How red is your capitalism?
Globalization, Societies and Institutions Assignment Essay (Topic 3)
The article we are presented with, attempts to show us the general picture of how
companies are being run in China, and how private entrepreneurs don’t stand a chance if they
try to go out there on their own, without having the party’s support, and with going against the
huge, party-supported companies, just by themselves. People in China can’t be powerful
without having the party’s support and influence. If the CEO of a company doesn’t have enough
connections with the leaders, he won’t be able to enter the market and compete with the ones,
which have gained the country’s approval. This doesn’t mean that that CEO definitely needs to
agree with the ideas of the party or be a communist, but that he needs to earn their respect,
show ideas that will be profitable for the country itself, and be in tact with the country’s
politics. China has the second most powerful economy in the world (some say the first), but the
majority of their people has been struggling for many years, living below the poverty line, and
not reaping the benefits of the high productivity and economies of scale. That leads to the
conclusion that the government is doing something wrong and that the system has many flaws
that need to be fixed. The main questions that arise from the reading, which I will be trying to
answer throughout this essay, are to what extent socialism prevents over capitalism in China’s
economic system, what exactly does “State capitalism” mean and isn’t it a contradictory term
on it’s own, and if China has been successfully implementing this method during the years, or
there has been a better way to proceed.
State capitalism is defined as “an economic system in which private capitalism is
modified by a varying degree of government ownership and control” (Merriam-Webster). This
means that it is possible for private companies to exist, but the government always has the
right to interfere, give directions, assign people from the party at job positions, and control the
growth of the company. Going away from these policies would mean changing their whole
economic system and basically ruin almost everything that has been built so far and made them
the economic power they currently are (Samuelson, Robert 2019). The term “State capitalism”
though, is confusing by itself. Capitalism, in its purest form, requires free markets and
completely independent private enterprises, where profits and efficiency are prioritized, and
exploitation of workers or environmental effects are considered unimportant and worthy to
sacrifice, in order companies to be successful. Like almost every other country in the world,
China is using a combination of capitalism and socialism, the difference being that they are
trying to use only the good elements out of both systems, neglecting the bad effects, which are,
in reality, influencing people extremely badly. In theory, the government helps the firms being
ultimately efficient and profitable by subsidies and advices, and then getting most of the profits
and distributing them to the population. What sounds great in theory, is deliberately failure in
practice, as in most spheres there isn’t competition among the firms, and the profits are
impossible to be distributed evenly between a 1.5 billion population, leaving most of it
completely left out of the equation and creating a secondary economy between those people
as well, which leaves us thinking that something isn’t working in the core of Chinese “State
capitalism”. (Zitelmann Rainer, 2019 (3))
The average Chinese person has struggled for many years now, and there isn’t only one
reason for that; from the Great Leap Forward ending in 1962 to the largest capitalist
experiment in the world, China’s economy has been through a lot and it is debatable if Chinese
people are getting worse and worse, or they will soon see better days. About 60 years ago,
more than 40 million people starved to death and about 90% of the other people were living on
or below the poverty line. Mao’s unsuccessful transition to a ‘pure communist society’ required
a change in the system; a quick reaction, a lot of recovery, and a long-term economic plan.
(Xing, Li 2013) That change was the transformation to state capitalism, which even though
debatable if implemented correctly and optimally efficiently, has certainly made the life of a
large part of Chinese people much better in the recent years, compared to what it was before.
Currently less than 1% of the people are living below the poverty line and numbers such as total
GDP and GDP per capita are improving with each year. The biggest reason for this is the
removal of the ban for having private property and making private enterprises legal and
functional. De-collectivization of agriculture in China was the first step towards preventing
people from dying of hunger. Influence of the state on private entities was gradually decreased
and owners were given more freedom of how to control their resources, human capital, and
ideas, giving them more room to grow and the opportunity of long-term planning on becoming
successful. Market forces prevailed over government policies and Chinese institutions became
more independent and adequate. In general, China’s reaction to the economical and
demographical disaster than happened in the mid-20th century was more than successful and
the country came out of the hole it had been into, but we should also consider the
disadvantages those policies have led to and the things that still have a lot of room for
improvements. (Zitelmann, 2019, (5))
There is no doubt that Chinese economics and the quality of life of people has improved
drastically in the last 40 years, but as economists we should always try to analyze how things
could be done better and what parts of the system are still not working. Now that the Chinese
economy is stable, it should be reorganized, as the growth rates, exports, and investments it
has depended on, are impossible to be maintained, so a new plan should be implemented. One
of the biggest issues in the current Chinese economy is the large dependence on exports.
Exports helped in the beginning in terms of development and large production, but the
sacrifices, such as abusive use of labor and capital, pollution, and wasted products have been
enormous as well. The focus now must be on increasing domestic consumption, which will
improve the life of the citizens, and decrease the dependence on foreign demand, which can be
fatal for the economy in case of a war, deteriorated international relations or discovery of a
cheaper source of importation. (Lisbonne-de Vergeron, 2013)
Probably the biggest problem in Chinese demographics currently is the inequality
among people. The distinction between the rich and the poor there is enormous, especially
when comparing megacities as Shanghai and Beijing to the countryside, which even though
seems like a relatively small percentage of the population, is consisted of 300 million people
(approximately the population of the US). (Geffrey Hays, 2020) The country’s Gini coefficient is
0.474, and has been increasing constantly in the last decade, and even though officially it isn’t
abnormally high (still much higher than an average developed country), most reports hint that
it is much higher than what is shown, as a large part of the population, especially the people in
the countryside, aren’t even included in the economics statistics and numbers.
(Worldbank.org) Urbanization is also constantly rising, which in theory should mean that
people in poverty are decreasing (as mainly the people in the countryside are struggling), but
you can’t have an economy without a strong rural part, agriculture, and farming. This also
means that the people who remain in the countryside, even though they are fewer, will
become poorer and poorer, especially when considering the fact that the economy is based on
monopolies, and on survival of the strongest. Shortage of rural labor could become a big threat
for the society and considering the enormous population of the country, could lead to a new
disaster. ((Lisbonne-de Vergeron, 2013)
It can’t be denied that Chinese policies in the last 40 years have given the country a
huge boost and have made the lives of millions of people much better. State capitalism, even
though difficult to define and being a confusing term on its own, seems to have worked
perfectly for getting China out of the dump and giving it the short-term recovery, it had needed.
The rising GDP, declining people living in poverty, and increased standard of life has created
problems of its own though, and now is the time for the government to twist the system and
set domestic consumption and income equality as a priority to the private entrepreneurships,
as currently the well-being of people is holding on a very thin layer. As Frank Chodorov said
almost a hundred years ago: “Private capitalism creates a steam engine. State capitalism
creates pyramids.” (Frank Chodorov)
References (MLA)
1. Merriam-Webster Dictionary
https://www.merriam-webster.com/dictionary/state%20capitalism
2. Samuelson, Robert. "Why China Clings To State Capitalism". Washingtonpost.Com, 2019,
https://www.washingtonpost.com/opinions/why-china-clings-to-statecapitalism/2019/01/09/5137c6d4-141e-11e9-b6ad-9cfd62dbb0a8_story.html
3. Zitelmann, Rainer. "State Capitalism? No, The Private Sector Was And Is The Main Driver Of
China’S Economic Growth". Forbes, 2019,
https://www.forbes.com/sites/rainerzitelmann/2019/09/30/state-capitalism-no-the-privatesector-was-and-is-the-main-driver-of-chinas-economic-growth/#3a0c847227cb.
4. McGregor, Richard. "How The State Runs Business In China". The Guardian, 2019,
https://www.theguardian.com/world/2019/jul/25/china-business-xi-jinping-communist-partystate-private-enterprise-huawei.
5. Zitelmann, Rainer. "China's Economic Success Proves The Power Of Capitalism". Forbes,
2019, https://www.forbes.com/sites/rainerzitelmann/2019/07/08/chinas-economic-successproves-the-power-of-capitalism/#53ae3ee93b9d
6. Xing, Li, and Timothy Shaw. "The Political Economy Of Chinese State
Capitalism". Kropfpolisci.Com, 2013,
http://kropfpolisci.com/chinese.state.capitalism.pdf
7. Lisbonne-de Vergeron, Karine. "China's Strengths And Weaknesses". Robert-Schuman.Eu,
2012,
https://www.robert-schuman.eu/en/european-issues/0235-china-s-strengths-and-weaknesses
8. Hays, Jeffrey. "RURAL LIFE IN CHINA | Facts And Details". Factsanddetails.Com, 2020,
http://factsanddetails.com/china/cat11/sub72/item152.html.
9. "GINI Index (World Bank Estimate) | Data". Data.Worldbank.Org, 2018,
https://data.worldbank.org/indicator/SI.POV.GINI.