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In Defense of Chinese Market Socialism: A Response to the Economist’ Article

On September 3, 2011, the Economist published an article which criticizes the role of the Chinese state in China’s privatization.  In essence, the article asserts that shareholdings by the Chinese government and its influence on corporate decision-making stymies the efficiency of private enterprises and has encouraged corruption among state officials. The Economist thus implicitly urges the Chinese state to refrain from exerting its influence on private enterprises, i.e. colossally privatize state enterprises. I may find this conclusion problematic for various reasons.
   
Whether David Harvey, who in his work, A Brief History of Neo-Liberalism, labelled the economic system of China as “neo-liberalism with Chinese characteristics” or other scholars who claimed that the Chinese economic system is market socialism, it is of absolute certainty that the Chinese state has retained a particular role in private enterprises.
   
Since the Chinese economic reform in the late 1970s, Deng Xiaoping’s rationale for his economic reform policy was, according to Judith F. Kornberg and John R. Faust, to “win back the Party’s credibility from the people following the Cultural Revolution.” Deng also believed that the higher living standard of the people would sustain the Chinese Communist Party’s (CCP) rule over China.1   Therefore, on the one hand, the CCP must influence private enterprises in order to survive; on the other, the CCP is also accountable to their people in terms of living standards.
   
Looking back at the historical context of China, the pain of being encroached on by foreigners is agonizingly embedded in the Chinese people’s psyche, as evidenced in the May 4, 1919 protest following the Treaty of Versailles, by which the European Powers agreed to offer Chinese land which Germany occupied prior the First World War to Japan, or the Chinese foreign policies which would never countenance any domestic interference. Hence, Deng once commented on his “Open Door” economic reform policy: “When you open the window, there must always be some flies in.” It could be concluded here that the Chinese state’s influence in private enterprises is to inhibiting those “flies” from molesting the Chinese.
   
Ordinarily, rational capitalists tend to maximize their profits regardless of the welfare of the majority. Joseph Stiglitz, the 2001 Nobel Prize laureate in economics, jeered privatization as “briberization” in his widely renowned work, Globalization and its Discontents. The reason why he dubbed privatization as briberization is very telling, though, economically unsystematic. According to Stiglitz, he scrutinized the market fundamentalists’ hypothesis: “The rhetoric of market fundamentalism asserts that privatization will reduce… the ‘rent-seeking’ activity of government officials…” Nonetheless, Stiglitz went on, “privatization has made matters so much worse that in many countries today privatization is jokingly referred to as ‘briberization.’” Stiglitz also commented “if a government is corrupt, there is little evidence that privatization will solve the problem.”2  From Stiglitz’s words, whether there is privatization or not, corruption would still ensue.
   
Stiglitz also described the case of the Ivory Coast where the state massively privatized the telephone company, shifting the authority into private control. With no competitive environment, the new owners of the private telephone company “raised prices so high that, for instance, university students reportedly could not afford internet connections.” Another case bemoaned by Stiglitz is that of Morocco’s village chickens. Non-governmental organizations stimulated village enterprises in Morocco’s rural villages. The women were given seven-day-old chicks from a government enterprise. Nevertheless, following the doctrine of wholesale privatization with no stain of government, the government no longer distributed the chicks to the villagers. Normally, the death rate of the chicks in the first two weeks is high, in contrast to the state accountability to the people; the private firms repudiate any measure to guarantee for the chicks’ death. Eventually, the village enterprises pushed by the NGOs pathetically collapsed.3 
   
In comparison to China, whose population exceeds one billion, the state’s great influence in China Mobile and China Unicom could halt decisions by private shareholders merely to maximize profits. With a large population, if the state was to withdraw from the business, the private shareholders could arbitrarily raise prices due to high demand. Furthermore, the income gap between urban and the rural Chinese is still high, the net income per capita of the former standing at 17,175 Yuan, while that of the latter at 5,153 Yuan.  With massive privatization, those with low purchasing power would starve to death. As a result, since the Chinese state was to bestow prosperity towards the minority, foreign investors included, it would be a tragedy for the Chinese government to break the social contract with its own citizens. The state would no longer functions as the saviour of its citizens, but rather jeopardize them. The legitimacy of the CCP is thus eroded.
   
Privatization is non-nefarious in nature. However, massive privatizion risks the possibility of harming instead of benefiting. Milton Friedman, the economist of the Chicago School, was once asked whether fairness or freedom prevails. Friedman replied: “I am not in favour of fairness. I am in favour of freedom, and freedom is not fairness. Fairness means somebody has to decide what is fair.” Friedman clearly proposed that governments live in accordance to its ability, in regardless of a repressive and exploitative environment. The opportunities are even narrower when multinational corporations employ sweatshop workers in developing countries. This may cast some doubt whether the exploited workers are given any chance to live humanely and compete. You should pray that the Chinese government prioritizes rudimentary fairness to bridge the disparate gap.

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1. Judith F. Kornberg and John R. Faust, China in World Politics: Policies, Processes, Prospects, (Canada: UBCPress, 2005), p.34

2. Joseph E. Stiglitz, Globalization and its Discontents (New York: W.W.Norton & Company, 2003), p.58
 
3.  Ibid., p.54-6

4.  Chinadaily, “Urban-rural Income Gap Widest Since Reform”, http://www.chinadaily.com.cn/china/2010-03/02/content_9521611.htm, Accessed 6 September 2011

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