In 1949, abysmally low standards of public sanitation and health care and the
prevalence of epidemic diseases from snail-infested canals and
mosquito-infested water called for a massive collective investment effort
towards cleaning up the environment and initiating a health care system to
provide service to those who needed it regardless of their purchasing power.
Since 1979, public social infrastructure in education, health and pension has
been
allowed by policy to regress towards pre-1949 levels.
Latent economic surplus trapped by unemployment and underemployment
Marx observed that the internal contradiction of capitalism is not the
competition it fosters or its indifference to inequality. Rather, it is the
structural problem of surplus labor which, under the labor theory of value,
translates into surplus value. To Marx, capitalism is a self-terminating system
because it structurally deprives the worker of a significant portion of the
value of his work. Capitalism is built on the concept that value is a function
of marginal utility which justifies the exploitation of many by a few.
For Marxists, it follows that latent surplus value can be mobilized for the
purpose of capital formation by the reduction of unemployment and
underemployment of labor. In China, this is particularly true for rural labor.
Neoclassical economics, based on the concept of scarcity, invented the concept
of surplus labor, deriving from the concept of surplus people as those who are
economically unnecessary. Market fundamentalism creates in market economies the
phenomenon of labor with zero marginal utility. This views flies in the face of
reality that nations with large populations are economic powerhouses if full
employment is ensured by policy. (See
Scarcity economics and overcapacity Asia Times Online, July 28, 2005. )
The fallacy comes from treating labor as a commodity to be traded in the
market, a residual mentality of the slave society. Economics exists for the
benefit of people. People exist as a matter of nature, not for making any
economic system more efficient. The very idea of surplus people in an economy
is obscene.
Market operations cannot deal effectively with the employment problem as long
as employment is restricted to boosting narrow economic efficiency through a
market mechanism. Full employment must be a goal in all economic systems, not
structural unemployment, as in the concept of non-accelerating inflation rate
of unemployment (NAIRU), defined as the rate of unemployment at which i) there
is neither upward pressure on inflation (from producers taking advantage of the
market power given them by bottlenecks, and from workers using the market power
provided by a tight labor market to try to realize wage growth aspirations
higher than the rate of productivity growth); nor ii) downward pressure on
inflation (from customers taking advantage of the market power given them by
excess capacity, and from firms using the market power provided by high
unemployment to try to decrease the rate of wage growth).
Market capitalism thus falls short because it must use unemployment as a device
to restrain inflation. Excess capital formation derived from unemployment and
underemployment leads structurally to overcapacity due to demand rising at a
slower rate than productivity from overinvestment.
Capital formation can also be achieved with a system of voluntary deferred
wages, wherein every worker agrees to work longer hours without corresponding
increases in pay in order to accumulate capital with which to increase
productivity, so that less labor can command higher wages in the future.
However, such a system will only work if the capital so accumulated is
collectively owned and the benefits of additional productivity are equitably
shared among workers who made the temporary sacrifice. Thus mobilizing
voluntary economic surplus towards capital formation can only take place in a
socialist system. Under a capitalist system of private ownership of the means
of production, only oppression of workers can produce capital formation.
In China in the 1950s, cooperatives with 300 households and people's communes
with 3,500 households played a key role in voluntary mobilization of economic
surplus toward productive capital formation to increase productivity.
During the crucial period of the transition to advanced cooperatives, an
awareness of the potential of cooperatives to mobilize surplus labor was
recorded in Mao's writings.
In 1954, Mao wrote: "Under present conditions of production, there is already a
surplus of roughly one-third of labor power. What required three people in the
past can be done by two after cooperative transformation, an indication of the
superiority of socialism. Where can an outlet be found for this surplus labor
power of one-third or more? For the most part, still in the countryside. ...
The masses have unlimited creative power. They can organize themselves to take
on all spheres and branches of work where they can give full play to their
energy, tackle production more intensively and extensively, and initiate more
and more undertaking for their own well being." (Mao Zedong, Selected Works,
Beijing, Foreign Languages Press, 1978, p269.)
Local adaptations and variations were to take place within a broad national
policy of promoting undertakings in the following sectors: physical capital
formation via land reclamation, hill terracing, reforestation and irrigation;
infrastructure (roads, bridges and buildings); hydroelectric energy; rural
businesses and industries; and human capital formation (public sanitation,
health clinics and schools).
The possibilities were certainly nearly limitless at this time, given the
existing abysmally low levels of material, educational and health development
in the countryside. On land reclamation and reforestation, Mao Zedong stressed
the need for "state organized land reclamation by settlers, the plan being to
bring 400 to 500 m. mu [3 million hectares] of wasteland under cultivation in
the course of three five-year plans".
He went on to say: "I think the barren mountains in the north in particular
should be afforested, and they undoubtedly can be. Do you comrades from the
north have courage enough for this? Many places in the south need reforestation
too. It will be fine if in a number of years we can see various places in the
south and north clothed with greenery."
Mao Zedong confidently expected, even within the advanced cooperatives and
before full collectivization, that the annual labor days employed per worker
would rise substantially and that female participation rates would also rise as
more rural undertakings were established, existing labor surplus thereby
mobilized and increasing supply elicited:
"Before the cooperative transformation of agriculture, surplus labor-power was
a problem in many parts of the country. Since then, many cooperatives have felt
the pinch of a labor shortage and need to mobilize the masses of the women, who
did not work in the fields before, to take their place on the labor front ...
For many places, the labor shortage becomes evident as production grows in
scale, the number of undertakings increases, the efforts to remake nature
become more extensive and intensive, and the work is done more thoroughly."
Further, he goes on to say: "Things in this country also show us that an outlet
can be found in the villages for rural labor power. As management improves and
the scope of production expands, every able-bodied man and woman can put in
more work-days in the year. Instead of over 100 workdays for a man and a few
score for a woman as described in this article, the former can put in well over
200 workdays and the latter well over 100 or more."
The timing of the shift to the large-scale communes was not a happy one; it
coincided with a run of very poor harvests, complicated by floods in some parts
of the country and attacks of pests in others. There was a very substantial
downward deviation of output from the trend during 1959 to 1963, and this has
complicated the evaluation of the shift ever since.
There is a severe problem of causal identification here: it is arguable that
even without the institutional change to communes, output would have fallen
anyway, for agricultural output is subject to cyclical patterns of movement.
Many Western scholars who are disposed to criticize the idea of large-scale
collective production have, however, tended incorrectly to place the main
burden of the output decline on the shift to the communes. What is probably
true is first, that the decline which would have taken place anyway, was
exacerbated by the initial severe management problems entailed in the shift.
The geopolitics of the Sino-Soviet split was a key factor. In 1960, the Soviet
Government unilaterally broke up 600 aid contracts with China, and notified the
Chinese government that it would withdrew all its 1,390 experts and stop
sending the agreed upon 900 new experts. The Soviet experts left with all their
blueprints, plans and materials. The Soviet government also stopped delivering
urgently needed equipment and parts to China. As result, the construction and
operation of over 250 large industrial enterprises had to be suspended. This
put a halt to heavy industrial development and greatly exacerbated China's
economic difficulties in the following decade.
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