One World Two Systems

For several years I have been researching the Chinese over riding concept of Socialism with Chinese Characteristics –(SCC ).


I detect its origins in the response to the Great Leap Forward when four leaders were put in charge of a review – they were Premier Zhou Enlai , President Liu Shaoqi , Deng Xiaoping, and Chen Yun.   Some of their initial thinking was contained in the Four Modernisations speech of Premier Zhou in January 1962, and that concept was part of the new Economic Policy revealed in the 1978 Third Plenum.


It was always clear that the reforms to agriculture and industry that followed that Third Plenum were part of a deeper plan but it was always difficult to access the core thinking.


At that time, in 1978, the third plenum announced the twin centenary targets of 2021 and 2049 – they are still the basis of China’s work. They are the dates by which , in 2021, the foundations of SSC are in place, and by 2049, SCC is fully spread across the nation.


So what is SCC? We can see in the reorganisation of SOE’s a great deal of what SCC means. China intends to learn from the world’s experience and find the core of the economy in a new form of State Enterprises. The Anti-Corruption fight is another key aspect to produce a class of officials and political leaders who accept selflessness as their core value.


The Private Sector is encouraged but at its higher levels needs to accept Party guidance on its range of activities.


There is much more.


There will be much more.


When you read the following article, which is also attached, which I found in Qiushi magazine, you will see the thinking behind China’s moves. The Market Economy is sovereign , but there are two types – Capitalist and Socialist. The former has several forms and the latter is being innovated by China based on past attempts , but, crucially, based on China’s 5000 years of civilisation.


That is why it is with Chinese Characteristics and does not have the missionary element. China will share its ideas and principles with others but other nations need to adapt their forms to suit their conditions and histories.


This respect for the history of nations is a crucial feature.


The two systems are not antagonistic to each other. They can be if one wants to dominate or remove the other. But they can coexist and develop the world together. They just need to find the formulae for that. The meeting points of the systems already exist and the growth of the last 40 years has shown an ability to work together.


I suspect that this article is the start of a long journey for China and for the West and China. SCC has learnt much from the capitalist market economy. It has learnt to accept motivation and freedom to operate. It has also learn the need for regulation and management to avert crises before they consume.


Working together the two systems can be very effective.


Let us hope for that outcome.


But that requires new forms of global and regional governance and security. That is already happening in many areas. It might benefit from more academic focus , which is made easier with this article,







The Global Significance of the Socialist Market Economy

Zhang Yu

The development of a market economy under the framework of socialism represents the most distinctive feature of China’s socialist economic system. It is a proposal that the Communist Party of China (CPC) and Chinese people have forwarded in the interests of finding a better system for human society. At a time when internal contradictions of capitalism are continuing to intensify, and inherent flaws of the capitalist market economy are constantly surfacing, China’s efforts to uphold and develop the socialist market economy are not only conducive to sustainable and sound development of China’s economy, but also of great significance for the whole world.


  1. The flaws of the capitalist market economy


It is common knowledge that market economies have their defects or shortcomings. Yet most people have a very limited understanding of these drawbacks, regarding them merely as market failures on the microeconomic level, and failing to appreciate that the market economy represents a historical and social concept. As a matter of fact, the majority of market economies in the world at present are capitalist market economies. Therefore, only by looking into the underlying laws and internal contradictions of the capitalist economy can we understand the flaws of the modern market economy and find an effective means of resolving them.

The meeting of capitalism and market economy not only endowed market economies with unprecedented vitality and creative potential, but also gave rise to unprecedented defects and destructive forces. These are mainly manifested as follows.

First, confrontation between labor and capital. Founded on wage labor, capitalist production seeks to create the maximum surplus value. However, this gives rise to confrontation and conflict between labor and capital, and also between wages and profits.

Second, relative overpopulation or unemployment. With increases in productivity and improvement of capital components, capital’s demand for labor decreases over time, causing the position of laborers to worsen and leading to increasingly serious unemployment.

Third, polarization between the rich and poor. As capital accumulates, wealth is increasingly amassed in the hands of a few predominant monopoly capitalists. This causes growing polarization between the working class and the bourgeoisie in terms of wealth and income distribution.

Fourth, the crisis of overproduction. When the contradiction between ever expanding capitalist production and the relatively limited effective spending power of working people grows to a certain point, an economic crisis of overproduction inevitably ensues.

Fifth, blindness of development. For the most part, development of capitalist economies is not planned or organized. This means that equilibrium between production and demand can only be achieved spontaneously and compulsively through constant fluctuations in the economy and even through colossal waste and massive destruction of productivity.

Sixth, hollowing of the economy. The rise of financial capital to a position of dominance over all other forms of capital is an inexorable trend of capitalism. As a result, fictitious capital and the financial sector expand at a faster rate than the real economy, leading to frequent financial crises and rampant financial speculation.

Seventh, severe environmental crisis. Capital’s impulse to endlessly pursue profit, coupled with the disorganized nature of social production, inevitably leads to demographic, resource-related, environmental, and ecological problems on a global scale, which threaten environmental and ecological balance and undermine the normal conditions for social reproduction.

Eighth, distortion of the world economy. The capitalism-dominated global economic system is inherently flawed. Its major flaws include worldwide polarization between the rich and poor, the overdevelopment and destruction of the global ecosystem, the frequent outbreak of global economic turmoil and financial crises, and the prevalence of international exploitation, hegemonism, and power politics.

After the Great Depression of the 1930s, and particularly after World War II, the governments of capitalist countries had no choice but to intervene in their economies, either directly or indirectly, in a bid to address the profound defects that plagued the capitalist market economy. To a certain extent, they managed to do what was necessary to spur the development of productive forces, thus mitigating the inherent flaws of the capitalist market economy. This resulted in a golden age of economic growth in the 1950s and 1960s. However, with the rise of neoliberal theories and policies since the beginning of the new century, the flaws of the capitalist market economy have not only gone unresolved, but have actually become increasingly serious and exposed. For example, economic growth has remained sluggish, unemployment has becoming increasingly serious, the gap between the rich and poor has widened, hegemonism and military intervention have prevailed, financial capital has become ever more parasitic and plunderous, financial and economic crises have frequently erupted, environmental and ecological crises have deepened, fiscal deficits have swelled beyond control, and the manipulation of democratic politics and public opinion by monopoly capital has worsened. The interweaving and combined eruption of these profound flaws clearly indicate that the capitalist market economy is critically ill and beset with crisis. Nevertheless, the approaches that capitalist countries adopt to resolve these crises do little more than set the stage for an even larger crisis in the future. Though the market economy cannot be surpassed, capitalist market economy must be surmounted. This is an inevitable historic choice in humankind’s exploration of a better social system.


  1. The advantages of the socialist market economy


Having been integrated into the basic socialist system, the socialist market economy embodies not only the universal principles of the market economy, but also the basic features of the socialist system. Bringing both the superiority of the socialist system and the advantages of the market economy into better play, the socialist market economy possesses features and advantages that allow it to surpass the capitalist market economy.

First, with regard to the purpose of development, the socialist market economy aims to realize the well-rounded development of the person and the common prosperity of all members of society. In the socialist market economy, both private and public enterprises aim to maximize their profits and are subject to the laws of value on a microeconomic level. On a broader social level, however, owing to the dominant role of public ownership, the principal position of distribution according to work, and the macroeconomic regulation of the government, the purpose of development or resource allocation is no longer simply to maximize profits, but rather to satisfy the material and cultural needs of the people and achieve people-centered development.


Second, with regard to the structure of ownership, the socialist market economy implements a basic economic system whereby various forms of ownership exist side by side, with public ownership constituting the dominant form of ownership. Upholding the dominant role of public ownership and the leading role of the state-owned economy is conducive to the planned and balanced development of the economy. This helps to prevent polarization, safeguard social equality, promote social harmony, and advance independent innovation. On the other hand, allowing various forms of ownership to exist side by side is conducive to forming independent market competition between different forms of ownership. Bringing the basic regulatory role of market mechanisms into play, this helps to unleash the enthusiasm and creativity of all economic entities, thereby ensuring the vitality and efficiency of the market economy.

Third, with regard to the distribution system, the socialist market economy implements a basic distribution system that allows multiple forms of distribution to coexist, though distribution according to work constitutes the dominant form of distribution. Making work the main mode of distribution is conducive to leveraging the enthusiasm and creative potential of all workers. This helps to avoid social polarization and bring about common prosperity for all. On the other hand, enabling different forms of distribution to coexist and allowing factors of production to participate in distribution is conducive to motivating all economic entities.

Fourth, with regard to the means of economic regulation, the socialist market economy makes full use of both planned regulation and market regulation. The principal justification for regulation by the government is not to remedy market failures. Rather, the purpose of regulation is to enable the state – as the overall representative of the public ownership of the means of production and the interests of the people – to rationally allocate social resources within society and promote the comprehensive, balanced, and sustainable development of the economy. Government regulation not only needs to reflect the general features of the modern market economy; it also needs to display the unique advantages of the socialist system, striking a sound balance between present and future, between size and structure, between supply and demand, and between an effective market and government.

Fifth, with regard to the mode of opening up, the socialist market economy is committed to opening up to the outside world in an all-dimensional, multi-tiered, and wide-ranging manner. It aims to fully utilize domestic and international markets and resources, integrate the “bringing in” and “going global” strategies, and develop a more open economy. The socialist market economy also opposes inequitable or unreasonable practices within the current international economic order, and is committed to establishing a new international economic order that is fair and reasonable; to carrying forward the global governance principles of mutual consultation, joint development, and shared benefits; to building a community of shared future for humankind; and to advancing the international economic order in a fairer, more equal, and more mutually beneficial direction.


III. Better integration of socialism with the market economy


As the most pioneering theoretical achievement and endeavor in China today, the socialist market economy boasts distinct Chinese characteristics and practical features. However, though China’s socialist market economy has taken shape and accomplished a great deal already, it cannot be denied that it is not yet fully mature or refined, and is still plagued by various conflicts and problems that need to be addressed through comprehensive economic reform.

General Secretary Xi Jinping has stressed that we must continue to orient our reforms towards the socialist market economy, uphold dialectic thinking, and focus our efforts on better integrating the basic socialist system with the market economy, so as to fully exert the advantages of both. On one hand, we must advance relevant reforms aimed at allowing the market to play the decisive role. This means drawing on the strengths of market mechanisms, such as responsiveness to information, relatively high efficiency, effective incentives, and flexible adjustment, to boost the vitality of economic development. On the other hand, we must advance relevant reforms in line with the objectives of improving socialism with Chinese characteristics and implementing people-centered development. This means giving full play to the institutional advantages of the socialist economy, such as an effective governing party and government, overall coordination, common prosperity, independence and autonomy, and mutual assistance on the basis of unity, to develop an increasingly mature and well-established socialist market economy and better enable it to not only serve the Chinese people but also contribute to human development.

Zhang Yu is Professor at the School of Economics, Renmin University of China.

(Originally appeared in Guangming Daily, November 30, 2016)

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