Commentary on Political Economy

Friday 18 September 2020

 In light of Xi Jin Ping's recently enunciated priniple of "dual circulation" as a model for the Chinese economy of the future, here is a reprint of our post on 'The Dual State' which we published earlier this year. Please note that Prof. Pettis in his recent FT article reposted here this week adverts to the possibility that the Chinese Dictatorship may seek to balance the lack of internal demand by pushing external surpluses,  a desperate tactic that can only lead to explosive confrontation with the West that will hasten the demise of the Chinese Empire ! 


It is abundantly clear that the Chinese economy is not, strictly speaking, a capitalist economy, if for no other reason at least for the universally accepted fact that it is not a market economy but is better described as a command economy. The notion of “command” implies a level of administrative and bureaucratic co-ordination of the Chinese economy emanating from the highest echelons of the Chinese Dictatorship whereby the operation of the economy is subjected first and foremost to overriding or “prerogative” goals that, again, over-ride or take precedence over the investment and productive choices of other economies, such as those of the industrial capitalist West, that are run to a far greater degree according to the requirements of “market competition”.

But what are these over-riding or “prerogative” goals that make us characterise the Chinese economy not as a model capitalist market economy but rather as a capitalist command economy? We can list a few of these goals at least preliminarily here:

The first goal, surely, has to be that of internal political stability so as to ensure the legitimacy and continued support of the Dictatorship on the part of a strategically important section of Chinese society – and most specifically the membership, numbering up to 100 million people, of the Chinese Communist Party.
The second goal is the provision for the industrial-military complex with the People’s Liberation Army as its essential mainstay. The aim of this goal is to prepare the Chinese Dictatorship for readiness to wage war and ensure vital supplies to the Chinese Empire in case of war, both domestically and from other countries. It is clear that in normal times the expenses associated with the pursuit of this goal would not and could not be justified in terms of the enormous burden they pose to Chinese capitalist enterprise and to the rest of what remains an extremely poor, indigent population, except as the promise of future returns on investment from foreign direct or indirect empire – in other words, either through formal empire or by means of the extraction of economic value from other nation-states through the violent imposition of terms and conditions of trade advantageous to the profitability of Chinese capitalist industry. 

Whether or not the Chinese Dictatorship will be able to ensure the sufficient profitability of these industrial-military investments, the fact remains that, given its totalitarian autarkic (“command”) economy which is already subject to “prerogative” rather than “market” or normative productive and investment choices, the Dictatorship must be prepared to sacrifice resources to this goal at least temporarily until in a foreseeable future it is ready to unleash its military might to arrogate and appropriate for itself and its “capitalist” class of businesses and entrepreneurs resources that are at present not under its direct control for exploitation. In this sense, the expenses associated with the diversion of current social and productive resources toward the military-industrial complex of the People’s Liberation Army – which are known widely as “State-Owned Enterprises” – must be seen as “long-term investments” that will not yield a direct profitable return in the near term but rather in the medium term (say, ten to twenty years). Of course, a concomitant benefit of this investment “goal” is that the reinforcement of the Chinese Dictatorship’s industrial-military apparatus and Army allows it to maintain and strengthen the loyalty of a significant portion of the Chinese population and to assure the maintenance of social order through the direct and indirect threat posed by the PLA on the rest of the Chinese population.

Given the dictatorial totalitarian nature of the Chinese regime, it is entirely obvious that its economy cannot be allowed to run along lines characteristic of Western industrial capitalist societies. The paramount prerogative nature of Chinese industrial activity must therefore answer to the overriding aims of political stability of the regime (the first goal) and its preparedness to wage wars of conquest to appropriate and secure external resources once the exploitation of its own working population has reached the ultimate limits imposed, first, by the availability of labour force and other natural resources and, second, by the limits if realizing profits through foreign trade made possible by the exploitation of its domestic labour force. This second limit is posed by the inevitable resistance of other nation-states to the continuous under-pricing and dumping of goods in their markets to the detriment of their own national bourgeois elites and working classes. Another limit is posed by the realisation among Chinese elites themselves that such imperialist investments quickly become unproductive because the recipient countries are unable to repay them (e.g. Venezuela, $65 billion, Pakistan, $65 billion, Africa, $160 billion, and so forth) – and therefore they represent bad debts that result in a catastrophic loss of hard currency for the Chinese people (already very poor) and for the Dictatorship itself which is fast running out of hard currency in its desperate attempt to rescue the sinking renminbi!
Once the Chinese Dictatorship has reached this internal limit, which we call, following Paul Krugman, “the mobilization of resources”, and then the external limit, which we may call “mercatilist exhaustion” – once these two limits are reached, the only option left to the Chinese Dictatorship  to preserve these two goals is that of imperialistic expansion either through predatory direct investment or else through actual military occupation of foreign countries.

But before this final limit is reached, last but not least, the other over-riding or “prerogative” goal of the Chinese Dictatorship must be to maintain the competitivity of its existing industries in international capitalist markets. This goal is absolutely fundamental because it is essential for the Dictatorship to be able to accumulate the economic value or “surplus” in terms of its current and capital account to be able to earn “hard currency” – US dollars, Euro, Yen, gold – that will enable it to finance its military-industrial complex, especially any supplies, equipment, resources and military materiel that is not domestically available given the vast deficiencies and backwardness with respect to the West of Chinese technology especially in the military sphere.

The Prerogative and the Normative State, or The Dual State of the Chinese Dictatorship

We may hypothesize now, in accordance with our characterization of the overall policy goals of the Chinese Dictatorship, that the Chinese state and economy are administered in accordance with a “Dual State” divided into a “Prerogative State” that sets out the paramount or prerogative goals of the Dictatorship in terms of the eventual strategic and military domination over as much of the globe as it can in order to extract the surplus economic value needed to maintain and hopefully expand its rule and command over the Chinese Empire itself; and then, subordinate to this State, is a “Normative State” that runs and is allowed to function along market-capitalist lines. As the terminology implies, the Normative State is subordinate to the Prerogative State for the essential reason that the Normative State administers the part of the Chinese economy that deals with external global capitalist markets where it is bound to follow the legal normative rules of competition laid down by the capitalist West to regulate the capitalist world market. Because, as we have explained time and again, capitalist markets must operate with a minimum of democratic rule in that workers as “consumers”  are “free” to set the “price” of their labour-power and also have to play a role in the decision as to what goods are produced (guns or butter?) and how (polluting or clean industries?) – because of this essential “democratic” component of the world market, the Chinese Dictatorship has to run a State that is parallel yet subordinate to the Prerogative State and that is “Normative” because, to repeat, unlike the domestic autarkic totalitarian Prerogative State, it has to follow the rules of the external quasi-democratic capitalist world market!

Quite obviously, the two States will almost always run in opposition to each other for the simple reason that the “prerogative” strategic goals of the one will be opposed, sometimes be even contradictory, to the goals of the “normative” or legal State. The question then arises as to why the Chinese Dictatorship would allow such a Normative State to function in opposition to its totalitarian Prerogative State. The answer is simple. First of all, the Chinese Dictatorship knows and is bitterly determined for its own survival to ensure that the Prerogative State will always take precedence to the Normative to ensure the internal domestic stability of the regime and of the Chinese Empire. Secondly, and this is the important point, to the extent that the Chinese Dictatorship is still by far much less powerful and dominant than the capitalist West in all kinds of domains – from the economic to the financial to the technological and the military – the Dictatorship knows full well that it has no other option than to accept the “rules of the world market” set by Western powers.
Furthermore, thirdly, the Chinese Dictatorship knows full well that for its domestic economy to function efficiently so as to maintain internal stability and to enhance its military-industrial complex (the SOEs and the PLA), then this domestic economy has to subject itself to the international “bench-marks” of competitive capitalist productive standards set in the Western-dominated world market! This is a point of the utmost, cardinal importance that must be fully digested for a proper understanding of how the Chinese Dictatorship works. The Chinese Dictatorship is wisely unwilling to follow the catastrophic example of the Soviet Union and cut itself off from the capitalist world market because such isolation of the Chinese military-industrial complex would simply spell the rapid and cataclysmic decline of the Chinese war machine! Such isolation would sound the death-knell of the Chinese Dictatorship’s “China Dream” to dominate the entire world! Not only! But the Dictatorship knows that even from a purely financial standpoint, its “China Dream” of world domination necessitates the constant accumulation of “hard currency” (again, US dollars, euros, yen and gold) to enable it to acquire the raw materials and technologies and military materiel needed to fuel and sustain the growth of its military-industrial complex (SOEs run by the PLA).

Thus, it becomes quite clear now why the Chinese Dictatorship needs its totalitarian state apparatus to run and function along dual or binary lines – the Prerogative and the Normative. It is because excessive concentration on the autarkic totalitarian Prerogative State would condemn it to economic isolation and inevitable rapid decline, whilst excessive emphasis on the Normative State (trade, opening of capital markets) would render it entirely dependent on the Western capitalist world market and, consequently, induce the liberalisation of its internal markets which, in turn, especially for what regards the labour market and worker participation in wage determination and consumer choice, would force it to expand democratic parliamentary representation, in clear contradiction with the world-domineering ultimate goals of the Chinese Dictatorship and eventual abandonment of the autarkic totalitarian model altogether! As many have put it, the dilemma of the Chinese Dictatorship is “Save the Communist Party and lose the country (Empire) or save the country (the Chinese Empire) and lose the Communist Party”!

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