[asia-apec 1070] Pao-yu Ching on A Celebration of the Lifework of William Hinton

[GABRIELA]

Understanding China's Revolution: A Celebration 
of the Lifework of William Hinton 

Speech delivered by Dr. Pao-yu Ching in one of the sessions in the
conference honoring William Hinton on his 80th birthday.
April 3, 1999

[Note: William Hinton is the author of the classics Fanshen: A Documentary
of Revolution in a Chinese Village and Shenfan: The Continuing Revolution
in a Chinese Village. His books, including The Great Reversal: The
Privatization of China -- 1978-1989, deal with the course of development
that China has undergone since the Chinese revolution led by Chairman Mao
Zedong.
       Dr. Pao-yu Ching was keynote speaker in the workshop "Strategies,
Gains and Challenges for Women's Struggle Against Imperialist
Globalization" convened by APWLD, GABRIELA, SRED (Chennai) and Tamil Nadu
Women's Forum in the 3rd International Women's Conference Against APEC
which began the Asia Pacific People's Assemply (APPA) held in Kuala Lumpur
in November 1998.]


I would like to change the title of our session to: China in the context of
Imperialist Globalization.

	Bill, you are my teacher. I have learned so much about China through
reading your books and articles and through many conversations we have had.
I want to thank you for including me today in the celebration of your work
and your life.

	Many of the speakers today have discussed much about the current situation
in China. I will use the experiences of most Third World countries in the
post- World War II period to explain why Deng Hsiao-ping's model of
capitalist development is bound to fail in the global capitalist system.

	After World War II, leaders in many newly independent countries and
leaders in countries which were dominated by the imperialist powers were
determined to develop their economies. These countries followed the
examples of the United States and Germany which had used the import
substitution strategy to industrialize and eventually were able to free
themselves from British domination. Leaders in many Third World countries
thought this capitalist model of development would help them win the
economic and political independence they fought for through decades of
struggle. 

	The key features of the import substitution strategy were: 1) Governments
used import tariffs to protect domestic industries. Without the protection,
domestic industries would not have been able to compete with foreign
manufactures which were far better capitalized and equipped with much more
advanced technology.  2) The State owned and ran many of the key industries
which included major utilities, transportation, energy, finance, and even
important manufacturing. Some of these industries were formerly owned by
foreign capital and the State took them over. Since there were few domestic
capitalists who had enough capital to start these basic industries and to
fend off foreign take over, these state-owned industries were instrumental
in facilitating capital accumulation.  3) The third feature of the import
substitution strategy was that private enterprises were subject to
government regulations. One of the regulations was to limit foreign capital
shares in private enterprises. 

	The import substitution strategy was working -- not perfectly -- but it
was working. Latin American countries which adopted this strategy
experienced higher rates of growth and improved standards of living in the
1960s and 1970s. As a matter of fact, in the early 1970's during the first
post-war major crisis of the global capitalist system, the economic growth
in Latin American countries was one of the reasons that attracted foreign
direct investment from industrialized countries whose own economies  were
stagnated.  At the same time, large foreign loans also came to Latin
America and other developing countries through the recycling of the
petrodollar after OPEC raised the crude oil prices. Then, in 1981, Paul A.
Volcker, head of the Federal Reserve, raised interest rates in the US to
calm inflation. This action was the immediate cause for the worst recession
in the US since the Great Depression. The higher interest rates raised the
cost of servicing debt for debtor nations and consequently caused the debt
crisis in Mexico, Brazil, Argentina, Poland, and South Korea. The debt
crisis and what followed was the beginning of the end of the import
substitution strategy of capitalist development in Third World countries.

	According to an estimate made by Susan George, between 1982 and 1990, the
net outflow of capital from the debtor nations to the creditor nations (the
developing countries remitted in debt service $1,345 billion, not counting
the payment of royalties, dividends, repatriated profits and underpaid raw
materials, minus the inflow of foreign capital) was $418 billion. The $14
billion US Marshall Plan to help Europe after World War II, converted to
1991 dollars would be $70 billion. This means that during those 8 years
developing countries aided the developed countries an equivalent of six
Marshall Plans. (The Debt Boomerang, Pluto Press, 1992, p. xv - xvi)

	With this magnitude of capital taken from these debtor nations, it was no
wonder that they went through a whole decade of stagnation. Workers and
peasants suffered high rates of unemployment in cities, impoverishment in
the countryside and an overall lowered standard of living. For a country
like Brazil, which has vast areas of fertile land, one third of its
children suffered some form of malnutrition.

	During the debt crisis, large multinational banks with the help of the
International Monetary Fund not only extracted large amounts of surpluses
from the developing countries, but the IMF also imposed the Structural
Adjustment Program on the debtor nations. The SAP took away the autonomy of
sovereign nations to set their own economic policies. It forced governments
to eliminate social programs to help the poor, and it forced them to
privatize their state enterprises and liberalize their economies to provide
freedom of movement for international capital.

	In the end, under economic, political, and military pressure from the
imperialist powers, countries, which had hoped to develop their economies
through the import substitution strategy, gave in. Rulers in these
countries also saw very attractive opportunities for them if they cooperate
closely with foreign capital. They have since acted more like the agents of
foreign capital than leaders who have responsibilities to protect the
interests of their own nations.  Again using Latin America as an example,
the debt-ridden countries went through an unprecedented scale of
privatization and deregulation. Foreign capital bought state owned
enterprises at deep discount, from 50% to as much as 80% discount, through
the debt-equity swap program. Latin American countries sold public
utilities, railroad, mines and many major manufacturing enterprises to
foreign investors. They reversed their development strategy from building
an industrial base for their domestic market to joining the rest of the
developing countries in the competition for exports. From this we can
conclude that capitalist development through the import substitution
strategy for developing countries has failed during the high tide of
imperialist globalization.

	Well then, how about the export-led strategy of capitalist development?
Or, the strategy of these so-called tiger economies? The tigers now look
more like pussy cats after the crisis of global capitalism in the late
1990s. I prefer not to call it the Asian financial crisis, because it is in
fact a global capitalist crisis manifested in the form of the financial
crisis that beset Asia. More than anything else this crisis shows how the
fundamental contradiction of capitalism has intensified. Keynesian
economists have attributed the prosperity in the 1950s and 1960s to the
policies of John Maynard Keynes, while forgetting to give thanks to the
destruction brought by the Great Depression and the Second  World War.
Those events resolved at least temporarily the over capacity problem that
had existed since the 1920s. After Japan and Europe recovered from the War
and after the newly industrializing countries added more productive
facilities in steel, petro-chemical, textile, footwear, electronics, and
automobiles, the problem of worldwide over capacity became apparent in the
early 1970s and has been further intensified in the 1990s, bringing about
the current round of crisis that broke out in 1997.

	During the decade of severe crisis in Latin America, foreign direct
investment shifted to Asia. (During the 1970s Latin American countries had
received 52% of all direct foreign investment from developed to developing
countries and that percentage dropped to 25% by the end of the 1980s.)
Additionally, the high price of the Japanese yen in the second half of the
1980s, on the other hand, made it harder for Japan to push for an even
bigger trade surplus to relieve its excessive over-capacity problem. The
high price of yen also made direct investment in other Asian countries
cheaper and more profitable. (Currencies in South East Asian countries,
Taiwan, China, and South Korea are pegged to the US dollar.) These Asian
countries attracted foreign direct investment as well as portfolio
investment by high interest rates and fixed currency exchange rates, so
that foreign capital could earn higher returns without the risk of currency
depreciation. Japanese, US and European capital poured in. Here we really
do not need the advice of the economists, that if capital keeps pouring in,
statistics will show high rates of growth. The mass media built myth on top
of myth that there was an Asian miracle. These high rates of growth only
indicate increases in economic activities which included the construction
of high-rise office buildings, luxury hotels, airports and other
infrastructure which now lie empty and unused. The economic activities
included the construction of productive facilities for the single purpose
of export. Since these facilities were built during the time of worldwide
excessive over-capacity, the export market were destined to collapse. The
domestic markets in these countries were too small to buy the products.
These factories built with large amounts of natural and human resources are
now abandoned. Economic activities also included speculation in real estate
markets that inflated the prices of real estate as well as created a false
sense of wealth.

	Under the liberalization program pushed by the IMF and the Asia Pacific
Economic Cooperation  (APEC), foreign capital, which included the portfolio
capital and speculative capital, could come and go with free will. As we
have witnessed in Thailand, Indonesia, Malaysia, South Korea and the
Philippines, the foreign exchange reserves earned by ruthlessly squeezing
their laboring people under the "We must compete in the international
market" campaign were robbed clean in a matter of weeks. Subsequently,
international capital also raided the foreign exchange reserves of Taiwan,
Hong Kong, Russia, and Brazil. Then, the IMF came to the "rescue" - and to
once more dictate domestic economic policies. These countries not only lost
their accumulated foreign exchange reserves, they also ended up owing large
debts to international financial institutions. Under the pressure of IMF,
APEC and WTO, all instruments of international monopoly capital, many Asian
countries have already gone through rounds of privatization and
de-regulation earlier. Now after 1997 the push for further privatization
and liberalization has been intensified. The Structural Adjustment Programs
imposed on them by the IMF are more blunt and shameless. In addition to all
the conditions previously mentioned, the SAPs further dictate keeping the
labor market flexible and rewriting bankruptcy laws. Many countries that
have pursued the export-led strategy of capitalist development are left
only with human suffering and environmental devastation.

	Both the International Monetary Fund and the General Agreement on Tariffs
and Trade (GATT) were mechanisms intended to regulate international capital
in order to avoid the deadlock of the Great Depression. Their historical
mission of stabilizing exchange rates and promoting trade through lowering
tariffs ended in the 1970s. They have since transformed themselves into
instruments of imperialist powers to force the will of monopoly capital
onto developing nations. From the 1970s until recently, IMF worked wonders
by taking control of economies of sovereign nations and helped keep
economic crisis in one region from spreading to the rest of the world. We
have witnessed in this current crisis, even though IMF can still force
debtors to comply with its SAPs, that it can no longer contain the crisis
in Asia. According to the Economist, "Brazil faces its steepest economic
decline since the early 1980s. Ecuador is having its worst financial crisis
in generations. Forecasters expect a fall of 1.5% in Latin American GDP
this year...." (March 20, 1999, p. 18)

	We have also witnessed that the new WTO is totally ineffective in
resolving trade conflicts among the big powers. Countless cases of
complaints from these powers are piling up, and the WTO's rulings have been
ignored by the United States, the European Union and Japan. Yet, WTO is
still a powerful instrument that forces Third World countries to open up
their economies, to privatize their state enterprises, de-regulate, allow
foreign banking, insurance, hospitals, and school to come in, honor the
patent laws of the imperialist powers, and stop subsidies to their own
farmers. 

	China caught the tail end of this maniacal export-led strategy of
capitalist development. How and why does anyone think it can succeed?

	 Workers and peasants in the Third World already realize that the
export-led strategy of capitalist development has not and will not work for
them. The capitalists in these countries may still see a glimpse of hope,
when their stock and real estate markets begin to show some signs of
recovery. Workers and peasants in these countries know that neither higher
stock prices nor higher real estate prices will benefit them. During the
1980's the imperialist powers were able to shift the burden of the crisis
of global capitalism to the debtor nations to bear the cost. That crisis
ended the import substitution strategy of capitalist development. During
this current crisis the imperialist powers have shifted the burden of the
crisis to countries which had pursued the export-led strategy of capitalist
development. With excessive worldwide over-capacity, these countries have
little hope to export themselves out of their economic stagnation. So if
both strategies of capitalist development failed for our people, isn't it
time that we conclude that under imperialism, capitalist development cannot
succeed in Third World countries and that socialism is our only viable
alternative?

	Bill, what you have done in explaining China's socialist development under
Mao, using the strategy of worker-peasant alliance, is as relevant today as
it was in 1966 when Fanshen was first published. I disagree strongly with
those who suggest that we, on the left, should discard the valuable
experiences of countries whose leaders were inspired by Marx and Lenin and
made the most serious attempts to build new socialist societies. Writers
who make such suggestions imply that the under developed productive forces
in Third World countries made their struggle to build socialism unrelated
to what Marx wrote in the Capital. Worldwide human suffering and
environmental devastation demand great urgency for the Left in Third World
countries and the Left in the imperialist countries to work together. Bill,
your life long work contributed greatly towards the world's understanding
of China - a country so far away from your Vermont home (especially at that
time.) Your work helped in a big way to connect the Chinese people and the
American people and many other peoples in their common struggle.

	Bill, I admire you so much for your unwavering class stand, your valuable
foresight, your courage, your effort, and your scholarship. You are a model
for us to follow. I thank you for all you have done, Bill, and happy
birthday!