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The Establishment
of a Stalinist System in China

From 'The Stalinist System' (1972)

Translated by Roy West


Chapter 1: The Nature of the Chinese Revolution: A New Socio-Economic System

I. The Bearers of the Chinese Revolution

The 1949 Chinese Revolution was, first of all, a victory for the peasant class in their thoroughly revolutionary struggle against the feudalistic landlord class. The peasant class in China dissolved feudalistic land ownership and established peasant land ownership. At the same time, through this revolutionary struggle, the imperialistic interests tied to, and living off of the rule of the feudalistic land owners also were swept away. In their revolutionary struggle, that is the revolutionary struggle to establish the foundation to make the development of commodity production and capitalistic production possible in China, the Chinese peasants battled against the ruling power of the bourgeoisie (comprador=bureaucratic bourgeoisie), and the revolution also swept their power away.

The peasants led this revolutionary struggle, and the Chinese Communist Party represented the interests of the revolutionary peasantry. Since Mao Tse-tung gained control of the leadership, the Communist Party was dependent on the peasantry in its struggles, and fought to protect the interests of the revolutionary peasantry against the bourgeois opportunists represented by the Kuomintang.

The Chinese working class was concentrated in cities in the coastal areas, but its power was extremely weak, and after the defeat at the beginning of the Chinese revolutionary movement (defeat of the Guangdong uprising) an independent class struggle became impossible. The Chinese working class didn't fight to rally an independent workers party, but rather struggled under the leadership of the Chinese Communist Party whose character as a revolutionary party of the peasantry was strengthened under the leadership of Mao and in fact developed into this type of political party. This was the unavoidable outcome of the situation in China at that time, as well as in the international communist movement under the rule of Stalin. The revolutionary movement in China was the opposite of that in Russia: the revolutionary struggle of the working class did not gain hegemony over the revolutionary struggle of the peasants, but rather, based on the struggle of the peasants which they led, the Chinese Communist Party also led the struggles of the working class.

The Chinese Revolution led by the revolutionary struggles of the peasantry resulted in the sweeping away of the landowning class and imperialistic interests, and in the process of this struggle the bourgeoisie represented in the Kuomintang were banished. This fundamental character of the Chinese Revolution determined new production relations in Revolutionary China, and the nature of its following development.

II. Peasant Land Revolution

The socio-economic content of the Chinese Revolution was first of all the dissolution of the feudalistic landlord system of land ownership and the redistribution of their land to the peasants. This land reform began in the liberated zones, and spread throughout the country by means of the Central Committee's 1946 "4 May Directive", the 10 October 1947 "Land Law Policy" , and the 30 June 1950 "Land Reform Law". By 1952 the reform had been fundamentally completed. From the beginning land reform in China was definitely not carried out along consistently principled lines. A zigzagging path was taken where, at times, the confiscation of land was baned in order to make them "work together" to fight againt Japan, or the protection of rich peasant's property was considered. However, the struggle of the peasants inevitably led towards the confiscation of the landlords' property and the redistribution of land to the peasants.

Concerning the relation of land ownership before the Revolution, the landlord system of ownership was still dominant, but in the process of the gradual penetration of commodity production, independent peasants and peasants heading towards capitalistic management (so-called "middle" or "rich" peasants) were already playing a certain role. Although there are no overall statistics concerning the national relations of land ownership in China, the relations of land ownership according to a 1934 survey can be seen in Chart 1. (Chart is not included in this translation)

According to this survey, the landlords only comprised 5% of the total number of households, but owned 50% of the area of cultivated land, whereas the poor peasants and farm workers comprised 70% of the total households, but only owned 17% of the cultivated land.

Further, even in the "New Liberated Zones" where a very belated land reform policy was carried out, according to a Chinese government survey the landlord class which included 3 to 5% of the population of a farm village owned between 30 to 50% of the land, and in a small number of districts they owned between 70 to 80%. By contrast, the poor farmers who comprised somewhere between 50 to 60% of the population only possessed around 5 to 15% of the land. Moreover, in addition to the production relations between the landlords and the poor peasants there were other examples, such as the rich peasants who comprised between 4 to 6% of the village population, or the middle peasants who made up between 20 to 30% of the population and possessed between 15 to 25% of the land. Finally there are the farm laborers who were employed by the rich peasants and others and who comprised about 5% of the population and possessed between 2 to 3% of the land. (The Agricultural Taxation System in Modern China; The Asian Economic Research Institute pp. 114-116)

The dominant class relations in Chinese villages before the revolution, as we have seen, was the relation between the landlords and the subordinate poor peasants who had almost no land and paid a large sum of rent on the landlord's land which they cultivated.

The landlord class did not cultivate the land it owned, but rather divided it into trifling plots of land which were cultivated for them by the peasants who didn't have any land (poor peasants). This tenant system accounted for up to 90% of the land possessed by the landlords. Tenant farmers in the southern provinces cultivated on average 7.8 mu () (Mu was a unit of measurement in old China, 1 mu is about 667 m*m) per household, while in the northern provinces the average was 16.3 mu per household. The tenant rent was extremely high. There was a fixed rate or share renting system and for the most part it was payment in kind amounted to about 50 to 60% of the harvest. The peasants were serfs exploited by the feudalistic landowners. In addition to the large sum of rent payable in kind, they had to pay a large security fee, and were forced to perform hard labor.

The landlords entrusted the collection of rents to clerks, and spent their lives in the cities. "Even in their absence they were collecting 50% of the tenant rent (payable in kind), and on the other side through money lending and running business they were exploiting them doubly and trebly. Those of ability advanced in the government and became officials, while others became district heads." (Economic Theory of Modern China; pp. 36-7)

Starting from these production relations, the struggle of the Chinese peasants against the landlord class inevitably became a struggle to transfer the ownership of the farmland which they were cultivating from the landlords to themselves. The goal of the peasants' class struggle was to transform themselves from feudalistic serfs to independent peasants and the dissolution of feudalistic land ownership and the establishment of the division of land ownership among the peasants.

The "4 May Directive" of the Central Committee of the Communist Party reflected the demands of the peasantry, "(1) The land of middle peasants will not be infringed on; (2) In general the land of rich peasants will not be changed; (3) The lives of minor landlords will be considered; (4) Struggle against traitors, local tyrants, evil gentry, and bosses; (5) The equal distribution of land; (6) The security of the right of land ownership."(p. 145)

The October 1947 "Land Law Program" directed an even more thorough struggle against the landlords and rich peasants, "Based on the poor peasants and an alliance with the middle peasants abolish the exploitative system of the landlords and formerly rich peasants, their land and fortunes will not be any greater than that of the peasant mass". The radical distribution of land was carried out, "The requisitioned land will all be distributed equally among the entire native population irregardless of age or sex."

The June 1950 "Land Reform Law" resurrected the policies from the "4 May Directive". The land of rich peasants and the land property of cultivating landlords was protected. Through this "Land Reform Law" by the autumn of 1950 the land reform was put in place in the remaining liberated zones.

Along with the distribution of land, the peasants land struggle was at the same time carried out through the distribution of the landlord's agricultural tools and important means of production such as horses and cattle. In this way the landlord system of ownership was completely dismantled. With small land ownership as the foundation a small peasant economy became the dominant production relations for agriculture in China.

If we look at changes in the relations of land ownership in the farm villages in the newly liberated districts through the "Land Reform Law": the former landlords who comprised about 4% of the population owned only about 4% of the land. The former landlords share of the ownership decreased relative to its share of the population, going even below the average of the peasants land ownership. The rich peasants were also weakened. The rich peasant layer which made up about 5% of the population had only less than 10% of the ownership. Still, as before, this layer's land ownership exceeded the average for land possession. The middle peasants comprised between 20 to 40% of the population. The land ownership for this sector either barely changed at all or increased. The land they possessed totaled between 22% to 44%. The ratio of their population corresponded to the ratio of their land ownership. The poor peasants were the class to which most of the landlords' property was distributed. They comprised between 50 and 60% of the population and owned between 40 and 50% of the land. Land was also distributed to the former agricultural laborers who comprised about 5% of the population and owned about 5% of the total amount of land. Not only was the relation between the landlords and serfs abolished, the rural proletariat made up of agricultural laborers were also transformed into small land holders or self-sufficient peasants. If we look at the average land ownership of each class per person, we can see that the former landlord class average was 80 to 90% that of the total peasantry, the average for the rich peasants was 1.5 to 2 times that of the average, the middle peasants was about at the average or just over, while the average for the poorer peasants was at or below the average. Already the differences between each class essentially ceased to be such a decisive thing. Through the Chinese Revolution China was transformed into a country of small peasants, and an extremely egalitarian small peasant country at that.

The small peasants who were created through this land revolution carried out cultivation using extremely miniscale, individual or familial means of production. The extremely poor means of production owned by the average peasant were the following:

"The national average of cultivated land per peasant the equivalent of about 0.3 hectares, while the average for each peasant family was only about 0.94 hectares. In the south the scale was even more miniscale. The statistics for 1954 concerning the ownership of the means of production show that there was only one draft animal per peasant household, one plow per two households, and one water wheel for every ten households." (Theory of Socialist Economics p. 116)

The new production relations in the farm villages created through the Chinese Revolution, the small peasant economy based on the division of land, form a transition between the natural economy based on the feudalistic ownership of land and the overall development of capitalistic production, but is itself nothing but the product of semi-development of commodity production and capitalistic production. Marx wrote the following on the peasant division of land:

"Like the earlier forms, this form of land ownership presupposes that the agricultural population has a great numerical preponderance over the urban population, i.e. that even if the capitalist mode of production is dominant it is relatively little developed, so that the concentration of capitals is also confined to narrow limits in the other branches of production, and a fragmentation of capital prevails. By the nature of the case, a predominant part of the agricultural product must be consumed here by its producers, the peasants, as direct means of subsistence, with only the excess over and above this going into trade with the towns as a commodity." (Capital Volume 3; Penguin Classics pp. 940-41)

Even though the establishment of peasant land ownership achieved by the Chinese Revolution was an expression of the remarkable tardiness of commodity and capitalistic production in China, the creation of this peasant land ownership signifies a great historical development which established the foundation for the development of Chinese agriculture, and thus likewise the development of commodity production. Marx speaks of the historical meaning of peasant land ownership in the following way:

"The free ownership of the peasant who farms his land himself is evidently the most normal form of landed property for small scale cultivation, i.e. for a mode of production in which possession of the land is a condition for the worker's ownership over the product of his own labor, and in which, whether he is free or a dependent proprietor, the tiller always has to produce his means of subsistence himself, independently, as an isolated worker with his family. Ownership of land is just as necessary for the full development of this activity as is ownership of the instrument of labor for the free development of the handicraftsman's trade. It forms here the basis for the development of personal independence. It is a necessary transition point in the development of agriculture itself. (Ibid p. 943)

III. Big Capital and Nationalization

The peasant power established by the Chinese Revolution did not merely expropriate the feudalistic landowners. This power also expropriated and nationalized the capital of the imperialistic and bureaucratic bourgeoisie who had parasitically lived off China and exploited the peasants and workers. With the defeat of Japan and the end of the Second World War, the bourgeois Kuomingtang government confiscated some Japanese, German and Italian business, but after the Chinese Revolution starting with these businesses, all of the bureaucratic bourgeoisie's capital was confiscated.

By 1949 the revolutionary government had confiscated 2,858 industrial business, and the number of workers employed in these businesses had reached morethan 750,000. The nationalized economic system included 58% of electricity generated, 68% of the coal production, 92% of pig iron production, 97% of steel production, 68% of cement production, and 53% of cotton yarn. The nationalized economic system further controlled the national railways, the majority of modern transportation, transportation work, banks, commerce and almost all of the foreign trade. (Theory of Socialist Economy p. 114)

The revolutionary government also continued to requisition businesses owned by U.S. and British imperialist capital. At that time about one thousand businesses owned by foreign imperialists existed, but the majority of them belonged to U.S. and British monopoly capital. Directly after the revolution New China immediately took measures to do away with special privileges for foreign companies, and so these companies could no longer continue the arbitrary business activities of the past and the situation become nearly paralyzed. Therefore, some of the businesses applied with the government to close down, or voluntarily transferred or abandoned their operations, or were purchased by the Chinese government. The companies of both countries were either frozen or commandeered. In this way the foreign imperialist companies in China for the most part disappeared, while one part through nationalization formed the socialistic state-owned economic system." (ibid p. 115)

Thus the revolutionary government nationalized the large scale companies, but this small number of large companies stood on a foundation comprised of an enormous number of handicraft methods of production. Even though the large scale industries confiscated by the revolutionary government included the majority of the manufacturing and mining production in China, prior to the revolution these large scale industries had exploited the Chinese workers as imperialist capital, and the production was not based on the Chinese domestic market, but rather belonged to the economic sphere of foreign imperialism. This capital leeched off of China and was sucking huge profits from China for the sake of foreign imperialism. The products of this capital were mainly sent to foreign countries or were mutually traded between imperialist capital.

The Chinese domestic market, by contrast, was formed on the base of exchange between the handicraft capital which sprouted up naturally in the farming villages and provincial towns and the small peasants. The ratio of products becoming commodities was extremely low, and commodity production didn't break through local limits. Therefore, the accumulation of capital was on a remarkably small scale, and the "national capital" in China was extremely weak.

IV. The Rule of a Petty Bourgeois Economy and the Historical Tasks of the Revolutionary Government

At the time of the 1949 Revolution, industrial production in China totaled 14 billion Yuan; Out of this total, modern factory production was 7.9 billion Yuan, production in handicraft factories was 1.1 billion Yuan, and individual handicraft production totaled 3.2 billion Yuan. Moreover, looking at the management of companies: there were only 2,900 state run companies in comparison with a vast majority (1,113,000) of small scale privately run businesses. The workers working in state run factories amounted to roughly 1,500,000, while the workers in privately run factories was 1,600,000; for a total of only 3,100,000. By contrast, the number of individual craftsmen amounted to 5,800,000 (this figure is quoted from the Chinese Communist Party's Analysis of Economic Growth).

These figures show to what extent Revolutionary China was a country with a late development of capitalism. Pre-capitalistic handicraft manufacture made up an extremely large proportion of overall manufacturing production.

Commodity and capitalistic production had yet to reach society as a whole, and could only be seen in the state owned mining and manufacture companies and in some of the large scale privately managed enterprises. According to the June 1953 population survey, 86.74% of the population or 505 million people, lived as farmers. The city population was 13.25% of the total population which amounted to 77 million people. The ratio of agriculture to the overall national production was also extremely high. Out of the 1949 overall national production of 46.6 billion Yuan, agricultural production was about 70% or 32.6 billion Yuan, while manufacturing production was 30%, out of which close to 7% was handicraft production. The proportion of products which were commodities was also low. In 1950, out of an overall national production of 57.5 billion Yuan, commodity retail... amounted to 17.1 billion Yuan, and the commodity ratio was only 20%. The ratio of agricultural products becoming commodities was even lower. Peasants were carrying out self-sustaining production. Total agricultural production in 1952 was 48.4 billion Yuan. Out of this total, crops and stock breeding totaled 38.5 billion Yuan, while the remaining 9.9 billion Yuan was subsidiary production for personal use. Manufacture had not yet completely separated from agriculture, and the development of large industry could not even be seen. Peasant ownership of land and the accompanying agrarian domestic manufacture was dominant.

These economic relations were the starting point for revolutionary China. However, this is not such a strange thing. This is because the Chinese Revolution was not the product of the development of capitalistic production. Rather it was a nationalistic peasant and democratic revolution which completely destroyed feudalistic land ownership, broke the rule of foreign imperialism, and for the first time in Chinese history laid the foundation for the beginning of bourgeois development. We must start from a clear recognition of the class and historical meaning of the Chinese revolution. If we are dazzled by the ideology of revolutionary China embodied in Mao Tse-tung and his fantasy of peasant socialism, we will lose sight of the historical character of this revolution. We shouldn't use terms such as "new democratic revolution" or "proletariat revolution" to serve as a veil to obscure this revolution. We don't attempt to understand the Chinese Revolution through Maoism. Rather, when we understand Maoism by starting from the historical and class relationships in present day revolutionary China. In this way, we are able to grasp for the first time the real meaning of this revolution, as well as understanding why the fantasy of Maoism was necessarily created.

The bourgeois nature of the Chinese revolution is clearly expressed in the common program adopted at the first comprehensive meeting of the Chinese People's Government Entente Meeting of 29 September 1949. The first article of the common program states that the People's Republic of China "is opposed to imperialism, feudalism, and bureaucratism," and the state "will fight for Chinese independence, democracy, peace, wealth and power." The number one determining goal is to establish an independent national state and the unity of China through this state, as well as the wealth and power of this state.

The third article of the common program defines the tasks of the Chinese Revolution and the changes in property relations in the following way:

"the People's Republic of China will abolish all special privileges of imperialism, confiscate bureaucratic capital, shift ownership to the people's state, change from a feudalistic or semi-feudalistic system of land ownership to a peasant system of land ownership, protect public and cooperative property of the state, protect the economic interests and private property of the workers, peasants, petty bourgeoisie and national bourgeoisie, develop a people's economy of new democracy, and steadily change from an agricultural country into an industrial country."

Here the protection of private property is clearly declared. The ownership of land is converted to peasant ownership as a necessary point in the progress towards bourgeois development, and with private ownership as the foundation the capitalistic development from an agricultural to an industrial nation is proposed. Not only is there no mention of the working class struggle against capitalistic ownership, but as private property owners they are treated on the same level as peasants and the bourgeoisie.

In this document, revolutionary China's protection of private property is openly proclaimed, along with a clear declaration that the revolution established the foundation for the development of commodity and capitalistic production, and that the task of revolution hereafter would be to transform China into an industrial nation, in other words, the creation of capitalistic large scale industry.

The program also proclaims all of the bourgeois freedoms such as political freedom, an electoral system, sexual equality, and racial equality.

Another thing that should be noted is article 27, which states that land reform "is a necessary condition to develop the productive power to industrialize the country." We don't have space here to discuss the significance of land reform for China's capitalistic development.

As we have seen above, the Chinese Revolution gave birth to a colossal petty bourgeois economy. Almost the entire economy of the country had been based on individual and family labor. The revolution transformed the relations of ownership which corresponded with the developmental stage of this productive power and the character of labor, that is to the rule of private ownership based on one's own labor. From a historical perspective, the revolution for the first time established a united national state as well as creating the foundation for the development of the domestic market.

However, even though the revolution carried through changes in the relations of ownership which were a necessary condition for the development of commodity and capitalistic production, this alone could not realistically lead to their overall development. This is because private ownership based on one's own labor, in other words in this sense the agreement between production and ownership, had only just reached the beginning of commodity production-only the small amount which exceeded personal consumption little by little became commodities. Therefore this signifies that under the dominant relations of production were not commodity production, but the relations dominant under the previous natural economy.

The overall development of commodity production is only possible under capitalistic means of production, and capitalistic production is simply a product of the historical sublation of private ownership based a person's own labor. Capitalistic means of production are an indispensable pre-condition for commodity production, however the two are not identical.

The additional historical and social precondition for the development of capitalistic production is the concentration of the social means of production on one side, and free workers in the double sense that they are the free owners of their own labor power, as well as workers who have been freed (separated) from all of the important means of production, on the other side.

Seen from the perspective of the developmental stage of productive power, or the created production relations, there is little room to doubt that the development of revolutionary China merely made possible the development of capitalistic means of production. But for this purpose the historical separation of the direct producer from the means of production and the concentration and monopolization of the broken up means of production was necessary. But the development of the Chinese national economy from a small peasant economy could not have happened without opening the path to large scale capitalistic industry through the social concentration of the means of production. To promote this historical development, and create the historical conditions essential to the development of capitalistic production-these were the historical tasks for the revolutionary government in China.

To Contents

Chapter 2: The Beginning of the Accumulation of Capital through State Capitalism= The First Five Year Plan

I. Accumulation Through State Capitalism

The greatest task immediately facing the peasant government of China for the time being was the construction of a system of large scale mechanized industry. The concrete goal of China's industrialization was "to construct a single, integrated industrial system within the period of roughly three five year plans (1953-1967), or a period somewhat exceeding this time," (Theory of the Contemporary Chinese Economy; p.57), and "to construct a relatively independent regional system of industry through each cooperative district as well as most ministries, and district self-government units, preparing their own standards and characteristics."(Ibid p. 59) Already in 1945 Mao Tse Tung clearly stated in his On Coalition Government that the tasks of the victorious revolutionary government would be industrialization and building a wealthy and powerful China.

"By and large, it will be impossible to develop industry unless China is independent, free, democratic and united... Without independence, freedom, democracy and unity it is impossible to build industry on a really large scale. Without industry there can be no solid national defense, no well-being for the people, no prosperity or strength for the nation...A China that is not poor and weak but prosperous and strong implies a China that is not colonial or semi-colonial but independent, not semi-feudal but free and democratic, not divided but united."

The goal of China's Peasant Government=Mao's Government was to construct a mighty independent country, and convert China into a strong bourgeois power. However, in order to accomplish this sort of industrialization in China which was dominated by a petty bourgeois economy it was impossible to slowly promote the enlargement of commodity production, or wait for the gradual accumulation of capital to occur within this process. This is because the beginning of commodity production in China was the age of mighty imperialism, and it is clear that this sort of spontaneously generated capital would have immediately come under the sway of foreign capital.

In order for China to develop into a strong bourgeois nation it was necessary to use state power to protect the domestic market and foster the growth of large industry. The Chinese state power took firm control of finance, trusts, commerce, mining and manufacturing industries and foreign trade, and used these means as a lever to create capitalistic large industry.

It was inevitable that the powerful accumulation of capital and creation of large industry mediated by the Chinese state power would be carried out using forms particular to primitive accumulation such as tax and monopoly, rather than through the conversion of capital into surplus value. This is because in China the conditions for capital to propel forward the accumulation of capital through re-production and circulation did not yet exist. There was no choice except for the state to take strong measures in order for industrialization in China to accumulate capital to the level where it could begin its independent movement. It's not strange that capitalist industrialization in China limited free competition, since capital itself is one of the conditions for the development of free competition. This is because free competition, "is the free development of the mode of production founded on capital; the free development of the mode of production founded on capital; the free development of its conditions and of itself as the process which constantly reproduces these conditions." (Grundrisse p. 650; Penguin)

In China the lever used to accumulate capital until the free development of capital would become possible was the nationalization of industry, mining, commerce, trust companies, and machinery carried out by the revolution. As we saw above, the revolutionary state power nationalized key industries, businesses and banks, but the larger goal of the state was to use these nationalized companies as a lever and center to strengthen even further the state capitalistic enterprises. Under the leadership of Mao Tse-tung, the state exercised every means available to strengthen this state capital, concentrate all of the surplus value and surplus value in the state, create new large scale industry, and try to overcome the small peasant and handicraft economic stage which was the ruling relations of production in China.

The Chinese state owned economy, in other words the capital concentrated in the state, was the leading force or ruler after the revolution. In a country like China formed from a massive petty bourgeois economy, the fact that capital would take the form of state capital is to some degree inevitable. Through the help of the state, that is by taking the form of the state's capital, for the first time it became possible to carry out a powerful accumulation of capital, this was directly acquired from the working class.

The Chinese rulers and bearers of state power call this state capital "an economy of socialistic nature"; however, the means of production concentrated in this state certainly don't lose their nature as capital. This is because these means of production, in other words the companies, carry out production under conditions of general commodity production in which labor power is purchased and commodities are produced. The working class has completely lost control over the means of production and each individual is tied to an involuntary contract with the state to sell their labor power. Moreover, the one who directly confronts the workers selling their labor power are the company bureaucrats who are the bearer of state capital. Even though it is said that state capital is "the common property of the people", this is only true in an abstract sense, or to be more precise this is only true in a formalistically in the same way that in the more developed bourgeois societies state monopoly capital is formalistically the "common property of the people".

Under the small peasant economy of China it was completely impossible to directly convert the means of production into social ownership, and directly organize social production. This sort of direct social production is only possible as the result of the development of the social division of labor to the highest level. In China, the social division of labor on the foundation of commodity production had only just begun to develop at last, and the developing division of labor within the factory still only barely existed within an extremely restricted range.

It is exceedingly clear that in a society at this stage of development the division of labor, and therefore also class antagonisms, cannot be abolished. In a situation where a small peasant economy and small commodity production are preponderant, the great majority of the society must spend all of their lifetime in production, while unavoidably bureaucrats are put in charge, by the division of labor, of administration, rule and the management of state capital. At this stage in the development of productive power it is inevitable that the bearers of revolutionary state power as well as the managers of state capitalistic companies should gradually form a new ruling class. This is the inevitable product of the economic relations irregardless of the will or consciousness of the bearers of these economic relations. This state capitalist bureaucratic class as the new ruling class directly acquires the surplus value and surplus product and is a class which maintains itself on this surplus value. They are also the direct possessors of the means of production in the form of state capital, in addition to being the political rulers.

This new ruling class certainly did not suddenly spring into existence with success of the revolution. Rather, it was gradually formed during the course of the revolutionary struggle in the liberated zones which served as strongholds for the peasant struggle.

"At any rate, at this time (the period of liberated zones-quoter) as the revolutionary regime accumulated experience of economic activity, many leaders were able to become acquainted with the nationalized (communal ownership) economic system. After the liberation of the whole country, these leaders were able to become the true core of the management and leadership of the large scale nationalized companies." (Theory of Socialist Economy p. 113).

Already in the course of the Chinese Revolution, which was a peasant revolution, bureaucrats and the core of a new ruling continuously being created. If the revolution became bureaucratized even in Russian where proletarian elements played a leading role throughout the revolution, it is not in the least bit strange that the Chinese Revolution, which was a revolution of the peasants as a revolutionary and radical bourgeoisie, should already be spawning bureaucrats at the time of revolution.

It is natural that the bearers of the revolution led by Mao Tse-tung should define state capital as the "the main material foundation for the development of production and economic prosperity in the People's Republic, and the leadership power of the overall socio-economy." (Common Program) The historical role of the bureaucratic class, their historical task, was to make every effort to concentrate capital in the state, and build a society based on large scale production.

Mao called this state capitalism "socialism", and called industrialization through state capital " socialistic industrialization". This is no doubt the Narodnik-like fantasy of the peasant socialism of Maoism which sees the realization of socialism in a peasant revolution. However, at the same time this ideology was an systematic ideology to draw the working class and peasants into the compulsory movement for the accumulation state capital.

The workers and peasants responded to Mao's call and came forward to participate in this construction, and to a certain extent the development of state capitalism was also in their interest. As state capitalism became more developed, this fantasy of peasant socialism becomes more and more impossible to maintain, and the bourgeois essence of state capitalism is brought to light. At the same time, the revolutionary criticism and struggle against this system and Maoism by the working class begins.

II. The First Five-Year Plan

State capitalistic accumulation in China commenced on a large scale in 1953, the year following the completion of the peasant land revolution when the foundation of the revolution had become solid. This was the beginning of the First Five-Year Plan. Even though accumulation had in fact begun in 1955, the First Five-Year Plan was only finally drawn up as a plan in 1955. This characteristically expresses the nature of this "plan". The Five-Year Plan was nothing but a state plan for investment and the construction of industry.

The fundamental content of the first Five-Year Plan was first of all the construction of large scale industrial enterprises through the assistance of the Soviet Union; secondly, the grouping together handicraft industries and commerce and their conversion into state capitalist companies and establishment of a monopoly position for the state in factory production and commerce; thirdly, group together agriculture, concentrate the surplus value necessary for industrialization in the hands of the state, and raise the productive power and develop commodity exchange between industry and agriculture. The task in the first Five Year Plan was to establish a mechanism for state capitalistic accumulation.

The heart of the First Five-Year Plan was the "State Investment Plan" the main content of which was industrial investment.

The state investment plan was a plan to invest a total of 42.7 billion Yuan of capital over a period of five years. Of this total, 61.8% or 26.4 billion Yuan went for investment in industry, 17.1% or 7.3 billion Yuan went to ransportation and communication, most of which went for the construction of railroads. Of the total investment 79% went to industry in this wide meaning. By contrast, only 6.2% or 2.68 billion Yuan went for investment in agricultural and forestry industries.

This clearly shows the nature of the First Five-Year Plan. Sacrifice everything for the construction of industry; this the exact essence of the first Five Year Plan. Further, 88.8% of industrial investment went to heavy industry, while light industry amounted to only 11.2%. If the portion of investment which went to heavy industry is combined with the 5.67 billion Yuan which went for the construction of railroads then 70% of the total investment figure of the Five Year Plan headed to construction related to heavy industry.

"The core of the heavy industry relations was made up of the 156 construction plans built with the assistance of the Soviet Union. Out of these, the assistance of the Soviet Union was not only detailed plans, but also signified the servicing and repair of machines and equipment, and the training of important personnel whether in the USSR or on the spot for necessary operations after the factory is completed. However, there were 145 begun within the first five years, and 45 were scheduled to be fully operational by the end of 1957. The industrial plan above included the construction of new factories, the modernizing and enlargement of existing ones. Out of this total, seven were related to the steel industry, twenty-seven to the coal industry, twenty-four to the generation of electricity, and ten were related to metallurgy and machine manufacture (factories producing heavy machinery, automobiles and trucks, etc.) The large number of remaining industries were related to nonferrous metal, chemical, and oil, and light industries.

Including these 156 particularly important factories, the investment plan for large scale industries totaled 694 site. Out of this total number, 472 factories were placed in inland areas where industry had barely existed up to that point, while 222 were placed in coastal regions which had been industrial for a long time. This also planed to construct new industry centered zones in various regions throughout the country.

Further, the plan envisaged the construction of 2,300 small scale factories to accompany large scale industry. Additionally, this state investment plan projected the construction of about 900 large scale and up to 3,700 small-scale non-industrial institutions.

During the period of the first Five Year Plan (1953-1957) the investment figure increased still more, reaching about 48 billion Yuan. The construction of large scale industry exceeded the plan by 227 sites, reaching 921 total. By the end of 1957, 537 out of the total new construction sites were either completely or partially operational. Of the 156 Soviet assisted construction sites, the core of the plan, 135 were carried out, out of which 68 were either partially or completely operational. During the period of this First Five Year Plan the total sum of additional increases in the assets fixed to the plan reached over 10 billion Yuan. If we compare this to the 1.93 billion Yuan which was the total for the increase in fixed assets in the three years preceding the plan (1949-52), the significance of the First Five Year Plan becomes clear.

Through the First Five Year Plan, the overall national production increased from 82.79 billion Yuan (1952) to 138.74 billion Yuan; an increase of 1.67 times with an average yearly growth of 10.9 per cent. Industrial production rose 2.28 times, from 34.33 billion Yuan to 68.39 billion Yuan. Within industrial production, the production of the production means rose 3.1 times, from 12.22 billion Yuan to 37.94 billion Yuan. Moreover, the production of consumption goods rose from 22.11 billion to 40.45 billion Yuan, and increase of 1.83 times. Of course, the calculation of these prices are not an exact reflection of the real situation. This is because these prices were officially fixed by the state. Nevertheless, through these figures we are able to understand the overall trends and development.

Further, the First Five Year Plan meant the start of a tremendous change in regional distribution.

"Up to 1952, more than 80% of steel production capacity and 90% of powered textile plants were located in coastal regions. The sole center of heavy industry to speak of was Lianning Province's Ansan developed by the Japanese. All of the heavy and light industry was concentrated in Shanghai, Tienchin, Jiangsu as well as Cantonese Province. A total of 73% of overall factory production was in the coastal districts. with the remaining 27% in the other 18 provinces and self-governing regions. The investment plan for the First Five Year Plan is expressed in the following policy: "Provided that does not interfere with the safety and security of the state, industry will be positioned close to centers of consumption, and as close as possible to sources of raw materials and fuel." The development of railways and public roads was also carried out following this principle.

During the three year revival period which preceded the First Five Year Plan, 50.2% of industrial investment was focused inland, while the remaining 49.8% went to the coastal regions, whereas during the First Five Year Plan the ratio was 55.3% and 44.7% respectively. Moreover, the bulk of the investment in the coastal areas went towards reviving already existing industry. Of the total new investments in industrial relations, 73.9% went to inland areas. For this reason, by the end of 1955 inland factory production made up 32% of the total." (Analysis of Chinese Economic Growth; pp. 60-61)

This plan also created industries which had never existed in China up to that point. (list not included in translation). Through the First Five Year Plan, the sector producing the means of production was developed for the first time in China. By 1957 the self sufficiency ratio for steel production was 86% while machine equipment had reached 60%.

The First Five Year Plan established a foundation for capitalistic large scale industry for the first time in China. It is necessary in order for the independent reproduction and accumulation of capital to begin that capital seize hold of the main part of societal production, and that the sector producing the means of production (a fundamental characteristic of the capitalistic system of production) develop, as well as the development of the large scale exchange of capital with capital. The First Five Year Plan gave birth to this type of production for the first time in the history of China. This production was built in the form of a number of large and small companies and factories. These companies had yet to develop to the point where they could operate as independent capital, but through the self-supporting accounting system these companies clearly operated as companies. Of course these companies were under the control and direction of the state. These companies true nature as capital had not yet been revealed, but they were already latently capital

III. Sources of Accumulation

These strong accumulation of capital through the state was only possibly by means of the concentration of all of society's surplus products and surplus value in the state. The main means of doing this were taxes, the state's acquisition of the high profits through the state monopoly on commerce, and the concentration in the state of all of the profits=surplus value and redemption fund from the nationalized industries. The chart above shows the financial income and expenditure from 1950-5.

These figures don't accurately reflect the price relations, and therefore don't accurately reflect the sources of accumulation. We should bear this point in mind as we continue our analysis.

Taxes include agricultural and business tax and duty and salt tax. If we look at the final year of the First Five Year Plan, 1957, taxes totaled 15.49 billion Yuan. Of this figure, agricultural tax was 2.93 billion Yuan, business taxes totaled 11.3 billion Yuan, the remaining salt and duty taxes were 1.26 billion Yuan. We may be surprised at the relatively small amount of agricultural tax, however this is not an accurate reflection of the collections from the peasants. This is because the taxes and profits of industries also included what was collected through the unequal exchange of agricultural and industrial products, and the re-sale of agricultural products to the peasants.

Apart from the very small amount of cash, the bulk the agricultural taxes was collected in the form of the equivalent value of real products (food, etc.). This included roughly 86% of the total agricultural tax, the remaining amount was cash. In addition to these official taxes. the peasants also had to pay the state taxes on slaughtered animals and livestock. The peasant's tax burden amounted to 10-11% of the total agricultural production each year. Moreover, during the period of the First Five Year Plan the agricultural taxes which the peasants had to bear amounted to 11% of the state budgetary income for the same period.

Industrial taxes were applicable to state and public run companies, and privately managed Coorperation Unit. In general these were commodity circulation taxes, property tax, and merchandise tax (consumption), business tax (specific duty), and stamp tax. The state-run business property tax was included in the profits and had to be paid to the state together with a depreciation reserve fund. In 1957 the business tax amounted to 11.3 billion Yuan. This constituted about 37% of the financial income. The fact that this percentage increased year after year, whereas agricultural taxes showed almost no change, vividly shows the industrialization and development of commodity exchange in China.

In addition to taxes, another main source of financial income for the state was the income from state run industries and businesses. This sector grew along with the development of state capitalism. From 1958 this was the most important source of financial income.

The income form the state-run industries and business consisted of the profits from industrial enterprises, the depreciation reserve fund, as well as business profits. The income from these items included depreciation and the surplus value produced from the working class, as well as the large sum of monopoly profits gained through the state's control of prices. In 1957 the income from profits as well as the depreciation funds made up 46.7% of the state's financial income. Of this amount, 20.09% was income from industrial enterprises, 7.4% was income from the railroad and communication related businesses, and 14.02% was income from domestic commerce, trade, and food production. This last part was income directly dependent on the government's price decisions. This was one kind of "tax" that was mainly acquired commercially through the price differences in transactions of agricultural products, and the unequal price of exchanges between industrial and agricultural products. Needless to say, in most cases it was the peasants who shouldered this burden. "Even though the ratio of agricultural taxes to the state budget gradually decreased in significance, the direct burden of the peasants was not lightened. In addition to the payment of taxes, peasants had to hand over a large part of their products to the state at the official prices, and then once again buy industrial products from the Selling. Coorperation Unit at the official prices. These two types of price ratio were chosen in order to boost the accumulation rate of industry and business. 'From the point of production to the final sale, industrial products were taxed any number of times, as well as being taxing some of the intermediate products from the continuous process of production.' Moreover, the accumulation rate for consumption goods industries became higher than the rate for production goods industries, and for this reason the total amount of agricultural tax shouldered by the peasants is not fully reflected." (Analysis of Economic Growth in Communist China pp. 172-173)

It is clear that the bulk of state financial income was dependent on its monopoly in business, and the policy of official pricing. It is certainly not accidental that the First Five-Year Plan coincided with the commencement in earnest of the pricing policy and the state monopoly of businesses.

The dual pricing system of products put into effect in 1953. The price for state-run industries and the prices for the market (mainly private business or handicrafts) were decided differently. The former were fixed at a level considerably lower than price just out of the factory.

The beginning of the increase in the state control of consumption products began in November 1953. At this time food as well as vegetable cooking oil (and its raw materials) were placed under the system of "planned purchasing/planned supply". Cotton (both machine and handicraft produced) was placed under this system from 1954. For these commodities, the state would set a yearly purchasing allotment, and if the producers did not meet the allotment for that year they would not be permitted to sell any of their remaining products-this applied to the free market as well. The producers had to go through the network of state-run businesses. The goal clearly was to reduce the stock of the peasants as much as possible, thereby securing for the state the largest supply possible. Because of the large allotment, the peasants were left with almost no surplus. For these products, the free market was not supposed to exist and they were not meant to supply the free market." (Ibid pp. 25-6)

The "planned purchasing and planned supply" was a system of product allotment where sales took place through state distribution tickets. In this way the state secured agricultural products for the city, reserves for the state as well as securing agricultural products to export in order to make the importation of essential means of production possible.

In 1953 "planned purchasing and planned supply" together formed the "united purchasing". The state determined a percentage of the overall quantity of production in each place of production to be bought preferentially and this was sold at the official price. The difference with the system of "planned purchase/planned supply" was that no allotted sale took place.

In the 18 August 1957 "regulations concerning agricultural and other products which are not permitted to penetrate the free market in the state plan of revenue and expenditures (controlled expenditure)" promulgated by State Council, a number of products were listed. (product list is omitted from this translation)Moreover in 1955 it was decided by State Council that generally 80-90% of the peasants' grain surplus would be purchased by the state(article 14).

Through these compulsory sales to the state, almost all of the peasants' surplus products were concentrated in the state. During the First Five Year Plan 54-58% of the state's financial revenue was directly or indirectly connected with agriculture or agricultural products. The peasants' meager surplus was an important source for the accumulation of state capital.

The surplus products and value collected from peasants and small capital through taxes and the monopoly on commerce was well was the direct expropriation of surplus value from workers in industry were all concentrated in the state and were a source of investment for industrialization.

Of the state's financial expenditure the greatest was, needless to say, the "cost of economic construction". This "cost of economic construction" was 7.63 billion Yuan in 1952, but this figure had nearly doubled to 14.91 billion Yuan by the end of the First Five Year Plan. During the period of the First Five Year Plan this "cost of economic construction" exceeded 50% of all financial expenditure. This economic construction cost climbed to 65.6 billion Yuan during these five years. According to the plan, the expense for economic construction was composed of the outlays for fundamental investment and the required circulating capital in each business. The former amounted to nearly 80% of the total. The financial department of the state supplied businesses with 80% of the required circulating capital. The remaining 20% was supplied by the financial department to the Chinese People's Bank and passed out to the companies in the form of a fixed loan in order for the bank to play a supervisory role in regard to the companies. (Theory of Socialist Economy; p.160) As we have already seen, the bulk of financial investment was in industry.

By contrast, agricultural investment clearly diminished with the First Five Year Plan. While agricultural taxes increase five fold from the prior rate during the Five Year Plan, overall agricultural investment decreased since 1953 when it was 13.9 percent of the total state investment (1953: 10%, 1954: 4.8%, 1955: 7.3%, 1956: 8.3%, 1957: 8.7%). Two thirds of agricultural investment went to water related businesses. Industrial growth at the expense of the agricultural sector, a characteristic movement under capitalistic production, was powerfully carried out by the state, and this essentially is what the First Five Year Plan accomplished.

Moreover, every year 5 or 6 billion Yuan in expenditures went to cover the national defense costs. "Socialist industrialization" was not just the "effort to create a foundation for an industrialized country and modern national defense through the dedication of all energy and resources to the development of heavy industry" (Li Fuchun). "Socialist industrialization" is, in essence, a measure adopted by the state in order to enrich and strengthen the country during the first stage of bourgeois development. However, in the case of China, this policy was not carried out by an absolutist state, but by a peasant state under the slogan of "building socialism". This is the uniqueness of China.

IV. The Results of Industrialization.

The first Chinese Five Year Plan drove forward the growth of heavy industry and Chinese industrialization, but this development was certainly not smooth nor harmonious in all sectors. In the previously cited CPC Analysis of Economic Growth, Cho Min Lee, analyzed this point in the following way:

"In the course of the development of heavy industry the supply of energy and fundamental raw materials has already come to a bottle neck. Coal, metal production, crude oil and electrical power has been unable to grow at a sufficiently rapid rate to meet the demand of industry, and the production of steel and building materials has been unable to keep pace with the increased demand for metal processing and machine manufacturing. Even though coal, steel and electrical power achieved the projected goal for 1957 by one whole year, this problem became particularly clear by the last two years of the Five-Year Plan. This situation reveals that the plan lacks coordination and coherence. Moreover, this is surely the main reason that in May 1956 the government established the State Economic Committee which in the following year was provided a set allotment to limit the task of the State Planning Committee (established in November 1952) to the preparation and coordination of a general long term plan."

Further, the development of light industry was remarkably late. Within light industry, the production of paper increased greatly, but cotton, wheat flour, and sugar, didn't reach the planned goals, and salt, and the production of vegetable cooking oil decreased. These consumption goods industries were dependent on the development of agriculture As a result of the First Five Year Plan two big problems came to the fore:

the necessity of increasing the production of raw materials and the necessity to develop agricultural production. The movement to overcome these difficulties was the Great Leap Forward and the collectivization of agriculture.

To Contents

Chapter 3: The Shift from a Petty Bourgeois State Capitalism Economy and the Establishment of a State Capitalist System

I. The Collectivization and Nationalization of Commerce

The first Five Year Plan was a period of strong accumulation and industrialization through which a number of large scale industries were constructed. At the same time, during this time period the shift from a Chinese economy which was overwhelmingly petty bourgeois to state capitalism was carried out.

The shift from a petty bourgeois economy to state capitalism was carried out by making a goal out of ever increasing accumulation: the capital of handicraft businesses and small scale shops were formed into cooperatives, the capital and miniscule means of production which had been broken up were concentrated on a small scale and accumulated, these were developed into large scale factories and companies, which in turn were converted into state capital. This process resulted, on the one hand, in the increasing advance of state capitalistic production, and on the other hand, the accelerated transformation of handicraftsmen into factory workers. Just after the revolution the number of handicraftsmen greatly outnumbered factory workers.

Small commodity producers who produced through their own capital and labor were transformed into wage workers who possess nothing. This transformation of small commodity production into production of surplus value through capital was the historical substance of this collectivization="socialism".

This collectivization had already commenced just after the revolution, but its completion in all production and the establishment of a system of state capitalism was reached during the period of the first Five Year Plan.

The tenth article of the Chinese constitution proposes the task in the following way:

"The state, basing itself on law, will protect the capitalists' means of production and other capitalist ownership. The state will adopt the policy of using , limiting and remodeling the capitalistic industries. Through the management of the state's administrative organs, the leadership of the state-run economy, and the supervision of the mass of workers, the state will make use of capitalistic industry for the positive benefit of the state economy and the lives of the people, and will limit the negative effects which would harm the state economy or the lives of the people, as well as encouraging and directing its transformation into various different forms of state capitalism. Capitalistic ownership should be turned into (restructured) into the people's property as soon as possible. The state forbids all illegal actions that might cause harm to the public interest, disturb the economy of the society, or destroy the state's economic plan."

Here the interests of state capitalism take precedence over everything else. Of course, as we have said before, state capitalism in China doesn't just refer to the collective management of the state and private businesses, but is the general term for capitalism which takes the form of concentration within the state and state enterprises. The constitution tolerated private business as long as it is useful to the development of state capitalism. In other words, private businesses were protected and utilized as long as they "developed" toward the form of state capitalism. However, it is clear that the state would not allow for any sort of profit on private capital to interfere with state capitalistic accumulation. China limited the development of private capital, and called for a struggle against it, but this was not a struggle against the rule of capital in general, that is it was not in the least bit a socialist struggle. This was only a struggle against the development of capital in a private form-a struggle of capital in the form of state capital against (terribly scattered and small in scale) private capital. The reason for the Chinese State's policies to limit private capital was due to the necessity of concentrating all of the capital and surplus value in the state in order to establish capitalistic large scale industry in China.

Therefore, this struggle was not carried out by the working class, but by the bureaucrats and directors of state companies as the bearers of Chinese state capitalism. The working class and peasants were merely mobilized for this "struggle".

In China the conversion of private capital to state capital was carried out in pre-capitalistic and monopolistic forms, that is, through the creation of state monopolies on commerce and the regulation of production and consumption by means of these state-run businesses to drive forward the industrialization of state capitalism.

The development of state capitalism of commerce was carried out through following mediations that were finally converted into nationalized companies. Namely, sales on commission, sales on purchase, specialty sales by agent, purchases by agents, purchases by public and private combined agents, export and import by agents, commerce by public and private unions, etc.

In 1950, state-run wholesale businesses made up 23.3%, cooperative business unions 0.6%, commerce by public and private unions 0.1%, while privately-run business made up 67.1% of the total for wholesale business. However, in 1955 state-run businesses totaled 82.2%, cooperative business unions 12.6%, commerce by public and private unions 0.8%, while privately-run businesses had decreased to 4.4%. In 1950 of small retail businesses 9.7% were state-run businesses, 6.7% were cooperative business unions, and 0.1% were commerce by public and private unions. In 1957 the state-run businesses comprised 65.7%, cooperative business unions and commerce by public and private unions 31.6%, while privately-run businesses had decreased to just 2.7%. The state capitalist system of business was established in wholesale businesses in 1955 and in small retail businesses in 1957.

The establishment of state capitalism was achieved by gradual nationalization by means of the state's purchase the products of privately-run factories, processing on commission, orders, combined private and public management, etc.

In 1950 state-run industries made up 45.3% of total industrial production, combined private and publicly managed industries made up 2.9%, and companies producing through state processing and orders totaled 14.9%, while privately-managed companies made up 36.9% of the total. In 1956 state-managed companies made up 67.5% of overall production total, and combined public and privately managed companies comprised 32.5%, while privately-managed companies only made up 0.1% of the total. State capitalism was established in industry too in 1956.

Cooperative unions also made rapid progress among handicraftsmen. In 1952 among 7,364,000 people engaged in handicrafts, only 3.1% were organized in cooperatives, while 96.9% were individual handicraftsmen. However, in 1956, of the 6,583,000 people engaged in handicrafts, 91.7% were in cooperative unions, while only 8.3% were individual handicraftsmen.

In the course of the First Five Year Plan, small capitalists and small commodity producers, were converted into cooperatives or state capital, or were jointly managed with state capitalism and integrated into the state capitalistic accumulation mechanism. The First Five Year plan was at the same time also the process of establishing a system of state capitalism in all areas of commerce and industry.

II. The Significance of the Transformation to State Capital

It is certainly not accidental that during the industrialization during the First Five Year Plan coincided with the advance in the conversion of private capital to state capital. The grouping together of infinitesimally small businesses was necessary for the rapid industrialization by the state. The pace of collectivization was particularly rapid during the later half of the Five Year Plan because the backward production of small private capital had become a fetter to the reproduction and circulation of large scale industry constructed by state capitalism. China's Chian Jiaju explained the necessity of collectivization and the conversion to state capitalism in the following way:

"First, the privately-run industries could not be adapted to the state industrialization which was the achieved aim of the period preceding the First Five Year Plan. For example, the phenomenon arose in which equipment and the production process broke down because privately-run heavy industry, particularly electrical machinery, couldn't manufacture the products the state needed and the products they could produce were unnecessary. In order to utilize the production power of these privately-run factories it was necessary to rationally reorganize production, but this is impossible under capitalistic ownership. The reorganization of this system was an indispensable necessity. If the pace of the state's industrialization is hasty, the pace of reorganization must be adapted to this speed." (The Form of Companies in Contemporary China)

The large majority of companies which existed in China were extremely small in scale, and had yet to break out of the framework of handicraft production. It was difficult for these small companies to adopt advanced technologies, and there was a terrible waste of labor power and capital. In this unmodified state small companies could not become one branch of state capitalistic accumulation. This is because it was not possible for the state to manage all of these companies, and in their unmodified condition it the state's capital would necessarily be fragmented and wasted. In order to increase the reproduction and circulation of state capitalism and construct industry in every sector, it was necessary first to concentrate, as much as possible the fragmented capital and means of production, and expand this concentration to as many areas as possible. It was necessary that the capital and surplus value of the companies created through the transformation of handicraft-istic workplaces to capitalistic provide one link in the state's construction of industry. In China, taxation and the funneling of surplus value concentrated through commercial plunder towards the construction of a few large factories, alone was insufficient. It was also necessary to create capitalistic large scale industry through concentration of the small capital already existing and that continuously being spawned by commodity production. This process was the dissolution of the petty bourgeois economy by the state.

The Chinese leaders called this process "socialistic reorganization", but in fact this was nothing but the creation of capitalistic production. For the first time in China, through the collectivization=collaborative unions, production by individual handicraftsmen was converted into cooperative production in which a manufacture division of labor was developed. Moreover, gradually this began to be developed into machine production. If this isn't a transformation into capitalism, what is it?

It is not at all strange that this collectivization and state capitalization should occur "peacefully" and through the "will of capitalists". This is because this was the development of small capital as state capital, and the transformation of capitalists into directors of state capitalistic companies. The character of capital as capital owned by a capitalist was not negated. Capital was turned into state capital and joined in the state capitalistic development. The appraisal and the inventry of the property owned by the capitalist was "to the end carried out mainly by the capitalist himself", in addition the capitalist was paid 5% interest every year.

This was profitable for both capitalists and state capital.

Through the state capital "repurchased", that is, "interest" was paid to the capitalist for about ten years. At first, this "interest" was distributed to the capitalists as a fixed return, and in 1955 was changed to "system of fixed payments". In 1957 it was decided that capitalists would be paid 5% interest annually on their capital for the next seven years. In this way, this capital was converted into state capital without direct expenditures.

That is not all. The owners of the capital which was nationalized and owners of companies continued to be the directors of the state capitalistic companies. In February 1956 in "decisions regarding several problems of the socialistic reorganization of privately-managed companies and handicrafts at the present time", the government handed down the following order:

"1. A suitable period of time is necessary before the authorized restructuring of privately-managed companies into joint public/privately-managed companies can be completed. Therefore, in general, for a period of about six months following this authorization the management of production must be carried out in accordance with the former system of management and procedures. The former company directors will take over responsibility of economic management and the financial activity, and in general it will not be necessary to make changes in the former staff or duties. The former company directors have a big responsibility toward the state to manage the companies well, and the construction groups dispatched to the specialty companies must provide positive assistance to the companies directors in order to successfully carry out the building of production management.

2. In general, the system of management and job duties (for example: the system of buying and selling stocks, accounting, credit purchasing, temporary advance, working hours, the system of wages, etc.) will not be altered within the first half year."

Moreover at the conclusion of the "decision" it is stated: "What is useful from the production technique and management of capitalist industry and handicrafts will become our national inheritance and will be preserved, and this can never be denied without analysis." Capital, without losing any of its character as capital, was transformed into state capital, and on top of that, company directors were paid interest and became state capitalistic company directors and economic bureaucrats. Already by 1956 the point had been reached where 600,000 children of capitalists were engaged in the building of state organs and had become leaders of the revolution, many students from the capitalist class had joined the Communist Party or youth groups, and a large number of the wives of bourgeois families were engaged in social activities, and were rendering a positive service to the building of socialism." (Theory of Contemporary Chinese Economy) Moreover, capitalists in China were judged in the following way: "The capitalists have surprisingly quick to understand Marx and the results of their study have been excellent." The Chinese leadership called this the "victory of peaceful reorganization", but in reality this shows that the system of state capitalism and capitalism are not fundamentally opposed, but are essentially the same thing. The means of production have preserved their character as capital, that is, a means of obtaining surplus value from the working class-this part has not changed in the least. What has changed is that private capital has taken the form of state capital. Capital has been combined into state capital. "Necessary personnel from the capitalist class who have skills will be placed in a position in the relevant department of the state. Depending on the circumstances, those without ability will either be given a post or some assistance to protect their life." (17 September 1958; "People's Daily") In this way, capitalists became state capitalist bureaucrats and managers. The total sum of interest delivered to capitalists in 1956 reached 165 million Yuan.

Through state capitalization it became possible for capital to obtain higher rates of surplus value. Even though it was said that, "within capitalist companies there are still a great number of companies which are not jointly (private and public) managed, and thus the labor management contradictions is sharply felt and prevents the manifestation of the creativity and positivity of labor, and the full development of socialistic labor competition" (The Form of Companies in Contemporary China), the real reason for the higher rates of surplus value was that state capitalization increased the productivity of labor, and "the increase in the state's accumulation of capital together with the decrease in labor/management disputes was particularly profitable for companies." (ibid) The Chinese leaders insisted that "capitalist exploitation is severely limited" since the capitalists' profits were restricted to interest.

However, capital's production of surplus value clearly increased. This expanded surplus value by being accumulated as state capital was turned into an even bigger source of surplus value, and further promoted the development of productive power in China. In this sense, this collectivization and state capitalization signifies a historical progression. However, it is undeniable born out of this progression was the opposition of capital and wage labor.

Collectivization was a two fold process: on the one hand fragmented small scale capital was concentrated and transformed into state capital, and on the other hand a large number of handicraftsmen were converted into wage workers and factory labor. By the end of 1956, 92% of the nation's handicraftsmen (5 million people) were organized in about 100,000 cooperative handicrafts unions. Individual handicraftsmen were converted into workers in handicrafts factories employing about 50 people per factory.

Of course, those workers in cooperative unions were not wage laborers, and within these factories direct exploitation did not yet exist. However, these cooperative union factories gradually came under the supervision and control of state capital, and were converted into state capitalistic companies. The workers were likewise steadily converted into wage workers. By 1956 some of these handicrafts unions had already begun to be converted into regional state-managed factories. By June 1958 about 3,100 cooperative unions had been converted into such regional state-managed factories, and the roughly 180,000 workers employed in these factories had become wage workers.

Collectivization, which was carried out rapidly by Chinese state power as one social movement, was the dual process whereby the capital necessary for capitalistic large scale production was formed, and handicraft workers were simultaneously transformed into wage workers.

III. The Collectivization of Agriculture and People's Commune

The rapid development of agricultural collectivization in the period following the First Five Year Plan was the movement to overcome the huge self-sufficient small peasant economy in existence, promote the commodification of agricultural products in order to increase agricultural productive power, expand the commodity exchange between industry and agriculture together with transforming peasants into wage workers.

Although the First Five Year Plan created a number of large scale industries through the strong role of the state, the relative backwardness of agriculture particularly restricted the development of light industries which were dependent on the raw materials produced by agriculture. Further, along with the development of industrialization, ensuring sufficient food for workers accumulating in the cities, and a sufficient supply of industrial labor power, and even more, securing the markets that accompanied the expansion of industrial products, became an increasingly serious problem. However, the development of productive power and commodity production was extremely slow owing to the relations of production in which about 110 million peasants made their living self-sufficiently on miniscule plots of land with simple means of production. Without overcoming the small peasant economy, the advance of industrialization and the transformation from an agricultural to an industrial state was not possible.

In the July 1955 report on the co-operative transformation of agriculture, Mao Tse-tung stressed the necessity of carrying out rapid collectivization of agriculture.

"Some comrades disapprove of our Central Committee's policy of keeping the development of agricultural co-operation in step with our socialist industrialization, although the validity of such a policy has been borne out in the Soviet Union. (...)

These comrades fail to understand that socialist industrialization cannot be carried out in isolation from the co-operative transformation of agriculture. In the first place, as everyone knows, China's current level of production of commodity grain and raw materials for industry is low, whereas the state's need for them is growing year by year, and this presents a sharp contradiction. If we cannot basically solve the problem of agricultural co-operation within roughly three five-year plans, that is to say, if our agriculture cannot make a leap from small-scale farming with animal-drawn farm implements to large-scale mechanized farming...then we shall fail to resolve the contradiction between the ever-increasing need for commodity grain and industrial raw materials and the present generally low output of staple crops, and we shall run into formidable difficulties in our socialist industrialization and be unable to complete it. The Soviet Union, which had to face the same problem in the course of building socialism, solved it by leading and developing the collectivization of agriculture in a planned way. And we can solve ours only by the same method."

Moreover, Mao stressed that with the co-operative transformation of agriculture and large scale operations, the products from the vital heavy industry sector, such as tractors, agricultural machinery, scientific fertilizer, transportation vehicles, etc., would be able to be employed for the first time. He also stressed that a large portion of the huge amount of capital necessary for industrialization and the modernizing of agriculture must be amassed in the agricultural sector, but this would only be possible through the collectivization of agriculture.

This collectivization of agriculture quickly carried out with the involvement of all of the peasants, but this was advanced through the (Narodnik) fantasy of peasant socialism. Mao appealed to the small peasants in danger of falling into impoverishment, and explained that only co-operative transformation "could make all of the peasants prosperous together" and thus build socialism.

The movement of agricultural collectivization advanced at a vigorous pace: in 1955 only 14.2% of peasant families were organized in the "preliminary level agricultural cooperatives, but in 1956 87.8% of farm families were organized in "high level agricultural cooperatives" which numbered on average about 2,000 households.

The cooperative transformation of the peasants was advanced even further in the name of "building a communist society", and by 1958, 99.1% of peasant families were organized in "people's communes" numbering about four to five thousand households on average. Chinese peasants were driven forward by a petty bourgeois enthusiasm, and contributed their labor under catchphrases such as "you are for others and others are for you" or "a few years of hard work, and then a thousand years of prosperity"

In order to increase production in a country such as China were nine tenths of the agricultural work was done by hand, it was necessary to collectivize labor power, and use the peasants' enthusiasm to extend working hours. More than two times the previous labor power was needed to increase agricultural production through the construction of water facilities and improved cultivation, and further it was necessary to secure the labor power necessary to revive regional industries. The "People's Commune" was the form to meet these necessities. The "People's Communes", and the "Great Leap Forward" which was advanced along with it, were precisely the movement to enlarge the reproduction of state capitalism, and increase agricultural production through the mobilization of peasant labor power, while also reorganizing rural handicraft production into regional industries.

The "Great Leap Forward" movement by means of people's communes, first began with the reorganization of agricultural water facilities and the compost and manure production movement, and developed through the so-called "8 character charter" movement of soil improvement, fertilizer, irrigation, the choice of seeds, crop protection, land cultivation management, too improvement. In this way, from the winter of 1957 to the autumn of 1958 rapid advances were made in irrigation, afforestation, and fertilizer production.

The "Great Leap Forward" was also a movement to build regional industries in the People's Communes. The amount of production from these industries (such as the manufacture, repair and improvement of agricultural tools and machinery, the manufacture of construction materials, fertilizer, agricultural chemicals, the processing of agricultural by-products, the manufacture of sugar and paper, spinning and weaving) reached 10 billion Yuan by 1959. Production in these commune industries was carried out by making use of the waste products of large scale industry, as well as using the scattered, half-used small scale raw materials and resources. The commune industries manufactured the greater half of semi-mechanical agricultural tools, tools and small scale agricultural tools.

These commune industries converted the previous handicraft production, which was carried out as a domestic industry, into collectivized agriculture and small scale factories. Rural commodity production developed along with this agricultural collectivization, and the ratio of the commodification of agricultural products also increased.

The greater part of the huge increase in industrial production during the "Great Leap Forward" of 1958-1959 was based on small scale industry in the People's Communes. This was a product of the peasant's petty bourgeois enthusiasm, and was carried out through their limitless investment of labor power. During these two enthusiastic years (1958-59), a great deal the production such as steel which was in fact almost useless as industrial raw material, was later abandoned during the following period of calm. From 1960, agricultural and industrial production in China began to decrease, and only gradually began to increase again from 1963.

From 1960 the experiment in peasant socialism of the "Great Leap Forward" and People's Commune movement was completely bankrupted, and base of production once again shifted to the fundamental unit of the People's Communes, the production platoon.

Throughout the repeated waves of enthusiasm and calm, the collectivization of the peasants became the dominant form of Chinese agriculture. Land was converted into the communal property of the peasants, peasant labor was turned into collectivized labor, and the productive power of labor was gradually increased. Agricultural cooperatives broke through the limits of small peasant management, and opened the path to the mechanization of agriculture. In 1955, tractors for agricultural use totaled 8,000 vehicles, by 1956 the total was 19,000, and by 1958 the total number of tractors had increased to 45 thousand. Chinese agriculture had previously been based on hand labor, and had not lost the character as a cooperative union of small peasants. However, collectivization developed the self-sufficient small peasant economy into commodity production agriculture, and the peasants' side job of domestic handicrafts were transformed into factories managed by the People's Communes. The collectivization of agriculture in this way pushed forward the separation of agriculture from industry, and expanded the base of commodity production in the peasant villages. The People's Communes gradually advanced the redirection of peasant labor from agriculture to industry and transformation of peasants into wage workers.

The People's Commune movement was, on the one hand, the organization of peasant labor through collectivization, and, on the other hand, the penetration of the state capitalist system into the small peasant economy.

Through the establishment of the People's Commune, each local area was converted into a People's Commune, and the direction of the commune, that is the organizational management of the cooperative, was united with the local people's committee, the regional organ of the state. In this way it became possible for the state mechanism to directly manage the People's Communes.

Now the state was no longer merely influencing agricultural production indirectly through taxes and commerce, but was directly managing production, and the People's Communes were transformed into one link of the system of state capitalism. Cooperative ownership was gradually transformed into state ownership.

The system of ownership in the People's Communes was divided into three levels of ownership: the People's Commune management committee, the production troops, and production platoons. The earnings belonging to the People's Commune management committee came through farms of accumulated funds from production troops, income from the direct management of companies, as well as M.T.S., and the renting of electrical equipment to production troops. The earnings of the production troops came through the use of their means of production and materials, and through income through the management of their small scale companies and trusts, as well as through supplying the communes and other production troops with materials and the price of labor power. The earnings of the production platoons came through their side jobs and income from their tiny businesses and agricultural by-products, as well as incentive money for over achieving production goals.

Out of the total earnings for the People's Commune, 7-8% were taxes, about 20% were production management fees, about another 20% was accumulated money, and about 50% was from a consumption endowment. The principle task for the People's Commune was the maximum conversion of the surplus product accumulated through collectivization into capital.

"Concerning the accumulation of capital of the state's socialistic industrialization: following the principle of "ĎЈ" deductions are given on a preferential basis. Already, the system of collective ownership of the agricultural co-operatives has firmed up the operational base, and maintained the management organization and strengthened and enforced the self-awareness of the members. Also, through the commune's payment of agricultural and commercial tax as well as delivering commerce and industry taxes or surplus profit, the areas this principle reaches has been expanded. Moreover, through the purchase of agricultural products, contracts, and the exchange of agricultural products the source of state income has been raised one level and stabilized which has contributed greatly to the accumulation of capital for state industrialization.

This collectivization of agriculture and the subsequent People's Communes was a process which established state capitalism in the agricultural villages.

IV. The Establishment of State Capitalism

As we have already seen, the First Five-Year Plan, and the collectivization of industry and agriculture that was carried out along with it, was a process of establishing state capitalism. State capitalism was more or less established in China in the latter half of the First Five-Year Plan. In 1956 Chou En-lai said the following:

"As for the situation regarding the socialistic restructuring of agriculture, handicrafts, as well as capitalistic industry, on the course of advancing socialist revolution, that is socialistic restructuring, our country has already achieved great progress. In the struggle between the two paths, socialism and capitalism, there is nothing to block the ultimate victory. As Chairman Mao said, 'already a fundamental change in the political situation in our country has occurred.'"

But what was established in China was not 'socialism'. What was established was a mechanism for the accumulation of capital by the state, and a system for the construction of large scale capitalistic industry. Through these changes China did not overcome capitalism, but rather, capitalistic production was created for the first time. At first glance, the struggle of the Maoists against 'private gain' appears to be socialistic. However, this is not socialism, just as the capitalists slogan of abstinence during the period of capital's genesis was not socialism. Mao Tsu-tung's struggle does express a certain progress and one historical development, that is, the emergence from small commodity production and the advancing of the construction of large scale industry. We acknowledge this progress, but at the same time we must unconditionally expose the peasant and bourgeois character of this development and the Maoist movement.

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