Capitalism, Perestroika, and China’s Economic Policy
The Redeployment of Capitalism: The Evolution of the Crisis
The 1970s, 1980s, and 1990s witnessed a continued slowdown in growth rates and increasing financial hypertrophy. This slowdown caused public financial difficulties due to stifled tax revenues and greater control on public expenditure. Governments chose to reward capital investments in debt securities with increased interest rates.
Financial hypertrophy encompasses several phenomena:
- Expansion of capital markets (shares, debt securities, and private debt) at rates exceeding growth.
- Extraordinary diversification of traded securities and an explosion of financial speculation.
- Financialization of companies, marked by increased financial investment and decreased physical investment.
- Liberal globalization of financial hypertrophy and runaway market capitalization in emerging countries.
The prevailing doctrine argued that this development would intensify competition in increasingly open world markets due to discarded protectionist and interventionist policies. This opening is driven by globalization.
Analyzing social relations of force involves two sets of relationships:
- Labor-capital conflicts within each country.
- Conflicts between national systems participating in the global system.
From 1945 to 1980, these relations favored labor and periphery nations, influencing policy choices. The three accumulation models (welfare state capitalism, Soviet socialism, and periphery nation populism) ceased to exist.
The post-WWII development model eroded from the late 1960s, with declining profit rates. The crisis unfolded with slowing growth, rising unemployment, worsening income inequality, and company financialization. Conventional responses failed due to willful ignorance of evolving social relations.
Applied liberal policies favored capital, producing results that met its demands for rising profit margins. The crisis shifted from overaccumulation to under-consumption and relative overproduction. Recovery requires regulatory policies ensuring income distribution favorable to workers and periphery nations, leading to growth and weakened interest rates.
Only increased social struggles and victories over capital, initially raising interest rates, can break the deflationary spiral. Unilateral liberalism governs society, prioritizing maximum profit. However, this exclusive logic doesn’t produce maximum expansion but deflation. Expanding relationships requires less unfavorable social work sector.
Financialization
Financialization is an enduring feature of contemporary capitalism. The capitalist system has always been financialized, with accumulation intertwined with currency and credit. Financialization refers to capital valuation and potential independence from market assessment (e.g., stock values versus property titles).
It prioritizes maximizing asset value growth over company profit rates. This is also called asset accumulation mode.
Asset accumulation concerns capital ownership and management. The separation between ownership and management, never fully complete, characterized 19th-century industrial capitalism, closely associated with oligopoly formation.
Capital remains dominated by transnational corporations (oligopolies). The growing importance of pension fund investments is touted as “popular capitalism.” This thesis is merely ideological, simulating belief in popular capitalism.
This “new capitalism” is presented as a cheap form of socialism, with workers becoming owners. Financial hypertrophy and the growth of these investments, outpacing the real economy, constitute the objective truths.
The system could stabilize into a quasi-stationary state. Financialization is linked to both the current crisis and historical precedents, marking a transition. It is not stabilizable and cannot be defined solely by the crisis.
Technological Revolution
Amidst the crisis, new trends have emerged:
- The technological revolution and its impact on production, social relations, and civilization.
- The redeployment of imperialism and renewed North-South (center-periphery) conflict.
Perestroika: Origins, Essence, and Revolutionary Character
Perestroika arose from the Soviet Union’s development in the 1980s. Delaying it would have led to a severe social, economic, and political crisis. The country was losing momentum, with frequent economic failures and a declining national income growth rate. The system struggled to meet housing, food, transport, healthcare, and education needs.
The economy was financially burdened. Negative trends impacted the social sphere, with social and cultural programs receiving leftover budget funds. Scholastic theorizing stifled creative thinking, leading to scientific and theoretical discussion decline and public moral decay. Leadership stagnation contributed to poor Politburo and CPSU Central Committee performance, fostering an “anything goes” atmosphere.
Party member equality principles were violated, with contempt for law, bribery, and flattery emerging. Party and state actions lagged behind the times. The country’s crisis was acknowledged in the 1985 Central Committee Plenary Meeting, which inaugurated perestroika and formulated its principles.
Workers, peasants, intellectuals, and party officials assessed the situation. Perestroika ideas arose from pragmatic interest, commitment to revolutionary ideals, and a search for better societal understanding. Lenin, concerned about socialism’s future, foresaw dangers to the system.
Before the April meeting, party and government leaders analyzed the economy, forming the basis for perestroika documents. The immediate priority was economic improvement: restoring order, discipline, raising organization and responsibility, catching up in structural organization, and accelerating scientific and technological progress. This aimed to change the social moral and psychological situation.
Lenin stated, “Socialism is the living creativity of the masses.” Perestroika aimed to empower individuals, respecting their spiritual world and strengthening morality, harnessing society’s intellectual and cultural potential to shape active, responsible citizens.
Perestroika addressed unemployment, free healthcare and education, and social protection. However, some exploited these advantages. Perestroika increased social responsibility and expectations. Glasnost (openness/transparency) revealed illegal privileges. Success required political experience, civic awareness, and theoretical understanding to uphold socialist moral guidelines.
Perestroika required healthy public organizations, creative production teams, and broad democratization as a guarantee of irreversibility. Economic reforms focused on promoting collective work’s role. Lenin emphasized the indivisibility of socialism and democracy.
Perestroika’s success hinged on public attitude. The plenary session strengthened Soviet society’s democratic foundations, promoting independence and glasnost. Democratic changes occurred in every community, organization, and within the party, driving perestroika.
Economic reform shifted from centralized, order-based management to democratized management, empowering enterprises and work groups. This aimed to combine centralism and self-democratization.
Perestroika touched all aspects of public life, overcoming stagnation, creating an effective mechanism for progress, empowering the masses, developing democracy, promoting socialist initiative, improving order and discipline, fostering transparency and self-criticism, respecting individuals, intensifying the Soviet economy, reviving democratic centralism, introducing economic methods, stimulating innovation, prioritizing scientific methods, combining scientific-technological revolution with planned economy, prioritizing social targets (living conditions, work, rest, recreation, education, healthcare), fostering spiritual richness and culture, eliminating socialist ethical deformations, implementing social justice, uniting words and deeds, and aligning duties and rights.
Perestroika’s goal was societal renewal, advancing socialist organization and humanism. Its essence united socialism with democracy, reviving Lenin’s concept of socialist construction. Perestroika was built on socialism and democracy.
Commercial and Economic Relations and Technological Exchanges with Foreign Countries
China’s fundamental policy is opening up. Adhering to independence, equality, and mutual benefit, the Seventh Five-Year Plan fostered closer economic, trade, and technology exchanges with all countries. It expanded foreign investment and introduced advanced techniques to accelerate socialist modernization.
This policy aimed to increase exports and foreign currency reserves. Export structure strategy should meet international market demand and China’s conditions. A gradual shift should occur: replacing primary products with manufactured goods and exporting finished products.
The Seventh Five-Year Plan continued increasing oil, coal, nonferrous metals, and agricultural product exports, utilizing light industry and textile advantages. While consolidating existing export markets, China should open new ones, establishing trade and service networks globally. Export production should maximize coastal area benefits, creating export bases and improving the export production system.
To stimulate exports and foreign exchange earnings, China should:
- Expand export goods supply, prioritizing export requirements over domestic trade.
- Strengthen export goods production bases.
- Maintain currency balance.
Balancing currency is a long-term task. Foreign currency use should improve economic outcomes, benefit technological progress, and raise export capacity. Import structure should prioritize software, advanced technologies, and key equipment.
To protect and boost domestic industry, China should promote domestic production and not rely on imports for producible items. Imported parts should be gradually replaced with domestic ones. Absorption, assimilation, utilization, and standardization of imported technologies are crucial.
China utilizes various forms of foreign investment for economic construction. Preferential loans are used for infrastructure (energy, transport, telecommunications). Improving foreign relations laws, building infrastructure, and increasing work efficiency create favorable conditions for foreign investment.
Special economic zones, coastal cities, and regions like the Zhujiang and Yangtze River deltas play a crucial role in import/export development, foreign investment, and technology introduction. They focus on introducing and adapting advanced technologies for export production, maximizing foreign currency earnings.
Tariff systems, import/export licensing, and exchange rates should be improved. Centralized management of large-quantity goods should continue. Qualified production companies should manage foreign trade directly, while others sell through corporations or directly. Exchange rates should be adjusted based on market price changes. Criminal activities (bribery, corruption, capital flight, speculation, smuggling) should be punished.
Economic Structure and Means of Regulation
: To implement a socialist economic structure of a new type, the key lies in achieving success in 3 tasks which are closely interlinked: first, give added force to companies, especially large and medium enterprises property, to become producers and managers authentic socialist institutions are relatively independent, endowed with autonomy in their operations and responsible for their profits or losses, and second, take one more step in the development of socialist market economy and planned goods, improving gradually market mechanisms, andthird cause of the State address on business moves from direct to indirect control as the main form, drawing principally on economic and legal means, and also the necessary administrative measures to regulate economic activity.
Once this is achieved, remain harmonized economic relations, the unit is reached between the interests of the state, the collective and the individual. We must resolutely implement the regulations promulgated by the Party Central Committee and State Council on the extension of the autonomous rights of enterprises, particularly medium and large. First, we must further simplify the administrative structure and decentralization of powers. Secondly, we must give them appropriate step partial or total exemptions from payment of tax revenue regulation and alleviate the various loads that weigh on them unreasonable. Third, we must gradually reduce the tasks arising mandatory plans, granting greater autonomy to enterprises in regard to the production, supply of raw materials and selling their products, as well as human resources, financial and material. Fourth need to control general demand of society and strive to achieve balance between supply and demand, subjecting companies to the pressure of competition and pushing them to improve their management and administration and increase profitability. Fifthly, within companies must strive to improve the accountability system in its different forms. We must conscientiously strengthen democratic governance, fully displaying the activity of the workers and employees as owners of companies and by bringing his talent and wisdom.
To increase the vitality of enterprises, it is imperative to put an end to the tight vertical and horizontal compartmentalization, promoting mutual openness between the provinces, autonomous regions and large cities, medium and small and between cities and countryside, and printing further develop the freight market by expanding the market for means of production, opening markets and promoting progressive and technologies fund and promote, at the same time, the rational mobility of labor.
The key to build and gradually perfect the market system lies in the reform of pricing and control of them, it should be flexibility to the price of ordinary goods in a planned and according to supply and demand the market. In regard to the means of production important, it should reduce the proportion of those subject to centralized state trading and expand those whose prices are regulated by the market, adjusting the prices set by the state, so the difference between these and market prices will decline.
The rates or prices of important public services remain subject to State control and readjust in a planned way, while prices gradually eased the tertiary sector of the economy.
The industrial and commercial property departments of supply of material goods and the buying and selling cooperatives should have available the material goods and economic levers necessary to actively contribute to the regulation of prices through the market and reset and stabilize prices buying or selling goods as needed.
It is necessary to reform and improve the financial and taxation system, developing properly the role of financial policy, guaranteeing the State to secure adequate income, and at the same time, spreading the tax burden fairly and encourage competition, to promote increase profitability and robust economic development.
Taxes must be classified according to the types to which they belong, in central taxes, also you must clearly mark the boundaries between financial expenditures and local stations, bringing to fruition the staggered administration of finances.
It is necessary to transform the banking structure, asserting to maximize the role of banks in the collection, referral and guidance of the funds, the elevation of their performance and regulation of the general demand of society.
The People’s Bank of China should control the monetary issue and the overall volume of loans through a comprehensive credit plan, thus curb inflation so as to contribute to the harmonious development of economy and rationalization of the economic structure. Specialized banks should persist in its reform with a view to becoming a genuine business, but surely and wisely.
Governments at all levels should supervise and assist local banks in the banking policies of the state and secure their legal rights and interests against any violation.
Reinforce and consolidate the comprehensive economic administrative bodies and make great efforts to raise the scientific level of their decisions and their ability to control and macroeconomic regulation. Management agencies should stop concretely manage production and business management are directly subordinate to them to move to globally manage each of the branches.
So that it formed the prototype of a new economic structure usually require 3 stages of coordinated reforms. In the first stage based on the expansion of enterprise autonomy and the reduction of direct control, it should speed up both large and medium enterprises. In the second stage is necessary to reduce the scope of mandatory plans, carry out reform of prices of means of production and price control system, improve the tax system and reforming the banking system . The third stage is to establish progressively equipment conforming to the new economic structure, take new steps forward in solving the problem of judicial subordination of enterprises, to finally separate the powers of government business.
In the next basis of the reform should properly handle the relationship between the importation of new machinery and the cancellation of the old and take into serious consideration the following points:
• It is imperative to increase the capacity of state control over the various economic activities and determine how far, to what degree and by what measures can reduce the extent of its direct control over the microeconomic activities.
• In terms of socialist economic management, the reform is to gradually reduce the use of administrative levers.
· As the reform deepens the economic structure and there are further steps in developing the national economy, it is necessary to reform the law lay down more rules governing the relations and economic activities, so that the law reaches be an important lever to regulate such relationships and activities.