I would never have guessed that reading Marx’s Capital would help me understand China’s rise and its two corollaries: how it worked to maintain the profitability of the capitalist West, especially the American economy, and then its survival after the 2007-08 financial crisis
In the 1990s, when I got out of college and started work, Marxism was dead, and free-market capitalism and Western democracy were the only game in town, for every country and every culture, for all eternity. At least that was the zeitgeist. It was, after all, the end of history. Even China was going capitalist. The irony was that “the end of history” was originally a Marxist notion.
How times have changed! Intellectual fashions are a lot like the fashion in clothing. Marxism might have been as dead as bell-bottoms in the two decades after the end of the Cold War; now it’s back in style. Bookshops in Germany reported sales growth of books by and about Karl Marx were up by 300 per cent after the last global financial crisis. For a time, Capital was a bestseller on Amazon. I read somewhere that the Communist Manifesto is the second all-time bestseller, only after the Bible.
Of course, Marxism was never out of fashion in Western academia, and Japanese universities. I recently bought a book titled Marx’s Grundrisse and Hegel’s Logic, by a Japanese political scientist, Hiroshi Uchida, and read that throughout the Japanese economic bubble of the 1980s and after its collapse, the economics departments of the country’s universities, including the most prestigious ones, were populated by Marxists.
Perhaps I shouldn’t be surprised. Francis Lui Ting-ming, a former chair of the economics department at the Hong Kong University of Science and Technology, once recommended to me a book by a Japanese economist who tried to express Marx’s key ideas in Capital in linear algebra. I never got around to finding that book. But it could be an interesting read now that I have finished volume one of Capital. The falling rates of profit as Marx conceives the idea as the downfall of capitalism can indeed be expressed in simple secondary school algebra. Marx himself sets out the basic formulas in chapter 18. Here’s a simple algebraic demonstration on YouTube.
Now, it strikes me that the theory of capitalism’s collapse in Capital perfectly – and paradoxically – explains China’s rise and its two corollaries, that is, (1) how it helped maintain the profitability of the capitalist West, especially the American economy and (2) then its survival. I am not arguing anything original, of course, just an intellectual reading exercise to amuse myself. David Harvey, the great Marxist geographer and urban planning theorist, has long argued China in fact saved Western capitalism after the 2007-08 financial crisis.
And now Washington wants to declare war on communist China because it’s an existential threat! That’s ingratitude!
But how did China save America and the West? Simple! In Marxist terms, the Chinese enabled the West to outsource labour exploitation against their own peasants turned urban workers, thereby guaranteeing against falling profitability, at least until recently, while allowing Western democratic governments to maintain their domestic labour standards. Of course, there is a bit of history behind all that, one Western and one Eastern. Unfortunately, they are usually told separately. Marx’s theory in Capital allows us to merge the two histories into a single coherent narrative.
After the second world war, capitalism was reinvented. The West realised workers and their families were also consumers, and they needed above-subsistence wages and benefits to consume. The predicted class struggle ameliorated into a compromise between labour and capital, especially in Britain and western Europe. At least with post-war fast growth, it was possible for capitalists to share more of their wealth, and outright economic exploitation and political repression could be moderated via the social democratic form of government. But by the 1970s, high employment and the welfare state, that is, the social contract guaranteed by social democracy, were being undermined by the twin threats of stagflation – low growth and high inflation.
Capitalism is founded on profit, and profitability was being undermined. Marx’s prediction of the rates of falling profits was realised.
The very high level of private wealth that has been attained since the 1980s and 1990s in the wealthy countries … directly reflects the Marxian logic
However, cometh the hour cometh the man, and woman. First, there was the new doctrine of neoliberalism and Milton Friedman. Then came Margaret Thatcher, Ronald Reagan and their economic-political revolution. One killed the unions for labour once and for all; the other cut taxes to make sure capital kept most of its profits. If all that offended common sense and moral sensibility, neoliberal economics with its obtuse mathematics explained why it was all for the common good and made it look virtuous, if incomprehensible to ordinary mortals.
Interestingly, with statistics and charts, French economist Thomas Piketty shows how the high rate of growth in the developed economies between the late 1940s and late 1970s caused income generally to rise, thereby benefiting the working class and eliminating severe wealth inequality. Marx was all wrong, or at least that was how it looked during those decades. Since that time, general wages have stagnated. Now, that post-war period looks more like an anomaly. With the rise of the 1 per cent, Marx was perhaps right after all.
Piketty wrote: “The very high level of private wealth that has been attained since the nineteen-eighties and nineteen-nineties in the wealthy countries … directly reflects the Marxian logic.”
Meanwhile, during the 1990s, after launching domestic market reforms in the previous decade, China began opening up the economy. Over the next two decades, but especially accelerated after its World Trade Organization accession in 2001, the country became the factory of the world. Now if you have read Marx and Charles Dickens, you would know how those Chinese factories resembled those in Victorian Britain, with their ruthless exploitation, unhygienic and poor labour safety standards, and dangerous and even poisonous working environment. And sometimes, their products, especially with food and medical products, were also dangerous and poisonous. They could only come to an end with the economy moving up the value-added chain.
Lenin thought Western imperialism was essential to finding new markets and keeping up profits. But after decolonisation, the West discovered it was much easier, more peaceful and more profitable to outsource production and exploit foreign workers with the full blessings of foreign governments, especially if they were authoritarian and/or communist.
Outsourcing production to China was one way corporate America kept up profitability, while the new economy of the internet and other technologies would take care of domestic worker productivity, which was what Marx meant by squeezing more and more surplus value out of their labour. Meantime, the genius of American financial capitalism meant you could make money from money or rather credits without producing anything, onshore or off. All that came crashing down in 2007-08.
China came to the rescue of global capitalism again. For much of the past decade, it single-handedly kept up global demands and growth. But all that looks like ancient history now, forgotten, unacknowledged or suppressed in the West currently on a warpath.
