The Rise of China and the Demise of the Capitalist World-Economy MINQI LI PLUTO PRESS www.plutobooks.com 2008 Li 00a pre iii 20/8/08 11:13:53 Contents List of Tables vi List of Figures vii Preface: My 1989 ix 1. An Introduction to China and the Capitalist World-Economy 1 2. Accumulation, Basic Needs, and Class Struggle: The Rise of Modern China 24 3. China and the Neoliberal Global Economy 67 4. Can the Capitalist World-Economy Survive the Rise of China? 93 5. Profi t and Accumulation: Systemic Cycles and Secular Trends 113 6. The End of the Endless Accumulation 139 7. Between the Realm of Necessity and the Realm of Freedom: Historical Possibilities for the Twenty-First Century 174 Bibliography 193 Index 202 Li 00b pre v 20/8/08 11:13:49 List of Tables 2.1 Economic growth rates of China and selected regions of the world, 1950–76 29 2.2 Life expectancy at birth in China and selected countries, 1960–2000 34 2.3 Adult illiteracy rate in China and selected countries, 1970–2000 35 2.4 Primary school enrollment in China and selected countries, 1970–2000 36 2.5 Secondary school enrollment in China and selected countries, 1970–2000 36 3.1 Distribution of value added in the global commodity chain of a talking globe model for children’s education 71 3.2 Share of the world’s total current account surpluses or defi cits 1995–2006 79 4.1 The structure of social classes and occupations in the US 101 4.2 The structure of social classes and occupations in Latin American countries (1990/1992) 103 4.3 The evolution of the structure of China’s social strata, 1978–99 105 4.4 Class structures in the core and the semi-periphery 107 4.5 Manufacturing workers’ wage rates in selected countries 108 5.1 Ecological footprint of the world’s major regions, 2003 131 6.1 Estimates of electricity generation cost from alternative energy sources 155 6.2 Energy cost schedule 156 6.3 World’s metallic mineral resources 164 vi Li 00b pre vi 20/8/08 11:13:49 List of Figures 2.1 Share of world GDP, 1820–2000 25 2.2 Index of per capita GDP, 1820–2000 25 2.3 China’s crude death rate, 1936–80 41 2.4 China’s natural disasters, 1950–80 43 3.1 World economic growth, 1951–2006 74 3.2 Corporate profi tability, US 1950–2006/ China 1980–2005 75 3.3 Property income as share of GDP, Europe and Japan 1960–2006 76 3.4 Contribution to world economic growth (PPP), 1976/78–2006 77 3.5 Contribution to world economic growth (current US$), 1966/75–2006 78 3.6 US foreign debt and the world’s foreign exchange reserves, 1980–2006 80 3.7 Real oil price and world economic growth, 1950–2006 82 3.8 Long-term variations of US stock prices, 1871–2006 83 3.9 Macroeconomic structure of the US economy, 1960–2006 84 3.10 US real wage and real median family income indices, 1964–2006/1977–2005 85 3.11 US fi nancial balances: Private, government, and foreign sectors, 1960–2006 86 3.12 Macroeconomic structure of the Chinese economy, 1980–2006 88 3.13 China: Labor income and household consumption, 1980–2005 89 4.1 Index of per capita GDP, 1975–2006 98 4.2 World energy consumption (historical and hypothetical projection), 1970–2035 112 5.1 Long-term movement of nominal interest rates: UK 1756–2006/US 1857–2006 117 5.2 Long-term movement of the profi t rate, UK 1855–2006 118 5.3 Long-term movement of the profi t rate, US 1890–2006 120 5.4 Economic growth and real interest rates, US 1960–2006 122 vii Li 00b pre vii 20/8/08 11:13:49 viii The Rise of China and the Demise of the Capitalist World-Economy 5.5 Share of world GDP, 1975–2006 124 5.6 Long-term movement of the output:capital ratio, UK 1855–2006/US 1850–2006 127 5.7 Long-term movement of the profi t share, UK 1855–2006/US 1890–2006 128 6.1 World primary energy consumption: historical and projected, 1965–2050 160 6.2 Energy effi ciency, 1975–2004 161 6.3 World economic growth: historical and projected, 1965–2050 163 6.4 World’s grain production, 1950–2006 (actual)/ 1984–2100 (trend) 167 6.5 China’s grain production, 1950–2006 (actual)/ 1996–2100 (trend) 169 6.6 World primary energy consumption, carbon dioxide equivalent stabilizing at 450 ppm 171 6.7 World economic growth, carbon dioxide equivalent stabilizing at 450 ppm 172 Li 00b pre viii 20/8/08 11:13:50 Preface: My 1989 This book is unlike many of the books on China today. It is not one that will discuss how China’s dramatic economic growth and growing geopolitical infl uence will constitute an economic, military, and cultural threat to the West. Nor is it one that will discuss how China will rise to become the world’s next hegemony, what strategy China should adopt for this purpose, or what economic and political model China should follow to be a “responsible” player in world politics. However, this book will discuss the underlying world- historical processes, which have led to the current world-historical context upon which both the perception of China as a threat to the west and the perception of China as a benign rising world power have attempted to refl ect. It is this author’s view that the existing world-system, capitalism, will come to an end in the not-too-distant future (possibly within many readers’ lifetime) and will be replaced by some other system or systems. This book is more about the “demise of the capitalist world-economy” than about the “rise of China.” It discusses the rise of China to the extent that it arises from the same historical processes that have contributed to the demise of the existing world-system. The rise of China is an integral part of these historical processes, and represents a great acceleration of these processes. Capitalism (or the capitalist world-economy) is a social system based on the production for profi t and the endless accumulation of capital. The operation and the expansion of the existing world- system thus depend on a set of historical conditions that help to secure low environmental cost, low wage cost, and low taxation cost. However, the operations of capitalism follow certain dynamics or “laws of motion” that in the long run tend to raise all of these costs. As these costs rise beyond a certain point, the capitalist system is no longer profi table and the ceaseless accumulation of capital will have to come to an end. Historically, geographic expansions have been a major mechanism through which the system brought in new areas of low costs that helped to check the secular tendency of rising pressure on profi tability. China was one of the last large geographical areas that was incorporated ix Li 00b pre ix 20/8/08 11:13:50 x The Rise of China and the Demise of the Capitalist World-Economy into the capitalist world-economy and did not actively participate in the system-wide division of labor until very recently. China therefore has functioned as a strategic reserve for the capitalist world-economy, and the mobilization of this large strategic reserve in fact signals the impending terminal crisis of the existing world-system. How did I arrive at my current intellectual position? I belong to the “1989 generation.” But unlike the rest of the 1989 generation, I made the unusual intellectual and political trajectory from the Right to the Left, and from being a neoliberal “democrat” to a revolutionary Marxist. I was a student at the Economic Management Department of Beijing University during the period 1987–90. This department has now become the Guanghua Economic Management School, a leading Chinese neoliberal think tank advocating full-scale market liberalization and privatization. At Beijing University, we were taught standard neoclassical microeconomics and macroeconomics, and what later I learned was termed “Chicago School” economics—that is, the theory that only a free market economy with clarifi ed private property rights and “small government” can solve all economic and social problems rationally and effi ciently. We were convinced that the socialist economy was unjust, oppressive, and ineffi cient. It rewarded a layer of privileged, lazy workers in the state sector and “punished” (or at least undercom- pensated) capable and smart people such as entrepreneurs and intellectuals, who we considered to be the cream of society. Thus, for China to have any chance to catch up with the West, to be “rich and powerful,” it had to follow the free market capitalist model. State-owned enterprises were by nature ineffi cient and should all be privatized. State-sector workers should be forced to participate in market competition and those who were incapable, too lazy, or too stupid, should just be abandoned. The 1980s was a decade of political and intellectual excitement in China. Despite some half-hearted official restrictions, large sections of the Chinese intelligentsia were politically active and were able to push for successive waves of the so-called “emancipation of ideas” (jiefang sixiang). The intellectual critique of the already existing Chinese socialism at fi rst took place largely within a Marxist discourse. Dissident intellectuals called for more democracy without questioning the legitimacy of the Chinese Revolution or the economic institutions of socialism.