there it's been consistently, for three generations already, declared that we’re dealing with socialism. At most, this word would be accompanied by detailed descriptions, which changed over the years. When I was in the Middle Country for the first time, in 1989, I had no doubt that it was a socialist state, though that socialism was different from the one we knew better from Central East European, CEE countries. When I visit China these days, I do sometimes have doubts if it’s still socialism, and, at the same time, I have no certainty that it is already capitalism. So what are we dealing with? Is it simply a period of transition from one formation to another or is it a different system, which deserves a name in its own right?

A quarter century ago we would joke that while the transition from capitalism to socialism was possible, at least up to a certain point, a transformation in the opposite direction is impossible, just as it’s possible to turn a stallion into a gelded horse, but the reverse cannot be done. However, it certainly succeeded, at least in the post-socialist economies which became part of the European Union. China, though, is following its own path. Where has it brought the country, where is it leading to?

By Grzegorz W. Kolodko

A bowl of rice and Ferrari

There has never actually been a consensus on what capitalism and socialism is, especially that, in addition, some people confuse the latter with communism, also an ambiguous concept. For a political scientist, of key importance are the observations and interpretations of the ways power is gained and wielded, and of the functioning of the state and its institutions, whereas, for a sociologist, the heart of the matter is the society and the mechanisms governing interactions of its component population groups. An economist, in turn, focuses mostly on observing and analyzing the recurring economic phenomena and processes and on explaining them, and if we go further – to normative (prescriptive) economics – on formulating recommendations for economic policy and growth strategy. Capitalism and socialism are categories that correspond, first and foremost, to an economic regime, but they also involve obvious references to society and culture as well as to state and law.

In a textbook socialism, effective central planning ensured economic equilibrium, however in the real one, as experienced by hundreds of millions of people, this equilibrium was by no means taking place. In fact, it was an economy of systemic shortages. There was a permanent surplus of the flow of demand over the flow of supply, with all of its negative consequences. In no economy of the CEE region, let alone in the Soviet Union, insisting on heavy industry and engaging in high armament expenditure, were shortages successfully eradicated, though periodically there were times where the supply of consumer goods was relatively good and close to equilibrium. This was the case of Poland in the first half of 1970s, but also then we would travel from Warsaw to Budapest, and think, not without a reason, that in this respect the situation was even better over there. However, when one didn’t find jeans in the right size and had to squeeze into one size too small, or instead of the desired long-play record of Led Zeppelin one left the store at Lenin utca with a record of Procol Harum, even there one became aware of shortages.

At present, in China one can buy both a bowl of rice and the latest Ferrari model; it’s enough to have money or the purchasing power, which is balanced on the market by the supply. The case of China shows that it is possible not only to break free from shortages but also from their co-existence with the price increase process, which I called, already back in 1980s, the shortageflation syndrome. This was achieved by creating a liberalized price system while maintaining a major sector of SOEs which function amid not fully hardened budget constraints. It’s interesting that while some authors maintain that this was accomplished thanks to socialism, others declare that’s capitalism’s doing.

Authoritarian state or meritocracy?

The proponents of considering China a capitalist state believe that ownership relationships are the decisive criterion. At the beginning of this century, private sector generated ca. 52% of GDP there. In 2003, this was already nearly 60% of GDP, but now it’s not much more. The official sources say that private business accounts for over 60% of GDP and provides more than 80% jobs.

The issue, however, is more complex as in many cases it’s hard to determine if we are dealing with private or state ownership as there are in-between and mixed forms, too. What matters is not only the traditional perspective on ownership forms, but also changes in the sphere of management and in state corporate governance.

Extra-economic relations matter as well. Some focus on the authoritarian political system, whereas others argue it’s a functional meritocracy. Some get overenthusiastic about the advancement level and international competitiveness of Chinese private high-tech companies, whereas others show cases of intellectual property violations. While some are afraid that the great program of the so-called New Silk Road is a manifestation of Chinese imperialism, others emphasize assistance offered by China to poor economies in their struggle to overcome backwardness.

Undoubtedly, China will play a major role on the global economic and political arena in the coming decades. However, the system evolution and the policy followed as part of it in the Middle Country will be subordinated, in the future, to something else than creating international power of China, though cynics say that while becoming more and more actively involved in the global economy under the banner of win-win globalization, what the country means is 2:0 for China… Of greatest importance is an improvement of the internal economic situation. The Chinese expression meihao sheng huo, better life, was used 14 times by the Chinese leader Xi Jinping at the latest congress of the so-called Communist Party of China. I say “so called” because what kind of communist party is it if it openly accepts or even endorses the attributes typical of capitalist economy, such as private capital’s pursuit of profit, high unemployment rate, major areas of social exclusion and huge income inequalities, much higher than in many capitalist countries.

Bright vision or illusion?

Xi emphasizes that China should not copy other countries’ solutions but rather follow its own path. Dissociating himself from
the one size fits all rule, typical for the neoliberal Washington consensus, he added with the characteristic Chinese imagery: “Only the wearer knows if the shoes fit or not” While saying “no” to having too large or too small shoes imposed on it, and being aware of its own memorable achievements and strength, and, at the same time sensing the needs of other countries looking for a development strategy, China suggests that it may lead the way.

“Socialism with Chinese characteristics for a new era” is already there, With two giant steps, by 2050, China is to become a “great modern socialist country”. From party documents and official governmental materials we can learn that soon, in 2020, there will be a “moderately prosperous society in all respects”, then, by 2035, a “socialist modernization” will be carried out, and in the following fifteen years, by 2050, a “great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious and beautiful” will be created. Everybody should be so lucky…

False alternative

If we assume that we already have in China a social market economy or, as preferred by Chinese authorities, socialism with Chinese characteristics for a new era, then such an ambitious vision, of course with many reservations, may be worth considering. If we assume, however, that what we have there is capitalism with Chinese characteristics, or even an utterly corrupt crony capitalism, then we are faced with quite different challenges.

I believe that deliberations such as capitalism versus socialism, with respect to China, are becoming less and less fertile and lead us astray. If every economist agrees with the view that the ownership of means of production is of key importance to the way economy functions, then every good economist must agree that of no lesser importance are culture, knowledge, institutions and policy. The hardening of the ideological and political position is all the more bewildering in a situation where new grounds for dialog are opening in intellectual and scientific community. We heard from the Chinese leader at the congress of the party that “Socialism with Chinese characteristics is socialism and no other –ism”. Meanwhile, one cannot but agree both with some Chinese economists and with critical external observers who show the differentia specifica of China and try to explain what and why is happening there without resorting to the antagonistic regime categories: socialism and capitalism. It’s possible as resolving this dichotomy in a clear manner is not the key to understanding the heart of the matter in this case; the key is this typically Chinese commentary: with Chinese characteristics. I myself am inclined to go in that direction, when formulating the theoretical outline and practical recommendations for new pragmatism also for China (“New Pragmatism: Economics and Economic Policy for the Future”, “Roubini EconoMonitor”, July 25, 2017" />).

Chinese convergenceSome time ago, there were lively discussions over systemic megatrends and transformations: divergence, subvergence and convergence. The first one was supposedly a case where the opposing systems, capitalism and socialism, coexist and the challenge was to make this coexistence peaceful. In the second case, one system was to dominate the other and though it seemed to some people for some time that socialism would be the dominant one, it happened otherwise. In the third case, a systemic convergence was to occur, with each system drawing on and assimilating some elements, including culture, from the other and thus they would become alike over a long historic process. Certainly it partly happened as various aspects of socialism trickled into capitalism and vice versa. Contemporarily, China is the one undergoing a sort of convergence. It is experiencing a process of gradually infusing the social and economic reality with elements associated with capitalism, but capitalism is also being opposed or sometimes pushed out by elements associated with the mentality typical of socialism.This is becoming even more complicated and thus fascinating due to the huge impact of the tremendous and fast technological changes on the socio-economic and political relations. One can say that an ephemerid in the form of socialist capitalism or – if you will – capitalist socialism is developing there; a sort of Chinism. It sounds like contradictio in terminis? A contradiction in terms? By no means; we are just stuck in the mental trap of a sharp but also false alternative: socialism or capitalism hence tertium non datur. We need to get out of this trap because something systemically different is being born.While not giving up on specific values guiding human beings and societies in their economic activities, and bearing in mind the imperative of caring for dynamic balance, what matters most from the economic point of view is effectiveness and pragmatism. That’s what Deng Xiaoping, a great Chinese reformer, meant, when he said: “It doesn’t matter if a cat is black or white, as long as it catches mice.”Tertium datur.

Professor Grzegorz W. Kolodko, Founder and Director of Transformation, Integration and Globalization Economic Research ( at Kozminski University in Warsaw, Poland. Author of bestselling books “Truth, Errors and Lies: Politics and Economics in a Volatile World” and “Whither the World: The Political Economy of the Future” (" />), published also in Chinese.

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