Our Democratic Socialist Alternative – Part 2

Published: 23rd August 2021

Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism

For Democratic Public Investment

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Investment is the main motor of economic growth and the basic generator of employment. But investment under capitalism has been falling for nearly 50 years. The only way out of this crisis is through a programme of public investment linked to a democratic public banking service
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All other things being equal, those nations that invest a larger amount of their incomes will tend to have much faster growth than those which don’t. The graph below clearly confirms this tendency.

For developing countries, investment provides the building blocks on which an economy is built. For developed countries it is the lifeblood of economic advance. For both, investment determines much of the economic destiny of a nation. As it does for humanity as a whole.

The Importance of Infrastructure Investment
The central economic problem today in the capitalist world is the lack of investment. Reflecting this, in many capitalist countries we see major shortfalls in infrastructure. Thus, there are a lack of convenient and fast transportation systems; of modern communication networks; of clean water and modern sewage facilities; of sufficient electric supply; of effective public services and so on. The infrastructure that does exist is often ageing and in serious need of repair and renovation.

The latest example of inadequate infrastructure has been exposed in the ongoing Coronavirus crisis. In a few countries, government capacity, community support and health facilities were sufficient. These included the most advanced nations such as Germany. Or geographically isolated countries such as New Zealand, Australia and South Korea. Or the more socialistically-oriented countries such as China, Vetnam, Laos, Cambodia, Cuba and Venezuela. In these countries, the hospitalisation and death rates were very low.

But in most capitalist countries in the world their health infrastructure was woefully inadequate. And their governments proved less concerned with protecting the health of their citizens. And more focused on helping their companies to keep making profits. Even when they did decide to switch priorities they usually proved unable to mount effective health campaigns to test, trace and isolate people who had the virus.

The lack of up-to-date infrastructure seriously undermines a country’s economy. On the other hand, good and expanding infrastructure greatly helps an economy build and grow. Take the example of improving transportation through the construction of roads and shipping ports; bridges and tunnels; railways and airports. Such links open up whole regions and rural areas and connect them to the cities. This enormously increases trade and economic activity within a country. By reducing the time it takes to move people and goods around it improves peoples’ productivity and efficiency. And it produces new opportunities for socio-economic advancement for the population as a whole.

The same is true for other elements of infrastructure such as water delivery, land management, power, communications and so on. Without these elements in place a country will not be able to develop effectively. It is precisely the lack of such facilities that has been holding Africa back and other areas of the developing world. For instance, only 30% of Africa’s roads are paved. As a result in most of the continent transportation of people and commodities becomes extremely difficult. Especially when it rains and the roads become clogged with mud. Similarly, large areas of Africa have little or no electricity with all the limitations this means for economic activity and even basic homelife. But this latter problem is not restricted to Africa. Large parts of South Asia have problems of repeated power cuts which disrupt their potential for growth and modernisation.

The problem is that to build up the infrastructure of a nation requires long-term major investments. Plus a wider perspective which recognises that the advantages of such investments are not just limited to a particular sector but apply across the board. It is on both of these grounds that such investments are not attractive to capitalist sources of finance. After all, capitalists are not charitable institutions. They only invest and produce for a handsome profit in a foreseeable timeframe. Thus, they usually favour short-term profits on limited investments in specific sectors. Of course, they are happy to bid for infrastructure projects as long as someone else is footing the bill. It is for this reason that long experience has demonstrated that countries trying to escape the trap of underdevelopment cannot do so by relying on capitalist investment.

Even the advanced countries face the same dilemma. If they want to renew and expand their infrastructure the state has to take the lead. In some cases, governments have tried to combine public and private investment in so-called Public-Private Partnerships. But these have usually turned out to cost far more than if the state had done it alone. With the private sector tying up the state in contracts that milk it of funds over a long period.

Need for Major Investment in the Economy
In the richer nations most infrastructure was funded by the state. But this was not enough. In most cases, the state has also had to take the basic industries into public ownership. Thus key sectors had to be nationalised such as power, rail, communications, water, steel production and so on. The efficient operation of such basic industries, and their provision of relatively inexpensive goods and services, form the underpinning of a modern economy. Once again private capitalists proved unwilling to make the large-scale investments needed to maintain and develop such industries. And this was the reason they were brought into state ownership earlier in the 20th Century. This case for public ownership has been re-proven in recent times after the privatisation of some of these sectors – the reintroduction of the profit motive and hungry shareholders has only resulted in higher prices and reduced investment.

Even for the facilities that are owned by private companies, major investments are becoming more and more expensive, requiring a longer time for returns. But capitalist investors and shareholders are not prepared to dig so deep or wait for so long. That is why there is a lack of investment in so many sectors today. As we outlined in our earlier Manifesto section on Modern Capitalism, many companies are sitting on great piles of cash and often prefer to speculate on stock markets. Or buy back their own shares. Rather than to invest in new development.

Even where companies do invest, they do so not for the benefit of their workers, customers, or society as a whole. But for profit for themselves. Clearly, whenever investment is needed to advance the long-term interests of a country as a whole it has to be done through public investment.

Advantages of Public Investment
Jonathan Clyne, one of the founders of our Socialist Network, has written on the historical relationship of public ownership to public investment. There can be no doubting the truth of his statement that “Public ownership has a proven record of mobilising and directing large investments into chosen areas.” 1 This was true in both the capitalist countries and the state socialist republics. As we have shown in some detail in our sections of the Manifesto on ‘Socialism and the Soviet Union’ and ‘China’s New Economic Policy’. It was public investment in infrastructure and basic industry in these backward countries that helped lay the basis for their rapid development. And in the case of China continues to take it forward today.

This public investment combined with planning also helped the state socialist countries avoid the boom-bust economic cycle of the capitalist nations (for details on this cycle see our earlier Manifesto section on Democratic Dynamic Planning). In the case of the Soviet Bloc the regular cyclical downturns in private investment that plague capitalism did not apply given the small size of its private sector. In China where the private sector plays a much bigger and increasing role in the economy, the state’s public planning and investment tools have so far been able to bridge any cyclical problems in private investment. Thus we saw in recent years how China was able to mobilise a massive programme of public investment to successfully power through the international Great Economic Recession of 2008-9.

Again, in order to avoid the much smaller international economic slowdown of 2016-17, the Chinese government speeded up public investment in order to stimulate the economy. State investment increased by 23.7%. Significantly, as marxist economist in China, John Ross highlights: “this growth began to stimulate private investment, which started to accelerate from a low level in November 2016. This demonstrated that instead of state investment ‘crowding out’ private investment, which is the claim of neo-liberalism, arguing that state sector and private sector interests are counterposed, in China state investment by aiding economic growth stimulated private investment…” 2

Ironically, as John Ross points out, it is only in societies where the public sector is dominant that keynesian stimulation measures like this really work. In contrast, in capitalist societies where private investment rules, it is precisely because the state cannot control or direct the investment decisions of individuals and private companies that render the policies advocated by Keynes, the most famous capitalist economist of the 20th Century, ultimately ineffective. As Ross summarises the problem, in systems based on private enterprise, the state lacks the ability “to regulate the level of investment.” 3 This was a major contradiction in Keynes’ theory that Keynes himself acknowledged when he wrote that “I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands. It was necessary, therefore, to aim at a socially controlled rate of investment.4 And more clearly with “I expect to see the State… taking an ever greater responsibility for directly organising investment.” 5

Falling Investment in Capitalist Countries
Another major contradiction, not just in Keynes’ theory but in capitalism itself, is the built-in tendency of the rate of profit in the main productive sectors to fall. And as a result for investment in those sectors to fall over the long term and flow into less productive but more profitable areas. This process and the reasons for it are explained in our Manifesto section on Modern Capitalism. The result of this major decline in productive investment is a relentless fall in the rate of economic growth. This central flaw in capitalism was of course identified by Karl Marx in the 19th century and outlined in his books on Capital.

A big exception to this tendency which Marx anticipated, can occur with the major destruction of capital equipment such as can happen in a major depression. Or a war. Or both. This is what happened through the period after the 1929 Great Depression and during the Second World War (the most equipment destructive war to date). Destruction on this scale, in effect, creates a reset in the economic system and lays the basis for another era of investment and growth. As we saw in the two decades after the Second World War.

However, once again, the tendency for the rate of profit to fall reasserted itself so that by the end of the 1960s, there was a profits crisis in the advanced capitalist economies. This ushered in a long period of declining private investment in the productive areas of the economy in the period from 1970 to 2015. As we can clearly see from the chart below.

The inevitable result of this continuing fall in investment in the productive sectors of the capitalist countries is a similar fall in economic growth, as the chart below dramatically reveals.

These two charts confirm our opening point in this Manifesto section on Democratic Public Investment. Namely, that the level of investment in an economy is the key driver of economic growth. And a fall in investment will lead to a fall in growth. It also explains how in a publicly-driven system like China, state control of investment has been able to avoid the regular crises and slumps that typically afflict the capitalist economies. That is why China has had no capitalist business cycle since the coming to power of the Communists in 1949.

Chinese Investment in Infrastructure
Nowhere has the benefits of public investment been more clearly demonstrated than in China. Its gigantic expenditure in recent decades on new infrastructure has brought spectacular benefits. This was especially the case from 2008 onwards. The Chinese government launched a massive public building programme in order to counteract the threat of the 2008 Great Economic Recession that broke out in the Western capitalist countries. Although this huge expansion in infrastructure increased national and local government debt it has had a long-term beneficial effect on the economy. And on the lives of the Chinese people. Something that the capitalist approach to investment misses. They can’t see that investment in infrastructure comes first and prosperity follows.

Take China’s new 40,000 kilometre-long high speed rail network. This represents two thirds of high speed rail globally. And compares to the next biggest operator, Spain, which only has a high speed network of 3402 kilometres. Indeed, China’s high speed network now equals the whole of Germany’s normal train network. China’s incredible achievement in building this network in record time can be seen from the following graph.

However, from 2011 onwards many Western commentators scoffed at the wisdom of building this network across China. They mocked the small number of high speed passengers in the early years. And the low fares they were being charged. They claimed that the whole project was in big trouble and headed for failure. However, such scepticism is rarely heard today. China’s high speed rail network is now turning an annual profit. But far more important, it is rapidly and smoothly carrying 2.3 billion passengers per year, travelling a combined 680 billion passenger-kilometers. Indeed, half of all train journeys in China are now on the high speed network.

Among many advantages, this has delivered a massive reduction in travel times which has allowed all kinds of business, family and tourist travel to become possible. This has meant that China, a country the same size as the United States, is being able to unite the countryside with the cities. And for the first time to knit its far flung regions into one nation. Journeys that could take up to 48 hours now can be completed in ten. Typically, the earlier Western capitalist criticisms of China’s high speed railway projects were based on narrow and short-term profitability projections rather than weighing up these longer term benefits.

Nor is the building of the high speed network slowing down. It is planned to rise to 70,000 kilometres by 2035 forming part of a massive 200,000 kilometre-long rail network that links up the whole country. Not only has this huge project dramatically improved life for the population and delivered big improvements for the economy, but the high speed rail network in China is electric. This means that it is playing an important role in cutting pollution and reducing the use of cars, especially for long journeys. In this way it is an important contribution to China’s plan for reducing global warming. 

China has also created a whole new industry for itself. It is now the world’s most advanced train and track manufacturer and is exporting its trains and supporting systems all over the globe. A good example of China’s new high-speed train technology is its automatic track-width adjusting facility. The difference in track widths between many countries is a major barrier to international train travel. This is a particular problem for China’s Belt and Road Initiative which is building train lines across the world. Until now trains had to stop when it came to a country with a different track width, while freight and passengers were transferred to a different locomotive. This caused considerable delay and extra cost for international travel. However, China’s new technology allows the train to automatically adjust its wheels to the different tracks without stopping.

Likewise, new technologies are being rolled out in China for local transportation in cities. China’s planners can see that already there are too many overcrowded roads in cities. They are mindful that only a fraction of Chinese people have cars. And that living standards will soon be high enough for everyone to own them. But there never can be enough roads, bridges and tunnels to accommodate such an increased number of vehicles. Therefore a big expansion of cheap, comfortable, rapid, zero-emission public transport is not only desirable but essential.

To begin to cope with this, China is now the largest producer of electric buses which together with electric taxis are being made mandatory in one city after another. This is a key part of reducing pollution in the urban areas. Also, in twenty five of China’s largest cities, extensive underground metro systems are now in place. This includes the four largest in the world. Undoubtedly, this is one of the most efficient ways for moving

people around cities. And if there are sufficient underground trains and carriages it is very convenient and comfortable for passengers.

However, underground systems cannot cover every location in a big city. Nor are they really practical for smaller cities where passenger numbers are much lower – they are far too expensive to excavate and take decades to build. Normally, buses fill in these gaps but they are very slow moving in city traffic and less comfortable. To overcome these limitations, China is starting to roll out a new form of city-wide public transport. Combining bus and train technology, electric shuttles are now being introduced into third and fourth tier cities. These travel over a new form of raised monorails that are easily located above existing roads and open areas. And cheaply and quickly constructed. The new shuttles are very quick, safe, quiet and comfortable. Having rubber wheels and flexible junctions they can travel easily over hilly terrain and turn in short distances that are impossible for normal trains and metros. In comparison to train manufacture, the shuttles are made cheaply using mass electric bus vehicle production lines. All of this allows tickets to be as low as five cents and to attract a mass ridership.

How successful such new transport technologies will be remains to be seen. However, it is only through public investment that environmentally friendly solutions like this will be developed and widely introduced.

Investment that a Democratic Economy Could Deliver
There are so many examples of public investment that are urgently needed across the world. “For example, where there is a problem of homelessness and substandard housing, one of the immediate priorities of any socialist government would be to employ construction workers to build houses.6

Another common problem concerns the supply of water. In too many countries there are serious problems of recurring drought. This is only likely to get worse with the rise in world temperatures. Yet most countries receive enough water through rainfall and river flows. Their water problems usually arise because they are not sufficiently utilising their rivers or efficiently collecting their rainfall through dams and reservoirs. And do not have a national water grid for efficiently distributing their water resources around the country. Even in many of the driest regions of the world major steps can be taken to transform the land and local climates through better conservation and land management. Looking ahead, there is the prospect of renewable energy being used to green desert areas with treated seawater.

Meanwhile, in many countries massive investment is needed to install or renew urban sewage systems. And in plants to treat polluted water and wastewater so that it can be used again. Either for agriculture (with a lower level of filtration) or for drinking water.

The other side of climate change is the increasing incidence of storms and the floods they are causing. Of course, some floods cannot be avoided. But the majority of flooding can be predicted and prepared for. And the damage minimised.

All this demands major public investment. Investment in national water collection and distribution; in water conservation and desalination; in sewage and water treatment; in flood prevention.

It is the same story with power. In large parts of the world there is a constant problem of power cuts. In some places such as areas in Africa, there is no electricity at all. Even in those more advanced countries with a constant power supply, electricity prices are continually rising.

Whatever the power situation, there is a common need for a switch over to the generation and storage of renewable energy if we are to stop and reverse climate change. A significant contribution to this can be made by individuals through the installation of private solar panels, the purchase of electric cars and energy conservation. But the massive scale and urgency of the problem will only be overcome by collective action through public investment and society-wide mobilisation. For example, the money wasted by America in the Iraq War nearly twenty years ago would have been enough to install solar plants across the deserts of the South West US and to supply the energy needs of the whole nation. 

The Key Role of the Banks
No public investment strategy is feasible that does not incorporate a country’s financial system. In the modern capitalist economy the banks, insurance and pension funds play an absolutely central role in the operation of the economy. And in the provision or otherwise of finance for growth and expansion. But, as we have seen from the 2008-9 banking crisis and the gigantic fraud that caused it, these financial institutions are not operating in the interests of society as a whole. Even when they were bailed out with public finance they failed to assist the smaller businesses who desperately needed their assistance.

In the run up to the Great Economic Recession there was a continuous process of bank mergers and takeovers across the world. Nowhere was this more obvious than in the United States as the dramatic graphic below clearly demonstrates:

So huge had the banks and financial firms become and so crucial to the economy, that by the time of the international banking crisis they were deemed ‘too big to fail’. And so powerful were the bosses who commanded these banks that in most Western countries they became ‘too big to jail’. This despite the fact that it was they who had consciously and deliberately encouraged the fraudulent mortgage lending. And overseen their wrapping up into sham financial instruments. All with the aim of securing massive personal commissions of hundreds of millions of dollars for themselves. Gains that they walked away with.    

The 2008-9 international banking crisis only made the concentration of ownership worse. The big banks used the crisis to further consolidate the financial sector into yet bigger players, offering even more colossal systemic risk to the whole international structure of capitalism. And in a situation, as the graph below shows, where debts have reached yet greater heights.  

Obviously, we cannot allow a situation to continue where individual economic organisations owned and controlled by a small minority, and run in their interest to the detriment of the rest of us, hold the whole future of society in their hands. If we are serious about moving towards a democratic economy capable of addressing and overcoming our economic and social problems, our first step must be to take the financial sector into public ownership. And bring it under democratic control. Without this step we will not be able to effectively plan for our future. Or to execute our democratically decided plans.

One of the great ironies of the capitalist finance sector and the malignant power it wields over us, is that much of the capital used by the finance industry is our own money. Our wages, our savings, our pensions, our insurance policies, our mortgages. By bringing this sector under public ownership and control, all we are really doing is taking back control of our own money. No wonder that public ownership of the banks scores highly in opinion polls.

A Historic Demand
The demand for the banks and other financial institutions to be taken into public ownership is not new. Karl Marx identified the failure to nationalise the banks as one of the main reasons for the failure of the Paris Commune back in 1871. Likewise, Lenin on the eve of the October Revolution of 1917 explained the central role played by banks under capitalism. And identified the need for them to be nationalised as a central task for the revolution. His analysis is worth quoting at length:

“The banks, as we know, are centres of modern economic life, the principal nerve centres of the whole capitalist economic system. To talk about “regulating economic life” and yet evade the question of the nationalisation of the banks means either betraying the most profound ignorance or deceiving the “common people” by florid words and grandiloquent promises with the deliberate intention of not fulfilling these promises.

It is absurd to control and regulate deliveries of grain, or the production and distribution of goods generally, without controlling and regulating bank operations. It is like trying to snatch at odd kopeks and closing one’s eyes to millions of rubles. Banks nowadays are so closely and intimately bound up with trade (in grain and everything else) and with industry that without “laying hands” on the banks nothing of any value, nothing “revolutionary-democratic”, can be accomplished.

What, then, is the significance of nationalisation of the banks?  It is that no effective control of any kind over the individual banks and their operations is possible (even if commercial secrecy, etc., were abolished) because it is impossible to keep track of the extremely complex, involved and wily tricks that are used in drawing up balance sheets. founding fictitious enterprises and subsidiaries, enlisting the services of figureheads, and so on, and so forth. Only by nationalising the banks can the state put itself in a position to know where and how, whence and when, millions and billions of rubles flow. And only control over the banks, over the centre, over the pivot and chief mechanism of capitalist circulation, would make it possible to organise real and not fictitious control over all economic life, over the production and distribution of staple goods, and organise that “regulation of economic life” which otherwise is inevitably doomed to remain a ministerial phrase designed to fool the common people. Only control over banking operations, provided they were concentrated in a single state bank, would make it possible, if certain other easily-practicable measures were adopted, to organise the effective collection of income tax in such a way as to prevent the concealment of property and incomes; for at present the income tax is very largely a fiction.

The advantages accruing to the whole people from nationalisation of the banks would be enormous. The availability of credit on easy terms for the small owners, for the peasants, would increase immensely. As to the state, it would for the first time be in a position first to review all the chief monetary operations, which would be unconcealed, then to control them, then to regulate economic life, and finally to obtain millions and billions for major state transactions, without paying the capitalist gentlemen sky-high “commissions” for their “services”. 7

Even capitalist politicians have accepted the need for public ownership of banks. The central banks in most countries are publicly owned and used for the issue of currency and as an instrument for government financial management of various aspects of the economy. This central bank role has been a target of the neoliberals who have successfully pushed in a string of countries for the central banks to become ‘independent’ of day-to-day government control.

Public ownership has also been implemented in the commercial banking sector in many countries. Even in the United States there have been examples of publicly-owned banks and a highly successful and stable one continues today in North Dakota. With a new one planned for California.

In China, the government’s ownership of the main banks in the country including the central bank, the People’s Bank of China, are a vital element in its direction of the economy. And a key part of the effectiveness of its planning process. 

Not Just a Change of Ownership
But taking the banks into public ownership is not enough. First, we need to introduce democracy and transparency into the whole central bank and regulatory framework, thus giving a positive answer to the age old question: ‘who regulates the regulators?’

Even more important is the question of who runs the banks and who its activities benefit.  An extreme example of this was seen during the 2008-9 international banking crisis as it played out in the UK. A number of the banks were nationalised in order to save them from going under. Large amounts of public money was ploughed into these banks to pay off their debts. But instead of the government bringing in a more progressive management they largely left them in the hands of the old dishonest and irresponsible managers who had ruined them in the first place. Not surprisingly, these managers carried on with their old practices as was revealed in the following years. These practices included failing to help small businesses who desperately needed support during the crisis and its aftermath. Even worse, the banks continued to advise their clients how best to avoid paying taxes to the very government that now owned them.

As it happens, the 2008-9 banking crisis gave the ruling Labour Government a golden opportunity to bring most of the British financial sector into the public sector for next to no cost. With all of the gains that would have flowed from this for the benefit of the people as a whole rather than the small minority of moneygrubbers at the top. Instead, the Labour politicians used the public purse to bail out the City of London. The nationalisation that was carried out was seen only as a temporary measure. To be followed as soon as possible by a return to the private sector. This was state capitalism at its worst.

Instead, the financial sector needs to be brought under democratic public ownership and control, transforming the private banks and the rest of the financial institutions into a democratic public banking service in order to serve the interests of the 99% of the population who it currently exploits and neglects. To make a public banking service democratic and transparent it would need to come under the direction of parliament and planners in partnership with its direct stakeholders: the banking staff; insurance and pension policyholders; and account holders, both individual and small/medium enterprises alike.

Such a democratic public banking service could provide economic stability and growth, along with effective economy-wide planning and investment. Plus, it would stamp out the money laundering, corruption and tax evasion that is undermining our public finances and political life. Along with the mis-selling of financial products, and the insider fixing of financial, currency and commodity markets which is cheating so many bank customers and society as a whole.

A unified democratic public banking service would deliver a wide range of benefits to society. It would do away with the lavish profit-taking. And the huge sums currently lost to bonuses and commissions that have incentivised much of this sector’s fraudulent culture. Moreover, it would abolish the sector’s ridiculous waste, duplication and unnecessary operations. Imagine what could be done with the expensive property tied up in thousands of lookalike high street branches. Or the huge marketing budgets wasted on promoting virtually identical services.

Investing in People and Enterprises
A democratic public banking service would certainly deliver great benefits on a macroeconomic level, providing as marxist economist Michael Roberts puts it: “financial support to any national plan for investment in infrastructure, the environment and jobs.” But such a service could also greatly increase investment in our small and medium size businesses and cooperatives. Supplying them with expertise and cheaper loans and credit. Helping them to manage their finances and expand their activities. And to innovate.

We can also use a democratic public banking service to invest in individuals and families. A whole range of benefits could be delivered to individual account holders, savers, borrowers, the insured and pensioners. With the savings made by abolishing the outrageous profit-taking, we could start by abolishing bank charges and offering lower interest rates for borrowers and higher rates for savers. We could bring to an end the exorbitant interest charges on credit card holders with the introduction of cheap public credit cards. And drastically reduce transaction costs for card-handlers. 

At the moment, banks are institutions where we have to have our wages, pensions and welfare payments paid into. And where we place our meagre savings. Institutions which we get virtually nothing from but which use our money to make profits for the directors and the wealthy. For the poor the banks offer nothing, not even individual accounts. This further increases their marginalisation in society

But imagine a financial sector turned into a public service which genuinely seeks to assist people. A service that utilises the tens of thousands of existing financial industry staff to provide advice and financial support for individuals and families. Virtually everyone gets into difficulty at some time or another. Or needs financial advice and assistance for key decisions in their life. A democratic public banking service could provide the guidance and financial help to help us through these times.

Conclusion
Investment is the main motor of economic growth. And the only reliable source of investment is public investment applied as part of a planned economy. For developing countries public investment in basic infrastructure is the prerequisite for the emergence of a successful economy. To be followed by encouragement and support for the labour intensive sectors such as agriculture, mining, textiles etc. that are the natural strength of most developing nations. This can then lay the economic basis for the emergence of light industry and consumer manufacture. And in due course, heavy industry and new technologies.

For the more advanced economies, as we have shown, private investment is in serious decline which is the main factor behind the capitalist world’s economic stagnation and crises. This compares dramatically with the incredible success being experienced by the Chinese economy. China has used planning and public investment to create a modern and efficient infrastructure, several examples of which we detail here. Also to invest heavily in education, and research and development. All this is paying off with China likely to become the most powerful economy in the world over the next decade, if not earlier.

We have also outlined a number of areas that urgently need public investment across the world. Such as action to stop the destruction of habitat and species, and to rapidly cut back on carbon emissions if we are to reverse the disastrous trend towards higher temperatures.

A key aspect of public investment is the privately-owned financial sector which controls much of the investment in the capitalist world. We have outlined the overwhelming case for public ownership of the banks which is the only way that governments will be able to seriously mobilise public investment on the scale needed to overcome their national and international problems. But we argue that the bringing of the financial sector into public hands cannot just be a case of exchanging the private owners for ministers and civil servants. Instead, it must be a new democratic model of public ownership in which the bank workforce, bank customers, small business customers and so on should have a key role in its governance. Alongside representatives of the wider community through parliament. Our aim should be to transform the banking, pension and insurance sector from an industry that uses and abuses our money into a genuine public banking service that assists people and businesses with financial advice and financial assistance.

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For Democratic Public Innovation

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Innovation is essential for the advance of any system. Here we look at the increasing problems posed by innovation under capitalism.
And how innovation could be greatly increased with input from the wider public in the transition to a
democratic socialist society.
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Innovation is usually taken to mean the introduction of new technologies in society. But it is much more than that. Innovation applies to changes made to any aspect of human endeavour. Thus, we are also talking about the introduction of new ways of doing things, improvements to existing processes and so on.

As such, innovation is the key to the success or otherwise of any social and economic system. For example, it was the lack of effective innovation in many areas of the Soviet economy that was an underlying cause of its failure to compete with the capitalist world market. This spelled doom for its survival. Yet the question of innovation in a democratic socialist society – how it can be accelerated and positively directed to improving humanity, and how it can be democratised to involve ordinary people – is rarely if ever discussed on the Left. Any democratic socialist manifesto must deal with this question if it is to offer a credible way forward for society.

Innovation Past and Present
In the feudal societies of Europe some members of the ruling aristocracy were excited by science. But this was usually only in its pure form as the search for pure knowledge. In general, they weren’t interested in the application of science to day-to-day problems which they tended to regard as beneath them. This is where the capitalists slowly emerging within feudal society came into play. In innovation they saw the opportunity for stealing a march on their rivals and increasing their profits. “Where the aristocrat looked up through a telescope at remote galaxies, the capitalist wanted to look downwards into the world beneath his feet and find out what needed to be done to turn material reality into a saleable commodity. This changed forever the role of thinker and doer. Thinking, henceforth, was measured by its ability to make profit, or to comprehend the world so that profit would become more likely.” 8

Once capitalism had succeeded in defeating feudalism politically it began to remove the many religious and other restrictions that had previously existed as barriers to investigation and the application of science and technology. As a system in which innovation lies at the heart of its existence, capitalism was without doubt the most innovative system yet known to mankind. Karl Marx and Friedrich Engels were among the first to recognise that innovation was the motor of capitalist development. It is worth quoting here some of what they wrote about this in their Communist Manifesto published as early as 1848:

The bourgeoisie cannot exist without constantly revolutionising the instruments of production… All old-established national industries … are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe…The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation. The cheap prices of its commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate…The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground – what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?

Capitalist societies were not the first to experience key innovations. For example, ancient China had discovered many important new technologies. Discoveries such as iron and bronze; paper and much later printing; silk and porcelain; alcohol and tea; gunpowder and the compass; clocks and seed drills; umbrellas and paper money. To name some of the most famous. 

However, capitalism was unique in the centrality and speed of its technological development. As an essential part of capitalism’s competitive drive for maintaining or increasing profits, innovation is built into its very nature. It was for this reason that it was able to so quickly overcome the mighty ancient civilisations of China and India.

Indeed, one of the biggest arguments for capitalism made by its defenders is its ability to innovate. Significant sections of society are inspired by the ability of capitalism to innovate and compare this ability as a decisive advantage over other systems such as the bureaucratic planned economies of the Soviet Bloc and China. Of course, the Soviet experience was only one model of state-dominated socialist development. The modern Chinese example seems to be achieving a far better rate of innovation. One that looks set to be surpassing its capitalist rivals. If China’s rate of innovation does leave its capitalist competitors behind this will deal a major psychological blow to the capitalist system and deeply undermine its morale.

Turning Science into Technology
Although they are often mentioned together, science and technology are not the same. Science is the study of nature and the increasing of knowledge about the universe. Meanwhile, technology is the application of this scientific knowledge to practical outcomes. The difference between these two concepts was vividly demonstrated in the Soviet Union. At one time 50% of the world’s scientists lived in the USSR. This reflected the massive percentage of people going to university in the Soviet Union and its encouragement of science and industry. As a result, great basic science was carried out with a large number of patents awarded. But, with the main exception of the Soviet military and space sectors, too many of these scientific developments were not turned into effective technological applications. This was especially the situation in light industry and consumer goods. For this reason, many Soviet products were not attractive on the world market.

Contrast this to the experience of Japan. In the 1970s, Japan was spending only 2.5 percent of its GDP on research and development, while the Soviet Union was spending more than 4 per cent. Yet Japan’s products were increasingly popular across the world. And its economy was growing much faster than the Soviet Union. A major factor was that in Japan its research and development funding was spread across a wider variety of economic sectors.

Moreover, in Japan, there was a strong integration between research and production at the enterprise level. Whereas in the Soviet Union there was often a wide separation between the two activities. Crucially, the Soviet Union did not have organisations through which to commercialise the technologies developed by the State. In contrast, Japan had strong user–producer linkages, which were non-existent in the Soviet system. Japan also encouraged devolved innovation with incentives provided to management and the workforce of companies, rather than focusing mainly on its centralised ministries and academies of science.

The same criticism could be made against the state-owned industries in the capitalist countries. Too often, leading edge technologies seem to be found mainly in the private sector. For this reason business has come to be widely accepted as the innovative force. While the State-owned industries are cast as a drag on innovation, necessary for the ‘basics’, but too large and heavy to be the dynamic engine of the economy. Although there is an element of truth in this description, in practice things are more complex.

State Funding Behind Many Technical Advances
Apple, currently the most valuable company in the world, is held up as a model of American capitalist innovation. But the reality is that it is more a model of design and marketing than technical innovation. In fact, Apple has one of the most miserly research and development budgets in the technology sector. The key technologies found in the iPAD, the iPhone etc. were actually developed in universities with government funding. While the underlying processes that Apple took advantage of, including the internet, were originally developed as US military programmes. But this is just one well known example. In truth, most of the radical innovations that have fuelled the growth of American capitalism – from railroads to the Internet; from modern-day nanotechnology to pharmaceuticals – trace themselves back to state investment and government coordination.

For instance, the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant. Even the much-praised Elon Musk of Tesla electric cars fame, was only able to move into mass production through a government loan of $100 million. This enabled him to buy and refurbish the General Motors/Toyota joint automobile factory in California. Then there was the big tax incentive from the Federal government for each new Tesla car sale in the first years. Without this it is quite likely he would have gone out of business. He himself admits that he was close to bankruptcy in the years from 2017-2019.

It was a similar story for Elon Musk’s SpaceX company held up as a great example of new private initiatives in the space business. However, without the purchase of Musk’s first three rockets by the Defense Department, SpaceX would never have left the ground. And without the subsequent massive contract from the National Aeronautics and Space Administration, Musk’s company would have not survived, 

Likewise across the advanced capitalist economies. In the development of aviation, nuclear energy, computers, the Internet, biotechnology, and today’s developments in green technology, it has been the state – not the private sector – that has kick-started development. It was the state that demonstrated a willingness to take risks while the private sector was too fainthearted. Even after these new technologies were developed with government assistance, the private sector was still too scared to invest. Seeing profits as too uncertain or too distant. So governments had to fund commercialisation of these technologies, until “venture capital arrived 15–20 years after the most important investments were made by public sector funds.” 9

In so many cases under capitalism, major companies act as parasites on the public purse, feeding off the benefits of research done at public expense. Too often industrial grants and tax incentives for company research and development have become business giveaways, making individuals and their companies richer but providing little return to the economy or to the State.

Myth of The Heroic Inventor
The history of innovation is often portrayed as a series of brilliant and determined individuals who were able to produce ingenious solutions and turn them into popular products. Yet, the advance of technology was always a much more complicated and collective process in which all kinds of developments built upon each other. Only then to lay the basis for other major advances. Certainly, in the past, individuals played a key role in this process. But this is less and less the case today.

 Nowadays, the finance required and the scale of production, marketing and distribution needed to commercialise new ideas, is on a level incomparable to the earlier days of capitalism. There are still the occasional examples of the individual inventor which are repeatedly celebrated in the media. But these are very much exceptions to the rule. Innovations overwhelmingly are based on the work of government funded bodies. Or come out of large companies. “Over the last century, the heroic entrepreneur has increasingly become a rarity and the process of innovation in products, processes and marketing has become increasingly ‘collectivist’ in its nature.10

Today, the vast majority of patents are awarded to and held by companies and publicly-funded organisations. This is not surprising given that the process of applying for patents is complicated and costly. And too often leaves individuals and small companies at a great disadvantage. Among other problems, they leave them open to having their ideas stolen or copied by the big companies who constantly monitor the patent applications. Even where patents are successfully awarded this is only the first step. Trying to legally enforce patents against the big sharks in the market is a very difficult, slow and expensive process which many an inventor has had to give up in frustration. Or for lack of resources.

Then comes the task of turning good ideas into successful products. The difficult task of securing the capital needed to move into mass production or convincing an existing producer to take the invention on board. In many cases inventors are not able to overcome these hurdles. Here enters the venture capitalist who, taking advantage of the vulnerable individual inventor or small company, seeks to secure the maximum profit from and/or control over the company that will produce the new product or service.

Lack of Planning
Where companies do carry out their own research and development there is very little coordination between them. Naturally, they have an interest in keeping the results of their research secret from their competitors and from the rest of us, no matter the negative effect this has on mankind’s level of knowledge. This contrasts with the public sharing of research outcomes in universities and other publicly funded academic institutions. Indeed, public peer review is an important aspect of the academic research world.

As a result, in the capitalist world there is little opportunity to coordinate or plan private commercial research and development. This leads to too much investment going into some sectors and too little in others. The ludicrous internet dotcom boom of the 1995-2000 period was a classic example of this. This lack of planning also means that a lot of potential advantages for combined and hybrid development is lost. And resources that might be needed to build on the new technology are not made available.

A significant exception to this lack of innovation planning was found during the postwar period in the developmental states of Japan, South Korea, Taiwan etc. There, governments instructed companies on what technologies and product lines to focus on, coordinated industrial applications and gave assistance where possible. The result was a major technical and economic leap forward for these countries. In less than two generations they were able to emerge into the advanced nation league. This example radically undermines the neo-liberal, anti-state planning, coordination and investment arguments put forward by the capitalist economists today.

Of course, these Asian states received considerable US military support which saved them having to waste valuable resources on defence. They were also given ‘most favoured nation treatment’ so they could export into the massive US market without tariffs. All as part of an attempt to counter the influence of the Soviet Union and prevent the very real threat of revolution in the immediate post war situation. But the development model in East Asia has long gone. These countries have since evolved along more classical capitalist lines through the penetration of neoliberal ideas and practices. And the tendency of investment in capitalist economies to fall over time has befallen them. Accordingly, their rate of technological advance and economic growth has greatly suffered.

The Speed of Innovation
Innovation today is growing very rapidly. It is generally estimated to be increasing at an average of 5% per year. If this was an example of linear growth it would take 20 years of 5% growth to double the size of human knowledge. But it is occurring in an exponential fashion, with growth compounding on itself each year. The result is that the doubling of knowledge is taking place in 14 years rather than 20. In some sectors, this rate of change is happening even faster.

As such, we are living in an age of incredible technical acceleration. In the first stage of human-organised technology, it took half a million years to move from stone tools and the regular use of fire, to the beginning of farming. But it only took a few thousand years more to move into the Neolithic age. An age in which people produced pottery and the wheel, built houses and began to produce food surpluses. From then on, each technological stage came more quickly. As we can see from the chart below, each dialectical technological leap forward took less time than the one before. Coming up to date, a paradigm shift like the Internet took only a few years to take hold.

The lack of innovation planning under capitalism was bad enough in the past. But with this ever-increasing pace of change it makes innovation increasingly chaotic and disruptive. And causes a growing level of anxiety and discontent. Clearly, under capitalism we are on a train that is getting faster with no driver and no brakes. As such, our current economic system is fundamentally incapable of dealing with the rising technological whirlwind. And the longer we fail to control the increasingly rapid pace of technological development, the sooner it will control us.

In our transition to a democratic socialist society, we should heed the words of Frederick Engels expressed as far back as 1847, that innovation must “create new needs and, at the same time, the means of satisfying them. It will become the condition of, and the stimulus to, new progress, which will no longer throw the whole social order into confusion, as progress has always done in the past.” 11

Waste and Disruption
The increasingly rapid waves of innovation in capitalism generate an incredible level of waste. This wastage can become destructive and ruinous even for capital itself. The devaluation of prior investments in machinery, plant and equipment; as well as in the built environment and communications links, even before their value has been recovered, is becoming a serious problem. In terms of human capital, unplanned technological change continually renders skills obsolete, destroys jobs and displaces workers. Workers are expected to go where the work is rather than for work to go where the workers are. All of this imposes great hardship on people and their families. Especially for older workers who are routinely discarded.

Elitist Science and Technology Research
Large government budgets exist in the advanced countries for scientific research. Typically public funding at around 2% of GDP is allocated for this purpose. In the USA the state became a major patron of science after the Second World War when it realized that “the successful technical effort of the war years had drawn heavily on the bank of basic knowledge and research skills”. Since then, successive American administrations have channelled funds to basic science, as well as to technologies drawn from that science, to ensure that the state continues to have access to war-winning technology. Accordingly, the federal government provides most of the funding for basic science research in American universities.

However, the population as a whole has almost no say in the priorities of this spending. Even though taxpayers are collectively the patrons of state-funded science research, there is little or no open debate about what the research is for. This is ridiculous given that so much of the economy and other aspects of society is determined by this research.

For example, the lion’s share of public investment goes into military research with the US Department of Defense directly controlling around half of all state funding for scientific research and development. This amounts to over $100 billion a year. Yet, military research and development does nothing to solve human problems of disease, hunger and under-development. It leads only to more fearsome means of death and destruction. If the public was genuinely consulted, research priorities would be very different.

People would naturally want their taxes spent on research into health prevention issues such as vaccines, birth defects, obesity etc. Or into improving housing construction, insulation and so on. Or more research into overcoming the environmental crises through large scale desalination; generation and storage of energy; and the capture of carbon from the atmosphere.

But the priority of the US government is to help its big companies. As well as providing the military with a bank of basic knowledge and thence access to advanced technology, government spending in the defence sector delivers huge profits to private industry. Through defence contracting a handful of corporations secure vast sums from the taxpayer.

The same pattern operates in all the advanced capitalist economies. In Britain, for example, around 30 per cent of the state’s total budget for research and development is spent on military-related projects. The emphasis on research and development of new weapons ensures that Britain’s companies remain a major player in the international arms trade. While the taxpayers of both the producing and the purchasing countries bear the costs of this trade, the high margins and fat profits it yields find their way into private pockets. Moreover, the secrecy involved in military research and development means that even when it uncovers useful advances that could be applied in other fields, often these applications can be forgotten or delayed for decades.

Democratic institutions do have some oversight of the science and research budgets but in practice, the heads of the military-industrial-political bureaucracy are left to decide these things. Meanwhile, the public has no direct access to the debate about what constitutes national science goals and priorities.

Research on Health
Another dramatic example of how life and death is affected by the wrong priorities of the research and development establishment is in the field of health. For instance, the World Health Organisation estimates that 18 million people die globally every year of preventable and curable medical conditions because of the high cost of drugs. The AIDS disease was a classic example of this. Ten million people died of AIDS between 1996 and 2003 because they couldn’t afford the exorbitantly expensive drug therapies. The drug companies were unwilling to reduce their charges for the poorer countries and the patients died unnecessarily without treatment. This not only destroyed the individuals but the families and communities which relied on them. And severely set back these countries economically.

Contrary to the popular conception encouraged by massive television advertising, the pharmaceutical industry is not the source of most medical advances. In fact, a big majority of significant new drugs are produced with public, not private, funds. Take vaccines for example. The main drug companies have long stopped doing vaccine research. There is little profit in producing a drug that is only taken once in order to prevent disease in people. Indeed, the drug companies are not really interested in curing diseases, never mind preventing them. Where is the ongoing profit from that? No, they are looking for drugs that treat medical conditions over a long period. They want long-term, repeat customers.

The ongoing coronavirus pandemic is a good example. The real research into the Western vaccines that we hear all about was usually led by university science departments or small research companies, with the drug companies acting only as testing, manufacturing and distribution partners.

In practice, the private pharmaceutical companies mainly focus on producing ‘me too’ drugs which are slight variations of their existing big money earning medicines which are about to lose patent protection. Or on treatments that are virtual copies of the big profit earners made by their competitors. In recent years, the CEOs of large pharma companies have admitted that their decision to downsize – or in some cases eliminate – their R & D labs is due to their recognition that in the ‘open’ model of innovation most of their new products are based on research carried out by small biotech firms or public labs.

The Internet – a Double-edged Sword
Another major example is the Internet. The ability to amplify communication is profoundly important for the expression of mass dissent. For example, the emergence of European printing technology in the 14th and 15th centuries had a huge impact on the religious, economic and political life of the continent. By allowing the mass of people for the first time to read the original religious texts of Christianity in their own language, enabled them to compare the actual ideas expressed there to the very different teachings of the Catholic Church. And thereby to compare the original directions to the corrupt behaviour of the Church’s functionaries. Thus, the wide circulation of Martin Luther’s religious pamphlets helped develop the Protestant Reformation movement and greatly undermined the ideology of the Catholic-dominated feudal system. Less well known is the fact that the printing press also allowed radical critics and dissenters to distribute their ideas. The socialistic Leveller movement that formed the popular backbone of the English Revolution in the 1640s, had its own weekly newspaper with a mass readership.

Of course, the internet will have a far far larger impact on struggle than the printing press. Allowing people all over the world to instantly communicate with each other at a fraction of the previous cost is an absolute requirement for the development of internationalism. Until now, how could the workers of the world unite when they couldn’t even communicate with each other? In the past, only government institutions, companies, political and trade union bureaucracies were the ones able to establish and maintain regular international communication. Comparing that to the situation today, this is a communication revolution indeed.

Now the internet is offering the potential for people everywhere to instantly see and talk to each other, critique events and compare ideas. This is a mind-blowing development the consequences of which none of us can conceive. Take our Manifesto as an example. The coherent and practical ideas we are developing here for replacing capitalism can easily spread across the world. And be taken up by hundreds of millions. The internet and its associated communication technologies are a fundamental challenge to the monopoly of ideas that the capitalist media had established over the last two centuries. A monopoly that has allowed them to successfully manipulate the limited form of democracy we have.

But like everything else in the universe, innovation can be of positive or negative benefit. A glass can be used to drink out of or to smash over someone’s head. All technological developments have their positive and negative potential. So too with the internet and its child, social media. Certainly, the online world offers the potential for all humans to communicate with each other. To express their wishes and feelings and bring real democracy into being. However, as we are now seeing, social media can also be used to atomise, to divide, to trivialise, to divert and to deceive. How many people are being confused by the spread of all kinds of crazy ideas and conspiracy theories? Or having their prejudices deliberately stoked and inflamed?

The social media monopolies and the corporate world who take advantage of their facilities, are rapidly learning how to manipulate our emotions and desires with Public Relations tricks and deep learning techniques. This knowledge is not just being used to sell us products and services. It is now being used to influence how we vote in elections as we saw with Cambridge Analytica’s use of facebook data to influence the 2016 election in favour of Trump. Or the use of social media used against Jeremy Corbyn and Labour in the British General Election of 2019.

At the same time, the internet is being used as a powerful device by the state to monitor and track dissent and dissenters. If we allow big business and government agencies to continue controlling the online world in this way we can only expect ever more sophisticated methods of mass manipulation and invasion of privacy. The further development of what is now called ‘Surveillance Capitalism’.

The internet monopolies, Facebook and Instagram, Google and Twitter have become just too important to the health of society to be left as private companies serving the needs of their billionaires founders. They urgently need to be brought into democratic public ownership and run as accountable public utilities.

Other Negative Features of Capitalist Innovation
The innovation priorities of investors in the capitalist world are all wrong. For example, far too much research and development is devoted to developing luxury goods that are way out of reach of the majority of society. Still more innovation goes into making products look better or more fashionable. Or better packaged irrespective of their use value. In the food sector huge sums are devoted to improving the look or taste of processed foods regardless of the nutritional benefit or the damage  it often does to the consumer.

At the other extreme, the majority of humanity is ignored by the research community. After all, business is only interested in people who have enough money to buy their products. That means that less than 3 billion people out of the world’s 7.5 billion are regarded as potential customers. The rest are just too poor.

Suppression, Copyrights & Patents
Although capitalism has been built on innovation, there are a whole series of measures taken by business in order to stifle innovation when it suits them. For instance, many companies consciously suppress research and development when it threatens their existing profits. This may be achieved by simply shelving inconvenient in-house discoveries. Or by buying inventions from other sources and killing them. A famous example of technological suppression was the EV1 electric car from General Motors. This was mysteriously scrapped in the 1990s despite proving very popular. This was done in order to protect the internal combustion engine and the oil industry which depends so much on it. But its suppression set back the development of electric transport by two decades with disastrous consequences for the environment. More recently, this effort at suppressing electric vehicles has reappeared. This time against Tesla’s roll out of electric cars. With the oil companies suspected of secretly funding a big hostile public relations operation and big short positions on Tesla stock in an effort to bring down the company and its founder Elon Musk. Fortunately, the effort this time around has failed spectacularly.

A much more widely practised method of suppression of innovation is through the use of patents and copyright laws. The impression given is that this is designed to protect individual inventors, writers and artists. To guarantee them a fair return on their ingenuity and effort. But 97% of patents are worthless and with the increasingly rapid change of technology, products become so quickly out of date. Besides, both patents and copyright infringements are very difficult and expensive to prosecute. In truth, these protections are mainly used to protect the wealthy and big corporations. Particularly, as these are the only groups with enough finance and patience to legally enforce them. In fact, patents don’t stop technology from being stolen by a rival. They only help provide the basis for legal action. That is as long as you have millions of dollars to pay the legal costs.

To this end, there is now a layer of parasitic companies with deep pockets who specialise in buying up patents and enforcing the collection of fees on them. In respect of this, most multinationals are regularly involved in extensive court battles against each other for control over patents and the rent-seeking income that depends on them. These patent wars benefit the lawyers not the consumers, raising prices and holding back new development.

“The unspoken reality is that the U.S. patent system faces … a market so constricted by high transaction costs and legal risks that it excludes the vast majority of small and mid-sized businesses and prevents literally 95 percent of all patented discoveries from ever being put to use to create new products and services, new jobs, and new economic growth.12

The big downside to patents and copyright is that they greatly inhibit the rapid spread of knowledge and discovery. This benefits a few but is to the detriment of society as a whole. The most dramatic example of this is taking place with the US vaccines for Covid-19. Despite the fact that the research for the vaccines has been largely publicly funded, the groups that have developed them and the drug companies which have manufactured them, are insisting on high prices for the doses. And on the upholding of their patents. The result is that on the one hand eight new vaccine billionaires have been created. While on the other, the poorer countries cannot afford the vaccines which is causing the incredibly slow rollout of vaccinations and the death of hundreds of thousands. 

The priorities of this protectionist approach to innovation under capitalism are wrong. “… while intellectual property rights may provide incentives, they also impede the diffusion of information and use of new ideas to generate further advances… the defenders of intellectual property rights assume that the only reliable incentive for creativity and invention is monetary reward, but this is simply not the case. A great deal of research and development is done in publicly financed projects in universities and other research settings. Scientists are driven by a range of motives other than monetary rewards: prestige, curiosity, solving problems for humanity. Most artists and writers, even dedicated artists and writers, do not receive large financial rewards from their work and yet they persist because of their commitments to aesthetic values and a need to express themselves.” 13

In fact, the problem of information property protection has grown in recent years. For example, there has been a successful effort to greatly extend the life of copyright. International copyright now lasts 70 years after the death of the originator, including how the work is used. Given the average lifespan of most people, this can often mean that income and usage remains in copyright for more than a century. And these rights can be sold on to third party companies. This has made creative works so much more attractive for purchase. The result is an increasingly restrictive regime in the world of information: “Information is power. But like all power, there are those who want to keep it for themselves. The world’s entire scientific and cultural heritage, published over centuries in books and journals, is increasingly being digitized and locked up by a handful of private corporations.14

In practice, the locking up of information in universities in the First World is both elitist and racist. And increases inequality yet further. However, there are countercurrents against this process emerging. The whole Open Source movement through which creators and programmers make their work freely available has become a major force. But even this will be unable to overcome the power of the deep-pocketed information devourers as long as capitalism reigns supreme.

The Threat to our Jobs & Skills
According to technologists, we are now entering what is called the Fourth Industrial Revolution. An era where artificial intelligence and robots have the potential to automate more and more areas of work. This should offer the welcome prospect of greatly increased wealth for humanity. Along with drastically shorter working hours and increased leisure for all. But under capitalism automation is not being introduced to benefit society as a whole. But only to save on labour costs and deliver incredible riches for the few. With the rise of the tech billionaires we have witnessed where the benefits of technology are going. Even in the pandemic we have observed these tech billionaires getting richer by the day.

At the same time, we are already seeing a growing tendency in many parts of the world for the majority of new jobs to be lower paid and more insecure. This is no accident. New technology under capitalism is specifically aimed at saving costs through eliminating well paid, permanent jobs. As the great nineteenth century socialist, William Morris, pointed out: “If machines were meant to be labour-saving why did they so often save on the labourer rather than the labour of the producer?” 15

In the near future we are facing the possibility of massive job losses and rising unemployment. Just take the example of the auto industry. We have already seen the replacement of the majority of automobile production workers with industrial robots. Next will come self-driving vehicles, a technology that is now being prepared by the automobile industry. In the United States there are 5.7 million licensed truck drivers plus millions of taxi drivers. The idea is to replace many of them with self-driving vehicles. But it’s not just the jobs of factory workers and truck drivers that are threatened by automation. Artificial intelligence-based systems are sweeping away millions of clerical jobs in banking and other areas of administration. Even highly professional positions are in line to be impacted such as lawyers and surgeons.

It is not as if there is a lack of potential alternative jobs to be done in society. For instance, there is a huge number of caring jobs and other such services needed in society. But capitalism doesn’t value such work. Indeed, it is increasingly cutting such jobs and pushing the burden of caring onto unpaid family members.

Capitalism’s Dystopian Future
We are witnessing the merciless behaviour of the multi-billionaire gainers from this new world of technology such as Jeff Bezos from Amazon; Elon Musk from Tesla and SpaceX; and Mark Zuckerberg from Facebook and Instagram. Should we be surprised that at the same time as they enjoy undreamed of riches, they ban trade unions from their companies. That Amazon works its employees to the bone. That Facebook abuses our privacy and amplifies online prejudice. That Tesla treats its customers with disdain.

Under capitalism, instead of a bright future where automation releases us from toil and offers us a future of abundance, we see the dystopian prospect of hardship, unemployment and surveillance for the masses. It is small wonder that most science fiction movies now portray a depressing and brutal fate for mankind. A corporate planet in which the ultra rich live in a separate, artificial and luxurious world. With their children being made super intelligent and super healthy through the use of enhanced DNA. While the rest of us live in slums and poverty.

But the future of innovation doesn’t have to be like this…

Democratic Public Innovation
We have seen that capitalism has been a highly innovative system compared to previous epochs of history. But also how it has distorted scientific research and development in favour of the interests of the rich and powerful. Even more, that the future of innovation under capitalism potentially offers the depressing prospect of inequality and slavery. Inequality with all the wealth created going to a few at the top. Slavery as artificial intelligence, surveillance and robots threaten to become our masters rather than our servants.

If we hope to avoid this nightmare scenario we have to develop a far better and more democratic form of innovation. One that fully involves the citizenry in the innovative process. In other words, ways of greatly expanding and enhancing the process of innovation in the transition to a Democratic Socialist society. With the enormous benefits this would bring to humanity.

New Resources and New Priorities
The first step in a new policy of Democratic Public Innovation has to be to significantly increase spending on basic scientific research and technological development. Instead of the 2% of GDP or less that is currently spent in the advanced capitalist countries, we should be aiming to double this to 4 or 5% as part of democratic national plan. A significant portion of this extra funding can come from the existing huge defence budgets, which in the US (if their secret funding is included) is now a trillion dollars a year. The aim being to transition, without loss of pay or conditions, much of the armed forces, military research and the arms industry into more productive basic scientific exploration, civilian research and production. And of course to save large sums by the cessation of capitalism’s repeated wars and military operations. 

From the outset we should leave behind the elitist and opaque manner in which national research budgets have been arrived at in the past. Instead, these programmes should be subject to widespread public debate and decision especially on the underlying assumptions and priorities involved. In democratising these budget decisions, naturally we should expect to move away from the pro-corporate direction of current research programmes. And towards the key needs of the public such as in health, housing, the environment, transport and so on. Greatly helping in this direction would be the formation of new democratic public enterprises in the fields of construction, drug manufacture, green energy production and so forth. These would be natural recipients of public funding for research and applications.

The next key step in building a more powerful innovative system is to launch a major expansion in places in the stem subjects which now produces nearly five million graduates a year. As much as almost the rest of the world combined. Certainly we can learn from their successes and mistakes in this field. 

But there are other ways that innovation can be greatly increased. And with relatively minor funding. The most important of these is for us to tap into the knowledge and innovative creativity of the wider population.

Tapping into the Knowledge and Creativity of Workers
In the formative years of capitalism in the 18th century, many of the most important inventions were developed by workers and craftsmen. For example, Thomas Newcomen and John Calley invented the steam engine in 1712. Newcomen was an ironmonger and Calley a metalworker. Their machine pumped water out of coal mines making the power of coal accessible for production. John Harrison, who invented the longitude clock in 1713, was a carpenter by trade. James Hargreave who invented the spinning jenny for textile production in 1764 was an uneducated, illiterate weaver. James Watt who greatly improved the steam engine in 1765, was an instrument maker. His machine went on to power the Industrial Revolution. Richard Arkwright, who in 1768 invented the spinning frame which revolutionised cotton making, was a barber. Robert Fulton who invented the steamship in the 1790s was a jewellry maker.

Moving into the 19th Century production moved on from handicrafts and small one-manned firms. Factories and larger companies started to develop. And with them larger workforces along with disputes over wages and conditions. In response, collective organisation among the workers began to appear. Along with calls for workers’ control and workers’ input into production. By 1844 Karl Marx and Friedrich Engels were beginning to identify and highlight the alienation that the newly developing proletariat were facing in their labour for the rising capitalist class. They saw that workers were being drawn into a new kind of slavery – wage slavery – in which they had no say over their work or the products they were making.

This lack of power not only led to the exploitation of the workers but also suppressed much of their creativity in the productive process. Yes, suggestions are encouraged from the workforce with token rewards. But, what is the point of suggesting improvements when the real benefits only go into the boss’s pocket?

This contradiction between the workers’ lack of power over outcomes, and their deep potential for improving the productive process, continues today. That said, in some sectors there have been successful efforts aimed at accessing this knowledge and creativity. One of the most famous was in the Japanese car factories in the 1970s which introduced regular worker-management team meetings in order to improve car production and safety. The outcome was a massive improvement in productivity and product quality which allowed it to outcompete with the American and European auto industry. And to become a global force in vehicle manufacture. But this is the exception that proves the rule. The overwhelming majority of capitalists zealously insist on their right to take all the decisions. A right that in capitalism is strongly reinforced by law and by the forces of the state.

In contrast, in a future of democratic public enterprises the workforce could become fully involved in decisions on what they produce. And in the direction of the enterprise as a whole. In such an environment workers would be encouraged to develop new ideas on product and service design, functionality, quality and production. With the benefits of new processes, product improvements and rising productivity being shared between the workers and the other real stakeholders, rather than going to the top management and private shareholders as it does in capitalist companies. The incorporation of workers control into the fabric of democratic public enterprises would tap into the wealth of knowledge held by the producers. And unlock the talent and ingenuity they have always held. This would open up a big and ongoing potential for innovation in industry and the services sector.

Involving Customers in the Design of Products
In a future of democratic public enterprise the customers would no longer be seen as passive purchasers of products and services. They are vital stakeholders in the life and future of an enterprise and must be brought in as key partners in its governance. How to do this effectively will be dealt with in the next section of our Manifesto. Suffice it to say, customers and their representatives need to play a central role in enterprise decision-making, having a direct say not just on pricing but also in improving product design, function and quality. As well as in product life, ease of repair and so on.

This has the potential to greatly open up product innovation on a huge scale. Instead of customers facing a simple ‘take it or leave it’ choice when they are looking for a product or service, they can begin to actually influence the features of a product. Instead of customers being treated as objects to be exploited and ripped off, they can become genuine partners in the productive process.

The end result of this will not just be an economy in which products are more fairly priced, and greatly improved. But in which we can access the rich talent that exists among the purchasing public for designing new products and services. Already, in the fashion industry young customers are now beginning to utilise the power of the internet to successfully design their own clothes and have them rapidly produced at cheaper prices by Chinese textile makers. New designs that are proving highly popular with their peers.

Reuniting Workers and Consumers together
Another great advantage in empowering the workers and the customers in a democratic public enterprise is that they can begin to communicate their problems to each other. Thus opening the way to the creation of new solutions and even new products. In fact, in earlier ages individual craft workers and customers had direct contact with each other which allowed them to negotiate directly over their handiwork and ensure an agreed tailor-made outcome. Unfortunately, this interaction was completely lost with the introduction of capitalist mass production. While this greatly reduced the prices of products and standardised products, it removed customer feedback and often produced lower quality and satisfaction.

Now we are in a position through future democratic public enterprises to re-establish the old relationship between workers and the customers. But on a much higher level. Imagine the improvements that could result when customers can see how their products are being made and can directly communicate to the workers the difficulties they are having with them. Or when workers are able to discuss with the customers possible improvements to the quality of existing products. Or for either side to suggest entirely new products and test them together.

Attempts are made by capitalist firms to overcome the gulf between them and the customers through various market research techniques. However, these are severely limited by the desire of capitalist companies to maintain or increase their profits. Yes, customers can indicate the colour of a product they prefer and other marginal changes. But any more significant improvements will only be implemented if they fall within the short-term plans of the company and don’t undermine its profits. Certainly, it is no substitute for real democratic input.

Mass Involvement in Innovation
Ordinary people can also be inventors. But under capitalism very few are actually involved in the development of innovation. Consider the millions of ideas that are out there that never see the light of day for lack of encouragement and support. How much better would it be if we could involve the whole population in the innovation of products, processes and services? This might not be in the form of complex new technologies but in basic products for everyday use. Or include the significant improvement of existing ways of doing things. Often, improvements can have a bigger and more lasting impact than new inventions.

Even the capitalists can see the limitations of the current innovation process. The latest models in capitalist business thinking urge employers to find ways to reach out beyond their employees to the wider public. Using prizes and other incentives to inspire new ideas from customers and the wider population.

There are even distasteful yet popular reality television shows around the world in which inventors present their ideas to venture capitalists. These include programmes such as Dragon’s Den, Shark Tank, The Vault and so on. Such shows usually consist of a panel of potential investors listening to inventors pleading their case for financial support. If the venture capitalists like a project they then compete with each other over how much money they are willing to invest versus the level of ownership they are demanding for their support. The relationship between the investors and the inventors is of course one-sided, with the inventors having to give up a major element of control in exchange for desperately needed cash. In this way, this TV programme format quite accurately replicates the discouraging reality that faces inventors as they try to turn their ideas into saleable commodities. Except that in reality the venture capitalists are not interested in projects requiring less than a million dollar investment as it is not worth their time and effort to consider them.

The key to breaking through these frustrating barriers to innovation in capitalism, is to create a system that provides places where people can come with their ideas. Have them evaluated and developed. And financially supported when they are ready for implementation. A few such start-up centres already exist in some major cities but they are almost exclusively focused on new technology and are usually at the mercy of exploitative companies such as Google who use them to hoover up fresh ideas that they can exploit.

A dramatically better alternative would be to create public innovation centres in every town and city area. Places where people could go with their ideas and have them worked up into viable projects with the assistance of genuinely independent professional experts. Centres that could then allocate finance to bring them to reality. Inventors could then be free to choose between credit to develop the idea themselves. Or where they were not interested in its economic application they could license it for public use.

Such innovation centres could utilise some of the staffing and property that would be released by the democratic public ownership of the banks that we talked about in our earlier Manifesto section on Democratic Public Investment. We could use the key resources that would be unshackled by merging together all the different bank and financial company branches that currently duplicate the same services.

In support of such a popular Public Innovation Service we would need a continuous drive using the media and education to encourage people not just to complain about things but to start thinking about how they could be improved. At the moment society fails to encourage people to become inventors or pioneers. To think outside the box. Instead, the system tends to reinforce conformist and apathetic attitudes. Such as the typical follower-the-leader mentality which produces followers who just accept the way that things are done. Or the attitudes that breed obedience and curb creativity. Instead, we need a society based on participatory democracy in which we train people in how to better analyse things and express themselves. Both as individuals and together with others. A community where people are helped to develop their problem-solving skills. This would be such a great investment in society’s ability to innovate.

Shorter Working Hours
A key step in creating an innovative and participatory society is to greatly reduce the hours we currently work for our livelihoods. Without this it will be very difficult to break from the passive patterns of the past.

This is not a new idea. Already in the early years of capitalism, in Britain in the 1830s and 40s, the appeal arose for shorter working hours. The mighty Chartist movement, that campaigned for the vote for working people, also called for a shorter work day. This was not only to provide rest and recuperation for workers, and time for family life. But also because it would additionally “free the worker to participate capably in public and civic affairs”.16

As the nineteenth century progressed, the demand for shorter working hours coalesced into a massive labour movement campaign for the ‘eight hour day’. It was the campaign for this demand that laid the basis for the emergence of May Day as international workers day. Significantly, the “campaign for an eight-hour day was actually much more than it seemed, for it centred not on shorter hours, but on a changing lifestyle and pattern of life: eight hours work, eight hours rest and eight hours for leisure and the pursuit of knowledge… The remaining two thirds would belong to the worker for rest, for his enlightenment, and to build family and community.” 17

Nearly a hundred and fifty years later we still face the same problem of long working hours. In fact, there is growing pressure on us to spend even more time working for other people. Too often we are now expected to work overtime, often unpaid. The British Trades Union Congress produced a report in 2020 that estimated that workers in Britain were now putting in £35 billion of unpaid overtime a year. The same story could be told everywhere. In many countries, we are being pressurised into doing more than one job a day. And in too many occupations families are being neglected as we are forced to become workaholics for the boss.

Today, “the formal economy plays far too large a part in people’s lives, with adverse consequences for their relationship with other people and with the environment. The economic basis for a vastly shorter working week now exists but its realisation depends upon the radical redistribution of working time...” 18

This problem is widely recognised, even by many governments. For example, in China there is a campaign against the incredibly long hours that are expected of employees in its tech sector. Similarly, there has been a crackdown on online educational companies with new strict limits on the hours that students can access their portals.

Even more positive has been the shorter working hours trial in Iceland’s public sector. In the trial 1% of Iceland’s workforce moved from a five day, 40-hour week, to a four day 35-36 hour week, without loss of pay. The trial was judged an “overwhelming success”. “Productivity remained the same or improved in the majority of workplaces, researchers said. Workers reported feeling less stressed and at risk of burnout, and said their health and work-life balance had improved. They also reported having more time to spend with their families, do hobbies and complete household chores.” 19

The trial which ran from 2015 to 2019 was organised by Reykjavík City Council and the national government. It covered workers in preschools, offices, social service providers, and hospitals. The success of the trial has led to unions renegotiating shorter hours and working patterns for 86% of Iceland’s workforce.

A number of other trials are now being run across the world including in Spain and New Zealand. Researcher Gudmundur Haraldsson concluded that “The Icelandic shorter working week journey tells us that not only is it possible to work less in modern times, but that progressive change is possible too.” 20

The above example shows what can happen even before the potential benefits of new technology begin to really kick in. The future of humanity lies in using technology to free us from the domination of tedious work. A future in which we can move away from the old capitalist concept that ‘time is money’. Where time is instead seen as a crucial natural resource that must be more valued and better used.

Intermediate Technology / Development
As we explained earlier, half of the world’s population are too poor to be catered for by many of the capitalist world’s products. Certainly not its new technology devices. Large numbers don’t even have access to electricity so can hardly use the stream of new electronic gadgets that pour out of global factories. For too many poor people progress passes them by. There is a recognition of this problem and a movement for Intermediate Technology has grown up to address it. This is aimed at producing a cut down version of products that are specifically designed for people with small budgets and limited infrastructure. But beyond the occasional charitable project the big multinationals don’t devote any serious resources to this area.

The same problem afflicts much of the development aid that is delivered by individual countries and international institutions like the World Bank. Too often their projects end up as white elephants, supplying equipment and techniques that are far too costly. Or way above the ability of local populations to maintain after the project teams have packed their bags. The underlying reason for this problem is the elitist manner in which these projects are conceived of, approved and carried out.

In the transition to a democratic socialist society we need to create technology and provide development projects that are not only more appropriate for poorer countries. But that are designed and implemented in a genuine partnership with the people whom they are intended to help.

Inequality & Finite Resources
A common argument usually voiced by some sections of the middle class in the better parts of the world, is  that the problem of inequality between nations can only be solved by the richer countries cutting back their consumption as they transfer resources to the developing countries. Certainly the super rich must accept measures to redistribute a major part of their wealth to the many who desperately need help. But the idea that the solution to the planet’s problems is for the more advanced nations to sacrifice their living standards and share their wealth with the poorer nations, is all wrong.

For one thing, while there are many people who could afford to make sacrifices in the advanced countries, there is also growing mass poverty there. It would be political suicide for democratic socialists in the advanced countries to ignore this fact and to argue for cutting living standards of the majority of the population. Inevitably, we would alienate huge sections of the voting public and play into the hands of the Right who would win any election against the Left pushing for such a self-destructive plan. Certainly the Right would not introduce such policies. Quite the opposite. So it would be a self-defeating policy.

More fundamentally, this is basically a hopeless programme for the sharing out of poverty. For levelling down. In contrast, we should be arguing for levelling up. Raising the poorer countries to the level of the richest countries and then all moving forward together. 

The argument that is often made against this more positive approach is that we cannot raise the developing countries to the same level as the advanced ones because of the planet’s lack of resources. That we are rapidly running out of raw materials for food, energy and production. With no possibility of meeting the growing needs of a rapidly rising global population. But this is based on a whole set of false assumptions.

The most basic of these wrong assumptions is that we can continue to operate under a destructive, wasteful, chaotic and short-sighted capitalist system. Rather, in the place of capitalism we must offer the vision of a democratic socialist society based on abundance for everyone. Not as a distant utopian dream but a realisable future for humanity.

Population
Let’s start with the issue of the world’s population. Contrary to the gloomy predictions of Thomas Malthus in 1798 that rising population would lead to mass starvation, agricultural production rose to meet the challenge. The same happened to Paul Erlich’s ‘The Population Bomb’ which predicted in 1968 that worldwide famine would break out in the 1970s and 1980s. Once again this didn’t happen. On the contrary, recent decades have seen a big fall in birth rates as women everywhere are having far less children for powerful socio-economic reasons. The result is that the latest statistics show the global population is likely to reach a peak of 9 billion by 2050. And then start to rapidly decline.

Energy & Climate
In the transition to a global democratic socialist society we need to immediately tackle the climate crisis. And we can. A top priority for democratic socialist governments would be to co-operate in the urgent transition from fossil fuels like coal, oil and gas to renewable energy. Unlike capitalist governments who are tied to the big energy companies, we have everything to gain by rapidly switching over to the natural sources of energy – sun, wind, water from rivers and oceans, and thermal. We would invest big resources in installing solar panels, wind farms and water technology. And in research and development on ever more efficient equipment for converting the natural forces into usable and storable energy. Indeed, we can see a bright horizon of virtually unlimited, low cost energy. But it will take public investment and innovation to get us there.

Food Production
In most parts of the planet food production is still incredibly primitive. Huge amounts of production are lost to drought, flood, frost and pests. Then there is the 40% of food that is wasted before it reaches the distribution system. In fact, according to agricultural experts there is a potential to increase food production tenfold. Eric Drexler’s outline of how such abundance in agriculture could be achieved is worth quoting at length:

Enclosed agriculture (greenhouses, for example) can greatly increase and stabilize yields, largely freeing agriculture from constraints of temperature, soil, and water. Compared to unprotected environments, where the vagaries of location and climate determine growing conditions, using controlled environments can commonly raise the productivity of land by a factor of ten or more. Optimizing growth conditions requires enclosures that control temperature (usually warm, never too hot), humidity (usually high, but not saturated), and sunlight (typically bright, but diffused, not direct), and that provide soil with ample nitrogen, phosphorous, and potassium. A well-controlled enclosure can also exclude pests without using pesticides, and can recycle nitrogen and phosphorous, retaining them to fertilize crops without contaminating streams. To accomplish this on a large scale requires an abundance of physical capital: the structural components for building the enclosures, the equipment they must contain—pumps, pipes, and filters for water reprocessing, heat pumps and thermal storage to regulate temperatures, and finally, sources of power to make them all work. The rewards of expanding the use of enclosed agriculture would include higher yield per hectare, but also better food quality, freedom from pesticides, extended growing seasons (in many regions, year-round production), freedom from constraints of soil quality and available water, and protection from drought. From a biospheric perspective, benefits would include reduced water demand and contamination, and a way of supplying human needs for food while reducing the overall footprint of agriculture and relieving pressures that drive the deforestation of Amazonia. Cleanly increasing agricultural yields by a factor of ten would change human life and the face of the Earth.21

Limited Raw Materials
This brings us onto the question of the shortage of raw materials on the planet. Once again there have been many past predictions that we would run out of various minerals. But the reality is that large areas of the planet have yet to be properly surveyed. More important, materials science is a fast growing area of scientific investigation with research into inexpensive, alternative substances advancing at an accelerating pace. Equally important is the expanding recycling industry and its associated technology. Unlike the wasteful practices of the past, in a democratic socialist economy we would need to give much greater value to conservation and the recovery of materials for fresh use.

Last but not least there is the promise of futuristic innovation such as nanotechnology which offers the possibility of drastically cheaper manufacture at microscopic level using commonly found materials.

Ultimately, none of us can forecast what future innovation will deliver. Although past experience has shown that if we can imagine something, it will probably be possible. In truth, It is not the technological possibilities that are holding us back. Instead, it is whether the human race can establish control of the technology and direct it to positive ends. 

Conclusions
Capitalism claims to be the most innovative system in the history of humanity. This was certainly true in comparison with the slave and feudal systems that preceded it. And also true when compared to the bureaucratic planned economies of the USSR and the wider Soviet Bloc – the Soviet’s lack of innovation in light industry and consumer products meant it could not effectively compete with the capitalist countries on the world market. And was one of the main reasons for its collapse. However, this is definitely not the case with state socialist China which promises to become the global technological leader in the coming decade.

As it happens, much of the innovation in capitalism actually results from public spending by the military, in universities, in space research, in government research and other funded programmes. As a result most innovation generated today is not by individual inventors. Rather it is large companies and university departments that register the vast majority of discoveries. And then capitalist legal systems reinforce this virtual monopoly through their use of draconian patent and copyright laws.

Looking at the way that innovation has evolved historically, it is clear that it is developing at an ever increasing pace which is subjecting society to great disruption. This is particularly the case in the capitalist world given its lack of planning and its drive for profit over human need. Such profit-seeking innovation is causing just too many negative outcomes. Instances of this include research on health which is not primarily geared to saving lives but in piling up massive financial gains for the drug companies. The latest example of this is in the Covid-19 pandemic where half of the world has not yet been able to get vaccinated just to protect the benefits of the Western vaccine developers. Another example is in the field of online communications where the rise of the internet monopolies is invading our privacy, manipulating our ideas, and even threatening our sanity. 

Nowhere more dangerous is this lack of social control in innovation than in the coming era of automation. Instead of the bright promise of growing wealth and leisure for all, automation under a capitalist elite threatens most of humanity with a dark future of unemployment, subordination and poverty.

The answer to this dystopian outlook is to bring innovation under democratic public control. Firstly, by democratising the way that basic national science, research and development budgets are arrived at and distributed. Expanding and reorienting our national research priorities away from military purposes and corporate profit-orientated goals. And towards human-centric development in fields such as food, health, energy, transport, housing and the environment.

A key part of this democratisation would be tapping into the knowledge and creativity of workers, customers and other groups in society by bringing them into the design of products and services. More widely, by building a network of public innovation centres that would evaluate, develop and invest in ideas for new and improved products and services. Backed up by a society-wide campaign encouraging and equipping people not just to complain but also to problem-solve. Just imagine the explosion of positive and constructive innovation that could be possible under such a democratic public innovation system? 

+++++++++++++++++++++

Footnotes
1. ‘Transition to Socialism 4.0′ by Jonathan Clyne, p.51
2, ‘China’s Great Road’ by John Ross, pub. 2021, p.140
3. ‘China’s Great Road’ by John Ross, pub. 2021, p.154
4. ‘China’s Great Road’ by John Ross, pub. 2021, p.138
5. ‘China’s Great Road’ by John Ross, pub. 2021, p.138
6. ‘Imagine, A Socialist Vision for the 21st Century’ by Alan McCombes, pp.79-80
7.‘Nationalisation of the Banks, The Impending Catastrophe and How to Combat It’, by V I Lenin, 1917, Lenin Collected Works, Progress Publishers, 1977, Moscow, Volume 25, pages 323-369
8. ‘Thinking Hands – the power of labour in William Morris’ by Philip Katz, pp.71-2
9. ‘The Entrepreneurial State: Debunking Public vs. Private Sector Myths’ by Mariana Mazzucato
10. ‘23 Things They Don’t Tell You about Capitalism’ by Ha-Joon Chang’, pp.165-7
11.  ‘Principles of Communism’ 1847 by Frederick Engels, Online Source https://www.marxists.org/archive/marx/works/1847/11/prin-com.htm
12. ‘Our System Is So Broken, Almost No Patented Discoveries Ever Get Used’ by Jay Walker, Wired Magazine, 1/5/2015, https://www.wired.com/2015/01/fixing -broken-patent-system/
13. ‘Envisioning Real Utopias’ by Erik Olin Wright, Verso 2010, Highlight Loc. 1233-51 Monday, January 07, 09:34
14.  ‘Guerilla Open Access Manifesto’ by Aaron Swartz July 2008
15. ‘Thinking Hands – the power of labour in William Morris’ by Philip Katz, p.164
16. Weaver 1988: 88
17.‘Thinking Hands – the  power of labour in William Morris’ by Philip Katz, p.255
18.’What on earth is to be done? A red-green dialogue’ by the Red-Green Study Group, p.43
19.’Four-day week ‘an overwhelming success’ in Iceland’ BBC News, 6 July 2021, https://www.bbc.com/news/business-57724779
20.’Four-day week ‘an overwhelming success’ in Iceland’ BBC News, 6 July 2021, https://www.bbc.com/news/business-57724779
21.‘Radical Abundance’ by K Eric Drexler – Highlight Loc. 4138-52 Monday, September 30, 07:40)

Our Democratic Socialist Alternative (Part 1)

Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism‘ … Published: 5 July 2021

Today, it is clear from the profound vacuum that exists in politics, that working people cannot yet see how to solve the pressing problems facing themselves and the planet as a whole. Contributing to this is the lack of any serious ideology on the Left. In this Manifesto, we seek to help fill this vacuum with a new and positive programme for the transition to a democratic socialist society. Not a vague set of abstract slogans, but a series of practical steps that working people could carry out if they were to come to power in any particular country.

Revolution and Transformation
Clearly, the deep and growing problems facing the world demand a huge change in the way that human society is organised. Nothing short of a social revolution is called for in the way that we produce and distribute wealth. And in how we relate to each other and to nature as a whole. But, past revolutions of the historical wheel have all too often veered off track. As a result of their weaknesses in resources, form or execution; and their isolation in a capitalist world, such revolutions have ended up in a gross and damaging distortion of their original aim. In the process, the children of the revolution have usually been crushed. Above all, such social revolutions have shown their potential to be reversed. To be defeated by counter-revolution.

What conclusion can we draw from this? That more than a Revolution, we need a complete Transformation. Like the transformation of the caterpillar into the butterfly, we need to advance beyond capitalism in such a way that it can’t be reversed. Establishing a new democratic socialist society that is so successful and so embedded in people’s consciousness, that there will be no going back to the greed and destructiveness of the old system.

And while beginning in individual countries, this Democratic Socialist Transformation must be international. Not restricted to a few nations but spread across the globe.

Not a Utopian Dream or a Blueprint
To achieve such a transformation, we are not looking for a utopian dream where ‘everything will be fine after the revolution’. Some kind of ‘promised land’ where all of humanity’s problems have been solved. And where we live in perfect harmony with nature. Rather, we fully recognise that there will always be change and conflict. And choices to be made. Even in an age of abundance there will be priorities still to be decided.

Nor are we proposing some kind of highly specific scheme, some kind of blueprint that attempts to go into minute detail. On the contrary, we need an overall plan that provides the general principles and direction of travel. Not an elitist programme that springs from our own minds. But one that will need to be supported and fleshed out by working people and their organisations. Not an artificial project divorced from reality, but one that utilises the existing resources and ideas of today and takes them in a new, progressive direction. 

After all, a precise and intricate approach would be pointless as we don’t know where and when a decisive change in power will first occur. Each country is at a different level and has different potential. This will obviously affect what can be done and how quickly. Rather, what we need is a workable outline for transforming society. An outline that lays down a set of principles which can be used to form the basis of detailed action programmes at a national level; and that will form the core of any new radical government’s platform.

Trial and Error
No system in history, including capitalism, sprang into existence ready-formed. It took generations of trial and error to develop that system. One of the mistakes often made in the effort to create socialist societies in the past has been to impose abstract schema on a country. And all at once. This was one of major blunders made in the Soviet Union when Stalin introduced collectivisation into agriculture from 1928 onwards. Or by Mao, three decades later, when he pushed through the Great Leap Forward in China in 1958. The result in both cases was a massive fall in agricultural output and the starvation of untold millions. It was mistakes like this which convinced Deng Xiaoping and the Chinese leaders who have followed him to advance through experimentation.

Creating a Democratic Socialist society will be no different. This is particularly true given the different conditions applying in each country and continent. There will be a lengthy transition in which experimentation will be key to successfully implementing our new approach. Testing will be needed to try out different ideas in order to see which methods work best. Trying out new concepts in a few regions and sectors first. Learning from that experience and then applying those lessons across the whole of society. This is the scientific approach which we as scientific socialists should follow as we implement our ideology of advancing the living standards and interests of the majority of the population (rather than a small minority as under capitalism).

Our Values
We do not assert that humans are innately good or bad. Dialectically, we recognise that there is both negative and positive potential in human nature. As such, we do not vainly hope to create a system where humans only act on their positive impulses. Such a perfect society will never exist. Instead, we seek to develop a democratic socialist society that consciously builds on and encourages the positive aspects of humanity and minimises the negative. And which strives to live in harmony with the natural world around us.

This is in direct contrast with capitalism which by its very nature amplifies all the worst aspects of humanity. Where increasingly greed and selfishness, cheating and dishonesty rule. And such values are tolerated because so many under capitalism have risen to the top this way.  If we all cheated on and stole from each other then life would become intolerable and virtually unworkable. Limited levels of trust are necessary to get things done. But in a world of cutthroat competition such trust  increasingly breaks down.

Indeed, capitalism is a society in which the criminal world is just the illegal face of the official system. This is no wonder when the whole   morality of capitalism is based on exploitation and alienation; cruelty and oppression; corruption and favouritism. In its very DNA, capitalism is unjust and discriminatory – instigating racial and sexual division, violence and militarism. And then tries to cover it all with a hypocritical mask of virtue and civilisation.

Democratic Socialism stands for the exact opposite of capitalism. Its values are based on democracy and participation; openness and transparency; sharing and cooperation; solidarity and unity. Its morality is based on love and trust; generosity and honesty; kindness and respect, care and selflessness. The very values of family life that we hold dear but which run counter to capitalist ideology. A democratic socialist society is one which seeks to put these values into practice and where they would be glorified. And through socialisation, education and a democratic media to inculcate them into this and future generations. In this way, society’s institutions, culture and guidance can bring out the best aspects of humankind. While this would not eradicate all negative human behaviour, it would certainly greatly reduce it’s baneful influence.  

Do the Ends Justify the Means?
Given that these are our values, one important question has been posed in past examples of revolution: can we set aside our values in order to achieve victory, or to secure it? In other words, do the ends justify the means? The experiences of the past have answered both questions in the negative. Those who have used dictatorial methods in order to achieve democracy and socialism, have achieved neither. Rather, they have corrupted and distorted themselves. And discredited the movement they claimed to represent. No wonder that so many people today are cynical and sceptical of socialism. Not only must we strongly affirm our commitment to democratic socialist values, but show in action that we will abide by them in good times and bad. Thus, ‘we need to be the change we want to see in the world’. With our organisations reflecting as much as possible the society we are trying to create. Only in this way can we begin to regain the trust of working people in our movement, and in our ideology.

Our Ideology
While capitalism was responsible for greatly developing the world’s economic forces and much of the technology we see today, it is also the cause of most of our present ills. Capitalism’s encouragement of the exploitation of humanity and the environment for selfish and short-term profit has produced today’s natural destruction. And the great and widening differences between the super-rich and the rest of us. Producing an extreme level of inequality in both power and wealth. And not just between individuals but between nations too.

The greed that drives capitalism has created wide-scale crime and corruption. Its destructive and divisive competitiveness has generated discrimination and war. Its indifference has bred widespread poverty and hardship. And its blind and short-sighted abuse of the natural world threatens both the future of mankind and our fellow species.

Capitalism’s worship of individual wealth and ownership at the expense of everything else, has thrown up increasingly powerful and damaging forces. It is a system dangerously out of control. A system that must be replaced if humanity is not only to flourish but even to survive.

So the bedrock of our ideology is the need to replace capitalism with a different and better way of organising society. But what to replace it with?

As we have shown in the first half of this Manifesto, past attempts to create a new society through the state-dominated system in the Soviet Bloc, or through social democracy in the capitalist nations, have ultimately failed. In both cases, while major gains were achieved, working people ultimately ended up powerless. Contrary to the intentions of the founders of the socialist movement, these two ‘socialist’ experiments ended up creating bureaucracies in which the majority remained ruled over rather than ruling. Creating a ‘public sector’ in which the ‘public’ had no real say.

On the other hand, capitalism’s claims to be democratic are becoming hollower by the day. The control of the media by the wealthy and the powerful; the employment of increasingly effective public relations techniques; and the use of fake social media; all have combined to make a mockery of rational public discourse. In this way, the super-rich elite are too often able to manipulate and divide the electorate. And get them to vote against their own interests.

In any case, capitalist democracy has always been highly limited. Allowing wealth to have an inordinate influence on elections and on the politicians elected by them. Even then, capitalist democracy does not extend to the economy or most institutions of society which are still run in a dictatorial fashion.

It is increasingly apparent that the lack of power is now the key problem for working people. The question of who controls society and in whose interests. The answer to this question forms the two halves of our ideology. Firstly, to make a genuinely democratic public sector the leading force of the economy, and society as a whole. One in which the exploitative chaos of capitalism is replaced by a truly participatory form of public planning, investment, innovation, ownership and services.

Secondly, to ensure that the people really control that economy and society. Not just able to cast votes in distorted and unfair elections through which we periodically elect national and local representatives. Representatives who can be corrupted and are free to impose decisions upon us.

Rather, we need to add to our limited democracy a new model of continuous, participatory, active democracy. A model based on the principle that whenever a citizen is affected by a decision he or she should have a practical way to influence that decision. That there should be “nothing about us without us”. Only in this way can we begin to end the alienation that excludes us from power over our day to day lives. And to end the exploitation that inevitably results from such powerlessness.

For this, we need a model that makes the representative democracy we have today truly accountable and transparent. And combines it with newer forms of direct democracy and jury-style citizen panels. Not in a way that weighs us down with interminable meetings or constant votes over minor issues. But a model that for the first time allows us to have a say in all the key issues and major controversies that concern us.

To achieve this, a political, social and economic movement is needed of working people that puts genuinely participatory democracy at the heart of its programme and its practice. For this purpose the old ‘Socialist’ label is no longer sufficient. A label that is associated for too many with a top-down, bureaucratic and inefficient form of governance. Our renewed version of socialism has to be based on a real form of democracy. One that firmly integrates the two concepts together. Thus, our goal cannot just be for ‘Socialism’ but must now be for ‘Democratic Socialism’.

Thus, Democratic Socialism is not about handing power over to the state. Rather, it is about empowering people, enabling them to gain control over the state, over society and over their own lives. And through this to make it possible for citizens to prosper and fulfil their human potential.

Similarly, socialists are thought to want to achieve equality by levelling everyone down. Of course, we want to end the obscene and wasteful levels of wealth held by the billionaire class. But for everyone else we want to level up. In the process, we recognise that people have different levels of talent and capacity. But we also understand that almost everyone has a special ability for something. Our task is to create a society which helps people to discover their hidden talents, and fosters and rewards them.

Nor do socialists want to abolish freedom of choice. In reality, most choices in capitalism are only available to the rich. For the rest their choices are greatly limited by their economic and social circumstances. Even most of the elite end up obeying the dictates of the system – the boss who is driven by his shareholders; the politicians who have to obey their funders; the billionaires driven by greed for increased power and status. Instead, a democratic socialist society would seek to greatly expand freedom of choice by raising living standards and security. And by providing increasingly improving facilities for education, leisure and culture. Not for the few but for all.

The Need for Unity
Of course, standing in the way of achieving the transformation of society are powerful forces. The wealthy class that dominates much of the world will not give up this power easily. Working people have overwhelming numbers and the potential to make this change. But only if we are united. Only then can we achieve hegemony over the ideas and forces of our capitalist rulers. Sadly, at the present time this is not the case. In the absence of a widely-held democratic socialist ideology, the various progressive movements that exist today are not only weak and confused, but deeply divided. Divided by gender, by race, by religion, by nationality, by sexual orientation and so on. This division between identity and class are false choices. Both should go forward together. We must continuously strive to unite the various campaigns for equality with the wider democratic socialist struggle for the transformation of society. In this way, the old slogan: “Unity is Strength” can be made a reality. And working people can gain power over society.

Our Programme
Our programme for the democratic socialist transformation of society is based on the following three main elements:

A Democratic Economy: a framework for the transition to a democratic socialist economy.

Democratic Public Power and Control: A new participatory model for a genuinely democratic society.

A Democratic Public World: Applying our programme at an international level.


TOWARDS A DEMOCRATIC ECONOMY

In outlining our Democratic Socialist Alternative, we should begin by looking at what the economic transition to a democratic socialist society would look like. But, why focus first on the economy?
While the economy is not the only thing that is important in life, our ability to improve living standards and to solve many of our problems obviously require a successful economy. As such, many of the things we want to do in society need finance to implement. For example, if we really want to free women we have to provide the highest standard of child care at the lowest cost, if not free, to all. This will require significant financial resources to implement. Similarly, if we want to stop climate change and restore the environment we need major public investment which will require a large financial outlay from society.

On the negative side, it was the ultimate failure of the Soviet economy, its stagnation and crisis in the 1980s that brought down the system. And it will be the success or otherwise of our future democratic economy that will determine if our democratic socialist society will survive and prosper.

 After all, whichever countries begin the transformation first, they will have to compete with capitalism internationally for some time to come. Only if they have a dynamic, sustainable and advancing economy that proves itself more innovative and efficient than capitalism, will they be able to demonstrate the superiority of democratic socialism and become the dominant economic form on a world scale.

Not only that, the economy of any country is the substructure upon which the superstructure of society – its laws, politics, culture and so on – rest. If we are not able to create a stable and effective economic base then the future institutions of our democratic socialist society will not last, never mind maintain a future of abundance and relative peace.

Inevitably, the form that an economy takes, affects the values and morality of the society that depends on it. Thus, capitalism is the main source of the destructive competition, greed and division that we increasingly see throughout the capitalist world. Only if we are able to construct an effective alternative economy based on cooperation and sharing, can we hope to develop a future world where humanity and nature move forward in harmony.  

So getting our economic programme right has to be the first consideration of our new democratic socialist alternative.

A Mixed Economy
Historical experience has shown that the economic transition to a democratic socialist society will initially be based on a mixed economy. Indeed, most societies in history have been based on mixed economies. For example, within slavery there were feudalistic forms. And within feudalism, capitalistic forms. If this was not the case how would it have been possible for feudalism to grow up within slavery, then challenge and replace it? Or for capitalism to build up within feudalism and when strong enough overthrow it?

Even after one system had been replaced by another, for a long time remnants of the old system remain side by side with the newly dominant economic form. Often for centuries. Just think about the example of slavery in the United States which operated side by side and in competition with the capitalist form. And eventually came to blows with it. Or consider how long feudalistic land ownership continued to operate in Latin America and parts of Africa, long after they had become capitalist.

Within capitalism today, we have both capitalistic and socialistic economic forms coexisting. In this particular version of the mixed economy, clearly markets and the privately-owned sector is dominant. Thus, the big companies and the wealthy elite drive the economy, decide on most investment and so on.

However, in addition to this prevailing private sector, we have a large non-capitalist sphere which includes publicly-owned companies, public services, workers cooperatives, a voluntary sector, as well as the household economy. Most of these have grown up inside capitalism in response to the needs of working people. Such socialistic forms point to the future. And they show that what we are proposing for our democratic economy is not invented out of thin air, but is firmly based on the economic forms that exist today. The difference is that we intend to transform these socialistic economic elements into democratic forms. And to make them the rising economic force in society.

During this transition to democratic socialism there will still be a pluralistic mixed economy with markets and elements of private enterprise, especially in the form of small and medium-sized businesses. There is absolutely no need to abolish markets and take everything into public ownership as they once did in the state-controlled societies such as the Soviet Union and China. Small businesses fulfill a valuable role in flexibly satisfying needs at a micro level that the larger companies either can’t or don’t want to deal with. They also provide a useful outlet for individuals who don’t want to work as part of a larger team but want to be their own boss.

But small businesses are not the driver of advanced capitalist economies. In most sectors 3-4 companies dominate over 90% of economic activity. Thus, big business dominates the economy. And it is on big business that we are focused. We intend to release the large enterprises from the grip of the small minority that own and control them. And use them for their selfish and often destructive purposes. These enterprises need to be brought under the ownership and democratic control of the majority of the population

So, the dominant and leading parts of the economy should and will make up the core of our democratic economy. Firstly, in the form of large democratic public enterprises and democratic public services; as well as in the voluntary and household sectors. Secondly, in the shape of cooperatives and collaborative peer production.

This democratic socialist approach to the mixed economy will be very different to the capitalist version. Instead of the pro-capitalist slogan (adopted in the 1950s by the German Social Democratic Party): ‘As much market as possible; as much state as necessary’; our democratic socialist mixed economy will be based on the reverse and enhanced principle: ‘As much democratic economy as possible; as much private economy as necessary’.

In this democratic socialist form of mixed economy, for a time there will be a “dynamic interaction” between the planned democratic sector and the market-influenced private sector. With both sides acting as a discipline on the other. Over time, by directly involving the workforce, consumers and other affected groups in governing economic activity, the democratic sector will become increasingly efficient and responsive to the needs of the economy. And as this evolves, the role of markets and the privately-owned sector will naturally decline. Thus, markets and private businesses will continue to exist within a democratic economy as long as the citizens find them worthwhile. But they will be well-regulated in ways that minimise exploitation.

At the same time, a mixed pluralistic economy helps preserve people’s independence. In the Soviet Bloc people were often entirely dependent for their employment on the state and its officials. And this put them in a very vulnerable position. If they stepped out of line they could end up in a dead end occupation without hope of fulfilling their education and intended careers. As the new model of participatory democracy becomes embedded and effective this will reduce people’s fears. And this need for economic pluralism will lessen.

For all these reasons, the transitional process to a fully democratic economy is likely to last a considerable time. Even when an individual country has reached the point where the democratic sector accounts for almost all of the economy, there will still be a capitalist world market operating. That is, until the democratic economic model becomes dominant worldwide.

For a Democratic Economy
In contrast to the dictatorially-run, capitalistic system that dominates most of the world economy, we propose a new democratic model consisting of five basic elements:

❖    Democratic Dynamic Planning
❖    Democratic Public Investment
❖    Democratic Public Innovation
❖    Democratic Public Ownership
❖    Democratic Public Services


FOR DEMOCRATIC DYNAMIC PLANNING

Everyone knows that planning is a sign of professionalism. Planning for things in advance is almost always superior to going into a situation unprepared. It gives us the chance to take what we have learned from the past and apply it to the present. Of course, we also need to retain an element of spontaneity. To be ready for the unexpected. But the process of planning allows us to anticipate many problems in advance rather than be surprised and derailed by them. And in this way to better shape the outcome in our favour.

Planning allows us to coordinate the various sectors of the economy and public services to better achieve successful outcomes. In this way we can begin to overcome the disorganisation of capitalism – a chaotic arrangement in which each company seeks to do its own thing, and each sector operates independently of the other. Planning permits us to start integrating the economy and to consider what each sector needs to do to properly deliver on the needs of society.

So for example, if we wanted to solve the housing crisis in a country, we would logically need to coordinate a range of industries to ensure that a serious programme of house and apartment building was carried out. This would require the coordinating of land availability; building companies; construction workers, steel, wood and insulation supplies; cement production; the provision of public utilities such as power, water and sewerage; and so on. Under market-driven capitalism, many of these resources will be mobilised in arrears. So the project will be started with its initial phases and the later requirements will be expected to be available on demand. But all too often such an unplanned and uncoordinated approach will result in shortages and bottlenecks with associated cost overruns. No wonder that so many projects under capitalist governments end up being severely delayed and massively over budget.

As we will examine in our next Manifesto section on Democratic Public Investment, the way out of the increasing stagnation and economic crises afflicting most capitalist countries, is to mobilise the expansion of their economies on a sustainable basis through the use of public investment. But this can only be done efficiently through planning.

If planning offers so many advantages, why then do the ideologists of capitalism oppose planning in society? And why do they ridicule the past socialist efforts to plan the economy. Rather than properly evaluate the successes of such efforts as well as their shortcomings? Even more strange, why do the capitalists completely ignore the key role that planning is playing in the incredible economic advance of China today?

It is not that the capitalists are against planning in principle. In fact, it is in order to avoid the chaos inherent in their pro-market ideology that the capitalists do use some elements of planning. But for whose benefit? As fellow Socialist Network contributor to our Manifesto drafting process, Jonathan Clyne, in his ‘Transition to Socialism 4.0’ points out: “Central planning is inevitable in a developed economy. The question is by whom and for whom.”

In practice, all the big companies utilise planning to a great degree for their internal operations. They plan for everything inside the company: their research and development; their customers; their product design; their labour force; their ordering and supply; their production; their marketing; their logistics. Everything that is possible to plan for, they will plan. And to this end they use massive computing resources. Even super computing and drill-down big data.

All of this is essential to the success or failure of the big companies. And represents one of the major advantages they have over their smaller competitors. In the big companies the management fully understand the advantages of advanced planning over ‘making it up as you go along’. 

But the same companies vigorously object to external planning. They strenuously oppose planning that is imposed on them by governments or society as a whole.

Ironically, it is the reverse situation when it comes to competition and coordination. Outside the company the owners are all for competition (at least in public). But inside the company the bosses are all for cooperation and coordination. They fully understand the benefits of both aspects without which their company would tear itself apart at the seams. A high degree of division of labour has developed in large-scale production and distribution where one worker depends on the efforts of another in a chain. This is a clear example of cooperation and interdependence without which modern industry would break down.

Such levels of cooperation have also spread to the white collar side of the big companies. Anyone working in a large company today will be familiar with the constant emphasis on the need for ‘team working’. Employees are urged to be team players, operating together for the good of the company. And this makes perfect sense. While there have been occasional attempts to introduce competitive systems into companies, setting different divisions against each other. Such efforts have usually yielded disastrous results and been dropped.

Why then, this contradiction in the policy of the big companies between what their practices are inside the company, and what their policies are outside in society as a whole? Why support planning and coordination inside the company, and oppose them outside the company?

The answer is all about power. Inside the companies the management have complete control over the elements of their business and can direct them to the central goal of increasing the wealth of the owners and their management representatives. Thus, the dictatorial nature of the company can ensure that the planning of resources, and the cooperation and coordination of its employees, is focused on the firm’s profits. And anyone objecting to this central goal is rapidly excluded.

But this is not the case outside the company. Or in society as a whole. Outside, the management of an individual company is in competition against other companies. And its success is usually at the cost of another. This is not a situation where cooperation works.

Similarly, an individual company is not able to dictate what society wants in general. In fact, society is likely to demand things of the company that it doesn’t want to do. This is because society is often dealing with the negative outcomes caused by these companies. Or by the things they have failed to do. For example, a firm may not be providing a safe environment for its employees. Or it may be producing unsafe products for its customers. Likewise, it may be polluting the environment or failing to invest sufficiently for the future. In such situations, planning by society will demand actions from the company that may increase its costs and reduce its profits.

That is why companies normally object to cooperation and planning in the economy. And use their social and political influence to reduce it to the minimum. However, there have been historical exceptions to this.

Planning within Capitalism
In the political situation of the immediate decades after the Second World War that we examined in our earlier Manifesto section on Modern Capitalism, capitalism was forced to temporarily accept some aspects of socialist economic policy. At that time, the rapid growth of the post-war USSR economy increased the pressure on the capitalist governments to imitate some aspects of the soviet economy. But naturally they did so in a pro-capitalist way, in the form of state capitalism. Thus many advanced countries adopted elements of planning and state intervention in their economic practice. As Jonathan Clyne explains: “Government planning in capitalist countries before the neoliberal epoch was called indicative planning. The government was indicating, and perhaps subsidising, what would be good areas to invest in.”

As such, in the era of the Post-War Settlement there was considerable planning carried out at national and local level by the advanced capitalist states. Planning for the building of infrastructure. Planning for the spending of national funds for research and development. Planning for the activities of state-owned enterprises and public services. Planning for housing and industrial development.

This use of Indicative Planning was also applied to some extent to individual industrial sectors. In various countries, such as France, the state intervened to identify and promote leading companies as national champions. All this helped the capitalist countries to move forward successfully in the post-war decades. However, the falling rate of profit and investment inevitable in the further development of the capitalist economies, began to seriously undermine the corporatist consensus that had underpinned this process. By the late 1960s Neoliberal ideas which directly opposed state planning and intervention began to come to the fore. And once the economic crisis of the 1970s broke out, Britain and the United States increasingly led the way towards the abandonment of such planning and state intervention, along with the post-war economic strategy as a whole.

Meanwhile, in certain developing capitalist countries, governments went much further than the limited efforts at planning and coordination in the more advanced economies. The east Asian states, Japan, South Korea and Taiwan in particular, adopted what came to be known as the Development Model.  These states had emerged from the Second World War in ruins. Their economic circumstances were desperate and demanded more decisive measures if they were to modernise. Accordingly, these states took the state capitalist model much further with their governments playing a far greater and coercive role in the economy.

Identifying which of the latest technologies to build their economies on, the East Asian capitalist governments instructed their business elites where to place their investment in research and production. And forced them to cooperate in production where necessary. Fortunately for these countries, they were operating under the supportive umbrella of America. This included not having to spend much on the military, most of which was provided by the United States. It also entailed having ‘favoured nation’ status which allowed them to export to the US without having to pay tariffs.

The result of this heavy government intervention and favourable international environment were spectacular rates of growth. Growth that enabled these East Asian states to break out of the poverty trap and join the select group of developed nations.

Despite the relative success of planning and state intervention in the advanced capitalist countries, the world economic crises of the 1970s and 1980s consigned these ideas to the museum. At least among the capitalists and their neoliberal spokesmen. Now, it all seems a distant memory.

As a result, today we live in an economy where all the old chaotic features of capitalism have resurfaced. Albeit at a higher and more destructive level especially when viewed in terms of the planet’s deteriorating climate.

The Boom-Bust Business Cycle
One of the inevitable downsides of a capitalist economy is that it is made up of separate, competing and relatively autonomous private companies. These companies inevitably end up doing their own thing without reference to the needs of society as a whole. One of the strange results of this arrangement is the destructive boom-bust business cycle. 

Under capitalism, when capitalists become aware of a highly profitable sector they naturally seek to invest in it in order to partake of the feast. This knowledge circulates in various ways so that other capitalists become attracted to the sector and invest in it. However, the lack of centralised coordination and planning means that while companies and investors may get to know of attractive investment opportunities, they don’t know if and how their rivals intend to take advantage of them. As a result many of them wastefully invest in duplicate production or service facilities. This inevitably creates a situation of oversupply which ends up with a glut in the market and a major fall in the prices they can charge. Thus the promising high rate of profit that had attracted their investment in the first place disappears and is turned into its opposite. The investors start losing money and thereby fail to realise their investment.

The result is that many of them are forced to get out of the sector – usually the weakest and resource poor – close down their production, lay off staff and lose their capital. Then, just as with the earlier period of over-investment, the lack of coordination within the capitalist market leads to a process of over-destruction of facilities with a greater reduction of productive capacity than is needed. This then leads to a situation of undersupply and shortage. And a resulting rise in price and the rate of profit. In other words, back to where the process started. Thus, the cycle starts all over again.

In the meantime, all this has led to a tremendous waste of capital and production. At the same time, it has caused major economic and social disruption for the workforce involved. Often this can mean the ruin of many workers and the small businesses that were dependent on the sector. Moreover, it tends to further concentrate ownership in each sector, reducing the number of small companies and increasing the domination of the biggest enterprises.

This widespread wasteful and destructive pattern of capitalism is well known to anyone in business. And is present in all sections of capitalist production. For example, in mining, agriculture and traditional manufacture. It equally affects the latest areas of new technology. Thus, we see repeated cycles of boom and slump in the computer semiconductor and solar panel sectors.

This damaging cycle of undersupply and overproduction is inevitable in a capitalist market. Even if all the players knew what the overall size of the market would be (which with the lack of planning they don’t), the problem would still occur. Because of the lack of any central coordination, each capitalist would still be seeking to increase their share of the market and therefore ramping up their individual production. Thereby, collectively producing too much. And later cutting back in the same way.

The boom-bust cycle does not just operate in individual sectors. It is also active across the capitalist economy as a whole. In those periods of capitalist upswing the effects of the overall cycle are less noticeable. But in periods of long decline like we are living in today, the downward part of the cycle bursts upon us dramatically. And brings with it mass unemployment and poverty. Moreover as enterprises grow bigger and bigger; and society grows more complex and interdependent, the atomised decision-making of firms, and the booms and slumps that result, creates even more destructive outcomes.

Ironically, the great loss of production and resources incurred by the chaotic capitalist boom and bust business cycle is referred to in the economics profession as “the process of creative destruction”. This so-called ‘creative’ destruction not only causes widespread suffering among working people. But, it also represents a huge waste of human effort and savings. And is a great drawback for business development, increasing the risk of failure for new firms. More widely, it is a major element of instability in the economy and society as a whole.

Socialist economist, Pat Devine, explains how the capitalist boom-bust cycle works across the economy as a whole: “In the upswing, when expectations are buoyant, enterprises invest in order to take advantage of the increasing demand. This occurs throughout the economy and for a time the growth of capacity in the different branches of production is mutually reinforcing, with respect both to the availability of necessary intermediate inputs and to the multiplied and accelerated generation of demand for their output. Eventually, however… the accumulation of productive capacity outstrips the possibilities of selling its output profitably, expectations change and a cumulative downswing sets in. Boom gives way to slump, capital equipment is scrapped, workers are unemployed and resources are generally wasted.

Political theorist, Mark Fisher, expressed the madness of the capitalist boom-bust cycle in more psychological terms: “With its ceaseless boom and bust cycles, capitalism is itself fundamentally and irreducibly bi-polar, periodically lurching between hyped-up mania… and depressive come-down. The term ‘economic depression’ is no accident…

Markets
Part of any modern definition of capitalism usually includes the concept of free markets. Certainly, this a core aspect of the neoliberal ideology that continues to dominate capitalist economic thinking.
Implicit in the ideology of markets is that all the suppliers and purchasers in the market are equal. That there is a level playing field in which no-one has a built in advantage over the others. But reality is the opposite in the advanced capitalist economies with two or three large companies controlling 90% of each sector. These large companies distort the market in a multitude of ways. They undermine competition in each sector and the economy as a whole. They drive up prices and remove much of the incentive for innovation.

But there are many kinds of markets. Some are useful and necessary. Some are quite the reverse. As British socialist Ken Coates notes: “‘The market’ has a nice, old-fashioned ring to it; shopping on Saturday morning among the stalls in a market place, where those who seek to sell their wares have to respond to the demands of the buyers, charge a fair price or fail to clear the stock they brought. Most markets are not anything like that. The market comprises in effect many markets: labour markets, housing markets, commodity markets, money markets… as well as the supermarkets and the corner shop and market stall.

For example, a local fruit and vegetable market does not operate in the same way as shopping in supermarkets. It is easy to walk around a local market and compare prices and quality. But, far less easy to go back and forth between supermarkets. That is why many families choose a particular supermarket for its convenient location, size, pricing, etc. And do all their weekly shopping there. Supermarkets deliberately make this choice difficult by offering specially low prices for selected products as loss leaders. And then rely on you buying other products there for convenience. Similarly, an upmarket supermarket may attract customers by offering some products at a higher quality, but then provide many that are exactly the same as elsewhere but a little more expensive.

Supermarkets often also take advantage of being in a shopping centre which attracts people for its other shops, eating facilities, car parking etc. We only have so much time and energy after all, and retailers play on this. In these and many other ways, individual stores gain advantage over smaller shops. Thus, shopping is rarely conducted on a level playing field.

Competition
One of the myths is that socialists are against competition. This is not the case. What we are against is destructive competition. Healthy competition is a very different matter. It has a vital role to play in spurring on achievement while providing excitement and entertainment in life.

Scottish socialist Alan McCombes in his brilliant book ‘Imagine, A Socialist Vision for the 21st Century’ sums this up as follows:
Socialism would not seek to abolish competition, but to channel it in a different direction. There are two types of competition: negative, unhealthy competition, which is about exploiting, humiliating, injuring, killing, or conquering your opponent; and constructive, healthy competition, which is about testing your skills and talents against those of others, and in the process raising everyone’s standards.
Under capitalism there is little genuine healthy competition. Rivalry between businesses involves the bigger, wealthier corporations driving their weaker competitors to the wall. Rivalry between nations involves bigger, powerful states grabbing resources and territory from their smaller neighbours.
In society as a whole, competition, far from being suppressed, could be directed away from the accumulation of money and power into more constructive channels, such as music, sport, literature, painting, film-making, songwriting, sculpture, architecture, or photography. Sport and popular culture could be subsidised in a future socialist society as ballet, classical music, and opera are in this society
.”

Market Information
A key theoretical motivator for the early Neoliberal capitalist movement was its argument that markets and pricing were far better than a planned economy for generating accurate information about customers’ wants. And then satisfying these wants with available products and services. The neoliberals argued that this automatically led to efficiently matching demand with supply. That this accurate information formed the basis of a dynamic process in capitalism through which investment and production flowed quickly to where it was most needed. In contrast, a planned economy not only involved artificial government interference in the operations of the economy. But, it was based on inaccurate, out-of-date information that created massive distortions in the supply of goods and services. As well as in many other aspects of the economy.

This theory formed the core of the neoliberal founders, Ludwig von Mises and Friedrich Hayek’s economic critique of the Soviet economy. And formed a key part of the ‘socialist calculation debate’ that began in the 1920s between socialist economists and their capitalist counterparts.

There was obviously considerable truth in this capitalist critique of the centralised, rigid and bureaucratic planning system that operated in the Soviet Bloc. To make matters worse, this was in an era before computers, where attempts to accurately and rapidly analyse the performance of different branches of industry and the economy as a whole, was an almost impossible task.

But there was a major flaw in this capitalist critique of planning. Namely, the assumption that in real life markets yield accurate and timely information to which prices respond free of interference. But this is not what really happens. Just like the rest of capitalist economics, this is based on an artificial model of perfect markets that do not exist. In the real world, markets are manipulated by powerful economic forces. Such as artificial shortages, price-fixing, monopoly, the business cycle, political action, corruption and so on.

Even at the best of times, customers never have genuinely equal access to products and services. Their buying decisions are influenced and limited by a myriad of factors. Not least by their lack of sufficient knowledge about the alternatives on offer.

The more sophisticated that products become and the more complex the economy, the more difficult it is to acquire information on them in the marketplace. Anyone trying to purchase home electronic products online can testify to the difficulty in choosing which is best for their needs. The manufacturers even get fake positive reviews posted up in the online marketplaces like Amazon.

This is even more the case in markets that cater for business and finance. One of the big advantages of the rich is their greatly increased access to information. As sociologist Colin Crouch, explains in his excellent book ‘The Strange Non-Death of Neoliberalism’ “The problem is particularly severe in financial markets, where the wealthy can afford highly skilled professional advice to help them in their decisions, enabling their incomes to grow much faster than those of small investors. Similarly, organizations are in a better position to acquire information than are individuals. This means that producers are likely to be better informed than customers…, employers better informed than employees, and large firms than small ones.

The lack of a level playing field for consumers and smaller businesses in the market is becoming ever more crucial as human knowledge and expertise take on an increasingly important role in modern capitalism. Nowhere is this clearer with the emergence of Big Data as indispensable for effective sales and marketing. The collection of data about customers and citizens is now prevalent throughout society under what has been well described as Surveillance Capitalism. Quite correctly we don’t trust the corporations with our information which makes us all more vulnerable to targeting and commercial manipulation.
 
Lack of Consumer Power
Contrary to the myth, markets provide very limited power to the consumer. As passive agents in the production chain, consumers have to accept what is on offer. In truth, the classic capitalist retail  mottos “the consumer is king” or “the consumer is always right” have little meaning in practice. Consumers have no real say over a product or service. Over its design and functionality or its quality and durability. Even over its price and availability. Their sole influence over a product or service, even if an important one, is whether to buy it or not. In this way, the relationship between the seller and buyer in a capitalist market is a passive one. It is essentially a ‘take it or leave it’ position.

Indeed, the more each sector becomes dominated by a few giant companies, the more our choice as consumers is reduced. Even on price, consumers are being increasingly ripped off. With choice limited to a few overpriced brands which use their muscle in the market to overcharge us, while wasting fortunes on packaging, marketing, sales operations and distributor margins.

Market research does offer the possibility of gathering useful knowledge on the wishes of the consumer. But even this is distorted by the control of the companies who mainly use such research to seek information that fits within their existing strategies and short-term profits. Rather than genuinely seeking to learn about and satisfy consumer needs.

Colin Crouch, who describes our current era as a ‘post-democracy’, comments that “Although in principle the market is governed by consumer sovereignty, consumers cannot decide what products will be made available. Only firms can do this. The consumers’ role is a passive one… And since the firm is the only proactive participant in the market, the more that we live in a society that privileges the market, the more we live in a society that privileges the firm as the source of any human creation.”

Geographical Inequality
The logic of market forces lead to major geographical inequalities and imbalances. Economically successful areas tend to attract more investment while the other areas fall further behind. Sometimes this is because at one time an area had some advantage such as a suitable port, or better land for agriculture and mineral resources. Those living in unsuccessful economic areas tend to suffer poverty and decline. Under capitalism people are then expected to travel from the depressed areas to the more prosperous ones. This leads to all kinds of problems including the break up of families. In most capitalist countries large sections of the population end up living in different areas from where they were born, away from their relations and the cultures they were familiar with. This situation is then replicated on an international scale with forced economic migration from one country to another.

On the other hand, many families just can’t afford to move. And thus are forced to remain in depressed areas and in poorer countries. All this is completely unnecessary and arises because of the lack of positive planning of economic life. Under capitalism, we don’t collectively determine our economic fate. It is largely decided by the market and we are expected to accept the negative outcomes as inevitable. “The anarchy of production, even when called the invisible hand, closes workplaces, undermines communities and destroys valued cultures and ways of life. In doing so it causes misery and despair and also the bitterness and anger which have motivated struggle against closure and unemployment through the ages… market forces act blindly and those affected are not involved in taking the decisions that affect them.” (Pat Devine)

Labour Markets
One of the worst enablers of exploitation are labour markets. As if humans are products to be bought and sold, like pieces of meat or cans of beans. Future generations who are fortunate to grow up in a democratic socialist world will look back and recognise labour markets as yet another form of slavery. And wonder how we tolerated them. It was no accident that work under capitalism was described as ‘wage slavery’ by earlier generations, who compared it to life before capitalism. And through the contrast could see capitalism more clearly for what it really was.

In labour markets, workers are usually in a much weaker position than the employers who are seeking to buy their labour time. To this end, employers dislike full employment and favour a certain level of joblessness. This gives them the upper hand in their relationship with their employees. When there are enough workers unemployed, anybody refusing orders or resisting exploitation can then be threatened with the sack. And replaced by another worker desperate for work.

It’s not just our jobs that are at stake in the labour market, but how much we are paid. Wages in the labour market are in no way fair. They depend not only on one’s skill or hard work but on demand for labour in any location. Or on the fortunes of the sector one happens to work in. In some cases, wages reflect the bargaining position of the workforce in a particular part of the economy. For example, despite being highly skilled, nurses are often poorly paid because they are naturally reluctant to go on strike and leave their patients in distress.

Once you are working, wages are then at the mercy of the attitudes and decisions of the boss. That is why it is absolutely vital for workers to become organised in unions and to fight for their rights. But increasingly the economic climate combined with intimidation from employers are making it difficult for unions to recruit and organise effectively.In a democratic economy this situation will be very different. In contrast to capitalism, union membership will be encouraged and become the norm. The right of unions to negotiate will be automatic. And restrictions on the right of workers to withdraw their labour will be removed. Moreover, we will consciously pursue a full employment strategy in which work will become a right not something we depend on the whim of employers for. In such a situation the labour market will increasingly become redundant.

But this will still leave open the question of what people will get paid. In contrast to the unfair, transactional system that decides salaries under capitalism – a system that causes great discontent among workers – in a democratic economy we would need to move towards a more legitimate way of deciding on salaries for each occupation and profession. One that begins with the creation of a genuinely representative workers and community commission that would fairly evaluate the different categories of work and recommend their appropriate level of remuneration. This evaluation would naturally need to take into account the levels of skill and training, danger and effort, and so on that are involved in the various types of work. And be updated periodically to reflect the changing nature of the economy and the work it requires. The criteria, ratios and recommended wage levels arising from this assessment system would need to be approved democratically in a practical way. And be introduced and tested in phases. Such a commission would also need to be flexible enough to react to major wage disputes and update its criteria accordingly.

Without such a fair, transparent and democratic alternative to the market method for the setting of wages, the transition to a democratic socialist society could face many difficulties. For one thing, the empowered workers will naturally be impatient to use their new-found power and consciousness to end exploitation and rectify injustices. If no fair and open system is available to resolve their disputes, they will understandably exercise their right to take strike action. Which could cause great and continuous disruption to society.

The Advantages of Planning Over a Market-Driven System
One of the problems in the debate between planning and markets is that the neoliberal capitalists tend to talk about markets in theoretical, abstract and ideological terms. Instead, we need to differentiate between those markets that are really useful versus those that are inherently destructive. And in the transition to a democratic economy we need to identify what rules are needed to ensure that the markets we do retain produce positive results.

Even more important, we should avoid arguing against markets in general, but rather oppose the concept of a market-driven and dominated economy. In such a society solidarity between citizens is increasingly replaced by dog-eat-dog competition. And the old principle of treating others in the way we would want ourselves to be treated, is more and more changed into a philosophy that justifies manipulation and exploitation.

In this type of economy, the invisible hand of the market effectively removes human agency in the direction of our economic life. As Pat Devine in his excellent book ‘Democracy and Economic Planning’ explains: “Since each capitalist takes decisions independently of all other capitalists… resources are allocated and reallocated between different uses without any conscious overall decision or direction. The overall outcome is willed by no one.”

Likewise, on an individual basis a market-driven economy atomises people and encourages short-termist individual solutions without thought to the effect on others.

The underlying case for planning in a society where a democratically-run public sector leads, is that it allows for us to consciously direct economic life and make the best use of our resources. Instead of private enterprises planning and making decisions independently of each other for the narrow self-interest of their owners, planning allows us to coordinate economic activity for the benefit of the citizens as a whole. Rather than economic decisions being taken by a multitude of competing organisations in a shortsighted, chaotic manner; planning offers us the opportunity to adjust and shape our economic activity in a rational, integrated and long-term way.

One simple example is how we deal with unforeseen emergencies. Planning gives us the chance to anticipate possible threats. And prepare the resources and procedures needed to minimise them. The market-driven capitalist economies with their short-termist approach are rarely able or willing to plan for emergencies. The latest example of this can be seen in the response to the Coronavirus pandemic. This pandemic was not the first in recent years. In the last two decades we have had no less than five other international outbreaks of infectious diseases: SARS in 2002, Swine Flu in 2009, MERS in 2012, Ebola in 2014, and Zika in 2015. 

In response to these recurring outbreaks, in 2014 the World Health Organisation urged all its members to conduct exercises to see how prepared they were for a worldwide pandemic. Many advanced countries carried out these exercises and identified various shortages of equipment and facilities. But most of them failed to rectify these shortfalls. Or even to carry out their own recommendations. For this reason, they were very slow to respond to the Coronavirus pandemic and lacked the facilities to handle it. As a result, millions died unnecessarily.

Contrast that to China’s reaction. Its experience of the earlier outbreaks had caused it to introduce fast reporting procedures, stockpile appropriate equipment and prepare quarantine plans. Thus within three days of the appearance of Covid-19 in a hospital in Wuhan, Chinese medical staff were able to identify the virus and report it to the World Health Organisation. And then to notify the American Centre for Disease Control the following day. Granted that local authorities then fumbled their response in the following three weeks, thereafter China’s national leadership introduced a full set of quarantine measures in an incredibly effective operation. Completely locking down the country for two months and wiping out the virus. During this period, it used its massive inventory of temperature testers to identify everyone with a fever and treat them immediately. For this purpose, it was able to effectively mobilise its medical staff, distribute stored personal protective equipment and stockpiled scanners, and thereby save thousands of lives. The result is that China was the most successful country in handling a mass outbreak of Covid. With only 4600 deaths out of 1.4 billion, the lowest number of global deaths per head of population. This was a classic example of the benefits of planning and preparation over spontaneous reaction.

The Planned Economy Experience
Earlier in our Manifesto we have looked at the experiences of the planned economies in the Soviet Union and China. In doing so we have seen the massive gains that were achieved by this planning process. Gains that allowed these extremely backward countries to drag themselves out of their backwardness into the modern age. But we have also honestly described the brutal and painful consequences that were experienced in this process. Experiences that inevitably flowed from the particular types of centralised command planning systems introduced, and the way that they were implemented by Stalin in the Soviet Union and by Mao in China.

The Soviet Example
As we explain in detail in our Manifesto’s section on ‘Socialism and the Soviet Union’,  the USSR’s centralised system of command planning was by its very nature highly hierarchical, with the passing of directives downwards to subordinate units. As Jonathan Clyne from our Socialist Network explains: “Soviet planning was called quantitative planning. The quantities and prices of everything produced were decided, and supposedly balanced, centrally.”

Socialist economist, Pat Devine, accurately summed up some of the problems that flowed from this version of planning: “At the economic level this type of planning displays systemic inefficiency, biased information flows, absence of adequate feedback mechanisms, low priority to consumer and user wants, private attempts to by-pass the formal system and official attempts to enforce it… In such a system, bureaucratic arbitrariness, on the one hand, and individual dependence on hierarchic superiors, on the other, are likely to be the norm.

The personal economic dependence inevitable in the Soviet planning system encouraged risk avoidance and discouraged innovation. It also led to many strange and contradictory outcomes. Leading development economist, Ha-Joon Chang, highlighted some of these:  “Here was a country that could send men into space but had people queuing up for basic foodstuffs such as bread and sugar. The country had no problem churning out intercontinental ballistic missiles and nuclear submarines, but could not manufacture a decent TV – it is reported that in the 1980s the second-biggest cause of fires in Moscow was believe it or not exploding TVs.

These types of problems formed the core of neoliberal criticisms of Soviet planning from the 1920s onwards. In particular, the neoliberals pointed to the inability of central planning to collect accurate information on demand and supply. And to be able to rapidly respond to it. As a result Soviet central decisions on production and prices were continually inadequate and often led to distorted outcomes.

The conclusion that was drawn by the neoliberals and is now the generally accepted view among capitalist economists and politicians is that “The limits of economic planning have been resoundingly demonstrated by the fall of communism. In complex modern economies, planning is neither possible nor desirable. Only decentralized decisions through the market mechanism, based on individuals and firms being always on the lookout for a profitable opportunity, are capable of sustaining a complex modern economy. We should do away with the delusion that we can plan anything in this complex and ever-changing world. The less planning there is, the better.”” (Ha-Joon Chang)

However, the incredible success of planning in China has spectacularly disproved this view.

The Chinese Example
As we have examined in detail in our Manifesto Appendix ‘Socialism and China – the Maoist Era’, in the immediate period after the Chinese Revolution of 1949, Soviet-style Five-Year planning was attempted with some success. But this was soon cut across by the disastrous ‘war communism’ years of The Great Leap Forward. And to a lesser extent during the Cultural Revolution that followed soon after. Nevertheless, the Chinese economy did significantly advance in the first three decades after the Revolution. Bringing with it rising production and industrial infrastructure, along with major improvements in health and life expectancy, literacy and public services.

But it was after Mao’s death in 1976, that the Chinese economy really took off. The emergence of a new leadership headed by Deng Xiaoping created the opportunity for a new type of planning to develop. As part of the now famous ‘reform and opening up’ era, many important changes were made by the Chinese Communists to the type of planning that had operated in the Soviet Union. These have proved to be highly successful in driving forward the Chinese economy and society. And in turning it into a growing superpower that now rivals the United States. This looks set to establish China as the leading economy of the world.

What were these changes in planning?
First of all, the adventuristic mistakes of the Mao era instilled a deep aversion to the rapid imposition of ideologically-driven turns in the economy. Instead, the new leadership approached the need for economic changes with caution: ‘crossing the river by feeling for the stones’ as the new approach became known. Accordingly, the new leadership emphasised the need for an experimental way forward, trying out new methods first in a few local areas. Only if these proved successful would they then be introduced on a national basis.

The first example of the new experimental changes came with the decision to allow peasants in one region to privately sell produce that was in excess of their state targets. This new arrangement proved highly successful. It spread rapidly and spontaneously across China as farmers grasped the opportunity to increase their living standards. The results were dramatic with agricultural output increasing tenfold in five years. This ended the food shortages that had bedevilled China for centuries. And opened up great opportunities for wider economic development.

The new Chinese leadership was greatly encouraged by this success. And emboldened to remove restrictions in other areas of collective and private enterprise. A key part of the new approach was a growing understanding of the failures of the Soviet Command Economy planning system. That trying to set prices and production targets centrally didn’t work well. Consequently, it was decided to let the market begin to find its own price levels, First in one sector then another. And to allow enterprises, state and private, to themselves decide on production to meet real demand. Thus, planning in China gradually became less ‘commanding’ and directing. And more ‘guiding’ and coordinating. 

This less rigid and more relaxed approach was soon extended to participation in the world market, as part of the ‘opening up’ aspect of the new reform era. Special Zones were created to encourage foreign companies and foreign investment to come to China. The success of these first zones led to their extension to other areas of the country. First on the Eastern coast then further inland.

Inevitably, significant mistakes were made along the way. But the planning process learned from these mistakes. As such, it was becoming more flexible, incorporating feedback from the outcomes. These changes showed promising results. Over time, the planning process improved and became more accurate. To help with this, now the latest and most powerful supercomputers are used.

A Dynamic Planning Process
In these ways Chinese planning has evolved into a more dynamic system. One that is no longer guiding only the state-owned sector, but also the growing private sector. And the interaction of both with the world economy. In doing so, this process uses the state owned enterprises (SOEs), the public services, and the state-owned banking sector to take a strategic lead in implementing planning decisions. In the case of the state banks, the Chinese planning system determines finance and credit flows to reinforce the planning guidelines. These public institutions then provide a framework for the private sector to develop and operate in. Simultaneously, the private sector acts a constant discipline on the state sector pressurising it against arbitrary and inefficient production and pricing decisions.

Ironically, China’s Five Year Plans save private sector companies from having to do much of their own research on the economy and the market as a whole. It also greatly reduces the need of the private businesses for sector planning – the Five-Year Plan’s targets and forecasts provide a relatively reliable guide to future levels of demand and sector performance.

Another important development in Chinese Planning concerns the role of innovation. Over time, the need for innovation through scientific and technological research and development became an increasingly key part of the Chinese planning process. This involves consulting with leading technical experts around the world in order to identify the industries of the future so that China can be ready for and take advantage of them. That is why China was able to build up the world’s largest solar panel and wind turbine production capacity. And why it is now investing so heavily in robotics, artificial intelligence and quantum computing. To give just a few examples.

Over time, Chinese planning has become more sophisticated with national Five-Year plans reflecting a bidirectional process that flows from local to national level, and back again. Every local area and sector produces their own sub-plans which are collated together nationally. These are then considered as to how well they might meet national priorities. The plans are then amended accordingly and transmitted back down the chain.

Similarly, the planning system pinpoints what resources are needed locally and nationally to meet the planning targets. These resources will include what housing, education and infrastructure would be needed to ensure fulfilment of the plans.

The Power of Planning
For an example of the operation of this planning process, let’s look at China’s development of the new electric vehicle sector. For reasons of technological complexity China was never able to fully overcome the technical advantages of the existing foreign car companies. This, despite successfully encouraging them to locate large production facilities in the country. The petrol and diesel engines in modern vehicles are extremely complicated having been slowly developed over a century of design and production. Not surprisingly, the leading international car companies have protected their technological advantage in this field very closely. However, the Chinese government was able through its planning process to foresee very early on the potential of electric vehicles, with their greatly simplified engines. And to recognise that it offered a potential for China to leapfrog the existing automobile technologies and become a leading player in original global vehicle production. The new electric vehicle technology also had the great advantage of not polluting the air which had become a major problem in many Chinese cities.

Using its planning process, the Chinese government set about identifying all the elements that would be needed to deliver a successful electric transport sector. These included encouraging the development of a large-scale, home-grown electric battery industry – batteries being the most important and most expensive part of electric vehicles in today’s early phases. The government also set in place rules that instructed all car companies to come forward with electric models, while offering financial help with investment, research and development to achieve this outcome. This succeeded in kickstarting the technological know-how and supply side of the sector.

Likewise, the government found ways to stimulate demand by subsidising the selling price to the end user, while offering preferential terms for car use through the number plate system – in many areas electric car owners can now drive their cars immediately while internal combustion engine-powered car owners often have to wait up to two years to drive their new vehicles. Moreover, in many areas, local government set target dates for all buses and taxis to become electric. Meanwhile, the government at national and local level was also able to use its planning system to prepare the necessary factory facilities, housing for workers and logistics to ensure a relatively smooth roll out of electric production. Not least, it greatly expanded relevant college courses for the engineers that would be needed for the new sector.

The end results have been dramatic. China now produces over half of all the world’s electric cars. It dominates the production of electric buses, trucks, vans, taxis and motorbikes. And it is a major player in electric battery production. The large scale of production that has arisen from all of this has resulted in Chinese electric vehicles being much cheaper than elsewhere while matching the quality of anything being produced globally. Now we are seeing the emergence of a range of Chinese quality brands that look set to make major inroads in car markets in Europe, USA and so on.

This and other examples such as high speed trains, infrastructure building and green energy technology demonstrate the power of planning. Especially when combined with public investment. It also explains why China is able to build things so much more quickly and cheaply than any other country. This used to be explained away in the West by reference to China’s source of plentiful hard-working cheap labour. But the steady increase in real wages in China over the last decade no longer supports such an explanation. Clearly, something more fundamental is going on here. 

Finally, for China’s latest 14th Five Year Plan, a new element of popular consultation was introduced. Specialist groups across the country were convened to examine and comment on the ideas and priorities being proposed for the new plan. 

What conclusions can we draw from all this? As the old expression goes: ‘the proof of the pudding is in the eating’. The massive success of the Chinese economy has proved that the more dynamic and decentralised planning model that has evolved in China over recent decades works far better than anything that has been seen before. Either in comparison to the Soviet bloc of earlier years. Or the capitalist world of today.

For the purpose of developing an effective planning system for the democratic economy we are proposing, we can learn a great deal from China’s successful practice. But we don’t need to limit ourselves only to the Chinese model which inevitably reflects its historical experience and limitations. For instance, in the more advanced economies we shouldn’t need to rely on such a large private sector. Instead, we can meet demand with a more efficient and innovative public sector model based on the full participation of workers, consumers and other affected groups (for more details see our Manifesto sections Democratic Public Ownership and Democratic Public Services).

Of equal significance, the Chinese planning model is limited by its method of governance – being part of a top-down administrative system Chinese planning inevitably includes many unnecessary examples of bureaucratic mistakes and wastage. In contrast, we can go further than China by creating a much more democratic and participatory planning process. Thereby achieving a more efficient and responsive outcome. One that better meets the needs of working people. 

The Alternatives of Market Socialism & Anarchism
There are a number of socialists who have tried to come forward with ideas that operate socialism within a market-driven economy. Then there is also the whole anarchist tradition. To their credit, both schools of thought have sought to seriously address how an alternative to capitalism could function in practice. Unfortunately, in seeking to avoid the centralised, top-down planning systems of the past, they have ended up abandoning the very principles of planning and central coordination. Instead they look to a utopian economy mainly consisting of self-governing, worker-run enterprises, which negotiate between each other.

While workers and other kinds of cooperatives must form a vital part of a democratic economy (see our Manifesto section on Democratic Public Ownership), in our view they cannot be the dominant part of such an economy. Certainly, a purely cooperative system may at first sight appear attractive. But it is essentially a micro-economic system that does not address the macroeconomic planning and coordination of resources that efficiency and equality demands within the economy as a whole. In practice, a mainly cooperative-based system can only entail a reversion to an earlier smaller-scale form of economic activity with great implications for lower living standards and reduced prospects. Instead of starting from where big business has left off, with its levels of advanced and efficient large-scale production, the market socialist and anarchist solutions would break up the large enterprises and try to turn the clock back to an earlier economic era of smaller economic units.

Being based on a multiplicity of small and inevitably unequal enterprises, we do not believe that such a system can take us forward to a cooperative and harmonious economy. Never mind a future society of abundance. Past experience such as in Yugoslavia shows that workers’ control of each enterprise does not by itself take the economy and society forward in a sustainable manner. Rather, it creates a situation where each enterprise has no choice but to destructively compete with each other. And thereby potentially creates the basis for conflict and capitalism to revive again. 

Last but not least, an economy based mainly on self-governing workers cooperatives can only be partially democratic. By its nature, it excludes large sections of the population from having a say over the economy, including the retired, the disabled, those in education and so on. The same problem exists for the other types of cooperatives.

How a Democratic Dynamic Planning Process could work
The first and most obvious point is that planning must set realistic targets that relate to existing resources and potential. And which efficiently anticipate demand. This all requires accurate information provided on a timely basis. As we have seen in top-down planning systems in the past, such as in the Soviet Bloc, information was often manipulated to provide benefits for production units at each level. For example, targets were often lower than potential in order to reduce pressure on managers. Or performance overstated in order to falsely reach targets and secure rewards.

Fortunately, today we have fast computers which when combined with big data handling can instantly provide the data needed for efficient planning. Also appropriate algorithms can be used to spot misreporting and artificial distortions. Equally important, the empowerment of the workforce and consumers in a democratic planning system can add an important element of policing against false reporting by management.

Prices
In the early period of any transition to a democratic planned economy, it is inevitable that pricing will be greatly influenced by the market internally and on a world-scale. Past attempts to set prices centrally and artificially have not worked well. They have led to unnecessary shortages and surpluses.  Or to black markets where products and services are sold at levels very different from the official price. We need to start with prices that reflect the real world situation.

That said, it should be our aim to begin to move away from the unstable and exploitative aspects of market pricing. Such as raising prices just because there is a temporary shortage even though the costs of production have not changed. This only penalises the poorer members of society and provides artificial profits for producers. Taking advantage of modern computers and automatic generation of data and feedback statistics, we can shift to a system where supply is quickly adjusted to meet demand.

Obviously, this will not always solve supply problems especially if there has been a natural disaster or major interruption. In such unusuals situations, customers can be kept informed of the situation so they understand why prices have increased. And in extreme cases, temporary compensation can be provided where needed to offset hardship. Nevertheless, as the planning of the economy becomes more accurate and more rapidly responsive, it should be increasingly possible to improve the balance of supply and demand. And to increase stocks to better cope with regular fluctuations. In these ways we can minimise situations where rising prices are used to respond to supply shortages.

On the issue of what prices to charge, a rationally planned society would move away from the capitalist ‘charge as much as we can get away with’ approach which exploits customers. And moves increasingly to a fairer ‘cost-plus’ system. In such a system the price of a product or service should reflect the actual costs of production plus an extra margin for further research and development. The introduction of transparency and participation of customer representatives will naturally play a major part in keeping prices to a fair level that reflects the actual costs of production. And build in motivation to keep reducing costs through innovation and efficiency.

Dynamic Planning
As we explained above in our examination of China’s development, a key aspect of its success has been the evolution of its planning process. From the rigid, slow and top-down nature of the Soviet planning system which China copied in the early 1950s. To the flexible, experimental, decentralised and interactive nature of planning that the Chinese use today. This is a ‘dynamic’ system of planning which uses feedback and fine-tuning to improve the plan’s implementation as it goes along. And which not only guides the public sector but the private sector as well – the latest Chinese Five-Year Plan has identified some of the negative effects of privately-owned companies that have become too dominant in their sectors. And declared its determination to rein them in.

From the outset, the planning process for our democratic economy should also be dynamic. One that incorporates the best of the Chinese planning system. But goes further. For example, in the process of transforming those advanced economies which have moved beyond the early and middle phases of capitalist development, we won’t need to rely on such a large private sector. Especially one that includes huge private companies with all the problems of exploitation and monopolisation that they inevitably represent.  

Even more important, we must adopt a genuinely democratic version of planning.

Democratic Planning
As capitalist firms become bigger so too does their impact on society. At the same time, their decisions taken independently of each other increasingly undermine any rational attempts to coordinate the economy and take it forward. In this way, the growing role of the big companies in the capitalist economies undermine democracy. How can governments elected on a progressive economic programme hope to carry it out if the main levers of economic decision-making are in the hands of giant companies? Companies whose interests have relatively little to do with the priorities of any national government. We saw a dramatic example of this in the modern phase of globalisation. Firms sought to invest and open up production overseas in order to reduce costs and increase profits. With the inevitable result that jobs were lost at home and workers bargaining power weakened.  

In contrast to capitalism, planning in a democratic economy would empower the people’s control over the economy. The Red-Green Study Group in their ‘What on earth is to be done?’ summed up the alternatives well: “The democratic control we envisage over the economy means the ability to take conscious decisions over the use and distribution of society’s productive resources. So market forces cannot be the predominant mechanism for allocating those resources as it is under capitalism.

For example, only democratic planning within a democratic economy can ensure a relatively even distribution of economic activity and resources. In this way, it can bring investment and well-paid employment to depressed areas and sectors.

Under democratic planning, for the first time consumers, workers, suppliers, small businesses and affected communities will have a direct say over the direction and impact of production. Such planning, if done transparently, would move the economy away from short-termism and encourage people to think of the medium and long term.

Just as important, democratic planning would tap into the creative abilities of the population as a whole. Thus planning would no longer be dominated by technical experts as it has tended to be even in the Chinese system. But could include good ideas and feedback from the whole of society.

In addition, the involvement of the public in democratic planning would encourage people to think not just of their own interests but of their communities and society as a whole – capitalism assumes that we are only motivated by individual selfish interest. But a lot of human experience exists outside the market. In the family, among friends, in the voluntary and household sectors and so on. In fact, voluntary effort is a much more important factor in the economy than people realise. Take the example of the blood sector. In many countries people donate blood voluntarily. In some nations like the United States, people are paid for giving blood. But blood donated voluntarily rather than for money is usually of a much higher quality. This shows that human solidarity can deliver better outcomes.

Indeed, in a world dedicated to the interest of the community as a whole, people will be more willing to sacrifice, to cooperate and to go the extra mile. We have seen this in times of crises such as the Coronavirus pandemic. But also in times of war and conflict. A leading advocate for media democracy, Dan Hind, gives an excellent example of this type of cooperation and solidarity in his book ‘The Return of the Public’:  “During the Second World War the British population became less mentally distressed, contrary to the predictions of many psychiatrists. The sense of shared jeopardy and the introduction of universal services both served to reduce levels of what the social scientist Richard Titmus called ‘social disparagement’. The war brought a sense of common purpose and sharply reduced the levels of economic inequality. People felt dignified and elevated during the six years in which they worked together to save their country and their way of life; the war qualified hierarchies by asserting a civic equality. Overwhelmingly committed to the immediate task of national survival and to the creation of a new society after the war, the British became happier...”

Democratic planning in a democratic economy means that we will be placing our interdependence with others at the centre of our decisions. Such planning offers the possibility for citizens to better control their lives free from the wasteful and destructive outcomes of rule by a coercive market. In contrast, in a capitalist world with its unfair distribution of wealth and power, the pursuit of narrow self-interest is the main value encouraged and expected. In such a society people will tend to look out for themselves and to find ways round the rules.

Pat Devine, in his excellent book ‘Democracy and Economic Planning’ summarizes the case for democratic planning: “At its most general the case for planning is that, through conscious social decisions and action, it enables more effective use of society’s productive resources, in accordance with collectively and individually determined preferences, than would be possible without it… It is a necessary condition for people individually and collectively to be able to control their lives, to exercise self-government. Thus, planning enables the maximization of positive freedom, by contrast with the wasteful and destructive automaticity of the unregulated market in which individuals and communities are buffeted by impersonal and coercive market forces beyond their control…

But how could ordinary people be involved in democratic planning in a practical way?
To begin with, Commissions would need to be created for each economic sector such as transport, energy and so on. This would allow representatives of each sector’s workers, consumers, suppliers, businesses, etc. to join with representatives of a transformed parliament in discussing the problems of their sector and formulating ideas, policies and plans for that sector. These commissions would employ experts to assist in the process of analysing problems and formulating plans.

Such commissions would also be needed at a local and regional level. This would ensure decentralisation and devolution of decision-making. If everything has to be decided by the centre it can easily become overloaded. And the lack of on-the-ground information can lead to major errors. It is essential to allow citizens and businesses, community and environmental organisations, alongside locally elected authority representatives, to have a representative voice on economic and planning issues that affect their localities

The details of how to ensure that such commissions are genuinely representative, transparent and accountable are explained in our Manifesto section on Democratic Public Power and Control. Also explained are how to avoid burdening citizens with constant decisions and meetings. As well as how to create a democratic media through which the public can have a full voice in debate and decisions. 

Nationally, the various proposals produced by sectoral and local commissions would be drawn together.These would need to be negotiated and coordinated so that a draft National Plan could emerge every five years. This would then be published and discussed in society as a whole.

The National Plan would need to focus on the overall budget for the country and include its main objectives and priorities. Such objectives and priorities would naturally include our aims for the overall balance between investment and consumption. It would detail our economic growth targets and the budgets for the public investment needed to achieve them (see our Manifesto Section on Democratic Public Investment). Plus the science and technological research and development programmes to ensure a high level of innovation (see the Manifesto section on Democratic Public Innovation).

The Plan would need to outline a proposed allocation of investment for the major expansion of key existing industries. And the creation of new industries as well as the distribution of investment between regions. This would form the basis of projections for the growth rates of different branches of industry, for employment, regional distribution of work and so on.
In light of the climate crisis, a key element of the National Plan would be the policies needed for pollution control, environmental protection and resource conservation, alongside appropriate energy and transport proposals.

A key part of the Plan would cover public services and living standards and the balance between them. This would encompass the coverage and character of social provision, education and training, recreation, housing, health, social services and social security. It would aim for an increase in living standards and a movement towards greater income equality. And would include a regular national job evaluation and wages exercise (see our earlier text on labour markets), combined with a review of working hours and holidays with the aim of steadily reducing working time.

Last but not least, the National Plan would need to devote resources towards culture and the promotion of more humane social relations.

In terms of public consultation, the National Plan would need to be a general summary of more detailed and transparent plans for each sector and locality. It would need to offer a limited number of realisable alternative options that the population could decide between. How such decisions could be made should be open to experimentation. For example, the overall priorities of the plan could be decided by five yearly parliamentary elections. Or it could be voted on in a truly democratic national referendum prepared and informed by a citizen jury-style panel, and preceded by discussion via a democratic media.

To begin with, the planning process should start out with modest targets that can be increased if and when we succeed in achieving them. The first Plans will naturally require a lot of work and many new decisions. But as each planning period passes those areas that had worked well would continue as before. And the focus would tend to be on a more limited list of issues and sectors that had previously underperformed.

It may be argued that the majority of people are not educated or sophisticated enough to participate in decisions on a National Plan. Or that they do not have enough time to go through the details of a national budget. But it is not the fine detail that the citizens need to decide on but the overall priorities that will affect their jobs, living standards and public services. And they are quite capable of deciding on these.

Certainly such a transparent and open debate will be far better than the current setup where parliaments tend to pass budgets unchanged. Even in the US which has one of the most active financial oversight systems, the changes it makes to budgets in Congress are too often only to the benefit of special business interests. We can hardly make a worse job of things.

International Dimension
The international context will inevitably impose constraints on national plans, and the objectives and strategies contained in them. How national planning can be integrated into international trade will be examined in more detail in our later Manifesto section on a Democratic Public World.

Conclusions
Clearly, the capitalist market-driven system creates major drawbacks for economic life.  It produces a chaotic and uncoordinated economic system in which each sector and each company is left to do its own thing. It generates boom-bust cycles that cause major instability, hardship and waste for society. It favours the winners of economic competition over everyone else and distorts all aspects of society. It encourages unhealthy competition and elevates short-sighted greed above long-sighted collective good. It develops massive inequality between geographical areas leaving whole regions depressed. It exploits workers whose labour power is sold at a great disadvantage. It also exploits the customers, suppliers and all the other agents of production. It leaves us as passive consumers that have no real influence over the products or services on offer. It atomises us as individual economic actors and takes decision-making out of our hands. Finally, it blindly drives the economy in directions over which we have no control.

In contrast, socialist planning for the economy and society offers key potential advantages over the capitalist spontaneous market-driven alternative. It lets us coordinate the various branches of the economy and take them forward in a conscious and integrated manner. It permits us to mobilise the resources of the economy and finance, and allocate them to the most needed areas and sectors. It allows us to ensure a relatively equal society and produce a good balance of public and private goods and services. And it offers the potential for democratic control of the economy by the population.

In practice, planning has had its own problems. The centralised, rigid, top-down form of planning that operated in the Soviet Bloc and in the early years of the Peoples’ Republic of China, produced both positive and negative outcomes. On the one hand, it delivered very fast economic performance and took these very poor economies and society and brought them into the modern age. Thereby, it raised the living standards of the population and delivered a high level of public services to them. And it created a relatively equal society. 

On the other hand, it achieved these things, especially in its early phases, at a great social cost in terms of widespread suffering and repression. And in the Soviet Union the bureaucratic limitations of this planning system led to a gradual slowing down of economic growth and eventually to its stagnation. This caused a political crisis in the Soviet Bloc and its collapse at the end of the 1980s and into the early 1990s.

China’s development, however, took a different course. It learnt from both the Soviet experience and its own. Accordingly, it introduced major reforms to both its planning system and its operation of the economy. These reforms to its planning system made it become much more flexible, experimental and dynamic. Moving away from commanding to guiding the economy, the new Chinese approach to socialist planning has allowed a large privately-owned sector to develop and for the market to set prices and some other aspects of economic operation. As such, Chinese planning does not just set out to govern the public sector but also seeks to influence the direction of the private sector. These changes have left behind many of the distortions of the old Soviet approach. The new Chinese planning model also relies much more on feedback to ensure that its Five Year Plans are more accurate and responsive. Last but least, Chinese planning has elevated the need for constant technological innovation to a much higher level. The results of all these changes have been spectacular as everyone can see.

For the planning system we need in our transition to democratic socialism, we can incorporate the most successful aspects of the new dynamic Chinese planning model. But we should go further. For one thing, in the more advanced economies democratic public ownership will avoid the need for a large private sector.  

Even more important, we must adopt a genuinely democratic version of planning. One that involves people both as citizens at a local and national level. And as active agents in the production of public goods and services. In this way we can create a new model of Democratic Dynamic Planning.

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The Need for a New Democratic Socialist Ideology and Programme


Published: 15 March 2021

Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism

Suggested improvements welcome at the Facebook discussion page link (available at the end of the text)

With the collapse of Social Democracy and the Soviet Union in the 1990s, the Left lost its ideology and lost its way. We urgently need a new democratic socialist ideology to successfully challenge capitalism in decline. Plus, a practical and credible programme with which to replace it.

Under modern capitalism there is a growing level of discontent. And no wonder as life gets harder and more uncertain for most of us. Thus, increasingly obscene wealth for a shrinking, super-rich minority starkly contrasts with falling living standards for the rest of us. Under modern capitalism each new generation is increasingly worse off than the one before.

In response to these worsening conditions, we see increasing anger and prejudice, political polarisation and degenerating public debate. All reflected in rising racial, ethnic and religious conflict. Conflict that sometimes breaks out into civil war. Looming over everything there is the threat of Climate Change. And the wider destruction of our animals, forests and habitat forced on us by the incessant drive for profit.

But what can be done to stop this headlong rush to disaster? That is the question at the back of everyone’s mind. Even for the capitalists whose system drags them further forward to destruction.

What is the way forward? That is the profound vacuum that lies at the heart of politics today.

Neoliberalism – Capitalism’s Ideology
Clearly, the capitalists and their right-wing followers have their own ideology in the form of Neoliberalism. As we explain in our Appendix on ‘The Origins and Rise of Neoliberalism’, this ideology arose from the 1930s onwards as a response to the failure of classical laissez-faire liberalism, the earlier capitalist ideology.

The Left were generally ignorant of the new Neoliberal movement as it grew in influence during the 1950s and 60s. When it emerged into the limelight in the form of Monetarism in the late 1970s, we often dismissed it as just another set of self-serving, right-wing arguments. As such, we failed to see that it was the new ideology of a well-organised movement that had been building up for three decades.

Since then, as we outline in our Manifesto section on ‘Modern Capitalism’, Neoliberalism has served the capitalist class well. It has drastically raised the share of national wealth going to the wealthy elite and allowed them to gain control of almost all of society’s institutions including its democratic elements.

Meanwhile, neoliberalism has dramatically damaged the interests of the vast majority. Far from fulfilling its promises of increasing competition and efficiency in the economy, accompanied by raising wealth for society as a whole; neoliberalism has ended up delivering more monopoly, inefficiency, corruption, inequality and poverty. And it has brought back capitalism’s old problems of recession and slump.

Yet, the rise of neoliberalism contains some positive lessons which the Left can learn from:
Firstly, the neoliberals have demonstrated how to respond to a crisis in an ideology.
Looking back, Liberal capitalist economic theory lay in ruins in the 1930 and 40s. Their old policy of government non-intervention in the economy was dead in the water. In response, a section of mainly right-wing economists were willing to face up to this and admit the failure of their ideology. And to systematically reshape their ideas into a new one. As such, the new neoliberals took theory and ideology very seriously.

As we pointed out earlier in our ‘The Origins and Rise of Neoliberalism’, “Friedrich Hayek, the father of the neoliberal movement, laid out their counter-revolutionary strategy in 1949: “We must be able to offer a new liberal program which appeals to the imagination. We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia… which does not confine itself to what appears today as politically possible. We need intellectual leaders who are willing to work for an ideal, however small may be the prospects of its early realisation. They must be men who are willing to stick to principles and to fight for their realisation, however remote.

The new neoliberal movement did not set out with a short-term perspective. Rather they recognised that it would take at least a generation to develop into a serious intellectual and political force. They then set about applying their new ideology in a practical way to the world.

Compare this to the lack of reaction by the Left when its ideology faced a deep crisis in the early 1990s. By then it had become obvious that the Left’s 19th Century Socialist ideology had failed when put into practice in the 20th. The collapse of Social Democracy represented the failure of the reformist wing of the socialist movement. The collapse of the Soviet Bloc (the Soviet Union and Eastern Europe) represented the failure of the stalinist wing of the socialist movement. These two wings represented the whole socialist project in the eyes of the world’s population.

Certainly, the capitalists saw this failure of the Left’s ideology as a profound and potentially fatal crisis for the Left. And many of their intellectual representatives remarked on it. Most famous among them was Francis Fukuyama’s assessment in his ‘End of History’. Fukuyama asserted that this collapse of socialist ideology represented the victory of liberal democracy and capitalism. And the death of all future alternative ideologies: “What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”

His characterisation has since been widely derided. But in one important respect he was correct. His claim that the Left’s ideology had been fatally defeated and only ‘liberal democracy’ was now left standing.

Tragically, this momentous defeat was not recognised as such by almost all socialists. Whether they were in Social Democracy, in the Communist Parties, or on the revolutionary Left. And thus, they failed to take the steps needed to reconsider and renew their ideology.

In particular, the Left was unable to see that its old ideology had been missing the vital ingredient of democratic control by working people. The Left’s emphasis on planning, public ownership and public services had left out the key question of how these institutions were going to be run. How they would be made accountable to their workers, service users, customers etc. In the absence of any clear programme for participatory democracy in the state and the public sector, these institutions had ended up under the control of bureaucrats or elites. Or both. As a result, each attempt at socialist reform or revolution has produced top-down, bureaucratic and inefficient systems. With working people continuing to be alienated from power.

This had never been the intention of Marx and Engels, the founders of Socialism. They had assumed that the introduction of their ideas would inevitably put working people in charge. But this assumption has been repeatedly disproved in practice. It is also strange given that the elevation of working people as rulers of society was absolutely central to their ideology. And could not be achieved through spontaneous change as had occurred in previous social revolutions such as the transitions from slavery to fedualism, or feudalism to capitalism. In those overturns we witnessed a struggle between two privileged groups, a ruling class and a rising elite, which ended with one powerful minority replacing another. However, a change from capitalism to democratic socialism must involve replacing rule by the minority with rule by the majority.  A system in which working people run society rather than one wealthy elite group or another.

In view of this, Marx and Engels warned on numerous occasions that a socialist revolution would not be achieved by chance. But could only come about through the conscious act of working people themselves.

Experience has shown time and time again that democratic control of society by working people will not emerge automatically. It must be specifically planned for and campaigned on if we are to see it arrive and flourish. Because of this, popular control has to be at the heart of any new democratic socialist ideology for the 21st Century. Not added on as an afterthought. The lack of this is the root cause of the failure of the old Socialist ideology. Both in practice and in the eyes of the world’s population.

An honest admission of this failure must be our starting point if we are to develop a new and successful alternative to capitalism. One that can convince working people and regain their trust.

The second lesson that can be learnt by the Left from the Neoliberals, is the difference a new ideology, supported by a serious movement can make to the world.

Notably, the neoliberal ideology did not limit itself to a few concepts or slogans. Rather, it set out to develop practical proposals for the implementation of its new ideology in society. Out of this determination came all the reactionary neoliberal ideas we are now familiar with: for deregulation and privatisation; for cuts in public spending, welfare and workers incomes; for independence of central banks and lifting of exchange controls; for reduction of taxes and tariffs; for labour market reforms and outsourcing; for the opening up of countries to direct foreign investment and the abolition of local ownership rules.

Who can question the incredible reach of this Neoliberalism today? Of the damaging grip that it has gained on economics, culture and politics? And, despite its obvious failings and contradictions, the neoliberals continue to make the running. Introducing one new reform after another and confidently advancing their agenda all over the capitalist world.

The contrast with the Left couldn’t be more stark. The lack of a credible ideology on the Left is plain for all to see. As is the absence of a coherent Left programme for transforming society. The result is all too predictable. A weak, defensive and divided movement. Uninspired and depressed. Short-sighted and visionless.

More widely, the lack of any alternative to capitalism constantly undermines the consciousness of working people and cripples their struggles. Who can really resist an attack when they can’t see an alternative or even the hope of success?

Not surprisingly, the central target of the neoliberals was the inefficiency of the top-down, bureaucratic public structures of Social Democracy and the Soviet Bloc. Their relentless critique of these structures helped undermine both Social Democracy and the Soviets in academia, politics and the public. And it was no accident that the Neoliberals ended up in place to replace these bureaucratic systems with their own neoliberal programmes.

That said, while the neoliberal critique of bureaucratic public administration was correct in certain aspects, their alternative has proved to be even worse. Instead of democratising the public institutions and making them more efficient, the Neoliberals sought to tear down all the public structures. And replace them with privately-owned alternatives. With all the corruption, inequality and chaos that has ensued.

The Consequences of the Left’s Failure to Develop a New Ideology
The failure of the Left in the last thirty years to develop a new ideology is the underlying reason for its weakness today. A huge credibility gap exists about Socialism and the Left in the minds of working people. And who can blame them? 

Imagine a firm of architects whose two prestige projects had collapsed. Like the projects in Social Democracy and the Soviet Bloc have done. Who would want to hire them to build another?

Worse still, a firm of architects that has not even been willing to seriously investigate why their projects collapsed. Or to come forward with a new way of building that incorporates the lessons of the collapse. Who would have confidence in such a firm?

No wonder working people today see no alternative to capitalism. And why so few on the Left offer socialism as the way forward. Choosing instead to put forward timid reforms that barely take us back to the 1970s, to the time before the Neoliberals. In some countries like the United States, which never really experienced social democracy, Socialism has become a relatively popular term in recent years. The same is happening among many young people for whom the collapse of Social Democracy and the Soviet Bloc was way before their time. However, mostly they use socialism as another term for social democratic reforms. Meanwhile, those who begin to support socialism as an alternative to capitalism are all too easily challenged by reactionary elements.

In the absence of a new credible ideology, the Left is like a rowing boat on the ocean, buffeted by the currents and winds of events, with no sail to drive it forward or rudder to steer by. By the same token, the Left is badly fractured. Ideology often acts as the glue that holds a movement together. In its absence, the Left is repeatedly torn by disunity. Without an overall goal or vision, an objective or direction, the Left is divided by every new question that appears on the scene. Constantly sidelined into potentially disunifying struggles such as identity politics, rather than able to integrate such struggles into the central need to create a democratic socialist society. Or limited only to short-term struggles against the worst aspects of capitalism rather than for its replacement. Occasionally, new versions of the Left can arise but all too soon they fall apart from this lack of ideological direction.

In society more generally, the collapse of the Left’s old ideology has left a vacuum into which has rushed not only neoliberalism, but nationalism, racism, sectarianism, and all sorts of divisive movements. One can even plot a graph that shows how religious fundamentalism rose in the 1990s as the Left’s ideology disappeared.

The need to develop a new Left Ideology and a practical programme for a Democratic Socialist society is the key task of our age. An ideology and a programme that learns from the failures of the past and builds on the possibilities of the present. Not a utopian collection of slogans but a concrete set of proposals based on the real opportunities that are available in existing society. Proposals that are open to testing and experimentation. A new democratic version of socialism that lives up to the dreams of the founders of our movement, while taking account of today’s problems and potential.

The Left’s Missing Response
In the wake of the collapse of the Soviet Bloc and Social Democracy none of the main trends on the Left responded to this crisis in a positive or serious way.

To begin with, the Left failed to organise a collective discussion of the reasons for this failure of the social democratic and stalinist versions of socialism. If it had done so it would have had to recognise that it was indeed the top-down, bureaucratic and inefficient nature of both approaches to socialism that was the common problem. That one part of the criticism of the neoliberals had been essentially correct, even if the conclusions were not.

The failure of the Left to produce a well thought-through critique of these top-down versions of socialism, meant that the neoliberal explanation for these developments became the accepted version of events. A distortion that continues to the present day.

Worse still, the Left’s failure to identify what had gone wrong meant that it was unable to come forward with a new, more democratic and efficient version of socialism. As part of a new popular, democratic socialist ideology. Instead, too many abandoned the goal of socialism altogether. Or just stuck to their old vague socialist slogans and utopian ideas for a post-capitalist future.

The Communist Left completely lost its moorings. Everything they had been brought up on had fallen away and everything they aspired to had turned to dust. Unsurprisingly, the ranks of the world Communist movement suffered a massive decline. Most communist parties rapidly shifted to the right. The Eurocommunist trend towards reformism accelerated. Some Communist Parties changed their name becoming social democratic parties in practice. Many even voted to dissolve themselves and evolved into pressure groups and think tanks.

The Social Democratic Left became bewildered by these developments. In most social democratic parties and mass socialist parties, the leadership rapidly abandoned all aspirations towards socialism, even though they were usually distant aims. In some cases, this meant removing socialist clauses from party constitutions. Many left social democrats abandoned their parties.

Among most social democratic leaders the neoliberal agenda was adopted without objection. Or they were replaced with new leaders who embraced it. In recent years, many of the social democratic parties left the Socialist International and switched over to the non-socialist Progressive Alliance.

The Mass Broad Left Parties – some Communist Parties evolved into mass broad left parties sitting to the left of social democracy. Examples of these included Syriza in Greece, Die Linke in Germany, the Left Party in Sweden etc. However, these parties also suffer from the Left’s missing ideology. Rarely addressing the alternative to capitalism and limiting themselves to reforms within it.

The Revolutionary Socialist Left – most trotskyist groups (and to a lesser extent the maoists and anarchists) welcomed the fall of Social Democracy and the Soviet Bloc. After all, they had long condemned the ‘socialism’ of both trends. These groups wishfully thought that the fall of Social Democracy and the Soviet Bloc would clear the decks for the success of their own political agenda. That their time had come. But they failed to recognise the wider picture. For the mass of working people the fall of both socialist experiments was not just seen as a failure of particular versions of socialism, but of ‘socialism’ as a whole. Henceforth, there existed a massive question mark over the whole socialist project. And whatever amount of discontent continues to exist with capitalism, there settled in a sense of inevitability. That there was no viable alternative to it. So instead of the fall of the Soviet Bloc and Social Democracy leading to an increase in the ranks of the Revolutionary Socialist Left, it actually caused it to decline and divide. Just as it had done with the Communist and Social Democratic Left movements.

A Top-Down Approach to Working People
Another important result of the democratic deficit within socialist ideology exposed by the crisis in the 1990s can be seen in the approach of most socialist organisations towards working people. Thus, the top-down approach of the Left also applies to its communications. Too often the Left fails to effectively interact with workers, to speak their language, and to prioritise their problems. So, communications with working people are usually one-way only, with no effort to find out how people are thinking and reacting to the Left’s policies and propaganda. As a result, the issues the Left highlights satisfy only themselves.

The same top-down approach applies to the way that the Left continues to run its own organisations. Such as excluding grassroots members from having a real say in policy or administration. We outline the many problems this approach creates in our pamphlet ‘Socialists and the Mass Organisations‘. And suggest ways to overcome them.

Conclusions
The collapse of Social Democracy and the Soviet Bloc was a decisive moment of truth for ‘Socialism’. At least as it was generally understood by the world’s population. For the Left, it was an ideological crisis of the greatest proportions. It threw down a decisive challenge to the whole socialist movement. Unfortunately, the Left has failed to take up this challenge. Or to seriously adjust its thinking, programme and argumentation accordingly.

The organisational example of the Neoliberals – their willingness to confront the failure of their ideology, devise a new one in the face of isolation, and seek to apply it in a practical way to society – provides an important model for us on the Left to follow.

Of course, the Neoliberal ideology soon fell victim to the myriad contradictions of capitalism. Far from overcoming inefficiency, bureaucracy and monopoly, it has ended up reproducing the very problems it professed to combat. Only, we on the democratic socialist side have the potential to overcome such problems and take society forward. But to do so, we must never repeat the mistake of not involving working people in the running of every public institution. Popular control has to be at the heart of any new democratic socialist ideology for the 21st Century.

The solution to the crisis of ideology we are facing on the Left lies entirely in our hands. As the famous Chinese saying goes: ‘a crisis is also an opportunity’. Learning from the rich lessons of both capitalism and bureaucratic socialism, we can and we must develop a new Democratic Socialist Alternative. That is precisely the purpose of the next section of our Manifesto.

We have a special Facebook discussion page for this Topic. If you would like to make any comments, suggest improvements or participate in a discussion on it, please go to the following FB page:
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Modern Capitalism


Published:
15 March 2021

Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism

Suggested improvements welcome at the Facebook discussion page link (available at the end of the text)

Neoliberalism offered the dream of a healthy, well-regulated market, with firms competing on a level playing field. An efficient, innovative and booming economy, free of debt and guaranteeing freedom and choice. Instead, it has produced a nightmare of insecurity, insider dealing and inequality.

Global capitalism is in a mess. Made much worse by the Covid-19 pandemic. With the exception of China, the only country to not go into a recession, 2020 was a disastrous year for the capitalist world. The World Bank reports that while China increased its GDP by 2.5%, the economies of the United States, Europe and Japan contracted on average by 5.2%.  Meanwhile, international trade fell by 9.25%. These are the worst figures since the Great Depression of the 1930s.

Even before the coronavirus outbreak, the capitalist countries were moving into a recession. In fact, the capitalist world had not really recovered from the Great Recession of 2008-9. Productivity levels had failed to grow, investment remained low, and growth rates were lacklustre. The pandemic and the failure of most capitalist countries to respond effectively to it, has only served to supercharge the downturn.

In a vain attempt to simultaneously protect both their economies and public health, almost all of the capitalist countries adopted half measures to combat the pandemic. Rather than seeking to stop the virus, they only sought to slow down its spread. Thus, instead of immediately stopping flights like South Korea, Taiwan, Hong Kong, Japan and New Zealand – the other capitalist countries allowed flights to continue and the virus to be freely imported.

Once the virus had spread in their countries, only half-lockdowns were implemented to contain it. With many businesses permitted to continue in production and their workforces allowed to travel via public transport. Inevitably, the virus continued in circulation only to revive once the half-lockdown measures were lifted. In fact, the attempts to keep the economies going in the midst of the pandemic only exacerbated and dragged out the damage to them.

This was unlike China where public health was made the first priority. There the lockdown was a complete quarantine that snuffed out the virus within two months. After that China was able to rapidly reopen and restart its economy. As a result China has emerged out of the health crisis in a much stronger position . With its economy continuing to grow rapidly and its exports reaching record levels.

In the rest of the capitalist world the position is very different. After a projected bounce back, most capitalist economies are bracing themselves for years of low growth and deep public debts.

Modern Neoliberal Capitalism
The story of modern capitalism is essentially a story of Neoliberalism and the destruction it has caused (for background details on neoliberalism see our Appendix: ‘The Rise and Origins of Neoliberalism’).

Most people living today have only known capitalism through a neoliberal lens. Yet, there was a different, earlier version of capitalism in the 1950s and 1960s. This was known as the Post War Settlement. Many bourgeois economists yearn for this period after the Second World War and see it as the ‘golden age of capitalism’. Accordingly, books continuously pour out of academia praising this time, and portraying neoliberalism as a freak aberration. While neoliberalism is certainly ‘capitalism on steroids’, in reality it is only a return to the brutal face of capitalism that has existed for most of its history. Far from the neoliberal version of capitalism being the ‘new normal’ as the popular phrase goes, it is the ‘old normal’. And, instead of neoliberalism taking us forward into a new age of progress, it is actually taking us back to 19th Century levels of insecurity and inequality.

To prove the point, all we have to do is go back to how Karl Marx and Frederick Engels described capitalism in their 1848 Communist Manifesto. In a brilliant projection of the early tendencies of the newly developing system, Marx and Engels were able to lay out the core trends of capitalism:
Modern industry has established the world market… This market has given an immense development to commerce, to navigation, to communication by land… The bourgeoisie… has resolved personal worth into exchange value… it has substituted naked, shameless, direct, brutal exploitation… The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere… In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations… The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population… Just as it has made the country dependent on the towns, so it has made countries dependent on the civilised ones, nations of peasants on nations of bourgeois… It has agglomerated population, centralised the means of production, and has concentrated property in a few hands.

As we can see from this description from more than 175 years ago, all the neoliberal version of capitalism has done is to bring the innate tendencies of the capitalist system to the surface. In all of their contradictory and destructive glory. And like an octopus, spread them across the capitalist world.

The Negative Tendencies and Contradictions of Modern Capitalism
There can be no doubt that in the few centuries of its existence, capitalism has dramatically expanded production and wealth on a global scale. And advanced science and technology in leaps and bounds. However, along with these advances have come increased alienation, exploitation and war.

Within capitalism there are a whole range of negative tendencies. Tendencies which left to develop, lead on to increasing contradictions within the system. Over generations, laws and restrictions on these negative tendencies, while not ending them, helped reduce their worst effects. But now we are coming full circle. In the drive for more profit for those at the top, this modern neoliberal era of capitalism has witnessed the removal of many of the old protections. Protections that had lessened the impact of the negative tendencies of the system. Thus we have seen the decimation of public control through privatisation and deregulation; the lifting of government jurisdiction over exchange and interest rates; the reduction of laws governing health and safety; the weakening of trade unions; and the cutting of public services and the welfare state.
The result is that the neoliberals have succeeded in unleashing the negative tendencies and contradictions of capitalism, allowing them to rise to a dangerous and destructive level.

Growth of Insecurity and Poverty at Work
In the three decades after the Second World War, most working people in the more advanced countries enjoyed full employment and secure work. But the era of neoliberalism has increasingly turned this on its head. Nowadays, the idea of a lifetime career for most is fast disappearing. We are advised to be ready to change our vocation and retrain ourselves several times. Or face being left behind in poverty and debt.

Across the world the very nature of work is rapidly evolving. Big changes are taking place in the composition and location of work. In many countries, large workplaces are giving way to smaller operations. Or to work from home and on the street. With the rise of productivity through mechanisation etc. work is shifting from regular, reasonably paid manufacture, to poorly paid services and insecure self employment. In the less developed countries, the latter has become known as “the informal economy” with a growing proportion of urban dwellers eking out a hand-to-mouth existence selling this and that.

Even in work, security is fast disappearing. Permanent work contracts are giving way to temporary jobs. With the loss of health benefits, paid holiday breaks, and retirement pensions along the way. In many countries, minimum wages which were once meant to be a bottom floor, are fast becoming the norm.

Labour under capitalism is a commodity that is bought and sold in the market. In such a market. employers seek to pay the minimum money for the maximum output. Under the influence of neoliberalism the balance of power in this market has been decisively tipped in favour of the bosses. We are witnessing the removal of one protection after another for those in work. The trade unions are being systematically weakened. Outsourcing of work to smaller suppliers has undermined the power of employees in larger workplaces. Privatisation of jobs is removing the security and benefits previously enjoyed in the public sector.

At the same time, automation, online fulfilment, artificial intelligence and robots are being used to drastically save on labour costs. Instead of a bright prospect of common wealth, leisure time and empowerment; new technology under capitalism increasingly threatens our future security of employment.

Moreover, new technology and online communication is atomising workers and people generally. Splitting us up and isolating us from one another. Such developments are making solidarity much more difficult.

This is no accident. As an ideology neoliberalism deliberately sets out to break down the community connections that bind us together. To do away with the comradeship among working people that makes our life bearable. One of neoliberalism’s ideologues, Margaret Thatcher, speaking at the peak of her power in 1987 made clear their aim to discourage social solutions and encourage selfishness: “And, you know, there’s no such thing as society. There are individual men and women and there are families. And no government can do anything except through people, and people must look after themselves first.”

Meanwhile, the capitalist version of globalisation, by continuously seeking out the cheapest places to operate is creating competition between workers all over the world. Creating downward pressure on wages, work benefits and working conditions. Creating ‘a race to the bottom’.

All this has led to a long-running worsening of our living standards around the world. And caused a rising level of discontent in both the advanced countries and the poorer developing world. In some ways, workers in the richer countries who had it better, are reacting more strongly to this decline. It often seems worse to have had something and lost it, than to never have had it at all. Thus we see working people in America and Europe becoming ever more angry with the system. And looking for more radical alternatives to the right or the left. Thus, the tendencies of ‘capitalism unleashed’ are causing political polarisation and instability.

Privatisation & Deregulation
Two core elements of neoliberalism were a determination to deregulate and to privatise. Deregulation was supposed to release the capitalists from unnecessary fetters and leave them free to invest and produce without interference from the state. We were promised that this would liberate capital and release the creative spirit of the entrepreneurs. But in practice deregulation only meant lifting important and necessary restrictions that had been introduced over many generations in order to safeguard society and the environment. Protecting its citizens and the natural world from the most destructive results of profit-making.

At the same time privatisation of more and more of the public sector was supposed to cut back on bureaucracy, increase efficiency and produce better value for the customers. We were promised that the commercial sector and the market would be more dynamic and more directly responsive to the needs of the people. And that privatisation would generate greater investment. But in practice, privatisation delivered none of these things. Instead, it opened up with the wholesale firesale of public property. Public assets that had cost society great effort to build up. And all at knockdown prices. In many cases, the result of privatisation, as intended, was to break down the unionised power of public sector workers which had maintained their wages and security of employment. In some cases, privatisation turned into a gigantic asset stripping operation for the new owners. In others, it greatly extended opportunities for prolonged profit-taking into areas that were natural monopolies or depended entirely on political decisions. Private enterprises feeding off public bounty.

The experience of privatisation has left a bitter taste in the mouths of workers and consumers. Far from prices going down for the various targets of the great public sell off. They have shot up. Far from attracting more investment, we have seen a massive drop. With an inevitable decline in efficiency and quality of service. Nor has privatisation reduced bureaucracy. The spun off companies are as remote and unaccountable as they were in public hands. Perhaps even more so now that they only answer to their shareholders rather than elected politicians.

Privatisation has had another negative outcome. It has encouraged a parasitic mindset in which capitalists seek to cream off public assets. Or to secure guaranteed incomes from captive customers and service users. All, rather than building up genuine, solid, risk-taking businesses.

Combined together, deregulation and privatisation have resulted in a major erosion of democracy. Taking power out of the control of parliaments and handing it over to the capitalists. Allowing them to take more and more decisions on the future of the economy and people’s lives.

Moreover, by abolishing many previous government protections and eliminating much of the public sector, deregulation and privatisation has introduced yet more instability into the system. The economy and society is now even more at the mercy of the contradictions of the system. And more vulnerable to the chaos and crises of the market both at home and abroad.

Financialisation & Rent-Seeking
A key target of the neoliberal campaign for government deregulation was to remove the cautious restrictions on banking, credit and other aspects of the finance sector. These restrictions had been introduced during the Great Depression in order to prevent the out-of-control speculation of the 1920s that had helped cause the Crash. The neoliberal bought and paid for politicians succeeded in unravelling the restrictions in the 1980s onwards. Aided by the utilisation of new electronic technology, this new free-for-all environment unleashed a flood of domestic and cross-border financial transactions. Credit and debt exploded and all kinds of financial instruments were dreamed up to enable unprecedented speculation in virtually anything that moved. Banks were allowed to use their customers’ savings to gamble on the markets. Over a few decades speculation built on speculation until the spectacular collapse of the international financial sector and the consequent Great Economic Recession of 2008-9.

The rise of finance is not a new phenomenon in capitalism. Already in the second half of the 19th Century, Karl Marx was writing about the increasing role of the banks. Later, Lenin drew attention to finance capital as a decisive international factor in his First World War pamphlet ‘Imperialism, the Highest Stage of Capitalism’.

What is different about this new round of finance capital is its sheer scale. This is especially true in the most advanced capitalist countries. For example, in the United States in 2019 the financial sector accounted for 21% of the economy compared to only 2.8% in 1950. Finance plays a similar dominant role in the United Kingdom. One more reason why neoliberalism was to emerge so early on both sides of the Atlantic.

The tendency towards financialisation is an organic tendency of capitalism when left to its devices. It brings with it grave downsides and contradictions which eat at the heart of the system. Finance in capitalism is by its very nature a parasitic phenomenon. Along with landholding and the charging of rents, finance produces nothing of real value in its own account. It lives by charging interest on its performing loans and by seizing property on those that fall into default. By levying fees and capturing margins on sales of currencies and financial instruments. As such, it takes up an ever growing share of the capital accumulation process. All this represents a significant and damaging shift from production to financial services. For example, the big US traditional auto manufacturers often make more money from the loans they arrange for customers to buy their cars than from the cars themselves.

This growing financialisation of the economy and the huge profits it yields for relatively little effort is encouraging a rent-seeking mentality within capitalism. And sapping the dynamism and innovation that was the main justification of the system in the first place. Why waste time building up production or providing genuine services for customers when even more money can be made by charging fees for financial products or by manipulating markets? Why take risks inventing new products or investing in new industrial processes when there is guaranteed money to be made in the finance industry?
This process of financialisation is dragging many of the best young minds in the advanced countries away from more constructive areas of the economy. Mathematicians and engineers often end up on Wall Street or in the City of London because the incomes are too high and too tempting to pass up. Financialisation and the rent-seeking it rewards is a sure sign of the effete and rotten stage that capitalism is now reaching. It is the opposite of the lean competitive model that the neoliberals promised.

Cuts in Public Services & Welfare
Another key weapon in the neoliberal armoury was to cut public services and the welfare state. This they have been doing systematically since the 1970s. In the advanced world, New York was one of the first to adopt major cuts as one answer to a budgetary crisis. On a national basis, ironically it was a British Labour government in 1976 that first began the cutting process. Announcing that ‘the party is over’ and pronouncing funeral rights for the Keynesian state interventionist model, Labour Prime Minister James Callaghan and Chancellor of the Exchequer, Denis Healey, forced through massive cuts as the price for a large loan from the International Monetary Fund. From that point on, every crisis in Britain and the US called forth yet another round of cuts. Neoliberalism, or Monetarism as it was then referred to, was first most successful in Britain and America because of their earlier onset of economic crisis. And their peculiar winner-take-all election systems which allowed right-wing political parties to implement more extreme measures. In contrast, the countries of mainland Western Europe had different voting systems that encouraged centre-based coalitions and compromise policies. Thus, neoliberalism took much longer to officially take root there.

  The continuous cuts in welfare benefits and services over decades has caused a major rise of poverty. For example, in Britain, one of the ‘richest countries’ on the planet, 15 million are in poverty including five million children. Some conditions not seen since the 19th Century have begun to reappear including child malnutrition and food banks. Charity has become a much bigger industry along with a revival of its old demeaning philosophy of the ‘deserving poor’.

In an America reeling from the Coronavirus disaster, some fifty million languish below the poverty line. But this is a severe underestimate excluding as it does costs of housing, health, transportation and basic telecoms. Moreover, according to a 2017 United Nations report by Philip Alston, its rapporteur on extreme poverty and human rights, over five million Americans live “in ‘Third World’ conditions.” A number that will be much larger now in the midst of Covid -19.

Extreme poverty in America is being directly reflected in the field of housing. Quite appropriately we now see the emergence of shanty towns ringing many US cities. Just like the barrios and favelas that surround the cities of Latin America. Alston went on to describe the US as a country of “private wealth and public squalor” – an excellent summation of neoliberalism in action.

Even in supposedly prosperous Germany retired people can be seen queuing for old bread and rooting through dustbins for useful items.

The cuts in public services have led to the development of an underclass in all the advanced countries among which we can see a serious deterioration in health and educational levels. Imagine then, what cuts are doing to the poorer countries. For example, between 2015 and 2018 the Republic of Congo saw cuts in public spending of over 50%. Nearby Chad saw cuts of 35%. More broadly, budgets for public services in the low-income countries have fallen to very low levels. For instance, annual spending per child on youth education in 2018-19 was only $48 compared to $8,501 for the high-income countries.

Decades of cuts in public services have resulted in all kinds of deterioration from worsening transportation, loosening building codes and worsening disaster protection. For example, cuts in factory inspections and enforcement of regulations have led to increased risk of fire and injury. As we saw in some terrible Pakistan and Bangladesh textile factory fires. The famous outbreak of Mad Cows Disease in Britain was a direct result of Margaret Thatcher’s cut in inspections of the meat slaughterhouses.

Even basic state functions are becoming debilitated by the cuts. Like tax collection and accurate data gathering. The steady contraction of state activities, exacerbated by privatisation, has led to a broad reduction of the state’s capacity to handle tasks and crises. This became readily apparent in the pathetic failure of western capitalist responses to the pandemic. Continuously poor advice from senior officials was compounded by incompetent execution.

There was one exception made by the neoliberals in their relentless drive to slash state spending. This was in the area of the police and the armed forces. The neoliberals recognised that they would need to maintain a ‘strong state’ by which to deal with the inevitable discontent arising from their ‘reforms’.

Monopolisation
One of the built-in tendencies of capitalism is the ever growing centralisation and concentration of ownership into fewer and fewer hands. The end result of this is the development of oligopoly in each sector with just two or three big players cornering 80-90% of the market. In some cases, and for some periods, this concentration can even produce individual companies that hold a monopoly. Such, as we now see in a number of new technologies like the Internet. Google and Facebook are obvious examples. These winners in the market then use their prime position to entrench their commanding lead so that it becomes almost impossible for rival companies to survive. And any newcomers with potential are snapped up by the market leaders.

The manifold advantages of getting ahead of the pack in the market mean that those companies and wealthy individuals who emerge at the top of the heap are able to use their greater wealth and power to defeat their lesser rivals. From what was often a relatively even playing field of many small enterprises, a few successful companies emerge in front of the others. The front runners then gain a host of advantages which allow them to further increase their dominance. These include all the benefits of large-scale production – bulk buying and cheaper production costs; lower product prices and better product placement; greater specialisation, marketing and sales operations; increased innovation and access to capital – to mention just a few of the legal benefits. Then there are the many illegal advantages which range from dirty tricks against competitors to the use of corruption and political influence to give them an advantage in the marketplace.

To further consolidate their dominant position, the leading companies merge with or buy competitors. The result is to produce a situation where big business dominates the small.

Of course, competition does not disappear. New technologies arise and new companies arise with them. But once big business is dominant as a whole then only other big companies can make an impact. So, a small company with a new technology must rapidly become big or be taken over by an existing monster. The same is true for international competition. Foreign companies enter new national markets but they have to be very large to compete effectively.

In public, capitalists claim to welcome competition. But in reality, every capitalist seeks to defeat their competitors and drive them out of the market. Their dream is to be the only company left standing in their field so that only their products are available, and at the prices they choose. That way leads to the maximisation of profits which after all is their chief aim of existence. 

This tendency in capitalism towards monopoly is one of its many contradictions. Contradictions that are weakening the system itself. For example, the increasing domination of markets by just a few giant companies undermines competition in each sector and the economy as a whole. It drives up prices and removes much of the incentive for innovation. And in doing so, it eliminates the whole economic justification for capitalism in the first place. For this reason, since the end of the 19th Century many capitalist countries introduced laws against monopolies, trusts and cartels. Laws that among other things allowed governments to investigate anti-competitive practices. And required all large mergers and company takeovers to be reviewed and prevented if they were deemed to result in market control.

However, the neoliberals have succeeded in neutering these pro-competition laws. Nowadays, such laws are rarely applied. The justification used by the neoliberals is that the dominant companies are those that have delivered the best products and services. That market winners should not be penalised. That nationally dominant firms are necessary in order to effectively compete on a global scale. All these convenient arguments naturally favour neoliberalism’s big business backers.

There was a divide over this issue in the early neoliberal movement. Hayek actually believed in competition and argued that monopoly should be actively opposed by regulation. However, Milton Friedman and the American wing of the movement favoured leaving the market to its own ends, taking a benign stance towards monopoly. It should be no surprise that the latter view which also represented that of big business easily won out. The outcome has seen the lifting of most anti-monopoly restrictions in law and in practice.

The result is that the inbuilt tendency of capitalism towards monopolisation that we saw in the 19th Century has returned apace. In Europe and North America over 90% of sales and production in most sectors is dominated by only four companies. In many cases over half of each sector is dominated by just two companies. In the United States 2% of the companies account for nearly 75% of economic activity.

The same is true on a global scale. “Modern capitalism has developed into a huge network of interlocking companies with cross-shareholdings. Researchers at the Swiss Federal Institute of Technology in Zurich developed a database listing 37 million companies and investors worldwide and analysed all 43,060 transnational corporations and share ownerships linking them… They discovered that a dominant core of 737 companies control 80% of it all. This is the concentrated power of capital.”

Indeed, according to Global Justice Now the 10 biggest corporations – including Walmart, Apple and Shell – make more money than most countries in the world combined. And their value at 285 trillion dollars, is more than the 280 trillion dollars worth of the bottom 180 countries!

Ironically, the tendency within capitalism towards larger and larger companies is taking us logically towards public ownership. And potentially making our task of socialisation of the economy that much easier.

Too Big To Fail
Another significant contradiction that flows from the tendency of capitalism to become dominated by big business is that some of these companies are now so large that they can’t be allowed to founder. The huge effect of the collapse of even one of these companies on employment and supply chains, on communities and tax income, has become socially and politically unthinkable. As we saw in The Great Recession of 2008-9, these big companies have become ‘just too big to fail’. When the whole banking system was in the process of collapsing, governments rapidly intervened to save it. Meanwhile, in the United States, the administration propped up the automobile industry which was about to file for bankruptcy.
Local and national governments feel bound to step in and save such companies. To pick up their debts and subsidise their ongoing operations. Thus, the owners of these companies find themselves in an ideal situation. In good times they are able to pocket the profits. In bad times the public is forced to cover their losses. No wonder, that the emergence of such giant companies has come to be described as ‘socialism for the rich, capitalism for the rest’.

Along with the ‘too big to fail’ phenomena, has come the ‘too big to jail’ rule. Despite the widespread corruption and illegal practices in the US financial sector revealed in the Great Recession, not a single banker went to prison. The capitalists and their politicians that rule society make sure to look after their own.

The emergence of companies that are so large and so important to society that they are ‘Too Big to Fail’ is a graphic illustration of a fundamental contradiction that increasingly develops within capitalism. Namely, the contradiction between the shrinking individual private ownership of companies and the expanding social impact on society of these companies. And between the conflicting interest of the owners to use these companies for their private gain, rather than for the interests of society as a whole. This was a key point that was made 140 years ago by Frederick Engels in his breakthrough work ‘Socialism: Utopianism and Scientific’. The more advanced a capitalist economy becomes, the less and less people determine its development. And the more economic decisions are taken for the benefit of a small minority, rather than the population in general. This process is only exacerbated by rising inequality which puts the ownership of companies in even less hands.

Inequality
Another major negative tendency in capitalism is the inexorable rise of inequality. The capitalist profit system inevitably delivers a much greater reward to the owners and managers of capital than it does to the workers they employ or the customers they fleece. Left to its own devices, wealth in capitalism rises more and more to the top. To partly counteract this, the Post War Settlement greatly increased taxes on companies and the wealthy. A larger proportion of National Income was allocated for public services and social security. At the same time the trade unions became stronger and more able to fight for a better share of the profits. 

In the neoliberal era, all of these reforms have been rolled back. Taxes on business and the rich have been drastically reduced, if they are paid at all. Public services and welfare have been cut back, and in many cases privatised. Last but not least, trade unions have been seriously weakened. The outcome, as intended by the neoliberals, is that the increases in the GDP of various countries and the wealth that this is supposed to represent, is not being shared out but is going into the hands of the wealthy.

The inescapable result has been the skyrocketing of wealth and its atrociously unequal distribution between a billionaire class and the rest of us. Never have we seen such outrageous levels of personal opulence. Not even at the heights of ancient Rome with its millions of slaves did individuals amass such fortunes and the power that goes with them. The rich have just got richer and richer while the rest have stood still or grown poorer. As a result, each year we see rising figures published on the incredible inequality that exists on a global scale. For example, in the 2020 annual report by Oxfam, the richest 1% have more than twice as much wealth as 6.9 billion people. And according to the Credit Suisse Global Wealth Report 175,000 ultra-wealthy people own 25% of the world’s wealth. Meanwhile, almost half of humanity is living on less than $5.50 a day. And nearly a billion barely survive in extreme poverty on less than $1.90 a day.

The Coronavirus pandemic has only accelerated this inequality. In 2020 the wealth of the planet’s billionaires shot up by 27.5. While another 131 million fell into extreme poverty. Oxfam’s new report ‘The Inequality Virus’ published in January 2021, reveals that “the wealth of the ten richest men has increased by half a trillion dollars since the pandemic began – more than enough to pay for a vaccine for all and prevent anyone on Earth from falling into poverty because of the virus.

These shocking statistics are actually a major underestimate of global inequality. Industrial scale tax evasion by the rich elite and the corporations, which now store much of their wealth in tax havens, hides the real level of wealth held and who holds it. This includes the billionaire arms dealers, drug lords and other criminals who naturally never appear in the Forbes Rich List.

This persistent tendency towards rising inequality is creating a number of serious contradictions in the system. The continuous reduction in the purchasing power of working people leads to a fall in overall consumption and economic activity. As every study shows, poor people spend a much bigger percentage of their income while the rich tend to hoard their wealth.

Lower wage costs encourage employers to forgo investment in labour saving machinery. Why lay out money on expensive equipment when one can continue to employ cheap labour to do the job.

Growing inequality has other negative outcomes. It reduces the health and educational level of the workforce. It undermines state resources. With the rich and their companies paying less and less in taxes there is only so much that the shortfall can be made up by screwing more taxes out of working people. The inevitable outcome is that local and national state services have to be further cut back.

Huge wealth and inequality creates major barriers to advancement for everyone else in society. Money goes to money as the saying goes. Those at the top pass on their wealth and advantages to their children. Birth and connection become the key to one’s future with the vast majority remaining stuck in a furrow of tightening living standards and insecurity from which they cannot escape. The old illusion of creating a real meritocracy within capitalism with all of the benefits of efficiency and maximisation of talent that it would offer, is fast dissipating in the nightmarish world of neoliberalism.

All these negative aspects of rising inequality are leading to a growing polarisation of society and increasing political instability. Rising poverty and worsening lives are encouraging the emergence of demagogues and pedlars of fake news who exploit the accumulating anger and discontent. This is fuelling the growth of extreme right-wing and even fascistic movements. And the adoption of irrational policies and laws that damage the efficiency and future of capitalism. Thus we see a right-wing anti-globalisation movement with calls for protectionism and trade wars. Actions which run directly counter to the interests of the multinationals and the rich who rely on growing international trade to further increase their profits.

On the other side, extreme inequality opens up the possibility of new radical popular struggles and outbreaks of class warfare. And offers the possibility for the rise of a democratic socialist movement that offers a new alternative to capitalism.

The growing widening gap between the rich and the rest cannot go on forever. There will come a point at which the rubber band must eventually break. When the feeling of the unfairness of everything corrodes the bonds that hold society together. Even among the elite themselves there is a growing fear of where things are headed. All their gated mansions and separate, insulated lifestyles cannot protect them from the masses once the people have decided they have had enough. As we have seen in every popular revolution there comes a point of obscene wealth when the pitchforks start coming for those at the top.

The Rise of the Managers
The dreadful inequality that afflicts society is also being reflected in the big companies that more and more dominate the economy and the world. While the wages and salaries of the workforce stagnate or fall in real terms, the benefits for the top managers keep on going up. The directors and chief officers of big business have found one way after another to justify increasing their ‘compensation’. Their benefits nowadays include huge salaries and performance bonuses; the award of shares and stock options; insurances of all kinds and massive pensions; company limousines and the use of private aircraft. Reflecting this feathering of the nest, the compensation of Chief Executive Officers in America’s large companies has grown by a whopping 940% since 1978. This compares to their workers who only saw an increase of 12% in the same period.

The income gap between the bottom and the top inside companies in the US has grown to incredible proportions. By 2019, the ratio of CEO compensation to their workers reached a ridiculous 320-to-1. Up from 21-to-1 in 1965! And where the US companies lead the rest of the capitalist world has followed.

Even when the top executives oversee company losses they usually get golden handshakes that are enough to ensure a very comfortable retirement.

Repeated calls for the introduction of legal limits to executive compensation have been drowned in a neoliberal chorus in support of the free operation of market ‘rewards’ and against government interference. 

Moreover, the introduction of share awards as a key part of executive compensation throughout the corporate world has introduced a serious conflict of interest within capitalism. All too often, company bosses are focused on raising the share price in the short term at the expense of the long-term health of the company. Many examples of this can be found. Such as in damaging cuts in staffing and research and development designed to temporarily cut costs and increase reported profits. Or in the frequent misuse of company income to buy back its own shares in order to artificially raise the share price. Perhaps worst of all, are the disastrous results of the bonus schemes for the various banking departments involved with gambling in the stock and currency markets. For instance, the 2008-9 crash was greatly amplified by the distortions and negative incentives created by these compensation schemes.

Market Chaos versus Planning
Socialists have long pointed to the massive contradiction in capitalism between the need for planning, and the actual chaos of the market system. The advantages of planning over ‘playing it by ear’ is obvious to anyone with a head on their shoulders. Every professional company department lives by the five Ps: ‘Planning Prevents a Piss-Poor Performance’.  Indeed, planning is an abc rule in one profession after another. In fact, the larger companies have become, the more they are using sophisticated planning within their own operations. Today the multinationals totally rely on large-scale planning to advance in the market. 

Other examples of the benefits of planning must include China’s Five Year Planning system. This has been a central factor in its astounding economic success since the 1980s. Even in the advanced capitalist countries, attempts at large scale planning in capitalism’s golden age in the 1950-70s had some considerable success. Especially in Europe where it helped give birth to the European Union. More dramatically, the growth of the East Asian developmental states (Japan, South Korea, Taiwan etc.) demonstrated the advantages that flow from government planning and its coordination of capitalist research, development and production.

But neoliberalism rejects centralised planning outright. It claims that the market is far more efficient at coordinating economic activity. But experience in the past and today belie its claims. The downside of capitalism’s lack of planning can be seen in one industry after another. How many times have we seen a range of companies chaotically acting on their own but simultaneously investing in a sector. Only to find that they have created a situation of damaging oversupply with insufficient customers to go round. And falling prices and profits in consequence. The same process happens within nations as a whole and on an international scale. That is the reason for the harmful business cycle of capitalism, its regular cycle of upturns and recessions, booms and slumps that has bedevilled the system since its emergence in the 18th century.

This tendency towards regular recessions and slumps in capitalism causes repeated and unnecessary suffering for workers as companies lay them off in the bad times and cut back their wages. It generates massive instability in society causing people to upend their lives, their homes and their future. It often provokes depression, family break ups and hardship. The neoliberals declare that such harsh outcomes are necessary as part of what they blithely describe as the process of capitalist ‘creative destruction’.

Corruption Explodes
Yet another negative tendency within capitalism today is the breathtaking rise in corruption worldwide. No-one becomes a billionaire by hard work alone. It can only come about by exploiting workers and overcharging customers. And through political or market manipulation.

In the 1970s British Conservative Prime Minister Edward Heath famously called the businessman Tiny Rowlands “the unacceptable face of capitalism” for his widespread corruption of African leaders. The reality today is that corruption is the ‘normal face of capitalism’. The culture of bribery, collusion and insider dealing penetrates every aspect of business and politics.  As we have seen from the widespread payoffs to politicians and the constant flow of billion dollar fines levied against all of the banks.

Corruption is built into the DNA of capitalism. As every salesperson and manager knows it is just part of the cost of doing business. But corruption under this neoliberal version of capitalism has been supercharged. It has literally opened the floodgates for bribery and insider dealing. For instance, the whole process of privatisation was run through with fraud as state firms were invariably sold off on the cheap often to friends of the politicians in charge of the procedure. Similarly, with deregulation and cuts in state spending. Neoliberal reforms replaced more and more political decision-making with the operations of the market. And introduced the amoral standards of business in their stead. Such reforms intentionally hollowed out the limited version of democracy we had in the past. The neoliberals cynically refer to their new system as ‘market democracy’.

Even where political decision-making remains, the massive rise in inequality of wealth and power we highlight here inevitably allows for ‘regulatory capture’ on a gigantic scale. ‘Politicians for sale’ is no longer the exception but the norm. The same can be said for corruption among wealthy individuals. As a result of a concerted campaign by the wealth management industry, the majority of private wealth is now held in the tax havens, illegally hidden from the tax authorities. So too with all the big companies who routinely set up paper subsidiaries in the tax havens through which they run their income and profits in order to evade paying tax on them. Meanwhile, the shadowy world of secret accounts in over 60 state and national zero tax jurisdictions are fully utilised by criminals and dirty politicians: “At least $500 billion in dirty money flows each year from poor countries into offshore accounts… dwarfing the amount those nations receive in foreign aid.”

None of this would be possible if not for the hands-off, globalised, free-for-all policy of the neoliberals. Thus, neoliberalism has turned corruption from a stream into a river.

Corruption corrodes society and damages it in a myriad of ways. As Transparency International explains: “Corruption erodes trust, weakens democracy, hampers economic development and further exacerbates inequality, poverty, social division and the environmental crisis.

The effect of corruption damages poorer countries more than it does the richer ones. Even the World Economic Forum, a gathering place for the wealthy elite, estimates that corruption costs developing countries $1.26 trillion every year. As they put it: “Corruption, bribery, theft and tax evasion, and other illicit financial flows cost developing countries $1.26 trillion per year. That’s roughly the combined size of the economies of Switzerland, South Africa and Belgium, and enough money to lift the 1.4 billion people who get by on less than $1.25 a day above the poverty threshold and keep them there for at least six years.

The Growing Crisis of Investment
Another major problem of capitalism is the tendency of its rate of profit to decline over the long term. As technology more and more replaces human labour, greater outlay is required which reduces the rate of return on a capitalist’s investment, making it less viable. Eventually this leads to a decline and then to a crisis of investment in the economy.

We can see this process play out in the life cycle of individual products. First there is a product’s introductory phase when it is first released on the market. At this point it is relatively expensive with a high rate of return but sells in limited quantities. Then comes the growth phase when it sells in much large quantities but being exclusive to the innovator maintains its price and maximises its return on investment. Then comes the mature phase when competitors find a way to reproduce the product and enter the market. Sales grow overall, but prices fall considerably along with the rate of return. Both for the innovator and the competitors. Finally, we enter the period of decline in which competition drives prices so low that it becomes increasingly unprofitable to produce.

This same life cycle also applies to sectors as a whole. Thus, when air travel was first introduced it was only available for the rich and for business travel. Then it became available for ordinary people but remained highly profitable which produced a massive investment drive. Later on, flights became much cheaper, profitability fell and no longer effectively justified the continuing capital investments. The result was an increasingly unprofitable airline and holiday travel business. And a stream of bankruptcies.

This process happens to one sector after another. Of course, new sectors arise but not at a sufficient rate to outweigh the older ones. Investment becomes more and more expensive and requires more long-term commitment. Investors are unwilling to take on the size and timescale of risk required for such bigger and longer-term ventures. Thus, finance and investment funds flow out of increasingly larger sections of the economy and into speculation in real estate and other less productive areas of the economy. Or even to be hoarded as we can see today where Apple, the world’s most successful company, sits on $200 billion of cash. In the UK big business now has nearly 1 trillion in cash reserves which is about 35% of its GDP!

Despite the success of the new technology sector, especially in the United States, the process described above is exactly what is happening today to the wider economy. According to Left economist Michael Roberts, the rate of profit in the American economy is now at just over 13% compared to nearly 35% in the 1950s. This decline is reflected on the US stock market. If we exclude the few star new technology companies, most companies are in the doldrums. Indeed, a large proportion of them are ‘zombie’ companies that would go bankrupt if it wasn’t for the incredibly low interest rates which are artificially keeping them alive.

This tendency for the rate of profit to fall, and the decline of investment it causes, is the explanation for the long stagnation in productivity we are seeing across the capitalist world. Companies are just not investing enough to allow for workers to increase their productive power.

The crisis of investment is also reflected in the declining infrastructure of the capitalist world. Indeed, the system becomes more and more shortermist just as economic development demands greater and longer-term investment. All this ends up in creating the basis for crises in the economy in the shape of ever deeper recessions and even slumps.

Capitalist Globalisation, a Race to the Bottom
Globalisation is not a new phenomenon in capitalism. It began very quickly after capitalism got going in the 19th century and produced among other things the scramble for colonies and the outbreak of World Wars. Today, it has reached a much greater scale helped by the introduction of neoliberal policies and various technologies in the fields of communications and transportation (such as shipping containers and air freight).

  The neoliberal policies began with the lifting of exchange controls first in Britain – it was one of the first moves by Thatcher in 1979 – then across the capitalist world. This unshackling of national capital combined with the digitisation of money to immensely increase the amount and frequency of financial transactions. In the foreign currency market alone over 6 trillion dollars change hands electronically every day. 

Next came an insistence that countries abolish their national partnership / ownership rules and make it more and more easy for foreign investment to flow into their economies. The aim was to create ‘an even playing field’ for companies and investors. The result was a massive rise in production in the cheaper labour countries. In some cases, production was physically transferred from the advanced countries to the poorer ones. In many others it took the form of new investment being created there. And in outsourcing services remotely to the developing world. All this is undermining the advanced economies and causing growing anger among the populations in the richer countries.

Nor is it such a gain for the poorer countries. In order to attract investment to their location, cities and countries vie with each other over who can offer the lowest cost of production. As such they offer ‘an auction in reverse’ in which they compete for investment by offering the multinationals tax free periods, cheaper wage rates, lifting of environmental restrictions and so on. So, instead of globalisation being an opportunity to raise living standards it becomes ‘a race to the bottom’ for all.

Interestingly, in a short-termist drive for lower costs and higher profits, the multinationals have radically changed their production model in the developing countries. Instead of creating subsidiaries through they organise production and employ labour, the multinationals have found it much cheaper to hire contractors. Local firms using even cheaper local labour to produce the products. But by doing so, the multinationals have been unwittingly creating local competitors who have learnt how to make their products and mastered the technologies continued within them. Such competitors have often grown to become national, regional and even global rivals offering similar designs and features but at a much lower price. Thus ‘the level playing field’ is allowing the poorer countries to get into the competitive game. An example of this can be seen in the diamond business. For hundreds of years The Netherlands was the international centre of diamond cutting and polishing, requiring a high level of skill and experience. However, much of this work has now successfully moved to the diamond mining centres in Botswana, Malawi and Angola in southern Africa.

The process of globalisation has naturally caused a strengthening of international institutions such as the G20, the World Bank, the IMF, the Asian Infrastructure Investment Bank, the European Union, the World Health Organisation, and other agencies of the United Nations. Alongside such developments we have seen a tendency towards the internationalisation of the capitalist class. A transnational elite has emerged who travel the world, hold multiple nationalities and have mansions in a whole number of countries. They meet every year in Davos. And operate through a range of elite organisations such as the World Economic Forum, the Trilateral Commission, the Group of 30, the Atlantic Council and the Bilderberg Group.

But none of these developments have seriously undermined the nation state and the ruling classes attached to them. In times of crisis the interests of the national capitalist classes quickly reassert themselves as we have seen in recent years with the revival of nationalism and protectionism. The examples of Britain’s recent exit from the EU and Trump’s clumsy but popular assertion of American interests come quickly to mind. As did the striking lack of a united international response to the Covid-19 pandemic.

There can be no doubt that globalisation and the work of the neoliberals has drastically undermined the economic power of individual governments and transferred it to international capital. Despite this, intensifying national competition and growing nationalism threatens to slow down the globalisation process.

So we are left with major contradictions within the international capitalist order. Between the need for international coordination and cooperation to solve global problems on one side. And the continuing power of the nation state and rising nationalism on the other. Capitalism needs globalisation and increasing international trade to keep delivering revenue. But it also needs to divert the public’s rising anger against worsening conditions and living standards from turning in the direction of the wealthy and corporate elites who are the real source of their problems. Far better to turn people against each other. That is why a large section of both mainstream and social media is encouraging national, religious, racial and ethnic divides. But right-wing populism has serious downsides as we saw under Trump. And other right-wing leaders like Bolsonaro and Modi.

Ultimately, rising nationalism if allowed to continue unchecked could lead us to war. Even to nuclear war.

Exploitation of Nature & Climate Change
One of the greatest negative tendencies of capitalism is its disregard for the natural world. Since the industrial revolution, most companies have thought nothing of exhausting natural resources or polluting the environment. For them it is an external cost that they rarely have to bear. However, as companies grew bigger with a greater impact on the world around them, there were growing public and legal pressures on them to act ethically and accept a set of social responsibilities for their staff, customers and the world around them. But then the neoliberals came along and argued that companies had only one responsibility. As Milton Friedman put it in 1970 in his infamous essay: ‘The Social Responsibility of Business Is To Increase Its Profits’.That profit should be businesses only concern. This became a neoliberal mantra.

But the conflict between capitalism and the planet did not go away. It just got deeper and deeper.

Just as the exploitation of mankind lies at the heart of capitalism. So too does exploitation of the planet and the natural world. Accordingly, fish stocks are being exhausted by ever larger fishing boats and more destructive methods of catching them. Forests are being destroyed by ruthless companies bent on wood and grazing land. And animals face extinction for ivory, hunting and habitat. Now with the increasingly urgent threat of climate change, humanity itself is in the firing line of environmental destruction. And the neoliberal hands-off, profit-driven policies are only making things far worse.

Future of Capitalism
Given the chaotic and unplanned nature of capitalism, it is well nigh impossible to predict its future course. All we can say is that the problems caused by modern capitalism’s negative tendencies and contradictions are mounting year by year.

Looming over everything is the ever-increasing level of debt being run up in the capitalist world in order to maintain growth and share prices. To this end, the capitalist central banks keep on buying up debt through the policy of Quantitative Easing, and thereby pumping in trillions of dollars into their economies. Ironically, this flies directly counter to neoliberal doctrine. It is a weird form of Keynesianism without any of the redeeming features of job creation and boosting of consumer demand of the old approach. A Keynesianism for the rich so to speak. Yet the neoliberals mostly are staying silent while their monetary theory is torn to shreds. It seems that as long as government economic policy favours their people anything goes.

 The result of this strange and extreme pump priming of big business has meant that world debt has now reached $281 trillion dollars which amounts to 355% of global GDP.  But with interest rates almost at zero, their lowest level since the early days of capitalism hundreds of years ago, there is an incentive to borrow even more. In fact, central banks are getting so desperate to prop up the stock markets and avoid a slump that they have started to introduce negative interest rates. For the first time in history, they are actually willing to pay people to borrow money! That is why shares have reached their highest levels ever.

This cannot continue forever. There must come a time when interest rates start to go up; or confidence begins to fall; or both. And the beginnings of an almighty crash start to roll out. But capitalism will not disappear of its own accord. There is no final crisis beyond which we will enter the promised land. Capitalism always finds some way out, no matter how destructive.

Given all the criticism we have made of neoliberalism and the disastrous road it is taking us on, the logical question to ask is: Is it possible to go back to the era before Neoliberalism?

Before trying to answer this, we should start by recognising that the neoliberals have shown that they have a keen grasp of how to manipulate a crisis in their favour. A task in which they are ably assisted by the capitalist media. To this end, the neoliberals have adopted the motto “Don’t let a good crisis go to waste”. We saw this most ably demonstrated in the Great Recession over a decade ago. Despite this Recession being brought on by neoliberal policies, they managed to turn it around and use it as the occasion on which to implement even more radical neoliberal measures of public austerity and privatisation. Clearly, the neoliberals have come to understand that it is in a crisis that they often make their most daring advances. When people’s attentions are most distracted and dramatic conditions appear to justify dramatic changes.

Moreover, now that the big corporations and the billionaire class have control over the economy, political institutions and the media, why would they willingly return to an era where they have to share their wealth and power with working people? And who could force them to do so?

Only working people and their organisations have the power to stop the neoliberals. But why stop there? The real alternative to the problems of modern capitalism is not to try fruitlessly to go back to an earlier version of an inherently rotten model. But to advance to a new form of society.

The reality is that the Post War Settlement, far from being a norm that we can return to, was actually the exception in the history of capitalism. It only arose because of an extraordinary combination of the Second World War; the power of the Soviet Bloc; and the postwar radical consciousness.

In truth, neoliberalism is the norm of capitalism. And has only revealed its true nature.

Conclusion
Whatever the stated intentions of the neoliberal movement to create a robust and competitive economy, the reality has turned out very differently. Instead of neoliberalism ushering in a new well-regulated market, it has produced a toxic combination of businesses free to run riot on one hand; and subsidised by the public purse on the other. Instead of a healthy free market of firms competing on a level playing field, we now have an ever greater concentration of ownership and monopolisation. Instead of cutting back public and private debt through fiscal discipline, we have ended up with an unprecedented debt mountain that threatens to bring down the whole system.

But capitalism will not have a final crisis. It will be a prolonged and protracted descent. Nor will capitalism collapse of its own accord. It has to be consciously replaced by an effective alternative. But where is the Left’s credible alternative to capitalism?

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The Origins and Rise of Neoliberalism

Published: 15 March 2021

Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism
(will appear as an Appendix)

Suggested improvements welcome at the Facebook discussion page link (available at the end of the text)

After capitalism’s ideology crashed in 1929, a group of right-wing economists began to renew the ideology and devise a programme to implement it. In the following decades they successfully organised to spread their ideas across the capitalist world.

The ‘Liberal’ Days of Capitalism
In its early days, capitalism operated in a free-for-all, lawless situation. Workers had no rights. Industrial safety was non-existent. Child labour was widespread. And the employers had the whip hand. This was the period of laissez-faire capitalism – officially known as the ‘Liberal’ economic era. Based around a minimal state, it was called Liberal because it stood for ‘free’ trade, ‘free’ markets, and ‘free’ enterprise. And above all for ‘freedom’ from government interference. Of course, all this ‘freedom’ only applied to the rising capitalists and the wealthy. Not to the workers and the poor. They were only ‘free’ to work for a master. And to compete with other workers for the privilege. Just as long as they didn’t join forces and fight the masters collectively.

All this so-called ‘freedom’ was a reaction to feudalism where production and trade was heavily regulated. In this feudal system the monarch awarded production and trading monopolies to favourite aristocrats and merchants. While workers were often organised into powerful guilds in order to control the supply of labour and production. And thereby to protect their living standards.

Under the laws of the new capitalist system, the old restrictions on ownership and trade were increasingly removed and the guilds abolished. This allowed capitalist enterprise to flourish. And provided dangerous and poorly paid jobs for the desperate working people who were being forced off the land into the towns.  

It was only when the workers became organised and fought back through their trade unions, that improvements were forced on the bosses and their society. Step by step, laws were introduced to ease the conditions of the worker both at home and in the workplace. Eventually, these contributed to an expansion of public services in housing, health and education. Nevertheless, laissez-faire capitalism continued to be the ideology that dominated capitalist government economic policy until the Second World War.

Under this ‘Liberal’ economic system, in each area and sector certain capitalists emerged on top of the heap. These ‘winners’ began to use their advantages of scale and profitability in order to tilt the odds in their own favour. As the 19th Century advanced, ownership became more and more concentrated. And national monopolies and oligopolies became the norm rather than the exception. And arm in arm with this came monopolistic practices and large scale corruption.

The same process developed on an international level. The most successful capitalist countries became dominant throughout the globe. In first place was Great Britain, followed by France and Holland. Soon afterwards, the newly united Germany, and post Civil War America began their rise. In Europe this process manifested itself in a scramble for colonies in Africa and elsewhere. And the creation of various empires to manage them. In this way, individual European powers could gain guaranteed access to raw materials and cheap labour. Plus captive markets for their products.

Capitalism’s intensifying international competition led inevitably to friction. And an arms race between the leading capitalist nations. This culminated in the First World War in 1914 and the deaths of tens of millions.

Another feature of capitalism that made a marked appearance was the regular cycle of upturns and downturns in business activity. This made life gravely uncertain for working people as they faced regular spells of unemployment and hardship. Instability had been an integral part of capitalism since its inception in the 18th Century. But from the 1870s onwards the downturns became more generalised. And more severe. These downturns reached their peak in the economic Crash of 1929. The Great Depression that followed caused the spread of mass unemployment and poverty across the advanced world.

The Era of State Intervention
The Great Depression in the 1930s shattered faith in the old Liberal hands-off approach to economic management. The near collapse of the economies of the advanced capitalist countries was bad enough. But the failure of governments to respond to the crisis. And thus to allow mass unemployment to grow. Thoroughly discredited the Liberal laissez-faire approach. This is what led to the election of President Roosevelt in the Fall of 1932. And brought forward his programme of public works and state intervention to combat the disaster. However, key sections of the American ruling class bitterly resented these measures. The big capitalists even attempted in 1934 to organise a military coup against Roosevelt. A coup that fortunately was forestalled in time. In spite of this, Roosevelt then went on to become the most popular President in America history. Serving for 12 years until his death just into his fourth term.

Meanwhile, in the UK the continuing inaction of the British government caused a major adjustment in economic thinking among some sections of the capitalist elite. Economist John Maynard Keynes came to represent the new trend with the publication in 1936 of his influential work ‘The General Theory of Employment, Interest and Money’. Among other things, Keynes proposed that governments had a duty to step in during economic downtowns with a range of measures including public works in order to reduce unemployment. Plus increased spending to stimulate demand and boost economic activity.

This new popularity of state intervention also included elements of state planning. State Planning in the capitalist West had become increasingly accepted in light of the dramatic success of the Soviet Union’s Five Year Plans which began at the end of 1928. Even Hitler’s Nazis cashed in on the idea, introducing Four Year Plans through which they put the unemployed to work on infrastructure and manufacturing for rearmament.

All this was strongly reinforced in the Second World War with capitalist governments introducing wide-scale emergency powers. These were needed in order to direct businesses to produce what was needed for the war effort.

Finally, in the period after the Second World War the policy of state intervention became mainstream. The expectations of working people had risen greatly after the long hardship of the Great Depression and the War. This led to the election of majority social democratic governments in many parts of Europe. These governments introduced many progressive reforms and widespread public ownership. Even in the United States, the public mood forced the Truman administration to implement high taxation on the rich. And to continue the pro-trade union policies of the previous Roosevelt government. Later, the Republican Eisenhower Presidency that followed Truman took on the task of building a massive expressway network across America.

The Soviet Union & the ‘Post War Settlement’
A major pressure on the ruling classes at this time was the appeal of the Soviet Union, which emerged greatly strengthened out of the Second World War. Indeed, the existence of the USSR and its competing social system appeared to threaten the very survival of capitalism. In such circumstances, concessions to the workers by the ruling elites was a far more preferable alternative to revolution. In this way, a ‘Post War Settlement’ was established in which welfare states were created. Public ownership of basic industries was tolerated. And governments agreed to include the newly powerful trade unions in national economic management. Last but not least, the old empires began to be dismantled in the face of widespread anti-colonial revolt.

The Rise of Neoliberalism
The version of capitalism we live under today, with its growing inequality, corruption, insecurity, and widespread privatisation is powered by the ideology of Neoliberalism. ‘Neo’ means new or modified. In this case, it meant a modified form of liberalism. One that accepts some element of state intervention. But not state intervention to protect working people or develop production. No. It is a form of state intervention to support competition and ‘free markets’. And to roll back public ownership and public services by cutting them. Or by selling them off to private owners. As such, this new ideology represents a counter-revolution consciously designed to reverse all the historic gains made by working people. An ideology aimed at restoring power and wealth to the capitalist elite.

This new ideology began to first dominate capitalism with the victory of Margaret Thatcher as British Prime Minister in 1979. And with the election of Ronald Reagan as US President the following year. Neoliberalism has since spread across the capitalist world and come to dominate it. Its rise to prominence has gone hand in hand with the massive expansion of globalisation, which it helped to facilitate. Even the Great Recession of 2008-9 which neoliberal policies clearly caused, has not stopped the neoliberal juggernaut. It continues to deepen its impact in one capitalist country after another.

The Origins of the Neoliberal Ideology
The first call for a revision of classical liberalism, and a change in the relationship of the market to the state, goes as far back as 1921. It supposedly appeared in a book by Eli Heckscher, the Swedish economist, entitled ‘Old and New Economic Liberalism’. Heckscher later became a founder member of the organised neoliberal movement. The actual term ‘neoliberalism’ was apparently first coined in 1925 by Swiss economist Hans Honneger in his ‘Trends of Economics Ideas’.

However, the first real stirrings of this new ideology began in mid-1930s Paris. It emerged in the period of the timidly left-wing Popular Front government which ruled France from 1936-37. IN particular, right-wing economists and politicians were becoming increasingly alarmed by the worldwide spread of government intervention. Along with the growing popularity of the concept of a planned economy.

Louis Rougier, a French philosopher, took the initiative to launch the new neoliberal movement. Rougier believed that the increasingly popular support for state intervention could only lead to bureaucracy, inefficiency and the curtailing of personal freedom. In opposition to this he embarked on a campaign for a much more limited role for the state – solely as a regulator of the market and encourager of free competition. His initiative was squarely aimed at developing a new ideology through publishing and intellectual debate. To this end, he participated in the founding of The Librairie de Médicis publishing house in 1937. Its motto was that “a change in minds is always closely followed by a change in facts.” [58]

From 1937 to 1940, around forty books and brochures were published by the Librairie including three books on the USSR. Other key books included: ‘Socialism and The Illusions of Protectionism and Autarky’ by Ludwig von Mises. ‘Planned Economy and the International Order’ by Lionel Robbins. And ‘Planned Economy in a Collectivist Regime’ with an introduction and conclusion by Friedrich Hayek.
By having its own publishing house, neoliberalism already became partly institutionalized and, above all, obtained a recognizable name.”

Louis Vallon, a supporter of the new approach, explained the publishing strategy: “A few months ago, the Librairie de Médicis published a string of works attacking the fundamental theories of socialism, syndicalism, and collectivism, and advocating the implementation of a new liberalism.”

Also in 1937 came the publication of ‘The Good Society’ by Walter Lippmann, the influential editor of the New York Herald Tribune. Lippmann not only opposed fascism and communism as examples of state power acting against the market. He also criticised the old traditional free-for-all ‘laissez faire’ form of liberalism. Instead he argued for a society in which the market was strictly regulated by the state in order to maintain competition and an even playing field for the competitors.

The success of Lippmann’s book provided Louis Rougier with a credible platform on which to organise a major international Conference. This was held from August 26-30 in Paris in 1938. In addition to Lippmann himself, the conference was attended by a wide range of influential neoliberal co-thinkers including Ludwig von Mises, Alexander Rustow and Wilhelm Röpke from ‘the Austrian School’. Plus Friedrich Hayek and Michael Polanyi both based in Britain.

There were significant differences expressed in the Conference but it managed to agree the Neoliberal name for the movement. And a general conclusion that “the state must be responsible for determining the legal regime that serves as a framework for the free development of economic activities.” The Conference also decided to establish an international neoliberal organisation: the International Center of Studies for the Renovation of Liberalism. The mission of this new Centre was “to promote neoliberalism, by circulating publications and organizing public and private demonstrations.”

Five or six public meetings were subsequently organised by the new Centre in France during 1939. And one issue of its magazine published. Plans were made for the establishment of additional foreign divisions in the US, UK and Switzerland. But the Second World War cut these plans short.

The Neoliberal Movement Resumes
Once the Second World War ended, the neoliberal movement was able to resume its activities. Thus, a number of the prewar faithful came together from 1-10th April 1947 in a ski resort hotel at Mont Pelerin in Switzerland. Prime mover of the meeting was Friedrich Von Hayek, an Austrian aristocrat and economics professor who had penned the best-selling ‘The Road to Serfdom’ in 1944. Hayek invited thirty-nine scholars, mainly economists, to the meeting to continue the discussion. And to spread the developing neoliberal doctrine. Among the attendees was another Austrian aristocrat and economist Ludwig von Mises who had been Hayek’s mentor. Also present were George Stigler and Milton Friedman both of whom went on to win the neoliberal ‘nobel’ prize for economics. An unusual addition was the father of scepticism, Karl Popper, who later left the movement in disgust. Most notably absent at this first meeting was Louis Rougier, the French philosopher who had initiated the movement in 1936. During the War he had disgraced himself by acting as an intermediary between the pro-Nazi French Vichy regime and Great Britain. And for subsequently trying to defend the disgraced fascist French leader, Marshall Petain. 

The meeting in Switzerland agreed to establish itself as the Mont Pelerin Society (MPS) and to meet regularly which it has done on a biannual basis ever since. The founding statement of the Mont Pelerin Society was both a political and economic declaration against the threat of state intervention in both Social Democracy and the Soviet Bloc. On one side it focused on a conservative view of the threat to freedom of speech posed by the growing strength of the Soviet Bloc and the wider socialist movement. On the other it reasserted the need for private ownership and the market as a bulwark against state domination.

Two years after its founding, Hayek offered a mission statement for the new Society:

We must be able to offer a new liberal program which appeals to the imagination. We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia… which does not confine itself to what appears today as politically possible. We need intellectual leaders who are willing to work for an ideal, however small may be the prospects of its early realisation. They must be men who are willing to stick to principles and to fight for their realisation, however remote.

The new neoliberal movement did not set out with a short-term perspective. Rather they recognised that it would take at least a generation to develop into a serious intellectual and political force. They then set about applying their new ideology in a practical way to the world.

As the 1950s progressed, neoliberals began to draw on new ideas in fields such as individual and mass psychotherapy, game theory, military strategy etc. And to use new techniques such as surveys and computer analysis. The warped, self-serving conclusions that they came to was that every individual was effectively alone and competing with everyone else. That everybody was solely motivated by selfish motives and involved in a battle for advantage over the rest. That ideas of cooperation and solidarity were hopeless attempts to counter these basic aspects of human nature.

The fact that human beings are dialectical creatures that possess both positive and negative impulses was ignored by them. Or that human society is based on both cooperation and competition. Thus, the neoliberals set out to build a society that was almost entirely built on and encouraged personal greed and competitive advantage at the expense of others. And continually sought to strip the laws and institutions of society of any cooperative, sharing or giving aspects. Believing that these ran counter to human nature, despite the fact that they directly reflected the positive aspects of human nature.

 In summation, the main contribution of the neoliberal movement was the development of a new far more aggressive pro-capitalist ideology. They organised a ‘crusade for capitalism’ in contrast to the apologetic justifications that were often current in the 1950s and 60s. In doing so, neoliberalism openly rejected the concepts of economic fairness or justice. It confidently trumpeted the drive for profit and defended selfishness. The famous ‘Wall Street’ movie phrase “greed is good” came right out of its foundry. In so doing, it opposed business ethics or corporate social responsibility. And in its place argued that companies only had a responsibility to maximise the return for their shareholders. Furthermore, it defended the inequality that private enterprise created on the basis that the market was merely rewarding winners and penalising losers.

A Counter-Revolutionary Ideology
In political terms, neoliberalism was a counter-revolutionary ideology that sought to overturn the gains that working people had won in a century of struggle. Unlike classic liberalism with its relatively hands-off approach to business and politics, the new neoliberal ideology not only argued for state intervention to ensure the operation of a free market. But also set out to determine in detail how to cut back the massively increased role of the state in every area possible. To this end, Hayek himself declared that the principal intention of the reconvened neoliberal conference in 1947 was to discuss how to fight the “state ascendancy and Marxist or Keynesian planning sweeping the globe”.

However, neoliberalism did not limit itself to rolling back the state. It sought to go further and apply the power of the market to virtually every aspect of society. In the early days of capitalism, classical liberalism in the economy existed side by side with other powerful institutions. These included the aristocracy, the churches, old customs and practice etc. For neoliberalism there were to be no such limits. No stone would be left unturned in the drive for more competition and more profit.

For the neoliberals the need for a thorough renewal of capitalist thinking and practice was clearly overdue. Events in the previous decade had moved even further away from them. Indeed, the reforms of the post-war Liberation seem to have cemented the victory of the planned economy and state intervention. The Soviet Union’s state bureaucratic version of socialism was being imposed throughout Eastern Europe which it now controlled. Widespread nationalisation was being introduced across Western Europe, alongside the creation of new public services and welfare state institutions.

All this further emphasised the weakness and isolation of the neoliberals. In this situation, the nascent neoliberal movement was clearly facing an uphill task in trying to reverse the massive trend towards state intervention. A task that must have appeared almost overwhelming to them. As participant Karl Popper put it: “The present position is one where we nearly despair.” *

Nevertheless, it was in this unpromising environment that the neoliberals set out “to discover ways in which free enterprise can replace many functions currently provided by government entities.” Their chosen agency, the Mont Pelerin Society, was designed as a scholarly organisation on one side, and an influence network on the other. Over the following decades it successfully sought to achieve its ambitious goal of changing economic thinking. It did this through a combination of book publishing, conferences and the establishment of a myriad of a hundred think-tanks. The latter included the Heritage Foundation, the Hoover Institute, the American Enterprise Institute, the Cato Institute and many others in the US. In the UK they included the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute. In time, this work led to the widespread penetration of educational institutions, business organisations and conservative political movements.

Of course, the neoliberals had great advantages. From the beginning they had rich backers. Their founding meeting in Mont Pelerin had been largely paid for by Credit Suisse, one of the Swiss banks that had helped the Nazis store money and valuables stolen from their Jewish victims. Meanwhile, the Volker Fund had paid for the travel expenses of the US participants who made up over half of the attendees. Plus, they had important allies in Western governments. In particular, they were helped by the outbreak of the Cold War against the Soviet Bloc. This had begun side by side with the growth of the neoliberal movement. We know that the far right Dulles brothers who controlled the US State Department and the newly formed CIA, favored the appearance of the neoliberal movement. To what extent this came in the form of financial and organisational support is unknown as the relevant papers are still classified (a significant fact in and of itself).

Equally important was the growing support from the right-wing of big business and the wealthy elites, especially in the United States which in the post-war period had become the dominant economy and the citadel of capitalist ideas. This was despite the evident economic success of the Post-war Settlement with its state interventionist approach. A success that evidently contradicted much of the neoliberal arguments. Nevertheless, reactionary capitalist elements still wanted to reverse the reforms that favoured working people. And they found in the ideology of the neoliberals a justification for not just stopping these reforms, but in reversing them.

Thus, towards the end of the 1950s and into the 1960s more and more of these reactionary elements began to sponsor and subsidise the activities of the neoliberals. To this end, a network of right wing intellectuals, racist politicians and wealthy sponsors set out to build a powerful conservative movement in the United States. As has been revealed from the archives of leading American neoliberal James Buchanan, consciously, step by step, they penetrated academia. Even inventing the fake Nobel economics prize which of course they mainly awarded to their leading devotees. Next came the media, the legal and justice profession, big business, relevant government institutions, and political circles.

Evolution of an Ideology
An ideology only becomes important when it fits in with or appears to further the economic or social interests of a class. Or at least a significant social group in society.

The Socialist ideology of Karl Marx and Frederick Engels gained mass support in the 19th and 20th centuries because it outlined and championed the interests of the growing proletariat and its organisations. On the other side of the class struggle, the same was true with the neoliberal ideology. It rapidly came to be seen as the most uncompromising and militant voice for capitalist interests.

However, in the process of becoming more powerful or more popular an ideology may evolve into something significantly different from its original conception. In important ways this is what has happened to the ideology of neoliberalism. It began as an attempt to halt and reverse the trend towards top-down, state-dominated economy and society. As such it declared itself for freedom and against dictatorship. And against monopolies and corruption. It was in this guise that neoliberalism initially attracted a key range of economists, philosophers, politicians etc.

But the neoliberalist movement soon attracted another element of support. Namely, right-wing industrialists and employers who saw in it a means of defeating the power of their employees and working people generally. And thereby to increase their share of society’s income which they believed was being unjustly siphoned away from them in the Post-War Settlement. A Settlement they had never accepted.

These wealthy and powerful interests had the money to greatly advance the cause of the neoliberals. And in the course of doing so they began to call the tune. Naturally, these big companies and the rich individuals behind them had no interest in freedom for the masses. And rather than opposing dictatorship, they supported brutal military despots all over the world when it suited their own interests. Nor did they care about monopolies or corruption. On the contrary, the striving for monopoly power and the use of corruption to achieve it, was their day-to-day means of operation.

In time, the ideology of neoliberalism, and even more its practice, favoured the interests of the big companies and served the wealthy elites. So, far from being the champion of small businesses in open and highly competitive markets, neoliberalism ended up becoming a mouthpiece for big business. Defending monopoly and turning a blind eye to large-scale corruption.

For example, leading neoliberal James Buchanan, in promoting the cause of incentives and self-interest, openly argued that ‘politicians for sale’ were far more preferable for society than politicians who genuinely believed in trying to help the public. No wonder the neoliberals and their billionaire backers went on to become masters of the art of political influence and crooked lobbying. An approach to financial manipulation of politics that reached its culmination with the Citizens United case in the US Supreme Court. This abolished all limits on company political spending and cleared the way for today’s flood of political corruption.

There are those who argue that the neoliberals were always charlatans and never really believed in their own arguments. That they used their propaganda for freedom and competition as a cover for a reactionary pro-capitalist and anti-working class agenda. Certainly, the fact that neoliberalism was first built up in the 1950s and early 1960s in order to campaign against the prevailing Post-War Settlement – a time when American and European capitalism was achieving its fastest increases of growth and living standards – certainly raises a lot of questions. Why would a pro-capitalist movement be trying to undermine the capitalist mainstream during capitalism’s most successful period?

That said, whether the early neoliberals really believed their own bullshit is not the crucial question. What is more important is that neoliberalism became a convenient ideological justification for a series of proposals that helped dramatically produce wealth for the wealthy and poverty for the rest.

The 1970s World Economic Crisis
An increasing crisis of capitalist profitability became apparent in the mid-1960s provoking a fall in investment and a steady rise in inflation. This provided the breakthrough the neoliberals needed. These problems created an economic crisis that forced the United States under President Nixon to introduce emergency measures. These included controls on wage and prices; surcharges on imports; and the abandonment of the direct international convertibility of the United States dollar to gold.

However, none of these measures solved the problem. A world economic crisis broke out in 1973. A crisis that brought the continuous expansion of production and trade in the capitalist world to a shuddering halt. Unusually, the international economy was a hit by ‘stagflation’, a strange combination of high unemployment and inflation. According to the Keynesian policy of state spending to offset downturns, such things were not supposed to happen at the same time. In particular, the Keynesian policy was increasingly blamed for artificially boosting demand and creating inflation. An issue that became a major problem in the following years. To counter inflation, the neoliberals offered a ‘Monetarist’ alternative in which they proposed cuts in money supply and public spending; and wage restraint.

Neoliberalism Put into Practice
The first notable practical application of neoliberalism was in Chile after the right-wing coup in September 1973 that overthrew Salvador Allende’s Popular Unity government. Pinochet, the vicious new dictator of Chile understood the need to reverse the left-wing reforms of the Popular Unity coalition. But he was unsure what to put in their place. For this he turned to an economic plan known as El Ladrillo which had been secretly prepared before the coup. This plan was drawn up in May 1973 by economists who opposed Salvador Allende’s government together with the American neoliberals at the University of Chicago. This was the department which became famous as the Chicago School of Economics under Milton Friedman. The Ladrillo plan was fully supported by America’s CIA which was itself helping to prepare the coming coup.

The Plan proposed reforms which included making the Central Bank independent; cutting tariffs and taxes on business and the rich; along with privatising the state pension system, state industries and banks. All neoliberal policies that we are very familiar with today. Pinochet’s stated aim at the time was to “make Chile not a nation of proletarians, but a nation of entrepreneurs“.

A series of ‘Chicago Boys’, as they became known, visited Chile to advise Pinochet. The results of the reforms were very mixed. The most obvious effect was to drastically increase unemployment and reduce workers’ wages. It was backed up by mass arrests, imprisonment, torture and assassination. Similar economic and repressive policies were applied by the Argentinian dictatorship from 1976 onwards.

The 1970s also saw neoliberal ideas and the think-tanks that promoted them making steady progress in  the more advanced countries. Of particular note, was the election in 1975 of Margaret Thatcher, a fanatical follower of neoliberal ideas, as leader of the Conservative Party, Britain’s main opposition party.

In the following year there was a major run on Britain’s currency. To cover this the Labour Government applied for a massive loan from the International Monetary Fund. Major cuts in spending on public services and wage restraint were the bitter price for the loan, conditions that were to become the norm for future loans to other countries  In the teeth of strong opposition from the ranks of the Labour Party and the trade unions, the Labour Prime Minister, James Callaghan, declared the death of Keynesian government intervention. In a speech to the Party Conference in late 1976 he declared that: “We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists.”

Tony Crosland, another key figure from the Labour Leadership, accompanied the announcement of major cuts in public spending with the brutal statement: “The party is over.” All this laid the ground for ‘the full neoliberal experience’ when Thatcher and her Party went on to be elected to government in 1979.

A little over a year later another supporter of neoliberalism, Ronald Reagan, was elected President of America. And set about implementing the neoliberal agenda with gusto. Thus, as the 1980s opened, we had two leading capitalist countries advocating the new capitalist ideology. An ideology whose policies of liberalisation of finance and markets; and privatisation and deregulation, were to greatly facilitate the massive expansion of globalisation that was opening up.

These neoliberal policies were also implemented across the developing world as neoliberal economists came to prominence in the World Bank and the International Monetary Fund. To begin with, poorer countries were encouraged to take out high interest loans from both institutions in order to cope with their increasing economic problems. But when the loans came due they found themselves unable to pay. And had to return to the World Bank and the IMF to renegotiate the loans. In the renegotiations severe conditions were imposed as part of new Structural Adjustment Programmes – the Western financial institutions insisted on austerity programmes which reduce subsidies to the poor, cut wages and welfare programmes. These caused great suffering in many poorer countries during the 1980s and 90s, especially in Latin America and Africa. Ironically, the chickens came home to roost in the richer countries, especially in Europe, when the same austerity programmes were applied in the years following the 2008-9 Great Recession.

The Structural Adjust Programmes were usually accompanied by privatisation, deregulation and changes to investment and ownership rules. These were designed to make it easier for foreign companies to operate in the poorer countries with their cheaper labour and business costs. This greatly helped a massive expansion of foreign direct investment from the advanced countries to the developing world. And resulted in a major transfer of production and jobs from the wealthier nations to the poorer ones.

Meanwhile, the neoliberal agenda spread throughout the capitalist world and came to dominate academia, economics and politics. Even the neoliberal-caused Great Economic Recession of 2008-9 failed to stop the neoliberal juggernaut. In the absence of a countervailing ideology and movement from the Left, neoliberalism continues to deepen its grip, most notably in the European Union as well as in important developing countries like India and Brazil.

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Footnotes (to be finished)
On Paris – (‘The Origins of Neoliberalism in France – Louis Rougier and the 1938 Walter Lippmann Conference’ by François Denord, in Le Mouvement Social Volume 195, Issue 2, 2001, pps 9-34, https://www.cairn-int.info/article-E_LMS_195_0009–the-origins-of-neo-liberalism-in.htm#)

1949 paper called “The Intellectuals and Socialism,” by Hayek

K. Popper quoted in: ‘The Road From Mont Pèlerin’ by Philip Morowski and Dieter Plehwe, p.19 PDF, https://uberty.org/wp-content/uploads/2015/10/mt-pelerin.pdf

The Challenges Facing China

Published: 26/11/2020
Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism
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Here we examine the situation in China today and evaluate its prospects; look at whether China is really capitalist; answer the charges levelled against China by the capitalist media and politicians; & propose to replace the current top-down, bureaucratic model with a new system of Democratic Public Power.

China’s economic growth in the last 40 years has shattered all historical records. So too has its success in reducing poverty. Never have we seen so many people – 850 million – lifted out of poverty and deprivation in so short a time. If there were no other justification for China’s version of a socialist economy then this would be it.

Naturally, many people ask how China has achieved such an astounding outcome. Earlier in our Manifesto we answer this key question. In particular, we examine China’s great ‘reform and opening up’ policy. A policy that slowly emerged in the late 1970s after the death of Chairman Mao. We show how it directly traced its origins to Lenin and Bukharin’s New Economic Policy in the 1920s in the Soviet Union. A policy which was based on an alliance between the workers and the peasants. That sensibly sought to combine socialist planning and state ownership of the commanding heights, with private cultivation of the land, and the importation of foreign capital and technology. A policy that in the Soviet Union was tragically abandoned by Stalin in 1928 in his ultraleft war against the peasants and the cadres of his own communist party. But was then wisely picked up fifty years later by the centrist wing of the Chinese Communist Party led by Deng Xaioping. And shown to be a winning formula for successful socialist economic construction in a largely agricultural country.

To give some idea of the spectacular growth that China’s New Economic Policy has achieved in the last forty years we only have to compare it to the United States, still the world’s largest economy. In the years 1979-2019 China’s national output grew by an incredible 5000%. In the same period, the United States grew by only 750%. And at the current rate of growth, China will overtake the US as the biggest economy in the coming decade.

At one time, America was the foremost nation for construction. The speed and scale of its output of ships, planes and tanks during the Second World War was unprecedented. Then, in the post-war era when we thought of the United States we used to think of skyscrapers, bridges and motorways. Now that baton has been passed to China. Indeed, in just two years, 2011-12, China used more concrete than the US in the whole of the 20th Century! Today, it produces more steel than the next 20 countries combined.

The story of China’s meteoric economic rise is also a story of the phenomenal growth of the Chinese working class and its migration from the countryside to the city.  According to 2013 figures there are about 600 million workers in China compared to 300 million farmers. This is a dramatic turnaround for a country that was largely rural forty years ago. Within the overall total, there is an industrial workforce of 260 million. This compares to 131 million industrial workers in all the OECD countries combined. In China we are talking about the largest working class and the largest industrial proletariat on the planet. The gigantic size of the Chinese proletariat is reflected in the massive 302 million membership of the official All-China Federation of Trade Unions (ACFTU), the largest trade union in the world. 

The migration of Chinese people from the countryside to the city has been the fastest and biggest movement of people anywhere on earth. China’s urban population rose from 18% in 1978 to 61% in 2020. About 848 million people now live in the urban regions of China. That still leaves 552 million in the rural areas. This gigantic migration is continuing apace. By 2025, it is estimated that the urban population will reach nearly 1 billion. 

This inevitably poses a huge need for new housing. Living space has hugely expanded from three square metres per person in 1978 to about 30 square metres per person today. In the urban areas more than 80% own their own home with an even higher proportion in the rural areas. However, workers who migrate from the countryside to the towns face major housing problems. To address this, in the 2011-15 Five Year Plan 100 million were provided with low cost housing by the state. Although things are getting better, many migrant workers still have housing problems. But to compensate they often have a home and land back in their villages

The migrant workers are usually forced into working in the private sector or on the margins of economic life and suffer significantly lower living standards as a result. Through the Hukou residence control system they are often excluded from the educational and social services available to the original city residents. Local governments often lack the resources to handle the massive demand arising from large scale rural-urban migration. Improvements to this system are being made but they have a long way to go. This must be a top priority for China’s authorities.

As a consumer market, China is becoming the largest in the world. It sells the most cars. It is the only country with over 1 billion mobile phone users. And with more than twice as many internet users as the United States. Perhaps the most dramatic statistic can be found when we look at international tourism. As the chart below shows, not only are there more Chinese tourists travelling around the world than any other country, but they are spending far more abroad than any other national group.

Of course, a major factor in these incredible statistics is China’s massive 1.39 billion population, nearly a fifth of the world’s total. But large populations are no guarantee of economic preeminence. India has almost the same number of people, 1.38 billion, yet is only one fifth of the size of the Chinese economy.

Coronavirus Response
The advantage of China’s collective approach to its economic and social life has been dramatically demonstrated during this Coronavirus crisis. Unlike those neighbours – Japan, South Korea, Taiwan and New Zealand – whose response to Covid has been widely hailed, China was the first to face Covid-19. Nothing was known of the virus. What it was. How different it was from influenza. How infectious it was. Or how lethal.

As a result, mistakes by local Chinese authorities were made in the first month of discovery.And thus it was able to spread through Wuhan city, Hubei Province and then across China. Luckily for China’s neighbours, China was very prompt in reporting the new virus to international authorities, taking only three days to inform the World Health Organisation. This allowed the nearby countries to quickly suspend flights from China and prevent most cases crossing their borders. And to introduce test and tracing to identify and quarantine the relatively small number of cases that did arrive.

China, however, confronted a much bigger challenge. It was the first to face a mass outbreak of the virus. Once it realised how infectious and deadly the virus was, Instead of hesitating, or trying to prioritise business interests over the health of its people, China’s response was overwhelming and effective. In contrast to the slow and disastrous reaction to the virus in most of the world, China rapidly instituted a complete quarantine across the whole country. Rather than adopting the half-strategy of ‘flattening the curve’ as it became popularly known in most parts of the capitalist world where it was tried, China sought to completely defeat the virus. China did not try to slow down the transmission of the virus, but to stop it altogether. To achieve this, China organised a two-month complete lockdown to ensure that the virus could not continue to spread. To support this, it mobilised all of its resources including its community-level organisations to ensure that human-to-human contact outside the home was suspended. And that food and other services were delivered to households.

The excuse was made in the capitalist countries that China could only mount such a decisive, full quarantine because it was a dictatorship and its citizens were used to being ordered around. Yet, the real reason why a full Chinese-style quarantine was not implemented in the capitalist world was the desire of governments to keep sections of the economy going and through this to protect the profits of their backers. Thus, the virus was allowed to arrive in most countries because the governments there did not want to stop business travel and tourism. Then in the lockdowns measures, public transport was kept running and roads remained open so workers could keep going to offices, factories and construction sites. In this way, while the reproduction of the virus was significantly reduced, it was still allowed to continue circulating in the community. Only to resurge when the lockdown measures were lifted.

In fact, the response of most populations to the initial half-lockdowns was much better than expected by the politicians and the elites they represent. The public accepted staying at home for months. Millions volunteered to help deliver groceries, help neighbours etc. Yet, the option of a full quarantine was excluded from debate in the media and never tried. The alternative half-quarantines produced most of the pain with too little of the gain. Inevitably, the failure of the half-lockdowns has discredited quarantines and stoked widespread opposition and scepticism. And helped the virus spread once again. Thus, the attempt to limit the lockdowns in most of the capitalist world in order to protect the economy dragged out the crisis and caused even more economic damage.
The same indecision and incompetence affected the treatment given to Covid cases. Contrary to the irrational practices adopted elsewhere, China did not send sick people to shelter at home where they could get even sicker and spread the virus to other family members. Rather, they immediately isolated them at medical test centres where they could confirm the virus and immediately treat them for falling oxygen levels and other complications. This helped them minimise the fatalities.

In contrast to the results in Europe, the US, Latin America and India, China was able to bring the virus under complete control. With the largest population of any country, China suffered less than 5000 casualties compared to over 1 million in the rest of the world.

Of course, China continues to be vulnerable from infection from travellers returning home from abroad. To contain this risk, China has also instituted the biggest and most rapid test and trace programme anywhere. In a recent case, an outbreak of 12 cases caused the city involved to test all ten million of its citizens in just five days. In this way, the virus has no chance to revive in a second wave.

Despite the mistakes made at the beginning of the outbreak in China, and the sacrifices that the population had to undergo for two months at the outset of the epidemic, Chinese people are very satisfied with the decisive and comprehensive way that their government has dealt with the virus. Dahlia, a German research agency, found that 95% of Chinese think their government did a great job in handling the pandemic. Compare this to the high levels of dissatisfaction among most European countries and the US on the same issue.

Ironically, China’s decisive health strategy has also helped its economy. By eradicating the virus quickly rather than allowing it to continue to circulate and later resurge, economic losses were greatly reduced. China is now the only economy to show growth while most of the capitalist economies are suffering massive falls in output. This is likely to accelerate China’s rise to the number one spot globally.

Even when it comes to a vaccine for the coronavirus, China is showing the way forward. It’s vaccine research and testing is well advanced. And its willingness to supply it at cost to the world rather than trying to profit out of it, could be a model for vaccines for the future. China should pledge to put big resources into vaccine research from now on. Before this outbreak, too little vaccine research was being undertaken because it was not viewed as profitable by the drug companies. Thus virtually no resources have been allocated to producing a permanent influenza vaccine that could prevent the half million deaths it causes globally. In many cases, research is not even regarded as a priority because infectious diseases are mainly found in the poorer countries. Thus, one million die from malaria each year. Vaccine research for the world could be a way for China to turn this negative Coronavirus experience to a positive. And for China to become a global super health centre.

Can China Maintain its Future Growth?
There is continuous speculation in the media about China’s high growth rate. There is an assumption that China’s growth forecasts are just guesstimates that may or may not turn out to be accurate. Certainly in the capitalist economies growth forecasts are more often wrong than right. This is understandable given the unplanned nature of these economies and the ups and downs of their business cycles – the booms and slumps that have been an integral part of capitalism throughout its 250 year history. But China has a planned economy and does not suffer from an internal business cycle. Therefore, China’s high rate of growth is not a result of some kind of magic or trickery with statistics. It is a direct result of its extraordinary high rate of investment.

For example, between 1982 and 2011 China’s level of investment averaged 36.9% of GDP. This actually increased to 40% in the period from 2004 until today. China’s growth rates are directly linked to this level of investment, and the efficiency of the investment. Given that the Chinese government sets the level of investment in its plan, and controls this public investment through government bodies, it is able to determine and foresee much of the rate of growth in the economy. Indeed, it builds a considerable safety margin into its forecasts. Thus, its projections tend to be relatively accurate compared to the chaotic capitalist economies.

Little of this is understood or accepted in the West. Again and again they have been predicting that the Chinese economy is about to fail only to be embarrassingly proved wrong. As the socialist economist John Ross put it: “One leading capitalist economist or economic agency after another have made fools of themselves predicting a coming collapse. This is because they are applying capitalist yardsticks and substituting wish fulfilment for sober analysis.1

Access to finance is a key component for investment. In the past, control of private capital lay in the capitalist centres of New York, London, Paris and Frankfurt. However, this is fast changing. China’s state banks have now become the biggest in the world. In 2000 the top four banks were Citigroup, Bank of America, HSBC Holdings and JP Morgan-Chase – three US and 1 UK bank. By 2020 this had become transformed with China holding all top four slots: Industrial Commercial Bank of China, China Construction Bank, Agricultural Bank of China and the Bank of China.

The same process is happening in the stock markets. Just this year, Chinese finance and insurance giant Ant Finance held the largest Initial Public Offering in history. It was launched on the Shanghai and Hong Kong Stock Exchanges rather than the New York stock market. Something that was highly unlikely only three years ago. Moreover, China now accounts for 27 percent of global venture capital, vital for the commercialisation of emerging technologies.

Chinese Debt
Another area for regular capitalist media criticism concerns China’s debt levels. We are constantly told that China’s debt is out of hand and will inevitably bring its economy down. But such predictions have been made for the last two decades without outcome.

Absurdly, these comments on China’s financial arrears are coming from capitalist countries awash with debt. For example, the United States with only one quarter of China’s population has four times its level of debt. It is only the fact that the dollar is the world’s reserve currency that is allowing the US to carry this level of debt without going into crisis. But for how long will the dollar continue to play this role?

Furthermore, the advanced capitalist countries have allowed their central banks to continue to keep on buying up debt through the policy of Quantitative Easing, and thereby pump in trillions of dollars into their economies. The unbelievable level of world debt has now reached $277 trillion dollars which amounts to 365% of world GDP. An unprecedented and dangerous level has only dramatically increased during the Coronavirus crisis.

China on the other hand is in a much better situation. For one thing, it has a massive foreign exchange reserve surplus of $3 trillion. In addition, its debts are mainly internal with only 16% owed internationally. This compares with the United Kingdom with 287% of its debt owed externally. Or the United States with 122% of its debt owed to foreign institutions. Ironically, China is America’s largest creditor with Washington owing Beijing between $1.5-2 trillion!

China also has an exceptional high rate of domestic savings which provides stability for its loans. Moreover, it can handle its debts because they mainly arise from real investment that help increase the economy rather than spent on speculation such as propping up the stock markets. And China’s rate of profit is relatively high which allows for a greater level of borrowing.

Most importantly, the Chinese government owns and controls its banks. This gives the government the ability to step in when needed and reorganise the financial sector and clear out its debts. In the capitalist economies it is the other way round. The banks control the governments. The difference was graphically demonstrated during the Great Economic Recession that broke out in 2008-9. The major capitalist banks around the world faced collapse and forced their governments to save them. But did they repay them in kind? No chance. After the banks were rescued they were given massive support in the hope and expectation that they would pass on their good fortune to the small and medium-sized businesses that were suffering in the crisis. Instead of doing so they just used these generous public funds to restore their balance sheets and reward their shareholders and directors. Even now, the US economy has not recovered back to the 2007 pre-crisis level. The opposite has happened in China. To avoid being dragged down by the capitalist crisis, Beijing launched a major public investment programme which built much-needed infrastructure, advanced the country and boosted the economy which is now dramatically bigger than in 2007.

Importance of Innovation
As we explained in our earlier Manifesto Topic on ‘Socialism and the Soviet Union’, the failure of the USSR to successfully prioritise civilian innovation and integrate it into its economy was a major factor in its failure to compete on the world market. China is determined not to make the same mistake.

In 2017, President Xi declared that innovation was the strategic force needed to promote China’s development, as well as the strategic underpinning to build a more modern economy: “We will promote basic research in applied sciences, to increase our achievements in science and technology projects, prioritizing innovation that generates key technologies, that break technological boundaries and modernize technological engineering; in short, that breaks technological paradigms”. 2

China has grown its research and development spending rapidly since 2000, at an average of 18 percent annually compared to the US where R & D spending has grown by only 4 percent.

This has only been accelerated by the ‘Made in China 2025’ strategy that is now in full force. This aims to raise investment in technology to 2.5% of annual GDP and to establish China as the world leader in the production of technological goods and services. In particular, to focus on new technologies in the fields of; numerical and robotic control tools; aerospace equipment; ocean engineering equipment and high-tech chips; railway equipment; energy savings and new sources of energy; electrical equipment; new materials; biomedicine and medical equipment; and agricultural machinery.

To this end, China has installed the highest number of high speed trains in the world; entered the passenger aircraft industry; encouraged the production of over 50% of global solar panels and electric cars; and installed 400,000 robots, far more than any other country. Likewise, China is the biggest investor in artificial intelligence.

A central part of China’s plan is to increase local content in technological products to 40% by 2020 and 70% by 2025, while still remaining within the World Trade Organisation’s guidelines – not to substitute Chinese for foreign technology by means of import bans or other trade restrictions, but by sheer force of superior technical excellence. To back up this drive for innovation, China has massively ramped up its investment in further education in science and engineering. It now has 4.6 million graduates in science and technology while the United States has only one-eighth that amount.

China could do even better if it was to open up its innovation process to its citizens along the lines we outline in our earlier topic ‘Democratic Public Innovation’.

Is China Stealing Technology?
A common accusation levelled against China is that it is advancing its economy by ‘industrial scale’ theft of technology from foreign companies. No doubt this was a feature of China’s past development, just as it was for all developing countries including the United States in its development phase. But copying or theft of technology is fast becoming a thing of the past. As the example of Huawei shows, Chinese companies are now often the ones with the leading technologies. This is backed up by statistics on the filing of patent applications. According to the World Intellectual Property Organization, of approximately 12 million patent applications made in 2018, 5.7 million were Chinese. Indeed, China now applies for more patents than the US, the European Union and Japan put together!

The same applies to legal protection for patents in China. Contrary to the impression conveyed by the international media, legal patent protection in China is now well catered for and the process is much quicker than it is anywhere else. Appeals being held in specialised intellectual property courts with the record of success by foreign companies being close to 100%.

The Five Year Plan
China has been drawing up five-year policy plans since 1953. It has been described as “China’s secret weapon to ensure stable development.” 3

The next Five Year Plan, China’s 14th, is currently being discussed for commencement in 2021. The Five Year Plan provides an overall direction for China’s development, sets overall targets and mobilises economic and social resources to achieve them. As such it provides a reliable guide for enterprises and individuals both in the state and private sectors. It is the main driver of China’s forward development and central to its success over its capitalist competitors: “The five-year plan is also one of the great achievements and characteristics of CPC governance as it maintains the consistency of policymaking and combines the superiority of socialist society with the market economy”. 4

Comparing China’s planned economy to the USA’s chaotic and short-termist approach, one western economist remarked that while China is making five-year plans for the next generation, Americans are planning only for the next election.

In the 13th Five Year Plan that is just finishing more than 60 million new jobs were created in urban areas, and 55 million lifted out of poverty in rural areas. Major expansion was also made in welfare provision so that China now has the world’s largest social security system, including basic medical insurance for the whole population and basic old-age insurance for nearly 1 billion citizens.

For the new Plan, the Chinese leaders have acknowledged that the drive for maximum increases in output should no longer be the central target. That the aim should be for qualitative rather than quantitative growth. A significant factor in this is that the pressure on Party leaders to continuously create tens of millions of jobs per year is lessening in line with the falling working age population. Thus, there has been no official growth target so far included in this Plan. However, unofficially the expectation is for the growth rate to be around 5% per year. This will allow China to double its economy by 2035, if not earlier.

The new Five Year Plan will also be released under the shadow of the Cold War that has been launched against China by the United States. The US is clearly trying to slow down or even halt China’s technological progress. To this end, sanctions and other measures are being taken to prevent China purchasing various technological resources on the world market such as microchips. To overcome this, the Chinese leadership are taking steps to reduce China’s dependency on foreign technology and increase its self-sufficiency. And to balance its economy more towards domestic capacity and homegrown innovation. Such steps will form an important part of the new Plan.

Another core element of the next Five Year Plan is action on the environment. The last Plan saw major success in reducing the problem of atmospheric pollution that has plagued many Chinese cities. According to PollutionWatch, air pollution in Chinese cities has fallen by 50% since 2013. Images of smogs in Beijing and elsewhere have all but disappeared. Likewise with China’s waterways – industrial water pollution has fallen which has significantly helped increase tourism. But much more progress has still to be achieved especially in regard to the use of coal and soil pollution.

Recent Five Year Plans have succeeded in establishing China as the leading country for producing solar panels and electric vehicles. In some cities all buses and taxis are now electric. Moreover, China has committed itself to becoming carbon neutral by 2060 and the new Five Year Plan will include steps in this direction.

A new aspect in the new Plan is that for the first time it has been opened up to public input – over one million suggestions have been received. Additionally, symposiums on the Plan have been held all over the country for specialist groups to allow them to comment and contribute.

Looking further ahead, this new Five Year Plan is being put forward as part of a 2035 Vision. This is a recognition that while five year planning is greatly superior to the short-termism of the capitalist countries, the technological, social and environmental challenges facing China demand even longer term planning efforts.

Is China Capitalist?
It is all too easy with all the market and consumer trappings that are on view in modern day China to assume that it is capitalist. But to really understand the nature of China’s economy and society we have to see it in its historical context. How it has evolved from the Soviet model. Where it is going now. What are the behind-the-scenes mechanisms that are directing its forward movement. In other words, we have to understand China’s political economy.

Unlike many commentators on the Left we do not view China as a capitalist country. Rather we see it as a hybrid society in which the socialistic forms – the Communist Party-controlled state; the planned economy; the state-owned banks, land and enterprises – dominate the commanding heights of the economy and policy making. The smaller private capitalist sector operates within these boundaries and must follow the guidelines and regulations laid down for it.

As a result of this dominant role played by the socialistic economic forms, China does not experience the usual contradictions of capitalism such as the endemic problem of a falling rate of profit which eventually causes declining investment and cyclical upturns and recessions. The preponderance of public investment in China combined with its planning process has allowed it to bypass capitalism’s booms and slumps. For this reason, China does not suffer from capitalism’s chaotic and unplanned development which results in massive inefficiency and dislocation. It is this which explains why China has been able to have steady and continuous growth over the last forty years.

China has a stock of public sector assets worth 150% of annual GDP. This compares with most major capitalist economies which have less than 50% of GDP in public assets. Moreover, reflecting the dominant role of state-owned enterprises in China there is nearly three times as much stock of public productive assets to private capitalist sector assets. Compare this to the US and the UK where public assets are less than 50% of private assets. The same public sector dominant role is shown in investment with China’s public investment to GDP at around 16% compared to 3-4% in the US and the UK.

On the other side, there is no doubt that the private sector is playing an increasing role in the Chinese economy in recent years. But this can be easily overestimated especially if one is mainly looking at the highly visible retail sector, China’s stock exchanges and so on. As Michael Roberts, the well-known Marxist economist and online blogger explains with regard to China: “There has been a significant expansion of privately-owned companies, both foreign and domestic over the last 30 years, with the establishment of a stock market and other financial institutions. 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.5

Clearly, China is far from the form of socialist society we would want. But the undoubted faults and limitations of China’s system do not mean therefore that it is a capitalist society. A more realistic understanding of these economic labels must first begin by recognising that there are different kinds of ‘capitalism’ – primitive capitalism, developmental capitalism, advanced capitalism, dictatorial capitalism, democratic capitalism, and so on. All of which reflect the particular level of economic development, history and subsequent events in each country in which capitalism exists.

In the same way, why would we expect ‘socialism’ not to appear in various guises that also reflect the particular societies in which it arose, and the level of production it has reached? The Chinese accept this and still describe themselves as being in the ‘Primary Stage of Socialism’.

As we have explained earlier in this Manifesto, democratic socialism will only really emerge in an automated economy of abundance. A society where all the basic needs of humanity have been met and people can choose what activities to spend their time on. This is not a utopian vision but a realisable outcome given the current developments in material science, renewable energy, robots and artificial intelligence. But such a future society will take a long time and many struggles worldwide to achieve. It will not suddenly appear ready-made.

Capitalism had to develop side by side with feudalism, and even slavery, before it was able to replace them. It cohabited with these rival systems over many centuries. Sometimes peacefully, but more often not.

The same with democratic socialism. Any country embarking on the socialist road will need to deal with the existing capitalist world and to make compromises with it along the way. And to face inevitable conflicts until such time as the democratic socialist model becomes the dominant format globally.

Underlying the Left view that China is capitalist is a conception of socialism as some kind of utopian system which China obviously does not match up to. Socialism here is seen as a semi-perfect society. And anything short of this must be a form of capitalism.But just as capitalism went through various phases of development, China will take many generations to reach a level where it has the potential to abolish inequality, exploitation and alienation. And thus to proudly call itself a democratic socialist society.

How To Escape Backwardness?
The dilemma of how to move towards socialism in a poor and backward society presented itself starkly in China after the 1949 Revolution. In a society which had only recently abolished feudalism and landlordism, how could China be expected to bypass completely the economic processes that had made capitalism so successful? To somehow ignore and leap over the use of markets, private ownership of land, and the growth of small private and medium-sized enterprises. The steps that had been so essential in helping capitalism to increase the productive forces and leave its feudalist roots behind. How could a poor, populous society like China become an advanced socialist society in a few quick steps? Yet this is what Mao called for in his Great Leap Forward and then in his Cultural Revolution. Both campaigns failed miserably and in doing so dramatically set back the course of China’s development.

This was the lesson that the Chinese leadership learned and implemented once Mao had died and the ultra-left wing of the party was defeated. They realised that they had no choice but to unleash the forces of the market in the countryside if they were to give the peasants the necessary incentive to increase agricultural production and feed Chinese society. And then to lay the basis for the growth of light industry.

Likewise with the problem of technical backwardness. In a China with very limited financial resources, incentives or technological knowhow, how would it be possible to develop successfully without interacting with the far more advanced capitalist forces abroad? Without opening up to competition from international companies, importing their technology, integrating with them in joint venture companies, and utilising their capital. How else could China possibly catch up? Or to compete and in time defeat its capitalist rivals in the world market?

‘Keeping to the Socialist Road’
But such interaction doesn’t require a reversion to a capitalist system in China. Or the abandonment of the process of building a socialist society. As Deng Xiaoping, the Communist Party leader who steered the reform process after Mao explained: “Our general principles are that we should keep to the socialist road… An invigorated domestic economy will help promote socialism without affecting its essence. As for the practice of absorbing foreign funds, it is a supplementary means of developing the productive forces, and we need not worry that it will undermine the socialist system… our socialist state apparatus can safeguard the socialist system. And from the economic point of view, our socialist economy already has a solid basis in industry, agriculture, commerce and other sectors.
No matter to what degree we open up to the outside world and admit foreign capital, its relative magnitude will be small and it can’t affect our system of socialist public ownership of the means of production… Of course, this will bring some decadent capitalist influences into China. We are aware of this possibility; it’s nothing to be afraid of… We intend to acquire advanced technology, science and management skills to serve our socialist production.6

As Deng correctly anticipated, the hybrid mix of socialist and capitalist economic forms that developed in the Chinese experiment was bound to cause significant contradictions and conflicts.

On one side, the growth of a significant layer of wealthy capitalists in China began to create a faction in society that wanted to take the reforms much further in the direction of a restoration of capitalism. Even gaining support within a section of the ruling Communist Party. This tendency was greatly assisted by the rise of globalisation and neo-liberal ideology in the 1975-2008 period. And further strengthened in the wake of China’s entry into the World Trade Organisation in 2000. The signs of such a process became especially apparent in the period 2000-2007. This was the time when the Chinese constitution was amended to incorporate the principle of the protection of private property.

On the other side, a large section of Chinese society had a direct interest in defending the dominant socialist elements of the Chinese system. These included a majority within the Communist Party; the state and local government; the publicly-owned industries; the public sector agencies and public services. In practical terms many sections of the officials depended on these institutions for their continued existence. Such forces were very aware of the dangers of a capitalist restoration. They had seen the disastrous outcome of the reintroduction of capitalism in the Soviet Union and the dramatic collapse of the Soviet economy and society that it had caused. Reflecting this, from 2007 onwards we began to see a shift back towards the socialist side within Chinese Communist Party and government circles.

This shift was dramatically accelerated by the Great Economic Recession in the capitalist economies in 2008. Chinese authorities responded with a massive state stimulus package which successfully cushioned China from the effects of the global crisis. And in the process strengthened the public sector. The contrast between the deep downturn in the capitalist world with the continuing high growth of the Chinese economy decisively tipped the balance in China back to the Left. It gave the socialist elements much greater confidence in their policies and future. And this was reflected in the emergence of a more left-wing leader in the shape of President Xi Jinping.

Accordingly, in his first speech as General Secretary in November 2012, Xi Jinping insisted that: “Only socialism can save China, and only Chinese socialism can lead our country to development.” 7

Xi laid out his thinking thus: “For a fairly long time yet, socialism in its primary stage will exist alongside a more productive and developed capitalist system. In this long period of cooperation and conflict, socialism must learn from the boons that capitalism has brought to civilization. We must face the reality that people will use the strengths of developed, Western countries to denounce our country’s socialist development. Here we must have a great strategic determination, resolutely rejecting all false arguments that we should abandon socialism. We must consciously correct the various ideas that do not accord with our current stage. Most importantly, we must concentrate our efforts on bettering our own affairs, continually broadening our comprehensive national power, improving the lives of our people, building a socialism that is superior to capitalism, and laying the foundation for a future where we will win the initiative and have the dominant position.8

How the World Sees China
While many on the Left believe that China’s system is a form of capitalism this is not a view shared by the majority of people around the world. To them this appears to be a very strange characterisation of a country which describes itself as ‘socialist’ and is dominated by a Communist Party of nearly a hundred million members. Where students have to join the appropriate communist youth movement, wear communist clothing, learn revolutionary songs, chant communist slogans and study communist ideas. Thus in China, 130 million 6-13 year-olds join the Young Pioneers whose motto is “To fight for the cause of communism: Be ready! Always Ready!” Or the 110 million 14-28 year olds who move up into the Communist Youth League and march to the anthem: “Glorious! Communist Youth League of China. Mother named us with communism.” Or for those who go on to university and are required there to undertake serious study of marxism-leninism in order to graduate. This is all very strange behaviour for a so-called capitalist country!

Can China really be capitalist when its very Constitution* boldly declares “The People’s Republic of China is a socialist state under the people’s democratic dictatorship led by the working class and based on the alliance of workers and peasants.” A Constitution which clearly asserts that: “The State-owned economy, namely, the socialist economy under ownership by the whole people, is the leading force in the national economy.”? A society that glorifies its revolutionary socialist history and celebrates Marx, Engels and Lenin as its theoretical guides. And proclaims marxism-leninism as the official doctrine of the state.

In this debate over whether China is a form of capitalism or a form of socialism it is obvious to the vast majority of people across the world that China represents a very different system to capitalism. There is no need to dream up some artificial theoretical evaluation that flies in the face of the facts that everyone can see. As the popular expression goes: ‘If it walks like a duck, and quacks like a duck, then maybe it’s a duck!’

Nor do we have to go by how China describes itself. Let’s look at how its foremost critics define it.

Mike Pompeo, the US Secretary of State, addressed the question in July 2020: “We have to keep in mind that the CCP regime is a Marxist-Leninist regime. General Secretary Xi Jinping is a true believer in a bankrupt totalitarian ideology. It’s this ideology that informs his decades-long desire for global hegemony of Chinese communism. America can no longer ignore the fundamental political and ideological differences between our countries, just as the CCP has never ignored them.” 9

In this way, the neo-conservative wing of the US capitalists and their allies around the world correctly see the struggle against China as the continuation of an ideological conflict between capitalism and socialism.

A month earlier Robert C. O’Brien, US National Security Advisor, gave an equally clear outline of how US imperialism now views the Chinese system: “For decades, conventional wisdom in both U.S. political parties, the business community, academia, and media, has held that it was only a matter of time before China would become more liberal, first economically and, then, politically. The more we opened our markets to China, the thinking went, the more we invested capital in China, the more we trained PRC bureaucrats, scientists, engineers, and even military officers, the more China would become like us… As China grew richer and stronger, we believed, the Chinese Communist Party would liberalize to meet the rising democratic aspirations of its people. This was a bold, quintessentially American idea, born of our innate optimism and by the experience of our triumph over Soviet Communism. Unfortunately, it turned out to be very naïve. We could not have been more wrong—and this miscalculation is the greatest failure of American foreign policy since the 1930s. How did we make such a mistake? How did we fail to understand the nature of the Chinese Communist Party? The answer is simple: because we did not pay heed to the CCP’s ideology. Instead of listening to what CCP leaders were saying and reading what they wrote in their key documents, we closed our ears and our eyes. We believed what we wanted to believe – that the Party members were communist in name only. Let us be clear, the Chinese Communist Party is a Marxist-Leninist organization.10

Here we see how seriously the neo-conservative capitalists take the issue of China. They see it as an existential question. One that is even more of a threat to their system than that posed by the Soviet Bloc which while being a military superpower never threatened to defeat capitalism in the world market.

It is true that there is a section of capitalists internationally that take a softer line and favour cooperation with China, often for business reasons. Or in the persisting hope of persuading the Chinese leadership to move in a more capitalist direction. But these are increasingly in a minority both economically and politically. Post-Trump America may turn out to be less crude in its methods and propaganda against China, but the core direction of policy continues – China must be contained!

Despite this growing movement of capitalist political forces against China and the ideological terms in which it is being increasingly viewed, a section of the Left continue to pose the conflict as just another struggle between conflicting capitalist classes. Some on the Left even argue that the Communist leaders in China are capitalists who are maintaining all of this communist and socialist propaganda as some kind of “left mask”. But are we really supposed to believe that capitalists need to pretend to be socialists and communists, praise marxism-leninism and espouse the dictatorship of the proletariat? To pose the question is to show how absurd this idea is.

Missing a Great Opportunity
One of the downsides of this negative attitude of many on the Left towards China is their acceptance of much of the capitalist propaganda against it. Especially the means by which the capitalist media try to explain away China’s incredible economic success in terms of unfair competition, theft of technology and so on. Anything to avoid admitting the real reasons for China’s rise: its improved planning process, use of public investment, embrace of the importance of innovation, and state ownership of the commanding heights. All of these ensure that China’s ambitious plans are effective and implemented on time. Socialist economic forms that are proving greatly superior to the unplanned, chaotic and ineffective performance of the capitalist economies.

The Left could and should be trumpeting China’s unprecedented success in expanding the productive forces and raising living standards. And highlighting the socialist methods through which it has achieved these outcomes. Indeed, the Left should be celebrating a world where the leading capitalist countries are fast declining and being replaced by a system using socialist economic methods to expand and prosper.

Certainly, this was the past hopes of the Chinese Communist Party leadership. In an interview between Deng Xiaoping and Tanzanian leader Julius Nyere in 1985, Deng outlined his hopes for China’s new course:
Our reform is an experiment not only for China but also for the rest of the world. We believe the experiment will succeed. If it does, our experience may be useful to the cause of world socialism and to other developing countries… and will place China in the front rank of nations. When we reach that goal, we shall not only have blazed a new path for the peoples of the Third World, who represent three quarters of the world population, but also – and this is even more important – shall have demonstrated to mankind that socialism is the only path and that it is superior to capitalism.11

Certainly, China’s success is beginning to undermine the assumptions of capitalist economics and capitalist propaganda. It shows that an alternative path for development exists. Not surprisingly, significant sections of society, especially in the poorer countries, are now beginning to look to China for answers to their growing problems. They naturally ask the question: how is China achieving this fantastic success? And how can their own countries reproduce it? This process can only accelerate as China’s rise continues and it becomes the dominant economy in the world. This opens up the great potential for socialist economic policies to become highly popular and credible in the coming decades.

On the other side of the coin, if those sections of the Left who see China as a new form of capitalism are correct then a depressing and dystopian future opens up for humanity. If a new form of capitalism has really arisen that is willing to fully embrace planning, massive public investment and state intervention, then it has the prospect of overcoming many of capitalism’s contradictions. If a new form of capitalism has truly arrived that is willing to raise living standards and abolish poverty, while transforming people’s lives through advanced technology, why would most people be interested in a socialist alternative? To pose such strange questions is only to show how bizarre the idea is that China is some new form of capitalism.

That doesn’t mean that China represents the form of socialism that we want to end up with. In reality, China is a form of bureaucratic state socialism where decisions are taken at the top by the leading bodies of the Party and the state and the people are expected to then accept them. Clearly, China can develop a far better system for running its society. We will look at some ideas on this later in this paper.

The Campaign Against China
US President Donald Trump’s trade war against China did not come out of the blue. Nor was it dreamed up in his empty head. In fact, it was the previous President Barak Obama and his Secretary of State, Hillary Clinton, who began this campaign against China’s rising influence. In 2012 they launched a China containment policy entitled ‘Pivot to Asia’.

Although this containment policy is often dressed up in terms of defending democracy and human rights. Or for preserving the security of the US and its allies. The real reasons for the policy is to defend the hegemonic power of the United States and the dominance of capitalism globally. To this end, it looks like the US and its allies are too late. The undermining by China of the economic position of the US in the world economy has already taken place. This shift is dramatically portrayed in the following image:

This chart shows how China has reversed the balance of international trading power and is now the main trading partner of most countries globally. China is now the first or second trading partner of more than 120 countries. The US and its allies well understand that if this process is allowed to continue China will come to dominate the world economically and then politically.

This explains Trump’s trade war. But this economic war will not succeed as trade with the US only represents 2% of Chinese GDP. Indeed, contrary to what many think, the importance of exports to the Chinese economy is declining, having fallen from 25% to 17% in recent years. Thus, over 80% of the Chinese economy revolves around its internal market. So trade wars wont stop China.

Ironically, despite Trump’s tariffs and restrictions against Chinese exports, the trade deficit between the US and China has actually grown in the last two years, not fallen. And looking ahead, American financial services, which is the one area where the US has a big surplus with China, is likely to see a rapid fall as China’s financial institutions continue their inexorable rise.

The same is true with many of the measures that Trump’s administration has been taking against China on new technology, such as banning the sale of microchips and so on. All made in the spurious name of protecting national security. These restrictions have turned out to be very ill-judged as the US government began to realise how much damage this was going to do to the sales and profits of its own technology companies. And how they were only forcing China to develop a rival chip producing industry which would in due course further strengthen Chinese technology. Now, Trump’s administration has been forced to lift some of these restrictions with Huawei now allowed to buy American semi-conductors again. Even the banning of the highly popular Chinese online video site TikTok has now been delayed and put on the back burner.

Looking more broadly, China, as the world’s largest manufacturing and trading nation, lies at the heart of the highly integrated supply chains that tie global production together. As such it is proving well-nigh impossible to exclude it without inflicting serious damage on the profits of the multinational capitalist companies.

Yes, some companies have shifted production in recent years from China to other Asian countries such as Vietnam, Thailand etc. But these have tended to be for low value products where cheap labour is a necessity for profitable manufacture. China has long anticipated such developments and its main focus is on switching over to higher quality and higher value production. Such production is staying in China in order to maintain access to the rapid and sophisticated technical infrastructure and logistics that the producers can only find there. And to take advantage of the Chinese market which in one sector after another is becoming the largest in the world.

China’s Belt and Road Initiative
In 2013 President Xi Jinping announced the Belt and Road Initiative, China’s ambitious programme to help build infrastructure and industrial capacity across Asia and beyond. And through this to link China to Europe, the Middle East, Africa and now Latin America. To help build this new ‘Silk Road’ investments of $2.5 trillion have been made available. So far more than 100 counties have signed up to the BRI with 40 countries and international organizations entering into Cooperation Agreements to take advantage of it.

For China, the Belt and Road Initiative achieves a number of goals. For one it will greatly expand Chinese trade with its BRI partners which already stands at 3 trillion dollars. Plus, it uses up China’s spare construction capacity and utilises their extensive expertise in road, train, tunnel, bridge and airport building.

For China’s BRI partners it opens up the starting point for a new international economic and political order. “The BRI… is an exploration of a new model of global cooperation and governance, which not only seeks the development and prosperity of the world economy but also proposes a more just and reasonable system of global governance.12 This is clearly understood by the US and its allies and is yet one more reason for their growing determination to contain China before it is too late.

An accusation made against China is that its Belt and Road initiative is a form of imperialism. But this accusation doesn’t stand up to investigation. The traditional western model of colonialism and imperialism was for companies to seize land and resources backed up national military forces which imposed their claims. And to then use local peoples as cheap labour to extract the maximum profit. Where infrastructure was built, it was usually designed to develop each colony separately and connect them to the colonial centres. This is why there is virtually no transport across Africa which could have helped develop trade within each region and the continent as a whole.

Even the latest versions of neo-imperialism are usually based on multinational companies buying land and concessions cheaply and operating them with minimum benefit to the local countries they are based in. Taxes are regularly evaded and little invested in developing services for the native populations. Even where locals own their own land the multinationals pay them a pittance for their produce, and reap big profits from the high prices they charge to consumers in the richer countries.

In contrast, China’s approach is based on contracts that bring concrete benefits to the countries that are working with it. Thus, in exchange for minerals and other resources, China is helping its partner countries build railways, roads and airports. In Africa, for example, where 70% of roads are unpaved and many become impassable in bad weather, China has helped build ports and railway lines in East Africa which is making an East African regional economic zone a reality. Similarly, it is helping to build both a cross-Africa highway and a West coast motorway which will ensure continuous transportation for the first time between many of Africa’s main population centres. And take weeks off the time currently needed to move products around the continent.

China is also encouraging its BRI partners to form special economic zones where local industrial bases can begin to develop. Ethiopia, China’s closest partner in Africa is reaping the benefit with growth rates in excess of 10% a year, the best in the continent. China is also assisting developing countries to build facilities that process their raw materials locally into finished products rather than allowing the lion’s share of added value be enjoyed elsewhere. This is hardly the actions of an imperialist nation seeking to suck the lifeblood out of poor societies.

In fact, China is simply attempting to export its own successful model of infrastructure building and independent economic development to countries across the world that need it. And expecting that the increased economic activity thus generated in these countries will lead to rising trade between them and China.

Debt-Traps?
A major charge made against China’s Belt and Road Initiative by the United States and its allies is over the finances involved. They accuse China of lending large sums to its BRI partners for all these projects in order to create debt traps and turn them into dependent semi-colonies. These charges are rich coming from the advanced countries that deliberately sold the developing world high interest loans in the 1980s and 90s. And when they couldn’t repay them, they impoverished these countries by imposing privatisation and severe cuts in public services as part of ‘Structural Adjustment Programmes’.

Today, most of the poorer developing countries are seen as too high risk to attract capitalist investment. Only China is willing to lend them money for development. And does so on long term schedules and at relatively low rates. This is why these governments are happy to work with China and ignore the hostile propaganda being levelled against it.

Where countries have not been able to repay their loans on schedule to China, in almost every case China has shown a willingness to reschedule and renegotiate them on reasonable terms. The reason – it is not driven by commercial short-term concerns or by impatient private lenders. But is looking to build a long-term relationship based on continuously expanding trade and cooperation.

Much has been made of one particular case – China’s supposed swapping of debt in Sri Lanka for a long term lease on Hambantota, a new port that China had helped to build. The accusation is that China is now able to use it as a military port which is part of their aim to use its BRI partners to dominate the world. In fact, this whole story is a myth made up by the capitalist media. The port is not now owned by China but still owned by Sri Lanka and the security of the port is in the hands of the Sri Lankan government and navy. A long-term lease of 70% of the port was sold to a Chinese company but not as a ‘swap for debt’ deal. It was a commercial deal, with the $1.12 billion purchase price used by Sri Lanka to help make short term debt repayments on high interest dollar loans it had earlier taken out on the international money market. Thus far from selling part of its port to help pay off a loan to China it was to pay off loans to European and North American banks!

Ironically, China has been mocked for building the Hambantota port as a white elephant in the middle of nowhere with no prospect of viability. Yet China is building for the long term. Already contracts are beginning to arrive which are making the future of the port more viable.

More generally, debts to China in its partner developing countries make up only a fraction of their borrowings. For example, only 17% of the debts of its African partners are to China. The big majority of debts in the developing world are still with the West and at relatively high interest rates which continue to suck their resources away from desperately needed development. Yet nothing of this said by the capitalist media in their campaign against China.

Of course, not everything is perfect in China’s relationship with the developing world. One issue revolves around local employment. Complaints have been made that Chinese companies mainly employ their own people for their projects and therefore the people are not benefiting from these projects or skills being transferred. While there are some projects where local people have been fully involved, there are undoubtedly examples where they have not. Naturally, the Chinese state companies building these infrastructure projects will want to bring with them their construction expertise which is now the best in the world. In this way they can guarantee that the projects will be of the necessary quality and completed on budget and on time.

Similarly, local governments don’t want to see shoddy projects which are unfinished or fail. They have had too many such experiences in the past. Their main priority is with the long-term economic growth and benefits that this new infrastructure will open up for their economies rather than the short-term employment the actual construction will deliver. But there is a balance to be reached here. And there is no reason why China can’t insist that Chinese companies include a greater level of local employment in their deals abroad.

Likewise, China depends very much on its local partner governments. If they choose to use China’s loans corruptly or to continue to oppress their people then the original purpose of the loans for raising capacity and living standards will fail.

Another concern is with the behaviour of private Chinese companies. There are a number of reports of these companies riding roughshod over the interests of local people in developing countries. Being so far from Beijing, no doubt they feel that they can get away with all kinds of anti-social and exploitative activity.

China can’t wash its hands of its responsibility in such cases. It needs to develop a code of conduct for its companies operating abroad and enforce it rigorously. Or it will alienate the local populations and ruin its efforts to build strong and fruitful relationships there.

Foreign policy & Internationalism
Capitalism is based on competition between and exploitation of individuals and nations. If it is to mean anything, Socialism must be based on co-operation and sharing between people and nations. On a true policy of internationalism.

Given that Socialism is the official guiding principle of the People’s Republic of China, internationalism must be a key focus of Chinese government policy. To this end, China follows an official policy of peaceful coexistence and non-interference in the affairs of foreign governments. This is good because the people of each country have the right to determine their own future free from foreign domination and direction. It also contrasts with the approach of the rich capitalist countries who regularly try to overthrow the governments of countries they disapprove of or feel are threatening their interests. Usually they do so in the name of human rights and/or preserving democracy although all too often they end up installing corrupt oppressive dictators.

To overcome the capitalist approach to foreign policy, China argues for a new international economic and political order based on the ‘Five Principles of Peaceful Coexistence’. These principles agreed in negotiations with India back in the mid 1950s, are as follows: “1) mutual respect for each other’s territorial integrity and sovereignty; 2) mutual non-aggression; 3) mutual non-interference in each other’s internal affairs; 4) equality and cooperation for mutual benefit; 5) peaceful coexistence.” 13

This is a fine approach in theory but it doesn’t take into account the undeniable fact that capitalism is not willing to allow progressive governments to thrive, never mind socialistic ones. Capitalism and socialism may coexist side by side for a period but inevitably capitalism will seek to destroy socialism as we have seen in the past. And now see in the emerging cold war by the US and its allies against China.

After Mao died, China adopted a policy of keeping its ideological “light under a bushel”. Thus, China followed Deng Xaioping’s advice about being modest: “‘To observe and analyze calmly, to secure our position, to deal with issues with confidence, to hide our capabilities and wait for the right moment, to be good at keeping a low profile, never lead a claim, to carry out operations of modest nature.” 14

But times and the balance of power in the world has changed. President Xi Jinping now correctly talks of the Chinese model and offers it as a possible example for other nations to follow. As such, a policy of non-interference should not stop China from clearly explaining the basis of its success and offering to help other countries learn from its experience. As China becomes even more successful, it is inevitable that its economic model will become more popular in the poorer countries and even in some of the more advanced ones too. Towards this end, China is now training officials from many developing countries in a very different model of economic development through state-led growth. China is also inviting representatives from the main political parties in many countries to visit China and attend international conferences and events where they can share ideas. And learn from the Chinese experience.

However, many other Chinese officials including on CGTV, China’s important 24-hour English television channel, are still reluctant to properly explain or promote China’s economic model of planning, public investment and public ownership. As a result most people around the world have no understanding of China’s economic model or why China is succeeding. They are being left to the mercies of the capitalist media with all their outdated and false stories of Chinese cheap labour, theft of technology and unfair government support.

To make matters worse, these fainthearted Chinese officials and commentators incorrectly argue that China’s experience is unique and won’t necessarily work elsewhere. But this line is not fooling anyone. Certainly not China’s enemies who fully understand that China’s system is a threat to theirs. That the more China gets stronger and richer the more other countries will want to emulate it. And the more it will fatally undermine the capitalist model. After all, if China is already being attacked by capitalist politicians for wanting to export its socialistic model around the world, it might as well do it and gain the benefits.

In the battle for public relations, China regularly fails to match the efforts of the United States and its allies. Chinese official statements come across in a very wooden and stilted form. Often adopting a high-handed tone. For example, the reply of Hua Chunying, Chinese Foreign Ministry Spokesperson and Director-General of the Department of Information, to the important speech made against China by US Secretary of State, Mike Pompeo, in July 2020 took entirely the wrong tone: “Pompeo’s speech at the Richard Nixon Presidential Library suggests that he wants to present himself as the John Foster Dulles of the 21st century, launching a new crusade against China in a globalized world. What he is doing is as futile as an ant trying to shake a tree.15

The arrogant implication here is that China is the “tree” and the US is the “ant”. Not the response that was needed. Nor did it answer any of America’s charges.

Sometimes the official Chinese reaction to criticism verges into threats. In an exchange over Hong Kong in November 2020, Chinese Foreign Ministry spokesperson, Zhao Lijian, challenged the ‘Five Eyes’ intelligence alliance of the US, Canada, UK, Australia and New Zealand: “No matter if they have five eyes or 10 eyes, if they dare to harm China’s sovereignty, security and development interests, they should beware of their eyes being poked and blinded.16

Clearly, there is an important battle over China’s record taking place in international public opinion. In this propaganda war, China needs to come out with an effective public relations strategy based on real internationalism if it really wants to defeat this wave of hostile capitalist propaganda. Nor can this information battle be left up to Chinese government officials. It needs progressive people across the world to join the fray to ensure that the lies and slanders against China are exposed. And the good things that China is achieving are highlighted and better understood.

Arms & Reactionary Regimes
A significant contradiction in China’s policy of non-interference is its willingness to supply arms to reactionary regimes. These weapons are inevitably going to be used in internal or external conflicts. And often end up in the hands of combatants in other countries.

How can this be compatible with China’s policy of peaceful coexistence and non-interference? Certainly, anyone on the other end of such weapons will not consider their sale to their enemies as “peaceful” or “non-interference”. If China really wants to achieve peace and co-existence then it must cease supplying arms abroad while leading a massive international campaign against the arms trade. In this context, China should demand that the US scale back its military for matching reductions on the Chinese side. Among other benefits, this will clearly expose the massive imbalance in arms between the US and China, along with all this overblown propaganda against so-called Chinese aggression.

China’s Relationship with its Neighbours
Another subject on which the capitalist media is constantly attacking China is over its relationships with its surrounding countries. However, it is not generally known that since the Revolution of 1949, China has settled 17 out of the 23 outstanding centuries-old territorial disputes with its neighbouring nations. In these settlements it made generous concessions which resulted in its neighbours receiving more than 50% of the land in question.

However, China still faces a number of unresolved land and sea border disputes. Contrary to the existing international rules on land and sea borders which are based on rival nations asserting their interests, China should openly champion a new world order based on the socialist international values of cooperation, sharing, assistance, and partnership. Within this frame of reference, China needs to publicly reach out to the peoples of its border countries where it has outstanding disputes and show a willingness to make concessions, share resources, and cooperate in joint development. This is fully in line with its Belt and Road Initiative. And is the best way to move towards resolution of these disputes and to undermine the ongoing capitalist propaganda that China has adopted an aggressive foreigh policy stance in the region.

India & Bhutan
Unlike many of China’s other neighbours, India (and Bhutan, India’s small satellite state) have not sought to settle their border disputes with Beijing. This has led to conflict including the 1962 China-india border war.

More recently, a violent skirmish in the Himalayas led to the loss of life on both sides. On the Indian side 20 soldiers died, the majority caused by the collapse of a road. The Indian authorities made great publicity out of the fatalities and the funerals in order to stir up public animosity to China. This is part of Modi’s racist approach to politics. In contrast, China did not give any information about its own casualties in an effort to minimise public outrage and racist reaction at home. In fact, the Chinese government pursues a strong policy against racial conflict and division in society which is one of the main reasons it banned Facebook for being unwilling to remove anti-islamic sites put up after the many Uygur terrorist attacks in China in the 2013-2016 period.

On the other hand, China has approached the conflict in the Galwan Valley in a too aggressive and militaristic fashion, just as India has. This area high in the mountains is uninhabited and of little economic or strategic value. However, the conflict between the Chinese and Indian forces over it has caused a major rift between the two countries and a massive shift in Indian public opinion against China. This has provided the excuse the Indian government wanted to take economic sanctions against China, withdrawing from joint projects and stopping the sales of various products, use of computer apps etc. This has all played into Modi and the US strategy of isolating China. Such conflict with India is not at all in China’s interests.

Since the conflict a Disengagement Plan has been agreed. It includes the dismantling of new construction made since April and the withdrawal of military equipment in the disputed areas. No patrolling activity will take place along the Line of Actual Control. China will pull back from a disputed observation post. This agreement is designed to cool down the conflict. But the damage to China’s image among the Indian population will take much longer to repair.

Instead, China needs to be willing to go further in its approach towards India and offer major concessions as part of a well-publicised campaign offering cooperation and sharing of resources in the disputed areas. It needs to go well beyond the usual cautious diplomatic language and appeal directly to the Indian public so that they know that China greatly regrets what happened and genuinely wants to take steps to resolve the issues involved.

India may rebut such an approach as it now suits Modi to look for reasons for conflict with China, which it sees as a serious competitor. That is why it now seeks an alliance with the United States. But it is important that the offer is clearly made by China in order to lay down a marker for a future change of government in India.

Of course, there is no reason why India should not also see the United States as an equally formidable competitor. Recent trade actions by America bear this out. Indeed, the US has no interest in seeing India become a major economic power and the Indian masses brought out of poverty. This would just create another competitor for US goods and services and further accelerate America’s decline. On the contrary, India would gain far more by joining forces with China and fully participating in the Belt and Road Initiative. The latter would help unite India with its surrounding countries through the building of various road, rail, power and telecommunications links.

In the short-term, in order to reduce the constant danger of further clashes on the borders between China and India, China should suggest the formation of a demilitarized zone in the same form that exists between North and South Korea. This would prevent Chinese and Indian forces from coming into physical contact with all the potential conflict this implies.

South China Sea
In recent years, China has strongly asserted its historical right to sovereignty over the South China Sea. In doing so it has come up against conflicting claims from the bordering countries: Vietnam, Malaysia and the Philippines. Using its superior naval forces, China has prevented the operation of traditional fishing boats from its neighbours and started to create and expand atolls into islands on which it is building airfields, docks and other facilities. Irrespective of the historical justifications involved, China should not be approaching these questions in a national way or enforcing its claims by means of military strength. Instead, China should be proposing ways for it to share sovereignty and resources with its neighbours and offering its massive infrastructure resources and expertise in order to help develop the maritime region. Such partnership would undercut the efforts of the United States and European navies to use this issue against China and remove their justification for regular provocative naval patrols through the area.

China’s Internal Disputes

Taiwan
After the 1949 Revolution the right-wing nationalist forces under Chiang Kai-shek retreated to the island of Taiwan which they continue to laughingly call the ‘Republic of China’. Since then, the island has greatly developed economically and now has a population of 24 million. There still remains a small native population but 95% are Han Chinese and Mandarin is the main language. So the potential for reintegration with the mainland remains not only the ideal course but a highly viable option. Ironically, the governments on both sides favour integration between the island and the mainland but only on the basis that the other side adopt their system. However, in recent times there is a movement in Taiwan for independence from China. This has been unofficially encouraged by the United States, who have been increasingly supplying Taiwan with sophisticated military equipment. The US regularly patrols the island by sea and air which China naturally regards as provocative moves against it.

China is naturally very unhappy about this militarisation of the island and possible moves towards independence. Its response has been to threaten military action. To fire warning missiles over the island and mount military exercises based on a possible invasion. On the other hand, President Xi Jinping has called for the “peaceful reunification” 17 of the island into China. This is clearly sending contradictory signals to the Taiwanese people and internationally. After all, peaceful reunification is hardly likely to come about in an atmosphere of military threats.

Indeed, this is a counterproductive strategy which just plays into the hands of China’s enemies and provides further propaganda for the opponents of integration with the mainland. Logically, China should stop issuing military threats and make clear to the people of Taiwan that it is their right to decide on integration without fear from any side. In the meantime, China should rely on future advances in economic and social conditions on the mainland to convince the Taiwanese of the benefits of reunification.

Hong Kong
The relationship between Hong Kong and mainland China is another area of conflict which the capitalist media is amplifying in order to discredit China. We have examined the history and issues involved in the Hong Kong dispute in some detail in our article ‘Hong Kong – the Real Story Behind the Protests’.
Among our conclusions we recognised that foreign intervention designed to damage China has become a major factor in the conflict. Accordingly, we demanded that the US, UK etc. stop interfering in Hong Kong and stop trying to use its citizens as pawns in their rivalry with China.

On the other hand, China needs to operate with full transparency. The way that they rushed their new Security Law for Hong Kong through the Chinese People’s Congress without prior consultation was not the right approach. China should be using its powerful position to expose the past colonial role and racism of the British in Hong Kong and the elite they have left behind. To argue against HK independence from China and for greater economic integration with the mainland. For the improvement of living standards in Hong Kong that would result from joint development with Macau and Shenzen in the Guangdong regional Bay Area project. A project that would bring well paid manufacturing jobs to a Hong Kong suffering from rising unemployment, poverty and an increasing housing crisis.

China should launch a major public inquiry into the links between the US and UK intelligence agencies with the Hong Kong protest leaders. Likewise, they should ban large donations to political parties and take other measures to cut the HK tycoons down to size and remove their influence in local politics.

China urgently needs to end private ownership of the media and social media in Hong Kong and replace it with democratic and accountable alternatives. Above all, Hong Kong needs a real participatory democracy not a billionaires democracy version of it. A real democracy from which China can learn lessons and apply them to the rest of the country.

Xinjiang & the Uyghur Muslims
One of the current avalanche of accusations against China is over its treatment of ethnic minorities. In particular, China is accused of oppressing the Uyghur Muslims in its western region of Xinjiang. Among the many charges, China is supposed to be imprisoning millions of Uyghurs; sterilising the women; suppressing their language and religion; and forcing them into slave labour.

We will be forgiven for questioning these reports in the capitalist media which are very much like past western-based propaganda campaigns. Campaigns aimed at demonising political enemies as part of ‘regime change’ operations. After all these lies by politicians and their echoes in the media justifying sanctions, coups and wars in the Middle East, in Africa and Latin America, we just don’t believe them anymore. All their deceitful talk about protecting human rights and upholding democracy should no longer be taken seriously by left-wing minded people or even liberals. And the facts they report about abuse of human rights should be treated with the greatest suspicion and distrust.

 It is all too easy for the neo-conservatives in America and its allies to orchestrate this propaganda war against China by focusing on a far-off and little known area in the middle of the Asian landmass. Levelling lurid accusations against China in an area that few have visited or really know anything about.

In this case, one’s sceptical antennae immediately rise when all the reports conveniently remain silent on the underlying issue that began this story. As any objective account would acknowledge, the problem in the Xinjiang region revolves around a long-running secessionist movement which seeks to break the region away from China. And to create a new country called East Turkestan. In time, this movement, calling itself the East Turkestan Islamic Party (ETIM), became greatly affected by the development of political islam in neighbouring Afghanistan, with Uygur militants later being encouraged and trained by Al-Qaeda in terroristic methods. Now their aim is to create a new nation based on Sharia (fundamental Islam).

These ETIM militants have been launching terror attacks against local Chinese government targets as far back as 1992. But in 2013 the attacks reached a higher level of intensity and took the form of horrific attacks on individual Han Chinese civilians across China. Yet the current media criticisms of China’s treatment of the Uygurs repeatedly fail to mention this key background to the situation.

The response of Chinese authorities to these terror attacks has been a combination of security measures – clampdowns, arrests and surveillance – with attempts to re-educate local people away from islamic fundamentalism. Accompanied with steps to economically develop the region which is China’s poorest.

Inevitably, some actions taken by the Chinese government to deal with the situation will have been heavy-handed and overreaching. Just as they have been in Western responses to terrorist attacks. More importantly, the local Uygur muslim community, the overwhelming majority of which oppose the terrorist attacks, should have been fully involved in deciding on the measures taken to deal with the terrorism problem. Indeed, there is no reason why China can’t begin to do this now. It would certainly be a welcome contrast to the failure of the West to involve its muslim communities in designing and implementing its efforts to combat terrorism.

On the other hand, we should not be lending credence to these wildly exaggerated US-funded reports about millions in camps, mass forced sterilisation and genocide. If this was really the situation in Xinjiang we would be recording a falling Uygur population instead of a rising one. We would be seeing masses of refugees streaming out of the region. We would be hearing many reports of this oppression from the many foreign visitors and delegations who are regularly visiting the region. Instead, Uyghurs are regularly travelling in and out of Xinjiang, along with tourists, business people and so on. Hardly behaviour that matches these extreme reports.

All these disturbing narratives in the capitalist media are specifically designed to make China appear racist towards its 55 ethnic minorities. And to muslims in particular. In fact, China has a better record than the West in dealing with its ethnic minorities: encouraging and supporting their languages and cultures; providing political representation; supplying economic support; and arranging affirmative action in education etc. Its treatment of muslims is no different. It is ironic that the United States and the rest of the West should be shedding false tears about China’s treatment of muslims when it has so clearly implemented racist measures against muslims and allowed Islamophobia to flourish.

On the re-education camps, the thinking of the Chinese authorities is not to lock up the Uygur population which would be neither practical or effective. Rather, it is to educate local people away from religious extremism and encourage them into long-term employment and prosperity. But, to be effective and acceptable this policy of reducation should be done jointly with the local muslim community. This would reassure everyone that there is no suppression of religion, language or rights.

The Chinese authorities are using these camps to provide young people in Xinjiang with occupational training so that they can move out of poverty. To complement this, they are investing heavily in the region’s infrastructure and redirecting factories to the area so that jobs are available to local people. This contrasts favourably with the inaction of western countries who continue to leave the majority of their ethnic minority populations in conditions of high unemployment and relative poverty.

One of the most potentially damaging aspects of the false propaganda campaign being organised by Western governments over the Uygur Muslims is its latest campaign to persuade foreign companies to pull out of Xinjiang over the non-existent issue of “slave labour”. If this campaign is successful it will lead to unemployment among the very Uygur people they claim to care for.

Human rights in China
China is often portrayed as denying human rights by critics in the richer countries. But this concept of human rights in the advanced countries has a very narrow definition. It tends to focus entirely on higher level political, ethnic and religious rights, and misses out on the human rights to a basic level of existence. For example, what about the human right to have enough to eat? Or to have employment so that one has sufficient income? Or to have shelter for oneself and one’s family. Or clothing, education, health services, transportation and so on. If we were to create a scale of human rights surely these must be at the very top. And political rights etc. would be much lower down. After all, you can hardly exercise political rights if you are starving, or cold, or isolated, or sick. Of course, if you already have such basic human rights – the situation in the richer countries where the majority of people enjoy such conditions – then you can easily come to take them for granted.

It is on these basic human rights for living that China has achieved so much. Lifting 850 million out of extreme poverty is not something that can be dismissed lightly or set aside in any consideration of human rights in China. It is an incredible achievement by the Chinese Communist Party-led regime which has greatly uplifted the human rights of the people. As we can see in speech after speech by Chinese leaders, and in their policies, the Chinese government makes the prosperity of its people the main priority.

We can see this priority reflected back in the attitudes of Chinese people to their government and its achievements. Most Chinese people are very happy with the way that their country is developing. This contrasts greatly with the widespread discontent in the leading capitalist countries. In a 2019 survey of Chinese people, UK Polling company Ipsos found that 91% thought that “China was on the right track”. When the same question was asked of the American population only 41% thought that “America was on the right track” (and this was artificially boosted by a large Trump minority). When the same question was asked in the UK only 21% thought that “Britain was on the right track”.

How China can be Improved

So far, we have refuted many of the charges being made against China. Albeit with some recommendations for China to take a new course on some issues. But life in China is not all sweetness and light. While things are definitely getting better for most citizens, and at a very rapid pace, there are problems in the country that left unresolved could cause future disruption and discontent.

Inequality
Inequality in China is a major and growing problem. China has gone from being one of the most equal countries in the Mao era, to one of great inequalities today. Credit Suisse’s annual wealth survey in 2019 reported that “there were 100 million Chinese people among the world’s top 10% of richest people, compared with 99 million in the US”. 18 Apparently, out of the world’s billionaires China now has a third, even more than the 626 billionaires in the US.

The first qualification about this growth of wealth for the rich in China is that it has not been accompanied by a fall of living standards for the rest. Despite the spectacular growth in wealth for a small minority, China has also seen a massive increase in living standards for the rest of the population. The reason for this lies in the actions of the Chinese government which has made poverty reduction, full employment and rising living standards its primary goal: “making China a prosperous country” as they put it. This contrasts with the capitalist governments which in recent decades have presided over a stagnation in living standards and a rise in poverty. A process that has rapidly accelerated since the Great Economic Recession when the Western governments transferred the costs of the mistakes and fraud of the ‘banksters’ onto the shoulders of working people through a long and continuing policy of austerity.

That said, inequality in China definitely has its major downsides. The incredible wealth held at the top has to have come at the expense of the rest of the population – the top 1 percent in China own more than one third of national net personal wealth while the poorest 25 percent own less than 2 percent of total household wealth. While the rest of society has made progress it could have been even more if the trillions held by the rich in China had had not been sucked out of the economy and society deprived of these resources. For example, living standards for the majority could now be higher. While health and social security could be much more generous.

This accumulation of great wealth has other major disadvantages for society. Money usually translates into power. This is certainly the case in the capitalist countries. There the billionaires run society from behind the scenes, funding the politicians and the media that promotes them. In China things run differently. The rich in China today are unhappy with their lack of political power. Even the richest in China can find themselves behind bars and their fortunes confiscated if they step out of line.

But for how long? The ownership of great wealth in China is an ever present threat to good governance for the many. The super-rich can utilise their wealth and staff to secretly influence opinion, Party and government decisions. And even without this, the super wealthy have their own power over the millions among their workforces, consumers, suppliers and so on.

Great wealth also invites corruption. The big majority of corruption cases that have been revealed in the anti-corruption drives in China have involved rich people giving bribes to state officials.

Great wealth inevitably undermines fairness in society. The wealthy will almost always seek to buy advantages for their children and family relations. Advantages in education, in employment, in government positions and so on. Advancement of individuals then becomes less based on merit and more on “who you know, not what you know”.

Last but not least, great wealth held in the hands of a few depresses economic demand as the wealthy tend not to spend their wealth unlike the ordinary people who have no choice but to do so.

Unlike in the USA where the rich are often celebrated, in China they are not popular. Most Chinese correctly believe that the billionaires have only become super-rich by means of tax avoidance, corruption or exploitation of labour and consumers. Certainly most of them couldn’t have inherited their money given the ‘equality in poverty’ that existed under Mao. And no-one is capable of earning a billion through simple hard work.

But even in the USA there is a growing reaction to the rise of the billionaires. Questions are being asked: who needs 1000 million dollars? Who could spend such excess in their lifetimes? Should we allow billionaires in the first place?

And if these questions arise in capitalist America how much more relevant are they in socialist China?

The answer in China is simple: use its tax structure, inheritance rules and legal system to introduce strict limits on wealth. China needs to end the possibility of becoming a billionaire and to redistribute the excess wealth of the existing billionaires to the rest of society. This will generate a huge amount of economic growth and help China reach its goals of a prosperous society even faster than 2049.

No doubt, there will be scepticism about the feasibility of such a change. But there was such scepticism about China’s drive to end extreme poverty which was achieved ahead of schedule. Now let’s shift the campaign from ending extreme poverty to ending extreme wealth. Just as China cracked down on corruption in the last decade, let’s launch a major campaign against extreme wealth and the causes of extreme wealth. A campaign that emphasises the socialist principles of sharing, of fairness, of service.

To begin such a campaign, the existing rules governing movement of money will need tightening so that the wealthy cannot hide their wealth, move it outside of China or into tax havens. Alongside this is the need to ensure that wealth is much more transparent in Chinese society. Such transparency to include an open register of property, public transparency of ownership of companies, a requirement to make all wealth holdings open to inspection by government officials, journalists etc. Once the population understands the scale of the problem and the excesses indulged in by the super-rich, there will be no problem in gaining full support for the measures needed to reduce inequality in society. Among such measures will be the introduction and enforcement of stiff inheritance taxes for the wealthy. With no loopholes. China needs to adopt the socialist principle that the gains made by an individual should not unduly privilege their offspring.

Of course, the soon to be ex-billionaires in China will not like the new rules. But they can be posed not in terms of punishment or envy. Rather in positive terms of voluntarily ‘giving back to society’, helping the poor and disadvantaged. After all, the rich give large sums to private charities. Why not to society as a whole?

Media & Censorship
The image is presented in the West that Chinese people are living in some kind of prison, forced to conform like robots under an oppressive level of surveillance. The reality is very different. With Facebook, Whatsapp and Youtube excluded from China, Chinese people are mercifully free from the fake news which floods social media elsewhere and is confusing and dividing people from each other.

That is not to say that censorship from above is a great system. What is needed is for a democratic media system that involves viewers and listeners, writers and readers in deciding on its output. With accountability governed by democratic criteria drawn up by the wider population. Details of how such a system could function effectively are included in our Manifesto.

On the other hand, the volume of anti-China propaganda that floods the capitalist media is reaching new heights. It even gives credence to crazy stories of how the Chinese government is encouraging forced organ harvesting. So bad is this propaganda that a growing number of foreigners living in China have become video bloggers and self-taught journalists in order to counter all the lies and hostile reports from the capitalist media.

Surveillance & Privacy
Another common attack on China concerns its video surveillance of its population. Yet, surveillance capitalism is a common feature in the West. As ex-government security consultant Edward Snowden revealed, the United States and its four allied countries in the Five Eyes network are snooping on everyone in the world. Every email, phone call and internet click on the planet is monitored and recorded by this network. Indeed, the plan to ban Tiktok in America was not to prevent the Chinese getting its hands on the personal data held by this online video service. Rather it was to allow the United States National Security Agency to get hold of this data and merge it with all of the material it already gathers up from Instagram, Youtube, Facebook, Google and so on. No doubt the US is working on technology to be able to scan and record every public video camera of which there are rapidly increasing numbers in every country.

So the problem of surveillance is not at all restricted to China. It is a common and growing problem across the world. Surveillance itself can be used for good or bad purposes. It need not be a threat but just an aide to stopping crime, reducing traffic and so on. The key question is who is viewing and recording this data and what are they using it for. In the capitalist countries the answer to these questions is unknown as these operations are highly classified. China should respond to these charges of threatening surveillance of its people by opening up its surveillance processes to full public scrutiny and accountability. And challenge the West to respond in kind.

The Private Sector
Many of the problems in China must be laid at the door of the private sector. It is mostly the private and not the public sector that has caused economic inequality, corruption, exploitation and the degradation of the environment.

Further, the emergence of a super-rich layer in China enriching themselves at the expense of the rest of society is a direct outcome of the private sector – almost all examples of public corruption have involved the bribing of officials by private companies or private individuals.

Likewise, the exploitation of workers with long hours and poor wages is almost entirely found in the private sector. This is especially true for the migrant workers from the countryside who have no choice but to take up work in the private sector when they arrive in the cities.

Last but not least, there is a danger that the rising wealth and power of the capitalists and the private sector in China will come to undermine the public sector and the state. For some time, billionaires have been allowed to sit in leading bodies of the Communist Party. The idea being that in this way the Party can control them. But participation in this way can work both ways. How long before the tail starts to wag the dog? And why are the rich being given privileges not open to the rest? It is our view that the rich should not be in the leading bodies of the Communist Party. That people should be in the leadership by virtue of their ability and the leading role they play in society not by their wealth.

Another means by which the Communist Party tries to control the private companies is by creating Party cells and units within them. This attempt at establishing dual power in the larger public companies won’t work if the company owners continue to have the main power and wealth in the company. Indeed, such a system risks corrupting the leaders of the CCP cells. Also, even if the communist units in the companies have some influence, what about input from the rest of the workforce, the consumers, suppliers etc? The existence of Party units inside the private companies offers no guarantee of social responsibility.

Despite the many problems posed by the private sector in China, it performs a necessary role at this stage of development. Certainly, the existence of small and medium-sized companies play a key part in providing employment and delivering services. A part that the larger publicly-owned enterprises are often not best suited to perform. Although co-operatives could certainly take on more of such a role in China. And stronger regulations and common standards could help to cut back on the negative results of private sector operations.

The bigger problem exists with the larger private companies in China. Once they reach such a size that they become essential to the public good they logically need to be incorporated into the public sector. But how to do this without losing their current levels of efficiency and innovation? Is it possible to introduce a new model of governance to the public sector and society as a whole?

Capitalist Democracy or Bureaucratic Rule
The main charge laid against China by the advanced capitalist countries is its lack of democracy. The fact that it does not operate a western-style system of competitive parties and competitive elections. Yet, western style democracy is rapidly descending into a farce. A century or more ago the wealthy elite in the capitalist countries opposed giving everyone the vote. They feared that the majority would understandably use their voting power to support the transfer of wealth from the few to the many. Yet in most countries this didn’t happen. The elite found that through their wealth they could bribe or compel the politicians, and greatly influence the public via the capitalist media.

Nevertheless, through this limited democracy the elite lost ground, both in terms of share of the national income and in services to working people. That is until the rise of neo-liberalism and a new array of public relations techniques. Now the elite have found themselves able to more and more manipulate the agenda, and effectively undermine the limited democratic rights of working people. As a result the past gains of the majority are increasingly being taken away. And almost all new wealth flows upwards to the super-rich.

It is becoming more and more apparent that the capitalist form of democracy is working against the interests of the vast majority who vote in them. Elections in the capitalist countries are becoming more and more of a circus with those elected tending to be the most effective in marketing themselves and their parties. Promises are scattered around before election day, and abandoned immediately afterwards. The election of Donald Trump was only the most extreme example of this phenomena. The same thing happened in France with Macon abandoning his promises within weeks of the election. So too with Boris Johnson in the UK, Modi in India and Bolsonaro in Brazil.

Although China’s government is not elected by the public, the Communist Party is far more responsive to public pressure than in the West. Ten years ago there were a series of strikes in China. In response the Party took steps to raise living standards which are continuing to go up by around 10% a year. As a result, strikes in China have greatly declined. Indeed, one of the main criteria for promotion to higher positions for all Communist Party cadres is whether they have been able to avoid public discontent in their area of responsibility.

Contrast this with the advanced capitalist countries. In the wake of the 2008-9 banking crisis working people suffered from the imposition of a programme of unpopular austerity measures. These resulted in deep cuts in living standards and public services. Naturally, there were waves of protest and public opposition to these measures. Yet the politicians have just ignored the distress and anger. And used their control over the media to shift the blame for the crisis onto immigrants and ethnic minorities; the unemployed and the poor; the old and disabled. The result: deep anger and toxic divisions among the population of the West.

But China’s top-down, bureaucratic governing system is far from the best structure for running society. The argument often advanced for China’s governing system is that it is based on a meritocracy where the top leaders have only achieved their position by proving themselves at the lower levels. Yet this assumes that promotion is always made on performance, and not influenced by favours, friendships or ideological faction. The modern history of China demonstrates that the latter is as important as the former. In fact, the meritocratic elements of China’s government system are reported to be in decline. According to a recent study of the survival of local party secretaries and their promotion during the current campaign against corruption, it has become apparent that meritocracy is giving way to patronage. In some ways this is an inevitable consequence of President Xi Jinping’s growing power.

Likewise, Xi Jinping’s increasing supremacy is now replacing the earlier concept of collective government. This concept arose as a reaction to the damage caused by Mao Zedong’s dominance of the Party and the state. The recent elevation of Xi Jinping’s ideas to one of ‘Xi Jinping Thought’ and their incorporation in the Constitution, as was done before with Mao, is another worrying indicator of Xi’s increasing dominance. Xi is clearly a very intelligent, tough and progressive leader. And maybe this is what is needed for this developing struggle with the capitalist powers. But undisputed lifelong power inevitably encourages fawning and flattery. It creates an echo chamber around the ‘all-knowing leader’ who can easily become overconfident and make major mistakes. Thus, what is a strength now, could turn into a weakness later.

At the lower levels, the Chinese system of ‘rule from above’ inescapably leads to corruption. With so many licences and permissions to grant, often without effective transparency, rule by the officials is bound to encourage the giving and taking of bribes. As evidence, we just have to see the scale of corruption exposed by the current anti-corruption campaign – 1.5 million officials so far have faced charges and discipline. But how far up does the corruption go? There are reports of some top Party leaders being billionaires. If true, such wealth can only have been secured through payoffs or insider trading. Yet, they have retained their positions despite the anti-corruption campaign. No doubt because they are seen as loyal to the leader.

China’s ‘rule from above’ system leads to many other abuses of power. Where decisions are taken that damage the interests of the citizens either for the convenience of the official or to benefit someone that official favours. There have been untold cases of such abuses in China. The result is passive discontent among the citizens; or active protests, strikes and so on.

The main response of the system to these problems is to discipline officials for abuse of office or corruption. But this only deals with the extreme cases and leaves the others in place. Besides, it relies on higher officials to know what is really happening underneath them which is often not the case. Or to be willing to take action against officials guilty of misconduct, rather than covering up for them because of family, friendship or past favours. Where officials are disciplined this is usually done after some time, often years later when the damage has been done and can’t be easily reversed or compensated for.

The bureaucratic system in China also leads to inefficiency and major distortions. Without input from the ordinary citizens who are affected by decisions, officials regularly make mistakes, sometimes big mistakes. The latest move to hold consultations with specialist groups of citizens on the new Five Year Plan is a welcome recognition that top-down planning and decision-making is not the best way to prepare and implement policy. This points the way to a new way of governing China.

Democratic Public Power
So far we have looked at the deep problems of competitive capitalist democracy in the West and the top-down bureaucratic system in China. If neither are the way forward, what is? In our view, China needs a system of Democratic Public Power. It needs a system of participatory democracy where all the people affected by decisions are involved in making those decisions. Where the running of each public service begins to involve accountable representatives of the service users, the staff, and other stakeholders currently only on the receiving end of decisions and regulations. Where state-owned enterprises incorporate their workforce, customers and suppliers as key partners in decisions on the price, quality and design of products; production methods, forward investment and so on. Where every layer of state gives the people a key say in the design and implementation of policy.

Not only would such an extension of democratic participation drastically reduce the alienation and exploitation of citizens who currently just have to passively accept most of the decisions that affect their lives. It would also greatly increase efficiency in governance and in economic management. The knowledge and potential ingenuity of workforces would no longer be excluded but brought directly into the running of services and public enterprises. The needs of customers would no longer be ignored in the existing ‘take it or leave it’ approach, but directly represented to ensure fair pricing, high quality and innovative design. The interests of citizens would no longer be left out in behind-closed-door agreements made by government officials. Instead of trying to discipline officials for bad decisions after the fact, let’s involve the people so that these bad decisions are not made in the first place.

There continue to be strikes and protests in China. Each one of these are an indication that the current system is not working properly. That decisions are being taken without the participation of the people affected by them and against their wishes and interests. The economic decisions being taken in state and private businesses, and by public authorities continuously pose questions of who benefits and who loses, or at least who is left behind. Unless we involve the people affected by these decisions, inevitably many bad decisions will be made either through lack of knowledge, incompetence or by the deliberate favouring of powerful individuals or sections of the elite.

Moving China towards a system based on democratic public power offers a new alternative beyond the old choices of top-down rule by public officials, or private control by capitalists. It offers the chance to unlock the creativity of the people and utilise their potential through mass participation via online technology.

For the state-owned enterprises, democratic public power offers a way to dramatically improve their efficiency, innovation and customer service.

The idea of giving citizens a voice is not entirely new to the People’s Republic of China. Elected Village Committees exist in the countryside. But too often they are burdened with the tasks of government and end up being seen as agents of the higher bodies and divorced from the interests of the local people they are supposed to represent.

As we will explain in detail in our forthcoming Manifesto, a system of Democratic Public Power combines the best of traditional representative democracy with the potential benefits of modern direct democracy. In this way it delivers the most practical way of incorporating the views of all those affected by decision-making.

Of course, it would not make sense to try to introduce this new form of governance overnight across the board. Like other major changes in China made since the great ‘reform and opening up’ process began at the end of the 1970s, careful and extensive experimentation and fine-tuning would be needed. First in a couple of national public services, in a few state-owned enterprises, and in some local government areas. If successful, it could then be spread across into more and more areas of Chinese life.

A key area that will need to be democratised is the ruling Communist Party itself. Among other aspects that demand review is the operation of Democratic Centralism which requires silence on internal Party discussions. Given the leading role of the Party in Chinese society, this approach does not make sense. The Chinese people need to hear the internal debates of the party in order to be able to evaluate, comment on and judge the value of the various views expressed, and decisions taken. Transparency is crucial if the Party is to be truly accountable to society.

Another key area is in the official trade unions. There are many complaints by workers groups that the official trade unions are often too close to the employers. And too slow to take up the issues facing the workers. As the largest social organisation in the country, and crucial for the well-being of the Chinese working people, it is vital that the trade unions be democratically run and accountable to their members. Then trade union representatives can play a valuable role throughout the economy in genuinely representing their members interests.

Naturally, there will be reluctance and resistance in many levels of Chinese government. It is hard to share power with the people when you have been used to exercising it alone. But the Chinese Communist Party has to trust its citizens and take this next step if it is to overcome today’s challenges and establish a genuinely democratic socialist future. Such a major step is not only relevant to China but to the whole of the socialist project worldwide. As such, this experiment in real democracy addresses the powerlessness that exists everywhere. And its outcome will be of great relevance to the future of humanity as a whole.

Conclusions
These will arise from the forthcoming online discussions in The Socialist Network.

Facebook discussion page:
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Footnotes
1. Learning From China, by John Ross, https://www.learningfromchina.net/

2. Xi Jinping’s report at 19th CPC National Congress, 11-04-2017, China Daily

3. ’14th Five-Year Plan: Institutional advantages herald promising future for China’s centennial goal’, by Kou Jie, 26 October 26 2020, http://en.people.cn/n3/2020/1026/c90000-9772931.html

4. ‘Upcoming 14th Five-Year Plan policy package attracts wide attention; by Liu Xin, Global Times, 7/8/2020, https://www.globaltimes.cn/content/1197065.shtml

5. ‘Which way for China – part two’ by Michael Roberts, 23 March 2012, https://thenextrecession.wordpress.com/2012/03/23/which-way-for-china-part-two/

6. ‘Answers to the Italian Journalist Oriana Fallaci’, August 21 and 23, 1980, http://cpcchina.chinadaily.com.cn/fastfacts/2010-10/18/content_11425373.htm

7. ‘How Xi Jinping’s “New Era” Should Have Ended U.S. Debate on Beijing’s Ambitions’, by Daniel Tobin, May 8, 2020, https://www.csis.org/analysis/how-xi-jinpings-new-era-should-have-ended-us-debate-beijings-ambitions

8. Ibid

9. ‘Communist China and the Free World’s Future’, speech by Michael R. Pompeo  US Secretary of State, July 23, 2020, https://www.state.gov/communist-china-and-the-free-worlds-future/

10. ‘The Chinese Communist Party’s Ideology and Global Ambitions’, speech by US National Security Advisor Robert C. O’Brien, June 24 2020, https://www.whitehouse.gov/briefings-statements/chinese-communist-partys-ideology-global-ambitions/

11. ‘Two kinds of comments about China’s reform’, Deng Xaioping talking with President Julius Nyerere of the United Republic of Tanzania, August 21 1985,  http://www.chinadaily.com.cn/china/19thcpcnationalcongress/2010-10/21/content_29714523.htm

12. ‘The Belt and Road Initiative and Global Governance in Transition’ by Zhang Chun, 2017, https://www.worldscientific.com/doi/pdf/10.1142/S2377740017500166

13. ‘The Five Principles of Peaceful Coexistence’, https://www.fmprc.gov.cn/mfa_eng/wjb_663304/zwjg_665342/zwbd_665378/t1179045.shtml#:~:text=They%20include%3A%20mutual%20respect%20for,mutual%20benefit%2C%20and%20peaceful%20coexistence.

14. ‘String of Pearls’, Meeting the Challenge of China’s rising Power’, by Christopher J. Pehrson, July 2006, file:///C:/_%20Politics/_%201)%20Manifesto%20for%20Democratic%20Socialism/_%201)%20Topics/6%20%20China%20-%20what%20needs%20to%20be%20changed%20+%20-%205%20pages/468970.pdf

15. Comments by China’s Foreign Ministry spokeswoman Hua Chunying, 24/7/20202, https://www.teletrader.com/pompeo-is-like-ant-trying-to-shake-tree-china/news/details/52766819?internal=1&ts=1607271114321&culture=en-GB

16. ‘China says ‘Five Eyes’ should face reality on Hong Kong’, November 19 2020, https://apnews.com/article/hong-kong-china-4763a4a95103d3bf47ea2b894ced5f3c

17. ‘China’s Xi Jinping calls for ‘peaceful reunification’ with Taiwan’, 02.01.2019, https://www.dw.com/en/chinas-xi-jinping-calls-for-peaceful-reunification-with-taiwan/a-4692186118. ‘China overtakes US in rankings of world’s richest people’, by Rupert Neate, 21 Oct 2019, https://www.theguardian.com/business/2019/oct/21/china-overtakes-us-in-rankings-of-worlds-richest-people#:~:text=The%20number%20of%20wealthy%20Chinese,99%20million%20in%20the%20US.

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* Relevant Articles from the Chinese Constitution
“Article 1: The People’s Republic of China is a socialist state under the people’s democratic dictatorship led by the working class and based on the alliance of workers and peasants. The socialist system is the basic system of the People’s Republic of China. Disruption of the socialist system by any organization or individual is prohibited.

Article 6: The basis of the socialist economic system of the People’s Republic of China is socialist public ownership of the means of production, namely, ownership by the whole people and collective ownership by the working people. The system of socialist public ownership supersedes the system of exploitation of man by man; it applies the principle of “from each according to his ability, to each according to his work”.
In the primary stage of socialism, the State upholds the basic economic system in which the public ownership is dominant and diverse forms of ownership develop side by side and keeps to the distribution system in which distribution according to work is dominant and diverse modes of distribution coexist.

Article 7: The State-owned economy, namely, the socialist economy under ownership by the whole people, is the leading force in the national economy. The State ensures the consolidation and growth of the State-owned economy.

Article 24: The State advocates the civic virtues of love of the motherland, of the people, of labour, of science and of socialism. It conducts education among the people in patriotism and collectivism, in internationalism and communism and in dialectical and historical materialism, to combat capitalist, feudal and other decadent ideas.”

China’s New Economic Policy

Deng Xaioping’s reforms prepared the ground for China’s meteoric rise

Published: 16 October 2020
Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism’

In the post-Mao era, the Chinese Communist Party leadership was to learn from both the mistakes of Mao and from the experience of the Soviet Union.

The new leader of the Party, Deng Xaioping, was determined not to return to Mao’s ultraleft policies of war communism, purges and ideological purity. For a detailed account of these go to the Background section of this Topic ‘Socialism and China – the Maoist Era.

To begin with, Deng simply proposed that the Party adopt the basic position of ‘Boluan Fanzheng’ – “eliminating chaos and returning to normal”.

Deng then went on to challenge the slavishly pro-Mao philosophy of the Party encapsulated by the ‘Two Whatevers’ approach: “Whatever Chairman Mao said, we will say and whatever Chairman Mao did, we will do”. This had even been incorporated into China’s constitution. Deng famously counterposed to this a very different approach based on two simple principles: “seek truth from facts” and “practice is the sole criterion for testing truth“.

The first step in the post-Mao healing process was to restore the rights and reputation of the victims of the purges of the previous 20 years – over three million cases were reviewed and rehabilitated.

Deng’s next step was to approach the economic management of the Peoples Republic in a pragmatic, open-minded way. One that was aimed at achieving prosperity. That was willing to try out new things and then to implement what worked.

To this end, Deng and the team of economists who soon surrounded him, began by surveying the various experiences of socialist economy in the Soviet Union and Eastern Europe. It was during this process that they identified the continuing relevance to China of Lenin’s New Economic Policy (NEP), the economic policy that had operated in the USSR for much of the 1920s. And of its chief theoretician, Nicolai Bukharin.

The Soviet Union’s NEP was a policy which was based on an alliance between the workers and the peasants. It was a policy that sensibly sought to combine socialist planning and state ownership of the commanding heights, with private cultivation of the land, and the importation of foreign capital and technology. A policy that in the Soviet Union was tragically abandoned by Stalin in 1928 in his ultraleft war against the peasants and the cadres of his own communist party.

In Moscow, Deng himself had personally studied the NEP in 1926 and Bukharin’s interpretation of it. As one of his biographers put it: “The theory of reform and opening that Deng developed several years after Mao’s death, in the late 1970s and early 1980s, did not originate with him. It was rooted in… Bukharin’s interpretation of Lenin’s New Economic Policy aimed at developing a market economy under the control of the Communist Party. Deng studied this concept in the mid-1920s in Moscow during his sojourn as a student at a Comintern school… The evident superiority of NEP-style socialism was confirmed by his reading of Marxist-Leninist books and articles as well as contemporary speeches by Stalin and Bukharin, which made a deep impression on Deng’s worldview.”1

Deng’s direct experience in the Soviet Union confirmed the effectiveness of the NEP. The economy was booming. Markets were increasingly filled with goods produced by state and private enterprises. New stores, restaurants, and cafes were opening all the time. “We were never short of chicken, duck, fish, and meat,” recalled one of Deng’s classmates.

Deng Xiaoping drew on the ideas from NEP when he spoke of his own reforms in China. In 1985, he openly acknowledged that “‘perhaps’ the most correct model of socialism was the New Economic Policy of the USSR.2

Bukharin’s Influence On China’s New Economic Policy
In July 1979 at the behest of Deng and Hu Yaobang, Party General Secretary, a special Institute on Marxism-Leninism and Mao Zedong Thought was established to begin a serious study of the Yugoslav and Hungarian experiences in building socialism. But their main attention was devoted to the Bolsheviks’ NEP and the works of Nikolai Bukharin, its main theoretician.

The fact that Bukharin had been repressed and executed by Stalin actually increased their interest in his works and in his person. Having lived through the Cultural Revolution, the intelligentsia hated any kind of terror. Interest in Bukharin was particularly stimulated by an international conference on him organized by the communist movement in Italy. In September 1980 an academic forum on Bukharin was held near Beijing: “About sixty social scientists gathered and over many weeks discussed the theory of NEP, trying to understand why it was not fully implemented in the USSR and how applicable it is to China.” 3 The conference agreed to translate and seriously study Bukharin’s works. To this end, Hu Yaobang allotted the entire upper floor of the Beijing Party School to the task. Thirty seven of Bukharin’s works were published in Chinese including his biography. Several Chinese Bukharin specialists began to give lectures at the newly established Department of Foreign Socialist Studies at the Higher Party School, and a national tour on the subject was organised. Within intellectual circles, there was enormous interest: “The halls were jam packed. People sat on the window sills, and everybody wanted to hear something new.” 4

In 1981 Chinese scholars began publishing their own articles on Bukharin. They noted “his insistence that the growth of industry directly depended on the growth of agriculture. And his support of the harmonious combination of planned and market regulations“. 5

How To Move Forward
Armed with a general economy strategy, Deng Xaioping and the increasingly collective leadership had to work out how to move forward. Despite being the fourth largest country in the world, and having by far the biggest population at 956 million, China’s output in 1978 was only ranked at 34th place. Its population was hard put to even feed itself with extreme poverty levels above 60%. How was the party to tackle such massive problems and unleash the system’s potential?

In the face of what seemed insurmountable problems, socialist China had some major advantages over its capitalist rivals:

  • A political system geared to public benefit for all, not private profit for the rich
  • A willingness to consciously develop the economy through planning and experimentation
  • The necessary tools for implementation of economic policy through public ownership of the banks and key industries
  • A stable and powerful government able to collect taxes and implement long term policies

But how were such advantages to be best put to use?

After the almost constant upheavals of the Maoist era with its artificial political ideology of class struggle from above, the party leadership recognised that future change would have to be gradual and experimental. Thus Deng’s famous expression “Crossing the river by feeling the stones” became China’s approach, implementing reforms in a trial-by-error manner.

Often such reforms would start in a few regions, and if successful then be extended throughout China: “This gradual strategy reinforced the credibility of reform over time. By making reforms one step at a time, and starting with those most likely to deliver results, the government built up its reputation for delivering on reform. With every successful reform, the likelihood that the next one would be a success as well undoubtedly increased. It also gradually built up the experience and skills for the design and implementation of reforms.6

Countryside the First Priority
Change had to come first in the countryside where the overwhelming majority of Chinese people lived. And it had to end the problem of food shortages and malnutrition. This was a major change from the Soviet economy which prioritised industry over agriculture. A model that China had followed in the first three decades of its revolution.

The first step in the new strategy was to recognise that Mao’s experiment in collective agriculture had failed. In 1979, in response to local demand, elements of individual private farm production and sale through a ‘Household Responsibility System’ were allowed in a few areas. Facing ideological resistance from conservative members in the Party, the leadership held back from making such changes official. However, just as Lenin had experienced when introducing the NEP in Soviet Russia, the peasants in China took matters into their own hands. The new system started to rapidly spread across the countryside. Within three years, approximately 73% of rural farms had been de-collectivised and the Household Responsibility System became the official policy for all of China. 

The results were astounding. By 1984, annual agricultural output increased more than tenfold from what it had been in the years of the Cultural Revolution. For the farmers this translated into an increase in their average income of 166%.

Rural Industrialisation
The big increase in rural income for the peasants naturally led to an increased demand for agricultural equipment for the farms, as well as consumer goods for the home and the individual peasant. In a natural way, rural enterprises nearby began to develop to meet the demand. In most cases these were owned by the old communes and in time became the property of the succeeding local authority bodies. They came to be officially known as Township and Village Enterprises (TVEs) producing a wide range of items. The state banks helped the formation of these enterprises with cheap loans. Already by 1985 there existed 12 million TVEs.

Fortunately, the fast growth of productivity in the agricultural sector was releasing large amounts of labour which was taken up by these rural enterprises. In this way the total number of employees in the Town and Village Enterprises rose rapidly from 28 million in 1978 to 94 million in just a decade. This was soon reflected in China’s national income which by 1996 saw the share from non-agricultural activities jumping to over 30%.

Just as Bukharin had predicted for the Soviet Union’s New Economic Policy if it had been allowed to develop, China saw a natural process of industrialization in the countryside. A process that expanded organically from the field to the city rather than the other way round. And this process didn’t just stop at the borders of the Chinese domestic market but with provincial and national encouragement began to expand into production for export. The TVEs even managed to become major international brands such as Haier supplying half of the US home refrigerator market. In their heyday, the TVEs came to account for 40% of China’s industrial production and 27% of the country’s exports.

As one commentator put it: “Agriculture in China grew steadily with favourable tax policies and other encouragements from the state and advances in processes of mechanization and productive specialization leading to record harvests. In contrast to the continuing weakness of Soviet agriculture, the Chinese farming sector while declining as a relative factor in the economy became a success story that helped the country’s development rather than hindering it.7

Opening Up a Closed Economy
Another side to the economic reforms in China was the policy of opening up the economy to outside investment and foreign technology. In line with its cautious and experimental approach to reform, the Party leadership thought it best to test out the new open policy in a few limited areas. To this end, between 1980 and 1984 China established what came to be known as Special Economic Zones in Guangdong and Fujian Provinces, and the island of Hainan. Such zones allowed foreign companies to come and set up jointly-owned operations with Chinese companies. The results were effective with many overseas wealthy Chinese investing in the new Zones to take advantage of China’s huge supply of cheap labour. Soon after, capital from the advanced capitalist countries began to take an interest. Having proven the concept, the government decided to increase the number of zones. In 1984, China opened 14 other coastal cities to overseas investment including Shanghai. Then in 1985, the central government established a series of such economic zones further inland including the Beijing area.

Tiananmen Square Protests
The success of the big economic reforms in the countryside and the special zones during the 1980s had its downside. The transition from an almost completely state-owned, centrally controlled, closed economic system to a more decentralised and hybrid economy was bound to create transitional stresses and distortions. The massive growth of rural and special zone business and trading made it possible for individuals to make fortunes. And created all sorts of opportunities for corruption for Party and state officials.
Equality which had been a hallmark of the maoist years began to be replaced by new wealth and ostentatious consumption. This wealth was unequally distributed with uneven results between the countryside and the cities. And with the growing wealth of the Eastern coastal areas leaving behind many other regions.

Worse still was the lifting of some price controls that had kept prices stable and low for decades. For example, between 1987 and 1988 prices rose by 30% in Beijing leading to panic among salaried workers that they could no longer afford staple goods.

Moreover, unprofitable state-owned enterprises were being pressured to cut costs and lay off staff. This threatened many urban workers who relied on the ‘iron rice bowl’ – the wide range of housing, medical and other benefits that usually came with state employment.

Another discontented group were students and academics. Facing a dismal job market and limited chances of going abroad, intellectuals and students began to voice their criticisms. Avenues for such expression had significantly grown in the previous decade. A large number of private publications had emerged which supported the reform process. For Deng and the leadership team around him, this was useful in their ongoing struggles with the anti-reformist conservatives in the Party. 
There was widespread public scepticism over the country’s future. The communist certainties of the old Maoist era were fast disappearing. People wanted change, yet exclusive power to shape events still only remained in the hands of the top Party officials. And these officials were themselves divided over the direction, scope and speed of the reforms:

The reformers (“the right,” led by Hu Yaobang) favoured political liberalization and a plurality of ideas as a channel to voice popular discontent, and pressed for further reforms. The conservatives (“the left,” led by Chen Yun) said that the reforms had gone too far, and advocated a return to greater state control to ensure social stability and to better align with the party’s socialist ideology. However, both sides needed the backing of paramount leader Deng Xiaoping to carry out important policy decisions.8

The divisions at the top of the Party were reflected in the media which had become more numerous and diverse. Inevitably, the wider citizenry became drawn into these debates on the problems facing the country. And began to surface openly. Public manifestations of discontent arose in the form of student demonstrations in the capital in April and May 1989. These were sparked by the death of pro-reform former Party General Secretary Hu Yaobang.

A protest encampment was organised in Tiananmen Square which then turned into a popular hunger strike by some of the students on the 13 May in a demonstration attended by 300,000 people. This was only two days before a welcoming ceremony was scheduled in the Square for the highly publicized state visit of Soviet leader Mikhail Gorbachev. The students were hoping to use this to force the Party leadership to negotiate with them, a demand supported by some of the more liberal Party leaders. However, Deng joined forces with the Conservatives and decided to crush the protests which they thought threatened to unravel the Party’s control of society.

Actually, the students themselves were divided over their aims. Those who actually wanted to move China in the direction of capitalism and an American-style democratic system appeared to have been very much in the minority. The large majority restricted themselves to demands for an end to corruption, more democratic freedoms etc.

Nevertheless, the majority of Party leaders feared that the protest movement could escalate in the direction of capitalist restoration, a fear that now seems justified in retrospect with the fall of the Berlin Wall some five months later. The event that sparked off the rapid collapse of the state socialist regimes in Eastern Europe and later the Soviet Union itself.

On the 3-4th of June the Party sent in the army to reach Tiananmen Square and clear it of the protestors. In the approaches to the Square there were violent clashes between the army and Beijing residents who supported the students. Then after repeated appeals from the soldiers, the students left Tiananmen Square and the protest movement was suppressed.

On June 9, Deng Xiaoping, declared that “the goal of the movement was to overthrow the party and the state. “Their goal is to establish a totally Western-dependent bourgeois republic,” Deng argued that protesters had complained about corruption to cover their real motive, which was to replace the socialist system… “the entire imperialist Western world plans to make all socialist countries discard the socialist road and then bring them under the monopoly of international capital and onto the capitalist road.9

Deng’s action in suppressing the protests turned out to be highly unpopular at the time. And he ended up taking much of the blame for it. As a result he was forced to withdraw from his various state and Party positions. However, behind the scenes he was still accepted as the final arbiter between the factions.

The 1990s
The crushing of the Tiananmen Square protest movement represented a victory for the conservatives in the Party leadership. These conservatives felt that the economic reforms had introduced elements of capitalism which were to blame for the outbreak of dissent and threatened the future of socialist China. The collapse of Eastern Europe and the Soviet Union which soon followed only seemed to confirm their fears. Unsurprisingly, the economic reform process stalled.

While Deng Xaioping no longer held any official positions in the party and the state, he was still regarded as the ‘paramount leader’. His conclusions from the fate of the Soviet Bloc was not to halt the reforms but the exact opposite: to accelerate the process. For this purpose, Deng embarked on a highly publicised tour of the southern Special Economic Zones in 1992 ending up in Shanghai. In the tour Deng commented on the various debates about socialist or capitalist ownership with what became one of his famous catchphrases: “I don’t care if the cat is black or white, so long as it catches mice“. He urged the provincial governments to “be bolder in carrying out the Reforms and Opening-up, dare to make experiments and should not act as women with bound feet“. 10 The public reaction was very enthusiastic. Taking advantage of this Deng bluntly threatened that “those who do not promote reform should be brought down from their leadership positions“. 11

The official Party leadership bowed to the pressure and resumed the reform process. This was supported later in the year at the Party Congress which officially accepted that China must create a ‘socialist market economy’. Continuity in the political system but bolder reform in the economic system were set as the goals of the 10-year development plan for the 1990s.

Meanwhile, from 1995 onwards inflation dropped sharply as the government tightened monetary policies and food price controls. The following year, the state banking system was modernised.

Another major problem facing the Chinese economy was the large number of state owned enterprises, many of which were inefficient and loss making. In September 1997 plans were announced to merge, close or sell off many of them. Over the next three years up to 28 million SOE workers lost their jobs as the government strove to make large state-owned enterprises profitable.  

As such, the 1990s turned out to be a period of major economic change in China. It became the second biggest recipient of foreign investment after the US and national output really took off.

As we can see from the graph below, the results speak for themselves.

If we just compare China to India, a country with a similarly sized population and level of GDP back in 1990. Now, three decades later, national output in China has reached nearly five times that of India.

The Power of Planning
A key to China’s amazing economic achievements has been its five-year planning process. The ability of the government to consciously assess the country’s performance and direct its resources where they are most needed has given China a massive advantage over its capitalist rivals. Part of this has been China’s willingness to incorporate foreign capital as part of its plan.  

A good example can be seen in the auto production sector. China was once famous for its bicycles which were the main mode of transport in the maoist era. Then in the 1980s the new wealth that began to flow from the reforms led to increasing purchase of car imports mainly from Japan. By 1985 the country was spending some $3 billion a year to import more than 350,000 vehicles. This was beginning to create a severe trade deficit. To overcome this, Chinese authorities decided to include an ambitious auto production sector in its plan. The problem was that China did not have the technology to produce modern motor engines and auto bodies. So, it had no choice but to invite foreign capitalist manufacturers to come and produce in China. However, the result of these efforts was dramatic. The number of vehicles produced in China rose from only 5200 in 1985 to 26 million in 2019, 28% of the world’s total and more than the output of the US, Japan and the European Union combined!

Within this total local Chinese brands have a major share of the Chinese market made possible by the joint ownership arrangements that were an original condition for the foreign companies to produce in China. This trend is likely to rise as the government has taken major steps to encourage local manufacturers to produce electric cars and establish Chinese brands as world leaders in this new technology sector.

A New Planning Process
In the Soviet Union, planning was essential in helping to build up its economic strength. But it ultimately failed because of its rigidity, centralisation and lack of innovation. In the maoist era, the soviet planning model was used in China demonstrating many of the same limitations but made much worse by political upheavals which often rendered the plans ineffective.

After Mao’s death, the Chinese planning process slowly evolved into a much more open, effective and flexible system. As with his approach to the NEP, the Chinese leaders took on board Bukharin’s approach to planning which was to: “establish the conditions for dynamic economic equilibrium. Essentially the task of working out a national economic plan, more and more resembling a balance-sheet of the whole economy… a consciously outlined plan, which will at one and the same time be a forecast and a directive.12

In particular, from 1993 onwards central planning in China was relaxed, with competition among regions and their enterprises becoming possible. This decentralisation turned China into a laboratory for experimentation. And vitally, room for experiments and trials became integrated into the planning process. This provided vital feedback during the period of the Plan, allowing for changes and fine-tuning to be made as the plan progressed, rather than having to wait for the plans to finish. “This distinctive Chinese approach to bottom-up program adjustment is very different from both Soviet-style command economies and Western legislation-driven policy making. The decentralized generation of policy options represents a crucial asset for innovation that had never been realized in top-heavy, centralized Soviet-type party-states.13

Moreover, the Chinese planning process has become increasingly sophisticated, involving experts in China and internationally to identify and advise on developing technologies and rising sectors. Now, the world’s fastest supercomputers are used to put the plan together.

The Plan is not just of use to the state sector but also of great benefit for the private sector too. It removes much of the uncertainty typical of capitalist economies, and allows business to focus on meeting the needs of the plan rather than having to work on its own forecasting.

Last but not least, there is a direct link between China’s Plan priorities and the party’s control over the leaders of major institutions and state-owned enterprises. This is known as the ‘plan-cadre nexus’. The ability of officials to achieve Plan targets is an essential part of their cadre evaluation and their prospects for promotion. Criteria for this is largely based on achieving growth, creation of employment, attraction of Foreign Direct Investment (FDI), and control of social unrest.

This ties the bureaucracy directly into the content and outcomes of the Plan.

The Advantages of Public Ownership
Although Deng Xaioping’s reforms introduced private ownership and business into China’s economic mix, it retained a central role for public ownership. Through the state owned enterprises and state banks the government maintains direct control over a majority of the economy. This gives China major advantages in its economic development.

For one thing, it provides the government at national and local level mechanisms through which to invest at scale and for the long-term, both areas that risk averse and short-termist private investors avoid like the plague. In this way, the Chinese public sector has been able to develop infrastructure on a level unseen in human history. The same with public housing and education. And so too in mobilising investment in new technology.

Secondly, the large-scale nature of public ownership in China – in 2020 mainland China overtook America in the Fortune Global 500, with its state-owned enterprises now being 124 out of the largest companies in the world (the US coming second at 121). Among these, China now has three of the top five most highly valued companies in the world. Such massive state companies gain great economies of scale being able to buy resources more cheaply, carry out more research, employ more specialists, and influence the market, than many of its multinational capitalist rivals. These advantages will become more apparent in the coming years.

Thirdly, the government sees the state-owned enterprises as a necessary way to maintain social stability, without which the economy cannot function properly. By providing secure employment and good employee social benefits, periods of dislocation in the private sector and transitions between various technologies can be smoothed out more easily.
Finally, the government uses the state sector to maintain control over the ‘commanding heights’ of the economy. Through this instrument, the government can ensure its planning decisions are implemented and not just ignored as is so often the case in the capitalist economies.

Effects of the 2008-9 Capitalist Great Economic Recession
The entry of China into the World Trade Organisation in 2001 ushered in high hopes among capitalist leaders that China would evolve into a western-style capitalist economy with liberal multiparty institutions to match. Such hopes found their echoes in China itself. Indeed, some in the private sector, academia and inside the Communist Party itself began to argue for China to take its reforms to what they saw as their logical conclusion. They wanted to close down the state-owned enterprises, privatise the state banks and create a full blooded capitalist economy. Among other things, they drew inspiration from the formal inclusion of the right to private property that was written into the country’s constitution in 2004 and carried into law in 2007.

However, events were soon to dash such hopes and expose them as the delusions they really were. Specifically, the financial crisis which sparked off the Great Recession of 2008-9 in America and Europe dramatically highlighted the weaknesses of the capitalist model. And confirmed the strengths of China’s dominant public sector / supportive private sector model.

In China, the initial impact of the capitalist crisis was to threaten the crash of China’s export-oriented industries and create mass unemployment within them. To avoid this, the government launched the Economic Stimulus Plan, a package of massive infrastructure projects. These included new airports, motorways, major water projects, high speed rail lines and so on. Plus, a large house building programme which extended even to whole new cities.

Secondly, the central government loosened credit for local government and private projects. These anti-crisis measures not only boosted the Chinese economy but delivered facilities that were very valuable in themselves, generating future revenue and efficiencies for the country. But in the capitalist countries such state investment is usually blocked as it creates impossible competition for the private sector. And the private sector is their main concern not the benefit of society as a whole.

In the US fixed investment in the Great Recession fell by over twenty five per cent, while in China urban fixed investment rose by over thirty per cent. No wonder that China’s economy sailed through the crisis virtually unscathed, while the USA has not been able to fully recover even by 2020. Even in the previously developmental states of South Korea, Taiwan etc. no significant positive response to the Great Recession was enacted.

The Great Recession turned out to be a historic turning point for the world economy: China surpassed Japan as the second biggest economy of the world; it passed Germany as the greatest trading nation; and the US as the largest manufacturer. In the latter case, China has become known as the “world’s factory” which obviously evokes memories of Britain’s ‘workshop of the world’ label in the 19th century.

The Great Recession also represented a reversal of fortunes for the previously growing private sector in China. Many private Chinese companies went bankrupt or were bought up by their state rivals. The phrase: ‘Guo jin min tui’ ‘the state advances, the private sector retreats’ summed up the process that took place as a result of the crisis.

Living Standards
Over the last four decades, the miracle that is China’s economy, has translated into a massive increase in living standards for the people, albeit from a very low level. While there has been a large increase in inequality, unlike the capitalist countries the growth in the economy has also been shared by the rest of the population. Annual personal disposable income, the amount of money that households have available after income taxes, rose from only $263 per person in 1986 to $4462 in 2019. Given the size of China’s population this is an incredible achievement. Yet, it also underscores how far China still needs to go to catch up with and overtake living standards in the advanced capitalist countries. This is not planned to happen until around the hundredth anniversary of the Chinese Revolution in 2049.

Another way of measuring living standards is to look at increases in household consumption – China’s rapidly growing numbers of smartphones, cars, internet users, those taking foreign holidays and so on clearly reflect its improving living standards which in 2019 were currently rising at three times the rate of the USA. Living standards are also reflected in rising life expectancy. Starting at only 36 years in 1949, by 2020 China had reached 77.3 years, just behind the USA at 78.54. Indeed, Chinese people will likely be living longer than their US counterparts by 2025, if not sooner.

Perhaps the most amazing achievement in modern China has been the huge fall in poverty among its population. Above all, this reflects the priorities of China’s socialistic policies. In late 1978 when the reforms began, the number of extremely poor rural residents was nearly 770 million. By 2019 this had been reduced to only 5.51 million or 1.7% of the population. Nonetheless, President Xi Jinping announced a serious goal of completely eradicating extreme poverty in time for the centenary of the Communist Party in July 2021. To achieve this, every person and family affected was visited, assessed and assisted on a continuous basis. And it appears that the goal was already met by 2020.

Conclusions
The last four decades of China’s economic development and the dramatic impact it has had on the well being of the Chinese people, has forcefully confirmed the effectiveness of Deng Xaioping’s reforms and his wisdom in adopting the strategy of Lenin and Bukharin’s New Economic Policy. By recognising that agriculture was the first priority in a rural country and accepting the need for private initiative to move it forward, Deng and his circle of advisers opened up the way for the farmers and the socialist state to work together to solve its problems. Through this, China was able to create a solid foundation on which to build industry, first in the countryside and then in the urban areas. Moreover, the combination of state planning and public ownership with foreign capital and technology, as well as local private enterprise, has allowed China to achieve incredible growth rates for the economy and living standards. As such, China’s experience of socialist economic reform represents a new way forward for poorer, largely rural economies across the globe.

The mix of dominant socialist and subordinate capitalist forms that has evolved in China has secured stunning achievements and moved China into the front rank of nations. To such an extent that the advanced capitalist countries fear its continuing growth and innovation. And see it as a serious threat to their system.

However, nothing stands still. And China faces many challenges ahead. We will address these challenges later in this Manifesto and suggest some possible positive and far-reaching solutions to them – see ‘The Challenges Facing China’.

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Footnotes

1. ‘Deng Xiaoping: A Revolutionary Life’ by Alexander Pantsov, Steven I. Levine, p.6

2. ‘New Economic Policy’ https://en.wikipedia.org/wiki/New_Economic_Policy

3. ‘Deng Xiaoping: A Revolutionary Life’ by Alexander Pantsov, Steven I. Levine, p.371

4. Ibid

5. Ibid

6. ‘Reflections on China’s reforms’ by Bert Hofman, 2018, China Daily, http://usa.chinadaily.com.cn/a/201803/05/WS5a9c82b9a3106e7dcc13f756.html

7. ‘The USSR as a “Weak State”: Agrarian Origins of Resistance to Perestroika’, 1989, pp.129-149, https://www.jstor.org/stable/2010573?seq=1

8. ‘The Globalization Paradox’, by Dani Rodrik

9. ‘Beijing Spring, 1989: Confrontation and Conflict: The Basic Documents’ edited by Michel Oksenberg, Lawrence R. Sullivan, Marc Lambert, p.378

10. ‘Deng Xiaoping: Excerpts from his talks in Shenzhen during the 19th – 23rd January 1992 visit’, http://www.chinesecurrents.com/deng_xiaoping.html

11. “邓小平92年南巡时讲话:谁反对改革就让谁睡觉去”. news.ifeng.com (in Chinese). Archived from the original on 12 December 2018. Retrieved 1 May 2020. https://en.wikipedia.org/wiki/Deng_Xiaoping%27s_southern_tour#cite_note-:7-14

12. Full quote: “He drew the conclusion that one can determine for a society in a period of transition the schema of reproduction, that is, the conditions of an exact, mutual coordination of the different spheres of production, or, in other words, establish the conditions for dynamic economic equilibrium. Essentially the task of working out a national economic plan, more and more resembling a balance-sheet of the whole economy, lies there, a consciously outlined plan, which will at one and the same time be a forecast and a directive”. ‘Notes of an Economist’, in Correspondance Internationale, No. 126, October 20, 1928, p. 1371. as reproduced in Perre Broué important account in ‘The History of the Bolshevik Party (CP) of the U.S.S.R’ https://www.marxists.org/history/etol/writers/broue/works/1971/ussr/ch11.htm#b5

13. ‘Maximum Tinkering under Uncertainty: Unorthodox Lessons from China’ by Sebastian Heilmann, May 2009, p.5, http://chinapolitik.org/files/no_73.pdf

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‘Socialism and China’ – ‘The Maoist Era’

Mao tried to follow in Stalin’s footsteps

Published: 16 October 2020
Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism’

The economic transformation of China over the last four decades has seen the fastest ever growth of any nation with a 47-fold increase in output. During this expansion over 800 million people have been taken out of poverty, the greatest poverty reduction in world history. The obvious question to ask is how has this been achieved.

We hope in the following pages to explain the basis of this success. And to show how it flowed directly from the experience of the Soviet Union, both bad and good. For details on this experience go to our Topic: ‘Socialism and the Soviet Union’

The declaration of the founding of the People’s Republic of China in October 1949 and the socialist revolution that it brought represented a great victory for the Chinese people. China’s ‘October’ was the culmination of a long and gruelling struggle by China’s communists. A struggle against the vicious and corrupt nationalist forces who represented the landlords and the smaller capitalist class. And against the Japanese imperialist invaders who had sought to subjugate China and steal its natural resources.

As with many countries, the growth of a communist movement in China was first inspired by the socialist revolution in Russia. Thus, the Communist Party of China was founded in 1921. Finding support first among the intelligentsia, the communists soon began to recruit widely among the fast growing Chinese proletariat. Mass strikes and demonstrations led by the communists in the towns and cities soon established them as a serious political force.

However, they faced a major problem in the shape of a very large and militarised nationalist movement, the Kuomintang. This had been formed ten years earlier during the creation of the Republic of China.

Acting under the advice of the Soviet leadership, the Chinese communists sought to establish a positive relationship with this nationalist movement. But it was not to last long. In 1927 the Kuomintang under Chang Kai-shek, turned on the communists and massacred them in Shanghai. This sparked off a long and vicious civil war between the nationalists and the communists.

Civil War and Foreign War
In order to defend themselves against attacks by the nationalists, the communist forces organised themselves into a Chinese Workers’ and Peasants’ Revolutionary Army. At first they fought back against the greatly superior nationalist forces using conventional military methods. These methods met with disastrous results. However, one of the leading communists, Mao Tse Tung, began to develop a new approach based on peasant guerilla warfare. This proved far more successful and after a long period Mao emerged as the leading figure in the Party.

The civil war between the communists and nationalists continued until 1937 when the increasing success of the Japanese invasion of China forced the nationalists to declare a truce with the communists so that a united struggle against the foreign invaders could be waged. This truce came to an end with the defeat of the Japanese in 1945.

Almost immediately, the civil war between the communists and the nationalists restarted. The United States supplied the nationalist armies with arms, while the Soviet Union did the same for the Chinese communists. The decisive factor between the two sides turned out to be one of motivation. The communists forces were inspired by the idea of a new China free of oppression and exploitation. The nationalist troops under their corrupt and reactionary leadership fought for the status quo. And suffered from low morale accordingly. Mass desertion and defeat was the inevitable result. Within four years the communists had won control of most of the country. By October 1949 the Chinese Revolution was declared victorious by Chairman Mao, speaking in Tiananmen Square in Peking.

Land Reform
China was marked by absolute backwardness and poverty. Average life expectancy was only 36. The central issue facing the revolution was land. Therefore, one of the first acts of the new communist government was a radical land reform. Village meetings were held all over the country at which landlords were paraded, denounced and in many cases killed. It is estimated that up to 2 million of them died in the process.  Poor peasant debts were written off and rents abolished. Large landholdings were divided up increasing the typical farm from just under one acre to three. Land was distributed to the landless. Producer cooperatives were then introduced to link the farms together. This opened up the potential for great growth in productivity and output in Chinese agriculture and initially there was a significant increase in production.

However, the focus of the new government, in line with socialist ideology, was on the need to build up industry over agriculture. And here China naturally turned to the Soviet Union for assistance. 

A Potential Partnership
The Chinese communist revolution opened up a wonderful opportunity for the peaceful and prosperous development of the East. Its communist neighbour, the Soviet Union was the largest country in the world. China, the most populous. Including Soviet-controlled Mongolia, they shared a border of nearly 9000 kilometres. The combination of Soviet geography and natural resources, with China’s enormous reserve of labour, offered the possibility of a great future for socialism on a global scale. The Soviet Union had greatly progressed in industry and technology. And began by offering major help to China to move out of its poverty and backwardness. But sadly, this was not to last.

At the outset, Moscow gave considerable assistance to China. But behind the public displays of unity and solidarity there was deep distrust. Some of this came from the many disagreements between Stalin and Mao in the pre-revolutionary period. But it was further stoked by the ill-judged Korean War. In the summer of 1950, at the request of the Soviet Union, China entered the war against US and South Korean forces. But Stalin reneged on his promise of air cover for the Chinese army which brought inevitable defeat. And the death and injury of nearly one million Chinese soldiers. This was an inauspicious start to the relationship.

First Five Year Plan 195357
After initial hesitations, the new Chinese regime adopted the Soviet economic model, based on state ownership in the industrial sector and centralized economic planning.

The First Five-Year Plan was quite successful. Soviet planners helped their Chinese counterparts formulate the plan. As in the Soviet economy, the main objective was a high rate of economic growth, with primary emphasis on heavy industry and capital-intensive technology. With the help of Soviet loans and thousands of Soviet engineers including entire plants purchased from the Soviet Union, a solid foundation was created in iron and steel manufacturing, coal mining, cement production, electricity generation, and machine building. As a result, industrial production increased at an average annual rate of 19% between 1952 and 1957, and national income grew at a rate of 9% a year.

Government control over industry was increased during this period by offering inducements to owners of private, modern firms to sell them to the state or convert them into joint public-private enterprises under state control. Where they showed reluctance, various pressures were applied to them to comply. Thus, by 1956 approximately 68% of all modern industrial enterprises were state owned, and 33% were under joint public-private ownership, with no privately-owned firms remaining. During the same period, the handicraft industries were organized into cooperatives, which accounted for 92% of all handicraft workers by 1956.

Despite the lack of state investment in agriculture, agricultural output increased substantially, averaging increases of about 4% a year. This growth resulted primarily from the productivity naturally arising from the redistribution of land from the landlords to the poor farmers. There were also gains in efficiency brought about by reorganization and cooperative farming – by 1957 about 94% of all farm households had joined these cooperatives.

As the First Five-Year Plan wore on, however, Chinese leaders became increasingly concerned over the relatively sluggish performance of agriculture. In particular, the inability of state trading companies to significantly increase the amount of grain procured from rural units for urban consumption, and for funding the many large urban industrialization projects. This formed the basis for a disastrous, ultraleft turn in economic management led by Mao.

Mao’s Character
Unlike the coarse figure of Stalin, Mao had been an educated and charismatic communist activist with a love of poetry and philosophy, both of which he utilised to great effect in his propaganda. However, in practice he ended up imitating Stalin – like all other communist party leaders he followed Stalin’s example and encouraged a personality cult around himself. And came to run his Party as a dictatorship. This process was greatly reinforced by the circumstances around him – first brutalised by leading the Red Army from 1927-1949 during a long period of vicious civil war. And then in many years of leading the fight against the merciless Japanese. As later events were to show, during the decades of military conflict Mao lost any element of empathy he may have had in his youth.

Moreover, Mao and the whole Communist Party leadership became used to operating according to orders – either giving them or obeying them. It was natural that when they took over China they would continue with this same approach and apply it to the civilian population.

Mao’s callousness towards loss of life even shocked other communist leaders. Khrushchev recounts how when they met in 1957 Mao had told him: “We shouldn’t be afraid of atomic missiles. No matter what kind of war breaks out, conventional or nuclear, we will win… If the imperialists unleash war on us, we may lose more than 300 million people. So what? War is war. The years will pass and we will get to work making more babies than ever before.” 1 This chimed in with Mao’s irresponsible encouragement of families to have as many children as possible in the belief that population growth empowered the country.

Purges
In the initial period of communist rule there were understandable purges against remnants of the nationalists. But then on the first of July 1955, the Party’s Central Committee turned inward against its own ranks. Launching a drive against suspected dissidents members of the Party, the governing bureaucracy and the military. Using the old Soviet methods of confession and self-criticism, it is thought that over 1.4 million intellectuals and officials were persecuted in this campaign. Even more serious, out of total of 214,000 people arrested it is estimated that 53,000 died of whom 22,000 were executed.

Kruschev’s 1956 speech Against Stalin
In February 1956 Kruschev, the Soviet leader who had taken over after Stalin’s death, launched an unexpected expose of Stalin’s crimes against the people. Mao was highly disturbed by this attack on a figure he had followed for decades. In particular, Mao was worried about the attack on Stalin’s Cult of Personality, which he had also cultivated around his own leadership. 

Perhaps, reflecting his own insecurity following Stalin’s denunciation, Mao and the leadership launched a campaign at the end of 1956 entitled ‘Let a Hundred Flowers Bloom’. This was designed to promote pluralism of expression with party members and citizens encouraged to constructively criticise government policies. The only problem was that the campaign began to gain its own momentum with millions of letters arriving at government offices. Posters appeared on walls, rallies were held, unauthorised articles were published. Criticisms were voiced against the harshness of the purges and “the slavish following of Soviet models, the low standards of living in China, the proscription of foreign literature, economic corruption among party cadres, and the fact that ‘Party members [enjoyed] many privileges which make them a race apart’.” 2 The final insult came with criticisms of Chairman Mao himself.

In July 1957 the openness campaign was put into reverse with the launch of another purge entitled the Anti-Rightist Movement. Most of the accused were intellectuals who had voiced their opinions in the Flowers campaign. The penalties against them included criticism and re-education, long prison sentences and hard labor, and in some cases execution. The actual number of victims of the purge is thought to have been somewhere between 1-2 million with an estimated 10 percent of intellectuals, engineers and technicians labeled as rightists. Deng Xiaoping later admitted that there were mistakes during the Anti-Rightist Campaign, and most victims have since been rehabilitated. Despite this, Chinese authorities and media omit references to this period which they deem to still be too “sensitive” to mention.

The Great Leap Forward
It was in these circumstances that Mao decided to imitate the worst of Soviet economic mistakes and launch ‘The Great Leap Forward’. This was an attempt to dramatically increase Chinese agricultural output and industry not with practical and realistic measures but by force of revolutionary will. Just as with ‘War Communism’ in the Soviet Union in the 1920s and 30s, Mao and the bulk of the Party leadership who followed him, wanted to skip the long process of accumulation that was required in the transition to socialism. Instead, they sought to reach the promised land in a few short bounds. And in doing so to surpass their capitalist rivals in record time – Mao forecast that within 15 years of the Great Leap China’s industrial output would surpass that of Britain. It was to take 50 years.

In part, Mao was motivated by rivalry with the Soviet leadership – relations with the Soviet leader Kruschev had sharply deteriorated. In a desire to outbid the Soviets and establish China as a rival leader of the international communist movement, Mao effectively set aside the forthcoming Second Five Year Plan and introduced a number of special measures to dramatically speed up China’s development. And to use the peasantry to pay for it.

Starting in 1958, the government decided to take full control of agriculture and establish a monopoly over grain distribution and supply. This would allow the state to buy at a low price and sell much higher, thus raising the capital necessary for the industrialization of the country at the expense of the peasantry. Part of the process was a campaign to reconstruct the country from an agrarian economy into a communist society. Private farming was prohibited, and those engaged in it were persecuted and labeled counter-revolutionaries. Individual farms and cooperatives were merged into huge agricultural collectives called ‘People’s Communes’. In this way the peasants would be brought under tighter Party control along with the sharing of tools and draft animals. A policy that closely matched Stalin’s disastrous collectivisation drive of the early 1930s.

In particular, Mao saw steel production and grain production as the key pillars of economic development. For example, it was decided that steel production would be doubled in just one year. With no personal knowledge of metallurgy, Mao encouraged the establishment of small backyard steel furnaces in every commune and in each urban neighborhood. Peasants were diverted from vital work in the fields to tend to the furnace. And a call was put out for every piece of scrap metal that could be found to be melted down. People even donated their old cooking woks to the effort. The inevitable result was a mess of unusable brittle and soft metal. 

Things were even worse in the fields. A series of radical and controversial agricultural innovations based on the ideas of now discredited Soviet agronomist Lysenko were promoted at the behest of Mao. These untested innovations generally led to decreases in grain production rather than increases. As a communist, Mao considered himself a scientific socialist. Yet, the scientific approach means to carry out experiments and observe and learn from the results. Why then did Mao and the Communist Party leadership impose all these new ideas and methods across the whole of China without trying them out first in a few areas? This was to be a bitter lesson that later informed much of the reform process in the 1980s and 90s.

Perhaps the most ridiculous example of ill-thought out and untested policies applied in the Great Leap Forward was the ‘Great Sparrow Campaign’. The Chinese population was mobilised to beat trees and make noise over many days in order to wipe out the sparrows which were thought to be responsible for significant crop loss. The campaign was dramatically successful in reducing the bird population. The only problem was that the birds had also been responsible for keeping down insect levels. In their absence, there was an explosion of insects including a huge locust infestation which destroyed many crops across the country.

Last but not least, there were three years of serious drought which the Party’s campaigns only made worse including overambitious irrigation schemes which often failed through lack of expert management.

All of these problems came together in a huge decrease in food production. By 1961 agricultural output fell by 30 percent, the lowest point since 1952. With the population having risen by 100 million since then, the scale of the crisis was clear.

To make matters worse, local leaders were pressured into falsely reporting ever-higher grain production figures to their political superiors: “Local officials were fearful of Anti-Rightist Campaigns and competed to fulfill or over-fulfill quotas based on Mao’s exaggerated claims, collecting “surpluses” that in fact did not exist and leaving farmers to starve. Higher officials did not dare to report the economic disaster caused by these policies, and national officials, blaming bad weather for the decline in food output, took little or no action… Participants at political meetings remembered production figures being inflated up to 10 times actual production amounts as the race to please superiors.3

The Great Chinese Famine
Already by the end of 1958 human losses were becoming apparent. But the long years of military and political struggles had caused the leadership of the party to become hardened to suffering among the masses. A comment by Foreign minister Chen Yi in November summed up their lack of empathy:  “Casualties have indeed appeared among workers, but it is not enough to stop us in our tracks. This is the price we have to pay, it’s nothing to be afraid of. Who knows how many people have been sacrificed on the battlefields and in the prisons [for the revolutionary cause]? Now we have a few cases of illness and death: it’s nothing!4

The problem was that these few cases soon turned into a torrent. The Great Leap resulted in mass starvation, with estimates ranging between 18 million and 45 million deaths, making the Great Chinese Famine the largest in human history.

The economy, which had improved since the end of the civil war, was devastated by the Great Leap Forward. As can be clearly seen in the graph below.

As Deng Xiaoping admitted later: “We acted in direct contravention of objective laws, attempting to boost the economy all at once. As our subjective wishes went against objective laws, losses were inevitable.5

Already by 1959, the economic and human disaster was apparent to the leadership and the country. In recognition of his failure, Mao stepped down as State Chairman on April 27. But remained Party Chairman, the far more important position. Mao’s Great Leap Forward policy was openly criticized at the Lushan party conference by Minister of National Defense Peng Dehuai, who accused unnamed party members of attempting to “jump into communism in one step.” Mao was incensed by the veiled criticism and used his continuing domination of the Party to remove General Peng from all positions. Mao never forgave Peng who died in prison in 1974 following many years of persecution.

Despite standing down from his government positions, Mao’s continued to expound his ultraleft stance. At the International Meeting of Communist and Workers Parties held in Bucharest in November 1960, Mao ridiculed Khrushchev’s promises of consumer goods and material plenty for the Soviet people, declaring that it would make them “ideologically soft and un-revolutionary”.

Return to Sanity
The dramatic failure of Mao’s extreme programme caused a swing back towards more pragmatic, less ideological policies. After three fateful years, the agricultural approach of the Great Leap Forward began to be halted. Grain exports were stopped and imports brought in from Canada and Australia to help reduce the impact of the food shortages.

Still Mao did not retreat from his policies, blaming the failures on bad implementation and “rightists” for opposing him. “On the eve of the conference, meeting with the first secretaries of the provincial party committees, he bellowed, “Are you for socialism or capitalism?! . . . Now some persons are in favor of introducing the contract system throughout the country, including dividing up the land. Does the Communist party favor dividing up the land?… Individual peasant proprietorship inevitably leads to polarization, and this will not take two years, stratification will begin in just one year… Khrushchev himself did not dare openly to dissolve the collective farms.6

It was almost as if Stalin with his former fantastical fear of the kulaks and capitalist restoration was speaking from the grave.

However, by 1962, it was clear that the party had changed away from the extremist ideology that led to the Great Leap. At the Seven Thousand Cadres Conference in early 1962, Mao was forced to self-criticise and re-affirm his acceptance of democratic centralism. During the conference, Liu Shaoqi, the 2nd President of China, accepted that the main blame for the famine was the far-left policies of the Great Leap Forward, and blamed it on Mao’s cult of personality.

It was decided that planning and economic coordination were to be revived and investment priorities reversed, with agriculture receiving first consideration, light industry second, and heavy industry third. Planning rather than politics would once again guide production decisions, and material rewards rather than revolutionary enthusiasm become the leading incentive for production. This was exactly the approach that had guided the Soviet Union’s New Economic Policy in the 1920s until it was abruptly ended by Stalin. Thus, we see the parallels between the two country’s economic and political choices playing out in different historical periods.    

Withdrawal of Soviet specialists
As if things could not get worse for the Chinese economy, the worsening ideological and foreign policy disputes between China and the Soviet Union led Moscow to start withdrawing its engineers and scientists from 1960 onwards. “In response to the insults, Khrushchev withdrew 1,400 Soviet technicians from the PRC, which cancelled some 200 joint-scientific-projects meant to foster Sino-Soviet amity and cooperation between socialist nations.” 7 Then in late 1962, China ended its relations with the USSR, “because Khrushchev did not go to war with the U.S. over the Cuban Missile Crisis.” 8

To try to overcome the gap created by the Soviet withdrawal, major imports of advanced foreign machinery were arranged with Japan and Western European but at a much higher cost.

During the 1961–65 readjustment and recovery period, economic stability was restored, and by 1966 production in both agriculture and industry had recovered. Between 1961 and 1966, agricultural output grew at an average rate of 9.6 percent a year. Industrial output was increased in the same years at an average annual rate of 10.6 percent with successful growth of rural, small-scale industries. In agrarian policy, there was gradual de-collectivization in the 1960s.

Meanwhile, Mao did not accept his humiliation and loss of control of the direction of the Party and the state. Istead, he bided his time and began to lay the ground for a recovery of his absolute power.

To this end, he encouraged the formation of the Socialist Education Movement in 1963 with the idea of reasserting ideological purity in the Party.

Mao criticized the economic reforms carried out by President Liu Shaoqi and others, describing them in February 1964 to foreign leaders as “attempts to undermine socialist collectivism and destroy socialism“. 9

The Cultural Revolution
In 1966 Mao Zedong launched the Great Proletarian Cultural Revolution. Officially this was to counter the Soviet-style bureaucracies that had become established in education, agriculture, and industrial management. But it was really to re-establish Mao’s personal supremacy in the Party and the state.

To achieve this outcome, Mao cynically tapped into the natural radicalism of Chinese youth and used them as a battering ram against the existing Party leadership. Students at all ages, from primary school to university were mobilised to protest and attack and overthrow his rivals in the Party.

The stated goal of this bogus socio-political movement was supposedly to enforce communism in the country by removing capitalist, traditional and cultural elements from Chinese society. Under the slogan of ‘The Destruction of the Four Olds’ – Old Customs, Old Culture, Old Habits, and Old Ideas – were all to be destroyed. The task fell largely on the students, now known as Red Guards, who eagerly followed Mao’s urging to destroy cultural artifacts, Chinese literature, paintings, and religious symbols and temples. People in possession of these goods were punished as well as Intellectuals, party and state officials. All were targeted as personifications of the Four Olds, resulting in their persecution and removal from office.

None, even the highest officials were exempt from this persecution. President Liu was persecuted to death as a “traitor” as well as a “capitalist roader”, while Deng Xaioping was also purged twice. The campaign penetrated into the factories and workplaces: “virtually all engineers, managers, scientists, technicians, landlords and other professional personnel were “criticized,” demoted, “sent down” to the countryside to “participate in labor,” or even jailed, all of which resulted in their skills and knowledge being lost to the enterprise.10 All of which strongly recalled Stalin’s Great Terror in the 1930s.

The longer the Cultural Revolution campaign proceeded the more intense it became. In 1968 under the banner of the ‘Cleansing of Class Ranks Campaign’ around 30 million people were persecuted, with an estimated death toll of 0.5-1.5 million. In later years the Party and the state admitted that many of the cases in the Cleansing movement were “unjust, false, mistaken” cases.”

Not only did the Cultural Revolution paralyze the country politically but it also seriously affected the economy especially in the urban centres. The most direct cause of production halts was the political activity of students and workers in the mines and factories. A second cause was the extensive disruption of transportation resulting from the requisitioning of trains and trucks to carry Chinese Red Guards around the country. Output at many factories suffered from shortages of raw materials and other supplies.

The effect was a 14-percent decline in industrial production in 1967. And a stagnation in agricultural output.

As the Cultural Revolution proceeded, it began to descend into chaos and infighting between various factions of the Red Guards. Mao recognised that it had done its work in removing his rivals and enemies in the bureaucracy and decided to call a halt. Firstly, elements of order were restored by the army in late 1967 and 1968. Complementing this, a ‘Down to the Countryside Movement’ was initiated in which the Red Guards were dissolved and sent into remote rural areas to “learn from the peasants.”

In June 1981 the Communist Party unanimously passed a resolution drafted by Deng and others which comprehensively invalidated the Cultural Revolution, calling it “a domestic havoc launched mistakenly by the leader and taken advantage of by the counter-revolutionary gangs” and that it “was responsible for the most severe setback and the heaviest losses suffered by the Party, the country, and the people since the founding of the People’s Republic“. 11

The economy then began to recover with the industrial sector returning to a fairly high rate of growth in 1969.

War with Soviet Union
Another effect of the Cultural Revolution was its effect on China’s foreign policy which became more and more anti-soviet. In response, the Soviet Union made incursions on China’s border in two disputed locations. And China responded in kind. As the conflict escalated the Soviet leadership began to seriously contemplate a pre-emptive nuclear attack on China and moved nuclear weapons into position on the border. Thus, the dream of socialist brotherhood and cooperative development between two major nations had degenerated into a conflict between two stalinist bureaucracies to the point that one of them was contemplating a nuclear attack on the other.

In an ironies of ironies, the Soviet leadership were only persuaded to pull back by the intervention of the United States: “The Nixon administration warned that such an attack on the PRC would provoke a Third World War.”

This was a threat the Soviet leadership took seriously, causing them to withdraw their nuclear missiles and come to agreement with China. 

China reacted to this chain of events by moving closer diplomatically to the Americans who they sought to use as a foil against Moscow. After a series of secret visits in 1971 by US National Security Adviser Henry Kissinger, it was arranged for President Richard Nixon to visit China in early 1972. This opened the way for economic cooperation between the two countries, a cooperation that significantly helped the reform process that was to come.

Mao Dies
In September 1976 Chairman Mao died. In his final years he had balanced between the radical and reformist wings of the Party. Once he left the scene an intense struggle broke out between the two factions. At first the radical wing, led by Mao’s wife and known as ‘The Gang of Four’ appeared to be in the ascendent. They began to take steps to revive aspects of the Cultural Revolution and a drive for ideological fervour. But the intervention of the leadership of the army swung the balance decisively back towards the reformist faction. Thus, the Gang of Four were arrested in October and later put on trial.

Within a year the leading reformist, Deng Xaioping, was in charge. He reaffirmed the modernization program espoused by Zhou Enlai in 1975. And a new era of Chinese history began.

Conclusion
The Chinese Revolution of 1949 laid the groundwork for a transformation of the lives of one fifth of humanity. Some advances took place in health and education but many mistakes were made in the first three decades of the revolution, some of which were a repetition of those made in the Soviet Union in the 1920s and 30s. In particular, Mao repeated the mistakes of War Communism in believing that it was possible to skip from the early stages of socialist construction in a poor and backward rural society to socialism in a few quick steps. That revolutionary will could somehow replace the necessary pace of development required by the reality inherited by the Revolution. That pure socialist economic measures could somehow transform a feudal society rather than the hybrid socialist/capitalist programme that was developing under the Soviet Union’s New Economic Policy.

Sadly, the brutality of Mao’s regime and its repeated upheavals cost many lives and caused much suffering. And held back China’s development for its first three decades. But, fortunately, deep lessons were learned from these negative experiences and applied in a spectacular fashion in the period after Mao’s death. As we examine in the section of our Manifesto entitled: ‘China’s New Economic Policy 1977 – today’  

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Footnotes

1. Widely quoted including in ‘On China’ by Henry Kissinger

2. ‘The Search For Modern China’ (2nd ed.) by Jonathan D. Spence, pp. 539–43.

3. ‘Great Leap Forward’  https://en.wikipedia.org/wiki/Great_Leap_Forward

4. ‘Mao’s Great Famine: The History of China’s Most Devastating Catastrophe, 1958-1962’ by Frank Dikötter

5. ‘Answers to the Italian Journalist Oriana Fallaci’, August 21 and 23, 1980, http://en.people.cn/dengxp/vol2/text/b1470.html

6. ‘Deng Xiaoping: A Revolutionary Life’ by Alexander V. Pantsov, Steven I. Levine

7. ‘Sino-Soviet split’  https://en.wikipedia.org/wiki/Sino-Soviet_split

8. ‘Cuban Missile Crisis’  https://en.wikipedia.org/wiki/Cuban_Missile_Crisis

9. ‘Seven Thousand Cadres Conference’ https://en.wikipedia.org/wiki/Seven_Thousand_Cadres_Conference

10. ‘The Chinese Diaries’ https://testfunda.com/examprep/mba-resource/current-affairs/article/the-chinese-diaries-1.htm?assetid=6420135b-554c-4e99-9402-ced3ce6af5dc

11. ‘Boluan Fanzheng’ https://www.wikiwand.com/en/Boluan_Fanzheng

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Socialism and the Soviet Union

Published: September 2020 Updated July 2021
Draft Topic for our ‘Transformation, a Manifesto for Democratic Socialism’

The Soviet Socialist Revolution of 1917 was a breakthrough that inspired countless millions. But soon backwardness, isolation and strategic mistakes caused it to degenerate into a bureaucratic and ruthless dictatorship. Despite this, planning and public ownership brought the Soviet Union to the front rank of nations. Yet, its inability to overcome its flaws ultimately caused its dramatic collapse.

The socialist insurrection in October 1917 that created the basis for the Soviet Union was a genuinely popular revolution. Not an unrepresentative coup as critics of the revolution often maintain. The new Soviet government was a two-party coalition made up of parties that had the support of a large majority of the working population. As such it was a partnership led by the Bolsheviks, the revolutionary wing of the social democrats, representing most Russian workers; with the Left Socialist Revolutionaries, who had majority support among the peasants. Along with their supporters in the intelligentsia and sections of the middle class, the new government expressed the wishes of a decisive mass of the Russian people.

Russia’s October was also a democratic revolution. The revolutionary forces first had to win an elected majority in the Soviets which were the only democratic organs in the country. Then they had to persuade the military regiments in the capital to freely vote to follow the orders of the Soviet Military Revolutionary Committee rather than the military high command. These two steps formed the democratic basis for the transfer of power to the first workers and peasants government in history.

The policies of the new government – land to the peasants, withdrawal from the War, food for the workers, a new Constituent Assembly – all had overwhelming support among the Russian population.

Problems for the New Revolution
From the outset, the revolution faced a myriad of problems. First and foremost, Russia was a backward, overwhelmingly agricultural country. Not the advanced industrial nation that Marx had envisaged in which to build a new socialist society. Capitalism had not been overthrown in its ripest rampart. Instead, as Lenin put it, it had broken at its weakest link.

Moreover, Russia was a country that had faced three years of a devastating war with Germany and Austro-Hungary. A war that had killed 2.5 million Russian soldiers and civilians. And left the economy in a very weakened state.

Last but not least, despite the best efforts of its participants to spark off a series of socialist revolutions in the more advanced countries, the October Revolution was to end up isolated and on its own. The result was that Russia was faced with the very difficult task of building a socialist society in a backward society and encircled by a hostile capitalist world.

In addition to these severe objective difficulties that the new Soviet government faced, it soon went on to make major subjective mistakes that made its problems that much worse.

Constituent Assembly Elections
A major miscalculation was the decision of the new Soviet government to hold elections for the Constituent Assembly within weeks of the Revolution. Instead of delaying them until the following summer. The masses of the population had not yet had a chance to really know about, never mind evaluate the new revolution. Soviets were still being formed across the country. The new government had had no chance to explain itself or to campaign for their policies among the people.

Worst of all was the confusion caused by the recent split in the peasant-oriented Socialist Revolutionary Party (the SRs), Russia’s most popular party. This Party had split on the eve of the October Revolution over issues dear to the heart of the peasantry. The Left wing of the Party, the Left SRs, supported an end to Russia’s participation in the Great War, and through this an end to the death and injuries of the mainly peasant soldiers. This would mean a return home of the soldiers to their families and fields. This was what the peasants urgently desired. However, the Right SRs supported the continuation of the War irrespective of the continued suffering this would entail.

Of longer term significance was the issue of the ownership of the land. The Left SRs supported the immediate distribution of land to the peasants. This was something the peasants had been longing for over centuries. Yet, the Right SRs opposed this demand arguing for a gradual redistribution which meant that land would still remain in the hands of the aristocrats and the rich for the foreseeable future.

When the elections for the Constituent Assembly took place in November, a majority of the peasants voted for the Socialist Revolutionaries thinking that they were electing the people who had just given them the land and ended the War. But in fact, the farmers had unknowingly cast their votes for candidates from the Right of the SR Party who had been selected by the Party leadership before and during the split in its ranks. These were candidates who directly opposed the peasantry’s interests and demands. As we can see from the chart below, despite the premature nature of the elections, the Socialist Revolutionaries and the Bolsheviks won a 65% majority in the new Assembly. We can also see from the pitifully low level of support for the opponents of the Revolution in the shape of the capitalist Cadets and the reformist socialist Mensheviks (just over 8% combined), there was a big potential majority of Russian people behind the new Soviet Government. But instead, the premature elections had ended up with a Constituent Assembly majority that represented the exact opposite of what most of the population wanted.

Accordingly, when the Constituent Assembly gathered in January 1918, instead of supporting the Revolution and devising a new democratic constitution which protected the people’s rights, it voted to oppose the revolution. This left the Soviet government with no alternative but to close down the Assembly. Yet, this made the new government look completely anti-democratic – holding an election for an Assembly and then shutting it down because it didn’t like the outcome!

This was like manna from heaven for the reactionaries and gave them a great propaganda victory. The suppressed Constituent Assembly majority formed the basis for all the political parties outside the government, who normally were deeply divided, to form a united front against the revolution and its government. And to launch a united civil war against it.

Simultaneously, it helped the capitalist governments abroad to better justify their support and encouragement of the military revolt of the opposition. To this end they supplied troops and training officers, along with massive quantities of weaponry and financial aid. “Within a year Britain, the USA, France and Japan organised an international counter-revolution against the Bolsheviks. This White Terror claimed millions of Russian lives whereas the October 1917 Revolution claimed only hundreds. Of course, these massacres are hidden from history by the imperialists and their apologists in order to maintain the myth that it is revolutions rather than counter-revolutions that provoke mass murder and even genocide.” 1

War Communism
Russia’s horrific Civil War lasted for three years with up to 12 million perishing, the large majority of them civilians. This brutalised the Revolution, forcing the use of all kinds of ‘special measures’ and undermining the very democracy that had achieved the Revolution in the first place. One of these mistaken measures was the introduction of ‘War Communism’.

In order to feed and finance the new Red Army that was being brilliantly created from scratch by Trotsky, the Bolsheviks forcibly requisitioned food from the peasants, abolished money and paid workers in kind. The results were disastrous. Industrial production further declined to one-fifth of the prewar level, and real income per capita dropped by 60 percent. The workers had no choice but to accept this. But the peasants now having control of the land and their own means of production simply refused to cooperate. They stopped ploughing, hid their grain and slaughtered their animals for their own consumption. The inevitable result was agricultural crisis. And in due course a famine in which several millions starved to death.

Socialist Network activist and authority on China, Jonathan Clyne, here describes how War Communism developed illusions among the Communists: “During the Civil War the factory owners fled and factories were left unattended. Peasants were not prepared to sell their produce for affordable prices. Out of this mess, the Bolsheviks created an economic system. The state stepped in and took over all industry employing more than ten people. Food was extracted by violence from peasants and private housing was taken over to house people displaced. Money ceased to function and was replaced by barter. This became known as War Communism. There was a daily improvisation to get hold of what was necessary to win the war. There was no planning. Yet, an illusion spread within the Bolshevik Party that War Communism meant Russia was jumping straight to socialism. After the war, a “retreat” was sounded. It was not a retreat from socialism, but from hubris, unless one considers socialism an economy where people starve and the output of large-scale industry is 14 percent of its previous already low level.2

Accompanying these measures of war communism was the nationalisation of almost all business and trade. However, “E.H. Carr describes the nationalisations that took place as either ‘spontaneous’ or ‘punitive’, not part of the rolling out of a plan for an ideal society.3  The truth was that the Bolsheviks had won power with no plans for how to build a socialist society in Russia. In the first place, they had not expected revolution to break out so soon. Just a month before the 1917 February Revolution which brought down the Tsarist regime, Lenin, in exile in Switzerland, spoke to his comrades declaring “We of the older generation may not live to see the decisive battles of this coming revolution.” 4 Yet, less than a year later, Lenin and the Bolsheviks were in power.

Moreover, the Bolsheviks did not consider backward Russia as the rational place for socialism to be built. Rather, they looked to the countries of Germany, France, Britain and America for its creation. Russia’s main role being to help spark off a revolution in these advanced economies.

However, in the midst of the sacrifice and excitement of the Civil War many communists got carried away. Inspired by the victories of the Red Army, much of the Bolshevik Party began to believe that through forced collectivisation of agriculture and coerced direction of labour they could somehow jump rapidly from a peasant-based economy to an advanced industrial society. But they were up against the same reality facing capitalism in its early period. When it had to go through the stage of agricultural capitalism before moving on to industrial capitalism. The Soviet Union, despite being run by socialists, couldn’t leap over this process.

The other problem with the War Communism approach was that the masses were simply not willing to accept the sacrifices and compulsion involved. When the Civil War finally came to an end in 1921 the victorious Bolsheviks ironically found themselves very unpopular both among the workers and the peasants. Strikes broke out across the USSR and peasant uprisings occurred in some areas. The best known of these protests being the Krondstadt Rebellion.

New Economic Policy (NEP)
In light of the widespread discontent, Lenin recognised the need to step back. He persuaded a reluctant Communist Party Congress in 1921 to accept a New Economic Policy (NEP). Under the NEP the Bolsheviks replaced arbitrary grain requisitions with a tax in kind. And allowed the peasants free use of the state-owned land as long as it was cultivated. Lenin’s original intention was to limit the reform to barter between farmers and the state in the local areas. But by the autumn normal buying and selling had swept across the country. As a welcome result, the food crisis quickly eased.

The government also reintroduced money and allowed private ownership and capitalistic practices in the   retail trade and light industry. While the state retained control of banking, foreign trade, transportation and heavy industry. This was a mixed economy where 100 million peasants on 25 million small holdings were allowed to sell their produce in markets and a multiplicity of small private businesses free to operate. Side by side with this, the government continued to control the ‘commanding heights’ of the economy with state industries employing 85% of the urban workforce. Furthermore, the state leased factories to cooperatives, as well as to foreign capitalists which it was encouraging to bring in capital and technology. And participate in the Soviet economy.

At first, Lenin accepted that the NEP was a “retreat” and a “turning back toward capitalism”. But he and Nicolai Bukharin, who was to become the chief theoretician of the NEP, soon began to see it as an obligatory policy for a socialist government in a largely agricultural country. As the best way of combining socialist and capitalist economic forms in the transition to a fully socialist society.

In addition, they came to understand that such a society could only move forward by forming a long-term alliance between the workers and the peasants. As Lenin put it: “in our Soviet Republic the social order is based on the collaboration of two classes: the workers and the peasants.” A “split” between these classes, Lenin concluded, “would be fatal.” 5

This was also one of the aims of Karl Marx and Friedrick Engels who had written in ‘The German Ideology’, their first work together, that “The abolition of the antagonism between town and country is one of the first conditions of communal life.”

However, this was a major change for the Bolsheviks who had seen the peasants only as a temporary ally. Helping to make the revolution in order to gain the land. But as a potential enemy as they sought to grow their farms and develop a capitalist agriculture.

In order to avoid this danger Lenin and Bukharin developed a cooperative strategy to bring the farmers together. And link them to the socialist state. These cooperatives would combine the peasants together for the purchase of seeds, animals and equipment; for the marketing of their produce; and for negotiating credit from the state banks. The farming cooperatives meant that advances would be shared collectively rather than individual farmers doing better than others. Or buying out the less successful ones. Thus, the cooperatives would help to prevent a rich class of farmers emerging.

Lenin’s new approach was also based on a voluntary approach to economic management in place of the coercion involved in the previous period of War Communism. Unfortunately, he did not combine this more democratic approach with an appreciation of the danger that was rapidly threatening the internal life of his own Party. And through its one-Party rule that of the whole of Soviet society.

The Decline of Democracy in the Party & the State
The problem of democracy emerged within months of the governing role of soviets being enshrined in the 1918 constitution. The other socialist parties made attempts to violently overthrow the soviet government and so were banned from standing in elections within the soviets. This had the effect of introducing one-party rule in the USSR. And unintentionally of emasculating the soviets. After all, if everything was now decided by the Party what role did the soviets have? This naturally focused the question of democracy solely on the Bolsheviks. But in the desperate years of the Civil War democracy started to crumble in the Party. And bureaucracy soon grew up to replace it.

This was soon reflected in the emergence of opposition factions inside the Bolshevik party which protested against this process. First off were the Democratic Centralists which formed in 1919 to organise against the increasing centralism and decreasing democracy in the running of the Party. Then the Workers Opposition in early 1921 emerged to campaign on similar issues. Tragically, the main leaders of the Communist Party turned a deaf ear to these complaints which foretold of the coming degeneration of the Party into dictatorial rule.

As the Civil War drew to a close and strikes and protests grew across the country, factional divisions broke out in the leadership of the Party. To avoid these splits deepening into unbridgeable division, factions were banned at the 1921 Communist Party Congress. This was initially thought of as a temporary measure to hold the country and the revolution together at a moment of severe danger. But Lenin in response to a question from one of the Congress delegates declared it to be a permanent ban. This turned out to be a serious mistake – the ban on factions became a crucial noose around the neck of internal democracy in the Party. Stalin, in particular, utilised this ban in the coming internal battles to justify disciplinary measures.

In the same period, Lenin unwittingly proposed that Stalin become General Secretary and also be put in charge of other key administrative posts.

Finally, the 1921 Congress saw the emergence of slates in the election of the Central Committee. Previously elected on the basis of individual performance, the new slate system potentially allowed the existing leadership to decisively influence who was elected to future Central Committees.

Taking full advantage of all three of these developments, Stalin began a ruthless and stealthy bid to take over the Party. Within a year, he had already placed his supporters as officials across the Party.

Lenin, the undisputed leader of the party and the government, quickly began to sense Stalin’s growing power behind the scenes. And to identify the coarse and brutal aspects in his character that made him a danger to the future of the Party. He sought to form alliances against Stalin. But, fortunately for Stalin, Lenin suffered a series of strokes that progressively reduced his abilities until his death at the beginning of 1924.

Trotsky, still leader of the Red Army and the second most important leader of the Party, also began to be alarmed by the bureaucratisation of the Party. And unlike in earlier years, from 1923 onwards he started to openly campaign against it. But he, like most of the Party, underestimated Stalin who they saw as a second-rate organiser. A key turning point came soon after Lenin’s death. On the eve of the following Congress Trotsky and the other leaders agreed in the name of maintaining party unity to suppress Lenin’s Last Testament calling for Stalin’s removal as General Secretary. This was effectively their last chance to stop Stalin’s rise to absolute power. But they were not to know it until five years later.

Divisions over the Economy
After Lenin’s death, a series of major factional struggles developed within the Party. One central issue was the future of the Soviet economy. In Lenin’s absence, Bukharin became the leading defender of the NEP which had achieved great success in its initial period. Both peasants and workers were eating better. Rations had been replaced with real wages which now rose to higher than prewar levels. Working hours had decreased from ten hours a day to eight. Access to welfare benefits, free medical care and education were starting to become available.

But there were many problems too. Emigration from the countryside to the towns was creating widespread urban unemployment and a lack of housing. The operation of private enterprise was leading to growing inequality, profiteering and corruption. Some ‘red partisans’ had even become Soviet millionaires. In the cities there was widespread prostitution, gambling and drug trafficking.

Some workers started to label the NEP as the “New Exploitation of the Proletariat”. All of this led to resentment among many Communist Party members who saw this as a betrayal of the Revolution.

Moreover, fears began to grow of a potential capitalist threat from the richer peasants. And from the ‘Nepmen’, as the industrialists, middlemen and speculators came to be known.

Trotsky’s Left Opposition voiced these fears in their material. Their chief economic theorist, Preobrazhensky, developed his “primitive socialist accumulation” theory, which taking lessons from the early period of capitalist accumulation, argued for the rapid expansion of state industrial capital by squeezing the peasantry through taxation and higher prices for their industrial products. Thus, the Left Opposition proposed that the Soviet Union should launch an industrialisation “offensive” as part of a ‘Five Year Plan’. The latter proposal made a lot of sense. One of the major problems of the NEP period was the lack of planning. A government central planning institute, Gosplan, was set up for this purpose. But it was mainly staffed by Menshevik economists who produced some interesting planning concepts but had little clout. And were generally ignored. 

Actually, no-one in the Communist Party leadership, whatever their faction, disputed the need to industrialise. Rather, they strongly disagreed over at what speed it should be carried out. And how it should be paid for. Bukharin, in particular, differed with Preobrazhensky and the Left Opposition arguing that industrialisation could not be carried out at the expense of the peasantry who would simply refuse to cooperate as they had in the earlier War Communism period. That, given the dominance of agriculture in the Soviet Union, the proletariat “is compelled, in building socialism, to carry the peasantry with it.6

Bukharin further argued that the threat of a restoration of capitalism was unreal given the small number of wealthy farmers, a fact that was later proved to be correct. He called for balanced growth and a slower tempo than the Left. He insisted that in a largely agricultural country industrial growth should spring first from the countryside generated by the demands of the farmers for implements and household products. That the processing of agricultural products and demand for more complex producer goods such as tractors would naturally lead to the development of light industry and then to heavy industry.

But events seemed to support the ‘super-industrialisers’, as the Left Opposition became known. Shortfalls in grain collection caused by artificially low state prices caused severe shortages in the cities in what became known as ‘the scissors crisis’. In response, Bukharin moved towards some of Preobrazhensky’s positions. He came to see that a Five Year Planning system was required along with more investment in heavy industry. Plus, he started to accept the Left’s argument for the development of voluntary collective farms. “Commonly the conflict between Preobrazhensky and Bukharin during the Soviet Industrialisation Debate is presented as being about the pace of industrialisation or being for or against the peasants or for or against the market. However, these are simplifications. Both believed that socialism meant the law of value would be abolished and replaced by the planning principle. And both believed that would have to wait until the Soviet Union was much more advanced, but that some planning could be commenced nevertheless. Both wanted to maintain the alliance between the working class and the peasants. There were different opinions about the pace of industrialisation, but that did not lead to a great rift. By the end of the debate Bukharin came round to the view that industrialisation did have to be speeded up.” 7

Stalin removes all opposition
During this debate over the future of the soviet economy, Stalin was busy building up his forces and taking steps to destroy all opposition within the Party. From a position in the centre of the Party, Stalin first allied with the Right against the Left Opposition. Utilising the ban on factions and the majority he had built up in the Central Committee, he accused Trotsky and his supporters of breaking party discipline. He organised Trotsky’s removal first from the leadership of the Party and then from the Soviet Union itself. With Trotsky out of the way, he turned on Zinoviev and Kamenev who were removed from their leading positions and forced to recant. Having removed all threats from the Left, Stalin felt strong enough to turn on Bukharin and his supporters. This left him in undisputed control of the party.

As Bukharin’s biographer concluded: “Part of the tragedy of the old Bolsheviks lay here: for seven years they fought among themselves over principles, while an intriguer gradually acquired the power to destroy them all.8

Even Trotsky missed what was really happening and for a time saw Bukharin as the main threat. “Rykov had said at the Central Committee that ‘the Trotskyists regarded it as their main task to prevent a victory of the right wing’. Trotsky replied that this was indeed the Opposition’s main task.9

For years Trosky spoke of “the ‘danger from the right’ and to warn the party against the defenders of the kulak and the Thermidorians. He had been prepared to form a ‘united front’ with Stalin against Bukharin.” 10 Then when Bukharin began to put out feelers to the Left Opposition, Trotsky rejected the offer of an alliance: “With Stalin against Bukharin? Yes. With Bukharin against Stalin? Never!” 11

Bukharin, of course, being on the inside of the Party leadership, understood the threat to the Party that Stalin represented far better than Trotsky did. As he communicated to Trotsky, he had discovered that “The differences between us and Stalin are infinitely more serious than our former differences with you.12

Stalin Turns to the Left
The continuing crises of grain deliveries became the occasion for Stalin to take a dramatic turn to the left. In doing so he adopted much of the Left Opposition’s economic programme but in an extreme and brutal form. He pushed through a new line ending the NEP and launching a war against the peasantry. He adopted the Five Year Plan but based on ridiculously over-ambitious targets for the industrialisation of the country.

In November 1927, Joseph Stalin launched his “revolution from above” by setting two extraordinary goals for Soviet domestic policy: rapid industrialization and collectivization of agriculture. His aims were to erase all traces of the capitalism that had entered under the New Economic Policy and to transform the Soviet Union as quickly as possible, without regard to cost, into an industrialized and completely socialist state.

Stalin’s First Five-Year Plan, adopted by the party in 1928, called for rapid industrialization of the economy, with an emphasis on heavy industry. It set goals that were unrealistic – a 250 percent increase in overall industrial development and a 330 percent expansion in heavy industry alone. All industry and services were nationalized, managers were given predetermined output quotas by central planners, and trade unions were converted into mechanisms for increasing worker productivity. Many new industrial centers were developed, particularly in the Ural Mountains, and thousands of new plants were built throughout the country. But because Stalin insisted on unrealistic production targets, serious problems soon arose. With the greatest share of investment put into heavy industry, widespread shortages of consumer goods occurred.13

Sections of the Left Opposition including Preobrazhensky welcomed Stalin’s new policy and actually moved over into his camp. This further alarmed and weakened Bukharin’s position. In a secret visit to Kamenev, Bukharin hastened to warn others in the opposition against joining forces with Stalin: “He is an unprincipled intriguer, who subordinates everything to his thirst for power… He will kill us all. He is another Genghis Khan and will strangle us.14 Tragically, this forecast turned out to be uncannily accurate. But no-one listened to Bukharin’s warnings and dismissed them as the bleatings of a defeated opportunist.

Collectivisation of the Peasants
Stalin also announced a new policy: a programme of compulsory agricultural collectivization that would force the peasants from their 25 million farms into 250,000 collective farms owned by the state. It was effectively a return to War Communism but on an even larger and more permanent scale.

The peasantry responded in the only way they knew: hiding their grain and other food supplies. But communist cadres were mobilised to search the countryside and seize these stocks. The peasants also went on to slaughter their own livestock to prevent them being requisitioned by the collective farms. By 1934, half of the country’s 33 million horses had disappeared, along with 70 million cattle, 26 million pigs, and two-thirds of its 146 million sheep and goats. Twenty-five years later, livestock herds had still not recovered.

In the process of collectivisation Stalin identified the richer peasants, the so-called Kulaks, as a major threat to be eliminated. The only problem was the number of kulaks had been grossly overestimated and the threat they were supposed to represent was virtually non-existent. Party units were sent out across the country in a fruitless task ‘to find the kulak’. But, finding virtually none, officials resorted to expelling millions of the country’s most industrious peasants from the land, often into the labour camps of the Gulag. Ultimately leading to the terminal decline of the Soviet agricultural sector.

As for the collective farms, for many years they turned out to be a pathetic failure run by unqualified managers. Few even had tractors to replace the horses the peasantry had destroyed, so ploughing often ended up having to be done by humans alone.

The inevitable outcome was widespread famine, with between 4.6 million – 8.5 million people dying of starvation or disease between 1930 and 1933.

Industrialisation and the Five Year Plans
There can be no question that the Five Year Plans and the drive for the industrialisation of the Soviet Union brought impressive results. These compared very favourably to the Western capitalist economies which were going through the years of the Great Depression. A key aspect of the breakneck industrialisation in the Five Year Plans was that government investment rose from 8% per year during the earlier New Economic Policy period to the much higher level of 20%. As a result, industrial output in the First Five Year Plan increased by a massive 118%. The Second Five Year Plan, begun in 1933, yielded impressive albeit slower growth. Then a Third Plan was cut short by the invasion of the Soviet Union by Germany in the Second World War.

But this rapid economic expansion came at great cost. And not just for the peasants. In the cities workers lost all rights. Real wages dropped by up to half. Working hours were greatly lengthened. Rationing and queues became commonplace with consumer goods and services non-existent. Housing space fell dramatically and consumption of meat declined by two thirds.

Worse still, many of the big construction projects for power stations, dams etc. were carried out by slave labour from a massively expanded system of labour camps, many of whose inhabitants were worked to death. Millions of camp inmates, condemned for decades as ‘enemies of the state’, were used to fell the forests and mine raw materials in the freezing and remote areas of Northern Russia.

Part of the reason for the extremity of the measures adopted by Stalin from 1928 onwards was a fear of war. Stalin and some other elements in the Party expected invasion from the Western powers. This fear intensified with the coming to power of Hitler. However, a more rational and sound economic plan would surely have increased the USSR’s power and its potential ability to defend itself.

Stalin’s Great Purge
Not surprisingly, Stalin’s brutal economic measures and the suffering they were causing among the workers and the peasants meant that his rule was becoming increasingly unpopular. He constantly feared revolts from within his own Party. To prevent this, he began to eliminate his rivals and organise the arrest of communist activists from the end of 1934. This reached a peak in the years from 1936-8 when millions were arrested, tortured and shot. Show trials were organised of the ex-leaders of the Party in which they were forced to confess to ridiculous crimes in order to save their families. By the time that an agent of Stalin assassinated Trotsky in Mexico in 1940, only Stalin was left alive from the Bolshevik leadership who had made the Revolution.

Even the Red Army leaders, the most experienced and able military leaders in Europe, were caught up in the purge and executed. This greatly helped Hitler’s war against the Soviet Union in 1941.

Second World War
Other serious mistakes were made by Stalin in the run up to Nazi Germany’s invasion of the Soviet Union. Firstly, in the Stalin-Hitler Pact in 1939 which greatly helped the Germans in their drive to conquer Europe and strengthen their forces for the Soviet invasion. Part of the pact involved the USSR supplying the Nazis with massive quantities of oil and minerals much of which was then used to prepare for their invasion of Soviet territory. This incredible situation was then made worse by Stalin’s refusal to accept the mountain of intelligence he was receiving from all sides about Hitler’s invasion plans. Even giving him the exact date of the invasion. This partly explains why the Soviet Union was so unprepared for the German attack and how the German forces were able to make such spectacular gains in the first days of the invasion, including destroying the more numerous Red Air Force while it was still on the ground. 

But despite these handicaps, the Soviet system proved able to hold back the German forces. And then drive back the mighty nazi war machine which by now had the economy of most of Europe behind it. Hitler had relied on the Soviet Union collapsing like a pack of cards under the hammer of the German attack. In the only recording of Hitler’s normal voice he can be heard complaining of their surprise at the Soviet’s quality and amount of military equipment. And its ability to keep renewing it in vast amounts.

In particular, the power of the planned economy meant that soviet industry was able to be relocated beyond the reach of enemy air attack. And rapidly built up to match and then overcome the German armaments.  In time, the Red Army was able to drive the German invaders all the way back to Berlin. And in the process to occupy the eastern half of Europe. Once there, they imposed a system of state ownership and planning along with the stalinist system of repression and control.

Post War Recovery
Despite the devastation of the War and its 25 million Soviet victims, the post-war period in the Soviet Union was one of successful industrial reconstruction. The 1946 Five Year Plan led to an increase in industrial production by 73%. With pre-war industrial capacity being equalled by 1948. This achievement was considerably assisted by the $4 billion in reparations received in terms of industrial machinery, railway stock etc. from Germany. As well as by the large-scale transfer of factory equipment from East Germany and some of the other Eastern European countries occupied by the Red Army. Not to be forgotten was the contribution of slave labour: the two million German and Japanese captured soldiers, and the eight million Soviet prisoners in Stalin’s brutal labour camps.

However, hopes of the population for higher living standards in the early post-war period were disappointed. The focus of production of the 1930s resumed. Thus, the switch from arms production for the war effort back to civilian production was mainly to heavy industry, taking up 88% of the budget, rather than to light industry and consumer products.

The same problem held back agriculture. The War had devastated and depopulated the countryside with 1945 agriculture only at 60% of prewar levels. Now back in peacetime the collective farm system was still incapable of properly feeding the population. A famine killing one and a half million broke out in 1946-47 affecting large areas of the Ukraine, Moldavia and Southern Russia. In response, the Soviet government launched ‘The Great Plan for the Transformation of Nature’ which was aimed at building massive irrigation and canal schemes, rerouting of major rivers etc. These schemes lasted for many years and consumed vast amounts of manpower, material and money. All without overcoming the underlying shortcomings and inefficiencies of the Soviet collective agricultural system.

After Stalin’s death in 1953 there was a general relaxation in the strict collective rules. Citizens were allowed to farm gardens and small plots of land. Amazingly, such small-scale farming ended up supplying half of the country’s milk, meat and vegetables.

Planning Takes USSR Forward
Notwithstanding the above problems, the advantages of planning and public ownership succeeded in expanding the Soviet economy at a fast rate. In the 50 years from the First World War up to 1963, Soviet industrial output multiplied more than 52 times over. In contrast, over the same period, industrial output in the US grew just six times. While in Britain it barely doubled. In 1917, Russia had been at the same economic level as India. By the 1960s, it had risen to become a global industrial and military superpower. Second only to America.  By 1975, the USSR had a quarter of the world’s scientific personnel and 4.7 million engineers.

All this was reflected in a massive increase in general living standards with many public utilities and services including health and education, provided free and at a good standard. University education was available for a far greater proportion of the population than anywhere in the capitalist world.

After the great housing shortage of the early decades, the post-war period saw a massive programme of apartment building with very cheap and stable rents – rent on average amounted to only 1 percent of the family budget. Other basic items were equally inexpensive. With the average monthly salary of an engineer being 140–160 rubles, a loaf of bread was only 15 kopeks, and a tram ticket just 20.

Likewise, the long hours and intensity of work of the earlier years, gave way to a much easier pace of life. By the mid-1970s the number of days off per year was 128–130, almost double the figure of ten years earlier.

But in the 1970s, economic growth began to slow. Central planning had clearly worked reasonably well when the main task was to produce a relatively small number of key products in large quantities. However, as the economy became more complex, planning from above became less effective. As Jonathan Clyne explains: “Soviet central planning was best at achieving a few selected clear goals. It was effective at raising resources and channelling large investments in the chosen direction, for instance towards winning a major war or putting a man in space. Yet, there were major problems with Soviet central planning. In the beginning, labour productivity spurted because modern machines and factories were bought or copied from the West. After that, the amount produced per worker grew only slowly and then stagnated. Instead of catching up with the West, the Soviet Union fell further behind after the mid-1960s… Furthermore, a whole sector of the economy was missing. The variety and quantity of consumer goods was small. With few exceptions, to maintain central control, production had to take place in giant facilities.” 15

The technological advances in the USA that were achieved in the military and aerospace sectors were allowed to be accessed by American companies. And resulted in many product and technological spinoffs. But in the Soviet Union this did not happen, partly because of obsessive secrecy. Plus, the more general problem of a lack of diffusion of Soviet research into many aspects of technology or consumer products.

Eastern Europe
The experience of Soviet rule in the countries of Eastern Europe taken over by the Red Army in the last two years of the Second World War was very mixed. For one thing, they were weighed down by having to pay compensation to the Soviet Union along with the transfer of factory equipment and so on to the USSR.

Another problem was the extremely rapid urbanisation that took place in the postwar period. This naturally led to acute overcrowding. “Cities became massive building sites, resulting in the reconstruction of some war-torn buildings but also the construction of drab dilapidated system-built apartment blocks. Urban living standards plummeted because resources were tied up in huge long-term building projects, while industrialization forced millions of former peasants to live in hut camps or grim apartment blocks close to massive polluting industrial complexes.16

At the same time, as part of the process of stalinising the Eastern European countries, there were purges of political and intellectual figures who opposed the new regimes. In this repressive and difficult economic climate it was not surprising that there should be outbreaks of protest. Thus, in 1953 there were mass disturbances in East Germany and Czechoslovakia. And then in 1956 in Poland. These outbreaks were temporarily resolved through concessions. However, this was not to be the case in Hungary where a much more serious revolt broke out in 1956. This was only put down by the entry of Soviet tanks and military forces.

The Soviet dominated countries of Eastern Europe were expected to follow the soviet economic model with an emphasis on heavy industry over light industry. On producer goods over consumer and service sectors. This often led to consumer products being of lower quality and in insufficient supply. Thus, the infamous shortages and queues outside shops that were a common feature of the state-owned countries. For larger consumer items such as cars, production was never enough to meet demand. For example, in 1987, thirty years after the popular East German-produced Trabant car was first launched, the waiting list was still ten years long. And up to fifteen years for the Soviet Lada and Czechoslovakian Škoda cars.

This situation inevitably led to the emergence of black and grey markets to which citizens turned to purchase difficult-to-obtain commodities. It also encouraged widespread corruption at all levels. In some cases, planning decisions and the official rules that implemented them resulted in the popularity of strange products. For example, broken light bulbs became valuable on the black market because a broken light bulb was required to be submitted before a new light bulb would be issued.

Another major problem in the newly imposed planning system, was that there was no logical division of labour between the countries in the Eastern Bloc with each trying to produce its own iron and steel industry and so on. In many cases this entailed expensively importing raw materials and semi-finished materials from other Comecon countries. Moreover, the monopoly position of each state-owned company meant that if there were any production problems there were no alternative suppliers for factories further down the supply chain, causing serious delays in related industries.

Other downsides to the planning process in the Soviet Bloc significantly reduced its prospects of successful exports to the world market. For example, the emphasis on quantity rather than quality in the five year plans often made Soviet Bloc products unattractive. On price, high costs which boosted the ‘value’ of production on which wage increases were based, made exports more expensive than necessary.

Despite all of these problems, the power of planning yielded high growth rates in the Eastern Bloc in the 1950s and 1960s. As a result, per capita growth within the Eastern Bloc increased by two and a half times that of the European average.

Not only that, the experience of planning varied considerably between the various countries of Eastern Bloc. In some countries there was significant experimentation with elements of market socialism. This was especially the case in Hungary which after the trauma of the Hungarian Revolution of 1956 was under particular pressure to improve living standards. As historian Jonathan Bean points out:

Hungarian market socialism had somewhat more success. During the 1960s, Hungarian economists revived the NEP concept of a mixed economy, and the government responded by introducing its “New Economic Mechanism.” The Hungarians replaced central planning with exchanges between producers and consumers. Planners set broad targets and granted enterprises greater autonomy. The state increased investment in agriculture and encouraged the development of private plots. Hungarian planners tried to overcome the pricing problem by basing their producer prices on the world market. The reforms produced some favorable results. Agricultural exports increased, and the consumer goods sector was more competitive than in other socialist countries.17

In Czechoslovakia efforts at planning the economy were less successful. Unlike the other Eastern Bloc countries, Czechoslovakia had a relatively modern economy which responded less well to the crude methods employed elsewhere in the soviet bloc. From 1963 on some marxist intellectuals began to voice differences to the official line. This evolved into a gathering demand for relaxation of censorship and freedom of expression within the official channels. By 1967 the new mood had reached the top of the ruling Party and a new reformist First Secretary, Alexander Dubček, was appointed to lead the country in January 1968. This sparked off what became known as the ‘Prague Spring. However, this was not a movement against socialist government but for a more democratic version of it – ‘socialism with a human face’ as it was called. An Action Programme was launched in April which declared “Socialism cannot mean only liberation of the working people from the domination of exploiting class relations, but must make more provisions for a fuller life of the personality than any bourgeois democracy.” The programme proposed freedom of the press and the introduction of elements of market socialism.

However, the Soviet Union’s leadership saw all these developments as a threat. And despite entering into a series of negotiations with the new Czechoslovakian leadership, the Kremlin decided to resort to force to end the experiment. Accordingly, in late August 1968 the USSR mobilised the Warsaw Pact forces and invaded the country with 2000 tanks and half a million troops.

Bureaucratic Control Begins to Take its Toll
The initial rapid economic successes of the early decades began to peter out in the 1970s. In both Eastern Europe and the Sovet Union economic growth slowed significantly.

The absence of any democratic control by the population over the planning process resulted in many serious defects. “At the economic level this type of planning displays systemic inefficiency, biased information flows, absence of adequate feedback mechanisms, low priority to consumer and user wants, private attempts to by-pass the formal system and official attempts to enforce it.” 18

As a result of the top-down nature of the economic system, most soviet bloc workers were alienated. And cared little about the quality of what they produced or about improving production. Often, their incentive was to work as little as possible in their official jobs. And use the time and energy they had left over to function in the informal sector. 

Another major problem in the bureaucratically planned system was a lack of innovation. As we have shown the Soviet Union had the most scientists of any country on earth. This reflected its emphasis on higher education in science and engineering. As a result, great basic science was done which was utilised in heavy industry, military technology and space. But these scientific developments were rarely applied to light industry and consumer products. And this was reflected in the failure of the Soviet Bloc to produce attractive products for the world consumer market.

Compare this to the experience of Japan. In the 1970s Japan was spending 2.5% of its GDP on research and development compared to the Soviet Union’s 4 per cent. Yet Japan innovated and grew much faster because this funding was spread across a wider variety of economic sectors. Crucially, the Soviet Union did not have organisations through which to commercialize the technologies developed by the state. Moreover, Japan had strong user–producer linkages which produced popular hi-tech products. Japan also encouraged innovation with incentives provided to management and the workforce of companies, rather than mainly focusing as the USSR did on bureaucratically-run scientific academies.

In state socialist economies, there was little incentive to make anything new for consumers. Indeed, innovation inevitably involved disruption of production and taking risks on the success of new products. Such a prospect did not appeal to the managers of state enterprises who tended to be highly conservative, given to conformity and risk-avoidance. In contrast, the capitalists in the West were driven to invent new products to defeat their rivals and drive up profits.

Normally, competition on the world market would have acted as a discipline on the Soviet Bloc economies forcing them to innovate. But the low level of Soviet Bloc (Comecon) participation in world markets became an increasing disadvantage.

The Oil Boom Followed by Stagnation and Collapse
When the oil price rose dramatically in the 1970s because of the action of the oil-rich nations in the Middle East organised in OPEC, the Soviet Union with its huge oil reserves benefited tremendously. However, the massive income this yielded for the USSR was a double-edged sword. As in many other oil producing states, the big flow of oil revenue covered up growing problems. In particular, it masked a slowing down in the rest of the economy.

Moreover, while the oil revenue greatly helped in earning foreign currency, this disguised the increasing disadvantages of not participating in the fast-growing world market. The other downside was that the USSR became too overdependent on its oil. When in the 1980s OPEC released its controls and the price fell due to the world economic slump, this exposed the fundamental weaknesses of the Soviet economy.

The decade of the 1980s saw the Soviet economy stagnate. The reasons for this were manifold. Quite apart from the fall in oil revenues, the rise in military spending in response to the provocations of the US meant that the USSR ended up spending 40% of its annual budget on defence. This of course included the disastrous and costly war in Afghanistan which had begun after Soviet Forces had entered the country at the end of 1979.

Meanwhile, the agricultural sector in the Soviet Union was never sorted out, with the Soviet Union having to import larger and larger amounts of grain.

However, even more deeply ingrained flaws in the Soviet system were at work. “All sections of society are affected, ‘the indolence of the bureaucrat corresponds to the lack of interest of the worker and the dissatisfaction of the specialist’. The political leadership, what Bahro calls the politbureaucracy, commands; lower levels in the bureaucracy passively receive commands from superiors and actively issue them to subordinates; workers and citizens are commanded. The problem of motivation is normally discussed at the level of the bureaucracy, particularly of enterprise management. Risk-avoidance, resistance to innovation, transmission of biased information, accumulation of hidden reserves, conformism towards superiors, arbitrariness towards subordinates, indolence, inefficiency, corruption – all are widely accepted… as deep-seated characteristics of bureaucratic behaviour in the statist countries.” 19

The underlying problem was the lack of participatory democracy throughout the Soviet economic system. Instead of giving all the agents of production – the workforce, customers, suppliers etc.- a role in decision-making, “The party decided on behalf of the masses and the party leadership decided on behalf of the party. This was so in relation to society-wide decisions and also in relation to decisions at the level of individual enterprises and workplaces. The principle of one person management, the absence of independent trade unions, the reality of ultimate control by the party leadership at each level, meant that workers had virtually no say in the decisions affecting them.” 20 The same problem of exclusion from decision-making also applied to Soviet consumers, service users and other sectors of society.

As one socialist theorist sympathetic to the Soviet system in the 1980s concluded: “Having been the means for rapid primitive accumulation and forced industrialization during the Stalin period, the administrative command planning system and absence of political and economic democracy have become fetters… that the existing social organization in the Soviet Union, in particular the lack of openness and democracy, has for some time been preventing the efficient functioning of the Soviet economy and holding back its further development.” 21

All the while, rampant bribery and corruption had spread throughout society. Even the ruling caste of officials was rapidly losing confidence in their own system and beginning to look to the West as a superior alternative. The reforming government of Gorbachev that took office in 1985 tried to open up the system with a policy of ‘Glasnost’ (openness) which enhanced freedom of speech and the press. And to implement ‘Perestroika’ (restructuring) of economic decision-making. This included steps towards some elements of the old New Economic Policy of the 1920s. But Gorbachev was paralyzed by indecision and constantly reversed decisions. In truth, Glasnost and Perestroika represented an attempt at ‘revolution from above’. As such it was a contradictory attempt to move away from “the monolithic political system and the suffocating dominance of the party/state22 while using the very institutions that were at the heart of the problem.

Gorbachev himself posed the issue at the heart of Perestroika: “Restructuring itself is possible only through democracy and due to democracy. It is only this way that it is possible to give scope to socialism’s most powerful creative force – free labour and free thought in a free country.” 23

The problem was that there was no clear idea of what democracy would mean for the Soviet Union. Introducing the Western version of democracy could only mean a counter-revolution and the restoration of a capitalist economic system. While a move forward to a fuller, more participatory form of democracy was not even conceived of, never mind put on the agenda. 

Capitalist Restoration
From 1989 onwards the states in Eastern Europe that formed the Soviet Bloc began to break away.  Finally, in 1991 following a failed coup the Soviet Union itself began to rapidly unravel. Various national parts of the Union declared independence leaving behind a smaller Russian Federation.

Then began a rapid economic transformation of Russia into a capitalist state. Once the soviet planning network which had coordinated the economy was removed, what occurred was not the spontaneous self-organisation of the economy promised by the neo-liberal advisers, but a domino process of collapse. One industry after another closed down along the supply chain. An industrial system that had been designed to work as an integrated whole across the various soviet countries, was split up by national barriers and ceased to operate.

Accompanying the dismantling of central planning came the wholesale privatisation of state industries. This was carried out on such a scale and so rapidly that there was no class of citizens wealthy enough to buy up state companies by legal means. Thus, the best pickings of the economy passed into the hands of ex-soviet officials and a new layer of gangsters.

Instead of delivering the promised land, this process impoverished the country. From having been the world’s second superpower, Russia was reduced to the status of a minor bankrupt economy with a huge decline in industrial production and in living standards. Even life expectancy fell, with the population actually declining by nearly six million. Drug use, homelessness and suicides increased dramatically. And economic growth did not begin to return to Soviet-era levels for nearly fifteen years.

Conclusions
With the benefit of hindsight, especially that of the spectacular performance of the Chinese economy afterMao’s death (see ‘China’s New Economic Policy’ ), we can now see the wisdom of Lenin and Bukharin’s New Economic Policy. This combined with the planning and industrialisation elements of the Left Opposition’s platform, would have been a sound foundation for the USSR’s development at the end of the 1920s onwards. In a largely agricultural society, socialists needed to focus first on agriculture in order to solve the food problem for the farmers and the urban population. From this first step, rising productivity in the countryside and the resulting surplus could have been used to develop light and then heavy industry in an organic and balanced way.

Integral to such a policy would have been for the workers and peasants to move forward together in a cooperative alliance. And to be empowered so that they could play a decision-making role in their workplaces and in the economy as a whole. Tragically, Stalin chose the opposite path of coercion; a “revolution from above” as he put it at the time. And this created a top-down, repressive system that was to distort the whole subsequent development of Soviet society. Thus, the collapse of the Soviet Union was never an inevitable process. Rather, it was one that had been prepared many decades earlier. And never repaired in time.

Regrettably, the Soviet Union evolved into a bureaucratic, inefficient and undemocratic machine that in the end was incapable of meeting the economic, social and political needs of the population. Nor was it capable of competing with capitalism on an international scale. This became increasingly plain for the Soviet people to see despite all the attempts to conceal it.

Clearly, there was a need to democratise the whole system by actively involving its population in the running of society. By involving its workers, customers, service users and so on in the administration of its economy and services. Such a democratic socialist model could have ended the alienation of the citizens and dramatically improved the efficiency of the system. But such a viable model was never developed by the critics of the stalinist system. Or offered as an alternative to the peoples of the Soviet Union and Eastern Europe. Thus, all the citizens of the Soviet Bloc could see was the alternative model of capitalism which at least appeared to be more efficient and offered higher living standards. Naturally, they chose this alternative when the opportunity arose. But this choice ended up delivering them into a far weaker and insecure society dominated by oligarchs and gangsters.

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Footnotes
1.‘Defending Planning’ by Brian Green 1999
2.’Transition to Socialism 4.0′ by Jonathan Clyne, pp.90-93
3.Pat Divine offers a utopia – Highlight Loc. 72-76 Friday, June 28
4.’Lecture on the 1905 Revolution’ by V.I.Lenin 22 January, 1917, source online: https://www.marxists.org/archive/lenin/works/1917/jan/09.htm
5.Full quote: “Of course, in our Soviet Republic, the social order is based on the collaboration of two classes: the workers and peasants, in which the “Nepmen”, i.e., the bourgeoisie, are now permitted to participate on certain terms. If serious class disagreements arise between these classes, a split will be inevitable. But the grounds for such a split are not inevitable in our social system, and it is the principal tasks of our Central Committee and Central Control Commission, as well as of our party as a whole, to watch very closely over such circumstances as may cause a split, and to forestall them, for in the final analysis the fate of our Republic will depend on whether the peasant masses will stand by the working class, loyal to their alliance, or whether they will permit the “Nepmen”, i.e., the new bourgeoisie, to drive a wedge between them and the working class, to split them off from the working class. The more clearly we see this alternative, the more clearly all our workers and peasants understand it, the greater are the chances that we shall avoid a split which would be fatal for the Soviet Republic.” January 23, 1923, Recommendation to the Twelth party Congress, Ref: Lenin’s Collected Works, 2nd English Edition, Progress Publishers, Moscow, 1965, Vol 33, p.481-86
6.Full quote: “The proletariat after its victory must get along with the peasantry no matter what, for it is the majority of the population with great economic and social weight… It is necessary, accordingly, to understand that the proletariat has no choice here; it is compelled, in building socialism, to get the peasantry behind it; it must learn how to accomplish this, for without this its regime will not last.” ‘The Theory of Permanent Revolution’ by Nikolai Bukharin, December 13, 1924, https://www.marxists.org/archive/bukharin/works/1924/permanent-revolution/index.htm
7.’Transition to Socialism 4.0′ by Jonathan Clyne, pp.90-93
8.’Bukharin and the Bolshevik Revolution: A Political Biography, 1888-1938′ by Stephen F. Cohen p.157
9. ‘The Prophet Unarmed: Trotsky, 1921-1929’ by Isaac Deutscher, p.360
10.Full quote: “Meantime, however, Trotsky was confronted with an unexpected turn of events. For years he had not ceased to speak of the ‘danger from the right’ and to warn the party against the defenders of the kulak and the Thermidorians. He had been prepared to form a ‘united front’ with Stalin against Bukharin. But it was Bukharin who implored the Left Opposition to make common cause against Stalin, their common enemy and oppressor. When Stalin whispered in terror: “He will strangle us…” (‘The Prophet Unarmed: Trotsky, 1921-1929’ by Isaac Deutscher, p.375)
11.’The Prophet Unarmed: Trotsky, 1921-1929′ by Isaac Deutscher, p.264
12.Full quote: “Bukharin went to see Kamenev in order to try to prevent what he saw as a fatal mistake; he did not want the friends of Zinoviev and of Trotsky to make an alliance with Stalin at any price; “The differences between us and Stalin are infinitely more serious than our former differences with you.” Moreover, it was not a question of ideas, because Stalin did not have any: “He changes his theories to meet his need to get rid of someone at this or that moment.” (‘The History of the Bolshevik Party (CP) of the USSR’ by Pierre Broué, https://www.marxists.org/archive/broue/1971/ussr/ch11.htm)
13.Source: Revelations from the Russian Archives: Internal Workings of the Soviet Union, Library of Congress, https://www.loc.gov/exhibits/archives/intn.html?fbclid=IwAR29Q0FbLkj-qesgivdqSndNfg9V5_aFDNF0rRIs9ilUQqmARTAhVYubvNs
14.’The History of the Bolshevik Party (CP) of the USSR’ by Pierre Broué, https://www.marxists.org/archive/broue/1971/ussr/ch11.htm
15.’Transition to Socialism 4.0′ by Jonathan Clyne, pp.44-46
16.Wikipedia: https://en.wikipedia.org/wiki/Eastern_Bloc
17.’Nikolai Bukharin and the New Economic Policy. A Middle Way?’ by Jonathan J. Bean
18.‘Democracy and Economic Planning’ by Pat Devine, Polity Press 1988, p.12
19.‘Democracy and Economic Planning’ by Pat Devine, Polity Press 1988, Kindle Highlight Loc. 1335-45
20.‘Democracy and Economic Planning’ by Pat Devine, Polity Press 1988, Kindle highlight Loc. 2254-58
21.‘Democracy and Economic Planning’ by Pat Devine, Polity Press 1988, Kindle highlight Loc. 2171-90
22.‘Democracy and Economic Planning’ by Pat Devine, Polity Press 1988, Kindle highlight Loc. 4753-65
23.Gorbachev 1987, p. 24

HONG KONG – the real story behind the protests

The growing influence of the United States in the pro-independence movement in Hong Kong

By Pat Byrne (Brazil) and Khalid Bhatti (Pakistan)   
Published by The Socialist Network 
7th September 2020

Things in Hong Kong are not as they seem. In an Alice in Wonderland scenario right wing political leaders like Donald Trump and Boris Johnson, who invariably defend their states against violent attack, now applaud demonstrators in Hong Kong as they confront local police with weapons and firebombs.
Where normally such reactionary capitalist leaders would be condemning damage to shops and businesses, in Hong Kong they have been cheering protestors as they do so on a daily basis.
Likewise, they are loudly condemning the introduction of security laws into Hong Kong which are far less draconian than those that operate in their own countries.

What can explain such glaring contradictions?
How has Hong Kong become such a cause celebre for the far right, fake news brigade?
And why have so many liberals and left-wing commentators on Hong Kong ended up joining common cause with the most reactionary forces on the planet?

What is really going on in Hong Kong? 

Hong Kong has been continuously in the news for the last couple of years. On our television screens we have seen massive pro-democracy marches involving millions of citizens protesting against perceived threats to their democratic rights. And demanding the extension of the vote to cover all governing positions in the Hong Kong Special Administrative Region.
Side by side with the peaceful demonstrations have been increasingly violent protests and clashes with the local police.
Now, in order to break the stand off, China has recently introduced a Security Law for Hong Kong which applies the regulations used by most countries against treason and sedition, subversion and sabotage. And begun arresting some of the leaders of the protest movement.
In response to this, the United States, UK and other countries have started to impose sanctions on China.

Britain taking over Hong Kong in its infamous ‘Opium Wars’

British Hypocrisy
As the former colonial power in Hong Kong, Britain is playing a particularly hypocritical role in the current dispute over the Territory.
For example, Britain is demanding the extension of elections in Hong Kong. Yet, it ran the area for 150 years without any elections! In fact, Britain governed Hong Kong as a colony not a democracy.
In the first place, Britain only gained control of Hong Kong and its surrounding territory through naked conquest in the two Opium Wars between 1841-1860. These wars were so-called because of the resistance of the Chinese to the sale by the British of opium from India as unwanted payment for chinese silk, porcelain and tea. Understandably, the Chinese emperor opposed the idea of his population becoming a mass of drug addicts. But the British used their naval technological might to defeat chinese opposition and impose their will. And then demanded the key deep water port of Hong Kong and its surrounding territory as colonial possessions.
During its colonial rule, far from standing up for Hong Kong’s local population as Britain is pretending to do now, the British introduced anti-chinese racial zoning with the best areas in the extremely limited land area reserved solely for europeans (and their servants). Signs were erected in public places such as parks excluding ‘chinese and dogs’.
Under British rule, chinese people in Hong Kong faced many other discriminatory regulations including higher taxes. Plus, a requirement to carry lights and written passes at night which for many poor chinese meant that a curfew operated for them every night.

Democracy Thwarted
At the end of the Second World War there was a worldwide move towards decolonisation. But Britain decided to keep Hong Kong under its control for military and strategic reasons.
In compensation, a promise of more democracy was made in the Young Plan. But, because of the success of the Chinese Communist revolution on the mainland in 1949, and the threat the British felt it posed to their dominance in the region, even these modest proposals for democratic reform were withdrawn in 1952. Thus, leaving the local people of the Territory without any voice at all.
Following the Chinese revolution, many people fled to Hong Kong from the mainland. Some because they had been on the losing right-wing nationalist side. Some because they feared to lose their wealth in the major changes that followed the revolution.
Another wave of refugees came during the late 1950s escaping the poverty and famine of the disastrous Great Leap Forward. And again during the massive disruption of the Cultural Revolution. Unsurprisingly, many of these refugees from the chinese mainland were fanatically anti-communist and have long influenced the political makeup of Hong Kong (HK), rather like the older Cuban exile community in Florida. Only in the last few decades have more ‘normal’ mainlanders come for work or settlement in HK.

Hong Kong’s Handover To China
In 1997 the official lease for Hong Kong between the UK and China came to an end. The British wanted to extend the lease but China demanded the return of its territory. Britain had no practical choice but to comply.
However, there was a major contradiction posed by the Handover. Hong Kong was run on private capitalist lines dominated by a few wealthy families, while the rest of China operated as a bureaucratic planned economy. But it so happened that the Chinese needed a gateway to the world capitalist market for its now booming economy. And so it came forward with the idea of a 50 year ‘One Country, Two Systems’ transitional system which would allow capitalism to continue for a long period in HK, along with various democratic rights of free speech, assembly and private media. Many observers have since assumed that the ‘two systems’ referred to here are only the different political setups in mainland China and HK. But it actually referred to the two different economic and political systems.
In the run up to the Handover, Governor Chris Patten, acting on behalf of Britain’s Thatcher government, cynically introduced a number of democratic changes in order to tie up Beijing in the Accession process and protect capitalism in HK after the handover. This was part of a wider preparation for the transfer which included large scale privatisation of public utilities and the sale of public land to the rich families that dominated Hong Kong.
Thus the 1997 Hong Kong Handover to China Agreement left many things unresolved including the lack of a National Security Law which has only now been introduced.

Hong Kong Since the Handover
Despite repeated forecasts of communist domination and oppression by the mainland since the handover in 1997, Beijing has allowed Hong Kong to remain a capitalist enclave with low taxation, freedom of speech, assembly and press. Indeed, the Cato Institute, a Washington-based, neoliberal think tank set up by the far-right Koch brothers, recently declared it to be third freest place in the world. Ironically, with the United States being in 17th place!
A common image fostered by the right-wing media in Hong Kong is that HK was better off economically under the British. In relative terms this was partly true. But, only because of its role as an exclusive gateway between the world and booming China. Once China allowed direct investment and trade from the rest of the world into mainland China, especially after it joined the World Trade Organisation in 2001, it was no longer necessary for outside companies to go through Hong Kong and vice versa. As a result, HK lost a major part of its attraction to international business and its importance to China’s economy – since the Handover HK has rapidly declined from a position accounting for 20% of China’s GDP to only 3% today. As a result, Hong Kong has fallen behind many mainland Chinese cities including its neighbouring technological powerhouse in Shenzhen.
But this was only a relative decline not an absolute one. Hong Kong still offers many advantages for companies wanting to do business in China. More importantly, in real terms the incredible rise of China’s economy has also raised HK’s standards. Thus, Hong Kong’s GDP has nearly trebled from $165 billions dollars since China took possession in 1997 to $455 billion dollars today, with a corresponding trebling of per capita wealth ($25,000 to $61,000). On the other hand, with the private ownership and massive inequality of capitalist Hong Kong this big increase in wealth has not gone to the ordinary people of HK but overwhelmingly to the capitalist elite.

Comparisons to the Berlin Wall
Comparisons have been regularly made between Hong Kong’s situation and the Berlin Wall erected in Soviet East Germany to prevent its citizens from defecting to the capitalist west. The obvious difference being that HK citizens are free to go back and forth. And unlike East Germany which was considerably poorer than West Germany, mainland China is increasingly on a par with Hong Kong and in some cases is surpassing HK in terms of jobs, living standards, housing and other opportunities.
Thus, there is no need for a Berlin Wall to prevent people from going from the mainland to Hong Kong. Indeed, the flow of people for work is often from HK to China rather than the other way round. To further emphasise the difference between the situation in HK and Berlin, far from trying to impede travel between HK and the mainland, Beijing has spent massive amounts of money to build the world’s longest series of bridges and tunnels to connect Hong Kong and Macau with the mainland. This has dramatically cut down the time it takes to travel between HK and the mainland.
Far from making it extremely difficult for its citizens to travel abroad, for fear of them defecting as the Soviet Bloc did in the 20th century, chinese students, business people and tourists travel freely. Indeed, last year 150 million Chinese tourists travelled on foreign holidays and rather than defecting returned to their homes in China. So much for the prison house image of China portrayed in the western media!

The Pro Democracy Movement
Last year’s protests in Hong Kong were not the first. There had been earlier demonstrations in 2014 with the Umbrella Revolution and the Occupy Central Movement.
The latest upsurge came last year in response to the introduction of a local regulation proposing extradition to China. This arose because of a murder of a Hong Kong woman in Taiwan and the fleeing of her alleged HK murderer back to the territory. There being no extradition treaty between Taiwan and Hong Kong because of Taiwan’s undetermined national status (either as part of China or an independent country), Beijing’s solution was to introduce a rule that allowed people to be extradited from Hong Kong to the Chinese mainland. This frightened many HK residents who feared it would open the way for the extradition of dissidents for punishment on the mainland. Such fears had been stoked by the earlier disappearance of two Hong Kong booksellers who later turned up on the mainland charged with selling books critical of the Chinese leadership.
To voice these fears in HK, a huge movement was launched against the proposed extradition rule helped by the support of the right-wing media. This movement initially represented the majority of people in Hong Kong and included voices from both left and right.
In response to the massive protests of millions of HK people the Chief Executive of the local Legislative Council suspended the proposed extradition rule. The protests continued. Then the rule was withdrawn. But still the protests continued with its demands widening to include: the withdrawal of the extradition bill; retraction of the “riot” characterisation; release of students and the injured; and Lam’s resignation as Chief Executive. A fifth demand went much further in demanding universal suffrage for the whole Legislative Council and the Chief Executive.

Last year’s pro-democracy movement began with massive peaceful crowds

Genuine Protests Morph into a Reactionary Movement
From a broad and peaceful protest the pro-democracy movement rapidly changed into something else. Increasingly, it was taken over by right-wing, pro-American forces and its aims shifted from protecting the democratic rights of Hong Kong people towards denunciation of the chinese political system and for complete secession from China.
A key part of this transformation was the role of the right wing media led by Apple Daily and Next Digital both owned by Jimmy Lai, a well named publisher who copied Rupert Murdoch’s combination of gutter journalism and sex to build up his media brand. Lai, who is a fanatical neoliberal, has played a leading role in directing and funding right wing elements in the protest movement.

Pro-democracy protestors breaking into the Legislative Council

Violent Actions
The pro-democracy movement in Hong Kong soon split into two factions. On one side is a mass movement that demonstrates peacefully in huge numbers. On the other, an extremely violent masked and helmeted action force dressed in black and carrying weapons that call themselves among other things ‘the Braves’.
These ‘Braves’ have become increasingly more aggressive beating up anyone who dares to argue with or oppose them, attacking shops, buildings and important targets such as the local Legislative Council building.

Invading the Legislative Council and raising British colonial flags

In the latter case, hundreds of protesters broke through the glass walls and metal doors and entered the building, ransacked and vandalised the interior with anti-government and anti-People’s Republic of China slogans. They defaced the local Hong Kong flag and city emblems, waved British and colonial flags and sprayed slogans such as “Destroy the Chinese Communist Party,” and “Hong Kong is not China”.
The protestors also blockaded HK’s airport, Hong Kong’s most important lifeline. And have been setting parts of the HK train system on fire. The core of these Braves are easily manipulated 14-15 year olds, even youngsters as young as 11 or 12.
Imagine the reaction of the authorities in America or Europe is such things were to happen there? They would crack down on the perpetrators like a ton of bricks. While there have been incidents of overreaction from the Hong Kong police, in comparison with police actions elsewhere they have been remarkably restrained. In the clashes with protestors one can see them regularly backing away from the demonstrators. As a result, there have been no deaths during the long conflict. Compare that to the way that the police in other countries deal with less violent protests such as the aggressiveness of the police in America with their armored vehicles and military style uniforms and readiness to use rubber bullets, tear gas and batons. Or the number of deaths and serious injuries inflicted by the police against the yellow vest protestors in France. Or the absolute brutality in the way that the pro-Madrid police treated the independence demonstrations in Barcelona. Or the 29 deaths and thousands of injuries used last year against demonstrators in Chile.
Meanwhile, the violent wing of the pro-democracy protest in Hong Kong, while preaching non-violence has been practicing its opposite on a daily basis. Accordingly, they appear with weapons and molotov cocktails, and have beaten women on the streets, burnt people, stabbed a policeman in the neck, and thrown acid on another.
All of their violent acts are edited out of the videos broadcast or used by the foreign media who consciously ignore the comparison with much greater police violence in other parts of the world. But clear evidence has surfaced in hundreds of eyewitness videos posted by shocked, ordinary citizens on Twitter.

New US Destabilisation Strategy – Combining Peaceful Protest with Violent Assault
Normally, non-violent mass movements distance themselves from the destructive actions of minority violent factions. But in the case of Hong Kong, both sides have a pact to positively support each other irrespective of the actions taken. Thus, the non-violent side refuses to criticise or distance itself from the violent side, and vice versa.
In contrast to the Ghandian non-violent tactics of civil disobedience, this is part of a new CIA/Defence Department strategy that combines mass protests with violent attacks including firebombing on police, institutions and civilians. This strategy has clearly become a key part of the CIA’s manual of operations designed to destabilise governments and effect regime change.
This new strategy uses the highly detailed, non-violent tactics of the late Gene Sharp which sought to overthrow dictatorships. And then co-opted them into something entirely different. In particular, former American Defense Intelligence Agency analyst, Col. Robert Helvey, helped to develop “a blueprint that weaponized protest as a form of hybrid warfare, aiming it at states that resisted Washington’s domination.”
The CIA took this further and integrated the strategy with violence including the use of unemployed youth as thugs.

The Example of Venezuela
This approach has been used in a number of pro democracy uprisings around the world. But nowhere has its method of operation been more clearly demonstrated than in Venezuela. As far back as 2005, with Chavez at the peak of his popularity, five right wing Venezuelan student activists identified by the US as promising candidates were sent to Serbia to begin training in civil disobedience insurrectionary tactics. One of these was none other than Juan Guaidó, later to become America’s self-declared alternative “leader” of Venezuela.
These student activists began their work in 2007 leading protests in defence of the right-wing media. Then in 2010, a plan for widespread street violence in Venezuela was developed at a meeting in Mexico. After Maduro was elected President in 2013 in succession to Chavez, the plan was put into operation. Barricades were erected across the country, turning opposition-controlled quarters into violent fortresses known as guarimbas. These tactics of violent disruption proceeded over the course of several years and resulted in massive damage to Venezuela’s economic and social life, along with the deaths of hundreds of civilians through the widespread use of fire to burn property and individuals.
The aim of the street barricades was to destabilise the country and was part of preparations for a hoped-for coup by the venezuelan military to overthrow the Maduro government. However, the venezuelan army has been so radicalised by the struggles of the last two decades and the continuing influence of Chavez’s popular ideological legacy, it has been unwilling to be used in these US-hatched plans for overturning the democratic institutions of the country.
In the absence of a coup, the never ending barricades and street violence began to alienate even the majority of the anti-Maduro middle class.

Clear Parallels between Venezuela and Hong Kong
The widespread use of street violence by the pro-democracy movement in Hong Kong has paralleled the experience of Venezuela. While such tactics might work in a short sharp protest uprising, the longer they continue the more they serve to alienate the wider public. It was to avoid such reactions that the Ghandian protest movements were so insistent on rejecting violence and disassociating themselves from it.
The same process has happened in Hong Kong. From having a large majority behind them in the early days, many citizens have become disgusted and frightened by the tactics of the violent minority. And grown weary by the constant disruption and economic dislocation that have resulted from it. No wonder that 3 million HK citizens, nearly half of the adult population, have now signed a petition supporting the new Security Law introduced by Beijing. This is a devastating setback to the image of a protest movement that was supposed to represent the vast majority of HK’s population.

Ordinary worker disagreeing with attack on train station is set on fire by ‘the braves’

The Role of US Agencies in the Protest Movement
There is growing evidence that the pro-democracy movement in Hong Kong has been operating with the close assistance of US government agencies. Despite this, there is a reluctance by some commentators to openly admit that the HK protest movement is being directed or influenced by an American intelligence operation for fear of being accused of supporting conspiracy theories. However, what would be very strange would be if the Central Intelligence Agency and its front groups were not organising a major operation in Hong Kong. Especially, given the history of the CIA which since the 1953 coup in Iran onwards has been shown to be involved in trying to overthrow almost every government deemed to be acting against American interests.
China is now declared America’s ‘enemy number one’ and Venezuela its ‘enemy number two’. Are we seriously expected to believe that it has only been operating a regime change policy in Venezuela and not in Hong Kong?
So, the question is not: is there a CIA conspiracy in Hong Kong? But, why wouldn’t there be?
In fact, the CIA and its complementary agencies in the US, the State Department, USAID, National Endowment for Democracy, etc. are all fully supporting the pro-democracy movement in Hong Kong politically, financially and tactically. As such, they are supporting the opposition parties and put millions of dollars into last year’s elections to the District Councils.
Naturally, the US agencies have supported the frequent trips of pro democracy leaders to America and Europe. For example, to the so-called ‘Summer of Discontent’ hearings that were held last year in the US Congress with Joshua Wong, Denise Jo and Nathan Law talking to US lawmakers about how to “contain China”.
It also appears that the US have helped train some of the student leaders of the Hong Kong pro-democracy movement who emerged in the 2014 protests. Just like they did in Venezuela. For example, leading HK pro democracy leader Joshua Wong was filmed several years ago attending seminars on how to organise civil disobedience actions at the Oslo Freedom Forum, another US financed right-wing front group.
Meanwhile, a whole number of US intelligence agents have been identified accompanying and advising the leading figures in the pro-democracy movement.
Meanwhile, right wing US Senators fly over and openly walk around the pro-democracy demonstrations. And in the demonstrations we now see the regular sight of American flags and posters saying things like: ‘President Trump, please liberate us‘.
If the pro-democracy movement were a genuine movement for independence why are they flying British and US flags and not their own independence flags? And why are they singing the US Anthem and not their own local songs?

What is America and the UK’s Strategy?
Hong Kong is clearly being used in the geopolitical conflict between the US and its allies on one side, and China and its allies on the other. The US and the UK know that China will never allow Hong Kong to break away and are cynically using the pro-democracy protestors to help them in their new cold war against China.
Part of this strategy was to use Hong Kong’s Legislative Council elections due this month to further destabilise and undermine China’s authority in the Territory. Just as they did in Venezuela, US agencies have used their financial and political power to force the bickering and divided right-wing and liberal parties in Hong Kong to work together. Thus, we have seen the highly unusual agreement of the various opposition parties and factions in HK to conduct a joint primary in which they all agreed in advance to respect the results and present a united front in the September elections for half the seats of the Legislative Council. This was likely to lead to a sweeping victory for the pro-democracy movement and the potential emergence of a leading figure that the US, UK etc. could then declare as the true leader and voice of Hong Kong. As they did with Juan Guaidó in Venezuela. Recognising this person as the ‘real leader’ of the territory, parading him or her around the world in a big propaganda effort to build support for sanctions against China.
No doubt, China has recognised the possibility of such an outcome. Accordingly, the elections have been postponed until the summer of 2021, and actions are being taken in Hong Kong to break up the united front arising from the primary by disqualifying many candidates and arresting some on charges of collusion with external powers.

More US Hypocrisy
In public, the most reactionary Republican US Congress representatives and senators have been praising the protestors in Hong Kong to the skies calling them “heroes”. At the same time they are describing the millions in the US protesting against police violence against black people as “thugs”.
Likewise, throughout last year the US threatened China with major consequences if it introduced a curfew to deal with the riots in Hong Kong (which it didn’t). Then the US went on to to rapidly introduce curfews in many American cities in response to the Black Lives Matters protests.
Then, there were threats made against China if it brought its People Liberation Army units onto the streets of Hong Kong, but despite the length, ferocity and destructiveness of the violent actions last year the chinese army never once appeared on the streets. Contrast this to America to see how quickly the army was brought onto its streets to confront the anti-racist protests.
But do the international media highlight such double standards? Of course not. They are up to their necks in a one-sided propaganda war against China.

Racism Against Mainland Chinese
Another objectionable side to Hong Kong’s Pro-Democracy movement is its growing racism against the mainland Chinese population. Throughout this whole period there have been an increasing number of racist attacks on mainland Chinese with insulting signs appearing in some pro-democracy restaurants and businesses refusing trade with mainland chinese. This has been translated into actual assaults on mainlanders.
We see this racism even reflected among the elected political representatives of the pro-democracy movement such as its district councillors.
The negative results of this have been entirely predictable. At the beginning of the campaign there was significant support in mainland China for the protest movement. But this anti-mainland Chinese racism has killed that support. This combined with the violence and unreasonableness of the protests have united chinese people on the mainland behind the new Security Law and its application to the pro-democracy movement.
Normally the leadership of a genuinely local movement in Hong Kong would have recognised that they needed to win the mainland chinese people’s support for their demands. But they actually did the opposite. Undoubtedly, this was because they were encouraged by the US and British to believe that they could achieve the dream of independence. To this end, the leaders of the protest were feted around Washington where they addressed Congress and the White House, and later in London and the European Union. The many promises of money and support they received abroad obviously went to their head.
Now that China has begun to take even minimal action against the pro-American pro-democracy leadership in recent weeks, the bubble has quickly burst. A number of key protest leaders like Nathan Law have fled to the West while the others have resigned their positions and folded up their organisations, despite previously boasting that they would rather die than give up the cause.

Pressing Local issues
There are a number of social and economic problems in Hong Kong that need serious attention. Top of these is a growing housing crisis. Major progress is being made on this in China but not in Hong Kong. Accommodation is actually getting smaller and smaller in newer apartments with the animals in HK’s zoo have bigger living space! At the heart of the problem is the ownership of so much land by a few wealthy families who are only interested in the building of luxury apartments and office buildings. This is a legacy of the British who ruled Hong Kong in favour of these property tycoons. In the period before they left they sold a lot of land off to just four companies, plus many other public utilities and assets. So, these ruling families virtually own HK.
Other problems facing HK’s citizens include rising unemployment, especially among younger people, and an increasing cost of living rising beyond the reach of ordinary people living in the Territory.
Elected representatives of the pro-democracy movement have been criticised for not addressing these issues but they say that the priority has to be to deal first with the relationship between China and Hong Kong. In this way, they show that their real allegiance is to their rich backers and not the ordinary citizens of HK.
Even where major progress has been made such as in transport, the pro-democracy movement is so against steps to improve links with the mainland that they have been trying to persuade people not to use the new high speed train.

The Left in Hong Kong
There is a significant left-wing movement in Hong Kong. But much of it has become overshadowed by the increasingly right-wing pro-democracy movement. Many on the left in Hong Kong go along with this because they think that China is just another form of capitalism whether state capitalist or dictatorial capitalist. So they see it as a struggle between two capitalist factions the outcome of which need not concern them.
We don’t have space here to deal with this superficial and illogical position, but if China was just another version of capitalism why would the international champions of capitalism be trying so hard to overturn it? And be framing this as an anti-communist struggle into the bargain? The reality is that the US, the UK, the EU etc. are against China because it is an alternative economic system that threatens their future rule. A planned economy in which the state, the publicly-owned banks and state-owned enterprises dominate the economy and effectively dictate the direction of its private companies. Where public investment is at the heart of development. A form of economy that they see as directly counterposed to their own capitalist economies which are unplanned and dominated by the private sector.
It is no accident that all the talk is of a Second Cold War. The First Cold War was between the capitalist countries on one side and the planned economies of the Soviet Bloc and China on the other. This is now being replaced by a new cold war against the state-managed economy of China. The difference this time around is that the Chinese planned economy is proving itself more and more effective than its capitalist rivals. This explains the growing intensity of the media propaganda war against China and the attempts to isolate and sanction it.

Which Way Forward for Hong Kong
In our view, the first thing for the Left in Hong Kong is to disassociate itself from the pointless calls for independence from China – after waiting more than a century for it to be returned, there is no way that China is going to allow Hong Kong to be separated from the rest of the country. Indeed, the idea that HK would do better by breaking away is lunacy. For one thing, by separating it would very quickly lose its unique advantages in relation to the chinese mainland and have to compete as just another financial centre / tax haven. And this would just see its already high inequality intensify even further for ordinary HK citizens.
As it happens, a plurality of residents in HK (37%) see their future more with mainland China than in closer relations with the United States (30%), according to a recent poll by London-based Redfield & Wilton Strategies.
Instead of seeking to break away from China, the logical road for Hong Kong is to positively accept itself as part of it. To co-operate more closely with the mainland and gain from its growing employment opportunities, rising living standards, housing facilities and so on. And to build upon HK’s autonomy and major freedoms as a model for the rest of China to follow.
On the economic front, the mainland has proposed the development of an integrated Guangdong-Hong Kong-Macao Greater Bay Area (GBA) as a triangle area for development which would include Hong Kong, Macau and the whole Guangdong province (which includes the technology hub of Shenzen). This region, covering 80 million population would be the most open and vibrant economic area in the whole of China.
To facilitate such integration, Beijing has offered special facilities to those HK residents who wish to work in Guangdong such as continued tax exemption, free local schooling, health etc. However, the pro-democracy movement has spurned such offers in favour of a programme for independence. In contrast, fellow ex-colony Macau has responded more positively, and its growth and development is reflecting this.

A Capitalist Future for Hong Kong?
Under the Handover Agreement capitalism in Hong Kong is only guaranteed until 2046. That is just one generation away. Now is the time to begin to take steps to move on from HK’s incredibly unequal model of property ownership and financial capitalism. Far from the common image of a Hong Kong of skyscrapers and prosperity, out of 7.5 million people in HK there are 1.37 million living below the poverty line.
The Left in Hong Kong needs to be able to reach ordinary HK citizens and give them the chance to voice their demands for increased public housing and renovation, better wages, affordable transport, more secure jobs, an end to the super exploitation of immigrant labour, and so on. And work together with them in genuine methods of co-productive design and partnership through which to develop a democratic socialist plan to overcome these problems. A new model of democratic public ownership and public investment that can shape the Territory’s economy in the interest of the mass of its citizens.

The Issue of Democracy
Hong Kong already has key elements of democracy in the form of free speech and assembly. The proposal to extend the right of citizens to vote for the whole of the Legislative Council and to have a directly elected Chief Executive appears on face value to be an eminently reasonable demand that would further provide the citizens of HK with a real say in the future of their city. However, this is a mirage. Behind this demand lie the rich tycoons of HK who intend to combine this extension of the franchise with their existing ownership of media channels and political parties to extend their power and wealth.
As we can see from competitive capitalist democratic systems elsewhere, gaining the vote does not mean gaining real power. The rich are able to manipulate the narrow and limited democracies of the West to deliver what they want and shut out the demands of the mass of the population. That is why all the western governments are being able to systematically reduce living standards and public services in face of popular discontent.
HK citizens should not be listening to the false promises of Trump or Boris Johnson who constantly lie to their own populations as they push them further into inequality and poverty. Nor to link its fortunes to the declining and decaying West.
The Left in Hong Kong needs to urgently separate themselves from and expose the violent forces in the pro-democracy movement. And to support the demand for all foreign funding and manipulation to be ended and punished – all those parties and individuals in HK who have accepted it should be publicly disgraced and barred from public life.
If HK citizens really want a say in the future of their territory they will need a very different kind of democracy beginning with the democratisation of the newspapers, television and social media. To this end, they need to create grassroots organisations with independent public funding to ensure that they have independent voices free from elite support and manipulation. The ordinary people of Hong Kong need a real democracy that delivers full participation in the decisions that affect their lives.
Hong Kong does not need to move towards the fake capitalist model of democracy. We have seen the results of this in the Soviet Union and Eastern European where the peoples’ hopes of a post-stalinist society were betrayed and power ended up in the hands of a few rich oligarchs. A better HK cannot be based on a society owned by a rich elite but by a truly democratic and publicly-owned system. Such a real democracy could provide a very attractive model for the rest of China instead of alienating them as it now does.

Hong Kong’s future cannot be to fruitlessly go it alone. Or to rely on the hypocritical support of the reactionary rulers of America, Europe and Australasia who seek to use HK’s citizens as pawns in their rivalry with China.
The people of Hong Kong should reject the racist and short-sighted anti-mainland voices. Instead, they need to grow closer to the fast expanding Chinese economic system and benefit from its success. And to use HK’s existing autonomy and freedoms to develop new forms of democratic public power that can appeal throughout China.

This article is the first of a series on the nature of Chinese society and the challenges facing it. It will include original insights and positive proposals for how China can better answer its critics and overcome its current problems. If you would like to receive future articles on this subject or give us feedback please send a message to us at our facebook page: https://www.facebook.com/thesocialistnetwork