Yves here. Michael Hudson and Patrick Bond discuss the future of China, and use financialization and seriousness about climate change as litmus tests for whether China is merely doing capitalism lite or is charting a new economic path.
By Paul Jay. Originally published at theAnalysis.net,
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Paul Jay
Hi, welcome to theAnalysis.news, I’m Paul Jay. We’re going to talk about China. We’re going to have two guests who agree on so many things, but they have some disagreements about just what is the character of China, and we’re going to get into that.
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So as I understand it, here’s a very non-expert take on how the development of socialism in China was expected to take place. It was in the first stage of the People’s Republic. It was an attempt to build a fully socialist economy, meaning almost entirely government, state-owned. The Chinese Communist Party would plan five-year, ten-year plans, and socialism would develop.
After Mao’s [Zedong] death, Deng Xiaoping became the pre-eminent leader and ushered in what have been called market reforms. This was supposed to be a kind of mixed economy where the State would continue to own important sectors of the economy, but there would be a market, a relatively free market to take advantage, of sort of, spontaneous creativity or initiative or whatever it is the capitalist free market is supposed to do. Also, an opening up of China into the network of global capitalism.
This stage was supposed to develop a more sophisticated industrial base, a larger industrial working class, and so on. Then that would eventually lead to a stage of a mixed economy, but with more socialistic characteristics and less capitalist characteristics. That’s kind of where we are now, if I’m understanding it correctly. Xi Jinping is saying that it’s time to rein back on the power of the billionaire class in China, and it’s time to increase prosperity amongst ordinary people. The stage of needing such a free reign of billionaires is no longer the same, at least. Of course, some people wonder exactly what does that really mean when so many billionaires are actually in the Communist Party and even at senior levels.
But I’m left with two questions. First of all, I’m not Chinese, so what’s my interest in what’s happening in China? Well, first and foremost, my interest is, is China serious about climate change policy? Is there a state of government is the party really interested in the kind of transformation that would be necessary, transformation off fossil fuel to really do what’s necessary in the World’s second-largest economy to deal with climate?
Second of all, and this is far more an issue for the Chinese people than it is for me. But in judging China, is the well-being of the majority or of ordinary Chinese people getting better, in spite of the fact there’s a lot of billionaires? That’s what the language and rhetoric coming out of China is, but is it actually happening? Are they at least on the way to increasing people’s well-being and decreasing the inequality gap?
So in a second segment, we’re going to talk about China’s foreign policy outside of China’s borders. Is China’s economic relations with other countries socialist in some sort, or is it predatory capitalist? And we’ll also get into the accusation, is China an aggressive military power? This is the language of not just neo-conservatives in the United States, but more or less the language of the [Joe] Biden administration.
So joining us now are two friends of the show who, as I said early on, agree on all kinds of things, including I think they would both like to see socialism develop in China, but they don’t agree on just what’s going on now. So first of all, joining us from Johannesburg in South Africa is Patrick Bond. He’s a political economist, a political ecologist. He teaches at the University of Johannesburg in the Department of Sociology. His best-known work is Elite Transition from Apartheid Neoliberalism in South Africa. He has edited more than a dozen major works on the region’s political economy and political ecology. He spent a lot of time looking at the nature of China’s economic relationship with South Africa.
Now also joining us as a friend of the show, Michael Hudson. Michael is an economist a professor of economics at the University of Missouri, Kansas City. I believe he’s an emeritus professor there. He’s a researcher at the Levy Economics Institute of Bard College, and he’s also a former Wall Street analyst, political consultant, commentator, a journalist. Both of my guests have been to China many times, and both spent a lot of time studying what’s going on there. So thanks very much for joining me.
Patrick Bond
Great to be with you, and what an honour to be with Michael as well and to explore differences.
Paul Jay
I can’t remember now who we said we would start with, but I think we said we would start with Patrick. Let me just ask you, start with one question, and then I guess we’ll go into the second, but they are related. Is the well-being of people increasing? Is the inequality gap decreasing as being said? And then later we can talk about whether China is serious about climate. So go ahead, Patrick.
Patrick Bond
I think inequality has clearly been kind of a major problem, and hence Xi Jinping is finding ways to clamp down on this ultra billionaire class. I think even though there’s no question that the level of poverty is much lower than in Mao’s time, there’s just no question. The structural conditions which do lead to a super exploitive experience, that is to say, above and beyond regular labour going to the market, and being paid a wage, not the full value that’s inputted. The super exploitation that continues.
There’s really two ways that this, I think, represents a challenge for anyone arguing trying to represent the model. One is the HUKOU [system of household registration used in mainland China] system, which is the migrant labour reservation in which rural people are about 27% of the urban workforce. They’re not given full rights. It’s very much like, Paul and Michael, what we have in this country and still do a migrant a labour system.
It’s especially damaging for gender relations because it adds another burden, a social reproduction burden to keep the men and, of course, the left behind family reproduce at a much lower wage in the cities than would normally prevail, where there’s equality, where there are no such restrictions.
A second aspect, Paul and Michael that I think we have to grapple with is that it’s the environmental super-exploitation. It is climate, a massive amount of implicit subsidies that the Chinese economy is essentially giving its fossil fuel industries. It’s also the conditions of pollution in many of the Chinese cities. Sometimes they’ve been able to, for example, during a Winter Olympics or during big events, close down factories, but in some of these cities, the air quality is really the worst in the World, along with Indian cities.
So, where I sit in Johannesburg, we’re always looking for ways that this semi-peripheral or sub-Imperial layer of countries is grappling with the internal tensions. I think we can use that word, a word that Ruy Mauro Marini, the Brazilian, used to describe this layer of countries where they are super exploitative. Of course, we haven’t even begun to talk about the way that labour unrest, community unrest, 200,000 protests a year, about half in the rural areas, mostly overland, dispossession. How those are repressed and how a new system of social credit is coming in.
And a very final point to begin. China is also driving world capitalist crisis by overproducing that’s part and parcel of being an excessively competitive capitalist society in which the exports which we can come to and talk about because it drives the Belt and Road Initiative. These, in turn, are doing a lot of damage elsewhere around the World to the working class.
Paul Jay
Okay, Michael, your turn.
Michael Hudson
Well, I think Patrick has described what the major tensions are in China right now. I had thought that our discussion is going to be as China capitalist or socialist, but we’ve jumped ahead of that right into the tensions that are there. It begins with the inequality, and I think Patrick’s emphasis on the rural population of China is important for Westerners to understand because China is now primarily still a rural country. The great tensions are about how small rural localities are going to finance themselves. Right now, they are financing themselves largely by selling land to real estate developers. That’s led to the Chinese families when they do get money, the first thing they want to buy is a house for their children, usually for their son, because women tell me that the only way of getting a house is to marry a man whose family has given him a house and also then to get a car. If you’ve driven in Beijing traffic, it’s more crowded than New York.
The very first thing about inequality is I began to hear that this may be 14 or 15 years ago when I was lecturing students. They all said they wanted to graduate, they wanted to go into the Communist Party, and they wanted to cure up corruption, what you and Patrick call inequality, they called corruption because, for them, it was a corruption of socialism. There was a consciousness certainly in Beijing that there were really two different philosophies of development in China. The Beijing philosophy was strongly socialist and Marxist. Shanghai was where Milton Friedman had been invited in the 1970s to talk to the Chinese leaders to say, you don’t want to emulate the kind of Stalinist bureaucracy that you had in Russia. You have to have spontaneity. You have to let somehow entrepreneurs develop something spontaneous. You don’t know where it’s going to be, but certainly, you can’t plan spontaneous innovation from a bureaucracy down. It has to come from the bottom up.
So, in the 1970s, I remember I talked to Chinese officials, and on one occasion, they said, oh, you’re a futurist. You work with Herman Kahn at the Hudson Institute. You worked with Alvin Toffler. Why don’t you come to Shanghai, where we have our research Institute? And I said, oh, that’s great, especially, by the way, I have a Marxist background. And they said, oh, I’m sorry, you can’t come. They said if you have a knowledge of Marxism. They’re worried you will interfere with party discussions. And all the Marxist we talked about, they’re the old Stalinist bureaucrats. We don’t want that. We want to develop something else. So I didn’t go to China at that time, but obviously, what they did work.
They let a lot of spontaneous wealth be developed, but somehow they’d imagined that this spontaneity would be part of an industrial planning process, that everybody would do what Milton Friedman said in the textbooks. They would all make normal profits, and no one would get rich off unearned income, and no one would really get richer than the other because of the magic of the free market, would make everybody the same.
Well, already 15 years ago, they saw that’s not the same. We’ve got the local innovation, but there are a lot of people getting rich, very often by property, in the public domain, very often by monopolies. We’ve got to have an economy that is dovetailed into an economy that is more even. Right now, in the last few years, they realized that there’s a lot of opposition in the United States to Chinese imports, and they would like the Chinese incomes as they go up not to be spent on housing, to bid up the housing prices, but to buy the goods and services that now these factories are producing so that they can raise the living standards for the home market.
I think that that’s going to be what the upcoming meeting of the Communist Party this spring is going to be all about. I think they’re going to try to push. For now, it’s time to take the private sector economy and make it part of the socialist economy. The focus is really on real estate and housing. President Xi has said houses are to live in. They’re not for investment vehicles. Housing is not a commodity. It should be a public right. It should be a public utility. So the question is, how is China going to deal with the housing issue? How is it going to deal with the local rural finance issue, and essentially, how is it going to deal with the billionaires? Well, we’ve seen how it dealt with Jack Ma and the others. How is it going to be to make it possible to get moderately rich but not super-rich? I think that’s the problem that they’re going to be discussing and coming out with some plan for in the next few months.
Paul Jay
So, Patrick, let’s start with again what Michael raised right at the very beginning, but I think it leads to this question, which is, is the Chinese Communist Party leading China towards an increased amount of socialism? Is this really socialism with Chinese characteristics? Meaning this is the way they’re going to get to socialism. Or is this a party that’s managing a mixed economy but big capitalist sector and a lot of billionaires in the party? So that this actually isn’t heading any more towards socialism than perhaps a capitalist social Democratic country, if that.
Patrick Bond
Well, Michael said that some of these new innovations around Xi Jinping’s control of the elites, that’s especially Jack Ma in Alibaba, but also Pony Ma [Ma Huateng] and Tencent. So there’s a degree to which I’m absolutely delighted to see big data under the thumb of a state because I’d love to see some other controls on all the other fangs, Facebook and Apple, Netflix and Google. These all need to be regulated or ideally nationalized. I also certainly agree there’s a wonderful new development in banning cyber-currency. I think that’s been very important to stop a kind of overproduction moving into financialization.
Michael already mentioned the real estate speculative bubble that’s bursting in several of the big construction companies. There is a danger that cyber-currency, like in the West, will become one of these kind of bubbles, a place where rich people just park their money and see it grow. Then also, they’ve done exchange controls. The main imposition, actually, Paul and Michael, if you recall, the Chinese stock market crashed a couple of times. It was mid-2015 and early 2016 to stop that exchange controls were imposed. I’m absolutely in favour of these sorts of regulations, But is that moving to socialism or clever band-aiding of capitalism?
When FDR [Franklin D. Roosevelt] Was able to put the Glass-Steagall Act in the United States or the Federal Reserve was established because JP Morgan couldn’t control all the banking crises just over 100 years ago. Those really weren’t about introducing socialism. They were about taking some of the worst excesses of capitalism and sort of ironing them out.
I’ll add one other that I had great hopes for, but I’m not sure I do. Which is the Chinese State is so strong it can identify the problem, the deep problem of overproduction, massive overcapacity, about one-third excess capacity in all the heavy industries. In my view, that comes from a classical way that capitalism is excessively competitive, introduces new machinery to get ahead and overproduces as it’s throwing off workers. In that respect, what the Chinese promised was a devaluation closure.
The zombie companies running around with vast overcapacity, lots of state support and state banking support could be gradually managed and closed down. I mean, it’s much better than a kind of great Depression, what you saw if you call in 2008 with GM [General Motors] and these big crashes of big industrial companies. However, I’m not sure that’s actually happening. I think there’s been some cheating.
So I would put it to you that instead of this being a transition to socialism, it’s a very skillful capitalist manager who knows that there are limits internally. Then when we talk about the international dilemma or about the climate dilemma, I think a lot of what Xi is going to have to do is displace those contradictions internationally, not actually resolve them. That would be the big problem we have in other parts of the World where, for example, Chinese investment from the overcapacity is moving outward through the belt and road and creating more damage.
Paul Jay
All right, so in a word, the answer to Michael’s question, or my question, is that you don’t think this is a transition to socialism. This is a way to manage Chinese, some people call state capitalism.
Patrick Bond
I’m a firm believer that transitions to socialism, transitions to a more feminist society, transitions to a non-racial society, as we call it here. Those have to come from below. In China, we also see the awesome capacity, especially with social credit, using Tencent and Alibaba and others to basically surveil everybody and smash unions and smash ordinary people as they go about if they protest, if they’re jaywalking even. I think that means we’re not going to see anything from above that’s wholesome and progressive until the energies from below are really let loose.
Paul Jay
Okay, Michael, your go.
Michael Hudson
Well, Patrick was quite right to emphasize the role of finance. I think we can clarify the discussion by saying, what is capitalism and what is socialism? And when people say capitalism, they usually think of the industrial capitalism of the 19th century. The role of industrial capitalism was radical at that time because its job, as Marx pointed out, was to free societies from feudalism. The common denominator of the Physiocrats in France, Adam Smith, John Stuart Mill, Marx, the entire 19th-century development of value and price theory was to say, we want to get rid of the Rentier class. We want to get rid of Britain’s landlord class. That led to parliamentary reform to take away the House of Lord’s privileges in London. They also want to get rid of the predatory banking class that was inherited from the feudal time when the banks would make loans to governments and then insist that the government is paying them by creating monopolies like the bank of England.
Well, the whole tendency of getting rid of the feudal class meant cutting costs. And the way to cut costs to make an industrial economy competitive, whether you were England or the United States or Germany, was to lower the wage that employers industrial manufacturers had to pay labour. The way that you lowered it, you didn’t want to lower the living standards because you needed to raise the productivity of labour to make it more productive. What you needed to do was lower the cost of living, and you did that by having increase in government creation of the basic living costs for education, free, public. Health, free public. That was the Conservative policy of Britain’s Prime Minister, Benjamin Disraeli. You had governments investing in communications, in roads, in canals, in transportation and radio. The whole idea was to minimize the cost of living by government spending, not privatization.
So by the late 19th century, almost all the economic writers across the political spectrum thought the World was evolving. Industrial capitalism was evolving into socialism. There was Christian socialism, there was anarchic socialism on the Right. There was Marxism, there was middle-class socialism. There were all sorts of different kinds of socialism. But one way or another, the government was going to end up with the basic utilities. As you saw developing in Germany and Central Europe just in the early 20th century, banking was the most important.
Well, all of this tendency began to be fought back leading up to World War One by the Rentiers fought back. They said, no, no, landlords are productive, bankers are productive, and they were unable to stop the whole movement towards socialism. Then this all failed in the West. You had the Russian Revolution, but all throughout the West, you’ve had a rollback of the socialist idea. It took a revolution in China to establish what people had expected to be the evolution of industrial capitalism into socialism. The distinguishing factor of China Vis-à-vis the West today is the West has not evolved into socialism. It’s evolved into finance capitalism that is predatory, polarizing and aggressive.
China, since its revolution, is the only country that has really kept the banking and credit creation sector in the public domain. To me, that’s the single most important aspect of Chinese socialism, and the government has done exactly what the logic of any industrial country is. Whether you’re capitalist or socialist, you want to provide public infrastructure at low costs so that you could become the exporter that China has become.
So the question is, the qualities that we’re saying are positive or negative in China, how many of these are intrinsic to capitalism or socialism, and how much of these are independent from the socialist position? Well, you and Patrick have both mentioned pollution and the environment. I’ve heard more talk about the environment in China than any other country because, as Patrick said, the air can get pretty heavy there.
So obviously, China wants to do what it can to clean up the environment, but it realizes that this is a worldwide problem, and there’s only so much one country can do. The United States is doing what it can to fight against the fact that China is establishing an industrial leadership position in solar panels and solar energy. That’s one of the problems.
The other problem Patrick mentions is the race problem, the ethnic problem. I haven’t seen that in China, but obviously that’s a big problem in the West, where the rentiers essentially, I think the race problem is an attempt by the capitalist class here to try to make the population think of itself, certainly in the United States, in terms of an ethnic identity or a gender identity, anything except the common identity of being a wage earner. If you can get people to think of themselves as an identity apart from wage earners, then you’re not really going to have class consciousness. Well, in China, there certainly is a class consciousness, and there’s also a consciousness of the rural-urban tension that Patrick mentioned.
I was a professor at Beijing University for two years, and many of my students came from rural areas, and they said, well, we’re able to come to Beijing because we can live here and get a residency requirement because we’re students. But then we have a choice. Either we go back to our local districts and work there, or we become a schoolteacher or something that they permit the residents to have. So there’s this tension. This is not really part of a distinguishing feature of capitalism or socialism because you have such tensions everywhere, but China is trying to resolve it in a way that raises living standards and, in that sense, is socialist. The way to do this is you don’t want all of the population to congregate in dense cities for the ecological reasons that you have met. I think that’s the big challenge that China and every other country faces in common, it’s a common problem. It’s a common problem that spans socialism and capitalist economies.
Paul Jay
So, Patrick, if I’m understanding Michael’s argument correctly, the fact that the State in China has kept finance primarily under the control of the State and the party is an indication that it is part of a transition to socialism. What do you make of that? I think I got the argument right.
Patrick Bond
If indeed we’d see these forces unleashed from below and I would include Michael, the ethnically oppressed people in Xinjiang and Tibet. I’d include Hong Kong Democrats and the Hong Kong Confederation of Trade Unions, which was basically disbanded. I would really say there’s a huge amount of potential drive towards socialism from below, but I don’t see regulation of finance and State finance, especially when so much of the financial asset base is bogus, it’s a zombie. That, let’s say, unpayable debt that is basically swallowed by all of these companies. It’s a sort of Ponzi scheme, isn’t it? I mean, it’s not as bad as the United States permit schemes and financial speculation, that’s for sure.
I’ll just give you one critical example, Michael, of where I’m worried if you say the solution to the problem of pollution is emissions trading, in the five biggest cities, set up carbon markets. If you say and you don’t, but certainly this is the dominant policy position in China. That we can solve a market problem, excessive pollution, it’s an externality it’s not costed into the market. We can solve that with a carbon market, a national carbon market that comes from these five big metros. Then I’ll dispute that I’m not saying you will.
That, to me, privatizing the air, allowing people the right to kind of buy the right to pollute. That’s definitely the wrong use of finance. It’s moving us into an ultra-capitalist fault solution. The carbon markets, Paul, you’ll know, from Canada in the West, and certainly, Michael, if you remember, the Chicago Climate Exchange and the European Union’s emissions trading scheme has just zigzagged all over the show. These are not ways to solve the problem. They’re ways that we really have to dispense with.
I would say that Michael makes a point at the end of his last comment. If the United States, Europe, Japan, Canada, Australia, Saudi Arabia, the big Western polluters find this layer, China in the lead starting in 2009 in the Copenhagen accord, which basically means they made the United Nations Framework Convention on Climate Change, the annual UN conference their party. This is the Imperial and the sub-Imperial polluters coming together, and they are just again this year in Glasgow promoting carbon markets. They’re failing to make the emissions cuts that will basically allow civilization to continue. So we really are talking about a capitalist West and the capitalist fractions of the East and of the BRICKS; Brazil, Russia, India, China, South Africa. Working Imperial/sub-Imperial climate policy, it could well destroy us all.
Paul Jay
Before I ask Michael a follow-up, I just want to say something which I meant to say in the introduction. None of this conversation in any way implies that the West, and particularly the United States is any better. In fact, I think we all three of us would agree on almost every single score. It’s far worse. We talk so much about how rotten the American system is, we’re not dealing with it in this conversation, but I know somebody is going to be writing in the comments. What about the U.S.?
Well, nobody here disagrees. I don’t think. Both in terms of real climate action, not just rhetoric, inequality, even on the question of Democratic rights, although I do want to get into that. The substance of real Democratic rights in the United States is based on how much money you have. If you have money, you’ve got more Democratic rights. If you live in downtown Baltimore. Even the Department of Justice said people that live in downtown Baltimore, constitutional rights are violated every day. But we’re not talking about the U.S. now.
So let me ask you, Michael, on that point that Patrick is saying this transition to socialism, it’s not enough to have FDRish type regulation of finance. There also needs to be from below, a process of workers organizing and making more and more demands for more socialism, which I think also requires more democracy to make those demands. He’s saying that given the State of the surveillance state in China, it’s very difficult for people to get organized in that way. What do you make of that argument?
Michael Hudson
I want to clarify what I said about finance, which just came up. When I said that China has kept central banking money and credit creation in the public hands, it’s done much more. It means there’s no financial class in China. In the United States, you have Wall Street as the central planner for the United States. You have the banks in charge of allocating credit and resources. It’s a bank credit that has been increasing housing prices here and, to some extent, credit that’s been increasing housing prices in China, too.
There’s no class of bankers that are acting as the way that landlords did in Europe in feudal times down through the 19th century when the Chinese government will make a loan to a factory or to industry, and the factory is unable to pay for one reason or another, or when families are unable to pay, the Chinese can write down the debt. They say, okay, we’re not going to say close down the factory and be sold for scrap or gentrify your apartment. We created credit to put your means of production or housing or whatever in place because we think it’s useful for the economy, and we’re not going to shut you down just because you can’t pay. We’re going to write down the debt.
There’s nothing like that in the United States. You can’t write down student debt. You can’t write down the debt for renters or homeowners who have lost their job during the pandemic and are about to face eviction, 200,000 evictions in New York City when the Moratorium on evictions during the pandemic expires in a month or two. China is free of that class, and it is the financial class, the banks and Wall Street that have sponsored the landlord class because 80% of bank loans are to real estate. China doesn’t have the financialization that has been polarizing and undercutting the West.
Patrick sort of segued from this control of finance to promote the economy to the fact that once everybody goes around with cell phones, paying their bills with a cell phone, the government can listen, and they’re just as much listening in the United States and other countries in the West. This is something that nobody really expected. This is a kind of telephone technology that is, again, universal. I think all the governments are listening in. The question is, I guess that Patrick Rose, is the government going to use that’s listening in, to say, well, we don’t want the factory people to organize, we don’t want labour unions, we don’t want criticism.
It’s in the nature of governments to do that, and that’s the exact opposite of how China developed with let 100 flowers Bloom during its takeoff. So this is certainly a political issue as much in China as it is in the United States and in Europe. I think that’s independent from the economics of socialism and capitalism. It’s the politics of the government of the centralizing dynamic of politics. How do you cope to prevent the polarizing dynamic of political power and bureaucracy in the same way that you prevent the financial dynamic and the economic dynamic, thus creating billionaires? You have to have checks and balances against this, and all the countries, I guess, are trying to put this in.
I have not been a party to any of the discussions in China of pollution trading. I refuse even to get into it. I think it cannot be solved by the market. Patrick is absolutely right. It’s appalling to think that the third World could somehow let Goldman Sachs and other Wall Street firms say, look, there’s a huge market. We can make hundreds of billions of dollars by selling the right to pollute. The problem is you don’t want the pollution. You don’t want to sell the rights to pollute and offset you want to stop the pollution, it’s not market-oriented. I don’t know whether you can say there’s a socialist solution because probably the worst polluters after the Russian Revolution were Russia.
You look what it’s done. There are no more sturgeons in the Black Sea and the other seas that they off-loaded. They just dump everything into the sea. So certainly, it’s ironic that socialist planning in the Soviet Union did not take account of the pollution. You still have major pollution in the former Soviet Republic, like Kazakhstan, with Kurdistan, with oil, with spills, with gold mining. So it spans the entire political spectrum from capitalism to socialism to whatever you want to call these other phenomena.
Paul Jay
Patrick, we’re getting near the end of this segment, and we’re just beginning this domestic conversation. But let me just ask you one question to sort of end, and then I’ll give Michael the last word because I think, Patrick, you had the first word, but we obviously have to do more of this domestic conversation. It’s far too complicated to knock off in 40 minutes. Let me just as a final question to you.
Let’s say it’s what you said, this is actually a form of managing capitalism as opposed to a transition to socialism. At this stage of human history. Is this a better form of capitalism? Now you take this issue of the lack of the right to organize, the surveillance State. Certainly, that’s part of the equation here of whether it is or isn’t. Now, the polling I’m seeing I was looking up yesterday. Harvard has an Institute that’s been trying to do public opinion polling, and they say it’s hard to do, but they say the vast majority of Chinese people seem to support the party and the government, and their life is getting better. So I don’t know what that’s worth, but it seems like the party seems to have majority support there.
Patrick Bond
Well, I should just add to Michael’s comparison of the surveillance statement. The difference really is that totalitarian capacity. For example, Michael, if you do violate some of the local laws, you go to a protest, you do something that meets official disapproval. Well, you’ll be cut off from going a fast train or an airplane. Tens of millions already in the pilot stages of the so-called Social Credit, in which the Chinese Communist Party and the biggest company in Asia, Tencent, which South Africans have about nearly a third ownership in for a historical accident and Alibaba and others. These are quite terrifying, and I think if I wanted to say, yeah, it’s much better to see a balanced top-down reform of capitalism in the manner we’ve been talking, paul. I would give Michael credit, though, to say repressing finance. There’s this phrase financial repression is very much part of it.
And we do feel that here. So in the Southern tip of Africa, where China has been very aggressive in financing very corrupt coal-related exports and coal-fired power plants and major high carbon infrastructure. We were all delighted, and it seems to be genuine when Xi Jinping said last year that he would no longer allow the belt and road to be a site for this displacement of the overproductive, overcapacity of coal-fired power plants. So he basically used the banks to turn off the switch, which we were about to see turn on of more coal-fired power plants here in South Africa and certainly across the region.
So there are little moments where we’re delighted to see some of that control because the pressures on the world environment. We’re really at the point of nearly no return. I think my last point on that, Paul. There’s about according to the International Monetary Fund, I would never quote them approvingly, but here’s just one example of their attempt to measure how much damage China is doing to climate globally. They’ve come up using their carbon price, they priced the damage from a ton of emissions at $60 a ton. Their objective is the two-degree Paris objective, not the 1.5 aspiration. So given those two very serious caveats, they’re saying that China is doing about $2.2 trillion of damage per year that is subsidized by the State, implicit subsidies and failure to regulate the externality costs.
That’s not just for climate, but it’s also local congestion, local air pollution, and a variety of other minor factors. If you just take climate, I think, Paul and Michael, we have to agree, and I would not use $50 or $60 a ton. The more recent research suggests it’s probably $3,000 a ton. So we’re really talking about $100 trillion a year damage, and their GDP is around $15 trillion. So this is really a system that, for the sake of all future, humanity has really got to be rethought very, very urgently.
Paul Jay
Okay, Michael, you get the last word.
Michael Hudson
Question. Can capitalism solve this problem, or can socialism solve the problem? Can China solve the problem more readily than the United States? I follow the U.S. economy much more than the Chinese economy. You look at the U.S. economy, and the most powerful industry is the oil industry, which I worked with for many years. The oil industry absolutely runs the government’s foreign policy ever since I was on Wall Street. That was the case. The foreign policy of the government is the key to American export power and control of its allies or satellites, or whatever you call them, is oil.
That’s why they’ve got convinced the Biden administration to let them do the offshore drilling, to let them do fracking, to promote the Athabasca Tar Sands, the dirtiest oil in the country, in the World, and to build pipelines to facilitate the Athabasca Tar Sand pollution. All of this and I was the economist for [foreign language 00:47:52] evaluating the Athabasca tar Sands back in the early 1970s, and they knew it was pollution at that time. So I don’t believe that solving the environmental problem is possible under capitalism. The governments are run by the oil industry, the mining industry, and the banking industry that is essentially merged with the oil and gas industry.
The question is, can China solve it better? It certainly cannot be solved, as Patrick pointed out, with market trading, it’s not a market problem. It has to be a problem, a political problem from above. In America, the politics are run by the polluters. Pollution is their product. I don’t think they can solve it. Pollution isn’t China’s deliberate product, and it doesn’t have a self-interest in promoting the pollution such as exists in the capitalist countries. So I would hope that this absence of self-interest in promoting pollution and oil and coal would lead it to say, well, our interest is preventing pollution and cleaning up the air in our cities and elsewhere. I think the chance that certainly a socialist government is a prerequisite for dealing with this problem, and I would hope that China would get the rest of the third World to agree with this in view of the fact that the Southern sphere is going to be the great sufferer from rising sea levels and global warming.
Paul Jay
And you think China is such a socialist government and can and will do this?
Michael Hudson
It has the power to do it, and I don’t see another government that has the power to do it. Whether it does it or not is the big issue. I haven’t had any discussions about this. I’m not a specialist in this. All I know is that it has the power, and the other governments are advocating pollution, and there’s no reason for China’s government to go along with this.
Paul Jay
I know, Patrick, this is part of your specialization. So I said Michael could have the last word. I’ll give you just a really short last word.
Michael Hudson
To me, the constant question, if you’re doing political economy, is a combination of class analysis, with obviously gender and ethnic and, of course, ecological aspects. I don’t think there’s any pretense that the social forces are aligned to bring genuine socialism. Worker control means reduction, planning, and rationalization of all of these problems. Secondly, we’re always interested in political economy, in the capital accumulation process. So whereas Michael is right that financialization isn’t the kind of cancer that it represents in Western capitalism, nevertheless, the overproduction, the excess capacity in so many Chinese industries, especially now that the growth rate is slowing down, but the capacity is there. That really is one thing we can take to the next discussion, Paul and Michael, which is where China intervenes in the World doesn’t seem like, say, Europe back in the 1880s trying to displace its overproduction into new terrain. The one here, Africa being a particularly tragic victim in many ways.
Paul Jay
So that is what we’re going to do. We’re going to end this segment. As I said, it’s pretty much the beginning of the conversation, but we are going to move to the external conversation. What does China do in the World, in part two. So thank you, Michael. Thank you, Patrick. Come back for the next segment, and thank you to everyone who’s watching. Please don’t forget the donate button, the subscribe button, the share button, get on the email list button, all the buttons.
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Paul Joy sounds good to me. Despite the fact that Paulinian universalism has recently taken a blow. Not the slave-liberation side of it, though.
Aargh, fixed.
Its almost impossible as an outsider to China – and I include fluent mandarin speakers in this – to fully understand the dynamics underpinning the governance of China. I doubt of many insiders in Beijing understand it – by which I mean that China is such a huge and complicated nation with so many internal barriers to information and data that even the leadership in Beijing are often out of the loop. Just because Xi makes a grand statement does not mean that local leaderships around the vastness of China pay any attention whatever. The opaqueness of the system – which does have the benefit of encouraging local innovation and independence – also means that China is by no means the centralised autocracy it is often assumed to be. But this is also a huge problem for its governance.
Just this week there was an announcement that is very bad news for anyone who thinks China is reclaiming its socialist soul. Beijing has more or less abandoned its plans for property taxes. Pretty much every analyst I’ve read agrees that additional property taxes are vital to stop speculation and to provide a firmer fiscal foundation for local governments. Its quiet abandonment is a clear message that China is now on its way to being a property rentier society. This is particularly dangerous for long term development in China as a coming demographic crunch is likely to mean an oversupply of houses, which is pretty bad news when so many families use property as their main form of savings.
Another key development occurred last year. Industry suffered very badly due to power cuts in the west, which were ultimately caused by the private owners of coal power stations manipulating the pricing system. Coal prices had surged meaning they were losing money selling more power. So they eased back on production. Despite major government efforts, this was not stopped. If anyone needed proof that fossil fuel interests at a regional level can now defy government edicts, this was it. This is now likely to be a huge impediment to attempts to decarbonise the economy. I have no doubt whatever that Beijing is serious about climate change. Whether they can do to the fossil fuel industry what they did to the social media industry… well, I don’t know, but there is no indication that they believe they can or should do it. China is throwing money at renewables and nuclear. Unfortunately, its also throwing money at coal and gas.
A third key decision made recently would also cast real doubt whether Beijing can or will become more socialist. Virtually every analyst I’ve read, whether left or right, agrees that China has a real problem with internal consumption. Quite simply, Chinese people are not paid enough, they have a lower percentage of income than most equivalent countries. This is normal for fast growing export and infrastructure led economies. In the face of covid and other problems, Beijing could have reined back on its usual infrastructure spending (which is fast becoming counterproductive), and simply given a raise to all public sector workers. They didn’t. In fact, they lectured workers for demanding more money. I’d really love someone to explain to me how a country can be considered socialist when they are deliberately suppressing ordinary peoples incomes in favour of big construction companies.
On the subject of infrastructure, its harder to get more fine grained look at what they are spending money on, but the indications are not good. China’s much vaunted HSR system has now gone far beyond what can be economically justified. But they are still building more. This might be ok, except for one problem – China actually needs far more investment in freight rail and low speed passenger rail. All the indications are that HSR investment is parasitising more useful investments. This is a classic example – a common feature of fast developing countries – whereby internal interests successfully push agendas that are patently contrary to the interests of the economy and the nation as a whole. We forget that the financial or social media sectors are not the only sectors that can parasitise (any student of Japans failures could see this).
And finally – an anecdote. A close friend of mine recently told me that she sent the equivalent of around $25,000 to her family in China – pretty much all her savings. The money was needed to ensure her nephew – a talented young engineer – could get a job in a state owned company. He had passed all the exams and interviews. But a bribe (this was her words) was needed to ensure everything went smoothly. The family had looked closely at his potential earnings and decided that it was worth it. Even with a good degree, his chances of getting a similar job without a ‘gift’ to someone in influence was much lower.
Having lived in China for several years, I can say that I would rather have their problems than America’s problems, especially their attitude. The Chinese people actually believe, rightly or wrongly, that they can solve their problems and may pick over the details and time frame. Americans oppose each other on most fronts, generally accept things as they are, and would sacrifice little for their neighbor, let alone a “common good”.
Bribery and corruption is a problem most everywhere, and the direct gift giving in Chins would particularly offend westerners. However, gifts are far less pernicious than favors and influence peddling of equivalent value. Gifts don’t force people into a close, long term, class relationship. As your example shows, it opens access those otherwise left out of power circles. It’s easier for those of lesser means to pool money than to offer a bureaucrat a chair on some foundation. I’ve come to regard bribery as a less transparent but more “egalitarian” form of corruption. Writing letters to politicians and making uncoordinated small donations isn’t how influence works anymore (if it ever did), which largely explains why the American people rarely get their way and the rewards of fundraising are its own disincentive against effective problem solving.
In summary, yes, China is a manic obsessive, but is America really even trying? Having an economic system that defies or offends labels while continuing to improve it is better than assuming you have the best economic system while failing expectations. The growth mindset wins out over the fixed mindset in the end.
Re land taxes, I sent your comment to China, PK, and got this answer:
Pretty much every analyst I’ve read agrees that additional property taxes are vital to stop speculation and to provide a firmer fiscal foundation for local governments. Its quiet abandonment is a clear message that China is now on its way to being a property rentier society.
The following piece confirms the delay of tax reforms. One consolation is that there’s recognition that ‘housing is for living, not speculation’ : China delays property tax reform expansion in 2022: Xinhua – CGTN
So, they certainly appear to be aware of the problem .
That said, we probably have to do more to promote your ideas.
As a long time ‘at a remove’ observer of China I’ve found the Chinese housing property market issue to be the most distressing and obvious mistake. Having lived through at one one horrible property boom and bust and seen the damage caused, for me it defied belief that the Chinese were making the same mistake. From my understanding of the history, the use of rising property values as a means of boosting local government revenues was more or less accidental – a short term fix for a local government funding problem that was so successful it ran out of control. But even the Japanese and South Koreans didn’t allow their local administrations to become so financially dependent on land values.
For me they are caught not in a paradox that is very familiar to those of us in Ireland – a land tax is desperately needed to tame speculation and provide a firm foundation for local government independent revenues. But apart from it being a political impossibility (as China seems to have found), when your economy becomes dependent on land values being so intrinsically connected to household wealth, its almost impossible to reverse course. Its a roach motel. I think its a particularly dangerous one when you see the demographic trends which are bound to reduce demand for housing. I honestly don’t know how they can get out of this particular trap, although Beijing has continued to surprise me with its ability to change course and avoid disasters. But my fears for China are that they are rapidly running out of directions to turn to avoid the dread middle income trap.
Is China serious about climate change? Good grief, a country working to bring billions out of what remains essentially an agrarian system has a different set of problems on their plate than a developed nation with the luxury of deciding to eliminate sources of energy that aren’t as clean. If I’m wrong, then why are our coal exports going overseas?
Look, China is experiencing a bifurcated economy where many individuals aren’t in an actual a situation of serfdom but are living with economic conditions not much different. They’re losing people from the countryside who come to the big city to find work and send money back home just as do Mexicans who come to the USA. Or when country folks saw the lights of Paris and were never going back (a song to that effect).
Meanwhile, they (the government) try to balance the needs of sophisticated city folks in the east and south (along the seaboards) where they have a vibrant economy whilst at the same time dealing with a huge demographic problem. One rivaling our own (aging) but without the benefit of an influx of younger immigrants, which we have.
So they wonder where climate change is on their policy maker’s map? Are they kidding? Me? I’d bet you a milkshake they pay lip service to climate change and yes, they’d love to see cleaner air in Beijing and solutions to encroaching desertification, but they’re not going to stop burning coal. Not any time soon. Nor will India.
Why not? Because it would mean slipping back further in the economic race. Those two nations NEED energy from all sources just to stay not fall behind and as a consequence, I rather doubt they’ll play by our rules. But maybe I’m mistaken. And wait until Africa begins to enter the game when what we’re seeing in Asia will pale in comparison as they have the replacement birthrate to drive their economies to scales we’ve not even imagined.
The next two hundred years will be glorious ones for the world. If a few volcanoes don’t begin belching carbon into the atmosphere at rates that make what humans have done pale in comparison. After all, it’s happened before.
Yes, well… that’s just one more reason to develop geothermal. The new drilling/heat storage technology in Links two days ago is close to being ready to go, I think that it can be used to defuse volcanoes even. But that has not actually been claimed so far. I also think it is more accurate for us to say that capitalism itself is manic-obsessive and if there is a country with a huge population a capitalist incentive is a huge problem. Under the accepted rules of both capitalism and socialism human rights apply to everyone – so there are a lot of people to house, feed, educate, put into useful employment and all the rest – on an equal basis. But if the planet can no longer support all this filthy enterprise, something’s gotta give. It was very nice to hear Hudson’s logic about state finance in China – that China can simply forgive bad credit. And if China can forgive bad credit, China can dis-incentivize profiteering – as well as cure the desperation of poverty, both of which which mindlessly drive capitalist economies into obsession. Two sides of a coin – pun intended. “Banking is still a utility in China.” How long will it take before China is the world leader in geothermal? And if clean air replaces money as the incentive? Then obsession will be a good thing, no?
I always felt the criticism of real world socialist nations as being “state capitalist” was more of a Trot talking point (amplified with western funding) to undermine the actions a Marxist state would take to improve the material conditions of its population. “Trots” would use it to claim the mantle of socialism for themselves, which was convenient as they didn’t hold any positions of state power and could only be Monday morning quarterbacks.
With respect to China, the major contribution of Chinese Marxists seems to be the application of Market theory of value to aspects of a socialist economy. To them, Marxism is a science and not a dogma, so the old German may not have been right in all his postulates. Of course the Western left cries foul as they lifted billions out of poverty. And brays louder and louder as they surpass the US in wealth.
Ultimately the “State” in the PRC isn’t controlled by the Capitalists; theory aside that seems empirically clear.
Thank you for sharing this great discussion. I’m looking forward to the next segment.
Dr. Hudson, discussing the question of rural folk coming to the city for training, and then can’t stay (not allowed), offered this solution:
That solution, actually, has great utility for solving the pollution and wealth concentration and the over-production of “tradeable goods” (steel, ships, TVs, cars) problems as well.
Why?
Most of the world’s economies are based on technology and materials-flows that are reaching the end of their useful life. Some of our core technologies are now causing more problems than they solve. The next economy, E2.0, has to be designed to cycle and to self-regulate, like any survivable life-form.
Once-and-done flows, like the mine-factory-houshold-dump linear flow is unworkable.
Energy-frittering technologies like our houses and our excessive-transporting habits (commuting, once-and-done materials flow) aren’t viable.
The reason I think that China _might_ be the first major society to attempt a major redesign of their economy is that they are still very rural and yet have a very strong tech base.
China could decide to make the household and the village the locus / focal point of their economy. They might decide to test out model villages (not cities; villages) which are designed to cycle materials and nutrients, are designed to _not need_ much transportation, and also have distributed technology development (distributed collaborative innovation) and right-scale manufacturing of just those very things that a household needs in order to function.
They could design those villages to be right-scale and imbued with the necessary skills and tools to produce much of what it needs right on-site. And cycle nearly all materials on-site, or close-regionally.
We know – right now – all we need to know to get this done. The technology exists to do all of it. Now it needs critical mass. Focus.
Dr. Hudson has said that China can do things that aren’t financially profitable short-run. It controls the finance (allocation) function. This is a crippling limitation of capitalism: gotta be profitable pretty quickly, or it can’t get done. Some big problems are crucial to solve, yet don’t turn a buck quickly. That is a glaring flaw.
I would add that China plans. China can pick strategic national-scale objectives, and make them happen.
Suppose you were to design a village (or a neighborhood in a population center) that could produce most of the things you need to run your household. What what it look like? What functions would be there?
What functions would get delegated to regional centers, and why?
How would your design address environmental degradation, concentration of wealth, and the physiological and emotional state of the people involved? Would the people have “agency”?
China doesn’t have the same boat-anchor vested interests we currently do. They have more degrees of freedom to try new designs, and they’ve certainly got the space. They have the over-concentration of people and capacity problem front-and-center, and they know it.
They might be able to do this.
Russia has a similar – but not the same – problem: lots of land, and lots of people whose standard of living needs elevating. Russia is another good candidate for a new village-centered distributed-production and distributed-benefits-of-productivity economic design.
Thank you for this.
I often circle back to Utility functions as the lynchpin… what as a civil society (har har!!) can we all agree on as legitimate Utility functions in 2022?
My take is in the USA, we are heading away from accepting ANYTHING as a legitimate Utility.
Seems that as a part of degrowf in the early anthropocene, getting after this, globally, is key. Aingonnahappen…
Fascinated every time a Hudson article/interview is featured here, really need to get that new edition of super imperialism soon. Thanks for introducing me to him.
“There is a danger that cyber-currency, like in the West, will become one of these kind of bubbles, a place where rich people just park their money and see it grow.”
Rather, “where rich people have already parked their money and are watching it grow.”
“a form of managing capitalism as opposed to a transition to socialism” This construction, I believe is non dynamic, bipolar and hence difficult to deconstruct. We need an analysis that considers policy initiatives that have unforeseen impacts, much like blow back in war. Excellent discussion. But with the climate wild card, pandemic(s) and global cracks in trading (supply chains, resource depletion, etc) our analyses must jump over the (industrial economy) assumptions we are unconsciously fed or are a part of the constellation of ideas we take in uncritically, to illuminate updated challenges (dangers) like neo-liberal authoritarianism spreading. To put it new-wavy, we need to discuss the elements in a vision of a “people centered green economy” and compare it to the big country players. Lots to consider. Thanks!
I’m not familiar with Patrick Bond, but this is where he lost me:
“I would include Michael, the ethnically oppressed people in Xinjiang and Tibet. I’d include Hong Kong Democrats and the Hong Kong Confederation of Trade Unions, which was basically disbanded.”
Is he aware of the massive state investment in Xinjiang to help its residents enter the economy while taking away the allure of terrorist groups? Is he aware of the massive anti-China racism of the so-called democrats in Hong Kong? And of the dirty money that has flowed from the west and the middle east to foment conflict through the vehicle of both groups? To speak of the importance of anti-racism while ignoring racist elements to me smacks of pat Western talking points rather than serious analysis.
Well, that’s what we’re debating. Patrick is a constant critic of China. he actually pulled his punches in this debate with me (as we’ve known each other for a quarter century). Obviously, our positions are different, and Paul Jay wanted to highlight them so that I could respond.
“ China, since its revolution, is the only country that has really kept the banking and credit creation sector in the public domain. “
Whenever this talking point of completely nationalizing a nation’s credit system appears, I always ask what, exactly, differentiates a state in which the government owns and controls the private savings of all citizens and creates all the credit they use from a totalitarian state and I never really get a clear answer.
An interesting question. However, say a state acts as a puppet for a concentrated set of monopolists, financers and oligarchs, who also control all the cultural organs and impose their vision of corporate discipline on the general population and actively practice repression against dissent, as well as constantly disseminating pro-oligarch propaganda to instill false consciousness/manufactured consent. Is such a state better or worse than a totalitarian state? Further, if such a state actually has to deal with mass defection, won’t it just immediately centralize power in the state and deal out brutal repression to its enemies, a la late stage capitalism, letting the mask slip off.
To Minsky: the difference is about allocation. Where do the resources get allocated? From my vantage point, China’s allocation decisions seem to be better. They’re more strategic, and they tend to result in better welfare across the class hierarchy, not just at the top few layers.
To KD: That’s a good summary of the American situation. Most people have no agency, yet they continue to play an unwinnable game: trying to influence top-down policy when they have no levers.
And that is why I advocate for household / village-centric econ development. That’s where the _agency_ is. That’s where the little people have a great deal of control over their circumstance.
Shall we continue to play the unwinnable game, or is it time to create a new game?
2008 was the wakeup call, we slept through.
Rolling neoliberalism out globally has been a great opportunity to find out how the monetary system actually works.
The financial crises are the time when the big advances can be made, and there have been plenty of those. These are the keys to unlock the secrets of the monetary system.
The Japanese financial crisis in 1991 was a very significant key.
Richard Werner and Richard Koo turned the key.
They both opened different doors into understanding what had happened.
Richard Werner looked into what had happened to cause the financial crisis.
Richard Koo looked into what had happened after the financial crisis.
It was Richard Werner that proved banks create money, and this got central banks to reveal the truth starting in 2014.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
By the time I started in 2008 a lot of the doors were already open, and I could go on to open a few more.
No one else seems to have followed this path, but it seemed like the next logical step to me.
If banks create money out of nothing, which they do.
What is real wealth?
This took a while.
It took them a long time to disentangle the hopelessly confused thinking of neoclassical economics in the 1930s.
This is when they invented GDP.
The real wealth creation in the economy is measured by GDP.
Real wealth creation involves real work, producing new goods and services in the economy.
That’s where the real wealth in the economy lies.
There is general confusion about money and wealth.
Once you have got these straight things become a lot clearer.
This confusion over money and wealth has very specific consequences.
Neoclassical economics is the economics of the Roaring Twenties, the Wall Street Crash and the Great Depression.
Policymakers sooner or later use the economic growth model of the Roaring Twenties, oblivious to where this is leading.
What goes wrong with neoclassical economics?
1) It makes you think you are creating wealth with rising asset prices
2) Bank credit flows into inflating asset prices.
3) No one notices the private debt building up in the economy as neoclassical economics doesn’t consider debt.
4) The banking system and the markets become closely coupled, and as soon as asset prices fall it feeds back into the banking system
5) The money creation of unproductive bank lending makes the economy boom as you head towards a financial crisis and Great Depression.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
No one realises the problems that are building up in the economy as they use an economics that doesn’t look at private debt, neoclassical economics.
As you head towards the financial crisis, the economy booms due to the money creation of unproductive bank lending, as it did in the 1920s in the US.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
The financial crisis appears to come out of a clear blue sky when you use an economics that doesn’t consider debt, like neoclassical economics, as it did in 1929.
1929 – US
1991 – Japan
2008 – US, UK and Euro-zone
The PBoC saw the Chinese financial crisis coming by looking at the private debt-to-GDP ratio and you can too by looking at the chart above.
The Chinese were lucky; it was very late in the day.
The Chinese had done the same thing as everyone else, but worked out what the problem was before the financial crisis.
The early neoclassical economists took the rentiers out of economics.
The dynamics of the capitalist system have become a bit of a mystery.
Hiding rentier activity in the economy does have some surprising consequences.
We got Ricardo’s Law of Comparative Advantage.
What went missing?
Ricardo was part of the new capitalist class, and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
“The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist
What does our man on free trade, Ricardo, mean?
Disposable income = wages – (taxes + the cost of living)
Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.
Employees get less disposable income after the landlords rent has gone.
Employers have to cover the landlord’s rents in wages reducing profit.
Ricardo is just talking about housing costs, employees all rented in those days.
Low housing costs work best for employers and employees.
Who pays?
It’s the right question, but we keep getting the wrong answer with neoclassical economics.
Employees get their money from wages and it is employers that are paying, via wages, reducing profit.
The Chinese are using neoclassical economics.
The dynamics of the capitalist system were a bit of a mystery.
Davos 2019 – The Chinese have now realised high housing costs eat into consumer spending and they wanted to increase internal consumption.
https://www.youtube.com/watch?v=MNBcIFu-_V0
They let real estate rip and have now realised why that wasn’t a good idea.
The equation makes it so easy.
Disposable income = wages – (taxes + the cost of living)
The cost of living term goes up with increased housing costs.
The disposable income term goes down.
They didn’t have the equation, they used neoclassical economics.
The Chinese had to learn the hard way and it took years, but they got there in the end.
They have let the cost of living rise, and they want to increase internal consumption.
Disposable income = wages – (taxes + the cost of living)
It’s a double whammy on wages.
China isn’t as competitive as it used to be.
China has become more expensive and developed Eastern economies are off-shoring to places like Vietnam, Bangladesh and the Philippines.
Disposable income = wages – (taxes + the cost of living)
What does the equation do?
The equation puts the rentiers back into the picture, who had been removed by the early neoclassical economists.
Employees want more disposable income
Employers want to maximise profit by keeping wages as low as possible
The rentiers gains push up the cost of living.
Governments push up taxes to gain more revenue
Inequality exists on two axes:
Y-axis – top to bottom
X-axis – Across genders, races, etc …..
The traditional Left work on the Y-axis and would be a problem when you want to increase Y-axis inequality.
The Liberal Left work on the X-axis.
You can increase Y-axis inequality while the liberal Left are busy on the X-axis.
When you think about the two axes of inequality you can see what the billionaires are up to.
As a billionaire, I can be a progressive lefty, this is great. I can make out that I’m a really good, caring person.
The two axes of inequality ……
All upper class people are privileged.
Many white people aren’t privileged.
Things make a lot more sense on the Y-axis.
When you look into it, it doesn’t really make sense.
That x- y-axis rendition is a useful construct. Well done.
Addressing the x-axis issues is something the West ought to get credit for. We’re addressing it fairly systemically. Good on us; If you’re one of the people that’s had to face systemic repression based on gender, race, skin color, etc. this x-axis re-balancing is a valuable thing.
But the y-axis imbalances, manifest by wealth-concentration and the consequent capture of government is also a major cross-cutting (all x-axis players affected adversely) issue.
X- and Y- axes of imbalance is a simple model that I think has utility. Tks.
Second to last paragraph appears to be mislabelled as Michael Hudson speaking; based on the content I believe it is Patrick Bond speaking at that time (he refers to agreeing with Michael).
The transcript appears to be machine generated. There are also grammar marks added that distort the meaning of the sentences.
” Is China Socialist or State-Capitalist”? Why limit ourselves to these two old legacy word-names?
Why not Capitalommunist? Why not Communapitalist?
what china is practicing is really good old time protectionism. something the majority of the founders agitated for.
but china has not figured out what lincoln figured out, buy what you have to globally, sell what you can globally, but the majority is to be made by us, consumed by us because we pay well, and “TARIFF” the hell out of imports, and get rid of slave/sweatshop labor at home.
dim wit nafta democrats do not understand wealth, they only understand money, that was proven from 1993 on wards. well paid workers and regulation stands in their way of immense profits.
china’s obsession with the belt and road tells me they are not serious in understanding lincoln.
china will be like america, once they run out of markets to exploit that allows them to export their unemployment, poverty and deflation onto others, they to will be like america desperate for new countries to pilage and plunder.
that is why the need to demonize russia, demonization is the first step in eliminating what stands in the way of new areas of plunder to keep free trade going.
free trade is really fascism super charged, and it relies on genocide.
china better bone up quickly. because russia will not be plundered by anyone. russia is the free traders last gasp at plunder to keep the idiotology going.
That is a great post, Lance.
Your premise about U.S. protectionism assumes that people are willing to share the benefits of productivity, and they’re not. And that was true before Lincoln, during Lincoln, and after him.
The benefits of productivity accrue to the owners of that production system. The “capital”. The accruals are used to speed up and intensify. That’s the feedback cycle of productivity-concentration.
Please rebut those two points. If you can’t rebut them, may I ask what you advocate our society doing to get out of that feedback loop?
ben franklin said we have given you a high wage constitution. after the civil war americans were paid higher wages than their european eqiuvalents.
” lincoln knew this well, tariffs are the easiest tax to collect.”
https://www.dailykos.com/stories/2016/4/1/1508946/-HAWB-1800s-The-Doctrine-of-High-Wages-How-America-Was-Built
HAWB 1800s – The Doctrine of High Wages – How America Was Built
…
see article one, section eight of the constitution, its what FDR, TRUMAN, IKE, JFK AND LBJ used to blunt capitalism.
its why neo-liberalism started in ernest with carter, he hated labor unions because their high wages, which franklin agitated for, cut into corporate profits.
its really so simple, demand for goods and services is wage driven, try to get some dim wit free trader to understand that, its beyond their limited intellectual capacity.
Lance, thx for the tips. I’ll read the material shortly.
That said…how come you didn’t rebut the point about technology concentrating wealth? How is tariffs going to affect that trend?
Labor is being factored out of production. Rapidly. All over the world.
It’s not just “neoliberalism” that’s crushing the peasants. Neoliberalism makes sure the peasant-crushing benefits go to the neoliberals, but the peasants are still getting crushed.
Slaves before Lincoln’s time. The Jungle after Lincoln’s time. Then Depression, with a momentary break after WW2 when markets expanded fast enough to use up all that productive cpy in the U.S.
Then markets stopped expanding, and productivity went nuts, now we have debt and flat wages and massive profits to the few.
And still the automation (productivity increases) march on.
In order for those workers to buy products they have to have a job, making something useful (creating wealth).
It’s not happening; machines are making the stuff. Closing the borders does not change / alter that fact.
Labor productivity has risen 2% per year for the last 50 years or so. FRED database. Do the math: if it takes 100 workers to make our GDP in year 1, at 2% labor productivity increase, how many workers does it take to produce that same GDP at year 23?
50%. Half the workers.
Closing the borders to trade isn’t going to affect that equation.
you are using the industrial revolution argument that all free traders use to deflect away that its free trade that is responsible for our lack of increasing employment through technology.
the industrial revolution has created way more jobs than its destroyed. easy to see the worlds population at the beginning of the industrial revolution, compared to today. where did all of those jobs come from?
productivity is very low today, that points out that its not the robots, in fact, its the free trade.
so give me the robots, lots of them! but with tariffs in place, those robots will be designed, built, installed, and maintained by a skilled american workforce.
once free of the free traders, the industrial revolution will create more jobs that its destroyed.
once you get your star trek economy built on matter transfer and replicators, then labor will have it harder, till then, the industrial revolution keeps grinding out new jobs faster than it destroys them, at least so far.
“Globalism is the creation of a set of property rights that, precisely because they span multiple sovereignties, cannot be touched by one government without inviting conflict with another.
Organizing property and production across borders—whether through free trade, protections for foreign investment, currency unions or other devices—does more than limit the power of governments. It also serves, “to dissolve the small, discrete collective of mutual identification—which means a country.”
here is what truman said when the bill clinton types tried to organize GATT into a slave labor treaty on the world,
“Of course I believe in free enterprise but in my system of free enterprise, the democratic principle is that there never was, never has been, never will be, room for the ruthless exploitation of the many for the benefit of the few.” Harry S. Truman””
“Tariffs Aren’t a Terrible Idea If They’re About Well-Being of People Not Corporations: Tariffs on imports could be part of reorienting the global economy. Now is a good time to talk about it.
An organizing framework for the community option was succinctly outlined in 1933 by economist John Maynard Keynes: “I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel—these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.”
this was removed from the GATT by bill clinton,
“Compensatory tariffs might be added to products from countries that do not maintain international standards of environmental protection, wages, health and safety standards, and social safety nets, thus encouraging higher standards for all people everywhere.”
bill clinton did this also,
Allowing corporations to write the rules of global commerce to favor their purely private interests was a grave error. Now is the time to examine how best to rewrite international trade and investment agreements so that they truly serve humanity and sustain a living Earth. The consequences of inaction are simply unacceptable.
https://www.commondreams.org/views/2018/03/21/tariffs-arent-terrible-idea-if-theyre-about-well-being-people-not-corporations
now i let you get away with the we will not allow any trade crap that free traders always try to mis-charicaturize my position,
“Is the answer to withdraw from global trade, as the free traders have caricatured our position? No, it is to go back to a system like the General Agreements on Tariffs and Trade (GATT), which promoted trade but was flexible enough to allow countries policy space to develop and to preserve their intricate social contracts by preventing commodity dumping, environmental dumping, and social dumping.
if tariffs close down our border, where does all of that tariff revenue come from?
yet even in the jungle after lincoln, for the most part american labor was higher paid than europes.
i know of no system that is immune to outside influences. you get rid of the jungle, then along comes the prototype fascist woodrew wilson, that smashes civil society for free trade.
wilson picked the winners based on bigotry and racism during WWI, setting up WWII.
the soviet union got the dim wit gorby, and the gangster yeltsin.
america got nafta billy clinton and emmpty suit hollowman obama, and here were are today.
robert reich was a cheer leader for free trade, he almost apologizes, then he blames others.
https://www.nationofchange.org/2022/03/14/putin-and-trump-have-convinced-me-i-was-wrong-about-the-21st-century/
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tariffs are like a universal income for the poor.
TARIFFS ARE EXPANSIONARY ALSO.
tariffs do not cause depressions.
there has been no tariff related inflation.
tariffs raise wages.
tariffs give democratic control over trade.
tariffs reverse poverty caused by free trade.
tariffs protect the wealth of a nation.
tariffs promote research and development.
tariffs help labor create a high standard of living, its called a civil society.
tariffs do not blockade ports, otherwise where does all of that tariff money come from.
when you get your economy that is self sustaining and free of outside influence. you will have invented the perpetual motion machine that no one has been able to do so far. till then, its article one, section eight, which franklin called our high wage constitution, and franklin also said we must protect the american economy.
I’m a firm believer that transitions to socialism, transitions to a more feminist society, transitions to a non-racial society, as we call it here. Those have to come from below.
Yes, because that has ever happened once in the history of the Universe. It takes a boat-load of hyper-educated Ms. CIA Assets operating with billions from NGO fronts for the Western Intelligence Services to create that kind of “bottom up” change, and you usually can see the dog leash stretching all the way across the Atlantic (or the Pacific) when it happens.
This sounds almost like the model the nordics landed on after WW2, and that been dismantled “slowly” ever since the 80s in favor of “free market” mechanisms.