Posts Tagged ‘capitalist’

The Separation of the ‘Economic’ and the ‘Political’ under Capitalism: ‘Capital-centric Marxism’ and the Capitalist State

‘The Iron Rolling Mill’ by Adolf Menzel

One of the central claims of Capital-centric Marxism is that capitalism is the first mode of production in human history whose social property relations are reproduced through market competition. Capitalism’s unique laws of motion/rules of reproduction—the law of value which compels producers to economize labor-time through productive specialization, labor-saving technical innovation and the accumulation of surplus-value—operates through the mechanism of price competition. Put simply, capitalism is reproduced through the “dull compulsion of the market place” rather than through varied forms of extra-economic coercion.

The capitalist state, from this perspective, is distinguished from all previous forms of political domination by its relative separation from the capitalist economy. The capitalist state constitutes what Heidi Gerstenberger has called a public sphere of “impersonal power;” while exploitation is privatized in individual units of production. In the words of Ellen Meiksins Wood in her seminal essay “The Separation of the ‘Economic’ and the ‘Political’ in Capitalism”:

To speak of the differentiation of the economic sphere…is not, of course, to suggest that the political dimension is somehow extraneous to capitalist relations of production. The political sphere in capitalism has a special character because the coercive power supporting capitalist exploitation is not wielded directly by the appropriator and is not based on the producer’s political or juridical subordination to an appropriating master. But a coercive power and a structure of domination remain essential… Absolute private property, the contractual relation that binds producer to appropriator, the process of commodity exchange—all these require legal forms, the coercive apparatus, the policing functions of the state.2

While the capitalist state provides the ‘general conditions of accumulation,’ it does not direct the distribution of labor-power and means of production within and between branches of production. Instead, it is the law of value operating through real market competition that insures the reproduction of this mode of production. The unique dynamism of capitalism—the constant development of the productive forces—and its crisis tendencies—falling profits as a result of the increasing mechanization of production—operate independently of the desires and goals of either individual capitalists or its “Executive Committee,” the capitalist state. Again, as Wood argued:

… the social functions of production and distribution, surplus extraction and appropriation, and the allocation of social labor are, so to speak, privatized and they are achieved by non-authoritative, non-political means. In other words, the social allocation of resources and labor does not, on the whole, take place by means of political direction, communal deliberation, heredity duty, custom, or religious obligation, but rather through the mechanisms of commodity exchange.3

Many critics of “Political Marxism” have labelled this approach a “Hayekian Marxism” that limits the “general conditions of production” to the provisions of certain infrastructure that individual capitalists cannot produce profitably. This perspective, it is argued, cannot account for the key features of the concrete history of capitalism. Specifically, Capital-centric Marxism cannot explain the role of the capitalist state in creating capitalist social property relations, the persistence of legally coerced labor under capitalism; or the growth of capitalist state economic intervention in the twentieth and twenty-first centuries. In this essay, we will attempt to sketch the barest outline of a Capital-centric account of the roots and limits of capitalist state policies that attempt to shape social relations and the course of accumulation. In this task, I draw not only on Marx’s Capital—the most important of Marx’s mature, scientific works—but on a variety of works in or close to the tradition of “Political Marxism.”

Michael Zmolek’s excellent new book, Rethinking the Industrial Revolution4, directly addresses, from an explicitly Capital-centric perspective, the role of the capitalist state in the creation and consolidation of capitalist social property relations in England. Brenner, Wood and others have been quite insistent that the operation of capitalist rules of reproduction—specialization, innovation and accumulation—cannot explain the origins of capitalist social property relations. Put simply, the process of ‘primitive accumulation’—the establishment of capitalist social relations of production—is not the result of the spread of markets or the development of the productive forces. Instead, it is the unintended consequences of attempts of pre-capitalist classes to reproduce themselves in periods of crisis that produce capitalism. In this process, the state plays a crucial role. Zmolek’s discussions of enclosures and the expropriation and sale of monastery lands in Tudor England give new historical depth and sophistication to Marx’s discussions in the section on “primitive accumulation” in Capital.

Zmolek’s discussion of the role of the post-1688 British capitalist state in the creation of an industrial working class is especially important. Marx was quite clear that the ‘dull compulsion’ of the market was not sufficient to discipline propertyless wage workers when capital had not yet conquered the labor-process. As long as capital’s subsumption of labor was formal and the actual labor-process was in the hands of skilled artisanal wage earners—legal-juridical forces was necessary to ensure the sale of labor-power and capital’s ability to command production. The majority of workers can be “dually free”—free from possession of objects and instruments of production; and free of non-market legal-juridical compulsion to labor—only when capital has achieved real subsumption of labor. Only when capitalists both face a mass of workers without non-market access to the means of production and are able to constantly reproduce a reserve army of labor through the mechanization of production, can capital effectively secure an adequate and reliable supply of labor power without legal and juridical restrictions on workers. Zmolek’s discussion of the central role of the British capitalist state in destroying artisanal wage workers’ resistance to the real subsumption of labor to capital again concretizes these insights.

Legally coerced wage labor also persists in capitalist agriculture, where the disjuncture between production and labor time5 makes non-market coercion necessary to secure adequate supplies of labor power during crucial periods like planting and harvesting. Legally coerced wage labor is also found in situations where capital has command of industrial labor-processes, but where workers are only partially separated from landed property. For example, in apartheid South Africa, workers were not “free” to enter or leave labor contracts at will.6 The specific forms of capitalist social property relations that emerged in the South African countryside and urban centers after the 1913 Natives’ Land Act—the partial separation of the African population from the means of production—necessitated this legal coercion. Africans were able to partially reproduce their labor-power outside of the wage-relation either in the “Reserve Areas” or on plots of land provided by capitalist farmers. This “partial proletarianization” required the “pass laws” that legally restricted geographic mobility of labor-power in order to ensure steady supplies of ‘cheap’ African labor power to capital.

Today, millions of non-market coerced wage workers—often mislabeled ‘slaves’—are compelled to sell their labor-power often for less than the cost of their reproduction, and are prevented from leaving employers to seek better wages and conditions. As David McNally and Susan Ferguson7 have argued, most of these workers are migratory workers who do not enjoy the legal rights/freedom of citizens. The extra-economic coercion they face is crucial to supplying inexpensive labor-power to labor-intensive sectors—sex-work, domestic servants, landscape workers, hotel cleaners, janitors, home construction, garment production, and certain branches of agriculture. Real capitalist accumulation and competition compels capitalists in labor-intensive industries to pay low wages—wages often below the costs of reproduction—in order to earn the average rate of profit.8 Legal coercion in the form of the denial of civil and political rights is often required to provide such “cheap” labor-power.

The reality of capitalist competition through the “artillery of fixed capital” also explain the role of the capitalist state historically in attempting to protect “infant” capitalist industries. Anwar Shaikh, in his seminal essay “Foreign Trade and the Law of Value,”9 has argued out those capitalist classes that entered the world market after the consolidation of industrial capitalism in Britain were faced with a dilemma. Whether in Germany, Italy, Japan or the US in the nineteenth century, or in the global South in the twenty and twenty-first centuries, “late industrializers” found they were unable to compete directly with the older, more capital-intensive producers. “Free trade” meant remaining exporters of agricultural goods, raw materials and low-end, labor-intensive manufactured goods. Only those ruling classes that succeeded in establishing protective tariffs and selective state subsidies for capital-intensive export industries succeeded in carving out a place for themselves in the capitalist world economy. As Vivek Chibber points out in Locked in Place: State-Building and Late Industrialization in India10, protective tariffs as part of “import substitution industrialization” programs were insufficient, allowing inefficient manufacturing in many parts of the global south to survive for decades. However, “export led industrialization” programs had a very different impact. When capitalist classes were ready and willing to compete globally, usually in social formations where the capitalist transformation of agriculture had created a competitive home market, forms of capitalist state intervention and protection were necessary preconditions for successful industrialization.

Finally, Joaquim Hirsch’s essay “The State Apparatus and Social Reproduction: Elements of a Theory of the Capitalist State”11 provides important insights into the roots and limits of capitalist state intervention in the advanced capitalist countries in the twentieth and twenty-first centuries. The state-derivation school, of which Hirsch was a prominent figure, shared with “Political Marxism” the goal of providing a Marxist analysis of the form of the capitalist state—of a “public power” separate from the private sphere of exploitation and accumulation. Like Wood, Hirsch rooted the separation of the political and economic in the specific social property relations and rules of reproduction of capitalism. The “state derivation” school also sought to counter various neo-Keynesian and neo-reformist arguments that capitalist state fiscal and monetary policy, combined with forms of ‘indicative planning’ and limited nationalizations, had finally created a crisis-free form of ‘managed’ or ‘state monopoly capital.’ Put another way, Hirsch’s arguments point to how the separation of the political and economic that characterizes capitalism essentially limits the capacity of capitalist state personnel to alter the rules of reproduction of capitalism through the construction of institutional frameworks—the Regulationists’ “regimes of accumulation”—to regulate the economy. Instead, it is the dynamics of accumulation, competition and profitability that place strict limits on the actions of capitalist state personnel, as we have seen time and again in the past forty years beginning with the Mitterand regime in France in the early 1980s through, most recently, the capitulation of Syrizia in Greece to the austerity agenda of the European Union.

Starting from an account of the separation of the political and economic that is essentially the same as that of Capital-centric Marxists, Hirsch concludes: 

… that the bourgeois state, by reason of its essential character [its formal separation from the economy—CP], cannot act as regulator of the social process of development, but must be understood in the determination of its concrete functions as a reaction to the fundamentally crisis-ridden course of the economic and social process of reproduction. The developing state interventionism represents a form in which the contradictions of capital can temporarily move; but the movement of capital remains historically determining… These can be condensed in terms of value theory in the law of the tendency of the rate of profit to fall, which also means that this law must be the conceptual point of departure for an analysis of state functions, to be developed out of the concrete course of capital accumulation and class conflict.12

Put simply, other than the extension of political rights to workers and the expansion of the welfare state which were temporary concessions to working class struggle that never undermined labor-market discipline, the logic of capitalist state economic policy is driven by attempts to mobilize the counter-tendencies to the falling rate of profit.13Whether the use of fiscal and monetary policy to stimulate demand, manipulate interest rates or provide tax subsidies to various capitals; incomes policies and restrictions on trade union rights; or the mechanisms of indicative planning and nationalization (usually of less productive capitals), capitalist state economic policies aim facilitate increasing the rate of surplus-value and destroying redundant capitals—without the collapse of accumulation that comes with crises.

The abandonment of Keynesian policies in the late 1970s and early 1980s reflected the limits of capitalist state policy and the necessity of periodic capitalist crises.14 Despite the massive expansion of ‘state intervention,’ capitalist state policies operated at a distance from accumulation and could not prevent a new crisis of profitability. The shift to neo-liberalism facilitated the revival of profitability and accumulation between 1982 and 2007 because it was effective in facilitating the increased exploitation of labor and the destruction of inefficient firms. However, neo-liberalism—like all other capitalist state policies—could not prevent a renewed crisis of profitability beginning in 2008. These crises are rooted in the operation capitalism’s most fundamental laws of motion/rules of reproduction—the operation of the law of value through specialization, innovation and accumulation under the whip of market competition—which are beyond the ability of capitalist state managers to effectively regulate.

Ultimately, the Capital-centric understanding of the place of the capitalist state in the ensemble of capitalist social property relations points to the need to radically disrupt the separation of the political and economic in order to transcend capitalism. Because capitalist state policies are ultimately limited by independent dynamics of profitability, the capitalist state institutions cannot be utilized in some instrumental fashion to abolish capitalism in some piece-meal manner, as strategies of “non-reformist reforms” argue. Instead, working people will have to confront the capitalist state and build their own organs of political and social power—which will abolish the separation of the political and economic—in order to build a new, democratic socialist order.


1 “The Bourgeois State Form Revisted,” in W. Bonefeld, et al. (eds.) Open Marxism, Volume I: Dialectics and History (London: Pluto Press, 1992); Impersonal Power: History and Theory of the Bourgeois State, (Chicago: Haymarket Books, 2009)

2 “The Separation of the ‘Economic’ and the ‘Political’ in Capitalism,” in Democracy Against Capitalism: Renewing Historical Materialism (New York: Cambridge University Press, 1995), pp. 29-30.

4Rethinking the Industrial Revolution: Five Centuries of Transition from Agrarian to Industrial Capitalism in England (Chicago: Haymarket Books, 2014).

5 Susan Archer Mann, Agrarian Capitalism in Theory and Practice (Chapel Hill, NC: University of North Carolina Press, 1990), Chapter Two.

6 This argument is detailed in Martin J. Murray and Charles Post, “The ‘Agrarian Question,’ Class Struggle and the Capitalist State in South Africa and the United States,” Insurgent Sociologist, Volume 11, Number 3 (Winter 1984).

7 “Precarious Migrants: Gender, Race and the Social Reproduction of a Global Working Class,” in L. Panitch and G. Albo (eds.), Socialist Register 2015: Transforming Classes (New York: Monthly Review Press, 2014).

8 Howard Botwinick, Persistent Inequalities: Wage Disparities under Capitalist Competition (Princeton, NJ: Princeton University Press, 1993.

10 (Princeton, NJ: Princeton University Press, 2003). See also “Development from Below,” Jacobin 19 (2015) []

11 In J. Holloway and S. Picciotto (eds.), State and Capital: A Marxist Debate (Austin, TX: University of Texas Press, 1978)

13 For a similar argument see G. McCormack and T. Workman, The Servant State: Overseeing Capital Accumulation in Canada (Blackwood, NS: Fernwood Press, 2015)

14 See David McNally, Global Slump: The Economics and Politics of Crisis and Resistance (Oakland, CA, PM Press, 2011) and Anwar Shaikh, “The First Great Depression of the 21st Century” in L. Panitch, G. Albo and V. Chibber (eds.), Socialist Register 2011: The Crisis This Time (New York: Monthly Review Press, 2010).



Capitalist Systems and Income Inequality

Similar levels of income inequality may coexist with completely different distributions of capital and labor incomes. This column introduces a new measure of compositional inequality, allowing the authors to distinguish between different capitalist societies. The analysis suggests that Latin America and India are rigid ‘class-based’ societies, whereas in most of Western European and North American economies (as well as in Japan and China), the split between capitalists and workers is less sharp and inequality is moderate or low. Nordic countries are ‘class-based’ yet fairly equal. Taiwan and Slovakia are closest to classless and low inequality societies. 

Similar levels of income inequality may be characterised by completely different distributions of capital and labour. People who belonged to the highest income decile in the US before WWII received mainly capital incomes, whereas in 2010 people in the highest decile earned both high labour and capital incomes (Piketty 2014). Yet the difference in their total income shares was small.   

Different distributions of capital and labour describe different economic systems. Two polar systems are particularly relevant. In classical capitalism – explicit in the writings of Ricardo (1994 [1817]) and Marx (1992 [1867], 1993 [1885]) ¬– a group of people receives incomes entirely from ownership of assets while another group’s income derives entirely from labour. The first group (capitalists) is generally small and rich; the latter (workers) is generally numerous and poor, or at best with middling income levels. The system is characterised by high income inequality. 

In today’s liberal capitalism, however, a significant percentage of people receive incomes from both capital and labour (Milanovic 2019). It is still true that the share of one’s income derived from capital increases as we move higher in the income distribution, but very often the rich have both high capital and high labour incomes. While inter-personal income inequality may still be high, inequality in composition of income is much less. 

The purpose of our study is to introduce a new way of looking at inequality that allows us to classify empirically different forms of capitalism. In addition to the usual inter-personal income inequality, we look at inequality in the factoral (capital or labour) composition of people’s incomes. The class analysis (where class is defined narrowly depending on the type of income one receives) is thus separated from the analysis of income inequality proper.    

Which countries around the world are closer to classical, and which to liberal capitalism? Does classical capitalism display higher inter-personal income inequality than liberal capitalism? Can we find what we term ‘homoploutic’ societies – where everyone has approximately the same shares of capital and labour income? Would such homoploutic societies display high or low levels of income inequality?   

To answer these questions, in Ranaldi and Milanovic (2020) we adopt a new statistic, recently developed by Ranaldi (2020), to estimate compositional inequality of incomes: the income-factor concentration (IFC) index. The income-factor concentration index is at the maximum when individuals at the top and at the bottom of the total income distribution earn two different types of income, and minimal when each individual has the same shares of capital and labour income. When the income-factor concentration index is close to one (maximal value), compositional inequality is high, and a society can be associated to classical capitalism. When the index is close to zero, compositional inequality is low and a society can be seen as homoploutic capitalism. Liberal capitalism would lie in-between. Negative values of the income-factor concentration index, which describe societies with poor capitalists and rich workers, are unlikely to be found in practice.

By applying this methodology to 47 countries with micro data provided by Luxembourg Income Study from Europe, North America, Oceania, Asia, and Latin America in the last 25 years and covering approximately the 80% of world output, three main empirical findings emerge.   

First, classical capitalism tends to be associated with higher income inequality than liberal capitalism (see Figure 1). Although this relationship was implicit in the minds of classical authors like Ricardo and Marx, as well as in recent studies of pre-WWI inequality in countries that are thought to have had strong class divisions (Bartels et al. 2020, Gómes Léon and de Jong 2018), it was never tested empirically.

Note: The graph shows on the horizontal axis compositional inequality and on the vertical axis the standard measure of inter-personal income inequality (Gini coefficient). Nordic countries (Finland, Sweden, Norway and Denmark) are marked in red.

Second, three major clusters emerge at the global scale. The first cluster is the one of advanced economies, which includes Western Europe, North America, and Oceania. Relatively low to moderate levels of both income and compositional inequality characterize this cluster. The US and Israel stand somewhat apart from the core countries since they display higher inequality in both dimensions. 

Latin American countries represent the second cluster, and are, on average, characterised by high levels in both inequality dimensions. 

The third cluster is composed of Nordic countries and is exceptional insofar as it combines low levels of income inequality with high compositional inequality. This is not entirely surprising: Nordic countries are known to combine wage compressions with ‘socially acceptable’ high returns to capital (Moene and Wallerstein 2003, Moene 2016). Such compromise between capital and labour (reached in the early 1930s) has put a cap on earning inequality within the region (Fochesato and Bowles 2015) but has left wealth inequality untouched (Davies et al. 2012). By drastically reducing the progressivity of capital income taxation (Iacono and Palagi 2020), income tax reforms during the 1990s have worked in the same direction.

Several other results are found. Many Eastern European countries are close to the Nordic cluster. Some (Lithuania and Romania) have very high compositional inequality, likely the product of concentrated privatisation of state assets. India is very similar to the Latin American cluster, displaying a class-based structure with high levels of income inequality.

Taiwan and Slovakia are, instead, the most ‘classless’ societies of all. They combine very low levels of income and compositional inequality. This makes them ‘inequality-resistant’ to the increase in the capital share of income. In other words, if capital share continues to rise due to further automation and robotics (Baldwin 2019, Marin 2014), it will not push inter-personal inequality up:  everybody’s income would increase by the same percentage. The link between the functional and personal income distribution in such societies is weak – the topic of a previous VoxEU column by Milanovic (2017b). It is also interesting that Taiwan is both more ‘classless’ and less unequal than China.

The third, and perhaps most striking result that emerges from our analysis is that no one country in our sample occupies the north-west part of the diagram. We find no evidence of countries combining low levels of compositional inequality (like those of Taiwan and Slovakia) with extremely high levels of income inequality (like in Latin America). 

To conclude, we propose a novel taxonomy of varieties of capitalism on the basis of the two inequality dimensions (Table 1). We believe such taxonomy brings a strong empirical and distributional focus into the literature on the varieties of capitalism, as well as a larger geographical coverage.

Table 1. Nomenclature of capitalism


Baldwin, R (2019), The Globotics Upheaval: Globalization, Robotics and the Future of Work, Princeton University Press.

Bartels, C, F Kersting and N Wolf (2020), “Testing Marx: Inequality, Concentration and Political Polarization in late 19th Century Germany”, German Institute for Economic Research.

Davies, J, R Lluberas and A Shorrocks (2012), Credit Suisse Global Wealth Report 2012.

Fochesato, M and S Bowles (2015), “Nordic exceptionalism? Social democratic egalitarianism in world-historic perspective”, Journal of Public Economics 127: 30-44.

Gómes Léon, M and H J de Jong (2018), “Inequality in turbulent times: income distribution in Germany and Britain, 1900–50”, Economic History Review. 

Iacono, R and E Palagi (2020), “Still the Lands of Equality? On the Heterogeneity of Individual Factor Income Shares in the Nordics”, LIS working papers series 791.

Marin, D (2014), “Globalization and the Rise of the Robots”,, 15 November.

Marx, K (1992 [1867]), Capital: A Critique of Political Economy 1, translated by B Fowkes, London: Penguin Classics. 

Marx, K (1993 [1885]), Capital: A Critique of Political Economy 3, translated by D Fernbach, London: Penguin Classics.

Milanovic, B (2017a), “Increasing Capital Income Share and its Effect on Personal Income Inequality”, in H Boushey, J Bradford DeLong and M Steinbaum (eds) After Piketty. The Agenda for Economics and Inequality. Cambridge, MA: Harvard University Press. 

Milanovic, B (2017b), “Rising Capital Share and Transmission Into Higher Interpersonal Inequality”,, 16 May. 

Milanovic, B (2019), Capitalism, Alone, Cambridge MA: Harvard University Press.

Moene, K O and M Wallerstein (2003), “Social democracy as a development strategy”, Department of Economics, University of Oslo 35/2003.

Moene, K O (2016), “The Social Upper Class under Social Democracy”, Nordic Economic Policy Review 2: 245–261.

Ricardo, D (2004 [1817]), The Principles of Political Economy and Taxation, London: Dover publications.  

Ranaldi, M (2020), “Income Composition Inequality”, Stone Center Working Paper Series 7.

Ranaldi, M and B Milanovic (2020), “Capitalist Systems and Income Inequality”, Stone Center Working Paper Series 25.

Piketty, T (2014), Capital in the Twenty-First Century, translate by A Goldhammer, Cambridge, MA: Harvard University Press.


Rebalancing the Economy, Refurbishing the State: The Political Economic Logic of Sino-Capitalism in Contemporary China

February 26, 2022 Leave a comment

China represents a highly significant case that can inform debates on the nature and logic of capitalism, especially those expressed in the wider Comparative Capitalisms (CC) literature. This is not just because of China’s sheer size and international economic influence, but also because China’s form of capitalism – Sino-capitalism – opens up new avenues for theoretical inquiry in CC. Specifically, Sino-capitalism’s constitution demonstrates the importance of Régulation Theory’s more open and evolutionary approach to understanding CC.

Sino-capitalism conceives China’s political economy as driven by the dialectic of top-down state-centric modes of governance interacting with bottom-up networked modes of entrepreneurship based on market competition. This contrasts with the more static comparative approaches in most of the CC literature. In particular, this conception highlights how compensatory institutional complementarities are central to understanding CC. To illustrate Sino-capitalism’s dynamic of reproduction, the article looks at recent policy initiatives that aim to rebalance China’s development model. Even though rebalancing incorporates more forceful economic liberalization, retaining and strengthening state control over crucial areas of socio-economic governance is central. China is therefore pursuing a policy package that seeks to strengthen state governance capacity and market forces in tandem, illuminating the chronic re-composition and rebalancing of institutional spheres via top-down/bottom-up dialectics shaping Sino-capitalism.


China’s stunning economic transformation over the past 35 years still poses a puzzle for social scientific analyses. How could China’s obviously state-dominated development model produce such economic dynamism? Indeed, how has sustained market liberalization been combined with concerted efforts at strengthening state control over crucial areas of economy and society? And how has China undertaken far-reaching internationalization of its economy without sacrificing key elements of domestic policy autonomy?

In this article, I argue that the puzzle of China’s political economy can serve to inform salient debates on the nature and logic of capitalism highlighted in the Comparative Capitalisms (CC) literature (Deeg and Jackson, 2007; Jackson and Deeg, 2006; 2008). So far, conceptualizations of the crucial case of China remain at odds with each other and have found little resonance in the CC literature. For sure, most analyses of China in comparative political economy and economic sociology agree that China is, in fact, developing a form of capitalism. However, how to incorporate China’s form of capitalism both comparatively and theoretically in the CC literature remains a major challenge (Fligstein and Zhang, 2011; Peck and Zhang, 2013).

This challenge is also reflected in how CC literatures have so far faced difficulties in conceptually integrating emerging market economies. The narrow binary conception of Varieties of Capitalism (VoC) (Hall and Soskice, 2001) into Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs) never aimed to comprehensively cover emerging markets. Recent efforts within the CC literature have started to fill this conceptual gap. Much of the work has concentrated on Eastern Europe and, to a lesser extent, Latin America and East Asia (Bohle and Greskovits, 2012; Boyer et al., 2012; Hancké et al., 2007; Noelke and Vliegenthart, 2009; Noelke et al., 2014; Schneider, 2013).

All of these works go beyond the highly seductive parsimony of a binary distribution into LMEs and CMEs espoused by mainstream CC literature. Similarly, my analysis sees China as generating a novel form of capitalism – Sino-capitalism (McNally, 2007; 2012; 2015). Sino-capitalism’s analytical framework employs an open (Becker, 2009; 2014) inductive qualitative approach that conceives of “variegated” capitalisms globally (Jessop, 2012; Peck and Theodore, 2007; Streeck, 2010) and builds directly on insights in Régulation Theory (Aglietta, 1976; Lipietz, 1992; Boyer, 1990; 1997; 2005; Boyer et al., 2012). There is accordingly no “base” model of capitalism, but rather an assemblage of unique varieties of capitalism embedded in the global capitalist system.

I proceed by introducing the logic of Sino-capitalism, broadly conceived of as the macro-structural dynamics that define the mode of reproduction (cf. Boyer, 1990) and shape China’s contemporary political economic evolution. I then illustrate the dynamics driving Sino-capitalism’s institutional reproduction with recent policy initiatives that aim to rebalance China’s development model. Finally, the conclusion develops theoretical insights that can be generated from analyzing and conceptually extending the logic of Sino-capitalism.

My theoretical findings incorporate a call for more open and dynamic approaches that focus on the role of the state, the international embeddedness of national capitalisms, and the existence of contradictory/symbiotic politico-economic logics driving capitalist evolution. Quite pointedly, any conception of capitalist political economies must recognize the existence of different politico-economic spheres, each with its own logic or “Eigengesetzligkeit” (Weber, 1978; cf. Oakes 2003). Interactions among these spheres can generate a multiplicity of dynamics, ranging from symbiotic, reinforcing, counterbalancing, and compensatory, to contested and in discord.

Consequently, institutional complementarities under Sino-capitalism are not primarily conceived of as existing in a reinforcing state. Rather, compensating institutional complementarities have dominated and created dialectical dynamics of mutual adaptation and tension-ridden conditioning (cf. Evans, 1995). Sino-capitalism’s evolution thus represents an intriguing case of 35 years of extremely rapid and transformational institutional change that nevertheless exhibits a profound constant: a central dialectic of top-down state-guided capital accumulation existing side by side with bottom-up networks of entrepreneurs, market competition, and global economic integration.

1. The Logic of Sino-Capitalism

Most of these accounts stress one single aspect of China’s political economic evolution, but consequently miss the most central facet: the dialectical evolutionary dynamic of counterbalancing institutional complementarities driven by state guided forces top-down, by entrepreneurial networked forces bottom-up, and by global economic integration outside-in. In China’s emergent capitalism, state and private sector forces have mutually conditioned each other. The logic of Sino-capitalism attempts to capture these basic modalities of how China’s economic dynamism and political regime are replicated over time.

Analytically, the logic expresses the macro-structure shaping institutional and political reproduction, which, in turn, gives rise to China’s unique accumulation regime and modes of regulation. Insights from Régulation Theory (Aglietta, 1976; Lipietz, 1992; Boyer, 1990; 1997; 2005; Boyer et al., 2012) resonate directly in this conception. Paralleling other cases of capitalist evolution, China faced a critical juncture during the aftermath of the Cultural Revolution in the late 1970s as the Maoist regime’s legitimacy was questioned. A series of major political decisions to address this crisis created a new politico-economic compromise: private capital, both foreign and domestic, was gradually welcomed in China’s economy under the continued dominance of the Chinese Communist Party (CCP). This compromise, in turn, shaped the evolution and hybridization of specific sets of institutions defining Sino-capitalism.

In this context, the logic of Sino-capitalism can only be understood by conceptualizing China’s political economy as experiencing rapid international economic integration, especially intense participation in global value chains. Sino-capitalism forms by now an interdependent part of the neo-liberal global capitalist system. And finally, as Régulation Theory emphatically argues, capitalism does not tend towards stable equilibria, but rather is characterized by constant tensions and crises generated by its modes of reproduction. The dialectical logic of Sino-capitalism illustrates this volatile nature of capitalism strikingly.

The manner in which different institutional spheres interact means that Sino-capitalism differs from traditional conceptions of capitalist variety in important respects. Sino-capitalism is reproduced by a contradictory or dialectical quality: state-guided capitalism is tempered and at times challenged by dispersed private entrepreneurial forces that have created one of the world’s most dynamic and globalized private sectors. Sino-capitalism’s logic of reproduction thus derives from a specific institutionally-based notion of China’s emergent capitalism. Distinct institutional spheres are conceived of as interacting and mutually conditioning each other.

As a result, Sino-capitalism represents a distinctive institutional amalgam. Global integration, bottom-up networks of entrepreneurs, and top-down state guidance all coexist and balance each other’s dynamic elements, generating unique and diverse institutional complementarities. To illustrate, under Sino-capitalism’s eclectic policy outlook prices and market mechanisms are merely tools to an end: to develop China and make it wealthy and powerful. There is no a priori adherence to “free markets” as in a belief that fully liberalized market forces will generate the most efficient outcomes. Rather, controlled (often localized) policy experimentation is widely employed under long-term guiding principles. Most Chinese reforms have therefore constituted a work-around: they have employed measured market liberalization, though always under the condition that effective degrees of state control over the domestic economy remain intact.

The following develops further our understanding of Sino-capitalism’s logic by concentrating on three crucial sub-logics. Firstly, the central logic of reproducing a structurally rather stable dialectic of counterbalancing institutional spheres; secondly, and following from this sub-logic, a deliberately cautious pace of change that avoids radical departures from the past and tries to assure comprehensive state control over the reform process; and, finally, the interplay of state-centric development planning with local initiatives and policy trials bottom-up, a process that has generated much needed political space for economic experimentation and institutional innovation.

The propagation of a structurally rather stable dialectic which juxtaposes top-down state-guided capitalism with bottom-up networks of entrepreneurs, market competition, and global economic integration shapes Sino-capitalism’s logic most deeply. Although undergoing fundamental reform and massive growth, China’s political economy has continuously reproduced and recalibrated this dialectic. Chinese economic reform processes are accordingly not characterized by the dominant and stifling role of state-centric governance (Huang, 2008). Neither are they purely driven by entrepreneurial network-led accumulation from below (Nee and Opper, 2012). Counterbalancing institutional complementarities have actually conditioned, pressured, and mutually self-generated each other. These institutional spheres and their logics are sometimes in discord, but more often coexist and balance each other’s strengths and weaknesses (cf. Evans, 1995).

Critically, the logic of Sino-capitalism depends on the continuous adaptation of the CCP and Chinese state formations (Tsai, 2007; Dickson, 2008; Shambaugh, 2008). Chinese state firms, for example, began far-reaching reforms only after the development of private and quasi-private firms eroded their monopoly profits during the 1980s (Naughton, 1992). However, rather than attempting to smother private entrepreneurship, policy makers after 1992 concentrated on more fundamental restructurings of the state sector. State firms retreated from the most competitive and least profitable sectors in the Chinese economy, but kept a tight grip on industries populating the “commanding heights.”

The evolution of Sino-capitalism, therefore, does not represent a unilateral retreat of the state in favor of private entrepreneurial and market forces. Neither is it a story of initial liberalization followed by a full reassertion of statism (cf. Huang, 2008). The best way to understand Sino-capitalism’s dialectical logic is to focus on how private capital accumulation put pressures on the state to reform and adapt. State-initiated reforms and experimentation in turn enabled further private sector development, creating dynamic cycles of induced reforms, where each small step at restructuring created demands for further modifications (cf. Jefferson and Rawski, 1994; Naughton, 1995; Solinger, 1989).

In this view, top-down Leninist incentives focused on economic performance prodded local governments to compete vigorously for investment capital. This inter-jurisdictional competition led to the gradual liberalization of China’s economy and triggered substantial improvements in the investment climate facing both domestic private and foreign investors. In fact, state capitalist guidance and vibrant private entrepreneurship have tended to meet at the lower levels of the state apparatus, where local cadres have played a crucial role in accommodating and supporting individual capitalist accumulation.

The first phase of China’s reform and open door policy (1979-82) was marked by a major revolution top-down that changed incentives for CCP cadres to emphasize economic growth. The initial success of several experiments in both the state sector and the rural economy enabled a much more permissive regime for bottom-up entrepreneurship and experimentation in the 1980s. This first spurt of reform and opening, however, came to an end during 1989 as the party-state recentralized not only China’s politics, but also the economy. By 1992 reform impulses were once again unleashed by Deng Xiaoping’s “Southern Tour” (nanxun). Another phase of bottom-up capitalist accumulation then triggered by 1997 major reforms in the state sector and further privatization of local collectives, including the vast majority of Township and Village Enterprises (TVEs). By the 2000s the two process became more deeply intertwined, with both top-down (e.g., reforms triggered by China’s entry into the World Trade Organization after 2001) and bottom-up (e.g., massive inflows of foreign capital and the emergence of large Chinese private conglomerates) dynamics interacting simultaneously.

This dialectical logic is furthermore reflected in the unique policy mix employed to advance the reform process.This second sub-logic captures how most reform initiatives in China constitute a conscious work-around. For sure, reforms always aim to generate measured market liberalizations and economic efficiencies. However, they also intend to assure continued state control over the domestic economy and reform process. Full-scale economic liberalization, as in the “Big Bang” reforms of Eastern Europe and the successor republics to the Soviet Union, was consciously eschewed. In its place, the Chinese party elite favored innovative localized experimentation, institutional tinkering, and all kinds of work-around solutions that went beyond pure and simple economic liberalization. The results of this approach were stunning. Rather than experiencing the shocks generated by “Big Bang” reforms in Eastern Europe and Russia,the Chinese economy was able to relatively smoothly and gradually “grow out of the plan” to establish a market economy (Naughton, 1995). And in a similar fashion, China’s political economy evolved from an economic system characterized by complete state ownership to incorporate large swathes of private ownership and control (Oi and Walder, 1999).

One of the hallmarks of the policy process has been that most initiatives were cautious and gradualist. This does not mean that there were no spurts of reform, such as in 1992 after Deng Xiaoping’s “Southern Tour.” Similarly, contemporary reforms contained in the 60-point blueprint issued after the 18th Central Committee’s Third Plenum in November 2013 also hold the potential for reform breakthroughs. Top-down state coordination has consistently played a crucial role. Nonetheless, over the longer term key policy priorities have only shifted gradually in China. This has created an enduring and relatively constant policy environment, the “long-termism” of China’s “neo-etatist” planning (Heilmann, 2010).

The logic of Sino-capitalism is finally expressed in how central state coordination and localized policy trials have deeply interacted to create a rather novel experimental approach to economic and political-administrative reform (Florini et al., 2012). Every major policy change, such as the liberalization of foreign trade and investment, State-owned Enterprise (SOE) reforms, and the privatization of TVEs, was first tested with a variety of pilot projects, experimental regulations, as well as geographically defined special economic and industrial zones. Under these decentralized experiments bottom-up entrepreneurial and market pressures often created fertile ground for nominally illegal or unsanctioned behaviors. Over time, however, some formerly illegal behaviors were incorporated into local governance systems and accepted by central state formations, leading to continuous institutional adaptation (Florini et al., 2012; Tsai, 2002; 2007; Dickson, 2008). Equally significant, these trials and experiments left ample room for local ingenuity, learning, and ad hoc tinkering to work out problems in a gradual and, on the macro-level, controlled institutional environment.

China’s decentralized experimentalist approach to reform in a multi-layered state has created drawbacks and inefficiencies, most recently an “investment mania” in heavy industry that has generated large debt loads for industrial SOEs and local governments. Nevertheless, the dialectical interplay of state-centric development planning top-down and dispersed local initiatives bottom-up has created crucial space in an authoritarian system for institutional and policy innovation. Moreover, successful localized experiments are often scaled to provincial and national levels with strong central state guidance and efforts at standardization (Florini et al., 2012). This is “foresight maximum tinkering” – the “unusual combination of policy experimentation with long-term policy prioritization” (Heilmann, 2010: 109) that enables the pursuit of long-term priorities while leaving leeway to local ingenuity.

These three aspects of the logic of Sino-capitalism illustrate vividly how this emergent form of capitalism represents a complex new global capitalist force that falls outside dominant conceptualizations in CC. State-guided capitalism is balanced by entrepreneurially networked modes of capital accumulation that depend on the savvy of individual entrepreneurs exposed to market pressures. A cautious pace of change has avoided radical departures from the past and assured overall state control over the reform process. And the interplay of state-centric development planning with local initiatives and policy experiments opened up significant space for institutional innovation.

The propagation of Sino-capitalism’s unique dialectic is ultimately based on continuous processes of institutional learning, adaptation, and hybridization. The intermingling of market-oriented rules-based, flexible network-driven, as well as more purely statist governing approaches are all part of this reproduction. As a result, rapid and transformational institutional change has occurred under a rather constant framework of gradualism, retention of state economic guiding capacities, and the interplay of top-down planning with innovative localized experiments.

2. Rebalancing China’s Political Economy

Over more than three decades China’s economic development relied on exploiting factors of production relatively abundant within the country. These included low wage labor, cheap land, and some mining resources. As capital accumulated, large savings in the state banking system were channeled into investment-driven growth during the 2000s, emphasizing large-scale investments in urban infrastructure, power generation, producer goods sectors such as steel, aluminum and cement, and export industries. This emphasis on investment- and export-driven development catapulted China to upper-middle income status, but by now is showing immense strains. Returns on investment are declining, while indebtedness is facing declining productivity and corporate profitability.

Consequentially, China’s investment- and export-driven development model was already around 2010 perceived to have reached the end of its sustainability (Naughton, 2010; Kroeber, 2009). In fact, both the 10th and 11th Five-Year Plans advocated a change to a more balanced and domestic consumption-driven development model. The 12th Five-Year Plan for 2011-2015 and the sweeping 60-point blueprint for economic, social, and legal reforms announced in late 2013 further amplify the policy foci outlined in these earlier pronouncements: the aim is to steer the Chinese political economy away from a concentration on growth above all else to balanced development.

Rebalancing China’s political economy implies a new growth model driven by consumption, innovation, and market forces with the overall aim of improving the Chinese people’s livelihood. The 60-point blueprint in particular outlines a host of reforms in the social, economic, and political-administrative spheres. However, interpretations of how exactly this shift will unfold are still prone to conceptual confusion. The 60-point blueprint has been looked at as far more ambitious and market-friendly than earlier reform efforts (Wharton School, 2013). It is seen as responding to various criticisms of China’s hitherto state-guided development model. These critiques stress that reforms should redefine the role of government, restructure state enterprises and banks, develop the private sector, promote competition, and deepen market reforms (World Bank and Development Research Center of the State Council, 2012: xv; cf. Kroeber, 2009).

In the view of liberally inclined Chinese economists, distorted resource allocations in China are mainly due to the continued dominance of SOEs in many crucial infrastructure and producer goods sectors. Since these sectors are often characterized by monopolistic or oligopolistic competitive environments, SOEs have become a major drag on efficiency. Assuring future economic growth must thus focus on the reorganization and privatization of large swaths of the Chinese state sector (Personal communication with researchers of the Development Research Center, October 2012).

Clearly, market liberalization and measured privatization enjoys potential support among segments of China’s economic policy-making community, including some top leaders.And strengthening market forces undoubtedly represents an important component of any rebalancing of the Chinese political economy. Nonetheless, envisioning that China will simply opt for full-out economic liberalization and privatization neglects a deeper understanding of the dynamics driving China’s political economy: the logic of Sino-capitalism. As before, the Chinese party-state is unlikely to pursue a full-blown policy of free-market reform. The emphasis continues to rest on avoiding economic liberalization’s potential dangers. The 60-point blueprint and more recent policy pronouncements make clear that there will be no radical departures from the past.

2.1 The 60-Point Blueprint of 2013

The sweeping blueprint announced in late 2013 covers a wide range of issues. Its 60 points or aspects include about 330 individual measures. Everything from changes in the one-child policy, car emissions standards, reforms to the hukou residency system, to interest rate liberalization is covered. The central objectives, though, reflect the dynamic qualities of Sino-capitalism. At first, substantial plans for economic and social liberalization stand out. According to the blueprint, the market should start to play the “decisive function in resource allocation” (Wharton School, 2013). Both academic and business analysts have thus seen it as ushering in significant market-oriented reforms. Avery Goldstein notes that the blueprint turned out to be “far more detailed, far more ambitious, far more unreservedly pro-market reform than many outsiders expected” (Wharton School, 2013; cf. Naughton, 2014).

One of the most prominent areas of liberalization that is highlighted in the blueprint concerns financial reform. Interest rates are to be fully liberalized but not before a deposit insurance system is set up. Similarly, capital account liberalization and with it the internationalization of the Chinese Yuan are to proceed, but again at first limited in scope, such as in the experiments being undertaken in China’s four newly established Free Trade Zones in Shanghai, Tianjin, Shenzhen, and Fujian Province.

Upon closer analysis, therefore, it becomes clear that the Chinese party-state is nowhere close to pursuing a pure free-market platform. The leadership under Xi Jinping, as its predecessors, is attempting to avoid the pitfalls that often accompany economic liberalization, especially the risks underlying financial liberalization. A deliberate, cautious pace of change is preferred that aims to avoid at all costs major mistakes that could destabilize society and threaten CCP rule. Moreover, many of the reform measures in urbanization, social welfare provision, and the environment will ultimately necessitate more effective state regulation and guidance, not just liberalization and deregulation.

The blueprint reflects this fine balancing act in its call for a new role for government and a new relationship between government and market. Reforms ultimately follow the essence of Sino-capitalism’s logic: a cautious pace of change that employs work-around solutions and avoids radical departures; the interplay of state-guided development planning with local initiatives and policy experiments; and the dialectic quality of Sino-capitalism that calibrates relations between top-down state-centric modes of governance and bottom-up global-, network-, and market-driven modes.

From the leadership’s points of view this approach is seen as politically necessary, since powerful political interests that could see new reforms as threats to their power and well-being will have to be contained, co-opted, or sidelined. These interests, many of which have benefited immensely from the old system, include the leaders of many large state and private firms, as well as various professional classes including the state technocratic elite itself. Conversely, socio-political interest groups who are likely to see benefits remain politically weak in China, in particular farmers and urban workers.

So the CCP moves gradually and cautiously to avoid the risk that economic reforms could get out of hand and create a political backlash. Economic and market liberalization measures are fine tuned with concerted efforts to sustain and strengthen state control over society and economy, including focused learning, adaptation, institution building, and social reform. I briefly highlight one policy arena that stands at the center of these dynamics: state sector reforms.

2.2 State Sector Reforms

China’s domestic imbalances are in part due to an overemphasis on the state sector, especially heavy industry. Although most state firms have been corporatized and listed on stock markets, they continue to act as quasi-monopolies or operate in managed oligopolies. Due to their strategic role in the economy, they receive enormous support from government agencies and the state-owned financial system.

The blueprint’s economic reform proposals clearly adopt a pro-market rhetoric and are supportive of private enterprise. Private firms should be given more room, equal property rights protection, and gain access to markets and sectors hitherto dominated by the state sector. However, the continued centrality of the state sector in the economy is reiterated as well: “adhere to the principal position of the public ownership system, give play to the dominant role of the public sector economy, and continually strengthen the vitality, control and influence of the public sector” (China Copyright and Media, 2013). The proposals, in broad brushstrokes, display efforts at encouraging private sector development and innovation, but focus equally on restructuring the state-owned economy.

Many of the SOE governance reforms suggested in the blueprint represent ongoing initiatives that have, in some cases, been in place for over a decade: price reforms should be continued in some basic infrastructure sectors, such as power and energy; more public disclosure of SOE finances be made available; the enterprise bankruptcy system improved; and long-standing attempts to fully separate government agencies from operational SOEs and their assets, especially in the remaining monopoly sectors, implemented.In this context, SOEs should complete their conversion into “modern enterprises” – joint-stock companies with up-to-date corporate governance. These conversions can include movements towards mixed-ownership systems, where in some exceptional cases private interests could take controlling stakes in existing SOEs. But overall the state should change the way it exercises its ownership, transitioning from “asset management” to “capital management.” New state-owned investment funds should be established, and some equity stakes in existing SOEs transferred to them, thus bringing specialized (state-owned) financial managers into the fold (Naughton, 2014).

Reforms thus include opportunities for private parties to gain ownership shares in some SOEs and enter into sectors so far controlled by SOEs. Several initiatives, for instance, attempt to separate infrastructure management from the actual operation of infrastructure services. The services can then be opened to private firms that can enter as service providers and create more competitive pressures. These reforms are similar in conception to reforms being implemented after breaking up the Railway Ministry in March 2013.

Perhaps one of the biggest changes on Chinese SOE performance could emanate from financial sector reforms.So far, SOEs have benefited substantially from financial repression in China’s domestic economy and the dominance of large state banks. Under these conditions most SOEs have access to plentiful and cheap credit, providing them with a competitive advantage both domestically and internationally. Building on the 60-point blueprint, financial reforms implemented in recent years encompass fully liberalizing interest rates and opening up the banking sector to more competition. This could subject borrowing by both SOEs and private entities to a more market-driven financing environment. Reform proposals also include permission for companies to launch initial public offerings without official approval, under a new “share issuance registration system.” However, much of these reform proposals remain a work in progress.

Another important reform initiative aims to increase the dividend payout ratio for SOEs from the current 5-15 percent to 30 percent by 2020. Already begun around 2007, this policy attempts to extract a larger share of state sector profits into the state treasury. It rests on the implementation of a “state capital management budget” (guoyou ziben jingying yusuan) that aims to steadily raise the dividend payout ratio of SOEs, thus lessening the leeway for SOEs to engage in overinvestment, a fact that has generated large industrial overcapacities (Naughton, 2006).

The blueprint’s objective of a roughly 30 percent dividend pay-out ratio from post-tax profits would put Chinese SOEs in line with common international norms. However, it is not clear at present if the Chinese government will be successful in exercising this aspect of its property rights. SOEs have shown a reticence to follow central guidelines and been characterized by various governance gaps. They are thus one of the main targets of Xi Jinping’s massive anti-corruption campaign. Undoubtedly, since Xi came to power in 2012 the hallmark of his leadership and greatest source of his popularity has been the relentless anti-corruption campaign. The campaign has deeply influenced SOE governance and targeted in particular SOEs in sectors that are seen as “fiefdoms” onto their own, not fully under the control of the CCP party-state.

The anti-corruption campaign demonstrates the prominence of party-state centralization in China’s dialectical reform dynamics. While some aspects of state sector reform are clearly aimed at introducing competitive market pressures, others aim to reassert state authority. Proposed pay-cuts to SOE executive salaries that the CCP Politburo approved in September 2014 represent one intriguing example. The new policy specifies that SOE executives who were appointed by the CCP Organization Department with a bureaucratic rank carrying substantial benefits and perks could face deep pay cuts of about 60 percent (Zhang, 2014). After implementation, such executive would again be treated as pure bureaucrats, since they have opportunities for career advancement in the party-state hierarchy. Conversely, those executives appointed competitively from outside the party-state hierarchy, who do not carry a bureaucratic rank, and who often have generous pay packets, would see no change.

The policy aims to make SOE executives choose between “working for the government” and working for “the enterprise” (Zhang, 2014). Interestingly, most SOE executives with bureaucratic rank are intent on keeping it and thus taking a pay-cut. They continue to see themselves and their SOEs as part of the larger CCP party-state hierarchy, and often have ambitions beyond any particular SOE to advance into the top levels of party- or state-administrative leadership (Personal communication with Kjeld Erik Brødsgaard, April 2016). This reform proposal marks a step away from market-based pay packages and hiring in the Chinese state sector, and, consequently, looks retrograde. However, it forms part of wider SOE reforms that aim to distinguish among state firms situated in monopoly industries and in public welfare, which are to be recentralized under closer scrutiny from the government, and those in competitive fields, which face further commercialization and exposure to market forces.

One good example that sums up China’s cautious and quiet reform approach regards the large oil and gas corporations: CNPC, CNOOC, and Sinopec. A series of experimental, incremental, and seemingly fragmented steps, including several pilot-based reforms aim to gradually transform the operating environment of these three giants. For example, oil import licenses have been granted to private firms, thus enabling them to compete with state-owned refiners. The Chinese government also has approved the first privately-led mega-refinery in Zhoushan, Zhejiang, which will compete head-to-head with Sinopec in that region. And a low-profile pilot-restructuring of Sinopec’s overseas exploration unit, SIPC, does not aim to privatize it, but rather to bring state-owned investment vehicles, such as Chengtong Holdings Group and China Reform Holdings, on board as strategic investors. These two state-owned investors will hold a combined shareholding of 70 percent of SIPC (Chen and Meng, 2016). This reform pilot reflects one of the central planks of contemporary SOE reform: state-owned investment corporations are being formed and tasked with employing their financial specialists to craft market-oriented strategies that can change management behaviors and capital structures.

In the end, the large oil and gas SOEs are seen as key economic stabilizers for the national economy. Following the logic of Sino-capitalism, the CCP party-state wants to maintain strong control over them and only implement moderate changes after conducting experiments and localized trials. This fundamental thrust of reforms is also apparent in China’s newest reform slogan: supply-side reforms.

2.3 Supply-Side Structural Reform

So far it is unclear what exactly this new reform initiative will encompass and what specific policies fall under the supply-side banner (Wong, 2016). Some argue for tax cuts for private businesses and reducing the government burden on investors. This clearly echoes the tax cut and deregulation policies advocated by conservative Western leaders in the 1980s. But the most important thrust seems to be efforts at diminishing overcapacity in industries such as steel, cement, aluminum, coal, and others. Mines and factories in sectors producing far more than the market demands should be shut down or merged.

As Xi Jinping put it when arguing for the importance of this reform for the long-term well-being of the Chinese economy, “The main direction (of the reform) is to reduce ineffective supply, increase effective supply, and make the supply structure more fitting to the demand structure” (Wang and Xin, 2016). However, closing down inefficient “zombie” corporations, many of them SOEs, will carry substantial economic, social, and political costs. More than three million people in the steel, coal, and similar industries could lose their jobs if proposed restructurings go through. On February 29, 2016 government sources announced a potential of 1.8 million steel and coal worker lay-offs, around 15 percent of the work force in those industries. However, no exact time frame was given for implementing this capacity reduction (Yao and Meng, 2016).

Certain provinces, like Shanxi and Hebei with large coal and steel industries, could face particular hardship. Shanxi, China’s largest coal mining province, has already been the focus of economic restructuring to reduce overcapacity. Annual GDP growth has declined by half since 2014, to reach a low of 3.1 percent in 2015. And the debt accumulated by the seven major state-owned coal firms in the province reached the size of the province’s entire GDP in 2015 (Ye and Marro, 2016). Nevertheless, Shanxi province plans to cut its coal production even further, by some 258 million tons by 2020. Similarly, Hebei province aims to contain its steel and cement capacities to 200 million tons each by that time. Evidently, the reforms will necessitate large fiscal transfers to cushion the concentrated burdens that fall on particular regions and industries.

Another major plank of supply-side reforms involves mega-mergers among large SOEs to gain international market share and competitive heft. The most prominent example so far has been the merger of China’s two state-owned train makers, China CNR Corp. and CSR Corp., in mid-2015. The Chinese government is also planning or implementing mergers of the country’s major metals companies, nuclear technology firms, and the two largest shipping lines (Yu, 2016).

This reflects once more the dialectical qualities of Sino-capitalism. Mega-mergers are intended to form national champions that can better compete abroad. However, they are also likely to reduce competition domestically and continue inefficiencies, especially if strong SOEs are forced to merge with weaker ones. Similarly, state sector reforms aim to give private investors bigger stakes in a wider range of SOEs, but they clearly rule out full privatization. And more generally, Xi Jinping has shown a distinct penchant for centralizing power, but simultaneously his government has put forward many reform proposals that aim to restrain the reach of the state.

In the final analysis, the sweeping 60-point blueprint and recent supply-side reform initiatives continue the search by China’s leadership for policy solutions that can effectively reform the economy while retaining crucial elements of central state control. They reflect the dialectical structure of Sino-capitalism: various state-centric endeavors and concerted efforts to augment state power are juxtaposed with circumscribed economic liberalization and the active encouragement of private entrepreneurship and technology innovation.

The rebalancing reforms proposed under Xi Jinping thus conform to the basic evolutionary logic of Sino-capitalism. Experimental, circumscribed, and cautious measures exemplify the intricate interplay of state-centric development planning with local initiatives and policy experiments. Over time, they are likely to reproduce the dialectic of Sino-capitalism while rebalancing China’s development model. In a recalibrated form top-down state-guided capitalism is likely to continue its dialectical relationship with capital accumulation based on private entrepreneurship and innovation, market competition, institutional learning, and global integration.

3. Implications for The Study of Comparative Capitalisms

As the above illustrated, recent reform proposals in China do not indicate a full-blown turn towards a liberal market economy. Quite to the contrary, they seek to retain and strengthen state control over crucial areas of socio-economic governance. The Xi Jinping leadership is thus pursuing a policy package that seeks to strengthen the private sector, domestic consumption, and indigenous innovation all the while refurbishing the CCP party-state’s governing capacity.

Therefore, in the task of rebalancing China’s development model there is no indication of efforts to directly supersede the dialectical dynamics of Sino-capitalism. For sure, measured steps at economic liberalization are planned. But these form efforts to refurbish state-coordination and its interactions with other institutional spheres, not to fundamentally destabilize Sino-capitalism’s chronic re-composition and recalibration of institutional spheres via top-down/bottom-up dialectics.

The theoretical comparative implications of this mode of capitalist reproduction for the CC literature are substantial. The logic of Sino-capitalism underlines that our understanding of capitalist evolution must be opened up to incorporate the central role of the state, the international embeddedness of national capitalisms, and the existence of contradictory/symbiotic politico-economic logics. It ardently stresses insights from Régulation Theory and its related approaches (Becker, 2009; 2014; Jessop, 2012; Peck and Theodore, 2007; Aglietta, 1976; Lipietz, 1992; Boyer, 1990; 1997; 2005; Boyer et al., 2012).

The logic of Sino-capitalism peals away the veneer of capitalist stability and institutional coherence seemingly prevalent in the already developed political economies. Capitalism is at base unruly. For Régulation Theory capitalism does not tend towards equilibrium but rather towards crisis in the longer term (Boyer, 2005). It must perpetually reinvent itself, creating ultimately disruptive change. This is evidenced by the empirical literature, which shows that capitalisms are “institutionally fragmented, internally diverse, and display greater ‘plasticity’” (Deeg and Jackson, 2007: 157) than the parsimonious dichotomy of LMEs and CMEs implies.

The logic of Sino-capitalism further highlights how capitalist political economies are constituted by different politico-economic spheres, each with its own logic or “Eigengesetzligkeit” (Weber 1978; cf. Oakes 2003). A multiplicity of potential interactions is possible among these spheres, ranging from symbiotic, reinforcing, counterbalancing, and compensatory, to tension-ridden and contested. In such a perspective, the unruly, effervescent nature of how capitalism reproduces itself – the system’s need for perpetual expansion, disruption, and reinvention – stands front and center.

Among these spheres, that of the state looms large. Early CC approaches, especially the Variety of Capitalisms perspective (Hall and Soskice, 2001), granted little autonomy to the state. These analyses thus lost sight of the state’s inherent macro-structuring role. Boyer (1997; 2005) in his conception of capitalist diversity incorporates “statist capitalism” and “state-directed capitalism.” Greater attention is paid to the degree of stateness, a theme echoed by Vivien Schmidt (2012) when sheconceptualizes “state-influenced market economies” with reference to Italy, France, and Spain.

Recent literature on emerging capitalisms develops this theme further (Boyer et al., 2012; Bohle and Greskovits, 2012; Schneider, 2013). As with Sino-capitalism, the inherent diversity of these capitalisms is stressed, in particular the state’s different roles. Vivien Schmidt (2009; 2012) pointedly suggests that the state must be treated as an autonomous political-economic actor, deviating from many other CC approaches. Rather than disaggregating the state into its historical institutional components or the strategic actions of state elites, it must be viewed as architectonic, incorporating political struggles over ideas, policies, and power that fundamentally structure each variety of capitalism (cf. Amable, 2003; Streeck, 2009).

The Chinese state under Sino-capitalism crystallizes such an architectonic structuring role remarkably well. In practically every sphere of the economy the Chinese state remains a major force structuring national, local, and firm-level policies (Szelenyi, 2010). Sino-capitalism also exemplifies the importance of state adaptability, social accommodation, and a multitude of regulatory modes ranging from dirigiste to liberal laissez-faire, creating in turn several distinct regimes of production in the Chinese political economy (Luthje, 2013). One of the most interesting aspects relates to the Chinese state’s compensating role in reproducing the institutional and power relations sustaining Sino-capitalism.

The logic of Sino-capitalism relies, as other varieties of capitalism, on unique institutional complementarities. These create interlocking institutional isomorphisms sustaining competitive advantages and stabilities in the Chinese accumulation regime. They also imbue Sino-capitalism’s distinct dialectical structure and dynamics with a certain path-dependency. However, Sino-capitalism’s institutional complementarities differ from the mainstream conception of reinforcing complementarities (Hall and Soskice, 2001; cf. Amable, 2003).

Under Sino-capitalism, the balancing of institutional spheres relies on the amalgamation of state-led coordination top-down with flexible and entrepreneurial network capitalism bottom-up. This means that complementarities are characterized by constant tensions, power struggles, as well as adaptation and experimentation. As Deeg and Jackson (2007) note, many types of capitalism are characterized by tensions among different institutional spheres, since each sphere follows different logics. Indeed, Boyer (2005) and Crouch (2005) hold that true complementarity connotes institutions following different structural logics, “where components of a whole mutually compensate for each other’s deficiencies” (Crouch, 2005: 359).

Sino-capitalism is ultimately co-determined by unlike institutional logics that balance each other’s strengths and weaknesses. Actors have diverse options and capacities that facilitate cross-fertilization, creating openings for institutional learning, tinkering, experimentation, and transformation. Sino-capitalism’s tension-ridden dialectic complementarity should therefore be seen as contributing to, rather than undermining, the overall competitiveness and developmental sustainability of China’s political economy. Hybridization and messiness may hold distinct advantages.

Naturally, the hybrid, complex, and dialectical aspects of Sino-capitalism express fundamental contradictions that could someday come to the fore, destabilizing the system, and triggering a fundamental crisis of the political economy. All cases of capitalist evolution are historically indeterminate. Present political and economic dissonances in China already are an indication of increasing strains. Under the scenario of a major politico-economic crisis, Sino-capitalism could face a critical juncture at which point a new logic of capitalism supersedes it. It is therefore absolutely conceivable that Sino-capitalism could face a rupturing in coming years.

Nonetheless, the various policies announced to rebalance China’s political economy so far show that without major political upheaval the dialectical dynamics of Sino-capitalism are likely to be reproduced over time. Continuous gradual reforms in the realms of economic liberalization and institution-building, especially to establish a more effective regulatory state, do not imply a fundamental change. Sino-capitalism’s evolutionary logic could be replicated well into the future.

Regardless of the potential outlook for Sino-capitalism, explorations of its logic open up new avenues for theoretical inquiry in CC. The aspects of the logic analyzed in the foregoing expand our understanding of capitalist evolution to include state-capital dynamics and compensatory institutional complementarities. Perhaps most importantly, the dialectical evolutionary quality of Sino-capitalism contrasts with the more static comparative approaches in most of the CC literature, obliging us to recognize capitalism as in a perpetual state of disequilibrium and tension.

Christopher A. McNally


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A Spectre is Haunting the West – the Spectre of Authoritarian Capitalism

February 25, 2022 Leave a comment

Amidst the turmoil in global financial markets in recent weeks, something unusual has happened.

Investors, seeking shelter from the coronavirus-linked sell-off, have piled into Chinese government bonds on an unprecedented scale. These purchases have increased the total foreign ownership of Beijing’s bonds to record highs, even as much of the country is still emerging from lockdown after the viral outbreak. In an ironic twist, the country where the pandemic originated has become an unlikely safe haven for investors – a shift that one prominent trader has described as “the single largest change in capital markets in anybody’s lifetime.”

But it is not only investors that are looking to China. Last month the European Commission president, Ursula von der Leyen, thanked Beijing for delivering more than 2 million masks and 50,000 coronavirus testing kits to European countries including France, Italy, the Netherlands and Poland. Europe is not alone: after successfully bringing the spread of the virus under control domestically (for the time being at least) China has embarked on a high-profile campaign of health diplomacy, winning applause around the world for providing support to countries in need.

Chinese civil society is playing its part too. The Jack Ma Foundation, a charitable organization led by China’s wealthiest individual, has pledged to provide each African nation with 20,000 testing kits, 100,000 masks and 1,000 protective suits.

In the US, things look rather different. President Trump’s mishandling of the crisis has put the US on track to experience the most deadly outbreak of any major country. After initially denying the gravity of the pandemic, President Trump quickly turned his fire on Beijing, referring to the disease as the ‘Chinese virus’. Meanwhile, the President’s allies on both sides of the Atlantic have demanded that China pay reparations for allegedly causing the outbreak.

Despite launching a massive $2 trillion stimulus package to cushion the economic blow from the pandemic, many believe that the US is sleepwalking into a public health catastrophe – one that will be beamed onto TV screens all over the world.

In stark contrast to China’s international charm offensive, President Trump has stayed true to his ‘America First’ philosophy. In March it was reported that Trump had offered international medical companies large sums of money to produce vaccines “only for the United States”. At the beginning of April, 200,000 masks that were produced in Singapore by US firm 3M and bound for Germany were confiscated in Bangkok and diverted to the US, an incident that a senior German official described as “modern piracy”. The government of Barbados has also accused the United States of “seizing” ventilators that were bound for the country and paid for by singer Rihanna. This week, President Trump announced that the US was halting payments to the World Health Organization (WHO) over its handling of the pandemic, a move that has attracted condemnation from leaders around the world.

Signs of diminishing US soft power are not new. Neither is the adoption of a more assertive stance towards China in Washington – it was Barack Obama, not Donald Trump, that initiated the pivot in American strategy towards China in 2011.

But under Trump’s leadership, tensions between the two global powers have escalated, as have Washington’s efforts to contain China’s rise. Now, the acrimony over the coronavirus pandemic has added fuel to the fire.

At the root of these rising tensions lies a common cause: the emergence of an economic model that has the potential to rival the productive power of Western liberal capitalism – and ultimately threaten the technological supremacy that has long underpinned US hegemony.

China’s Economic Miracle

Last year the People’s Republic of China celebrated its 70th anniversary. The occasion marked the victory of Mao Zedong’s forces over the Kuomintang-led government of the Republic of China, securing the Communist Party of China’s control over the world’s most populous nation.

Under Mao’s leadership, the country did experience moderate economic expansion, with real GDP per capita growing at an average of 4% between 1952 to 1978. But life was chaotic and often violent, with grand schemes such as the Great Leap Forward and Cultural Revolution failing to live up to their promise, while also inflicting unnecessary and often brutal suffering on China’s rapidly growing population.

In 1978, Deng Xiaoping became China’s new paramount leader, after outmanoeuvring Mao’s chosen successor, Hua Guofeng. Deng oversaw the country’s historic ‘Reform and Opening-up’ process, which increased the role of market incentives and opened up the Chinese economy to global trade. In the decades since, China’s economic transformation has been nothing short of astonishing.

In 1981, 88% of the Chinese population lived in extreme poverty. In the four decades since, nearly a billion people have been lifted out of poverty, leaving the figure at less than 2%. Over the same time period, the size of China’s economy increased from $195 billion – around the same size as the Spanish economy – to nearly $14 trillion today. By some measures, China’s economy has overtaken the US and is now the largest in the world. China is also home to the second largest number of Fortune 500 companies in the world, and more billionaires than Europe.

According to the World Bank, China has experienced “the fastest sustained expansion by a major economy in history.” But this has not come without costs, particularly to the environment. Since 2006 China has been the largest emitter of CO2, and today it is the world’s largest consumer of coal, and the second-largest of oil. But unlike the US, China is taking the challenge of environmental breakdown seriously. In recent years, China has spent more on greening its energy system than America and the European Union combined. China is now the world’s leading investor in wind turbines and other renewable energy technologies, and produces more wind turbines and solar panels each year than any other country. Out of the 425,000 electric buses that exist worldwide today, 421,000 are in China – the US accounts for a mere 300.

Under the leadership of Xi Jinping, the Communist Party of China has bold plans for the future. Since taking office in 2012, President Xi has overseen a major crackdown on corruption, and has launched a number of ambitious socio-economic reforms. Foremost among these is the ‘Belt and Road Initiative’ (sometimes referred to as the New Silk Road) to connect Asia with Europe and Africa in one of the grandest and most disruptive mega projects the world has ever seen.

Xi’s ambitions are not limited to planet earth. Under his leadership, the regime has also placed a major emphasis on enhancing China’s space capabilities as part of the nation’s development strategy, referring to this as China’s ‘space dream’. A recent white paper setting out China’s ambitions in space included plans for a lunar presence, asteroid mining and deep space exploration.

China’s remarkable economic transformation has been underpinned by the country’s powerful yet distinct economic model. Officially called ‘socialism with Chinese characteristics’, it combines strategic state ownership and planning with market-oriented incentives and a one-party political system to create a distinct economic model that remains poorly understood in the West.

Whether it is accurate to describe this system as a form of ‘socialism’ is another matter. Today the private sector accounts for the overwhelming majority of output, employment and investment, and there is little sign of democratic workers’ control. As the economist Branko Milanovic puts it in his recent book, ‘Capitalism, Alone’:

“To qualify as capitalist, a society should be such as most of its production is conducted using privately owned means of production (capital, land), most workers are wage-labourers (not legally tied to land or working as self-employed using their own capital), and most decisions regarding production and pricing are taken in a decentralised fashion (that is, without anyone imposing them on enterprises). China scores as positively capitalistic on all three accounts.”

Despite this, China’s economic model is distinct from Western liberal capitalism in a number of key ways. Notably, the state holds a tight grip over the economy through a number of major institutional actors that play a crucial role in the coordination of economic activity.

One prominent example is the State-Owned Assets Supervision and Administration Commission (SASAC), which was formed in 2003 when a number of industry specific ministries were merged. Reporting directly to China’s state council, SASAC owns and controls the firms that oversee the commanding industrial heights of the Chinese economy. The companies under its control have combined assets of $26 trillion and revenue of more than $3.6 trillion – more than the GDP of the United Kingdom – making it the largest economic entity in the world.

As Mark Wu, Assistant Professor of Law at Harvard Law School, describes:

“Imagine if one U.S. government agency controlled General Electric, General Motors, Ford, Boeing, U.S. Steel, DuPont, AT&T, Verizon, Honeywell, and United Technologies. Furthermore, imagine this agency were not simply a passive shareholder, but… could hire and fire management, deploy and transfer resources across holding companies, and generate synergies across its holdings.”

Even in firms where the state is not the dominant shareholder, the Chinese party-state still has a significant amount of influence. As scholars Curtis J. Milhaupt and Wentong Zheng have highlighted, the boundary between state and private ownership of enterprise is often blurred in contemporary China. One reason for this is the role of the Communist Party in China’s economic life. Each organization with more than three Communist Party members must form a Party committee within the organization, which in many cases has a significant influence over corporate decision making. This requirement extends not only to state-owned enterprises, but also to private companies and foreign-owned firms.

Another key difference is the state’s control over the finance sector. China’s banking system has more than tripled in size since 2008, and is now the largest in the world. But again, China’s banking sector is largely owned and controlled via a state holding company called Central Huijin Investment, which owns major stakes in the “Big Four” commercial banks and the China Development Bank. In turn, Central Huijin is a subsidiary of the China Investment Corporation, China’s sovereign wealth fund. Many companies that are not state-owned receive financing on preferential terms from these public banks.

China’s central bank, the People’s Bank of China, also operates differently to most Western central banks. It uses an array of tools to tightly control interest rates and the amount of money in the Chinese economy, as well as the value of the Chinese renminbi relative to other currencies. Crucially, the People’s Bank of China strictly controls the flows of capital in and out of the country. While capital controls have been taboo in the West for many decades, they are a crucial part of China’s economic and financial architecture.

This tight control over the financial system allows the state to coordinate economic activity in a way that is not possible in most Western countries, where private finance reigns supreme. It also enables the Chinese state to insulate the domestic economy from the turbulence of global financial markets.

Perhaps the most powerful economic entity is the National Development and Reform Commission which oversees the creation of China’s Five-Year Plan, and is responsible for formulating and implementing strategies for national economic and social development. This includes oversight of numerous policy areas including industrial policy, energy policy and price setting for key commodities that are not set by market forces such as electricity, oil, natural gas, and water. In addition, it is responsible for approving all large infrastructure projects and investments, regardless of whether the entity undertaking them is a state-owned enterprise, private company or foreign company.

As Milanovic notes, China’s recent rulers have viewed the private sector as akin to a bird in a cage: if it is controlled too tightly, it will, like an imprisoned bird, suffocate; if it is left entirely free, it will fly away.

As China’s domestic economy has grown, so has its presence abroad. In recent years Chinese entities have embarked on a vast overseas shopping spree, buying up corporations, real estate and infrastructure all over the world. In Europe alone, Chinese entities now own, or have a stake in, four airports, six maritime ports and 13 professional football teams, including Manchester City, Inter Milan and AC Milan.

Chinese investment into Africa has also soared. Since 2005, the country has pumped over $400 billion in the continent, and is now its largest trading partner, prompting analysts to talk about ‘a new scramble for Africa’. Financing for major investment projects has mainly come from two state-owned banks: the Export-Import Bank of China and the China Development Bank. Using what is sometimes characterized as the “Angola Model,” low-interest loans are often provided on the condition that natural resources, such as oil or mineral reserves, are used as collateral – a model that has been widely criticised for reinforcing the ‘resource curse’ that has trapped many African economies in poverty and dictatorship.

Through the Belt and Road Initiative, China aims to significantly expand its economic and political influence throughout Asia, Europe and Africa. To date, more than sixty countries — accounting for two-thirds of the world’s population — have signed on to projects or indicated an interest in doing so. The investment bank Morgan Stanley has predicted that the cost to China of the initiative over the lifetime of the project could reach $1.2 to 1.3 trillion by 2027, though estimates on total investments vary.

The Surveillance State

Ever since the arrival of the internet in China in 1994, authorities have taken steps to strictly monitor and control the flow of information online. In 2010, the government published the white paper ‘The Internet In China’ which set out its modern policy towards the internet and online activity. The paper outlined the concept of “internet sovereignty” which emphasised China’s jurisdiction over web content and providers within Chinese territory. “Laws and regulations clearly prohibit the spread of information that contains content subverting state power, undermining national unity [or] infringing upon national honour and interests,” it said.

Since then, the concept of ‘internet sovereignty’ has gained traction throughout the world and has been adopted by several states looking to control the dissemination of information online including Russia, Egypt, Saudi Arabia and Iran.

Under Xi Jinping’s leadership, Chinese authorities have cracked down on subversive speech online and reinforced the so-called ‘Great Firewall of China’ which forms the bedrock of China’s internet policy. At the same time, a rapid increase in the number of CCTV cameras means that the surveillance of online activity is now being extended into the real world. The country’s ‘Skynet’ project, as China’s surveillance network is known, plans to have over 400 million surveillance cameras installed across the country by the end of this year.

A recent study found that 8 out of the 10 cities with the most CCTV cameras per 1,000 people are in China, with Chongqing, Shenzhen and Shanghai being the most monitored cities in the world. A growing number of these cameras are powered by facial-recognition and artificial intelligence technologies, allowing authorities to track and monitor the population with a remarkable degree of sophistication.

Although China is expanding its surveillance infrastructure throughout the country, it is in the western province of Xinjiang where it is most prevalent. Human rights groups report that the Chinese government is detaining and surveilling millions of people from the minority Muslim Uighur population on an unprecedented scale. As well as mass surveillance using facial recognition technologies, police have also conducted large scale DNA swabs, iris scans and blood tests in order to build a region-wide biometric database.

“The Xinjiang police used a facial-recognition app on me”, Yuan Yang, a correspondent at the Financial Times, reported from the region last year. “When I checked into a hotel, a police officer came to the lobby to register me with her smartphone. She opened up an app and logged into it by scanning her own face. Then she took a photo of my passport profile page from within the app. Finally, the police officer asked to scan my face. Immediately, three women’s faces came up on her screen. The top one was an old visa-application photo of mine that I could barely remember having been taken. Clicking through to it showed her my full passport information.”

Officially the goal of this sprawling surveillance network is to fight crime and make life in China safer. The state’s swift response to the coronavirus pandemic virus has only bolstered this claim. The ability of the Chinese authorities to monitor movement, trace contact and enforce curfews has been widely credited with preventing the virus from spreading more rapidly, as has unfolded in other countries (although some question the accuracy of China’s reporting).

The surveillance state is also integral to the government’s plans to roll out a ‘Social Credit’ system. First described in an official document in 2014, the scheme has already been piloted in various forms in several cities and is expected to become fully operational this year. The system will use big data to track the trustworthiness of everyday citizens, corporations, and government officials and allocate them a score based on past behavior. Socially desirable behavior will be rewarded with good credit, while undesirable behavior will result in sanctions, such as being banned from purchasing plane or train tickets.

On current trends, China is on track to become a surveillance superpower. But it is not the only technology that Beijing has big plans for.

A New Technological Cold War

For decades many Western economists assumed that China would follow the path of other planned economies: a rapid state-led mobilization of resources would generate an initial period of strong growth, but this would not last. The theory was that state-led systems were effective at rapidly mobilizing capital and labor resources, but they were less effective at increasing productivity – meaning that growth would stall once all the available inputs were being deployed. Growth would be based on “perspiration” not “inspiration”, as Paul Krugman famously remarked in 1994, meaning that it could not be sustained.

China’s achievements so far have already proven these critics wrong. But it is Beijing’s plans for the future that have set alarm bells ringing in Washington. Strategists fear that China’s ambitious suite of industrial policies could lead to the US losing technological supremacy in key strategic sectors – along with the economic, military and geopolitical power that comes with it.

The chief offender is the ‘Made in China 2025’ initiative. Launched in 2015, Made in China 2025 is a ten year plan for China to achieve self-sufficiency in strategic technologies such as advanced information technology, robotics, aerospace, green vehicles and biotechnology. The strategy is reported to be at the very top of President Xi Jinping’s economic priorities.

As soon as it was announced, Made in China 2025 alarmed many analysts in Washington. In 2018, the US think tank Council on Foreign Relations described Made in China 2025 as a “real existential threat to U.S. technological leadership.” The US Trade Representative Robert Lighthizer has described the initiative as “a very, very serious challenge”.

When the Trump administration first imposed higher tariffs on Chinese goods in June 2018, the tariff list mainly focuses on products included in the Made in China 2025 plan, such as IT and robotics related products.

The president’s demands in early trade negotiations focused on requiring China to cut state support for high tech industries, stop “forcing” foreign companies to share technology with Chinese enterprises, remove ownership restrictions on incoming investments and – crucially – scrap the Made in China 2025 policy.

In response, the Chinese government started to downplay Made in China 2025, and avoided discussing the initiative publicly. Although there were reports that Beijing abandoned the initiative in late 2018, in practice the change in direction was more cosmetic than real.

In January this year, the US and China signed a long-awaited trade deal. While the deal may have achieved enough to make Donald Trump look tough during his re-election campaign, it has done little to assuage the underlying tensions. The deal includes no provisions on the Made in China 2025 initiative or subsidies for state-owned enterprises. Instead, China has committed to vague pledges not to “support or direct” acquisitions and investment by Chinese companies of foreign technology in “industries targeted by its industrial plans that create distortion.” The White House maintains that it will tackle other outstanding issues in a second “phase two” deal in the near future.

From the very beginning, the trade war has been less about trade, and more about constraining Chinese development and preventing China’s rise as a rival technological power.

Caught in the crossfire have been companies such as Huawei. Although not a state-owned enterprise, Huawei has received significant support from the Chinese state, including a $30 billion line of credit from the China Development Bank. Thanks in part to this support, Huawei has emerged as the global leader in the development of 5G networks – a technology that is widely expected to be the backbone of the modern digital economy. As a Foreign Policy recently reported: “5G will be the central nervous system of the 21st-century economy — and if Huawei continues its rise, then Beijing, not Washington, could be best placed to dominate it.”

In response to fears over Huawei’s dominance, and alleged intellectual property theft, the Trump administration banned the company from acquiring US parts and software and selling its products in the US, and has applied significant diplomatic pressure on allies such as the UK to avoid doing business with Huawei.

The US government’s motivation is clear: to crush one of the first Chinese tech companies to become globally competitive, and prevent it from gaining a dominant position in a key technology of the future. Huawei may be the first major company to be in the firing line, but it is unlikely to be the last.

It’s not just Uncle Sam that is tightening the screw on China – the tech titans of Silicon Valley have also become increasingly concerned about China’s rise.

In a speech in December last year, Amazon CEO Jeff Bezos warned American military leaders that the US risks losing its superiority in key technologies to China – an advantage which has long been the bedrock of the country’s military might.

Speaking at the Reagan National Defense Forum, the world’s wealthiest individual said: “Do you really want to plan for a future where you have to fight with someone who is as good as you are? This is not a sporting competition. You don’t want to fight fair.”

To a delighted audience, Bezos said that America’s data giants had a duty to make their technology available to the Pentagon to ensure that “freedom and democracy” are preserved. While the kingpins of Silicon Valley once viewed China as the next big market to be exploited, they now increasingly view it as a systemic threat to be contained.

You don’t want to fight fair.

The coronavirus pandemic has only heightened these tensions further. It was recently reported that the Trump administration is considering tightening rules to prevent Chinese companies from purchasing goods containing advanced US technology such as optical materials, radar equipment and semiconductors. In practice however, such measures are only likely to stiffen Beijing’s resolve to become self-sufficient in the development of key technologies.

These rising tensions point to the emergence of a new technological cold war. In the not-too-distant future, we may find ourselves in a world where countries may be able to use US technology or Chinese technology – but not both.

The End of the American Century?

China’s rise has led some to speculate that we are witnessing the ‘end of the American century’. However, until recently there have always been persuasive reasons to believe that such premonitions were premature.

In April last year, the historian Adam Tooze noted that: “As of today, it is a gross exaggeration to talk of an end to the American world order. The two pillars of its global power – military and financial – are still firmly in place. What has ended is any claim on the part of American democracy to provide a political model.”

As Tooze and others have documented, the global financial crisis only served to reinforce the global economy’s reliance on the dollar. As global banks became increasingly desperate for dollar liquidity, the Federal Reserve transformed itself into a global lender of last resort by establishing dollar swap lines with other central banks. These swap lines provided dollars to foreign central banks in exchange for the local currency, with a promise to swap back once the crisis period had subsided.

Partly as a result of this action, today the global financial system is more dependent on the dollar than ever before, and the dollar remains the world’s pre-eminent global reserve currency. With this power comes great privilege: the US can punish any company or country it doesn’t like by issuing sanctions which exclude them from the dollar system, and by extension the world economy. At the same time, the US still spends more on defence than the next ten largest countries combined, and the multilateral order is still shaped around American interests.

But some believe that the coronavirus pandemic could represent a pivotal turning point in the balance of power between West and East. Carl Bildt, the former Swedish Prime Minister, recently described the pandemic as “the first great crisis of the post-American world”, pointing to the absence of US leadership on the world stage. The evident decay in the quality of US governance and Washington’s eschewing of multilateral cooperation is certainly not going unnoticed among world leaders. As the Financial Times’s Martin Wolf recently commented: “A government at war with science and its own machinery is now very visible to all.”

This is the first great crisis of the post-American world.

But there is one place where US leadership is quietly working on overdrive: the Federal Reserve. While investors have sought refuge in Chinese government bonds to a greater extent than ever before, they have also scrambled to buy dollars and US Treasury bonds – the world’s traditional ‘safe haven’ assets.

Since January, around $96 billion has flowed out of emerging markets, according to data from the Institute for International Finance. This is more than triple the $26 billion outflow during the financial crisis of a decade ago. This “sudden stop” in dollar funding has caused currencies to plummet and borrowing costs to rise in many developing countries. Combined with a collapse in commodity prices and fragile healthcare systems, this has left many countries dangerously exposed to the pandemic.

This rush to safety has also created a global shortage of dollars which, if allowed to continue, could leave many countries unable to obtain the currency they need to meet their dollar denominated liabilities. As in 2008, the Fed has responded aggressively by reopening swap lines, including to selected emerging market economies such as Mexico and Brazil. It has also gone further by introducing a repurchase agreement facility for foreign central banks. In doing so, it has once again demonstrated its unparalleled power and reach – and exposed the global financial system’s deep reliance on the dollar.

But there is one major central bank that does not have a specific arrangement in place to access dollars at the Federal Reserve: the People’s Bank of China. Given the frosty relations between the two powers, this is perhaps unsurprising. But this blockage in the global financial plumbing could have significant consequences.

In recent years Chinese businesses have amassed large debts denominated in dollars. Crucially, many of the sectors hardest hit by the coronavirus outbreak, such as airlines and real-estate development, are also among the most likely to have high dollar-denominated debt burdens. If these companies find themselves in difficulty, it could spark a scramble for dollar funding in China. Without access to a dollar swap line, the People’s Bank of China may be forced to play its trump card.

The prospect of China suddenly deciding to sell its vast $1 trillion holding of US Treasury bonds has haunted markets for over a decade. Up until now, it has not been in China’s interests to try and destabilise the dollar based global financial system. But some believe that the rising tensions from the coronavirus pandemic, combined with the erosion of US soft power, could mean that things are about to change.

Benjamin Braun, a political economist at the Max Planck Institute for the Study of Societies, notes that it would be naïve to assume that China is content to live under dollar dominance forever. “The question is not whether China would like to wean itself off its dollar dependency, but whether its leaders can do so without causing harm to the Chinese economy”, Braun notes. While the future is inherently unpredictable, Braun believes there are a number of variables that could change the political calculus in Beijing.

One of these is if the People’s Bank of China is forced to start selling its vast stock of Treasury bonds, which experts including Credit Suisse’s Zoltan Pozsar believe is no longer inconceivable. Flooding the market with US Treasury bonds would be akin to setting off a financial nuclear bomb, causing bond yields to spike and wreaking havoc in financial markets, while also undermining the ability of the Federal Reserve to control monetary policy. Such instability could end up generating blowback that would harm China’s economy, so most analysts believe that a rapid fire sale is unlikely. However, even a controlled sell-off would likely cause a major headache for Washington, and push the relationship between the White House and Beijing into unchartered waters.

Such a move would satisfy hawks in China, who have long argued that China should cut holdings of dollar-denominated assets and instead seek to strengthen the international standing of the renminbi. Xiao Gang, the former chairman of the China Securities Regulatory Commission, has accused the US of “turning on the dollar printing machine” and misusing its “dollar hegemony to pass its own crisis to the rest of the world”.

Braun notes that China has already built the foundations for a renminbi trade area in the form of the Belt and Road project. And if Chinese leaders believe they can achieve their goal of achieving supremacy in key strategic technologies, the need to accumulate dollars may eventually wane. “When China starts to sell its advanced products to the rest of the world, will they want to be paid in dollars? Or will there come a point when they want to be paid in renminbi?”, Braun asks.

There are also other long term trends that could reduce the dollar’s importance in the global financial system. One is decarburization: one of the dollar’s key strengths is that it is the currency of the global oil trade. But as countries increasingly switch away from fossil fuels towards clean energy, global demand for dollars will likely decline as countries source their energy from more local sources.

“The global trend towards decarbonisation definitely increases opportunity for non-dollar denominated trade relationships”, explains Braun.

Whether the renminbi can challenge the dollar in practice is another matter, however. Daniela Gabor, a professor of economics and macrofinance at UWE Bristol, points out that China has been developing the architecture to promote the internationalization of the renminbi for many years, but faces a recurring problem: becoming a global reserve currency would necessarily involve opening up China’s tightly controlled financial system to the rest of the world. “In practice, China would need to reorganize its financial system so that it resembles something that looks more like the US financial system”, Gabor explains. So far, this is a risk that Chinese leaders have not been willing to take.

What a post-dollar global financial architecture would look like remains to be seen. Some believe we could witness a gradual shift from a unilateral order to a multilateral one, with multiple reserve currencies including the dollar, renminbi and, potentially, the euro. Mark Carney, the former governor of the Bank of England, has advocated a global digital currency to supersede the dollar, noting that it would be a mistake to switch one dominant currency for another.

Others believe that Special Drawing Rights, a little-known global quasi-currency run by the International Monetary Fund (IMF), could also play a key role. But while technically plausible, any system mediated through the existing multilateral order is likely to run into political difficulties. “The IMF ultimately serves the interests of the US, so it’s difficult to see how it can become an impartial global coordinating mechanism”, notes Gabor.

The US, which remains the IMF’s largest shareholder, is already blocking efforts to create additional Special Drawing Rights to help low-income emerging economies cope with the coronavirus pandemic – a proposal that has widespread international support including from German chancellor Angela Merkel and French president Emmanuel Macron.

For the time being, what a new system could look like remains a hypothetical question. While few believe the end of dollar supremacy is on the immediate horizon, what matters is that for the first time in over half a century, it is now seriously and openly being discussed.

Europe’s Dilemma

Leaders in Europe have also been grappling with China’s rise. For many years, China’s booming economy enabled European consumers to buy cheap imported consumer goods, while European manufacturers exported their expensive cars and capital equipment.

But as Chinese companies have become more competitive higher up the supply chain, some European countries – notably Germany and France – have become worried that China will soon eat into their own advanced manufacturing bases.

As in the US, European leaders have been irked by China’s interventionist industrial policies, which many believe have given Chinese firms an unfair advantage. The rules of the EU single market do not permit such interventionist policies on the basis that they distort market competition, meaning that European countries are unable to respond with similar policies, even if they wanted to.

Some now believe that this needs to change. In February last year, the economy ministers of France and Germany published a joint policy manifesto for a European industrial policy that is “fit for the 21st century”. The paper states that the EU’s competition rules “need to be revised to be able to adequately take into account industrial policy considerations in order to enable European companies to successfully compete on the world stage.” It also calls for reforms to EU state aid rules, including “potential involvement of public actors in specific sectors at particular points in time to ensure their long term successful development.”

These efforts were bolstered in February this year when the economy ministers of Germany, France, Italy and Poland sent a letter to the EU competition commissioner Margrethe Vestager asking for a review of EU competition policy. They requested that the European Commission “introduce more justified and reasonable flexibility” to its decisions about mergers between European companies, to “take better account of third countries’ state intervention”. This week, Vestager responded by stating that European countries should consider buying stakes in domestic companies to stave off the threat of Chinese takeovers, and announced that new proposals to deal with unfair competition from foreign state-owned enterprises will be released in June.

What these proposals will look like remains to be seen. But for the time being, the coronavirus pandemic has forced the spotlight onto another area of the EU’s incomplete architecture – the Eurozone.

The outbreak has once again revealed the fault lines between the bloc’s North-South divide. The global financial crisis exposed the dangers of creating a monetary union without a fiscal union, which countries like Greece, Italy, Ireland and Spain paid the price for in the form of brutal austerity. Although the financial crisis exposed deep flaws in the architecture of the Eurozone, these were never satisfactorily resolved. Instead, a patchwork of mechanisms were introduced which managed to hold the bloc together, while the most difficult questions were deferred to a later date. Thanks to the coronavirus, this date has arrived much sooner than Europe’s leaders would have liked.

Countries in Southern Europe, led by France, Spain, and Italy, have called for a common European economic response to the crisis. Key to their demands is the issuance of ‘eurobonds’ – a common debt instrument issued by a European institution to raise funds for all member states. In practice this would mean mutualising risk across the currency bloc, enabling all member states to borrow funds on the same terms to fight the crisis.

Eurobonds would not only help poorer European states respond to the pandemic, but according to Braun they would also be an essential step towards turning the euro into a genuine global currency capable of competing against the dollar and the renminbi:

“Wedged between an increasingly nationalist dollar area and an authoritarian renminbi area, the costs of not seeking greater monetary power may be rising for Europe. A first step to addressing this would be issuing eurobonds to create a highly liquid market of safe euro assets.”

So far however, Eurobonds have been met with fierce resistance from the Eurozone’s “frugal four” – Germany, the Netherlands, Austria and Finland ­­– who balk at the idea of underwriting the expenditure of their southern neighbours. This lack of solidarity has generated a furious backlash across the continent, which polls indicate is already fuelling a surge in Euroscepticism. According to the most recent polling, support for remaining in the EU has fallen by 20% in Italy, to 51%.

For Europe, the question of whether it has the clout to compete with the US and China on the world stage is therefore political, not technical. As long as Europe remains hamstrung by a financial and economic architecture that is hard wired to constrain economic dynamism and fuel social discontent, it will find it increasingly squeezed between its more powerful neighbours.

As Gabor notes: “For Europe today, the real question is not whether the euro can challenge the dollar, but whether it can even survive”.

The Death of Neoliberalism

The global financial crisis laid bare the underlying weaknesses of the neoliberal form of capitalism that has dominated policymaking in the West since the 1980s. But without a clear alternative to take its place, the response was to double down on a broken model. The impact of the crisis, and the austerity policies that followed, fractured the political argument in many countries, and contributed to a series of political earthquakes including Brexit, the election of Donald Trump, and the rise of nativist parties across Europe and beyond.

At the same time, the economics profession has entered a period of intellectual upheaval. Stagnant living standards, sharply rising inequality and environmental breakdown have led growing numbers of economists and commentators – including those in mainstream institutions such as the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD) – to acknowledge the shortcomings of free-market orthodoxy.

If neoliberalism was already on life support, then the coronavirus has administered the lethal blow. The pandemic has laid bare the disastrous consequences of decades of privatisation, deregulation and outsourcing in countries like the US and UK, and highlighted the critical importance of strong public services and a well-resourced state bureaucracy. In order to contain the economic fallout from the pandemic, Western countries have ripped up the neoliberal playbook. Market forces have been shunned in favour of economic planning, industrial policy and regulatory controls. Even the IMF, for decades the standard bearer of neoliberal orthodoxy, has floated policy responses that have more in common with the Chinese model of capitalism. In a recent blog, four senior researchers wrote that: “If the crisis worsens, one could imagine the establishment or expansion of large state holding companies to take over distressed private firms.”

But those who have spent years dreaming about a world beyond neoliberalism should think twice before popping the champagne. While some may celebrate the arrival of policies that, on the surface at least, involve a greater role for the state in the economy, there remains one problem: there is no evidence that state action inherently leads to progressive social outcomes.

If the crisis worsens, one could imagine the establishment or expansion of large state holding companies to take over distressed private firms.

China is a clear case in point. Income inequality is among the highest in the world, labour rights are notoriously weak, and freedom of speech is often brutally suppressed. Speculative dynamics have created vast real estate bubbles and an explosion in private sector debt which many believe could trigger a severe crisis. Workers do not have freedom of association to form trade unions, and non-governmental labour organisations are closely monitored by the state who carry out regular crackdowns.

While Western capitalism is unlikely to turn Chinese anytime soon, it would be naive to assume that the state stepping in to play a greater role in the economy is necessarily going to push politics in a progressive direction. As Christine Berry writes:

“The question is not simply whether states are intervening to manage the crisis, but how. Who wins and who loses from these interventions? Who is being asked to take the pain, and who is being protected? What shape of economy will we be left with when all this is over?”

This goes beyond the economic sphere. Many leaders are already using the coronavirus crisis to ramp up intrusive surveillance and roll back democracy, often taking inspiration from China. Hungary’s Prime Minister Viktor Orbán has won new dictatorial powers to indefinitely ignore laws and suspend elections. In Israel, Prime Minister Benjamin Netanyahu enacted an emergency decree preventing parliament from convening, in what has been described as a “corona-coup.” In Moscow, a network of 100,000 facial recognition cameras are being used to make sure anyone placed under quarantine stays off the streets.

But it is not just strongmen leaders who are exploiting the crisis to tighten their own grip over society. Last week Google and Apple announced that they were jointly developing a global tracking “platform” that will be built into the operating system of every Android and Apple phone, turning virtually every mobile phone into a coronavirus tracker. Many Western governments are now working in partnership with them to scale up national surveillance tools. In the UK, Google and Apple are working with the National Health Service (NHS) to develop a mobile phone app that will trace people’s movement and identify whether they have come into contact with infected people. The US, Germany, Italy and the Czech Republic are also reported to be developing their own tools. Thanks to the coronavirus, China’s surveillance architecture could arrive in the West much sooner than we think.

Once surveillance measures are introduced, it is likely that they will be extremely difficult to unwind. “The relationship between the citizen and the state here in the West will never be the same again after the Pandemic,” Paran Chandrasekaran, Chief Executive of Scentrics, a privacy focused software developer, recently told The Times. “There will be increased surveillance. For decades to come, there will be new thoughts on privacy – possibly even the state having wide-ranging and sweeping powers to see data that might pose a threat to national security.”

The relationship between the citizen and the state here in the West will never be the same again after the Pandemic.

For progressives across the West, the task ahead is enormous. Not only is there a need to respond to the growing dynamism of China’s political-economic system, there is a need to do so in a way that strengthens democracy and protects civil liberties at a time when both are increasingly under threat. When economies eventually open up again, the urgency of the climate crisis means that we cannot afford to return to business as usual. Patterns of production, distribution and consumption must rapidly be decarbonised, and our environmental footprint must be brought within sustainable limits. And all of this must be done in a way that reduces rather than exacerbates existing inequalities.

What such an agenda looks like, and whether it is politically possible, remains to be seen. In recent years there has been an outburst of progressive new economic thinking on both sides of the Atlantic that aims to combine the aims of social justice at home and abroad, democratic participation and environmental sustainability. While elements of this agenda – from the Green New Deal to expanding democratic forms of ownership – have been embraced by politicians such as Bernie Sanders in the US and Jeremy Corbyn in the UK, it is now clear that neither will take these ideas into power. But for much of the millennial generation whose adult lives have been defined by the financial crisis, climate change and now the coronavirus pandemic, their agendas are now viewed as the minimum baseline for a much bigger transformation of our economic and political systems. Among much of this generation, capitalism – in both its liberal or authoritarian variants – is increasingly viewed as the problem. Socialism, of a new democratic and green variety, is increasingly viewed as the solution.

Following the global financial crisis however, it was the authoritarian right, not the progressive left, that managed to gain a foothold in many countries. The same can be said of the Great Depression in the 1930s. As governments struggle to deal with an economic crisis on a scale that could easily surpass both, there are signs that authoritarian forces could stand to benefit once again.

In 1848 Karl Marx wrote that ‘A spectre is haunting Europe — the spectre of communism.’ Today another spectre is haunting the West: its name is authoritarian capitalism.


Capitalism with Chinese Characteristics

February 24, 2022 Leave a comment

China’s experiment with socialism was chaotic and failed to produce the much-desired transition to development and prosperity. 

When the country broke with socialism and cautiously ventured into market-led development in the countryside in the late 1970s, China was one of most equal societies on earth. It was also quite poor, with over 30 percent of the population living under the poverty line, much like the Philippines then. 

Today, with its gini coefficient, a measure of inequality, at .50 or above, inequality in China matches that of the Philippines. However, the number of Chinese living in poverty are down to around 3 percent of the population, while over 20 percent of Filipinos are still poor. Inequality has increased, but in terms of lifting people out of poverty, China is regarded as an unqualified success story — probably the only one in the world.

An acquaintance with the key characteristics and vulnerabilities of China’s contemporary economy will enable us to get a sense of the dynamics and direction of China’s economic relationships with the Philippines and the rest of the Global South. 

For instance, it is easy to mistake the vaunted Belt and Road Initiative (BRI) as a grand plan for China’s global hegemony, as many have, if one does not take into consideration China’s massive industrial overcapacity problem, for which the BRI has been devised as a solution. And one cannot understand the overcapacity problem without referring, in turn, to one of the central features of China’s economy: the decentralization of economic decision-making, which has led to a great number of competing projects, much waste, and tremendous surplus capacity.

China’s economy is a capitalist economy, though one that is uniquely Chinese. It might be called “capitalism with Chinese characteristics,” to give a more accurate spin to Deng Xiaoping’s puzzling description of his project as “socialism with Chinese characteristics.” Deng, Mao’s pragmatic successor as the dominant personality in Chinese politics, led China’s integration into the global capitalist economy in the 1980s and 1990s.

China’s contemporary political economy has four key features: 

  1. It is largely liberalized or market driven.
  2. It is largely privatized but with state intervention in areas considered strategic.
  3. Its cutting edge is export-oriented production sustained by “financial repression.”
  4. And it is decentralized, with a great deal of autonomy for local decision-making while central authorities focus on broad national-level macroeconomic strategies and policies.


Liberalization, or the removal of state controls on production, distribution, and consumption, took place in three stages over the 1980s and 1990s. 

Market reform started with de-collectivization and restoration of a market-based peasant economy in the countryside in the early 1980s, followed by urban state-enterprise reform and price reform in the late 1980s. In the 1990s, reform of state-owned enterprises (SOEs) accelerated, with the aim being the transformation of these enterprises into profit-oriented capitalist corporations. 

Throughout these phases, the main thrust of the reform was, as Ho-Fung Hung, a leading authority on China’s economic transformation put it, “to decentralize the authority of economic planning and regulation and to open up the economy, first to Chinese diasporic capital [Overseas Chinese] in Asia and then to transnational capital from all over the world.”

Privatization with Strategic State Intervention

While market signals stemming from local consumer demand and global demand became the dominant determinant of resource allocation, the visible hand of the state did not disappear. It just became more discriminating. While departing from central planning, the Chinese state did not follow the so-called Northeast Asian developmental state model pioneered by Japan, South Korea, and Taiwan that restricted foreign investment and favored domestic enterprises across the board.

In contrast, in China, non-strategic sectors of the economy were opened up to competition among private enterprises, local and foreign, while those areas considered strategic from the point of view of national security, national interest, and overall “national competitiveness” were subject to significant state regulation, with much production controlled by state-owned enterprises (SOEs) that were, however, allowed a degree of competition with one another. 

In other words, the government permitted large-scale foreign direct investment to allow local businesses to access and diffuse foreign technology across a whole range of industries, while maintaining exclusive control and focusing state resources on those industries considered vital for the comprehensive development of the economy. 

Given the massive pullback of the state from large swathes of the economy, there is justification in describing China’s political economy as “neoliberal with Chinese characteristics,” as the Marxist economist David Harvey does. But perhaps, it is better characterized as a market economy with strategic islands of state-controlled production and with broad macroeconomic surveillance exercised by the central state. 

This is a far cry from the centralized micromanagement of the economy of the pre-1978 socialist state.

Export-Oriented Production with Financial Repression

While the greater part of domestic production was directed at the local market, the strategic thrust of the Chinese economy post-liberalization was rapid industrialization via production for export, a feature captured in the saying that China became “the manufacturer of the world.” 

Exports at their peak in the first decade of this century came to a whopping 35 percent of gross domestic product, a figure that was triple that of Japan. China became, as Hung puts it, the “hub for a global production network that begins with design studios in the United States and Europe; proceeds through producers of specialized components and raw materials in East and Southeast Asia; and ends up in China, where designs, materials, and components are brought together in finished products that are then sent all around the world.” (In this “Sino-centric” division of labor, the Philippines was integrated as a food producer, a source of raw materials, and a provider of industrial components like computer chips.)

Making export-oriented production the cutting edge of the economy meant restraining the growth of domestic consumption, a feature that was underlined by the policy of financial repression — that is, the interest rate on savings from consumers was deliberately kept low in order to keep the interest rate of loans to state-owned enterprises and private enterprises engaged in production for export low. From 2004 to 2013, the average real deposit rate was an extremely low 0.3 per cent. 

A third key ingredient of export oriented manufacturing was a policy of keeping the value of the renminbi low relative to the dollar. From 1979 to 1994, the renminbi steadily depreciated against the dollar, from 1.5 to 8.7, as China moved away from its old Mao-era import substitution model towards an export-oriented model that required an undervalued renminbi to make China’s exports competitive on global markets. Then, in 1994, the renminbi was devalued 33 percent relative to the dollar, followed by a peg of 8.3 renminbi to the dollar over the next nine years, greatly boosting the competitiveness of Chinese goods in global markets. 

In his trade war with China, U.S. President Donald Trump has called China a “currency manipulator,” allegedly deliberately keeping the value of the renminbi low to flood the U.S. with its exports. However, most economists say that China has let market forces largely determine the value of the renminbi since over a decade ago.

The fourth ingredient in the export-led model, its “indispensable fuel’” according to Hung, was the “protracted low-wage labor released from the countryside since the mid-1990s.” While there was a “demographic windfall” in the form of large rural surplus labor force that allowed China to take advantage of low-wage labor longer than other Asian economies, the latter was also a result of government policies that, in contrast to the 1980s, funneled resources from the rural areas to the urban areas and generated a continuous exodus of the rural population since the 1990s.

The combination of favorable financial policies for the export sector, an undervalued currency, and low wage labor was a formula that unleashed a flood of cheap Chinese goods on the world that proved to be deeply destabilizing not only for the industrial sectors of economies in the global North but also of those in the global South like Mexico and Brazil, which had higher wage levels. 

In these areas, China was not only as a source of competing imports but a cause of deindustrialization, as some corporations uprooted their labor-intensive industrial facilities and moved them to Southeastern China and others simply subcontracted the making of their products to cheap-labor Chinese firms. Not surprisingly, working class resentment built up in places like the so-called “rust belt” of the U.S. that Trump was able to harvest in 2016 with his anti-China rhetoric in his drive to the presidency.

Decentralized Authoritarianism

Contrary to the popular image of China’s development being the product of centralized direction, a decentralized character has, in fact, been one of its key features. 

Decentralization has been one of the key ingredients of China’s growth formula, dating to the 1990s. Decentralization was a spur to intense competition among localities since Beijing, according to one account, “started evaluating local officials by how quickly the economy grew under their watch” — and they, in turn, “competed with each other to woo firms, offering them cheap land, tax breaks, and low cost labor.” 

Described as essentially like turning the bureaucracy into a “large start up business,” decentralization sought to decisively break the command economy as well as force local authorities to “own” the reform process both by giving them the responsibility for coming up with the resources for investment and allowing them to reap the rewards of successful capital accumulation. 

Provincial and local authorities have thus had a great deal of power in interpreting and implementing general strategic directives from Beijing. The economic authority of the central government has been deliberately weakened, its role being transformed into that of an “indirect player“ focused on managing the macroeconomic backdrop such as interest rates, exchange rates, and preferential policy toward certain regions and sectors. Indeed, China has been described as the “most decentralized country on earth,” with the share of revenue of local government being more than twice that common in developed countries — and also much bigger than that typical of developing countries.

It is important to note, however, that strong local authority and command of resources in the capital accumulation and development process covered mainly the nonstrategic sectors of the economy. Important agents of central control across provinces were some key state owned enterprises (SOEs) in the designated strategic sectors, such as energy, heavy industries, railways, and telecommunications that were directly controlled by Beijing, though they themselves enjoyed a great deal of autonomy. Here it must be qualified, though, that the majority of the country’s 150,000 SOEs — and two thirds of all SOE assets — were controlled by provincial and local governments, not by Beijing. 

The relationship between the local and the center has oscillated between decentralization and recentralization over the years, with the latest phase of recentralization, though limited, taking place under the current leadership of Xi Jinping. 

In most other countries, the extent of decentralization would probably have led to a permanent weakening of the center. China, however, has an advantage over other countries that makes the system work and not fly apart — and that is the Communist Party structure that parallels the government structure at all levels and across all regions. While allowing factional conflicts to a significant degree, the party structure and its attendant discipline are what makes possible the paradox of “decentralized authoritarianism.”

Liberalization, privatization along with strategic intervention in key industries, export-led industrialization with currency management by the state, and decentralized authoritarianism — these were the ingredients of the so-called Chinese miracle. They were also responsible for generating the problems now faced by the economy, a topic to which we will turn in the next installment of this series.

This series is based on the recently published study by Focus on the Global South titled China: An Imperial Power in the Image of the West? on the occasion of the 70th anniversary of the founding of the People’s Republic of China this year.

Walden Bello


The Character of State Capitalism in China

February 23, 2022 Leave a comment

The social landscape of the contemporary Third World is defined by the existence of the following classes: a super-exploited urban proletariat; a large peasantry; a landlord group; a white-collar petty bourgeoisie occupying administrative positions; and comprador capitalists closely aligned with multinational interests. China has attempted to delink from this system of dependency, pursuing a path of sovereign development, partially free from the criteria of economic rationality that emerges from the global domination of capitalism. This complex process has demanded the creation of a national economy based on the development of sectors aimed toward mass consumption and capital goods, which further means consolidating society’s productive forces – knowledge, technology, and machinery – for which education is important. 

China’s steadfast construction of an independent project has come under criticism from bourgeois ideologists and sections of the Left. In both cases, “state capitalism” is used as a powerful tool in categorizing and hierarchizing the spaces of world politics, generating a simple narrative of competition between two easily identifiable protagonists – Western democratic free-market capitalism and its deviant “other”, Eastern authoritarian state capitalism. To dispel these misconceptions, we need to examine the specific character of this state capitalism to locate it within the multi-sided trajectory of socialism with Chinese characteristics. 

Mao Zedong once said: “Communists are Marxist internationalists, but Marxism must be realized through national forms. There is no such thing as abstract Marxism, there is only concrete Marxism. The so-called concrete Marxism is Marxism that has taken national form”. The nationalization of Marxism fundamentally involved the use of Vladimir Lenin’s ideas. Lenin recognized the impossibility of an immediate transformation from a backward, peripheral situation to full-blown socialism. Thus, he envisaged a series of phases, from petty-bourgeois capitalism and “War Communism”, through state capitalism, to socialism, during which elements of capitalism would remain. State capitalism was a transitional road to socialism, not an end in itself.

Lenin gave the examples of Germany after Bismarck’s reforms and Russia after the October Revolution to explain the historical specificity of state capitalism. In Germany, state capitalism was subordinated to “Junker-bourgeois imperialism”; in Russia, state capitalism was shaped by socialist imperatives. In April 1921, Lenin wrote: “Socialism is inconceivable without large-scale capitalist engineering based on the latest discoveries of modern science. It is inconceivable without planned state organisation which keeps tens of millions of people to the strictest observance of a unified standard in production and distribution…At the same time socialism is inconceivable unless the proletariat is the ruler of the state.” 

In the same month, he elaborated

“Of course, a free market means a growth of capitalism; there’s no getting away from the fact. And anyone who tries to do so will be deluding himself. Capitalism will emerge wherever there is small enterprise and free exchange. But are we to be afraid of it, if we have control of the factories, transport and foreign trade? Let me repeat what I said then: I believe it to be incontrovertible that we need have no fear of this capitalism…The Soviet government concludes an agreement with a capitalist. Under it, the latter is provided with certain things: raw materials, mines, oilfields, minerals…The socialist state gives the capitalist its means of production such as factories, mines and materials. The capitalist operates as a contractor leasing socialist means of production, making a profit on his capital and delivering a part of his output to the socialist state. Why is it that we badly need such an arrangement? Because it gives us, all at once, a greater volume of goods which we need but cannot produce ourselves. That is how we get state capitalism. Should it scare us? No, it should not, because it is up to us to determine the extent of the concessions.”

Hence, the nature of state capitalism is fundamentally influenced by the presence of a proletarian state. In an economic formation like this, there exists – in the words of Samary Catherine – “a fundamental distinction between the existence of ‘market categories’ (prices, wages, etc.) and the domination of the law of value, the first not being the ‘proof’ of the second.” The exercise of the domination of the proletariat in all areas – economic, political, and ideological – deeply affects the status of market relationships, money, and prices. Systematic supervision of market relations reduces commodity exchange to the mere fact of sale and purchase, creating a society in which goods are exchanged for money but do not have an independent life of their own; and in which persons do not exist for one another merely as representatives of commodities. 

The contradictions of capitalism are impacted in a particular way under a proletarian state heading a regime of state capitalism. Louis Althusser once noted: “the ‘contradiction’ is inseparable from the total structure of the social body in which it is found, inseparable from its formal conditions of existence, and even from the instances it governs; it is radically affected by them, determining, but also determined in one and the same movement, and determined by the various levels and instances of the social formation it animates; it might be called over-determined in its principle.” The overdetermination of state capitalism means that the various components of this social formation don’t merely exist as indices of an underlying essence (surplus extraction); they are actively re-structured by the political characteristics of the socialist state. 

In China, the establishment of the dictatorship of the proletariat – involving the crucial role of a strong planning system – has allowed the country to keep hold of a sizeable chunk of overall surplus value and to create partnerships with multinationals that enable it to acquire modern technology. This development of superior techno-industrial capabilities is conducive to the structural changes necessary to insulate the economic system from intense international, low-cost competition, and hence to resist the downward movement of wages. Between 1988 and 2008, China’s average per capita income grew by 229%, 10 times the global average of 24%. In 1994, a Chinese factory worker made $500 a year, only a quarter of the wage of her counterpart in Thailand. In 2020, the average annual income in China exceeded $10,000 – three times the figure for Thailand. All these dynamics are turning China more and more to its domestic market. As is evident, state capitalism in China is part of a wider project of autocentric expansion whose end goal is socialism. 

Yanis Iqbal


The Uneven and Combined Emergence of “Capitalism with Chinese Characteristics”

February 22, 2022 Leave a comment

The People’s Republic of China’s (henceforth named China) development over the past decades has been nothing short of extraordinary. While undergoing constant transformation and recording the world’s second highest GDP ($) in 2017[1], the socialist past appears a distant memory. Put bluntly, since the start of economic reform in 1978, China is booming with a “unique blend of planned economy and unbridled capitalism”.[2] Meisner even contends that the self-proclaimed Chinese Communist Party (CCP) has evolved to become the guardian of Chinese capitalism.[3] At a glance this may appear as a paradox, due to the apparent zero sum game between communism and capitalism that has been continuously perpetuated by the rhetoric of the Cold War.[4] Conversely, this essay will argue that the emergence of specific ‘Chinese characteristics’ within the country’s manifestation of capitalism, can be understood as an outcome of uneven and combined development (U&CD). Through applying Trotsky’s framework of U&CD to China’s development since 1978, the aim is to show that the Chinese economy is not paradoxical in itself, but rather possesses distinct features which materialized as an amalgamation of pre-existing internal socio-political structures and international influences of Western capitalism. The argument will be structured in the following manner. Firstly, an outline is provided of the advantages that are adherent to the theory of U&CD in explaining the particular elements of Chinese capitalism, followed by a section on the important impact of socialist policies on the peasantry under Mao. Next, the essay shifts focus to Trotsky’s theory of U&CD before applying it to the nexus of 1978. Finally, the argument will be sharpened through detailing some of the precise combinations in the context of labor relations and enterprise management that have resulted from the interaction of China with the global capitalist economy. In sum, this essay will show that conceptualizing China’s economic development through the lens of U&CD allows for a specific understanding of the peculiarities in China’s socio-economic spectrum and ultimately elucidates the allegedly paradoxical synthesis of a self-proclaimed communist party adopting a capitalist mode of production for economic gain.

Challenges in Conceptualizing China’s Development

The rather vague nature of the term ‘capitalism with Chinese characteristics’[5] illustrates the difficulty to conceptualize China’s economic development. The extensive reforms throughout previous decades were far from universal in their implementation and thus, some sectors such as Chinese industry were thoroughly reformed, while privatization of land is still largely impossible.[6] Here, we find both bold restructuring as well as rigid attachment to Maoist policy.[7] Huang uses the terminology ‘capitalism with Chinese characteristics’ to refer to a “factual observation of China’s economic and institutional processes”[8]. His work is a detailed analysis of the elements that constitute the special Chinese characteristics. But as Huang himself implies, his work is an analysis aimed at determining the extent to which China is capitalist.[9] While the insight he develops in his work is very valuable, this paper argues that it largely neglects the dynamics of interaction between domestic and international factors in the shaping of specific particularities within Chinese capitalism. Importantly however, an understanding of the international as a performative element and thus as constitutive of development itself, is essential to any notion of developmental processes.[10] Therefore, in order to investigate the origins of distinctive Chinese characteristics, a different approach is required, which factors in the influence of external forces in the developmental process. This endeavor will be undertaken in the last substantive part of this essay.

Maoist Origins of a Strong Peasantry

Before engaging with the capitalist transformation and the economic reforms after 1978, this section will take a closer look at Maoism and identify special features that laid the basis for later rapid capitalist reform. What was perhaps the most distinguishing trait of Maoism as opposed to Stalinist ideology in the Soviet Union, was Mao’s focus on the peasantry’s revolutionary agency.[11] With the absence of a revolutionary proletarian urban working class, following the effective deindustrialization of the coastal regions by the Japanese invasion, Mao famously declared that the Chinese socialist revolution would be “carried from country to town”[12]. In addition, the Chinese Civil War was fought before the revolution and thus, the latter appears as the conclusion of the former and the initial improvements for peasants could be framed as the success of the CCP.[13] Isaac Deutscher further details that during the 1950s, the state commenced an investment policy, aimed at improving the life-expectancy and literacy of the rural communes.[14] An example is the healthcare available to peasants that was offered under Mao, to counterweigh the rigid constraints on rural-urban migration that will be discussed later.[15] One of the resulting initiatives was the ‘barefoot doctors’ programme, which involved the training of health workers to meet the medical requirements of the peasants.[16] Despite challenging circumstances, the programme was widely considered successful in increasing the prompt availability of cheap healthcare and was acknowledged by the WTO for its positive impact on health levels in rural areas.[17] Overall, the improvements in literacy and healthcare under Mao were unquestionably significant and gave China a distinctive position among in comparison to other developing states.[18] What is important to note is that the high health standards posed a critical factor in the immediate availability of the peasants to take on low wage labour, which in turn was a primary reason for the pull that China exerted on foreign industry to invest so quickly, following the reforms of 1978.[19] In short, the origins of China’s ability to instantaneously sustain an ‘army’ of surplus labour can at least partly be traced back to the influence of socialist policies on the peasantry.[20]

The Framework of Uneven & Combined Development

As we have now arrived at the period within which this paper aims to apply the framework of a Trotskyist dynamic of development, a brief introduction to the theory of U&CD is paramount. Leon Trotsky was grappling with a crucial issue when he formulated the basic premises of his theory. Societal development in Russia was drastically diverging from the path that was predicted by Karl Marx and despite the absence of an established bourgeoisie; revolutionary currents in Russia were extremely powerful compared to England, where Marx had anticipated the initial proletarian revolution.[21] On the basis of this observation, Trotsky established two fundamental features of human development. The first of the two is unevenness, which he identifies as the “most general law of the historic process”.[22] Specifically, Trotsky argues that there is an inherent unevenness in development among the various social entities that constitute the world.[23] Secondly, the core dynamic of all human development is the interaction among these uneven formations, which produces particular dialectical developmental trajectories and is therefore a combined form of development and thus, the “key driver of historical development”[24]. Crucially though, combination is not mere repetition by one society of another societies development.[25] Rather, it is the result of an amalgamation of a society’s internal characteristics with external geopolitical pressures and social forces. Moreover, there are two key features that are integral to this procedure. Firstly, Trotsky identified the “privilege of historic backwardness”[26]. In this, he refers to the possibility for a society to skip specific developmental processes by adopting and further enhancing certain features from more ‘advanced’ societies through the aforementioned interaction, thereby accelerating their development.[27] The second factor refers to the social and geopolitical pressure that a more ‘advanced’ society exerts on others through their respective interaction. In turn, this compels a society to accelerate development under said pressure, hence Trotsky labelling this as the “whip of external necessity”[28].

The Conjuncture of 1978

Let us now locate the existing unevenness between China and the so-called advanced capitalist countries (ACCs) of the global economy at the conjuncture of 1978, out of which the powerful ‘whip of external necessity’ arose. Mao’s initial improvements for the rural peasantry that were discussed earlier, quickly faded and the burden of growing international isolation, a devastating famine and the atrocities committed during the totalitarian ‘Cultural Revolution’ became increasingly visible and took their gruesome toll on the Chinese people and the country’s socio-economic structure.[29] Despite the clear focus on heavy industry under Mao,[30] China’s workforce was comprised of about 70% agrarian labor.[31] However, total productivity stagnated and the agricultural output was relatively low, which further aggravated the concern for food security.[32] What added to the urgency of the Chinese situation was the rapid economic development by the so-called East Asian Tigers, all situated in direct proximity to China, thus generating geopolitical pressure as it became clear that China’s economic development was diverging from that of its industrializing neighbors.[33] This also prompted the leadership to acknowledge the necessity of economic reform, which was launched to overcome economic stagnation.[34] There was an explicit sense of importance attached to economic reform among China’s developmental planners, in the sense that “a big effort to catch up [was necessary to] move to the front ranks of the world”.[35] What fostered this visible unevenness and thus the ‘whip of external necessity’ between China and the capitalist countries of the global economy was the fact that at this very same point in time, global markets were at an unprecedented level of openness.[36] Consequentially, disregarding reform, especially in conjuncture with the ‘neoliberal turn’ of the global economy was equated with political and economic decay.[37] Having situated China in an international context, the following section will show how the ‘Chinese characteristics’ of capitalism originated in the process of combined development.

Identifying the Particularities of Chinese Capitalism through U&CD

Davidson argues that China started to experience U&CD most drastically after its incorporation into the global economy in 1978.[38] The analysis by Dunford and Weidong already applies the theory of U&CD to the historical development of China.[39] Yet, this is conducted in a different manner. Rather than searching for specific combinations within China’s economy, their study takes a broader approach and situates China in a wider context of international unevenness. In contrast, the subsequent analysis aims to provide a more specific account of how the internal and external currents formed distinct fusions in China’s economy. Subsequently, this part will examine some specific results of Chinese capitalist development, following the reforms that were initiated by Deng Xiaoping in 1978. Having previously established the existing unevenness between the largely agrarian Chinese economy and the so-called ACCs or the surrounding East Asian Tigers, now the aim is to illustrate the peculiarities within Chinese capitalism that emerged as a result of the interaction between internal factors particular to China and external influences of a westernised market; thereby merging into a combined form of development, aligning with the principles of unevenness and combination of U&CD.

Impact of Hukou and Danwei

The first analysis will focus on labour relations with a specific emphasis on the influence of hukou, (the household registration system), as well as the danwei, (traditional urban working units), on the structure of Chinese wage labour. Both the household registration system and the danwei were institutions that were developed as Maoist policy in the 1950s.[40] However, the following section will outline how both customs still remain an important factor in Chinese capitalism and therefore illustrate its combined nature.

The danwei was a publicly owned unit, integral to urban employment because it served as a lifetime employer, provided housing within the compound and was linked to the distribution of benefits, thus being labelled the “provider of iron rice bowls”[41]. Yet, these values are mostly incompatible with those of a market economy, which was introduced through China’s increased adoption of capitalist relations of production after 1978.[42] As a result, economic reform and the increasing influence of global capitalism have fundamentally altered the makeup of Chinese employment and have effectively ended customs such as lifetime employment or the comprehensive multitude of benefits that previously characterised the danwei.[43] Nevertheless, Xie et al. argue that the danwei continue to be influential.[44] This is apparent through their positive impact on workers’ wellbeing, especially in terms of equal earnings.[45] Given that some of China’s privately owned companies have adopted structures similar to those of the danwei,[46] it is plausible to argue that what remains of the danwei, following the marketization of social services, is still a powerful factor in the alignment of the class structure within China’s urban working class. Importantly however, the impact of the danwei is reliant on low labour mobility and thereby directly linked to the hukou system.[47]

Through the use of a hukou, the second unique trait within Chinese labour relations, the state effectively controls where people work or live and is thereby able to monitor and restrict rural-urban migration.[48] Set up under Mao for exactly this purpose, migration control still remains the central feature of today’s hukou system, despite having undergone liberalisation and restructuring during the period of reform.[49] The system encapsulates the administrative power of the state, as the firm restrictions on transferring permanent residence persist.[50] In addition, the results of market reform have led to the commodification of the urban ‘blue stamp’ hukou, which remains under state control but can now be purchased, thus essentially turning the right to move into a market good.[51] Although the possibility of a temporary residence was introduced by the aforementioned capitalist reforms, any commodified mobility within this system privileges workers with the appropriate financial means or desired qualifications.[52] In fact, the Chinese government is seen to favour temporary migration, as this has a lesser impact on the overall social makeup of cities and in addition reduces the necessary infrastructure requirements for workers.[53] What makes the hukou system such a distinct feature of Chinese capitalism is that it upholds a low wage labour force consisting of migrant workers, who are unable to go the route of formal migration and are compelled to take on jobs in precarious conditions.[54] The difficulty of the official transfer of residence and work rights, combined with diminishing prospects for agricultural employment has resulted in the “largest migration in world history” of peasants into the cities.[55] Thus, what emerges as a product of the remaining hukou system, as well as the economic reforms that attempt to create a capitalist labour market, is a vast number of urban migrant workers without residential rights, often referred to as the “floating population”[56]. This practically indefinite resource of labour made extremely low cost manufacturing on such an unprecedented scale possible.[57] Here, we can clearly observe the element of combined development. On the one hand, we find the introduction of a capitalist mode of production based upon large scale low wage labour, influenced by economic reform and interaction with ‘advanced’ capitalist economies. On the other hand, the hukou system eliminates the most fundamental characteristic of capitalism in itself, namely the “personal independence”[58] of the worker, who, through the hukou system is subject to political subordination, regarding their independence to choose where to work or live. What is more, the control exercised by the state extends much further into personal lives through the repressive measures of censorship and surveillance[59], thereby “disciplining the workforce and keeping social conflicts within bounds”.[60] A recent proposal by the Chinese government exemplifies this approach. Newly planned legislation would require all drivers of the taxi service Didi Chuxing to acquire urban residency permits.[61] In general, many of China’s internet titans such as Ali Baba rely on migrant workers to absorb the demand for low wage labour[62], yet the deliberate obstacle of the hukou system pushes migrant workers further into perilous conditions through essentially limiting workers’ freedom of movement within capitalist labour relations.

Organisational Structure of Enterprises

Chinese enterprises have undergone large reforms and restructuring, mainly aimed at increased privatization.[63] However, the most profitable state-owned enterprises (SOEs) remained under state control.[64] Nevertheless, the privatization of state-owned companies is not necessarily anything unique to China. What is more interesting in this case in the shift of organizational structure in Chinese companies, which will be demonstrated in the following. As we will see shortly, Western education of Chinese management has had an impact on the organizational structure of Chinese enterprises and thereby constitutes another example of combined development. The starting point to this process is the aftermath of the Cultural Revolution, which left China with a significant lack of trained Chinese mangers and staff to facilitate the technology transfer from the West and Japan that accompanied the open door policy of China toward the global economy.[65] Accordingly, especially during the 1990s, managers of SOEs were encouraged to complete Western-style management degrees and frequently visit companies in the West.[66] In their study, Ralston et al. trace the development of organizational structures in SOEs both before and after economic reform. They claim that prior to reforms, SOEs are generally best characterised by a ‘clan’ and ‘hierarchy’ culture, which implies a workplace environment similar to a family, with superiors acting as mentors and a high regard of loyalty trust and tradition, while upholding strong hierarchical structures.[67] However, they also trace a substantial shift in their comparison and argue that the integration into the word economy has led SOEs to embrace a more ‘market’ oriented organizational structure based on the aim to maximize productivity and profits.[68] Importantly however, a majority respondents still selected ‘clan’ culture as the most prominent type, with ‘market’ in second place.[69] Thus, rather than a complete restructuring of enterprise organization, there has been a particular convergence between pre and post reform management styles, which is likely to have been caused by the influence of Western training of Chinese management.[70] Another aspect of this are the vast numbers of Chinese students, who study abroad either in high school and later on at a university. By 2015, over four million Chinese students have studied abroad since 1978.[71] What makes this number even more impactful is the fact that the share of students returning from abroad with graduate degrees is continuously rising, amounting to 79% in the year 2016.[72]

Overall, the examples above illustrate the existing combinations in the Chinese socio-economic landscape. While the marketization of labour power was borrowed from Western capitalism[73], both the hukou and the danwei are notable Chinese characteristics that have undergone reform but remain influential and thereby shape today’s Chinese labour market into an amalgam of internal and external influences. Similarly, the new forms of SOE management also signify a form of combined development, which surfaces through the interaction of a previously dominant ‘clan’ enterprise organisation and Western management education. These examples show that far from posing a paradox, the peculiarities of Chinese development emerged as a result of the process of uneven and combined development.


Before drawing the final conclusion, let us briefly consider a crucial point. This essay has set out to understand the specific impact of U&CD on China. Despite not being the focus of this essay, it is important to keep in mind that by default, the same interaction between China and the global economy has also caused combined forms of development in the latter. In conclusion, this essay has presented the argument that the theory of U&CD provides an effective way to conceptualize the particular outcomes of Chinese economic development. Further, through applying U&CD we can resolve what first appears as a paradox – capitalist development under a self-titled communist regime. This is possible through examining the specific forms of combined development that are a manifestation of the interaction between China and the capitalist world economy, driven by the ‘whip of external necessity’ that was exerted on China in 1978. This was exemplified in this essay through the examples of the impact of the hukou and danwei on capitalist labour relations, as well as the impact of Western education and market integration on Chinese SOE management structures.  In sum, we can derive from this analysis that an understanding of ‘capitalism with Chinese characteristics’ requires a thorough examination into the internal and external forces that initially led to their development.


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ICEF – Data taken from:

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Zhang, D.; Unschuld, P. (2008). ‘China’s barefoot doctor: past, present, and future’. In: The Lancet, Vol. 372, pp. 1865-1867. Online, available at DOI:10.1016/S0140- 6736(08)61353-7 [Accessed: 28/04/2018].


[1] IMF – World Economic Outlook Database 2018

[2] Lorenz, A.; Wagner, W. (2007). ‘Red China, Inc. – Does Communism Work After All?’. In: Der Spiegel.

[3] Meisner, M. (1996). ‘The Deng Xiaoping Era – An Inquiry into the Fate of Chinese Socialism, 1978-1994’. Toronto: HarperCollins Canada Ltd, p. xii.

[4] Cohen, M. A. (2012). ‘Argentina’s Economic Growth and Recovery: The Economy in a Time of Default’. New York: Routledge, p. xvii.

[5] Huang, Y. (2008). ‘Capitalism with Chinese characteristics: Entrepreneurship and the State’. New York: Cambridge University Press.

[6] Oi, J. C. (1999). ’Two Decades of Rural Reform in China: An Overview and Assessment’. In: The China Quarterly, No. 159, Special Issue: The People’s Republic of China after 50 Years, p. 627.

[7] Ibid.

[8] Huang, Y. (2008), p. xviii.

[9] Ibid., p. 8.

[10] Rosenberg, J., (2016). ‘Uneven and Combined Development: ‘The International’ in Theory and History’. Chapter 2 in: Anievas, A. & Matin, K. (eds.), Historical Sociology and World History: Uneven and Combined Development over the Longue Durée. London: Rowman & Littlefield International, pp. 18-19.

[11] Meisner, M. (1996), p. 18.

[12] Deutscher, I. (1984). ‘Marxism, Wars and Revolutions’. London: Verso, p. 195.

[13] Ibid., pp. 205-06.

[14] Hung, H. (2013). ‘Labor Politics under Three Stages of Chinese Capitalism’. In: The South Atlantic Quarterly, Vol. 112(1), p. 205.

[15] Hung, H. (2016) ‘The China Boom: Why China will not rule the world’. New York: Columbia University Press, p. 47.

[16] Zhang, D.; Unschuld, P. (2008). ‘China’s barefoot doctor: past, present, and future’. In: The Lancet, Vol. 372, p. 1865.

[17] Ibid., pp. 1865-66.

[18] Meisner, M. (1996), p. 194.

[19] Hung, H. (2016), p. 48.

[20] Boyle, C.; Rosenberg, J. (2018). ‘Explaining 2016: Brexit and Trump in the History of Uneven and Combined Development’. (Unpublished Manuscript, University of Sussex), p.11.

[21] Rosenberg, J., (2016), pp. 21-22.

[22] Trotsky, L. [1932(2007)]. ‘History of the Russian Revolution’. Chicago: Haymarket Books, p. 5.

[23] Rosenberg, J., (2016), p. 17.

[24] Ibid.

[25] Trotsky, L. [1932(2007)], p. 4.

[26] Ibid.

[27] Rosenberg, J. (2013). `Kenneth Waltz and Leon Trotsky: Anarchy in the mirror of uneven and combined development’, In: International Politics Vol. 50(2), p.196.

[28] Trotsky, L. [1932(2007)], p. 5.

[29] Fan, C. (1995). ‘Of Belts and Ladders: State Policy and Uneven Regional Development in Post-Mao China’. In: Annals of the Association of American Geographers, Vol. 85(3), p. 422.

[30] Meisner, M. (1996), p. 199.

[31] Lin, J. (2011). ‘The comparative advantage-defying, catching-up strategy and the  traditional economic system’. Chapter 4 in: Demystifying the Chinese Economy. Cambridge: Cambridge University Press, p. 102.

[32] Meisner, M. (1996), p. 201.

[33] Boyle, C.; Rosenberg, J. (2018), p. 12.

[34] Hung, H. (2013), p. 205.

[35] Kerr, D. (2007). ‘Has China abandoned self-reliance?’ In: Review of International Political Economy, Vol. 14(1), p. 83.

[36] Boyle, C.; Rosenberg, J. (2018), p. 8.

[37] Knight, J.; Song, L. (2005). ‘Labour Policy and Progress: Overview’. Chapter 2 in: Towards a Labour Market in China. Oxford Scholarship, p. 20.

[38] Davidson, N. (2017). ‘Uneven and Combined Development: Modernity, Modernism, Revolution’, p. 82.

[39] Dunford, M.; Weidong, L. (2017). ‘A Century of Uneven and Combined Development: The Erosion of United States Hegemony and The Rise of China’. In: Вестник Мгимо-Университета, Vol. 5(56), pp. 7-32.

[40] For Hukou see: Chan, K.; Zhang, L. (1999). ‘The Hukou System and Rural-Urban Migration in China: Processes and Changes’. In: The China Quarterly, Vol. 160, p. 819. For Danwei see: Xie, Y. et al. (2009). ‘Danwei and Social Inequality in Contemporary Urban China’. In: Res Social Work, Vol. 1(19), p. 283.

[41] Knight, J.; Song, L. (2005), pp. 26-27.

[42] Ibid., p. 41.

[43] Ibid.

[44] Xie, Y. et al. (2009), p. 283.

[45] Ibid., p. 294.

[46] Ibid., p. 286.

[47] Ibid., p. 294.

[48] Chan, K.; Zhang, L. (1999), p. 830.

[49] Wang, F. (2004). ‘Reformed Migration Control and New Targeted People: China’s Hukou System in the 2000s’. In: The China Quarterly, Vol. 177, p. 116.

[50] Knight, J.; Song, L. (2005), p. 25.

[51] Chan, K.; Zhang, L. (1999), p. 839.

[52] Wang, F. (2004), p. 129.

[53] Knight, J.; Song, L. (2005), p. 22.

[54] Walker, R.; Buck, D. (2007). ‘The Chinese Road: Cities in the Transition to Capitalism’. In: New Left Review, Vol. 46, p. 44.

[55] Davidson, N. (2017), p. 85.

[56] Chan, K.; Zhang, L. (1999), p. 831.

[57] Hung, H. (2013), p. 209.

[58] Marx, K., quoted in Rosenberg, J. (1994). ‘The Empire of Civil Society’. London: Verso, 144.

[59] Hung, H. (2013), p. 204.

[60] Meisner, M. (1996), p. 523.

[61] Clover, C.; Sherry, J. (2016). ‘Didi Chuxing to be hit by rules on migrant drivers’. In: Financial Times.

[62] Ibid.

[63] Walker, R.; Buck, D. (2007), p. 55.

[64] Oi, J. C. (1999), p. 625.

[65] Warner, M. (1987). ‘China’s Managerial Training Revolution’. Chapter 5 in: Management Reforms in China, Warner, M. (ed). London: Frances Pinter, p. 73.

[66] Ralston, D., et al. (2006). ‘Today’s State-Owned Enterprises of China: Are They Dying Dinosaurs or Dynamic Dynamos?’. In: Strategic Management Journal, Vol. 27, p. 833.

[67] Ibid., p. 831-32.

[68] Ibid., p. 839.

[69] Ibid., p.  838.

[70] Ibid., p.  838-39.

[71] Boyle, C.; Rosenberg, J. (2018), p. 14.

[72] ICEF: Increasing Numbers of Chinese Graduates Returning Home

[73] Meisner, M. (1996), p. 493.


What Do We Mean by… Uneven and Combined Development?

February 21, 2022 Leave a comment


The radical novelty of what Trotsky meant by uneven and combined development is often underestimated. The most common mistake is to reduce it to, or confuse it with, the longstanding theory of uneven development. The most famous (and certainly the most often quoted) passage in Trotsky’s The History of the Russian Revolution (1932) is an expression of this position: “The privilege of historic backwardness – and such a privilege exists – permits, or rather compels, the adoption of whatever is ready in advance of any specified date, skipping a whole series of intermediate stages”. But if all that Trotsky had proposed was a schema in which the “advantages of backwardness” allowed less developed nation-states to adopt the most modern available technologies he would have remained within the established limits of unevenness and, indeed, would not have distinguished himself from Stalinist usage of the same concept. What is the distinction?

Uneven Development

Until the First World War uneven development had been a largely descriptive concept, without specific political implications. In Imperialism: the Highest Stage of Capitalism (1916) Lenin wrote, “The uneven and spasmodic development of individual enterprises, individual branches of industry and individual countries is inevitable under the capitalist system”. Essentially, he argued that by the beginning of the 20th century uneven development had acquired three main aspects.

The first was the process by which the advanced states had reached their leading positions within the structured inequality of the world system. During the late 19th century the “skipping of stages” had been the experience of several states, notably Germany, Italy and Japan. The pressure of military and commercial competition between the actual or aspirant Great Powers forced those which were still absolutist states based on the feudal mode of production – or at least those which were capable of doing so – to adopt the current stage of development achieved by their capitalist rivals. This was necessary if they were to have any chance, not only of successfully competing, but of surviving at the summit of the world order. In very compressed timespans they had been able to adopt the socio-economic achievements of Britain to the extent that they became recognisably the same kind of societies, without necessarily reproducing every characteristic of the Anglo-Saxon pioneer. Where backwardness remained it tended to be in the nature of the political regimes led by monarchs or emperors supported by a landowning aristocracy.

By the outbreak of the First World War membership of the dominant states was essentially fixed. What remained was the second aspect of uneven development: the ongoing rivalry between the great powers which involved them constantly trying to “catch up and overtake” each other in a contest for supremacy that would continue as long as capitalism itself.

This rivalry led in turn to a third aspect: the developed imperialist states collectively, but competitively, asserting their dominance over two other types of state, described by Lenin as “the colonies themselves” and “the diverse forms of dependent countries which, politically, are formally independent but, in fact, are enmeshed in the net of financial and diplomatic dependence”, like Argentina and Portugal. Colonial expansion prevented some of the societies subject to colonialism from developing at all, and in the case of the most undeveloped, the people involved suffered near or complete extermination and their lands were taken by settlers. More often the peoples survived, but their social systems were immobilised by imperial powers interested in strategic advantage or plunder, or both.

Trotsky certainly took uneven development in these three senses as his starting point – as is suggested by the word order in the title of his own theory: “I would put uneven before combined, because the second grows out of the first and completes it”. How then does the concept of uneven and combined development differ from uneven development as such? The main difference is that it takes account of the internal effects of uneven development. To explain the link between the advanced nature of Russian industry on the one hand, and the militancy of Russian workers on the other, Trotsky had to transcend the theory of uneven development, a process he did not complete until the early 1930s. The inability of uneven development to fully encapsulate these phenomena is what appears to have made Trotsky search for a new concept with which to supplement it. It took a political crisis to provoke this conceptualisation.

During the Chinese Revolution of 1925-7 the emergent Stalinist regime in Russia ordered the local Communist Party to subordinate its own organisation and demands to those of the bourgeois nationalists in the Guomindang. The ultimately disastrous outcome for the Chinese working class movement was the catalyst for Trotsky to generalise the strategy of permanent revolution from Russia to sections of the colonial and semi-colonial world. This was not done indiscriminately – since some were still untouched by capitalist development and had no working class of any size – but applied to those places where conditions similar to those in Russia prevailed. Due to a common set of circumstances, the working classes in these countries had far greater levels of both consciousness and organisation than the proletariat in the more developed countries where Marxists had traditionally expected the socialist revolution to begin. Trotsky claimed that “the prediction that historically backward Russia could arrive at the proletarian revolution sooner than advanced Britain rests almost entirely upon the law of uneven development”. But uneven development was not the sole basis for this prediction, as we can see by contrasting actual Russian development with two possible alternatives.

One of these was the path of the advanced capitalist states. The pace of development was relatively faster in most of the countries that followed Holland and England, partly because of the urgency of acquiring the attributes of capitalist modernity, partly because the long period of experiment and evolution, characteristic of the two pioneers, could be dispensed with. In the case of Scotland in the 18th century or Prussia in the 19th century, this led to enormous tensions which resolved themselves in moments of class struggle, foreshadowing the process of permanent revolution. But because these societies did make the transition to the ranks of the advanced societies, either as the centre (Prussia/Germany) or a component part of another national formation (Scotland/Britain) these moments passed with the tensions that caused them.

The other alternative was the path of the colonies or semi-colonies. Colonial rule could even throw societies backwards, as in the case of British-occupied Iraq. Ruling through the Hashemite monarchy after 1920, the regime deliberately rejected any attempts at modernisation, except in the oil industry. Instead it reinforced disintegrating tribal loyalties and semi-feudal types of land tenure over the peasantry.

Tsarist Russia neither emulated the process of “catch up and overtake” among the advanced countries nor suffered that of “blocked development” within the backward ones, but instead experienced a collision between the two.

Combined Development

It was in relation to developments in China that Trotsky finally moved beyond uneven development. He continued to employ the term between 1928 and 1930, most importantly in the articles collected in The Third International after Lenin, and in Permanent Revolution and its various prefaces. In these texts his main emphasis is still distinguishing his use of uneven development from that of Stalin, for whom countries developed at different tempos and must therefore advance through a series of stages – including that of socialism – at their own individual pace.

Trotsky highlighted instead, the “unity” of the world economy and the “interdependence” of the imperial powers and the colonial and semi-colonial world. Unevenness in this sense means simultaneously that individual countries could leap over the capitalist stage of development, as Russia had done and as China might have done, but would still be unable to complete the transition to socialism while the world economy as a whole remained dominated by the capitalist mode of production. The international system was both a spur at one moment and a block at another. Yet these important insights still did not address the question of how the first part of this process, the revolutionary moment, was possible. Trotsky needed a new concept, incorporating uneven development, but deepening its content.

It was in the first volume of The History of the Russian Revolution that he first outlines this new concept:

From the universal law of unevenness thus derives another law which, for want of a better name, we may call the law of combined development – by which we mean a drawing together of the different stages of the journey, a combining of separate steps, an amalgam of archaic with more contemporary forms.

The precise forms which combination took obviously varied depending on whether the country involved was a formal colony controlled by a single imperial power, like India, or one nominally independent, but actually subdivided between several warlords and imperial powers, like China. Clearly there were differences. Unlike Tsarist Russia, neither Imperial nor Republican China was in a position to stimulate capitalist industrial growth. Where similarities did exist, was in the role of foreign capital and imported technology together with the limited geographical implantation of capitalist industry. Nevertheless it was possible to generalise in relation to these effects.

Historical backwardness does not imply a simple reproduction of the development of advanced countries, England or France, with a delay of one, two, or three centuries. It engenders an entirely new “combined” social formation in which the latest conquests of capitalist technique and structure root themselves into relations of feudal or pre-feudal barbarism, transforming and subjecting them and creating peculiar relations of classes.

Uneven and combined development affects the totality of a national society, not merely the economy. Trotsky was not saying that forms characteristic of different stages of development simply coexist alongside each other in striking or dramatic contrasts, although that could be true. Nor was he just emphasising the existence of transitional modes of production, although he recognised that these could exist. A process that permeates every aspect of society, ideology as much as economy, must involve more than this. The “articulation” of capitalist and pre-capitalist modes had, after all, been progressing slowly in the Russian countryside since the abolition of serfdom in 1861, and had led to many complex transitional forms, as Lenin documented. None by themselves led to the type of situation Trotsky was seeking to explain:

At the same time that peasant land-cultivation as a whole remained, right up to the revolution, at the level of the 17th century, Russian industry in its technique and capitalist structure stood at the level of the advanced countries, and in certain respects even outstripped them.

The detonation of the process requires sudden, intensive industrialisation and urbanisation, regardless of whether the pre-existing agrarian economy was based on feudal or capitalist relations. Here too the Chinese experience was important. Trotsky was quite insistent – perhaps over-insistent – on which mode dominated the Chinese social formation. He rejected the Communist International’s claims that feudalism predominated in the Chinese economic base and political superstructure: “Of course, matters would be quite hopeless if feudal survivals did really dominate in Chinese economic life,” he wrote in 1929. “But fortunately, survivals in general cannot dominate.” Instead he emphasised the extent of market relations and influence of different forms of mercantile and banking capital. Rural social relations “stem in part from the days of feudalism; and in part they constitute a new formation”, but within this formation: “it is capitalist relations that dominate and not “feudal” (more correctly, serf and, generally, pre-capitalist) relations. Only thanks to this dominant role of capitalist relations can we speak seriously of the prospects of proletarian hegemony in a national revolution”.

Whatever the extent of Trotsky’s exaggerations here, it is important, not least in relation to modern China, that uneven and combined development can take place where the capitalist mode was already dominant. The archaic and the modern, the settled and disruptive, overlap, fuse and merge in all aspects of the social formations concerned, from the organisation of arms production to the structure of religious observance, in entirely new and unstable ways, generating socially explosive situations in which revolution became what Georg Lukács termed “actual”.

Implications for the Class Struggle

These new combined formations gave rise to conflicts unknown in earlier historical periods. On the one hand: “The [backward] nation…not infrequently debases the achievements borrowed from outside in the process of adapting them to its own more primitive culture”. From 1861 Tsarism established factories using manufacturing technology characteristic of monopoly capitalism in order to produce arms with which to defend a feudal absolutist state. On the other hand, by doing so they bring into being a class more skilled, more politically conscious than that faced by any previous absolutist or early capitalist states. All subsequent non-Marxist theories of “the advantages of backwardness” assumed that technological transfers had a limited, or at least delayed, impact on other aspects of social life. Against this Trotsky argued that these transfers could in fact quicken the pace of change more generally, so that they attained higher levels of development than in their established rivals. As an example of this he drew attention to the greater implantation of Marxist theory among the working classes of Russia and, later, China than in that of Britain. Thus, for Trotsky, the most important consequence of uneven and combined development was the enhanced capacity it gave the working classes for political and industrial organization, theoretical understanding and revolutionary activity:

When the productive forces of the metropolis, of a country of classical capitalism…find ingress into more backward countries, like Germany in the first half of the 19th century, and Russia at the merging of the 19th and 20th centuries, and in the present day in Asia; when the economic factors burst in a revolutionary manner, breaking up the old order; when development is no longer gradual and “organic” but assumes the form of terrible convulsions and drastic changes of former conceptions, then it becomes easier for critical thought to find revolutionary expression, provided that the necessary theoretical prerequisites exist in the given country.

But uneven and combined development can also work, as it were, in reverse: “debased adaptation” is not only a feature of backward societies. Here too the opening of the age of imperialism is decisive. Between 1870 and 1914, for example, imperial Britain, Germany and Japan all consciously emphasised the role of their monarch-emperors. In each case, the pre-existing symbolism of the crown was used to represent national unity against two main challenges: external imperial rivalry and internal class divisions. Trotsky saw this as a much more general phenomenon, necessarily caused by the need to maintain bourgeois hegemony over the exploited and oppressed in an era of revolution and which reached its peak in the US: “It is considered unquestionable that technology and science undermine superstition. But the class character of society sets substantial limits here too. Take America. There, church sermons are broadcast by radio, which means that the radio is serving as a means of spreading prejudices.”

The theory of uneven and combined development explained what occurs when the process of “overleaping” takes place in the colonial or neo-colonial world, where it is impossible to fully “catch up” with, let alone “overtake” the developed West, so “overleaping” occurs instead in a fragmentary or partial way. But the resulting combined forms, because of their inbuilt social instability, paradoxically made revolutionary outbreaks more likely than in the developed world, with its greater levels of stability and reformist traditions. In other words, the presence of uneven and combined development made it possible for a strategy of permanent revolution to be pursued with greater likelihood of success; its absence made it, not inevitable, but less likely that such a strategy would be pursued in the first place, thus leading to the process of “deflection” highlighted by Tony Cliff in his 1963 article.

Uneven and Combined Development Today

Permanent revolution, and consequently deflected permanent revolution may now be historical concepts, but uneven and combined development is not. This has important implications for the possibility of socialist revolution beginning in the Global South. The relentless expansion of neoliberal globalization, and the consequent devastating effects of industrialization and urbanization into areas they had previously bypassed, often under conditions of intense state repression, means that the same responses are being reproduced in places as distinct as China and Dubai. But these are only the most extreme examples of a general trend that is the most characteristic of the current phase of capitalist development. Two points need to be made in relation to the process.

One is that it is not limited to the Global South, but to the relatively undeveloped parts of the First and former Second Worlds. Take, for example, the Italian Mezzogiorno, where Italian unification was followed by a pronounced process of deindustrialisation, which led to a steady drain of capital to the North, with a long-term reservoir of cheap labour-power, cheap agricultural products and a docile clientele in the South. Here the process of uneven and combined development led to similarly high levels of militancy to that seen in countries characterized by more general backwardness. The key episode was the revolt of the Italian immigrants against their living conditions and low pay during the “industrial miracle” of the late 50s and early 60s, culminating in 1969. What is interesting about the Italian example, however, is that the process has continued, in different forms until the present day.

The other is that, in the Global South proper at least, the process is still unable completely to transform those societies. The state “containers” within which the process of uneven and combined development unfolds, including China, will never achieve the type of total transformation characteristic of the states that formed the original core of the capitalist world system, at least in any foreseeable timescale. Uneven and combined development is therefore likely to be an ongoing process, which will only be resolved by either revolution or disintegration. But in the meantime, China, and other states like India and Brazil where growth has been less dramatic, remain both inherently unstable in their internal social relations and expansive in their external search for markets, raw materials and investment opportunities. As we have recently seen in the Arab Spring, it is in this inherent instability that provides one of the preconditions for revolution.

Neil Davidson


Varieties of Capitalism and Rethinking the East Asian Model

February 18, 2022 Leave a comment

In their work on varieties of capitalism (VoC), Soskice and Hall (2001) identified several types of capitalism, such as liberal market economies (LMEs), coordinated market economies (CMEs), and mixed market economies (MMEs). They argue that each type of capitalism is stable and efficient in terms of its economic performance, owing to complementarity among its institutional components. However, Lee and Shin (2018) show that each type corresponds to different economic outcomes in terms of economic growth, unemployment, and equity. They also observe that the change of a country from one type to another has led to the existence of convergence and divergence among countries.

A similar contrast was also made in Acemoglu et al. (2012), when they considered the US model of capitalism and the Western European model as “cutthroat” capitalism versus “cuddly” capitalism, respectively. Cutthroat capitalism is good for innovation but generates inequality, whereas cuddly capitalism is better at redistributing income and protecting employment and health, but worse at producing frontier innovation. Aghion et al (2020) try to compare the US and Western European models again in terms of how they are dealing with and responding to the Covid-19 crisis.

This paper focuses on East Asian economies led by Japan, followed by the Asian Tigers, namely, Korea and Taiwan, to discuss the evolution of their performance and changes in type over time, from the VoC perspective. First, I discuss the interesting puzzle of the emerging convergence of Japan and Korea toward the LMEs or Anglo–Saxon economy, despite the apparent differences in underlying institutions: labour market, corporate governance, and welfare systems. Then, I identify the financialisation of an economy as a force that drives this convergence, signalled by decreasing economic growth rates and rising inequality in East Asia. Finally, I re-evaluate Asian economies in the context of the coronavirus disease in 2019, the ‘Covid-19 pandemic’, which has suddenly halted globalisation and further questioned the superiority of shareholder capitalism, mostly adopted in LMEs and associated with financialisation and globalisation.

I argue that a new balance is needed between shareholder and the stakeholder capitalism in East Asia. I also discuss the implications of the retreat of globalisation for East Asia and other emerging economies in general, in terms of the “globalization paradox” proposed by Rodrik (2011). I argue that the retreat of globalisation is a good opportunity to resolve the paradox or the ‘trilemma’ by restoring autonomy in domestic economic policymaking over interest rates and exchange rates, while imposing some adjustments on formerly excessive capital mobility. These changes in policy stance are required to build a crisis-resilient macro-financial system, given the brewing of the post-pandemic bubble and the increasing mismatch between real and financial sectors around the world.

Varieties of Capitalism, Financialisation, and the End of East Asian Capitalism

Soskice and Hall (2001) have provided an important way to understand and compare economic systems around the world. They focus on how firms enter into a relationship with other actors, such as workers, suppliers, business associations, governments, and other stakeholders. According to Soskice and Hall (2001), an economy is classified as an LME when firms use market institutions, such as competition and formal contracts, to coordinate a relationship. Alternately, an economy is classified as a CME when firms use a non-market relationship, such as strategic interaction among actors, as a form of coordination. Accordingly, they classify the US, the UK, Australia, Canada, New Zealand, and Ireland as LMEs; Germany, Japan, Switzerland, the Netherlands, Belgium, Sweden, Norway, Denmark, Finland, and Austria as CMEs; and France, Italy, Spain, Portugal, Greece, and Turkey as countries with an ambiguous position as MMEs. These classifications are similar to the existing conventional classification, that is, most LMEs are UK or US-offspring countries, whereas CMEs comprise mostly Continental and Northern European countries.

I aim to understand East Asian economies, especially Japan and the Asian Tigers, namely, Korea, Taiwan, given their spectacular achievements in terms of growth and equity. Their economies tended to feature high growth and low inequality during their peak growth, which has earned them the label of East Asian miracles by the World Bank (1993). Kalinowski (2015) shows that East Asian capitalism remains a distinct state-led model that differed from the liberal, neo-corporatist, or welfare state capitalism in the West in terms of its reaction to the global economic crisis in 2008 by using big fiscal stimulus packages. This difference may be associated with a path-dependent transformation of the East Asian developmental state (Kim and Thurbon 2015; Thurbon 2016).

However, these economies have recently been going through radical changes as they record slow growth and rising inequality. The new situations lead to questions on whether we are facing the end of East Asian capitalism (characterised by high growth and low inequality) and convergence toward the LME (characterised by low growth and high inequality). Lee and Shin (2018) confirm this hypothesis by using a quantitative (cluster) analysis. This is different from the VoC literature, which tends to use the variables representing the underlying institutional characteristics of economies. Lee and Shin (2018) use outcome variables to compare economic performance, including the growth rate of GDP per capita, employment rate, and top 10% income share.

As shown in Table 1, a statistical analysis by Lee and Shin (2018) indicate that the LME group is associated with slow growth, high inequality, and a medium level of employment, whereas the CME group has modest growth, low inequality, and sound employment rates. Between these two groups is the MME group, with the lowest rates of employment, which probably reflect labour market rigidity. The East Asian group exhibits the highest growth and lowest inequality but only before the 2000s. In the 2000s and after, Japan and Korea joined the LME group and Taiwan joined the CME group, leaving the former East Asian group empty. Their choices may imply the end of East Asian capitalism. These results are not that surprising because the top 10% share of the national income is currently the highest in the US, at over 45%, followed closely by Korea, reaching 45% in 2010, and Japan with 40% (Lee and Shin 2018). Korea and Japan have experienced disruption, or crisis, such as the bubble and burst of the 1990s in Japan and the 1997 financial crisis in Korea, that led to a liberal and open economy (Shin and Lee 2018; Lee et al. 2020). During the crisis, Korea implemented IMF policy prescriptions in exchange for a bailout loan (Lee et al. 2002). Japan has also experienced a similar change since the burst of its economic bubble in the late 1990s. In particular, the Koizumi administration implemented liberalization policies, such as privatization and deregulation, from 2001.

Table 1: Four types of capitalism and their economic outcomes

Source: Table 1 of Lee et al. (2020).

Many institutions in Japan and Korea have evolved similarly to those in the US. First, the financial market is liberalised to allow more foreign shares of stocks and to strengthen shareholder capitalism. Second, the labour market is liberalised to promote labour flexibility and weaken the long-term employment system. Consequently, the share of part-time or irregular workers to the total employment rate has rapidly increased in Japan and Korea (Shin and Lee 2018; Lee et al. 2020). In the meantime, the divergence between Korea and Taiwan seems to be driven by the top 10% income share; the top 10% income share has increased gradually in Taiwan but at much slower rates than in South Korea since the late 1990s. This difference in the evolution of inequality between these two economies may be caused by various shocks from the Asian financial crisis, which strongly affected the South Korean economy, but minimally affected the Taiwanese economy, which avoided the crisis (Lee et al. 2020).

The above discussion presents the foundation to argue for the convergence of East Asian capitalism toward Anglo–Saxon capitalism. However, the question remains as to how this convergence can happen despite the continuing differences in underlying institutions, such as labour, financial systems, firm ownership, and governance. For instance, despite some trends toward flexibility, the labour markets in Korea and Japan are still less flexible than those in the US or the UK. Moreover, the nature of firm ownership and government in Asia is also quite different from that in the US or the UK, where ownership is quite dispersed over a large number of individual investors. Consequently, the forces that push these economies toward the LME group in terms of slow growth and high inequality remain unknown. The strong candidate variable must be the tendency for financialisation (Lee et al. 2020).

An increasing volume of literature has focused on the negative aspect of financialisation coupled with shareholder capitalism, which forces firms to pay high dividends to shareholders rather than use profits for reinvestment, which leads to slow growth (Dore et al. 1999; Lazonick 2010, 2014). The growing dominance of financial sectors is related to rising income inequality in developed countries (Alvarez 2015; Godechot 2012; Hacker and Pierson 2010; Kus 2012; Lin and Tomaskovic-Devey 2013; Stockhammer 2013; Tomaskovic-Devey et al. 2015). In the Korean context, Kim and Cho (2008) confirm that firms with high shares of equity owned by foreign shareholders tend to be associated with low investment because they are subject to demands by shareholders for more dividends. In many economies, including the US and Korea, capital markets no longer function as sources of additional funding for listed companies, but rather as a channel for value extraction in the form of stock repurchases and dividends (Lazonick and Shin 2019).[1] Lee et al. (2020) confirm this tendency for value extraction, which is that more money has flowed out of, rather than into, Korean listed firms since 2003, although such firms previously enjoyed a net positive inflow of money.

The macro-level consequences of this situation are the decreasing of fixed capital investment as a share of GDP and the increasing outflow of capital (in the form of repatriated profits and interest payments) in balance-of-payment figures.[2] In other words, the rise of shareholder capitalism, which prioritizes distributing profits as dividends to shareholders rather than funding reinvestment, seems to be slowing down investment, which in turn slows down economic growth rates. This symptom, associated with financialisation, is also a source of increasing income inequality, in addition to effects of skill-biased technological changes, including automation. Shin and Lee (2019) show that increased shares of stockholders in profits or financial resources of non-financial sectors have led to rising inequality, measured by the top 10% income share in OECD countries, whereas the influence of skill-biased technological change (which is perceived to lead to more inequality among labour-based incomes) is not a robust enough variable to explain inequality.

Financial globalisation is argued to cause rising inequality. Stockhammer (2013) finds that financial globalisation, measured by the log of external financial assets and liabilities divided by GDP, is significantly and negatively correlated with labour income share by using country-level data. Distinguishing financialisation and ‘financial development’, meaning ‘better functioning of financial markets’, Lee and Shin (2019) find no support for the argument that financial development, such as the high ratio of stock market valuation to GDP, reduces inequality by relaxing the credit constraints of the poor and see no evidence that financial development aggravates inequality. A simple focus on financial development or high education is not sufficient to reduce inequality (Lee and Shin 2019). Thus, government policies or reform measures, including differentiated taxation on dividends and reinvestments, are necessary to curve financialisation by inducing non-financial firms to focus on productive reinvestment from profits and by discouraging high dividends for shareholders.

Covid-19 and the Rebalance between Shareholder and Stakeholder Capitalism

The Covid-19 pandemic has been a major shock to the world economy and its constituent economies, including the varieties of capitalist economies. A big blunt has been observed in the US, which has not recovered as quickly as Western European economies and Asian economies such as China, Korea, and Japan (Popov 2020). Western European economies have also revealed their weaknesses in their initial responses and thus suffered greatly. One of the common weaknesses of the Western world is its reliance on East Asia for the production of masks and other medical devices, including the test kits. Overall GVC (global production chains) have revealed weakness associated with too widespread a fragmentation over diverse countries. Thus, Covid-19 also signals the retreats of the Anglo–Saxon style shareholder capitalism that has driven globalisation or neoliberalism since the 1980s. Since the 1980s, the efficiency or profit maximisation forced by shareholders seeking short-term profit has resulted in a high degree of globalisation of production chains.

Lazonick (2010, 2014) points out that the US economy maintained manufacturing until the 1980s but the rise of shareholder capitalism and financialisation since then has forced US firms to relocate their factories abroad to meet the demands of shareholders and increase profitability. This change has turned the US economy into a service-oriented economy with the hollowing out of the manufacturing industry. Lee and Shin (2019; table 1) confirm that the LMEs as a group with more than two member economies was only observed in the mid-1980s, and the US joined Canada and the UK to form the LME group only during the late 1980s or the early 1990s. This emergence of the LMEs since the mid-1980s is consistent with neoliberalism being dominant only since the 1980s.

Shareholder capitalism is again being criticised after the Covid-19 pandemic outbreak. For example, Boeing was heavily criticised when the company asked for financial help from the public sector because it paid – before the pandemic outbreak – a huge amount of money to its shareholders (with its top five all PEFs) in the form of dividends and stock buybacks, rather than reserved profits for in-house reserves or reinvestment funds. Even before the pandemic crisis, the top firms and their business leaders declared their desire to reset capitalism toward more consideration for various stakeholders besides just shareholders. These changes have been signaled by a series of occasions, including the August 2019 ‘Statement on the Purpose of a Corporation’ by the top 181 business leaders in Washington DC in the US, which was immediately followed by the initiatives of the Financial Times under the heading of ‘Capitalism: Time for a reset’. These movements culminated in the January 2020 Davos Forum, which endorsed stakeholder capitalism as the vision for the future of capitalism.

The pandemic is the final blow to globalization, or over-fragmented GVC, after the two preceding blows of the 2008-09 global financial crisis (GFC) and the US-China trade war. The GFC was the first blow to financial globalization, followed by the setback against trade globalization of the US-China trade war. Finally, the pandemic outbreak signaled a major setback to production globalization. Just as the pandemic is considered a warning against human destruction of the environment, it is also a call to restore the vitality of the capitalist market economy by rebalancing against over-globalization and over-loaded shareholder capitalism. Shareholder capitalism and globalization have been pointed out in economics literature as the main sources of low growth and high inequality, as discussed in the preceding section.

While the Covid-19 crisis has indicated more advantages toward manufacturing-oriented economies than service-oriented economies, East Asian economies, such as Korea, are also suffering from slow growth and rising inequality that have been exacerbated since the pandemic. One aspect of the necessary reforms is the correction of the tendency of financialisation associated with shareholder capitalism, which includes a practice that provides equal rights to short- or long-term shareholders in terms of rights for voting and dividends. Measures that promote long-term holdings of stocks and thus enhance firm value are also needed to provide privileges to long-term shareholders, which is consistent with the idea of stakeholder capitalism.

The idea of stakeholder capitalism is that firms are to be run in the interests of a broad spectrum of stakeholders that include not only shareholders but also clients, managers, workers, and nearby communities, who are often holders of long-term, firm-specific interests and even stocks. Thus, providing the same voting and dividend rights to those who own stocks for only several years and weeks does not promote enhancement of the long-term value of firms, and it may lead to short-term profits or performance-seeking value.

East Asia may learn from the EU, which has initiated several reforms to curb the negative influence of shareholder capitalism. The EU Parliament passed a law in 2015 that changed its firms’ corporate governance (Stabilini 2015). The new law allows firms to provide more voting rights or more dividends to tenured or long-term shareholders who hold their stocks for more than two years. Following this law, the 2014 Florange Act has been implemented in France. Owing to this Act, many of the firms (or more than 54%) in the French stock market, including Electricite de France, Air Liquide, Credit Agricole, L’Oreal, Lafarge, and Group SEB, have opted to issue stocks that provide special favour to tenured stockholders. These new innovative practices are not possible under the current corporate law in Korea, which follows the idea of shareholder capitalism by sticking strictly to the rule of one share and one vote, regardless of holding period.

East Asian states, such as Korea, may learn from other countries and seriously consider changing their corporate law. Even the US allows its firms to issue dual-class stocks in the initial public offering in NASDAQ, which gives special favour in terms of voting power to the founders of the firms. Using this clause, the founders of many high-tech firms in the US may manage their firms from long-term perspectives and tend to be aggressive in trying innovative new projects. These dual-class stocks are all issued to US firms, including Facebook, Google, and Amazon (Zeiler 2014).

In sum, East Asian economies may take the Covid-19 crisis as an opportunity to turn their economies around by adopting measures that can curb the ongoing tendency of financialisation and restore the original strength of Asian capitalism, such as high growth and good equity. Instead of maintaining the old version of East Asian capitalism, they can also be reborn through hybrid capitalism, rebalancing elements from shareholder and the stakeholder capitalism with East Asian capitalism at its original core.

The Globalisation Paradox and a Crisis-Resilient Macro-Finance System: The Case of Korea

Globalisation has become stalled by a series of events, including the Covid-19 pandemic outbreak. The consequences of this change for emerging economies can be interpreted by the “globalization paradox” raised by Rodrik (2011). In his book, Rodrik (2011) proposes a trilemma that globalization, national sovereignty, and democracy cannot go together, and thus one can have only two out of the three. He argues that globalization tends to suppress either national sovereignty or democracy because it often tends to consider the interests of global businesses the top priority against the interests of the national government or workers. Under globalization, the national government is left with less room or tools for domestic economic policies, including interest rates and exchange rates. With globalization suddenly stalled after the pandemic and affected by the rising protectionism of the Trump government in the US, alternative economic systemic arrangements can be explored to provide autonomy in domestic economic policies for emerging countries. In particular, given the possibility of financial crises that may result from the mismatch between a quick financial recovery versus weak non-financial businesses, owing to the massive release of diverse kinds of emergency loans, subsidies, and the printing of money in some countries as an aftermath of the Covid-19 pandemic outbreak, emerging countries are advised to install a crisis-resilient macro-financial system in preparation for the coming burst of the financial bubble built over the pandemic period.

The globalization trilemma can be compared with the conventional trilemma (or the ‘impossible trinity’) in macroeconomics, such that free capital mobility, autonomous monetary policy (interest rates), and free-floating exchange rates cannot go together and at least one out of the three has to be sacrificed. Thus, advanced economies tend to choose the combination of free capital mobility and autonomous monetary policy. By contrast, some of the emerging economies, such as Korea before its OECD entry in 1993, tend to favour autonomous monetary and exchange rates as trades are extremely important for catch-up stages of economic development. This combination of a twin autonomy of interest rates and exchange rates is implemented well in many emerging economies at their catching-up growth stage, including China. By contrast, premature financial liberalization for free capital mobility has often resulted in a financial crisis, as shown by the Asian financial crisis in the late 1990s. Consequently, even the IMF has become cautious about suggesting full-scale financial liberalization and acknowledged the necessity of active management of the capital account (capital control) under certain conditions (Ostry et al. 2010).

The IMF, the World Bank, or the Washington Consensus (Williamson 1990) used to propose financial liberalization for emerging economies, implying that it would bring in more financial resources for an economy lacking domestic funds. However, more often than not, financial liberalisation is followed by financial crisis rather than steady economic growth, as observed in the 1997 Asian crisis involving Korea, Thailand, and Indonesia. While these economies had to ask for the emergency loans from the IMF, only Malaysia avoided this situation by imposing capital controls. Korea embraced the first wave of radical liberalization of capital accounts as a requirement to join the OECD – which is considered a club of rich countries – in the mid-1990s. The outbound financial liberalization had enabled chaebols (Korean big businesses) to borrow funds nominated in USD at much lower rates in the international market than in the domestic banks. The 1997 Asian financial crisis can be attributed to this “premature” or careless integration “into international financial markets, excessive short-term borrowing abroad with a maturity mismatch, and weak domestic financial sectors” (Nayyar 2019, p. 83).

The post-crisis reform package implemented in Korea is one of the most comprehensive and decisive set of reforms undertaken by any country following a major crisis (Lee 2016, p. 112). Numerous Korean institutions were forced to change or evolve, similarly to those in the US (Lee et al. 2002). For instance, the financial market was liberalized and most restrictions on foreigners’ domestic investments were lifted. Consequently, foreigners’ share of stocks in Korean firms increased rapidly from less than 3% in the mid-1990s to more than 40% in the 2000s, which strengthened shareholder capitalism. Jang-Sup Shin and Ha-Joon Chang (2003) argue that the IMF programme demanded Korea pay an extremely expensive price to follow a neoliberal or Anglo–Saxon model, which is not suitable for a country with newly achieved compressed development.

However, this comprehensive reform and another round of financial liberalization have not been effective in protecting Korea from the risk of another financial crisis in the aftermath of the 2008-09 GFC. During the onset of the GFC, hot money suddenly flew out of Korea to go back to the Wall Street because of a liquidity crisis at the heart of capitalism, and thus the Korean Won again suffered a huge and sudden depreciation (Lee et al. 2020). This situation stopped only after Korea agreed a bilateral currency swap with the US which enabled the supply of dollars to the foreign exchange market in Korea and was ineffective for 15 months. Korea learned a hard lesson from the negative spillover of the crisis in Wall Street in 2008-09. The Korean experience may provide some hint in seeking a blueprint for a crisis-resilient macro-financial system, which would also make sense in this post-pandemic era.

Following Williamson (1999) and Ferrari-Filho and Paula (2008), Lee (2016) proposes a kind of macro-policy framework that can be described as “an intermediate system” with managed capital mobility and an explicit option of Tobin taxes, a version of the managed or flexible BBC (basket, band, crawl) exchange rate system, and with relative independence in monetary policymaking with a new balance between interest-rate and exchange-rate targeting. With regard to specific macro-level measures, fees on short-term financial flow (or Tobin tax) and reserve requirements are suggested, discouraging the buying and selling of foreign exchange for extremely short-term purposes (Lee 2016; Lee et al 2020).[3] At the micro-level, the key task against external shocks is to manage foreign assets and liabilities in corporate and bank dimensions. In particular, the level of and trend in short-term foreign liability need to be managed and monitored, covering not only domestic banks but also domestic branches of foreign banks, and the optimal hedge ratio needs to be used as a sophisticated investment strategy. For example, a minimum requirement in the ratio of foreign liquid assets over total foreign assets is suggested. A core funding ratio, such as foreign loan to foreign deposit, is also recommended. It helps not only reduce currency mismatch but also increases the core funding base, which is relatively stable even in times of financial turmoil.

Some of these measures were adopted by the Korean government in 2011 in the name of ‘three macro-prudential’ measures, including regulations on banks’ positions in forward exchange markets (150% of equity capital), taxes on non-deposit foreign exchange debt, and the LCR (liquidity coverage ratio) which is the regulation of minimum high-liquidity foreign exchange-based assets (e.g., US treasury bonds) to be held against net cash outflow expected for a month (e.g., withdrawal of deposits), in addition to a tax on foreigners’ interests income from holding Korean bonds (Lee 2016, p. 143). Since then, the Korean economy has maintained stability in the macroeconomic sense. However, managing the possibility of sudden inbound or outbound flows of short-term capital remains a challenge. In this post-pandemic recession, all the emerging economies tend to lower their interest rates but this measure may increase the possibility of capital flight whenever an exogenous shock is observed. Following Korea’s policy initiatives associated with the ‘three macro-prudential’ measures, each country is advised to conceive and install its own schemes for macro stability.

These three measures worked again during the economic shock from Covid-19. In March 2020, global financial markets were suffering from the shock of the outbreak of the pandemic. As a precautionary measure, on 19 March, the US federal reserve board extended Dollar swap lines to nine economies – Korea, Brazil, Mexico, Singapore, Sweden, Norway, Denmark, New Zealand and Australia – in addition to the existing swap agreement with the five core advanced economies. This sudden intervention helped to stabilise the foreign exchange market facing the sharp explosion of demand for dollars. In the Korean market, the exchange rates dropped or decreased from about 1,300 Won per dollar to 1,200 Won by the end of June.

Besides this currency swap, the three macro-prudential measures had an additional stabilising role by reducing the possibility of capital flight. First, the Bank of Korea decided that the commercial banks’ position in forward exchange markets was now enlarged from the prevailing 200% to 250% of equity capital for Korean branches of foreign banks, and from 40% to 50% for domestic banks.[4] Second, no taxes will be charged on the increased amount of non-deposit foreign exchange debt incurred to commercial banks during the three months from April to June 2020. Third, the Ministry of Finance of the Korean government announced that the LCR (liquidity coverage ratio) was now reduced from the prevailing ratio of 80% to 70% until May 2020.[5] These cases suggest that these measures can be useful in adjusting the inflow and outflow of hot money during the times of macro-financial uncertainty, particularly for emerging economies without reserve currency.

Summary and Concluding Remarks

As reflected in the expression “East Asian miracle” (World Bank 1993), East Asian economies saw remarkable performance of high growth and low inequality, thereby forming a separate East Asian capitalism group within the VoC typologies. There are strong signs that these economies have recently been converging to the LME group, featuring low growth and high inequality, features shared by East Asian economies since the 2000s. Financialisation is arguably one cause for these outcomes of low growth and high inequality. I re-evaluate East Asian capitalism in the context of the Covid-19 pandemic, which has suddenly halted globalization and further questioned the superiority of shareholder capitalism associated with financialisation and globalization. I propose rebalancing between shareholder and stakeholder capitalism. By doing so, East Asian economies can be reborn as a hybrid capitalism, with East Asian capitalism at its original core, to restore their growth momentum in an inclusive way. I also argue that the post-pandemic retreat of globalisation is a good opportunity to restore autonomy in domestic economic policymaking over interest rates and exchange rates, while imposing some adjustments over formerly excessive capital mobility.

Keun Lee


Acemoglu, D., Robinson, J. A., and Verdier, T. (2012). Can’t We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World. MIT Department of Economics Working Paper No. 12-22.

Aghion, Philippe, Maghin, Helene, and Sapir, André (2020). Covid and the nature of capitalism. Vox EU. Available at

Alvarez, I. (2015). Financialization, non-financial corporations and income inequality: the. case of France. Socio-Economic Review 13(3), 449-475.

Dore, R., Lazonick, W., Sullivan, M. (1999). Varieties of capitalism in the twentieth. century. Oxford Review of Economic Policy 15(4), 102-120.

Ferrari-Filho, F. and Paula, L. (2008) Exchange rate regime proposal for emerging countries: A Keynesian perspective, Journal of Post Keynesian Economics, Vol. 31.

Godechot, O. (2012). Is finance responsible for the rise in wage inequality in France? Socio-Economic Review 10(3), 447-470.

Hacker, J. S., Pierson, P. (2010). Winner-take-all politics: Public policy, political organization, and the precipitous rise of top incomes in the United States. Politics & Society 38(2), 152-204.

Kim, A., Cho, M.-H. (2008). Types of Foreign Investors, Dividend and Investment Policy: An. Empirical Study of. Korean Firms. Journal of Strategic Management 11(1), 25-42

Kim, S.-Y., Thurbon, E. (2015). Developmental environmentalism: Explaining South Korea’s ambitious pursuit of green growth. Politics & Society 43(2), 213-240

Kus, B. (2012). Financialisation and income inequality in OECD nations: 1995-2007. The. Economic and Social Review 43(4, Winter), 477-495.

Lazonick, William (2010) “Innovative business models and varieties of capitalism: Financialization of the US corporation.” Business History Review 84.4: 675-702.

Lazonick, William (2014) “Profits without prosperity.” Harvard Business Review 92.9: 46-55.

Lazonick, W., Shin, J.-S. (2019). Predatory Value Extraction: How the Looting of the Business. Corporation Became the US Norm and How Sustainable Prosperity Can Be Restored. Oxford: Oxford University Press.

Lee, C. H., Lee, K., Lee, K. (2002). Chaebols, financial liberalization and economic crisis: transformation of quasi-internal organization in Korea. Asian Economic Journal 16(1), 17-35.


Lee, Keun., Kim, B.Y., Park, Y.Y. and Sanidas, E. (2013), “Big Businesses and Economic Growth: Identifying a Binding Constraint for Growth with Country Panel Analysis,” Journal of Comparative Economics, 41 (2): 561-582.

Lee, Keun, Ginil Kim, Hong Kee Kim, and Hong-Sun Song, 2010, New Macro-Financial System for a Stable and Crisis-resilient Growth in Korea, Seoul Journal of Economics 23 (2): 145-186

Lee, K, and H. Shin. (2019). “Varieties of capitalism and East Asia: Long-term evolution, structural change, and the end of East Asian capitalism,” STRUCTURAL CHANGE AND ECONOMIC DYNAMICS, published online.

Lee, K, H.C. Shin, and J. Lee (2020), “From Catch-up to Convergence? Re-casting the Trajectory of Capitalism in South Korea, KOREAN STUDIES.

Lin, K.-H., Tomaskovic-Devey, D. (2013). Financialization and US income inequality, 1970–2008. American Journal of Sociology 118(5), 1284-1329.

Nayyar, Deepak (Ed.) (2019). Asian Transformations: An inquiry into the Development of Nations, UNU-WIDER Studies in Development Economics, ISBN 978-0-19-884493-8, Oxford University Press.

Ostry, J.D., Ghosh, A.R., Habermeier, K., Chamon, M., Qureshi, M.S. and Reinhardt, D.B.S. (2010) Capital inflows: the role of controls. IMF Staff Position Note SPN/10/04.

Popov, Vladimir (2020). Which economic model is more competitive? The West and the South after the Covid-19 pandemic. Working paper.

Shin, H and K. Lee (2019), Impact of Financialization and Financial Development on Inequality: Panel Cointegration Results using OECD Data,” Asian Economic Papers

Shin, J.S, and H.J Chang (2003). RESTRUCTURING KOREA INC., London and New York: Routledge Curzon.


Stabilini, A. (2015), “Revision of the Shareholders Rights Directive: It’s a Long Way Home”, Lexology.

Stockhammer, E. (2013). Why have wage shares fallen? ILO, Conditions of Work and. Employment Series 35(61), 1-61.


Thurbon, Elizabeth (2003). “Ideational Inconsistency and Institutional Incapacity: Why Financial Liberalisation in South Korea Went Horribly Wrong” in New Political Economy Vol. 8 No. 3, Carfax Publishing, pp. 341-361

Tomaskovic-Devey, D., Lin, K.-H., Meyers, N. (2015). Did financialization reduce economic growth? Socio-Economic Review 13(3), 525-548.

Williamson, J., (1999) Crawling Bands or Monitoring Bands: How to Manage Exchange Rates in a World of Capital Mobility, Institute for International Economics.

Williamson (1990). “What Washington Means by Policy Reform.” in Latin American. Adjustment: How Much Has Happened, pp. 90-120. Washington: Institute for International Economics.

World Bank. (1993). THE EAST ASIAN MIRACLE: ECONOMIC GROWTH AND PUBLIC POLICY. New York: Oxford University Press

Zeiler, D., (2014), “Why Facebook Inc. (Nasdaq: FB) Stock Is a Bet on the Future”, Money. Morning


[1] Lazonick (2014) shows that 54% and 37% of US companies’ earnings had been spent on stock buybacks and dividends in 449 firms among the 500 S&P firms from 2003 to 2012, respectively.

[2] Lee et al. (2020) also show that the amount of outflow funds of the Korean economy in the form of dividends and interest income is greater than that of foreign direct investment (FDI) inflow. For instance, Korea gained 26.9 billion USD FDI inflow in 2018 but released 29.7 billion USD in the form of dividends and interest payments to foreign investors in either FDI or portfolio investment (financial investment trading stocks and bonds in capital markets). The dividends payment to GDP ratio is rapidly increasing from less than 1% in the early 2010s to more than 1.3% in 2018. In Korea, the fixed investment to GDP ratio was above 35% during the pre-crisis period in the 1990s. However, it declined to 30% in the 2000s and has continued declining in the 2010s.

[3] Some reserve requirement policies require foreign investors to place some of the funds in a bank for a period. As the fund can be used for investment after a specified period, the long run capitals are not hindered to flow.




More about VoC

Keun Lee (2018) Varieties of Capitalism and East Asia: Long-Term Evolution, Structural Change, and the End of East Asian Capitalism

William Lazonick (2010) Innovative Business Models and Varieties of Capitalism: Financialization of the U.S. Corporation

William Lazonick (2014) Profits without Prosperity: How Stock Buybacks Manipulate the Market, and Leave Most Americans Worse Off

Yushan Hu (2020) The Production Economics of The Economics Production

Peter W. Heller (2020) Entrepreneurship in the Context of Western vs. East Asian Economic Models

Terence Gomez (2020) Development & Transformation in Southeast Asia: The Political Economy of Equitable Growth

Mark Beeson – Competing Capitalisms and Neoliberalism

Karmo Kroos (2013) Developmental Welfare Capitalism in East Asia with a Special Emphasis on South Korea

World Bank (2007) East Asian Visions: Perspectives on Economic Development

World Bank (2006) Postindustrial East Asian Cities: Innovation for Growth

Hyun-Chin Lim (2018) How to Study Capitalism in Asia? : A Theoretical and Methodological Consideration

Mark Gould (2016) Marx and Weber and the Logic of Historical Explanation: The Rise of Machine Capitalism

Henry Veltmeyer (2019) Capitalism, Development, Imperialism, Globalization: A Tale of Four Concepts

S. A. Hamed Hosseini (2015) Globalization and Capitalism

Peter Hall (2001) Varieties of Capitalism and Institutional Complementarities in the Political Economy: An Empirical Analysis

Michael A. Witt (2016) Varieties of Capitalism and Institutional Comparative Advantage: A Test and Reinterpretation

Gregory Jackson (2008) From Comparing Capitalism to the Politics of Institutional Change

Gregory Jackson (2008) Comparing Capitalisms: Understanding Institutional Diversity and its Implications for International Business

Martin Schroder (2009) Integrating Welfare and Production Typologies: How Refinements of the Varieties of Capitalism Approach Call for a Combination of Welfare Typologies

Dorothee Bohle (2009) Varieties of Capitalism and Capitalism

Stephan Haggard (2004) Institutions and Growth in East Asia

Keun Lee (2018) Varieties of Capitalism and East Asia: Long-Term Evolution, Structural Change, and the End of East Asian Capitalism

Richard W. Carney (2014) Varieties of Hierarchical Capitalism: Family and State Market Economies in East Asia

David Hope (2016) Growth Models, Varieties of Capitalism, and Macroeconomics

Michael A. Witt (2016) Varieties of Capitalism and Institutional Comparative Advantage: A Test and Reinterpretation

‘Green Capitalism’: A Critical Review, Part 3

February 17, 2022 Leave a comment
Max Ernst, Europa nach dem Regen, 1933.

Part 3 of Stephen Graham’s critical review of the ‘Green capitalism’ literature examines debates between advocates of ‘green Keynesian’ approaches and supporters of de-growth. It concludes with a discussion that focuses on political strategy and environmentally sustainable transition at a time of acute ecological crisis.

Part 3

Green Growth, Political Strategy and Ecologically Sustainable Transition: ‘Green Growth’ or ‘De-Growth’?

Recently, debates regarding the very possibility of ‘green growth’ have intensified following the (re-)emergence of Green New Deal (GND) thinking in the US.[1] The GND’s increasing political traction – in large part a reaction to the anti-ecological intransigence of the Trump administration at a time of increasingly evident climate breakdown– has pitted defenders of ‘green Keynesian’ ideas such the GND against those demanding not ‘green growth’ but ‘de-growth’ as the socio-economic means by which to ensure planetary salvation.[2]

Before going further, we must note that, despite some major differences between the various strains of green Keynesian and de-growth thinking, there also exists significant common ground. For instance, it would be possible to create more ‘green’ jobs in renewable energy (a typical ingredient of green Keynesian approaches), whilst reducing working time for individual employees (a common demand of de-growth advocates).

Consequently, drawing crude, clear-cut distinctions between de-growth and green Keynesian positions is ill-advised. However, given that such a move is helpful in terms of initially setting out the terrain of debate, it is in this manner that I will proceed. Doing so will enable us to consider the key possibilities and limitations associated with each perspective, and thus will allow us to establish some potential advantages (considered from the viewpoint of those seeking ecologically sensitive social transformation) of a middle way position founded on a more qualitative conception of growth than that frequently employed in the de-growth literature.

Green Keynesian approaches

While there are many Keynesianism (neoclassical synthesis, post-Kensianism, etc.), we will consider as green Keynesian those approaches that combine Keynesian fiscal policies with environmental aims in an effort to resolve both ‘unemployment problems and ecological problems through a single policy framework’.[3] Such policies typically seek to boost employment (and therefore demand) by ‘greening’ basic infrastructure.[4]

A major tension evident in green Keynesian approaches, however, relates to traditional Keynesianism’s emphasis on growth and the increasingly evident ecological limits to growth.[5] A key challenge for those advocating green Keynesian approaches, then, relates to the question: to what extent can this growth be ‘greened’?

The rapidly rising US GND movement draws on green Keynesian ideas. Driven by groups such as the Justice Democrats and the Sunrise Movement, this socialist-inflected Green New Deal variant is gaining political traction as a potential solution to pressing environmental, economic and social problems. Indeed, the idea is currently supported by several leading Democratic candidates for the 2020 presidential election.[6]

The programme can be considered relatively ambitious. According to Representative-Elect Alexandria Ocasio-Cortez, a key figure driving the resurgence around the GND, the policy is set to be ‘the New Deal, the Great Society, the moon shot, the civil-rights movement of our generation’.[7]

Proposals centre around a mass public works programme oriented towards rapid decarbonization of the US economy: the aim is to develop a national energy system based on 100% renewable energy within 12 years. It is founded on a federal job guarantee offering work with a ‘liveable wage’ and health insurance for all who want it.[8]

Other demands include the recognition of labour rights and union representation, and a just transition with protections for low-income communities, communities of colour, indigenous communities and those adversely affected by climate change and environmental pollution . To help fund this programme, key figures associated with the movement are demanding tax increases for the rich.[9] Perhaps unsurprisingly, these suggested tax increases have been fiercely attacked by Republican critics; the programme has also faced criticism for the role played by the controversial Modern Monetary Theory (MMT) in GND financing.

The scale of the programme and its increasing political traction clearly represents a threat to embedded elements within the fossil-capital nexus in the US. Consequently, the GND movement has faced, and continues to face, significant resistance from such quarters.[10] Yet opposition has emerged not only from those intent on protecting fossil-capital interests, but also from sections of the environmentalist left – in particular from advocates of de-growth.


The de-growth movement brings together a diverse range of tendencies, each emphasising different issues: GDP, consumption, work-time, physical degrowth, etc.[11] All, however, tend to coalesce around the view that ‘growth is uneconomic and unjust, that it is ecologically unsustainable and that it will never be enough’.[12]

This stance sits squarely at odds with the orthodox economic view that continuous growth is both possible and desirable – and that its achievement constitutes a panacea for all social ills.[13] Advocates of de-growth tend to stress the need for ‘sustainable de-growth’. This, it is suggested, should not be considered solely in terms of negative GDP growth (a phenomenon that already has a name: ‘recession, or if prolonged, depression’.[14] Instead, this involves an ‘equitable downscaling of production and consumption that will reduce societies’ throughput of energy and raw materials’.[15] This focus on throughput is important, suggests Kallis, as:

In any meaningful understanding of the term, ‘economic growth’ signals an increase of material [living] standards.[16]

This is because:

Growth in the material standard of living requires growth in the extraction of materials. This is unavoidably damaging to the environment and ultimately undermines the conditions of production and reproduction. There is no silver-bullet technology that can make an increase in the material standard of living immaterial.[17]

On this view, reducing ecological impact requires a reduction in material and economic throughput. For Kallis, this is incompatible with GDP growth – and indeed throughput de-growth will likely lead to a decline in GDP.[18]

Therefore, suggests Kallis, what is required is a way to make the ‘inevitable – and desirable – economic (GDP) degrowth… socially sustainable… It is a vision of a smooth process of downshifting the economy through institutional changes, managing collectively a ‘prosperous way down’.[19]

However, as many critics of de-growth perspectives note, devising a way forward that is socially sustainable is one thing – yet it is something entirely different to incorporate such demands for social sustainability into a programme that is politically viable. This issue we will return to below. First it is necessary to take a critical look at green Keynesianism.

Green Keynesianism: critical perspectives

As noted above, a central ecological critique of green Keynesian approaches relates to the detrimental ecological impacts associated with increased levels of employment and, therefore, demand.[20] According to Jackson, this relationship between employment and consumption indicates that:

…the default assumption of even the ‘greenest’ stimulus package is to return the economy to a condition of continuing consumption growth. Since this condition is unsustainable, it is difficult to escape the conclusion that in the longer term something more is needed.[21]

From an ecological sustainability point of view, Jackson’s doubts are not without foundation. Note, for example, the emphasis placed on increased consumption in the Green New Deal Group’s influential 2008 report:

Any (Green New Deal) public spending should be targeted so that domestic companies benefit, and then the wages generated create further spending on consumer goods and services… workers’ salaries are spent on food, clothes, home entertainment, the theatre and so on, creating demand for those industries.[22]

A common defence offered in response to this line of criticism stresses the possibilities associated with shifting economic activity from production of goods to services.[23]

Yet this suggestion can be found wanting on at least two counts. First, while it might indeed be possible to re-orient a given (national) economy away from manufacturing goods towards service-based activity, this need not necessarily be accompanied by a reduction in levels of domestic consumption (and therefore overall material throughput). Instead, environmentally harmful production processes may simply be exported to other national economies, which in turn export their (semi-)finished goods to the countries in question. While a domestic economy may appear, then, to be de-materialising, this process is predicated on ‘supermaterialisation’ at the macro scale.[24].

Second, those who advocate shifting production from goods to services tend to assume that service-based economic activities are immaterial (or at most have a very light ecological footprint). While of course hairdressing may be less ecologically harmful than steelmaking, service-based economic activities still require a material basis – therefore their continued growth has detrimental ecological consequences.[25]

Another key limitation of Green Keynesian approaches (and an issue of particular importance given the nature of the argument I set out below) is the ‘top-down’ nature of their political decision-making processes. For Wainwright and Mann, this dynamic forecloses the development of radical political alternatives. Keynesian approaches, they suggest, can only:

…further concentrate power and resources in the hands of elites – the technocratic and economic groups with the knowledge and power to carry it out – thus rendering us even more beholden to the political status quo upon which those elites rely.[26]

Their view is supported by Eskelinen, who notes that Keynesian approaches say little about power relations in production, and that they typically overlook privileges rooted in established ownership patterns – omissions that tend to leave existing class relations intact.[27]

Environmental critics of green Keynesian approaches tend to consider such factors inherently limiting in terms of instigating processes of meaningful socio-ecological transformation. However, green Keynesians are able to suggest precisely the opposite: it is the relative compatibility between their proposals and the currently dominant political-economic ideas that makes their translatability into concrete political action more likely.[28]

For many advocates of green Keynesian ideas, however, the same cannot be said of de-growth proposals – which, the argument goes, offer little insight into how to foster the social and political changes required for the enactment of a programme of rapid, radical socio-ecological change.[29]

De-growth: critical perspectives

For thinkers such as Pollin, Foster and Schwartzman, this deficiency is rooted in an inadequate conception of growth itself. Pollin suggests that de-growth thinkers tend to present ‘broad generalities’ about economic growth that result in crude demands for ‘blanket’ de-growth.[30] It is a view is shared by Schwartzman, who criticises de-growth thinkers for prioritising the quantitative, rather than qualitative, aspects of growth. He suggests that:

The concept of economic growth should be deconstructed, with in-depth consideration of its qualitative versus quantitative aspects, particularly its differential ecological and health impacts. Growth of what are we asking? Weapons of mass destruction, unnecessary commodities, SUVs versus bicycles, culture, information, pollution, pornography, or simply more hot air? What growth is sustainable in the context of biodiversity preservation and human health, and which is not?[31]

Emphasising the form of growth (its qualitative nature) offers a means by which to overcome what many characterise as the green growth vs de-growth dichotomy. It also provides a foundation for the development of an emancipatory ecological politics based on green growth.

This is not to deny the need from an ecological sustainability standpoint for an overall reduction in material and energetic throughput – a key concern if we are to remain within planetary limits. This qualitative conception, however, does open up space for thinkers such as Pollin to argue for growth in some categories of economic activity (i.e. clean energy infrastructure development), alongside a rapid contraction in others (the fossil fuel sector, for instance).[32]

This approach offers a way to potentially sidestep the severe social dislocation typically associated with sharp declines in growth. While such economic contractions can have beneficial ecological effects, they typically lead to mass unemployment and declining standards of living – particularly for working people and the poorest in society.[33] It is for this reason, Pollin argues, that strategies founded on the de-growth concept will find little public political support – and therefore must be rejected.

It is a sentiment with which Neale and Dale agree. To build an ecological movement with the social power necessary to drive radical socio-economic change, Neale argues that political demands must centre not on sacrifice and reductions in growth, but on ‘decent living standards, jobs and growth of a very particular kind’.[34]

This is not to suggest that sacrifices are completely unnecessary. Instead, argues Dale:

…certain sacrifices are needed: for instance on the part of frequent flyers, SUV owners, or eaters of beef. These would disproportionately, but not exclusively, affect the wealthy.

However, growth must not be conceived in the abstract, but in determinate, qualitative terms (linked to questions of the form of society). The struggle then becomes one not simply for green growth, but for:

…climate jobs, street by street refurbishment of buildings, additional bus routes and tram lines, solar panels, public healthcare, and so on. In the Global South the list could be extended to include electricity supply for the 1.6 billion people who lack it, an end to back-breaking work, and the installation of sanitation and water systems. [35]

Foster similarly dismisses a conception of growth considered in the abstract – a viewpoint he strongly associates with de-growth thinking. He instead emphasises the need to focus on:

deaccumulation—a transition away from a system geared to the accumulation of capital without end.

He does not, however, reject outright the importance of de-growth. But he does argue that, while economic growth may be the ‘main driver of planetary ecological degradation’, the concept of de-growth can only take on genuine meaning:

…as part of a critique of capital accumulation and part of the transition to a sustainable, egalitarian, communal order; one in which the associated producers govern the metabolic relation between nature and society in the interest of successive generations and the earth itself (socialism/communism as Marx defined it).[36]

In terms of political strategy, by bringing together the work of Pollin, Neale, Dale and Foster, we can suggest that concrete proposals – renewable energy infrastructure projects, energy efficiency programmes, improving public transport networks etc. – could constitute the initial phase of what Foster has called a ‘two-stage strategy for ecological and social revolution’.[37] This first stage focuses on actions possible under present-day conditions – yet that run counter to the logic of capital accumulation. Such activities can generate the conditions necessary for the second, eco-socialist phase of transformation that Foster ultimately advocates (there are connections here with Gorz’s conception of structural reforms[38]).

Like Foster, Vergara-Camus considers the transition to socialism necessary for long-term ecological protection. For him, this transition would necessarily entail the abolition of capital accumulation as the dominant organising logic of society. In his vision of socialism, the consumer choices of labourers would be determined by ‘democratically decided and ecologically informed objectives’ in a way that could allow such a society to ‘…grow in certain times and degrow in others (depending on the satisfaction of needs and the available technology)’.[39] Clearly, if one accepts the arguments set out above, such an agenda is inconsistent with the logic of capitalist production – no matter how ostensibly green. Instead, as Dale sets out, it would require a context where:

…not capital but need determines what is produced and how[40], in which not profit but the quality of life is the defining purpose of social labour, and in which the planet’s resources and the natural environment are handled with care.[41]

This vision would not appear out of place in the de-growth literature. However, if one accepts the criticisms of de-growth set out above, then perhaps demands for a certain type of (green) growth can better inform the development of a political strategy that, in the longer term, will develop the social forces necessary to make meaningful de-growth a genuine possibility.


The primary aim of capitalist production is the accumulation of capital. Capitalist social formations require constant growth – and as this growth (even when ostensibly green) is inherently ecologically destructive, we can conclude that any future ‘green’ capitalist accumulation regime will eventually hit the limits of nature. A ‘green’ capitalism in any meaningful sense, then, is a contradiction in terms.

While it might be possible in theory to envisage a capitalist social formation that is powered entirely by non-fossil energies, there is little empirical evidence to suggest that such a prospect is pending. As a result of the advantages fossil fuels provide, they remain a central element in capitalist production. Despite current trends showing large increases in renewable energy capacity, the inner logic of capitalism ensures that these new de-carbonized energy systems only supplement existing fossil-based supply in service of capital accumulation. What’s more, the expanded production of these new renewable energy systems will amplify other ecological rifts. As the window of opportunity for action on climate change closes, this situation is a cause for concern. It is clear, then, that a truly sustainable future – one focused on a social metabolism geared to sustainable human development[42] – must be one beyond capitalism.

However, while I object to the notion of ‘green capitalism’, it may be possible to pursue an ecologically-sustainable political programme that includes ‘green growth’ – if one accepts that this can only occur in certain sectors (green energy infrastructure, public transport, etc.) and at particular times as demanded by ecologically-informed social need. This growth must be compensated for by rapid de-growth in ecologically destructive sectors (fossil fuel production, private vehicles, military activity, unnecessary consumption etc.).

Such priorities require a social context in which effective, deeply democratic institutions are firmly embedded and where production is oriented not towards constant capital accumulation, but social need. This vision is incompatible with the priorities that drive capitalist social formations, and instead speaks to socialist demands.


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Notes to Part 3

[1] Interest in the Green New Deal concept is also gaining momentum in other settings, including the UK.

[2]  See, e.g.: Kallis, ‘Socialism without growth’; Serge Latouche, Farewell to Growth (Cambridge: Polity, 2009); Jonathan Neale, ‘Climate politics after Copenhagen’, International Socialism Journal, 126 (2010); Troy Vettese, ‘To freeze the Thames’, New Left Review, 111 (2018), 63–86.

[3] Jonathan M. Harris, ‘Green Keynesianism: beyond standard growth paradigms’, Global Development and Environment Institute Working Paper, 13:2 (2013).

[4] Teppo Eskelinen, ‘Possibilities and limits of Green Keynesianism’, in: Eskelinen et al. (eds.), Politics of Eco-Socialism, p. 102.

[5] Harris, ‘Green Keynesianism’.

[6] Cameron Cawthorne, ‘Ocasio-Cortez: “Every Democratic presidential candidate” supports Green New Deal’, Washington Free Beacon (16 February 2019).

[7] Robinson Meyer, ‘The Democratic Party wants to make climate policy exciting’, The Atlantic (5 December 2018).

[8] Katrina vanden Heuvel, ‘Why the time has come for a Green New Deal’, The Washington Post (18 December 2018).

[9] Matthew Choi, ‘Ocasio-Cortez floats 70 percent tax on the super wealthy to fund Green New Deal’, Politico (4 January 2019); Matthew T. Huber, ‘Building a “Green New Deal”: lessons from the original New Deal’, Verso Blog (19 November 2018).

[10] Dean Obeidallah, ‘The right is slamming the Green New Deal, and Democrats need to react fast’, CNN (18 February 2019).

[11] Giacomo D’Alisa, Federico Demaria, Giorgos Kallis (eds.), Degrowth: A Vocabulary for a New Era (Oxford: Routledge, 2015); Jeroen C.J.M. van den Bergh, ‘Environment versus growth — A criticism of “degrowth” and a plea for “a-growth”’, Ecological Economics, 70:5 (2011), 881–90.

[12] D’Alisa et al. (eds.), Degrowth, p. 6.

[13] Dale, ‘Growth paradigm’.

[14] Giorgos Kallis, ‘In defence of degrowth’, Ecological Economics, 70:5 (2011), 874.

[15] François Schneider, Giorgos Kallis, Joan Martinez-Alier, ‘Crisis or opportunity? Economic degrowth for social equity and ecological sustainability. Introduction to this special issue’, Journal of Cleaner Production, 18:6 (2010), 512.

[16] Kallis, ‘Socialism without growth’, 5.

[17] Kallis, ‘Socialism without growth’, 2.

[18] Kallis, ‘Socialism without growth’, 4.

[19] Kallis, ‘In defence’, 875; quoting: Howard T. Odum, Elisabeth C. Odum, A Prosperous Way Down: Principles and Policies (Colorado: UP of Colorado, 2001).

[20] Wainwright, Mann, Climate Leviathan, p. 120.

[21] Tim Jackson, Prosperity without Growth: Economics for a Finite Planet (London: Earthscan 2009), p. 104.

[22] Green New Deal Group, A Green New Deal: Joined-up policies to solve the triple crunch of the credit crisis, climate change and high oil prices (London: New Economics Foundation, 2008), p. 27.

[23] Fred Block, ‘Crisis and renewal: the outlines of a twenty-first century new deal’, Socio-Economic Review, 9:1 (2011), 31–57.

[24] Dale et al. (eds.), Green Growth, p. 9; David A. Sonnenfeld, ‘Contradictions of Ecological Modernization: Pulp and paper manufacturing in Couth-East Asia’, in: Mol et al. (eds.) Ecological Modernisation Reader, pp. 386-7.

[25] Wainwright, Mann, Climate Leviathan, p. 120. Hairdressing is a frequently invoked example of a supposedly immaterial entity that has significant detrimental ecological impacts is Bitcoin.

[26] Wainwright, Mann, Climate Leviathan, p. 121.

[27] Eskelinen, ‘Possibilities and limits’, p. 112. However, it is necessary to note that by boosting employment, Keynesian approaches can work to strengthen the position of labour vis-à-vis capital: Michał Kalecki, ‘Political aspects of full employment’, Political Quarterly 14:4 (1943).

[28] Eskelinen, ‘Possibilities and limits’.

[29] John Bellamy Foster, ‘Capitalism and Degrowth: an impossibility theorem’, Monthly Review62:8 (2011), 26-33; Neale, ‘Climate politics’; Robert Pollin, ‘Green Growth vs a Green New Deal’, New Left Review¸ 112 (2018), 5–25.

[30] Foster, ‘Capitalism and Degrowth’; Pollin, ‘Green Growth’.

[31] David Schwartzman, ‘A critique of degrowth and its politics’, Capitalism Nature Socialism, 23:1 (2012).

[32] Pollin, ‘Green Growth’, 7-8; Dale, ‘Growth Paradigm’; Neale, ‘Climate politics’.

[33] Pollin, ‘Green Growth’, 22.

[34] Neale, ‘Climate politics’.

[35] Dale, ‘Growth paradigm’.

[36] Foster, ‘Capitalism and degrowth’.

[37] John Bellamy Foster, ‘Marxism and ecology: common fonts of a Great Transition’, Great Transition Initiative (October 2015).

[38] André Gorz, ‘Reform and revolution’, in: Greg Albo, Leo Panitch, Alan Zuege (eds), Class, Party, Revolution: A Socialist Register Reader (Haymarket: Chicago, 2018).

[39] Leandro Vergara-Camus, ‘Capitalism, democracy, and the degrowth horizon’, Capitalism Nature Socialism (2017), 11.

[40] In Marxist terms, we can state that this is the prioritization of use-value over exchange-value: Marx, Capital, vol. 1.

[41] Dale, ‘Growth paradigm’.

[42] Foster, ‘Marxism and ecology: common fonts’.