On Marx and markets: Deng Xiaoping’s economic revolution 40 years on

This article was first published by The Norwich Radical.

Overshadowed by the perennial pain of Brexit negotiations and fresh flurries of speculation over her leadership Theresa May’s trip to China earlier this month passed with little comment.

Democratic freedoms in Britain’s former colony Hong Kong were briefly discussed. A few business contracts were confirmed. And the shimmering outline of some future post-Brexit trade deal could at times be briefly discerned.

What was remarkable about the visit was scarely noted: that China, not Britain, was regarded as the senior partner, able to politely sidestep awkward human rights questions and indicate the terms of whatever trade agreement might be possible. Indeed no reference was made during the Prime Minister’s trip to the 40th anniversary of the event that made China’s rise possible: the initiation of the reform programme that has guided its transformation from an impoverished backwater struggling to emerge from the ashes of the Cultural Revolution to a great economic power.

In 1978 China’s economy was one twentieth the size of the US economy. Today, after 40 years growth at an average annual rate of 10% it has grown 50 times, lifting some 700 million people out of poverty. In 2018 China boasts tech giants such as Tencent, Alibaba, Huawei and Baidu able to stand with Google, Facebook, Apple and Amazon, and is taking the lead in pioneering renewable energy, robotics, additive manufacturing and Artificial Intelligence.

China’s phenomenal progress should be of urgent interest to Western nations still emerging from a decade-old financial crisis, riven by conflicts over precarity and accelerating inequalities. But drawing lessons from – or even simply acknowledging – China’s success continues to present political difficulties for the West, and not just because it has been achieved by an illiberal state that continues to resist democratic reform.

The left is wary that the undoubted importance of market liberalisation to China’s transformation allows the right to present it as a proof case for freewheeling globalisation. And the right has difficulty acknowledging the fundamental role the state plays in guiding the Chinese economy. The reality is that China’s transformation is a distinctively Chinese phenomenon, rooted in an economic framework whose essentials were worked out 40 years ago by Mao Zedong’s successor Deng Xiaoping, with little reference to Western economic orthodoxies.

Deng’s system might best be understood as the product of a theoretical dispute within the postwar communist movement. Mao’s China, like other 20th century communist regimes, had followed the Soviet economic template established by Stalin: a centrally planned economy developing within closed borders in pursuit of ‘socialism in one country’. Deng ripped up China’s planning blueprints and reassembled the country’s lumbering economic machinery into public and private sectors. Mao’s collective farms were broken into countless small plots managed by independent farmers. The state allowed a marketplace for consumer goods and services to let rip. And the economy was opened up to the global marketplace.

Deng is often remembered as an apolitical pragmatist, whose open-mindedness about market mechanisms was captured in his famous observation that ’It doesn’t matter whether a cat is black or white provided it catches mice.’ But for Deng the market was always just one item in the socialist toolbox, never an end in itself. The great reformer remained a committed socialist to the end, saying shortly before his death in 1997 that he would soon be going to ‘meet Marx in heaven’.

His economic writings – which with titles such as ‘In Everything We Do We Must Proceed from the Realities of the Primary Stage of Socialism’ anticipate the numbing phraseology of subsequent Chinese state proclamations – appeal directly to Marx to argue that the road to ‘full communism’ is necessarily long, requiring the use of market exchange as necessary. For Deng Stalinist planning denied Marx’s own counsel that market forces were essential for developing the material abundance necessary to allow a merely ‘socialist’ post-Revolutionary society to make the transition to ‘a Communist society … in which there is no exploitation of man by man’ – a blessed state of ‘red plenty’.

Marx’s pragmatism guided Deng’s fundamental economic principle of ‘Zhuada Fangxiao’ – ’keep the large, let go the small’ – according to which the state should open broad swathes of the economy to the play of market forces while retaining sufficiently strong economic and political levers to guide its development. The Chinese state has never hesitated to use those powers to seed and guide new sectors – including its formidable tech sector – and continues to direct the economy’s financial sector to ensure steady investment in infrastructure and industry.

Deng’s framework has served successive Chinese governments as an occasionally blunt but brutally effective instrument. Resources have often been squandered on lame duck industries or siphoned by corrupt officials. Rapid industrialisation was frequently achieved at terrible environmental cost. But the raw power of China’s economic machine has steamrollered through harsh global downturns, delivering the massive investment that has built world-leading industries, shining transport infrastructures and gleaming new cities. That strength was never more apparent than during the crisis years following the financial collapse when China’s relentless growth shored up the world economy.

To this day the Chinese Communist Party presents its economic system in terms defined by Deng, as a ‘socialist market economy’ transitioning to communist post-scarcity. The credibility of that position is a question for political philosophy. But the brute fact of Chinese continuing acceleration challenges long-held Western assumptions about the engines of economic development.

If taking lessons from Deng and his Marxist textbooks is hard for Western economists to stomach, China’s example might at least prompt them to look again at a now rather neglected principle advocated by one of their great predecessors, John Maynard Keynes, who insisted that interest rate manipulation and fiscal policy are insufficient to keep economies on track: the state must also develop mechanisms to maintain investment during downturns. Deng’s guiding star may have been Marx, but the economic framework he devised is in many respects classically Keynesian.

Some of the West’s more radical movements do now look, discretely, to China for inspiration. Bernie Sanders championed large-scale economic investment during his 2016 Presidential run, and Donald Trump promised an (as yet undelivered) Chinese-style infrastructure programme. In Britain Labour’s 2017 election manifesto was constructed around a promise of large-scale investment.

But as so often when it contemplates China, the West doesn’t quite know what to make of the patchwork economic system Deng Xiaoping worked out all those years ago in the company of a battered copy of Marx’s Critique of the Gotha Programme, a system devised by a politician whose reputation will always be sullied by his violent suppression of the Tiananmen Square uprisings.

But just as Deng committed to ‘seek truth from facts’ by embracing market forces against stale communist orthodoxies, so the West might find the pragmatism necessary to look again at the role the state can play in guiding the wealth and technology generated by the market for the common good.