US underestimates China’s economic challenge at its peril

Now is not the time for rose-tinted glasses.

By Richard D. Wolff

The economy of the People’s Republic of China has been growing much faster than that of the United States for decades. The same goes for China’s average real wage. China is now the world’s second superpower, catching up with the United States economically if not (again) militarily. Its political influence grows alongside its GDP. While once the main US scapegoat was the USSR / Russia, China has replaced the latter in this position. The global tourism industry is courting the big Chinese spenders.

China’s technical progress continues to amaze and impress most of the world.

The basic story here largely reproduces the history of the United States and the British Empire. The United States was once a mere colony, humiliated and economically abused by its colonizer. China suffered similarly at the hands of its colonizing aggressors, although it was able to avoid official colonial status, with the exception of some enclaves. The resentment and bitterness accumulated in the revolutionary American break from its colonial status at the end of the 18th century. The same thing happened in China in the middle of the 20th century. In the War of 1812, the new United States proved that the British Empire could not defeat the American Revolution. During the Korean War, the new People’s Republic of China proved that the American Empire cannot undo the Chinese revolution.

Independence sparked rapid economic growth in the United States, which caught up and economically overtaken its colonizer throughout the 19th century. World War I marked the reversal of roles between the United States and the United Kingdom. On many levels, political and cultural as well as economic, the dominant and the dominated have shifted. During the 20th century, the United States moved (and itself replaced) the British and European empires to become world hegemony. After stumbling badly in the Great Depression, he responded with the explosion of New Deal social democracy. On this basis, the United States is committed to making the rest of the world copy what it calls a “popular” or “social” capitalism which represents the embodiment of human development. At the turn of the 21st century, critics called British Prime Minister Tony Blair “America’s Poodle” for his slavish subordination to the regime of George W. Bush in the United States.

The Chinese Revolution of 1949 also sparked an astonishing economic recovery after the successive plagues of the Japanese invasion, World War II, and the Civil War. The economic recovery allowed a political maturation which transformed the Chinese Communist Party and the People’s Republic of China from followers of the Soviet Party and the USSR into equals with their own program, their values ​​and their interpretation of Marxism. Culturally, China has gained remarkable self-confidence as a waking giant reclaiming its hegemonic position in Asia and beyond around the world. Changing global conditions and some exhaustion in the resumption phase of its development led China to change course with the passing of Mao Zedong. He shaped a new Chinese economy and labeled it socialism with Chinese characteristics.

Not only has this economy achieved the unprecedented feats of growth mentioned above, it has also done so without most of the foreign aid given to many other developing countries. The active enmity of the United States has imposed this deprivation on China. It has thus made self-sufficiency a crucial basis for China’s development. For the past half-century, China has been a model of how a determined developing country can mobilize its surplus for development. Chinese workers produced a surplus that was used primarily to build and develop the Chinese economy through huge investments in infrastructure, industrial capacity, productivity growth, education, and research and development. This deliberate investment program continued even after China’s opening up (1) to foreign private capitalist investment, (2) to the development and growth of Chinese private capitalist enterprises, and (3) to partnerships between them. The Chinese Communist Party and the Chinese state apparatus controlled and maneuvered the resulting acceleration of surplus production to direct investment towards growth targets set by the party and the state. China’s surplus was also used, secondly, to reproduce the complex class structures of private and state-owned enterprises and foreign and domestic private capitalists, and finally to undertake market regulation and government economic planning. .

Today, China’s challenge to the United States and even to the capitalist world economy is a model that deviates sharply from the private laissez-faire model of capitalism that has prevailed in world capitalism to this day. In the latter model, the government intervenes (à la Keynes) only when crises strike and threaten private capitalism. And then the government’s economic interventions are limited in scope and scope and are temporary over time. Minimal government regulation and minimal direct production of goods and services by the government are the key rules.

In contrast, in China, the Communist Party and the state intervene much more in economic affairs by regulating more private companies (foreign and domestic) and also by ensuring that the state owns and operates businesses. This results in overall control of economic development for the party and the state. This control, in its scope and duration, far exceeds the role of governments in Western Europe, North America and Japan. Having the party and the state as collaborative entities pushing determined policies allows the regular mobilization of most private and public resources to achieve agreed goals. The main objective has been economic development to escape the endemic poverty of South Asia. The mobilization to stop the spread of COVID-19 via lockdowns in Wuhan and elsewhere was another example. The same has been true of achieving technical parity and sometimes superiority with the United States in many areas.

Keynesian economics experienced a meteoric rise in the discipline of economics when it allowed government policies to clearly aid the survival and recovery of capitalism after the Great Depression of the 1930s. Neoclassical economics was able to once again dominate. within the profession in the 1970s when it allowed government policies (neoliberalism) to clearly help roll back the Keynesian regulations and constraints of private capitalists (like the New Deal and Social Democracy). China’s remarkable economic growth over the past 30 to 40 years will likely provoke and be further fostered by corresponding developments in economic discipline. These will involve the rediscovery, adoption and strengthening of economic interventions by governments as a means of achieving socially priority objectives.

As denials of what China continues to accomplish economically lose their rhetorical power, attention will likely turn increasingly to the Chinese model, to explore whether and how Western European capitalisms, d North America and Japan can learn from China and coexist with it. Demonizations and threats (a new cold war) directed at real and false political and cultural issues in China will also likely fade away in favor of mutual compromise with China. The Chinese leadership has made it clear that they have accommodated and will continue to accommodate the trade and investment of private capitalists alongside and interacting with state-owned and managed companies. It was a driving force behind their remarkable development, and they see no reason to change that approach.

Rather, it is parts of the United States that see a military confrontation with China as necessary and rationally possible now. If that happens, the Chinese will see it for what the United States has actually opposed, which is the retention of power by the Chinese Communist Party and the social structure over which it and the Chinese state preside. Chinese leaders have said they will fight this totally.

China has more than four times the population of the United States. The total output of its economy could well exceed that of the United States in a few years. Its global political influence is growing rapidly. Increasingly, U.S. allies need to rethink their foreign relations in light of Chinese influence. Meanwhile, America’s economic woes (such as cycles of instability, wealth and income inequalities, political divisions, and explosive debt build-up) are escalating. The ability of the United States to change China, away from the path and structures that have brought it so far and so quickly, has proven to be less than impressive to virtually anyone who cares.

Speeding up demonizations of China seems a poor response and possibly counterproductive. Yes, it reproduces the demonization of the USSR which served effectively to cover the retreat of the New Deal. But for the United States, rolling back another country’s progressive period is an entirely different project from doing it domestically. Moreover, the conditions (economic, political and cultural) of the world today differ considerably from those after 1945. Yet Biden’s repetition of Cold War policies after 1945 is much closer to this original than its economic policies are not those of Franklin Delano Roosevelt. And that will turn out to be the exact opposite of what the current crisis needs.

This article was produced by The economy for all, a project of the Independent Media Institute.

Richard D. Wolff is Emeritus Professor of Economics at the University of Massachusetts, Amherst, and Visiting Professor in the Graduate Program in International Affairs at New School University, New York. Wolff’s weekly show “Economic Update” is syndicated by over 100 radio stations and distributed to 55 million television receivers via Free Speech TV. His three recent books with Democracy at Work are Sickness is the system: when capitalism fails to save us from pandemics or from itself, Understanding Marxism, and Understanding socialism.

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