China, contracts, and capture

There have been a couple of interesting articles on China recently. One at Mute, by Sander, registers skepticism that China, the workshop of the world, can save world capitalism by transforming itself into a consumer economy, the household of the world.

And if [China] were to use its hoard not for massive investments but to finance a general rise of purchasing power, the consequences would be equally catastrophic: the price of labour power, which remains its main competitive weapon, would shoot up, inflation and speculative investment, which already have reached alarming levels because of the accelerated monetary creation, would become unstoppable. It’s as if there was a curse on China’s hoard: these trillions of dollars will keep their value only as long as they remain untouched.

The other article, by Mouvement Communiste, focuses on labor rather than capital, specifically the wave of strikes that hit the coastal manufacturing sector, particularly foreign-owned automakers like Honda, in the summer of 2010 – though really it was the continuation of increased militancy that dates to around 2005 – and theorizes that the “working class emerging from this process, more skilled, more urbanised and more militant, represents the risk of a political crisis (in the sense of class relations) for capital.”

Both are interesting reads. But I think they also miss the mark in some important ways. Sander’s article is good on the economic factors that would make China’s transformation to a consumption-led economy difficult, but he also underestimates both the vision of its state planning and the fundamental ways the state has already altered labor relations to make that transformation possible. MC rightly notes and praises the novelty and fierceness of the 2010 industrial strikes, but overlooks that the actions were tolerated – to what degree is debatable, of course – by the state as part of a strategy for making the transformation. Though I generally sympathize with MC’s employment of the autonomist hypothesis, I don’t think the strikes can simply be reduced to an intractable antagonism between labor and capital. Maybe I should explain.

Over the last decade or so, the largest wage gains in China, by a fairly large percentage, have been enjoyed by workers employed by state-owned enterprises. Private and foreign firms, not surprisingly, have increased wages at a much slower pace. There are a few problems with this from the state’s perspective (even aside from capital’s many ideological objections to the SOEs). First, the wage gains have not been accompanied by any increase in productivity; in fact, productivity at SOEs is stagnant or even declining. So the state has financed a disproportionate share of income increases, relative to its output, which, in service of transforming the economy, it likely wouldn’t mind if it weren’t so clearly unsustainable fiscally in the long term. (It also needs money to finance its spectacular investment rates.) Second, even though the pace is slow (especially if you are an impatient western capitalist intellectual), the state does indeed want to shift all but the most “sensitive” of industries to private and/or foreign ownership, which is why it has spent the last twenty years mothballing SOEs at a phenomenal rate. China wants to be relieved of direct responsibility for its workers.

Putting these two elements together reveals a third problem: SOEs are responsible for most of the increased income of Chinese laborers, but they are a decreasing share of the national economy, and are trying to get out of production altogether (aside from those sensitive industries). Obviously, this has profound effects on the possibility of China’s transformation. If the state, directly through its enterprises, is less able to control the wage-directed financing of consumption, how does it create conditions for the realization of the transformation? That is, if the state can no longer artificially inflate purchasing power, how does it create the wage increases necessary both to pacify workers and to accomplish the move to a consumption-based economy?

Well, the obvious way would be for the state to dictate large, universal (or, conversely, targeted) rises in minimum wages. But between the hard laws of trade agreements and the soft laws of market opinion, such a move would be dangerous in that it could trigger litigation and capital flight. So, since the state can’t force higher incomes out of private enterprises, it has turned to a strategy of encouraging them, and it is capturing increased worker militancy to help accomplish a general rise in wages. This is why, for instance, as MC notes, the CEO of China’s state-owned automaker negotiated a settlement to the Honda strike that was beneficial to the workers. This is why the same CEO is in favor of laws that would legalize strikes by workers. This why the state strictly bans labor actions against SOEs but tolerates, to varying degrees, actions against foreign and domestic private firms. Generally, this is why, after years of suppressing labor actions, the government has turned to managing strikes rather than putting them down.

Of course China would be in trouble as a nation if it just allowed these wage increases to outpace productivity, which would cause investors to flee. So while it is allowing wage inflation, via its hands-off approach to settling labor conflicts, along the southeast coast – the first part of the country to liberalize and the destination of tens of millions of migrant workers – it has been pushing the interior, the large cities that dot the vast rural regions where labor unrest has been less tolerated, as the new site for foreign-owned industry. And by push, I mean both publicize and, more importantly, build the needed infrastructure for: the government has invested hundreds of billions linking interior nodes of production to the rest of the country, especially the southeast coast, with transportation and communications networks. The workforce of the interior cities, which is largely fed by migrants from the nearby countryside, will form the new low-wage centers, making possible the coast’s transformation to consumption-based, service-led industries while retaining the country’s industrial, manufacturing, and exporting base. (I won’t go into detail, but a shift in the site of production might also help China deal with its internal-migration problems and the disintegrating hukou system.)

The state, then, is planning the Chinese economy as much as it ever has, or at least it is engineering the movement and locations of its workforce. But at the same time, through rapid privatization, it is subjecting more and more workers to the discipline of the market. More central planning, yet also more of the invisible hand. There’s no contradiction here, as capitalist powers have always developed this way, though the Chinese state might be a bit more active and interventionist than its forebears. But just a bit.

So China is managing its workforce and using it to make changes to the national economy that can help make it a mature capitalist power. Nothing special there. But it is worth noting how it is managing the transformation, the techniques being utilized, because they amount not to repression of workers but to a capturing of their energy. As noted above, the state is harnessing, or attempting to, the power of workers’ actions and of industrial strikes to increase income levels and, eventually, consumption levels. The government is also increasing the welfare state by pushing toward universal health care, by doubling pension payments since 2005, and by increasing workforce retraining and unemployment payments. Generally, the state has embraced a, for lack of a better term, Keynesian/Fordist philosophy for forging new relations with labor, which will be based not on necessity and repression but on contracts, rights, and even unionization.

This is technique is perhaps most evident in the law governing contracts that came into effect in 2008. Whereas previous to that year laws governing labor agreements were liberal and, where they even existed, locally enforced, the 2008 law made contracts universally mandatory: every employer in China must provide employees with a written contract. And the law is strict: contracts are for life and only employees can nullify them; short-term arrangements are strictly limited, and in the case where a contract has lapsed, the employee retains rights to re-employment; employees have the right to sue for wrongful termination, and severance packages are mandatory; etc. China’s policy on labor contracts is as all-encompassing as anything in Europe.

And as in Europe, despite the law’s formal universality, its real effects and its enforcement are distinctly segmented. According to an analysis by a U.S. consulting firm:

Enforcement will likely be less strict away from the major coastal cities like Beijing, Shanghai, Guangzhou and Shenzhen. In addition, inland provinces often have lower non-labor costs and lower minimum wage requirements. For this reason, many foreign companies have begun plans to shift production inland to such provinces as Hunan and Anhui.

Already contained in the law is the understanding that it will be selectively enforced and that it’s being used to relocate the nodes of industrial production.

Regardless, the shift to contracts and an independent workforce is real. The development of China’s economy and, more importantly, its workforce, while not as novel as some have it, is nonetheless notable because it represents a shift to, as Deleuze/Foucault might say, techniques of inciting, inducing, and seducing. This path of development contradicts the imaginations of many westerners, for whom China is a brutally suppressive place where labor rights, like political rights, are nonexistent. The sweatshop of the world. No doubt there’s still plenty of that, but the recent state policy changes show that something else is afoot: instead of repressing, which the strike wave of the last few years has shown to be impossible anyway, the state now wants to manage proletarian productivity. It is meeting workers’ demands for rights and benefits and using them to transform the economy. It is tolerating workers’ organization and revolt to craft new kinds of exploitation. Its governance is now typified less by repression and more by capture.

6 thoughts on “China, contracts, and capture

  1. Thanks. It’s taken me a few years, but reading about China and reading some of your newest stuff, I’m starting to get handle on the stress you put on contracts.

  2. You really should think about writing this stuff up more fully for publication. It’s an emerging field, and thinking the transition of imperial powers (currency, military reach, etc) has yet to be more fully thought in terms of the translation of contractual forms in China (as well as India). On India, an amazing read: Ritu Birla, Stages of Capital. The connections between law, currency, labour relations is impossible to think without thinking the contractual. The meshings of contractualism in its commercial, marital, fiduciary, and socio-political senses is a complex question. If you do come to write it up — and in the meantime, I’ll be citing some of the above — I’d be interested to see what the connections are between this and the hokou system of household registration. I also know that the most recent census in China was the first one that didn’t exclusively depend upon the category of the household, but I’ve not chased down the details of that. It could be that the issue of labour mobility (migration) cannot be entirely grasped through the category of the household (even if there is a massive ‘return to home’ during rare vacations that bring the transport system to a halt). It would be a fascinating topic to delve into further. Lots of questions to ask.

  3. The US used asian currency pegs to fight the spread of communism. So have the Chi-com’s done a little ju-jitsu, or have the capitalist taken the fight to the communist homeland? Currency pegs require capital be taken out of a fast moving economy and re-invested in a slow moving economy. It is very expensive to do this and eventually the Chinese will owe out more in dollars than they hold. The CIC is issuing US Dollar denominated bonds. The 10 year yields over 6%, meanwhile the CIC holds 10 year US Treasury bonds yielding much much less. In the meantime, excess capital is created in the US. Excess capital is very problematic as it offset by an equal amount in bad investments, and reduces return on capital. So the race is on, can the Chi-com’s destroy capitalism through the excess production of capital, or will the cost of the peg become more than the Chi-com’s can pay? Will we over-throw our government when the standard of living collapses, or with they over-throw their government when they can’t pay off their dollar denominated debt to their people?

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