Why China's Communist Oligarchy Is Doomed
The ruling Communist government is about to abolish the two-term limit on the premiership. It may do so over the weekend, before this article is posted.
I don't think this will make any significant difference in the government of China. The term limits rule allowed aging Communist politicians, who in fact are lifetime bureaucrats, to have some vague hope of gaining the top spot if they avoided major mistakes. This is why they are present-oriented men. They are not innovators. Deng Xiaoping did radically change China when he freed up agriculture in 1979, but subsequent Chinese premiers have never exercised that much power. Deng made a decision that would forever transform China. There is no going back to what it was prior to 1979.
China's economy is now Keynesian, not Communist. But the government remains officially Communist. Oligarchs hold onto power and privilege in terms of Communist ideology. The government subscribes to what I call late Communism, meaning the Communism of Brezhnev and the satellite nations in the 1970's and 1980's. After the 1980 Olympics, which launched the Solidarity movement in Poland, optimism began to fade at the top in the Soviet Union. It also began to fade at the top in the satellite nations.
China is an oligarchic regime. It has an official ideology, but this ideology is not enforced where Karl Marx said it had to be enforced, namely, in the mode of production. The mode of production in China is state capital, and it is funded by the Chinese central bank. The Chinese central bankers are Keynesians by default. All central bankers are Keynesians by default. The irony here is that Keynes really didn't pay that much attention to the central bank. He believed in salvation through government deficits, not salvation through monetary inflation. But this changed after his death in 1946. After Paul Samuelson's famous economics textbook appeared in 1948, Keynesianism moved in the direction that it occupies today: both deficits and central bank inflation.
THE MODE OF PRODUCTION
If I were a Marxist, I would lose all hope in the Communist leadership in China. Marx said that the mode of production is the basis of society. Ideology is simply an outgrowth of the mode of production, he said. All morality is simply a superstructure that is built on top of the substructure, which is the mode of production. He believed that all morality is class morality. Morality is not autonomous. It has no independent legitimacy. It is simply a way for ruling oligarchs to suppress the rise of the proletarian workers. Marx was clear about this. He did not indict capitalism on the basis of morality. He indicted capitalism on the basis that it was past-oriented. It was the outcome of a doomed mode of production. Inevitably, Marx wrote, the proletarian revolution would overthrow the capitalist system because the capitalist system contains the seeds of its own destruction. The mode of production will strengthen the proletarian class. Then they will revolt.
The revolt took place in Russia, which was more feudal than capitalist in 1917. Oh, well. Political power is higher on the list of Communist goals than ideological consistency is. China is living proof.
Marx was wrong in almost everything he ever forecasted about the future, but he was right about this: if the mode of production rests on a worldview, meaning a theory of moral cause and effect, that is different in principle from the prevailing principles of political order, the political order is going to fall. It is going to be replaced. Only if the oligarchs can suppress the mode of production, which is overwhelmingly capitalist today worldwide, will they be able to maintain power. The best examples of this are the Kim family in North Korea and the Castro family in Cuba. They have imposed central planning, and therefore poverty, on their people. This has restricted the development of the free market economy, which is another way of saying that the oligarchs have maintained power by keeping their people poverty-stricken.
There is no way that the oligarchs of China are going to be able to roll back capitalist production in China. The Chinese economy is unstoppable at this point. Economic growth is basic to the social order. Capitalism is far more consistent with China's basic Confucianism than is Communism. Several hundred million people in China have become middle-class by Asian standards, and this has taken place only because of the rise of state capitalism. State capitalism is a tremendous advance economically beyond the Communism of Mao.
The Communist oligarchs live in fear of an economic setback. There is nothing more revolutionary than economic growth that has persuaded the masses of the population that there will be more economic growth. People have hope in economic growth. They believe that things are going to get better for them economically. They see this all around them. Then, for reasons unknown, there is a setback. If that setback is a temporary recession, this may not be a disaster for the politicians. But if there is a setback that lasts for several years, then the society is ripe for revolution. The legitimacy of the oligarchy is based on economic growth. This is true all over the world except for North Korea and Cuba. Even Venezuela is facing revolution because of the economic setback.
The oligarchs have to keep the economic engine rolling forward. They dare not interfere with it. At the same time, their ideology is completely opposed to capitalism. So, China is the most schizophrenic society on earth. There is no society in which the oligarchs are more committed to one worldview, while the masses of the population are committed to a rival worldview. I don't think we've ever seen anything like this in history on a scale as large as China, which has at least 1.3 billion people.
The Communist oligarchs of the Soviet Union and the satellite nations in Eastern Europe were not facing the domestic problem of sustained economic growth. Their peoples were not prospering in terms of an economic system that was in conflict with the ideology of Marxism-Leninism. They were not prospering at all. Nevertheless, after the economic failure of the Soviet Union in the mid-1980's, Gorbachev and the satellite nations' rulers were unable to maintain control. In 1989, the Berlin Wall was torn down by the people on both sides of the Iron Curtain. In 1991, on Christmas day in the West, Gorbachev went on national television and announced the demise of the Soviet Union.
It was the old rule of bankruptcy: it goes slowly at first, and then very fast.
The Chinese communist oligarchs are trying to keep power despite the fact that Deng Xiaoping let the genie of the profit system out of the Communist government's bottle. The masses of China are no longer committed to Marxism-Leninism-Maoism. But the rulers are officially committed. That is why their days are numbered. It is not possible to maintain a society in which the leaders are committed to an older ideology, while citizens are committed to a completely different ideology. Marx taught us that. Western political theory has taught us that.
RIDING THE DEBT TIGER
The West is riding a tiger. It is the tiger of debt. The Chinese oligarchs are riding this same tiger. The growth of Chinese debt has been stupendous. It was in the range of $2 trillion in 2000. By 2014, it was over $28 trillion. Today, David Stockman estimates, it is $40 trillion. There has been nothing like this in economic history. The Chinese government can hold the rickety banking system together by constant intervention today, but it cannot do this forever. The exponential nature of the debt is going to overwhelm the Communist bureaucrats' attempts to hold the economy together.
The same comment applies to Western Keynesian capitalism. Debt is rising constantly. Any setback in the economy that threatens the ability of corporations and governments to service their debts apart from central bank monetary inflation threatens the legitimacy of Western governments.
Politicians in China kick the fiscal can down the road. Politicians in the West also kick the fiscal can down the road. But the cans are growing steadily, and this growth will turn exponential at some point. There will be a great default in China, and there will be a great default in the West. When the legitimacy of the governments that have amassed this much debt is called into question by their inability to service this debt, both China and the West will be ripe for new political regimes that are legitimized by different moral and economic categories.
Once you acknowledge that citizens have a legitimate say in politics, which is what democratic theory demands, you're also saying that there has to be consistency between what the citizens believe to be legitimate and what the oligarchs appeal to in order to defend their legitimacy. The oligarchs of China cannot openly invoke anything resembling capitalist categories in order to defend their authority. They have to explain the economic growth in terms of Communist ideology. But this obviously is impossible, and the citizens know it. I suspect the Communist oligarchs know it.
Deng Xiaoping played a verbal game in defending the new economic order. He said that the pursuit of profits is legitimate. But that assertion undermined Marxism at its core. Only because China's economic growth has been so spectacular since 1979 have the oligarchs been able to paper over the obvious schizophrenia of the Chinese political order. By paper over, I mean fiat money. The People's Bank of China has funded this massive increase in China's debt. It, too, is riding on the back of the debt tiger. So are the oligarchs who rely on the People's Bank of China to keep the system solvent.
CONCLUSION
The great default is going to be international. Political regimes around the world are going to fall. The fall of China's regime will be spectacular. Maybe the fall of North Korea's regime will be even more spectacular, but North Korea's economy plays no role in the world economy. China's economy does.
After the great default, there is likely to be a period of political disruption. It may last several decades. But this disruption is going to be accompanied by an expansion of the free market at the expense of central governments around the world. As long as the world avoids nuclear war, it is safe to say that the economic order that will prevail in 25 years is going to be more free and more productive than the one that prevails today, both East and West.
The transition period is going to be painful for millions of people. But it is going to be a lot more painful in China than in the United States. The West is more committed to the concept of the free market than the oligarchs of China are. The political schizophrenia in China is far greater. Western politicians have to give lip service to the free market. The Chinese oligarchs dare not give lip service to the free market. Yet the free market's success is what sustains the regime.
This cannot go on indefinitely. I cite Herb Stein's law: "When something cannot go on, it has a tendency to stop."