The Costs of Neo-liberal policies in China

This interview is copied from another list. There is not too much in the western mainstream media about these types of negative effects of China's embrace of capitalist neo-liberal policies. There is much more about China's phenomenal growth, and how its competition with the west may lead to loss of manufacturing jobs in countries such as the US.


Han Deqiang is a prolific economist at the Economics
and Management School, Beijing University
of Aeronautics and Astronautics, and one of a
growing number of Chinese scholars critical of
the country’s neoliberal development strategy. Han, however,
did not just arrive at this stance. He has been critical
of neoliberal ideology in China for almost two decades
and has written many books and articles on the social crises
that rural and urban workers have faced under China’s
new economic regime.
When I first met Han, in 2000, he was making his way
around the country delivering sharp and eloquent lectures
to university students refuting the then-dominant faith. At
the time, I was conducting research on workers’ protests
against privatization in Zhengzhou, and most of the labor
activists and workers’ leaders I met were familiar with
Han’s devastating critiques of the privatization craze that
swept China in the late 1990s and early 2000s. It would
not be wrong to characterize him as a Chinese Noam
Chomsky, albeit with his own oratorical flair!
In September 2005, I interviewed Han for about three
hours. Our discussion focused on the impact of China’s
2001 entry into the World Trade Organization and on the
social costs, both in and outside of China, of the accelerated
neoliberal development that followed that milestone.
In January 2007, I followed up with a second interview.
What follows is a translated and edited version of both
interviews.
STEPHEN PHILION: The last time I met with you was during
the height of the East Asian financial crisis. At that
time, we discussed the consequences you foresaw for
China of entering the World Trade Organization (WTO).
Five years later, which of those consequences have come
about?
HAN DEQIANG: At the time, I argued the greatest damage
would be to China’s capacity to control its industrial
and technological development autonomously. I think it’s
safe to say these last five years have more than proven
that true. In China, any industry that wants to develop
its own technology or markets has encountered increasingly
great barriers.
Second, I predicted that unemployment would rise
dramatically; this has also shown itself to be a reality.
Of course, some say that there has been a shortage of
migrant workers from the countryside recently, which
allegedly proves that the WTO has not produced greater
unemployment. But this requires a more careful analysis.
In the late 1990s, agricultural commodity prices fell, and
taxes became heavier. Hence the large mass of migrant
workers and the ensuing rise in urban unemployment
we saw then. However, starting around 2002-2003, the
government implemented new tax cuts for farmers and
increased education subsidies in poor rural districts. As
a result of these new policies, the contradictions in the
countryside were mollified some. Also, when the price of
rice plummeted, large numbers of farmers stopped producing
it. As a result, the price rebounded, improving the
livelihood of farmers in 2003 and 2004. So rural dwellers
now had less motivation to accept the kind of exploitation
that exists in the for-export sector of urban industry,
much less migrate to the cities in search of it! However,
this doesn’t nullify our argument
that when foreign companies conquer
national industries, greater
unemployment results. The opposite
actually. When Wal-Mart goes
to Gweiyang or Beijing, say, they
knock out, in an instant, four or
five department stores.

PHILION: And smaller shops?

HAN: Hah! Don’t even go there! Medium-size department
stores, neighborhood sellers, ones that were supposed
to be able to dominate local markets by virtue of their
size—they saw those advantages disappear.
Third, I have always acknowledged that WTO entry
would provide China certain short-term gains. For example,
increases in investment and exports undoubtedly
occurred. But I argued that WTO entry was the equivalent
of drinking moonshine to deal with thirst. This has
two outcomes. One, of course, is the removal of thirst.
After all, if there are no other liquids around, I have no
choice but to turn to moonshine. But the other result, of
course, is your death! So Chinese industry has resolved
its investment problem, but that has been accompanied
by its death knell.
From what I see, the social crisis facing China will con-
By 2006, there were already more than 50 Wal-Mart stores in China.
tinue to intensify, as will the neglect of China’s economic
autonomy, in addition to the eventual breakdown of the
country’s financial system. This is entirely foreseeable;
it’s only a matter of time before China faces something
along the lines of the 1997 East Asian financial crisis. We
cannot predict exactly when it will occur, but I suspect it
isn’t that far off in the future.

PHILION: How has the WTO affected large state-owned
enterprises?

HAN: State-owned enterprises (SOEs) fall into two categories.
The first are SOEs, like Shenyang Machine Factory
or Luoyang Tractor Company, that are subject to
competition with private companies. These quickly went
bankrupt. Monopoly-sector SOEs, such as petroleum producers,
are less directly affected by China’s membership
in the WTO.

PHILION: The Chinese leadership seems to be working
under the assumption that as long as the SOEs that produce
the greatest revenues remain vital, Chinese socialism
can be sustained.

HAN: First of all, China’s not socialist
now.
PHILION: Yes, right. I mean in
their sense of the phrase, socalled
“socialism with Chinese
characteristics.”

HAN: Not likely either. It is true
that in terms of tax contributions
and profits, the small and
medium-size SOEs are not great, but in the absolute numbers
they employ, they are considerable. Their influence
on local employment and finances is pretty substantial.
So, in the aftermath of the near complete collapse of these
small and medium-size SOEs, for the central state to rely
on large enterprises alone for maintaining the subsistence
of China’s population of 1.3 billion becomes extremely
difficult.

PHILION: It seems as though the leadership’s hope is for
local and foreign private capital to replace these small and
medium-size companies as the source of investment and
to resolve the unemployment problem in the process.

HAN: What I would contend is that for every one job
saved by foreign capitalist investment, three to four will
be lost unless the foreign investment produces for foreign
export alone. This situation does exist, assuredly. Right
now 60% of our export is fueled by foreign companies’
For China, WTO entry
was the equivalent of
drinking moonshine to
deal with thirst.

. However, the potential for foreign investment
to instigate future Chinese economic growth is weak. It
can only largely resolve a segment of the unemployment
problem. It can’t do much in terms of advancing the upgrading
or expansion of China’s industrial system.
And its use to resolve the fiscal crisis facing China is
even more problematic. From ’49 on, we built our nation
by using state enterprise to supplement or replace foreign
enterprise’s contribution to the economy. The idea of doing
the opposite is a fantasy.

PHILION: China’s leaders also seem to believe that as long
as the monopoly-based state-owned enterprises are run
well, their ability to determine the direction of the economic
development will be strong.

HAN: This is a twofold issue. First, whether or not it’s
possible for the political leadership of a country with no
state-owned enterprise to control the direction of the national
economy. I think it might be possible. It’s the European
model, after all, and even in a certain way the American
model. In these economies,
by and large, control of enterprises
is in the hands of private
parties. But this doesn’t have
that much impact on the state’s
tax receipts and its role in regulating
the economy. If the state
is powerful, it can play a crucial
role in the management of
the economy even if it doesn’t
control much enterprise.
On the other hand, where
the state controls a major portion
of enterprises but is weak,
it has a difficult time managing the economy. And if the
collaboration between that weak state and private interests
is deep, the result is distortion of policy by capitalists
to the point that the state loses more and more capacity
to control the economy and the direction of economic
development. The key factor here is the strength of the
government, not how many companies it controls.

Stephen Philion
Assistant Professor
Department of Sociology and Anthropology
St. Cloud State University
St. Cloud, MN

http://stephenphilion.efoliomn2.com/

Stephen Philion
Assistant Professor
Department of Sociology and Anthropology
St. Cloud State University
St. Cloud, MN

http://stephenphilion.efoliomn2.com/