To confront Washington, China should cut hours of labor now

by Jehu

From FT Economics today, China is dangerously flirting with deflation:“PBoC admits defeat in war on deflation.”

“China’s central bank this week faced reality and revised down its inflation estimate to half the level targeted by Beijing, implying it is failing — as global peers have before — to combat the threat of deflation.

That is not only bad news for a country struggling to stimulate growth, it also threatens a ripple effect around the world: cheap made-in-China goods contained price rises around the world when that was a force for good.”

China needs a plan B just about now and I think they should revisit the debate between Mao and Deng over China’s path for the most rapid development path.HKG105:CHINA-DENG:SHANDONG,CHINA,13OCT94-FILE PHOTO 03MAR59- Chinese leader     Deng Xiaoping (L), is seen confering with the late Chinese Chairman Mao Tse-tung [Mao Zedong] in Shandong province March 3, 1959. B/W ONLY

Maoists will know I am referring to the debate of the 1960 and 1970s over the path for China’s development. The two sides of the debate is pretty simple to describe. The Dengists raised the slogan: “Black cat or white cat; the cat that catches the mouse is a good cat.” Essentially, their pragmatic argument was that it did not matter which measures the state employed, so long as those measures sped the development of the productive forces. This attitude, of course, horrified the Maoists who rightly saw in it the formula for unbalanced growth, rising inequality and,  eventually, full capitalist restoration. This debate shaped China history for most of the latter part of the 20th century and played a significant role in the Great Proletarian Cultural Revolution, which shook China and the world for more than a decade. In the end, Deng and the Dengists won, in large part simply by outliving Mao.

At the time, I was a Maoist and was quite put off by the victory of the Dengists in China. but I had one friend in particular who was a dyed in the wool Dengist. And his argument was simple: China needs development because it is a strategic military question. Facing the US on one side and the Soviet Union on the other, China needed to be able to offer more resistance than just throwing potatoes. Perhaps he was right, but I never trusted Deng and his clique; and when they won out I realized revolution in China had failed.

In any case, sometime in the early 1980s, Deng made a trip to the south of China, on the border with the then British colony of Hong Kong, and proclaimed   “It is right to get rich.”

“Oh, Jesus,” I thought. “Here we go.”

That trip, however, was a world historical moment that kicked off three decades of blistering development that eventually vaulted China from an insignificant player in the world  market to the second largest economy on the planet. China today is the single largest labor market and will likely eclipse the US as the dominant economy in short order.

US military and diplomatic pressure

The United States is extremely worried about this and has sought to keep China at bay with a military/diplomatic encirclement. Standing against China’s massive labor market is the US and its position as owner of the world reserve currency. Money and labor power, the two most important productive forces of the capitalist mode of production, are now facing off across the Pacific.

Because of this, and because of the implications for the entire planet, China needs to reexamine the Mao-Deng debate. When Deng raised the slogan, “Black cat, white cat”, Mao summarily shut Deng down with his own slogan and sent him to pick potatoes on some hell hole of a commune. In opposition to Deng’s pragmatism, Mao’s slogan was, “Class struggle is the key link and everything hinges on this.” For Mao, development was important, but which class held power was more important that development. How rapidly China developed did not make any difference if this developed China was dominated by the capitalists.

My point is that the debate was always silly: Both classes are revolutionary classes and either could have brought China to where it is today. There was never any contradiction between development of the productive forces and proletarian rule. The US, which is arguably the most advanced capitalist economy in the world market, is dominated by a fascist state capitalist, yet, despite this, it does not seem to be having any problems innovating in the high tech and biotech space.

Likewise, China could have greatly accelerated its own development without urging people to get rich. Today, China is facing a threat from the US and needs to rapidly press forward the development of its productive forces. China still has a huge rural labor force working in relatively primitive conditions who need to be integrated into the economy.

The US in the 1920s and 1930s faced a similar situation with a very large rural labor force that had to be modernized. What made modernization possible was the outbreak of World War II, which pulled sixteen million persons into the military, the brought the economy under the direct regulation of the fascist state and consumed 40% of GDP. The war was a huge productivity shock that forced the development of the productive forces on scale that can only be compared to the first and second industrial revolution, the Soviet Union and China’s own history since 1976.

A productivity shock

China needs that sort of shock today and needs it without actually slaughtering 100 million people. They could easily get this WWII-style sort of massive productivity shock by reducing labor hours by half in the next five years. If China were to implement such a measure, they would not only easily overtake the US by 2020,  they would push it off its dominant position in the world market that is  based on worthless fiat dollars.

How does this work? How does reducing hours of labor force development of the productive forces?

Counter-intuitively, it works by forcibly driving the rate of profit to zero, driving less developed capitals into bankruptcy  and forcing concentration and centralization of existing capitalist firms. In other words, it causes just the sort of capitalist crisis you would expect from any fall in the rate of profit. Capitalist crises, however, are the means by which capital restores the conditions for the proper operation of the mode of production. Capitalist crises are not, as many radicals think, the path to a higher mode of production, but a momentary and forcible adjustment  of all economic relations within the mode of production.

Why would China deliberately set out to produce a crisis in its economy?

The question, although understandable, is entirely misplaced: When Deng raised the slogan, “It’s right to get rich”, he has in fact deliberately creating a crisis in China’s economy. That crisis, however, was borne by the socialist sectors of the economy — the communes and industry, i.e., the working class and peasants. Within a few short years, the commune system, patiently constructed over several decades, vanished.

Reducing labor hours only redirects the ongoing crisis that is capitalistic development in China toward the capitalists. By forcibly driving the rate of profit down, the state is forcing the capitalists to invest in more advanced productive facilities to  raise the rate of profit again.

In the capitalist mode of production, profit is the goad of all investment. Most people think this means you have to raise profits first to increase investment. Thus, when the IMF speaks of increasing productivity, they usually refer to undermining labor rights through a program of painful labor market restructuring and forcible reduction of wages, so as to increase profits. But this deeply held idea is wrong as has been shown from Greece and most of southern Europe. Raising profit in this fashion does not appreciably increase investment, it slows investment and produces a depression because excess capital is generated.

But try telling this to any worker and watch the look on her face, because we have all be taught a lie from birth that companies  need higher profits to increase investment. On this basis, every politicians declares he or she will be “business friendly” by offering every sort of tax break for investment.

In fact, if you want capital to be more productive, you reduce profits, not increase them.

Falling profits drive productivity

Capitalist firms do not care about increasing the productivity of labor. They only invest in improved machinery and technology if they can increase their profits by doing so. Reducing hours of labor and forcibly driving down profits forces capitalist firms to introduce improved machinery and means of production, accelerates the concentration and centralization of capital in the hands of the very biggest capitals and crushes unproductive speculation. Capital is concentrated into the hands of the largest capital because these huge capitals are the only ones who can make the investment that is necessary and still make a profit.

By contrast, artificially boosting profit by measures like labor market flexibility, wage and tax cuts only encourages the continued operation and growth of marginal capitalist firms that survive on low wages. Most of these firms cannot even tolerate a decent living wage, much less the additional capital required to increase productivity. They hold down the productivity of labor and should be forcibly driven into bankruptcy to make room for productive investment.

China should focus on increasing productivity because it translates into economic and military power necessary to confront the United States. To force its national capital to improve the productivity of labor and greatly accelerate development,  China must be prepared to forcibly reduce capitalist profits. The simplest way to accomplish this is also the most advantageous to the working class in the long run: Reduce hours of labor.

The rule for management of a national capital is pretty simple: If you want stadiums and fast food joints, slash wages and create tax incentives. If you really want robot factories and incredibly higher productivity, cut hours of labor.