Sunday, February 01, 2009

Book review: The Rise of China and the Demise of the World Capitalist Economy

I had hoped this would be a hopeful book somehow laying out a convincing argument that China's rise will eclipse the disintegrating international capitalist economy and usher in a new world order focused on meeting human needs in an environmentally sustainable manner. Sadly, that is not this book's argument.


"Chinese socialism was the historical product of a great revolution, which was based on the broad mobilization and support of the workers and peasants comprising the great majority of the population. As a result, it would necessarily reflect the interests and aspirations of ordinary working people. On the other hand, China remained a part of the capitalist world-economy, and was under constant and instance pressure of military and economic competition against other big powers. To mobilize resources for capital accumulation, surplus product had to be extracted from the workers and peasants and concentrated in the hands of the state. This in turn created opportunities for the bureaucratic and technocratic elites to make use of their control over the surplus product to advance their individual power and interests rather than the collective interest of the working people. This was the basic historical contradiction that confronted Chinese socialism as well as other socialist states in the twentieth century."

The author, Minqi Li, was a member of the student dissident movement of the 80s in China. He describes the milieu during which he studied neoclassical economics at Beijing University: "The 1980s was a decade of political and intellectual excitement in China. Despite some half-hearted official restrictions, large sections of the Chinese intelligentsia were politically active and were able to push for successive waves of the so-called 'emancipation of ideas' (jiefang sixiang). The intellectual critique of the already existing Chinese socialism at first took place largely within a Marxist discourse. Dissident intellectuals called for more democracy without questioning the legitimacy of the Chinese Revolution or the economic institutions of socialism.

After 1985, however, economic reform moved increasingly in the direction of the free market. Corruption increased and many among the bureaucratic elites became the earliest big capitalists. Meanwhile, among the intellectuals, there was a sharp turn to the right... The politically active intellectuals no longer borrowed discourse from Marxism. Instead, western classical liberalism and neoliberal economics, as represented by Friedrich Hayek and Milton Friedman, had become the new, fashionable ideology."

A turn towards neoliberalism had, by the 1980s, been made possible by decades of Maoist development policy, which had developed "the necessary industrial and technological infrastructure [allowing China to] become a major player in the global capitalist economy." Li does a good job explaining the capitalist world-system, according to Immanuel Wallerstein's formulation, with its separation into core, semi-peripheral and peripheral states. The international division of labor has core states, like the U.S. and Japan, performing cutting-edge production requiring massive investment and organization, and which offer the greatest profit margins; the semi-peripheral states, like South Korea and most recently China, performing second-generation production that was cutting edge decades ago but which still offer substantial profits; and the peripheral states, like Angola and Bangladesh, which perform low value-added production like raw material exports and low-tech manufacturing.

Li argues that China's move from peripheral to semi-peripheral status (as China now produces all sorts of high- and low-tech products for the core states) signals trouble for the capitalist world-system: "the current 'rise of China' as well as the 'rise of India,' could be the signal that the capitalist world-economy is calling upon its last strategic reserves (such as China, India, the remaining resources, and the remaining space for pollution) to make one more attempt to jump-start global accumulation... The current global development is likely to suggest that several secular trends, which result from the inherent laws of motion of the existing world-system, are now reaching their historical limits."

Why? Because the capitalist world-system relies on strategic reserves of labor that can be called upon when existing labor forces begin to successfully fight for higher wages. Since the system needs high profit margins to reproduce itself via investment, and since high wages put pressure on profit margins, the capitalist world-system needs countries like China and India to turn to for their cheap labor forces once wage costs, or lack of effective demand (in other words, low wages that reduce a market's buying power) begin to threaten profitability. But the very process of exploiting labor in China - building factories and creating an urban working class, moving China from peripheral to semi-peripheral status - threatens to undermine the ability to exploit such labor in the future. Li explains: "To the extent that the non-core states have lower levels of proletarianization, workers tend to be less educated, less effectively organized, and under constant pressure to compete against a large rural reserve army [of laborers]. The workers in these states, therefore, tend to have much lower bargaining power and receive significantly lower real wages. The low real wages in the periphery and semi-periphery make it possible for the world surplus value to be concentrated in the core and help to keep down system-wide wage costs. However, in the long run, the development of the capitalist world-economy has been associated with the progressive urbanization of the labor force. After some initial disorientation, urbanized workers have invariably struggled for higher degrees of organization and extension of their economic, social and political rights. Their struggles have led to growing degrees of proletarianization within the capitalist world economy." (emphasis added)

This spells trouble for the world-system, since as production costs increase in China as workers successfully fight for higher wages, there will be few alternative states for producers to turn to for cheap, educated labor and efficient infrastructure. Also, China's ever-increasing contribution to environmental degradation threatens to undermine the world economy through destruction of the natural environment of which it is a part.

Li's analysis of economic - and, more depressingly, ecological trends - leads to the following conclusion: "With the decline of the US hegemony (reflected by its ever-declining ability and willingness to pursue the system's long-term, common interest), no other state is in a position to replace the US and provide effective leadership for the system. China and every other potential hegemonic candidate all suffer from insurmountable contradictions and weaknesses. None has the ability to offer 'system-level solutions' to 'system-level problems.' Either the existing world-system has exhausted its historical space for potential new leadership and therefore is doomed to systemic disintegration, or the new leadership will have to assume the form of an alliance of multiple continent-sized states, which will then become a world-government and therefore bring the existing world-system to an end.

The capitalist world-economy rests upon the ceaseless expansion of material production and consumption, which is fundamentally incompatible with the requirements of ecological sustainability. Depletion of material resources and pollution of the earth's ecological system have now risen to the point that the ecological system is on the verge of collapse and the future survival of humanity and human civilization is at stake.

To summarize, multiple economic, social, geopolitical, and ecological forces are now converging towards the final demise of the existing world-system, that is, the capitalist world economy."

What comes next could be a rational world-system of production geared towards first fulfilling human needs, then wants, in an ecologically-sustainable manner. But while the current system's demise is assured, there is no guarantee of the character of its replacement, and, at this point, very little likelihood it will resemble the description above.