The yellow line shows how China has conservatively set its target GDP growth for the past decade. Every year, actual GDP growth has been higher and much higher in some cases. For example, in 2007, while the government projected GDP to grow 8%, actual GDP growth came in much higher at 14%!

GDP Growth

The main argument presented for expecting that China is heading for a sharp slowdown, or even what is called a ‘hard landing’, is that its fast growth in recent years was based on excessive credit injections by its banks, creating a property bubble that is now bursting.  Much of the property bubble was engendered by local authorities borrowing huge hidden amounts from the banks and financing their spending by selling off land to private developers, often literally over the heads of the local villagers.

That property bubble is now bursting.  Property prices are falling in most Chinese cities and are down 1.5% yoy.  Huge debts have been run up local authorities and developers and hidden in special purpose vehicles off the balance sheets of the banks.  The level of the what is called the total social funding of the economy by the banks has reached 180% of GDP.  This ‘shadow banking’ is similar to the off-balance sheet mess that the US and European banks got into that led to the financial collapse of 2008.  The risk is that China is heading the same way.  But is it?

First, the government has succeeded in reining in inflation, mainly caused by higher food and energy prices globally.  Inflation is now at its lowest level since 2010.

Lower Inflation

So the government is now able ease its monetary policy by cutting the reserve requirements imposed on the banks to hold cash at the central bank, so they can lend more or at lower rates and take some of the pressure off borrowers over the rest of the year.  Monetary growth is already beginning to turn up.  And the new budget announced by the government offers some support to growth, if not as much as the humongous increase in public spending adopted in 2008 to counteract the global economic slump.

Fiscal spending will rise 14% this year with spending on health, education and social security up 19% – hardly austerity.  Taxes on small businesses are being cut as is VAT.  Local government financing through property sales will be curbed, so the issue of local government bankruptcies remains.  But central government has huge reserves to fund such defaults from FX reserves of $3trn and fiscal reserves of CNY500bn in the budget.

Mainstream economics has made much of the news that China ran a deficit on its trade with the rest of the world in the first two months of this year, the first time in a decade or more.  Exports are important to China. During the global crisis, mainstream economics predicted the collapse of Chinese economy because exports accounted for 35% of GDP. With the negative demand shock from the West, export-led growth collapsed, and so would China – that was the conclusion they considered only logical.  But GDP is driven by net trade (exports minus imports), not just by exports. In fall 2008, net exports were 8% of GDP and today are still about 4%.  Private domestic demand has been strong.  And easing  fiscal policy will boost aggregate demand.

The stories of gloom and doom for China have been around ever since the onset of the global crisis in 2008-9. A new round of doomsday prophecies has been accelerating since summer 2011, when the Eurozone crisis escalated and Washington’s debt-ceiling debacle resulted in the downgrade of the U.S. sovereign credit-rating.  Now the argument is that Chinese economy is about to face a “hard landing” because of a bursting property bubble, disproportionate reliance on exports, and excess capacity caused by growth through investment.  But since the housing downturn is induced by policy, it can also be reversed by changes in policy, which is precisely what happened in China during the global financial crisis.  At worst, China is likely to experience slower growth than in previous years.  That’s all.

The big story that came out of the People Congress was the sacking of Bo Xilai as party boss from Chongqing.  Bo was a controversial and flamboyant figure ostensibly attacking inequalities and pro-capitalist policies.  So what does his removal  mean?  I’ll deal with this and the long-term prospects for China in part two.

15 Responses to “Which way for China? – part one”

  1. Manit Says:

    The most insightful article on China I have ever read. Thank you.

  2. purple Says:

    The large majority of China’s top 500 companies are state controlled, it is not really a capitalist economy, and certainly not an IMF prescribed one. It looks like Chinese growth is pretty much unstoppable at this point. The testing results (http://www.nytimes.com/2010/12/07/education/07education.html?pagewanted=all) out of Shanghai floored pretty much every educator out there, even including the probability of shenanigans on the part of the government.

  3. Choppa Morph Says:

    Yup. China is different. But why?
    Given the usual total failure of “mainstream economists” to understand anything, even in the world imperialist system, we can dismiss their explanations as ravings when it comes to general economic principles and long-term economic prospects. So what else is there?
    If China was capitalist, it would have stalled and crashed long ago. But if it’s not capitalist, what is it?
    For my money the answer is more historical and political than economic as such. But an economic inkling can be found in Eugene Preobrazhensky’s mid-20s book “The New Economics”, which dealt with a similarly contradictory political-economic contradiction – the nascent Soviet Union. He describes the setup as “proto-socialist” and the process involved as “primitive socialist accumulation”.
    Historically I think we’re witnessing the long overdue transition of the world mode of production from capitalism to socialism. This can only be understood in an orthodox Marxist perspective (ie grounded in the analysis of the capitalist system in Capital, based on the Law of Value). Marx views the general development of the forces of production as irreversible, and often enough describes capitalism with a fully formed credit system as having developed as far as it could while still remaining capitalist. Social production had grown so much that private appropriation was nothing but a straitjacket preventing further development, in terms of principle. In other words “capitalism pregnant with socialism”, or capitalism negating itself. And Lenin rubbed this in by entitling his book Imperialism – the *ultimate* stage of capitalism. Not so much the “highest so far”, but the ultimate ie final.
    Which is where the political aspect comes in.
    The Soviet example showed that the transformation of the capitalist mode of production into a socialist mode of production doesn’t happen peacefully, does happen country by country, and is dependent on conscious political action. It also shows (as is made explicit in Preobrazhensky’s book) that there is a long road to travel from a non-capitalist (ie workers) state in one or a number of countries to what we can call a viable socialist state (ie one forming part of a world economy dominated by socialist relations of production.
    The USSR also showed that the predictions of mainstream bourgeois economists regarding imminent collapse were totally wrong. Despite the appalling political regime the system survived for seven decades, having started from next to nothing.
    Well, China was able to start its proto-socialist career after three decades of an economically expanding workers state in the USSR, and together with many new non-capitalist states and anti-imperialist states. So we can assume that both historically and economically it has been much less vulnerable than Russia. It had a flying start.
    Which brings me to what might be the greatest problem facing us today when it comes to understanding and explaining exactly what makes China tick. One Country, Two Systems. That is, how capitalist is China fundamentally?
    How would you approach this problem, Mike?

  4. Waistline Says:

    I enjoyed part one and look forward to the next installment. China economy is mixed to say the least. I cannot quantify this mix other than to speak of state own enterprises (SOE) and the “public sphere.” The economist and investment banker Henry CK Liu put matters this way a couple years ago:
    “In China, privatization of state-owned-enterprises since 1978 has pushed a large segment of the working population outside of socialist sphere of free social benefits in health care, education and retirement entitlements. Unemployment is now a serious structural problem everywhere including the Chinese socialist market economy. Excessive reliance on export financed by foreign capital has also left developmental imbalances between the exporting coastal regions and the isolated interior. Despite recurring big trade surpluses denominated in dollars, China has been prevented by dollar hegemony from using sovereign credit to finance domestic development. China is now the world’s biggest creditor nation, yet the Chinese economy continues to require foreign capital that demands rates of return higher than such capital could get in their home economies.” http://www.henryckliu.com/page216.html
    Let’s assume the economy of China is basically a bourgeois mode of commodity production. That is an economy driven by the law of value, anarchy, tendency of the rate of profit to fall and the general law of capital accumulation in everything fundamental to production. Then the issue of policy becomes paramount in navigating the financial crisis and contraction of China export sector in 2007. China is not Greece or Spain, but beset with social problems resulting from plant closing. In the same article Liu writes:
    “The structural problem of the Chinese economy can be described in one sentence: China produces from plants on its soil financed by foreign investment that operate with low domestic wages for foreign markets that pay with dollars that cannot be used in the Chinese domestic economy.
    “The solution to this structural problem can also be summed up in one sentence: China must finance Chinese plants with sovereign credit to produce for the domestic market where consumer purchasing power will come from high wages, with sovereign credit repaid by increased tax revenue from a vibrant domestic economy.
    “The adverse impact from the current global financial crisis on the Chinese economy originates from the bloated export sector financed in large part by foreign capital denominated in dollars. Foreign markets have abruptly contracted since mid 2007 to cause massive closure of tens of thousands of foreign joint-ventures or wholly-owned enterprises, big, medium and small, in the Chinese export sector located along the coastal regions that has caused serious unemployment.
    “Economic recovery through the shifting from export dependency to domestic development requires coordinated actions by both the state and the private sectors. The government’s role is to guide state-owned-enterprises and private sector incentives toward a national full employment program through tax incentives and regulatory regimes. Government fiscal spending should be limited to funding infrastructure, both physical and social, that cannot be efficiently financed by private or even collective capital. Consumer demand should be enhanced as a priority in a national income policy to quickly raise wage levels in parallel with a well-funded social security program to eliminate the need for compulsory over-saving out of concern for emergency health expenses and provision for old-age security.” (IBID)
    At any rate, I look forward to reading more of this.
    Waistline

  5. Waistline Says:

    To shift to a comment from one reader concerning their interpretation of Marx, I would suggest a very different interpretation of Marx. It was stated:

    “Marx views the general development of the forces of production as irreversible, and often enough describes capitalism with a fully formed credit system as having developed as far as it could while still remaining capitalist. Social production had grown so much that private appropriation was nothing but a straitjacket preventing further development, in terms of principle.”

    Marx speaks of a fetter on production rather than the halting of further expansion and development. In my view “capitalism cannot be pregnant with socialism.” While productive force accumulation is irreversible, this primarily applies to means of production. That is to say society cannot be de-evolved back into manufacturing with the impact of the long history of the industrial revolution somehow being negated. Manufacture as a configuration of means of production evolved from handicraft and these world no longer exist for society to go back to. Negation and sublation do not operate backwards as a law system. In this sense of means of production development, Marx spoke of people never relinquishing what they have won.

    Rather than speak of “social production” in conflict with private appropriation, let’s speak of the quantitative growth of industrial means of production in unity and conflict (contradiction) with their bourgeois – capitalist – integuments. Exactly what production beyond the stage of primitive communism is not inherently social or “social production?”

    A different reading of Marx is possible. The bourgeois mode of commodity production – capitalism – enters its final irresolvable crisis NOT ON THE BASIS OF ITS LAW SYSTEM IMMANENT TO IT. Capital is birthed in contradiction expressed as the primary classes of its productive relations; bourgeois and proletariat. Something else other than the basic classes constituting the mode of production causes capitalism to enter into antagonism. That something else is new means of production, the electronic revolution or as a new generation is starting to describe things; the robot economy. Max “Preface to a Contribution” can be read different than the understanding of previous generations of communist.

    This debate about what constitutes “the limit” of the bourgeois mode of commodity production is old. I believe the solution to the question is that qualitatively new means of production creates a new social organization of labor and brings the old system and classes connected to the old system to antagonism.

    At any rate, I look forward to reading more of this.
    Waistline

  6. matthewrusso9 Says:

    Waistline has it right, especially this: “capitalism – enters its final irresolvable crisis NOT ON THE BASIS OF (THE) LAW SYSTEM IMMANENT TO IT.” Instead, on the basis of the newly evolved forces of production, since their progress is effectively irreversible, and their historic content is comprised by a novel technical-social composition of those forces. I say “technical-social” because technology of course does not stand outside of social relations (that is a bourgeois illusion related to the fetishism of technology).

    So the short answer to the burning question at hand is: China is a capitalist economy. It does have the potential – one that it may be realizing as we write – to be a site for the emergence of the most advanced forces of production. We already saw this in its neighbor, Japan, in the 1970’s-80’s, and even today Japan is still the world leader in robotics and machine tooling, though China could easily surpass it.

    The same was true of the U.S. in the late 19th-first half of the 20th, all the way up to the 1960’s. U.S. capitalism proved to present the “least fetters” on the development of the productive forces compared to its European rivals. Now the shoe is on the other foot. Now that previous immense accumulation of capital, especially that sunk in the infrastructure, presents one of the biggest barriers in the world to the further advance of the productive forces there.

    That is one of the fundamentals driving the increasingly bitter internecine fighting between different factions of the U.S. bourgeoisie, as refracted through the archaic political structure (adding another dangerous contradiction, btw) via the two parties. The Republicans appear to be the main repository of rentier capital, which also has the upper hand in the Democratic Party, which though they must share with a minority liberal-progressive wing that is in fact largely petit-bourgeois in composition. It is from these latter that the persistent calls for infrastructural renovation come from. In fact it is hard to find any significant sector of the big bourgeoisie in the U.S. that favors a significant renovation of the infrastructure. The sector that “normally” would, those with the highest organic composition deploying the most advanced productive forces, make most of their profits overseas. For these the U.S. is the place to “launder” profits.

    Sorry if this posted twice – it insisted that I use my wordpress acct, then wouldn’t post it.

  7. hydeparkspeakers Says:

    First a couple of minor issues.

    The NPC is (nominally) the decision making body of ‘the people’ not the leadership, the leadership is vested in the Party hierarchy not in government institutions.
    I think the exponential growth rate has to be seen in a longer-term context than the last decade. Why this is important? There are very few countries that have ‘caught up’ and modernized since the 1945, and of those no other country has achieved such a long period of such rapid growth as China has over 30 years. Its developmental growth is in a league of its own in a world-historical sense.

    The World Bank, under the influence of Justin Yifu Lin, claims that sustained long term growth is primarily due to the exploitation of comparative advantage, (low cost labour -low capital intensity -export driven growth) backed by strategic support from the state to create the infrastructure to assist the private sector.

    The reduction in target GDP for 2012 is not a reaction any newly changed conditions, but corresponds with the reduced GDP targets outlined in the 12th Five Year Plan (FYP) adopted by the NPC in March 2011.

    The land sales are not all to private developers, state owned entities buy land off each other, there are various levels of state control over public land assets and a turf war between state owned entities characterizes the root of the land sales system. Only part of this is confrontation between the township and village, the lowest level of the state land hierarchy.
    The economic impulse derived from the private purchase of apartments is replaced by state construction of low cost rental apartments in the 12th FYP. Local governments often rent out or sell land use rights (leases) that they acquire at below market rates (at agricultural land-use prices) to attract investment. They themselves also invest in creating the infrastructure for the investors to encourage growth, as meeting targets set by the FYP are the critera for ‘success’ or ‘failure’ of officials.

    The infrastructure growth in China, is however, very much a state driven urbanization strategy, it has been compared to the Great Leap Forward, but one that is more or less matched by capacity, unlike its predecessor. Now the question is, will Chinese urbanisation continue to produce a significant growth impetus?

    A second and connected question is, can the emulation of infrastructure, development and urbanisation models in the interior of China produce the same dynamics of growth as they have in Eastern China?

    It seems to me that the private sector, and foreign capital is following the designs of the state planning system, which at the driving seat of economic growth, having all the key levers of the economy in its hands.

  8. matthewrusso9 Says:

    Thanks for the empirical details. However, it does not follow that the answer to what appears to be the hidden question in this discussion – is China capitalist? – is no. All capitalist development in every country has always relied upon a heavy dose of state intervention in one mode or another. Without exception. The free market really is an ideological myth. No surprise, “planning” for capitalist accumulation has always “worked”. China’s mode is simply the latest variant on an old theme. If China appears to “stand head and shoulders” above the others, particularly in regards to a level of growth sustained over decades, it simply means that the PRC has found a new winning combination of state and capital that have nothing to do with any imputed “class orientation” of the leadership, other than that this leadership is decisively oriented towards the capitalist class both at home and abroad.

    “It seems to me that the private sector, and foreign capital is following the designs of the state planning system, *which at the driving seat of economic growth*, having all the key levers of the economy in its hands.”

    Capital accumulation is in the driver’s seat of economic growth, and the state planning system is driven by this primordial fact. Recall that China embarked upon the capitalist road precisely by “planning”, as the law of value was proclaimed the effective “law of the land” by state edict.

  9. hydeparkspeakers Says:

    The motive forces driving the system determine its systemic characterisation. Any number of circumstances can produce rapid growth, but the specifics of Chinese growth are unique and extraordinary and certainly force the question of its systemic dynamics to the fore.

    In think the systemic critera used by the Hungarian theorist Janos Kornai are useful, (regardless of his own view of China, or of Marxism and socialism).

    1. What ownership form dominates the commanding heights?
    2. Is the coordination system dominated by bureaucratic plan or markets?
    3. Is the political regime hostile or friendly to capitalism?

    If you study the details I think you will find that:

    1. The commanding heights are overwhelmingly in state hands .

    2. Factor prices are state determined and the planning system drives the economic dynamic. The five year plan drives the economy, not market forces, and the state economy is mobilised wholesale to attain state objectives.

    3. The structure of power systematically favours bureaucratic forces over private forces; repressing private finance, indigenous private enterprise, imposing arbritary taxes, expropriations, and so on, as well as repressing any organised capitalist political opposition.

    Although it is true that this is probably the most capitalist tolerant and friendly ‘planned economy’ in history- at present -the state and political regime is not in the hands or the pay of capital.

  10. Choppa Morph Says:

    Hi Waistline, I should perhaps have written the “socialization” of production rather than “social” production – I thought I covered that by writing that it had grown too much to be developed any further under capitalism. Except maybe in so far as a fully developed baby could keep growing in the womb for months or years after nine months gestation. But this growth is not exactly “development”. Everything necessary for a viable child is ready. Capitalist expansion is cannibalistic once a certain stage of development has been reached. Once this ultimate stage is reached – and tendency of the rate of profit to fall gives us a good barometer of this – then there is too much capital for the capitalist system to handle. For the rate of profit to rise, huge amounts of capital need to be rendered unproductive (incapable of producing surplus value). Hence war, the extreme growth of military spending (the ultimate capitalist luxury good), and the obscene expansion of unproductive sectors of the economy (lawyers, advertising, and a myriad other sterile ways of divvying up surplus value), and at the same time the appropriators of surplus value (unpaid labour) need to become fewer and fewer so the profit isn’t diluted more than necessary. The contradictions are obvious.
    Marx was quite clear about the antagonisms leading to the passing of one mode of production into another, including capitalism into socialism – they are *all* the product of class struggle. Relations between living people, not between dead things (ie not technology). To claim that new means of production bring about the final crisis of capitalism is a) to ignore the fact that human labour power is a means of production, and b) to fall into the trap of commodity fetishism attributing human qualities (living drives and aspirations) to dead things. Commodity fetishism is one of the most fundamental concepts in Marx, it is crucial to understanding his whole analysis of the capitalist mode of production.
    For Marx capitalism was pregnant with socialism in his own time, as is perfectly clear from Capital III — not only pregnant but overdue. In the 1860s. Lenin just expresses Marx’s conclusions with respect to the even more cataclysmic political and economic world of his day. One of Stalin’s most appalling theoretical mistakes was to trumpet that Marx only wrote about free competition capitalism. He didn’t.
    Anyhow, if we don’t get clarify the human relationships involved in the Chinese situation, ie the character of the class struggle taking place there, and the relationship between the economic system in China and the rest of the world, we’ll be as confused by it as the mainstream economists, and make a very poor job of trying to change things for the benefit of living labour rather than dead capital.
    Which is why I’m looking forward to what Mike has to say on this subject.

  11. Choppa Morph Says:

    I think the following quotes from a single short chapter of Capital III (Ch 27 ‘The role of credit in capitalist production’) are necessary to relate this discussion on China to Marx’s historical socio-economic perspective, ie to historical materialism. This chapter is practically ignored in discussions among Marxists, reformist or revolutionary, academic or political. It is however possibly the single most important chapter in III, and the most explosive, as it shows just how far behind Marx we still lag after 150 years – he wrote this before 1867 – and how overripe he considered capitalism to be for the transition to socialism, or as he called it the associated mode of production. Only Lenin in “Imperialism” and Trotsky in “The Revolution Betrayed” have this perspective at the core of their work.

    Capital III, Ch 27 The role of credit in capitalist production:
    III. Formation of stock companies. Thereby:
    2) The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself.
    3) [… ] In stock companies the function [of management and administration] is divorced from capital ownership, hence also labour is entirely divorced from ownership of means of production and surplus-labour. This result of the ultimate development of capitalist production is a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property. On the other hand, the stock company is a transition toward the conversion of all functions in the reproduction process which still remain linked with capitalist property, into mere functions of associated producers, into social functions.
    [… ] This is the abolition of the capitalist mode of production within the capitalist mode of production itself, and hence a self-dissolving contradiction, which prima facie represents a mere phase of transition to a new form of production.
    IV. Aside from the stock-company business, which represents the abolition of capitalist private industry on the basis of the capitalist system itself and destroys private industry as it expands and invades new spheres of production, credit offers to the individual capitalist; or to one who is regarded a capitalist, absolute control within certain limits over the capital and property of others, and thereby over the labour of others.[3] The control over social capital, not the individual capital of his own, gives him control of social labour. […C]entralisation of capital, […] expropriation on the most enormous scale. Expropriation extends here from the direct producers to the smaller and the medium-sized capitalists themselves. It is the point of departure for the capitalist mode of production; its accomplishment is the goal of this production. In the last instance, it aims at the expropriation of the means of production from all individuals. With the development of social production the means of production cease to be means of private production and products of private production, and can thereafter be only means of production in the hands of associated producers, i.e., the latter’s social property, much as they are their social products.

    […] The co-operative factories of the labourers themselves […] show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage. […] The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.
    So far we have considered the development of the credit system — and the implicit latent abolition of capitalist property — […]
    […] the credit system accelerates the material development of the productive forces and the establishment of the world-market. It is the historical mission of the capitalist system of production to raise these material foundations of the new mode of production to a certain degree of perfection. At the same time credit accelerates the violent eruptions of this contradiction — crises — and thereby the elements of disintegration of the old mode of production.
    The two characteristics immanent in the credit system are, on the one hand, […] to reduce more and more the number of the few who exploit the social wealth; on the other hand, to constitute the form of transition to a new mode of production.

    In response to Waistline I wrote: “For Marx capitalism was pregnant with socialism in his own time, as is perfectly clear from Capital III — not only pregnant but overdue.” As the quotes show, this is a gross understatement. He is not just ‘perfectly clear’, but he hammers the point home. Bang, bang, bang, bang. Count the number of times he uses the term ‘mode of production’. And note his explicit location of it in the context of transition from an old, worn-out mode of production — capitalism — to a new and superior mode of production of associated producers.

  12. waistline Says:

    “Marx was quite clear about the antagonisms leading to the passing of one mode of production into another, including capitalism into socialism – they are *all* the product of class struggle. Relations between living people, not between dead things (ie not technology). To claim that new means of production bring about the final crisis of capitalism is a) to ignore the fact that human labour power is a means of production, and b) to fall into the trap of commodity fetishism attributing human qualities (living drives and aspirations) to dead things.”
    In my opinion socialism is not a mode of production. It is precisely because socialism is not a mode of production that controversy existed over defining the economy of China and even that of the former Soviet Union. Socialism or rather industrial socialism in the past century was according to much of Marxism a transition society or the first stage of transition to a new mode of production. When Marx spoke of the bourgeois mode of commodity production (capitalism for short speak) he meant a specific form of property plus the industrial revolution. Means of production plus social relations of production, based on means and property form.
    New means of production brings about the final crisis for every mode of production, not simply capitalism. By final crisis is meant “the condition of crisis – antagonism – that is transition to a new quality or the leap to a new quality. By antagonism I mean something different than “contradiction” or the unity and struggle of opposites.
    Marx is clear. My view changed concerning the question of the law system immanent to capital and whether or not its crisis, understood as cyclical crisis, can usher in a new quality of means of production or a new mode of production. In his famous outline of transition from one mode of production to the next, Marx does not write about “class struggle” causing transition to a new mode of production. Let look at Marx again.
    “At a certain stage of their development, the material productive forces of society come in conflict with the existing relations of production, or – what is but a legal expression for the same thing – with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters.
    “Then begins an epoch of social revolution. With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed. In considering such transformations a distinction should always be made between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, aesthetic or philosophic — in short, ideological forms in which men become conscious of this conflict and fight it out.”
    Further
    “No social order ever perishes before all the productive forces for which there is room in it have developed; and new, higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society itself. Therefore mankind always sets itself only such tasks as it can solve; since, looking at the matter more closely, it will always be found that the tasks itself arises only when the material conditions of its solution already exist or are at least in the process of formation.” http://www.marxists.org/archive/marx/works/1859/critique-pol-economy/preface.htm
    The last paragraph is the enigma. “No social order ever perishes before all the productive forces for which there is room in it have developed; and new, higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society itself.” In my opinion capitalism of the past century was not pregnant with socialism, precisely because socialism is a transition to something else. Further, there was still much room for development of the means of production based on the industrial revolution. In America we experienced destruction of the sharecropping system by the tractor, which changed the form of land tenure and the social organization of labor based on old implements of production. Determining how much “room is left in a social order” (does social order here mean mode of production) is tricky business Rosa L attempted to solve. I do not believe one can figure out how much “room is left in a social order” until new means of production actually appear and throw society into antagonism or a mode of destruction of the old society productive forces and social relations.
    Without question history is about human beings, which we presuppose or there is no history. When Marx writes about the material power of productive forces he assumes the reader understands this material power is the product of the human, as they are productively active and form social groups and classes.
    Class struggle most certainly plays a role. Specifically, there seems to be two distinct kinds of class struggle. The struggle between the two basic classes defining a mode of production, e.g. feudalism as serf and landowner/nobility, drives the feudal mode of production through all its quantitative boundaries. Then qualitatively new means of production enter the picture, the industrial revolution.
    The struggle between the serf and nobility or all the classes defining the meaning of feudalism can never cause society to spontaneously leap to a new mode of production. To incite a leap to a new quality, something qualitative has to happen. A new quality has to be injected into the social process or something taken away that destabilizes the quality and set it into a qualitatively different kind of change cycle.
    What happened in history was the industrial revolution. The industrial revolution created new classes (bourgeoisie and proletariat as basic class constituting the foundation of what becomes a new mode of production). Stated another way, a new social organization of labor arose on the basis of the industrial revolution. The new classes are connected to and express the self-movement of qualitatively new means of production. Marx uses the steam engine as a bookmark, but I understand this bookmark to mean the entire technology regime implied in the steam engine and its continuous development.
    In my reading of Marx, history and society moves in class antagonism and not simply class struggle. The antagonism is not reducible to the struggle between the primary classes, e.g. serf and nobility. The serf and nobility in this example are the decisive contradiction defining and driving the feudal system through its quantitative stages. Capitalist and proletariat evolved within the society of feudalism. However, the serf and capitalist are not “connected together” as the unity of the mode of production identified as feudalism. Serf and nobility is the unity of feudal production. The proletariat and nobility are not connected together as the unity of production or rather the unity of production relation defining feudalism. Serf and nobility as the landed property relations define feudalism in its property form. In its material power feudalism spans centuries from handicraft to manufacture and then the industrial revolution brings the world of feudalism to an end, or rather set the condition for the leap to a new mode of production. In this sense Marx writes the steam engines get you industrial capitalist.
    I do agree that people are decisive in shaping the society formed on the basis of new means of production.
    What happen in my opinion is that bourgeoisie and proletariat evolve in external collision – antagonism – with the serf and nobility as these old classes constitute the decisive contradiction defining the world of feudalism. The world of the serf and nobility is not industrial. Of course there is much more involved in transition from one mode of production to the next. For instance gold as an expanding form of wealth begins the breakup of the landed property relations or what is the same, society based on landed property as the primary form of wealth.
    I think. 
    Waistline

  13. Choppa Morph Says:

    Waistline, if technological progress is all that is needed for a new mode of production to arise, all we need to do is sit back on our arses and wait for the great day.
    You are trying to get Marx to argue this. But he doesn’t. If Capital III isn’t good enough an illustration of this, then how about:

    “The history of all hitherto existing society is the history of class struggle.”

    […]

    “We see then: the means of production and of exchange, on whose foundation the bourgeoisie built itself up, were generated in feudal society. At a certain stage in the development of these means of production and of exchange, the conditions under which feudal society produced and exchanged, the feudal organisation of agriculture and manufacturing industry, in one word, the feudal relations of property became no longer compatible with the already developed productive forces; they became so many fetters. They had to be burst asunder; they were burst asunder.

    “Into their place stepped free competition, accompanied by a social and political constitution adapted in it, and the economic and political sway of the bourgeois class.

    “A similar movement is going on before our own eyes. Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. For many a decade past the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule.”

    […]

    “The conditions of bourgeois society are too narrow to comprise the wealth created by them. […]

    “The weapons with which the bourgeoisie felled feudalism to the ground are now turned against the bourgeoisie itself.

    “But not only has the bourgeoisie forged the weapons that bring death to itself; it has also called into existence the men who are to wield those weapons — the modern working class — the proletarians.”

    […]

    “Though not in substance, yet in form, the struggle of the proletariat with the bourgeoisie is at first a national struggle. The proletariat of each country must, of course, first of all settle matters with its own bourgeoisie.

    “In depicting the most general phases of the development of the proletariat, we traced the more or less veiled civil war, raging within existing society, up to the point where that war breaks out into open revolution, and where the violent overthrow of the bourgeoisie lays the foundation for the sway of the proletariat.”

    http://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm#007

    Surely this is clear enough? The forces of production grow – of course – but they grow because new relations of production, that is new class relations, replace old relations of production that strangled these forces. And the replacement of these all-important relations of production depends on the fighting out and resolution of class war – “open revolution” and “violent overthrow of the bourgeoisie” laying the “foundation for the sway of the proletariat”.

    Economic fatalism, “objectivism”, led many Marxists (like Ernest Mandel and his followers to imagine that the Soviet Union had means of production that were too highly developed to be stuffed back into the straitjacket of bourgeois property relations. The class struggle, with a misled and disorganized working class and a rampant imperialist bourgeoisie proved them wrong. But to stuff the non-capitalist baby back into the capitalist womb, the baby had to be chopped into bloody pieces.

    Our concern right now is to figure out what is happening in China in this historical political economic perspective. Forcing the Chinese baby back into the devil mother’s womb will require grinding it up. Our discussion is about how much of this is capitalism, how much is a new mode of production in becoming, and who is doing what on which side of the class divide, and where, and how.

    I might add that this discussion is of burning urgency for the masses of the Indian subcontinent, too. And India and China make up almost half of humanity. We aren’t just engaged in academic chit-chat.

  14. André Mommen Says:

    Good article, we will take and publish it in the December issue of Flemish Marxist Review…

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