Qin Hui, "Dilemmas"

Qin Hui, “Dilemmas of Twenty-First Century Globalization:  Explanations and Solutions, with a Critique of Thomas Piketty’s Twenty-First Century Capitalism”[1]
 
Translation and Introduction by David Ownby

Introduction
 
Qin Hui (b. 1953) is a leading historian and public intellectual in China, having spent much of his career at the prestigious Tsinghua University in Beijing.  His early academic focus was on rural history and the peasantry, but over the past two decades he has published widely on any number of topics relating to themes of social justice, traditional Chinese culture, globalization, and much more.  He writes as a fiercely independent liberal, with a mordant wit seldom appreciated by Chinese officialdom.  His 2015 book, Leaving Imperial Rule Behind 走出帝制, which recounts the failure of China’s first experiment in constitutional rule, was banned by authorities prior to its publication.  In recent years, as Xi Jinping has sought to reimpose discipline on academic intellectual life, many China-related topics that had once been hotly debated have become taboo, and Qin has focused on the world outside of China, in part to avoid criticism and to be able to continue to publish.  Nonetheless, China remains at the center of his concerns, and even when he writes on South Africa, for example, he cannot help but point out that the exploitation of Black African labor by the Apartheid regime was similar to the exploitation of migrant labor in reform-era China.
 
As an intellectual, Qin Hui is something of a contrarian, frequently arguing that the categories and labels we employ to understand the world are misleading if not completely wrong.  In his view, for example, the philosophy of the Chinese imperial state was not Confucianism, but a combination of Legalism and Daoism; Confucianism was mere camouflage.  Elsewhere, he argues that the heritage of Cold War politics has completely obscured the true history of socialism, confusing it with communism (which Qin identifies with various forms of historical tyranny). 
 
The text translated here is very much of a piece with Qin’s contrarian approach.  On the pretext of critiquing Thomas Piketty’s Twenty-First Century Capitalism, Qin offers his own reading of the fates of “capitalism” and “socialism” under conditions of globalization, and argues not only that Piketty’s argument is wrong-headed, but that the debate in the West between Piketty’s Left-wing supporters and Right-wing detractors serves to distract the West from the potentially fatal impact of China’s challenge to both socialism and capitalism.
 
Piketty’s arguments are well-known, and I will not go into detail here.  In a nutshell, he seeks to focus academic and policy attention on the problem of increasing economic equality in all developed economies, and marshals mountains of evidence illustrating that, except during rare periods of extremely high growth, capital is consistently invested in financial instruments rather than the productive economy (his “law” of r > g:  the rate of return on capital exceeds the rate of growth).  This basic feature of capitalism means that inequality is a result of market function.  Combatting inequality requires the active intervention of a state committed to redistribution.
 
Qin Hui rejects virtually all of Piketty’s argument, as well as the debate his book sparked.  The source of the inequalities affecting developed economies, according to Qin, is China, which has taken advantage of the forces of globalization to erode the basis of post-war Western prosperity.  The argument is simple:  when China joined the world economy in the reform and opening era, capital flocked to China to take advantage of low-wage labor and what Qin calls China’s “low human rights advantage,” i.e., the state’s commitment to development at any cost (land-confiscation, suppression of workers’ rights, exploitation of migrant workers, etc.).  Over time, China became the “world’s factory,” producing quality goods at low prices, at the expense of jobs and tax revenues in the developed world previously inhabited by the capital that had now fled to China.  Despite a surplus of capital and increasingly frequent labor shortages, the naked power of the Chinese state keeps the machine running, lending the profits back to the developed economies so that the “exchange” can continue.  Such debts only intensify the crisis of the developed world, as governments are already attempting to supply more “welfare” to increasing numbers of unemployed despite a fall in tax revenues. 
 
Qin is less troubled by flaws in Piketty’s argument than by the irrelevance of the huge debate that it sparked.  The Left worries about the return of “savage capitalism” and the Right about the return of “Marxist socialism.” Both ignore the manifest danger posed by China, which pretends to be socialist, and is destroying post-war Western prosperity through systematic exploitation of its own people.

Translation
 
     1.  It’s not “Capitalism” versus “Socialism” but it’s not “Convergence” 

Recently the book world in China has been all a-titter because Thomas Piketty’s Capital in the Twenty-First Century, a book that made headlines the world over, raised the important question of “where capitalism is headed.”  I gave Piketty’s book a good read.  The questions he raises are typical questions of the Western Left, and while you can always present old questions in new and skillful ways, he didn’t really compare himself to Marx.  In China, Capital in the Twenty-First Century, was translated as The Twenty-First Century’s Das Kapital, which is very eye-catching.  But does “capitalism” still exist in today’s world?  The capitalism that Marx criticized disappeared long ago, and every country in the world, or at least the important ones, including China and the United States, all practice some version of a “socialist market economy.”  It’s neither the “free competition capitalism” of the nineteenth century, nor a Leninist planned economy, nor Marx’s vague dreams of the future.  “The plan and the market co-exist, as do state ownership and private ownership, we all strive for social equality even as we compete for profits.”  This is the reality for most countries today. 
 
But I’m not arguing here for “convergence”.  Even if we find a lot of “the same thing” everywhere, this does not mean that these countries’ institutions are the same.  This is obviously true for political systems, and economic systems also have basic differences, and not simply in terms of quantitative comparisons.  Of course, how much of one element or another a system contains matters, but it is not the most important question, nor can it necessarily sum up the essential differences.  The number of state employees in China is higher than in America, but lower than in Austria, yet the differences between the Chinese and American economies are greater than those between the American and Austrian economies.  Another example is “welfare.”  Sweden is known as a high-welfare state, and the US as a low-welfare state.  But in China it’s not a question of “high” or “low” welfare; elsewhere I have described the situation in China as being one of “negative welfare.”[2]
 
I should stress that what I am talking about here are not conflicts between national interests, but rather differences in their systems.  The two are different.  In the 1970s, China and the Soviet Union were bitter enemies when it came to national interests.  Mao Zedong not only advocated aligning with the US so as to contain the USSR, but even complained that the West was not doing its utmost to oppose the USSR and was instead engaging in détente.  But this didn’t mean that the institutions of Mao’s China were approaching those of the US and moving away from those of the USSR.  We all know that the opposite was the case.  At the time, Mao was a fervent believer in the Soviet system, to the point that he could not stand to see the USSR engage in “revisionism.”   Thus today while I applaud China’s rise, I do not welcome the “rise of the China model.”  I argue for a change, or at least a “revision” of this model, which is quite normal.  In fact, as for problems between countries, even if some recent events have led some people to worry that we are headed for a “new Cold war,” the twenty years that have passed since the end of the “old Cold War” have been basically peaceful.  But whether or not the systems of the major countries are “converging” is another question.  In my view, when comparing China with other major countries, there were some tendencies toward convergence in the 1980s, but beginning from the 1990s, systemic differences have been increasing, despite China’s 1992 claim that it was moving toward a market economy.
 
Someone might note:  You just said that neither pure socialism nor pure capitalism exists any more, and everyone is practicing a “socialist market economy” but at the same time you said that systemic differences were growing.  Isn’t this a contradiction?  Why are the differences growing?
 
     2.  Two Opposing Versions of “Socialist Market Economies.”  Let’s Begin with Type A 

The reason is that there can be dramatically different understandings of what we mean by “socialist market economies.”  In one version, which I will call “social market economy type A,” “socialism” means that the common people will hold the government responsible for a high level of common welfare.  The fact that the government must provide ever more welfare and security is not the government’s “gift” to the people, but rather the people’s right, which is the reason that the people support the government.  This is what the government should do, and the people do not have to feel grateful (in Sweden the government is responsible for “cradle to grave” welfare and we do not see the people expressing particular gratitude).  If the government fails to do this the people will demand accountability, or vote in another government (hence when the Swedish Liberal Party took power they had to provide welfare, even if in theory they were against the welfare state; the people didn’t allow them to shirk their responsibility so they had no choice).  When we say that the government must “serve the people” and not the people serve the government, this is what “type-A socialism” does, even if the government doesn’t constantly flaunt it—because there’s no need.  If you don’t work properly, the boss [i.e., the people] will fire you.  Not only must you work properly, but if the boss has further demands, you must also become even more productive (i.e., provide more welfare). 
 
But what is the “market economy” then?  In type-A systems what we call the market economy means “the mayor doesn’t look for you, the market looks for you.”[3] (Note:  this does not mean “don’t look to the mayor, look to the market;” type-A systems constrain the mayor’s ability to abuse his power over the people, but do not constrain the people’s ability to call on the “mayor” to be accountable).  The government’s powers must be limited.  Not only do the people grant power to the state, in addition there must be clear boundaries to the state’s power.   Outside the boundaries (of state power) is our freedom, including freedom of contract and market freedom.  In sum, the “socialism” of a “type-A socialist market economy” means that citizens increase their calls for accountability from the government, and “market economy” in this context means that the citizens strictly limit the powers of the government. A government with unlimited powers cannot be part of a market economy.
 
Some people say this “type-A socialist market economy” is “redistributive socialism,” in which the government engages only in redistribution [through taxation], not in production [through state-owned enterprises], although this is not necessarily the case.  Whether it was the Swedish Socialist Party, the first to take power, or the English Labor Party, or even India, which was once the model for this type of economy in the Third World, all of them at the outset wanted to engage in “socialist construction.”  Yet despite their wishes, they discovered that it was difficult, because carrying out state-owned production within a democratic system really is difficult, and because setting up “red sweatshops” under democratic conditions is not really possible.  Eastern Europe also had this problem; in 1953, East Germany, a few years after its establishment had the June 17 strike, which expressed labor’s opposition to “red sweatshops,” because how could you, under socialism, set up sweatshops that were worse than those in capitalist countries?  If capitalists can’t oblige workers to work that hard for so little money, then socialism means that workers have the right to work less than under capitalism, for more money and better welfare.  Now you’re asking us to do the opposite, all of a sudden saying that “we should not fear suffering or death 一不怕苦，二不怕死,” that we “put production before life 先生产，后生活,” that we should “keep striving until the arrival of communism 小车不倒只管推, 一直退到共产主义.”[4]  Capitalists would not dare ask this of us, would they?
 
Economists often say that state enterprises have “soft budget constraints,” and in fact soft budget constraints are standard in state enterprises in democracies.  In authoritarian situations this problem is not too serious, because in such contexts bureaucrats follow orders from above, and have no trouble employing “hard constraints” against the workers, transforming the state economy into “red sweatshops” where workers work more for less pay.  For example, Lenin was enamored of the Taylorite labor system,[5] and believed that one of the advantages of the Soviet economy was that it could universally impose this system.  Bukharin[6] even more nakedly argued that the “dictatorship of the proletariat” was not only to foil the capitalists, but was also a “supra-economic strong system that transcended the working class itself.”  Among his authoritarian measures we find:  interdiction of strikes, the “labor army” system, forced unpaid labor, the transformation of labor rights into labor obligations, and the denial of “labor freedom” (“free labor does not accord with the planned distribution of labor”).
 
But if “type-A socialism” tries to do this, it won’t work.  After the Swedish Social Democrats took power, they nationalized certain enterprises, only to discover that management was hard.  In state enterprises in democracies, labor unions are often very strong, and managers in such firms cannot act like they do in China, where managers are promoted if they carry out the central plan.  For government officials in democratic countries, their position relies on elections and their position in the company relies on professional certification.  The channel [found in authoritarian systems] whereby the “factory manager is recognized by the higher-ups and appointed to the ministry” does not exist.  Since there are neither promotion incentives nor capital accumulation incentives, the soft budget constraints in state-owned enterprises are extremely hard to manage.  The reason that Eastern European countries, in the early period of rapid change, hastened to deal with state-owned enterprises was less because of the influence of a “new liberal economy” and more because after democratization, the soft budget constraints of state-owned enterprises became all more difficult.  To put it more bluntly, after democratization, the plant manager could no longer simply suck up to his bosses, but also had to suck up to the workers.  Moreover, the factory wasn’t his, and with workers and managers all reliant on the state, could the state handle it?  Even the “socially owned” enterprises in Yugoslavia also encountered the same problem later on.   
 
From the perspective of socialist production, there was a period when many worker parties and social democratic parties were in power and the proportion of state enterprises was quite high.  For example, some people say that the English Labor Party is to the right of the Swedish Social Democrats, and, indeed, in political terms, the British are more moderate, their “farewell to revolution” more thorough than that of the Swedes, but in economic terms, the British Labor Party was more receptive to nationalization than the Swedish Social Democrats.  Of course the socialist parties of some countries, like the Austrian Socialist Party, where the degree of economic nationalization was consistently greater than in England, were more active on this front than the British Labor Party.  But later on, in the 1970s, everyone came to feel that state-owned enterprises were very hard to run. 
 
India is another model.  What was known as Maharashtra Socialism[7] meant that “in politics, we follow England; in economics we follow the Soviet Union (and not Sweden).”  How well did state-owned enterprises in India work?  I remember at the beginning of China’s reform period in the early 1980s, a representative group from China’s reform ministry made a trip to India, and when they came back they gave a report.  What impressed me was that they said that India’s state-owned enterprises were not as good as ours, but that India’s private enterprises were better.  But at that time, China had no private enterprises to speak of, so all comparisons were to our state-owned enterprises.  In simple terms, this means that the situation of Indian privately run enterprises was better than our state-owned enterprises, while Indian state-owned enterprises were worse than ours.  Political democratization had spread into the enterprises, becoming enterprise democratization where “labor unions ran the factories.”  Once neither capital accumulation nor political promotion was no longer possible, then the difficulty of managing state-owned enterprises was truly very great.  Thus in the 1990s, under Rajiv Gandhi, India turned toward marketization—more than 10 years after China made the same choice.  So either we have state-owned enterprises under authoritarian countries, on which I will not comment, but which can be managed correctly, or we have non-state management in democratic countries, which is also not bad.   
 
Since management of state-owned enterprises in type-A socialism is hard, most gradually moved toward “socialist redistribution.”  Some say this was a “transformation” of the socialist party, which had been bought out by the capitalists.  In fact, in democratic contexts the nationalization of resources is usually carried out through purchase rather than confiscation, and incremental nationalization does not accord with the preferences of capitalists.  The state can purchase the capitalist’s enterprise and manage it itself, or it can impose high progressive tax rates so that the capitalist is working basically for the citizens and is unable to make money.  Which of these will the capitalist resist most?  This is hard to say.  The principle is simple:  whether it is a question of state purchase or high taxes, the devil is in the details.  For the capitalist, if he can sell his firm at a good price, he keeps the money, so why should he necessarily want to pay high taxes and see the money he made taken away?  So when the Swedish Left abandoned their major nationalization plans and moved toward “redistributive socialism,” this had nothing to do with the preferences of the capitalists, but was rather the choice of the majority of the voters (most of which were also workers), and in fact it was simply what was doable within the parameters of the existing system.  This system has continued to develop to the present day, and in developed countries is now a universal situation.  Even in the US, where, as we know, there almost no nationalization, and where even military industry is also private, in terms of redistribution, public expenditures still have a fairly big place in the wealth of the country.  Moreover, in a democratic context, these public expenditures are “public,” not bureaucratic, not the “emperor’s.”[8]  They are employed in society, contributing to social equality, and cannot be used by emperors or officials.  Isn’t this “socialism?”  In the traditional imperial system in China, salt and iron were produced through public management, surely this wasn’t socialism?
 
For this reason it is natural that some people say that we can’t call a “type-A socialist market economy” a socialist market economy, and that it should be called instead “social market economy.”[9]  But I feel that there is no essential difference between the two.  To put it a bit simply, the function of the state and the function of the market both exist, and individual interests and profits, along with public interests and profits, both have a big influence on economic behavior.  In this situation, the people’s ability to call for government accountability is strong, and the government’s power is also strictly limited by the people.  The first embodies “socialism” and the second “market economy.”
 
 
     3.  More on the “Type-B Socialist Market Economy”, and the Mutual Interaction of Types A and B under Globalization:  An Unhealthy Dependency that will be Hard to Undo 

But there is another kind of “socialist market economy” that we will for the moment call type B.  This type has two features, the logic of which is completely opposed to that of type A.  In the type-B system, “socialism” means that the government has unlimited power, and the people cannot limit that power.  And “market economy” means that the government can shirk its responsibilities, while the people cannot call the government to account for its lack of provision of public welfare.  The meaning of “socialism” in this system is that there is no way for the free market to exist (either there is no market, or there is a “market” dominated by monopoly and special privilege); the understanding of “market economy” in this system makes the welfare state impossible—if the state accords a bit of welfare to the people they must bow and scrape out of gratitude, and if it gives nothing they cannot make demands.  The people are told “don’t seek out the mayor, seek out the market,” but the “mayor” can abuse the people at will.  In sum, from the angle of “socialism” or of “market economy”, type B means that the people must “serve the government” even if the state usually puts things otherwise.
 
In other words, in the above discussion of type-A systems, “socialism” meant that the government’s responsibilities are important, and “market economy” meant that the government’s power is limited, and “socialist market economy” meant that the government’s responsibility continues to grow while its powers continue to decrease.  The opposite is true of type B:  here, “socialism” means that government powers are great, and “market economy” means that the government’s responsibilities are few, and things will continue to develop in this direction.  In this sense, the differences between A and B will grow ever greater.  In other words, it’s not “convergence” but “divergence.”
 
All countries in today’s world practice “mixed economies.”  But these mixed economies have two different forms.  In my terms, some governments have “socialist powers” or even “powers that go beyond socialism” while only barely assuming “democratic responsibilities” or in some cases not wanting to assume these responsibilities at all.  In a few other countries, the government has only extremely limited powers, in other words, “capitalist powers,” while the people want it to assume “socialist responsibilities,” or even “communist responsibilities.” In these cases, the welfare state redistribution aims at social equality, to the point that if we use certain past criteria, it would seem that they resemble “communism” more than “socialism,” and that the form of redistribution in these welfare states is “to each according to his needs” rather than “to each according to his labor.”  In this model the welfare guarantees do not encourage work.  All welfare goes to satisfy the needs of the workers, including the needs of those without the ability or the opportunity to work.  If we accept this formula, then a welfare state that practices “to each according to his needs” is asking the state to assume “communist responsibilities,” right? 
 
Comparing A to B, it is increasingly obvious:  there are some countries whose governments possess enormous powers, and can abuse their people at will while assuming few responsibilities.  If they decide not to accord welfare then they don’t:  they can push back the retirement age, increase the prices for public welfare—they have the final word.  In some other countries, the state’s power is small, but they have vast responsibilities, and the people ask for reduced taxes (or oppose taxes) at the same time demanding increased welfare (or opposing decreases in welfare).  The differences between the two systems is becoming greater and greater.  Yet in the context of globalization these two systems have fashioned an extremely interesting exchange:  while the people of type-A countries can be very rich, their governments are increasingly poor, to the point that debts are mounting.  And while the people of type-B countries are often not rich, even very poor, the governments have more money than they can spend, and use this excess cash in two ways:  the government engages in “self-welfare,” not only becoming increasingly corrupt, but also spending more on suppressing the people; and it loans money to the type-A countries so that their debt load continues to increase.     
 
Generally, if the choice is left up to him, the emperor always prefers that his powers be great and his responsibilities few, and authoritarian regimes are especially like this.  And of course, the people always hopes that the powers of the rulers are limited (so that the people have the most freedom possible) and their responsibilities great (so that people receive high levels of welfare), and this is especially true in democratic settings.  But prior to the recent acceleration of globalization, the development of these two scenarios was very limited.  If type A was an isolated country, and the people asked for low taxes and high services, this would quickly create huge deficits, the government would print money, the people would suffer the pain of inflation and understand that they could no longer play that game.  By contrast if type B was an isolated country and the rulers continually urged the people to “first produce and then live,” the planned economy would produce a famine, and the “market economy” would run the risk of serious overproduction.
 
But now the economy is global.  When I talk about globalization here I don’t necessarily mean complete globalization. The system also contains regional internationalism, such as Europeanization, but in any event, the “supra national” market economy has greatly developed, which means that the people in democratic type-A countries can increasingly fall into the habit of wanting to have their cake and eat it too.  The people spend too much and lack the ability to accumulate, but the trade deficits and national debts made possible by globalization allow them to overdraw their global accounts, kicking the can down the road.  From the other perspective, type-B countries have become the “world’s factories” (or sweatshops), where the people do not spend enough, where there is too much accumulative capacity, where they can “need” other people to overdraw.  The economy in type-B countries runs roughshod over the people, affording them little, offering left-over product to others.  In this kind of globalized exchange between A and B, both sides have accumulated large numbers of problems which are mutually produced but also produce mutual resentments, to the point of becoming a bad habit that is very hard to break.
 
For this reason, I feel that humanity finds itself at an extremely important turning point:  compared with the past, when there was only capitalism, or the situation during the Cold War, when capitalism and socialism existed as parallel markets with no interaction, we have of course made great progress.  Type-A countries have achieved high consumption and high creativity; type-B countries have achieved high growth and increased “state power,” and exchanges between them have also produced progress in the transformation of the models:  not only did the B model learn from the A model in terms of “market economy,” it also learned about other models of “socialism.”  The influence of the welfare states on us, just like that of our sweatshops on them, is indisputable.  But the current crisis is preparing another, unprecedented crisis, as the two completely different “socialist market economies,” bound together in an unhealthy codependency through the mechanism of globalization, face a race to the bottom.[10]
 
 
     4.  Piketty versus Wallerstein:  Have North-South Differences Diminished while Inequalities Increased in the West? 

This kind of unhealthy codependency naturally has created a problem, which many people, including Piketty, identify as a crisis of inequality.  At least from the point of view of the Left, the original criticism found in the nineteenth-century Das Kapital remains valid, and if we want to criticize unfairness under capitalism, Marx said pretty much all there is to say.  The novelty we need to explain is precisely the inequality produced by the mutual exchange under conditions of globalization.
 
In this context, Piketty is undoubtedly a representative figure.  In recent years, because Marx’s predictions of “impoverishment” and particularly of “absolute impoverishment” in the Western world have not come to pass, the Western Left changed the direction of its critique to inequalities between poor and rich countries, attacking the “increase in differences between North and South,” highlighting the “capitalist world system,” the antagonism between the “periphery and the center,” as in the works of well-known scholars like Immanuel Wallerstein (b. 1930) and Samir Amin (1931-2018).  Even those who continue to fix their critical gaze on questions internal to the West have, to cite Piketty, “lost interest in the distribution of wealth and social classes,” and say little about economic division, instead highlighting “cultural criticism,” as secularization has led to a loss of the sense of human meaning, or to questions of “uni-dimensionality”, “media domination,” “taste segmentation,” “symbolic violence,” “semiotic power,” “cultural capital” and other similar forms of inequality.  From the Frankfort School to Bourdieu, they all talk about this.
 
Piketty changed this trend, bringing people’s attention once again to economic inequalities within capitalist societies.  And on this front he truly achieved a great success.
 
I read a Chinese book review of Piketty’s book that said he criticized “Northern and Southern inequalities.”  I accepted the review, but when I read the book I found either that the reviewer simply assumed the point or he had not read the book.  Because in fact this is not the case.  Quite the opposite:  Piketty completely acknowledges that the overall effect of globalization has been to diminish the differences in levels of economic development between the developed and developing worlds.  In fact, this is one of his major points.  Where he differs from Wallerstein and company is that he situates his main critique of inequality within the West.  In this sense, he has “returned to Marx.”  The major accomplishment of his book is to marshal a great deal of data proving that from the nineteenth century through the 1970s, people’s optimistic expectations about equality had already been shattered by economic prosperity and the achievements of the welfare state.  He points out that since the 1980s, differences between rich and poor in Western countries have been growing.  Some people have asked questions about his evidence.  I think that even if some of the data are worth reconsidering, his basic conclusions about the increase in inequality accord with most people’s direct feelings.  So this judgement is real, even if scholars were not the first to point it out.
 
What Piketty really wants to explain is the increase in inequality within developed countries after the development of contemporary globalization.  On this point he is more sensitive than Wallerstein.  In fact, I suspect that Wallerstein’s “increase in inequality between poor and rich countries because of globalization” does not exist.  There may only exist the inequality between failed and successful states, whose discrepancies may indeed be growing.  But failed states and successful states are far from being the same thing as originally poor and rich countries.  Among the developed countries that joined in the process of globalization there are those that failed and those that succeeded, and the same is true for developing states.
 
For example, the Left outside of China in the past few years has particularly emphasized the decline of Latin America, as if this were an unfairness created by globalization.  In fact, the decline of Latin America is not a question of poor countries getting poorer, but of rich countries becoming poor.  Haiti has always been extremely poor, and it still is.  We can say that it has failed, but we cannot say that it’s getting poorer.  But can we call Venezuela and Argentina “poor”?  In the case of Venezuela, we can say that it relied on oil and hence was “rich” but not “developed,” but the classic case of “Latin American decline” is Argentina.  Argentina is practically the only purely Caucasian country in Latin America,” a “purely Western” society, and was never a “developing economy.”  It was not only rich, but extremely developed.  Argentina’s modernization basically occurred at the same time as that of Europe and the US, and it was much richer than most European countries, including her mother country, Spain.  But under the Perón regime it began to decline in the 1940s and 1950s.  The economic policies of Perónism were much like those of Hitler, a kind of national socialism, which were basically continued during the period of military rule.  In the early part of the twentieth century, Argentina ranked seventh in the world in terms of average income, surpassing Germany, France, Canada and Holland, and then it collapsed, a rich country becoming a poor one (although it’s a bit of an exaggeration to call it poor, it certainly did decline from its position among the rich countries to one among “upper income countries”).  Thus we see that globalization was not necessarily beneficial to rich countries.
 
From the other perspective, while there are cases in the past few decades of poor countries becoming poorer, we cannot say that this is a global trend, and in some cases the poverty has nothing to do with globalization.  For example, North Korea is obviously poorer, but did it join in globalization?  Was it not precisely because it closed its doors and dug itself into a hole that it became poorer?  And who can say that it is poorer?  India’s overall economic level is lower than China’s but its rate of development is just a little behind China’s, much faster than that of all developed countries.  Looking only at China and India, countries that represent much of the world’s population, the fact that they could go from poor to rich, or at least leave behind the terrible poverty of the past, how can we still say that overall, globalization makes the poor poorer?
 
But one phenomenon Piketty talks about does exist, especially in the context of the globalization of the post-Cold War period, which truly created new and growing inequalities in the developed countries.  He basically uses percentiles as illustrations (in other words the top X percentage of the people monopolizing X amount of total income, how many times greater than the lowest X percent of the population).  Other scholars use other measures, such as the GINI coefficient, arriving often at similar conclusions, to the effect that inequalities have increased.  And this has an intimate connection with my previous discussion of the A- and B-type countries and their unhealthy codependency in the narrowly constructed context of current globalization of the economy.
 
The basic situation is the following:  both type-A and type-B countries have benefited from the globalization of the market economy, which has resulted in the flow of a great deal of A’s capital toward B.  B countries have particularly relied on authoritarian measures to keep down the price of capital and invite merchants to invest in the “comparative advantage of lower human rights.”  A’s capital thus migrates to B where it builds sweatshops, producing great amounts of cheap commodities which are sold on the markets of A, replacing industries and production that A originally possessed.  From an overall economic standpoint, this seems to do no harm to either A or B, and if fact appears positive.  Out of this exchange, B winds up with high GDP growth, and while A’s GDP growth rate is not high, its GNP is clearly raised by the exchange.
 
But from the point of view of distribution, the process is a clear attack on A’s original position, which is exporting capital and importing commodities.  Because in terms of labor and capital income distribution, looking at it from the position of market balance, they are decided by the two important factors of surplus and scarcity.  Capital surplus and labor scarcity creates bargaining power for labor.  Labor surplus and capital scarcity diminishes labor’s bargaining power.  Originally in developed countries with surplus capital, when faced with democratic conditions in terms of welfare distribution and powerful unions, there was nothing they could do but give in to labor demands.  Now, with globalization, capital is liberated, and hides in “low human rights countries” where it builds sweatshops.  Consequently, there is less surplus capital in developed countries, and sometimes even a scarcity, while there is a labor surplus.  In simple terms, in the wave of globalization of the past twenty years, unemployment has risen in all developed countries.  As employment drops, demands for welfare rise, as the government must increase redistribution.  But at the same time the flight of capital has led to a diminution of the tax base, which limits the government’s ability to provide welfare. 
 
One norm of globalization has intensified this phenomenon, which is the phenomenon of “avoiding double taxation.”  A’s capital flows to B, where it builds sweatshops, making great profits, but diminishes employment in A’s home country; at the same time, by insisting on “avoiding double taxation” they also avoid paying taxes at home, and the shrinking of the tax base enters into disequilibrium with the need to increase welfare.  If the companies moved their registration to the B countries, then these foreign bosses would become, for example, Chinese citizens, and their enterprises would become Chinese enterprises, and that would put an end to things.  They would be forced to care about Chinese human rights questions, Chinese citizens’ rights and property guarantees, and the Chinese political system.  But they keep their capital registered in the “home country,” enjoying the guarantees of human and property rights in democratic countries without assuming their tax burdens.  And as Western capitalists, they don’t have to worry about China’s human rights questions, even as they build factories and reap huge profits.  They’ve taken the easy way out on both fronts, which truly is an important reason why the original balance of interests in the developed states has been shattered, why the inequalities between rich and poor are growing, why the GINI coefficients keep rising.  
         
     5.  “Double Surplus” or High Growth:  Which Explains Why “Newly Risen Countries” Trend Toward Equality?  With Further Remarks on Why China is an Outlier 

For this reason, for workers or for the weak in developed countries, this kind of external capital flow caused by globalization has truly weakened their bargaining power, and thus the Left in the West has an extremely critical attitude toward globalization, because they believe that globalization has led to a decline in their share of distribution and the rise of the GINI coefficient.  This is completely understandable.
 
Yet looking at it from the Chinese position—again on the Left—the problem we face is the complete opposite:  given that under market conditions, labor and capital distributions are determined by shortages and surpluses, then when foreign capital enters China, Chinese commodities (actually the labor attached to those commodities) are exported to foreign countries, which actually decreases China’s capital shortage and labor surplus, creating a situation where capital is relatively in surplus and labor relatively in shortage.  This should increase the bargaining position of Chinese labor, and shift the profit distribution pattern in their favor.  In other words, for capital and commodities in the process of the dual flow of globalization, at the same time that logic dictates that inequality will increase in the Western societies, in China it is precisely the opposite; Chinese inequality should decrease, the bargaining position of the workers should improve, and the bargaining power of capital should tend to decline.
 
In fact, Picketty’s book underscores this point, that the “capital advantage” of the long period of economic growth would decline, and distribution would be rather equal, but that the economic slowdown would lead to the return of capital advantage, and the growth of inequality.[11]  And we observe that in the age of globalization this is indeed the case.  I feel that the reason for this is not difficult to explain:  as noted above, when the market equilibrium situation changes, Picketty’s “law” of r > g [rate of return on capital exceeds rate of growth] kicks into action.  
 
In the past few decades, most countries experiencing high rates of growth are those on the receiving end of the processes of globalization.  Capital flows in, commodities flow out, creating a “double surplus” [i.e., a surplus of both current account and capital and financial account during the same period] which is the clear  defining characteristic of these economies.  Picketty noticed that the income distribution during this period of high growth was relatively equal, but he took the speed itself as the reason (but the speed cannot be maintained, which allows him to argue that “capital advantage” is the norm), and consciously ignored the role of the “double surplus” as a factor in market equilibrium.  He correctly pointed out that globalization had shrunk differences between North and South, and stimulated the high growth rates of newly emerging countries.  But he attributed this to the spread of technology and knowledge, saying it had nothing to do with the inflow of capital and outflow of commodities.
 
Piketty’s argument is unsustainable in terms of logic, common sense, and statistics.  In the absence of investment and trade, surely technology and know-how will not be spread solely through academic exchange?  In fact, investment and trade not only stimulated rapid economic growth.  Large-scale capital inflows and labor outflows (chiefly in the form of commodities, but also the export of labor) have also altered the balance of the capital-labor chessboard in these externally-oriented new countries (or regions).  Their situation is the opposite of that of the developed countries whose inequalities are increasing as capital flows out and commodities flow in.  When the newly developed countries’ “double surplus of capital accumulation and current accounts” phase was the most obvious (which was also the period of most rapid growth), they also saw a decline in GINI coefficients, and social trends in the direction of “equal wealth.”  This was true for Japan, South Korea, Taiwan and Spain, and even South Africa, despite the continuing existence of Apartheid, experienced movements away from inequality in the 1970s (although on a basis of high inequality) under conditions of “double surplus and high growth.”
 
Actually, when the older developed countries experienced their high growth rates, their case too was one where capital flowed in (or there was a high rate of indigenous accumulation) and commodities flowed out.  And this period was precisely that of optimistic expectations about equality (from the nineteenth century “American exception” to the twentieth century “Kuznets curve”).  What is interesting is that during that period neither the European and American left nor the labor movement opposed globalization; instead they shouted internationalist slogans like “workers of the world unite,” and “the Internationale must be realized,” a stark contrast to today’s European and American workers’ embrace of trade protectionism and tariff barriers.
 
There is yet another clear counter proof:  in the mid-twentieth century a number of Latin American countries like Brazil and Mexico also experienced the high-growth “miracle,” but they chose the “import substitution” development strategy instead of the double surplus model of absorbing capital and exporting commodities.  Consequently, during their high growth periods, distribution did not trend toward equality, and instead inequality increased, becoming an example of what was called the “middle income trap.”  The example of South Africa is even clearer:  during the last twenty years of Apartheid, inequality was on the decline, but in 1994 after the blacks took power, inequality rose sharply, despite the fact that Apartheid was abolished during this period and that the rulers were a leftist government of which 30% or so were members of the South African Communist Party.  But the new and old South African economic models clearly changed:  the past “double surplus” manufacturing economy based on exports became a service economy based on deficits and imports.  Clearly, this is the basic reason for the rising inequality.
 
Of course, many factors cause inequality.  Critics of Piketty noted that by singling out high growth rates he ignored the “crucial factor” of institutional changes.  This criticism is correct.  I consider that the true reason is not high growth rates, but rather the “double surplus” of capital and commodity flows, but I would also like to point out that there are other reasons for the decline of inequality.  In fact, my previous discussion of the decline of inequality in late Apartheid-period South Africa is clearly linked to the weakening of the Apartheid system, otherwise it is hard to understand why before 1970, South Africa was in a similar situation of “double surplus/high growth rate” and yet inequality became more serious as racial discrimination reached its peak.  Still, we cannot explain everything via the strengthening or weakening of the Apartheid system, otherwise, how could income inequality have risen after 1994, when that system was thoroughly abolished?  Similarly, pre-1980 trends in Europe and the US that saw gains for workers and the poor and social equality have been explained from the Left as the results of labor struggles and the achievements of the democratic welfare state, while the Right’s explanation stresses high-level capital accumulation surplus within the developed countries in a context of relative labor shortage, which gave labor more bargaining power, producing a “market equilibrium.”  I have already pointed out that there is no necessary contradiction between these explanations, and that “Western equality” of that period was a combined result of the two.  
 
Understood in this light, the fact that China saw a clear increase in inequality during the period of “double surplus-high growth” is not hard to understand.  In my recent Lessons from South Africa, I pointed out that contemporary China and the old South Africa followed very similar roads in achieving an economic miracle: “double surplus-high growth” under conditions of status discrimination.[12]  Looking at the historical facts of how, in pre-1970 South Africa, during the “double surplus-high growth” period, inequality increased greatly under conditions of extreme discrimination, we can see how China is an “exception” [to general discussion of “socialist market economies”].
 
     6. The Western Left and the Chinese “Left:”  Misunderstanding Piketty’s Question 

What is sad is that, unlike multiple situations in Europe, America, East Asia, Spain and South Africa (between 1970 and 1990), the Chinese situation is quite special (and similar to that of South Africa before 1970).  What we see in China is this:  precisely during the classic “double surplus-high growth” period, China’s GINI coefficient shot up and inequality worsened—in fact it was even worse than that in the West during the period of capital export and commodity import.  What is going on here?  In the West, the increase in inequality is easy to explain logically, whether through market economics (changes in important factors in market equilibrium) or from the angle of socialism (the crisis of the welfare state).  But in China these explanations don’t work:  looking at it from a “socialist” perspective, how could a “socialist” country like China wind up with greater gaps between rich and poor, a higher GINI coefficient than the US?  And from the logic of “market economics,” it is the opposite of in the West, in that the process of globalization has reduced capital scarcity and labor surplus.  How can the bargaining power of Chinese workers remain so weak, much weaker than in the West?
 
There must be “extra-economic” reasons:  because the political system in B-type countries suppresses the bargaining power of labor, the return on labor is lower than what workers would earn under market conditions.  An extreme example is that in recent years the “shortage of migrant labor” in China has led to “rising costs of labor for enterprises” (note:  this undoubtedly benefits workers’ position in the market), and in response to such conditions many enterprises in China, in the competition to “bring in business and capital,” have called on the strength of the government “to solve problems of labor supply.”  “The government treats enterprises’ search for labor as an administrative problem,” “hiring targets are dispatched at every level,” and they even use taxpayers’ money to reward labor recruiters.  In particular, they use the educational system to force vocational-technical schools to expand the role of “internships” in factories, the length of the “internship” being defined by business orders so as to satisfy the “elastic labor needs” of the enterprises.  “Internship” wages are absurdly low, and the work is often “completely unrelated” to the students’ majors, but they cannot graduate without doing an “internship,” so many students are forced to “apply the time and energy that should be devoted to study to the companies’ assembly lines.”  Foxconn, already troubled by the suicides of 2010, largely employed this method to emerge from its difficulties, also avoiding “excessive increases” in “labor costs.”   According to a survey, this past summer 10 million students were sent to Shenzhen Foxconn to do "internships;" in Kunshan, Foxconn's "student interns" make up one-sixth of the factory work force.  As many as 119 technical schools are sending interns to the Chongqing Foxconn, and the situations in the Taiyuan and Wuhan Foxconn factories are similar.[13]  
 
In the construction industry, which symbolizes the frightening competitiveness of China’s basic infrastructure work, wages are of course low, but the “year-end settlement” is the institutionally recognized “Chinese characteristic.”  Through 2013, it was a universal phenomenon not to pay migrant workers monthly wages.  Only 19.9% of workplaces provided monthly wages, and Beijing was the lowest, at 5.5%, because in Beijing many projects are government projects and being in arrears on project funding “is a frequent government practice.”  As long as wages are paid by the end of the year they are not considered to be in arrears, but nonetheless, only 46.6% of workers manage to get paid without making special demands, and 12% of workers receive not a cent at the end of the year.[14]  This practice not only means robbing migrant labor of interest it could have earned on salary, but also in reality robs them of their right to leave during the year.
 
In terms of collective bargaining power, in the past China’s labor unions and chambers of commerce have been complete government shams where the government decides everything, and there was no real bargaining.  After a few decades of market development, the chambers of commerce have made considerable progress toward diversification, and outside of the official “alliance of workers and merchants” there are independent chambers of commerce in many areas.  Notably the chambers of commerce dealing with foreign trade and trade with Hong Kong and Taiwan are completely independent.  But autonomous trade unions do not exist at all, and the government-run unions are a combination of official and capitalist domination with no representation of labor.  In the interests of “business investment,” governments and government-run unions are often more recalcitrant than capitalists in terms of wage disputes.  Many times the capitalists have been ready to give in but the government has suppressed the information.  During the 1990s wave of layoffs, state television broadcast a “public welfare song” whose words included “whether you succeed or fail, life is wonderful, it’s only a matter of starting over,” a lovely example of completely denying workers’ bargaining rights.[15]  In the West there are debates about unions, particularly in the context of overly vigorous collective bargaining that damages the contractual freedom of the individual, but unions are permitted, and no one would praise their disappearance.  Of course, in China, the government also regularly infringes on the rights of capitalists, to the point that some on the Left argue that the Chinese government’s claim of “representing the bourgeoisie” is not true.  But in terms of the relationship of labor and capital, the system is clearly harder on workers, and this is especially true of the “migrant workers” who have become the major part of blue collar workers.  
 
Clearly, the government uses its power to attract investment, engaging in all sorts of institutional discrimination against “migrant workers,” which seriously distorts the market mechanism between capital and labor.  Normally, even in the absence of “socialist” factors like the welfare state and powerful trade unions, Chinese workers, relying only on market conditions, should have a larger space and capacity to negotiate for their interests, but “extra-economic” conditions have made this impossible, at least down to the present time.  Pre-1970 South Africa and contemporary China are similar in this respect. 
 
So, even though I am not a Leftist, if I were, and I were in Europe, I would of course be anti-globalization, because it has led to capital outflows and the inflow of cheap goods from foreign sweatshops.  My unemployment rate is up, my unions are fading, my welfare is dwindling away, and the gap between the rich and the poor is enormous.  But if this Leftist were in China, why would he oppose the process?  The process is completely the opposite in China, right?  We see capital inflows and commodity outflows, which creates conditions of changes in market equilibrium that are precisely beneficial to Chinese workers, right? 
 
For this reason, if you are someone on the Chinese Left, then you should not oppose the process of globalization.  Then how do we deal with China’s problem of inequality?  For this we should encourage the reform of the political system, and reduce the power that the political system currently has over workers.  The first step should be to ensure that workers obtain the benefits that market forces say they should have, and on this basis we can then “demand welfare accountability,” asking for the redistribution that a welfare state should carry out.  But if we cannot achieve the benefits that market conditions dictate, is there any point in talking about the second step?
 
Thus I think that Leftists in Western welfare states should oppose globalization, while Leftists in China should welcome it, but at the same time should push for political reform, so that changes in the pattern of supply and demand caused by globalization should be able to truly realize the benefits of the Chinese working class and the disadvantaged, and thus promote the transformation of type-B into type-A , so that "socialism" and "market economy" can increase efficiency and equity.
 
If we can succeed on this front, then we can at the same time solve the crisis of “unhealthy codependency” between the type-A and type-B countries created by globalization.  Our “socialist market economy” will no longer be type B, with its citizens’ rate of consumption absurdly low and its rates of accumulation and investment absurdly high, with excess productive capacity, where the people lack protection and the government has more money than it knows how to spend, to the point that it must rely on “other people’s overspending” to maintain high growth rates.  As for the type-A countries, they will no longer be able to buy our goods without limit, and their tendency to want to “have their cake and eat it too” will diminish and rationality will return.  On both sides, the current unhealthy codependency that we see today will give way toward a positive exchange relationship.  
 
This is the basic solution the worldwide problem I have been discussing.  Piketty writes from the Left, and it is normal that the Right did not appreciate the book.  Yet books from the Left can be very important, as Marx illustrates.  But Piketty is not that great, and even if his book explains things from the logic of the Left, its understanding of the question and the solutions it offers are not very good, which is the basic reason that my evaluation of the book is not very high. 
 
 
     7.  Twenty-First Century Capitalism and Two Thousand Years of Capital Advantage:  Double Errors of History and Logic  

One of the biggest differences between Piketty’s “twenty-first century’s Das Kapital” and Marx’s nineteenth-century Das Kapital is that Marx was a believer in the progress of history.  Even if later on the so-called “law of the evolution of the five types of societies” was attributed to him, he truly saw “capitalism” as just a “historical period,” and the antagonistic character of the market economy’s “exchange relationship” between capital and labor had decisive significance only during this period.  Marx consistently believed that “exchange relationships” replaced “personal relationships” only in the process of the realization of a “market society,” and had not been that way for thousands of years and in all places.
 
In the 1857-1858 manuscript that was the prototype for Das Kapital, Marx clearly stated:  "Private exchange of all labor products, capacities and activities, is opposed to both ‘distribution based on the relationship between human domination and obedience,’ and to ‘free exchange practiced by individuals who do so on the basis of joint ownership and joint control of means of production.’”  Respectively, these three arrangements are what Marxists later defined as capitalism, pre-capitalism (“patriarchy, ancient, or feudal”) and post-capitalism (his ideal of communism).  Setting aside the question of whether communism can be achieved in the future, at least the distinction between pre-capitalist distribution, based on the "rule-obedience relationship," and the capitalist distribution, based on "exchange," is clear.  Obviously, labor and capital are the two objects of distribution (hence the antagonism of "proletariat" and "bourgeoisie") in an era of "all private exchange of all labor products, capacities and activities.”
 
Previous historical periods were dominated by the system of “distribution on the basis of ruler-obedience relationships,” in which “labor” and “capital” both obeyed the “ruler.”  The distribution rule was thus neither “according to labor” nor “according to capital,” but rather “according to power” (political power and personal status power).  Or in Marx’s words concerning the creation of inequality: “In the ancient world, politics played a major role.”  Naturally, Marx’s economic determinism (“productive power decides productive relationships,” “the economic base determines the superstructure”) is not confined to capitalism, but “exchange distribution” is limited to capitalism.  In other words, the reason that “pre-capitalist” distribution had a political character (or a “supra-economic” character) is because productive power at the time was low, which meant that exchange was not well developed.  Looking at it now it is not clear that this was the case.  Have we not seen instances when, in the industrial age, political power has suppressed exchange and created political distribution?  So we don’t have to accept Marx’s economic determinism, but we should not deny the distinction he makes between political redistribution and exchange redistribution, and we should particularly not ignore the fact that he thought the first (at least in undemocratic contexts) was the more uncivilized.
 
But Piketty attempts to prove that his definition of “the basic laws of capitalism” “is valid for all societies and all historical periods.”  In this sense, he should have called his book “Twenty-One Centuries of Capitalism” and not “Twenty-First Century Capitalism” (and Marx’s book looks more like “Nineteenth-Century Capitalism”).  Even if, for reasons of data limitations, most of his graphs deal with contexts from the nineteenth century forward (it is clear that he is attempting to be a rigorous scholar), whenever possible he tries to argue that the so-called capital advantage (“the rate of return on capital is higher than the economic growth rate”, or r > g) is a “law” that applies to ancient and modern times, and to all countries, with the exception of extremely rare periods of exceptionally rapid growth.  He goes so far as to compose a graph comparing “global after tax-income and output growth from year 0 to year 2200,” claiming that r > g clearly functioned “most of the time from ancients through WWI, and the twenty-first century will likely be the same.”  And he is talking not only about the West, but about a “world” that also included China.  In other words, outside of rare and unsustainable periods of “economic miracles,” “labor” is sliced up like a cake, and in all times and places, the only reason for inequality is that “capital” exploits “labor,” and the only way to alleviate the problem is to raise up government to “attack” capital.  Yet autocratic power, which, in Marx’s denunciation of the ills of the Middle Ages “used arbitrary taxation, confiscation, special privileges, bureaucratic interference in the industrial and commercial means to manipulate property," would also be a solution if we employ Piketty’s logic.
 
In order to establish the base of his timeless, unconditional theory of the dual antagonism of capital and labor, Piketty strongly criticizes the theory of "human capital." He defines capital as wealth that can be freely traded, and since people cannot be traded, "manual labor" is not "capital."  In his view, the theory of "human capital" is designed to hide the division between capital and labor.  We should note that where there are free people (people cannot be traded) and free markets (things can be freely traded) his argument is correct.  In the functioning of the market economy, "human" and "non-human" capital are indeed different things, and the theory of "human capital" will bring about logical chaos in the analysis of this phenomenon. But the question is:  is it true that at all times and places there are only free people and free markets?  People (not labor provided by people, but the people who provide labor) to a certain degree can be traded (see slavery, serfdom, and other personal dependency systems, including those attached to the authoritarian state, namely Marx's so-called "Asiatic mode of production" and the modern expression of this logic), and trade of objects faces many obstacles and restraints, and sometimes cannot be traded (as in the case of a command economy without markets). Is this not possible? Under these conditions, "capital" and "labor" can become two factors that impact "distribution," but are they the only factors?
 
Piketty’s answer obviously is yes.  He directly explains that his dual-antagonistic model of capital and labor can be used to analyze the slave system.  In his view, since slaves’ bodies can be traded, the slave should be considered the “capital” of the owner, and not seen as participating in the distribution of “labor.”  However, in an economy where there are only slaves and slave-owners (in reality there is no such economy, just as there may not be an economy in which there are only workers and bosses, but as a logical analysis you cannot avoid this "model," just as you cannot avoid analyzing labor relations), if the slave is not “labor,” would not there be nothing other than “capital?”  How could one discuss capital and labor income distribution and Piketty’s “universal law” of capital advantage?  True enough, slaves have no property rights in the legal sense of the term, but they still consume. In Marx's terms, they also need “necessary labor,” while slave owners can exploit "surplus labor" (though possibly not "surplus value"). For this reason, it makes no sense to say that slaves do not participate in distribution.  According to Piketty’s argument, slaves, regardless of the treatment they receive, can only be counted as the slave-owner’s "capital gains." Then what justice is there in slaves’ demanding improvement of their treatment? If they should not even ask for the improvement of their conditions, can they demand liberation?  That Piketty’s "law," employed in the context of slavery, can produce such a logical outcome, is something I am afraid he did not think of.
 
And even more important—what about situations of “half slavery,” like serfdom or other kinds of servitude?  Serfs had their own independent economy.  Can we say they did not participate in distribution?  Thus does their work count as “labor?”  If so, surely “capital” is not the only thing in competition with the serfs for the distribution quota.  Again, according to Piketty’s theory that “in a free market, capital always has the advantage over labor,” then freedom is not an advantage for serfs?
 
Piketty repeatedly refers to "agricultural society," but he seems to know only the free tenancy system (which sets landlords that take the land as “capital” against the free tenant farmers’ "labor") and the commercial slavery system of pre-Civil War American South (where there was only “capital” on the plantation; “capital’s” advantage over labor appears to apply only to the relationship between the slave-owner and the free laborers of the North), which may make sense in China or the United States.  But in France, Piketty’s home country, agricultural history is full of systems of servitude, which makes one wonder about his argument.  We should note that serfs’ relationship to their master is subject not to property relations but to personal relations (that is, to Marx's so-called "ruler-obedience"), and the medieval land distribution of French serfs was based on the principle of fief or vassalage; the land did not belong to the serf, nor was it a lord's free property.  The master “bequeathed” the land to the serf, the lowest figure in the hierarchy, just as the land was bequeathed to the master from a higher source—the logic was the same.  Each level of this dependency is based on unfree, non-transactional status.  So the serfs who purchased the land (outside the fief) remained serfs, and the owners who lost land (the so-called knights) were still owners, and the former still owed obligations to the latter. If Piketty tells these serfs they are "labor," and that in order to oppose “capital” they should resist “freedom,” what would the serfs say?
 
In Russia prior to 1861, the nobles held very little private land.  At the time most of Russia’s land belonged to village communes or “peasant collectives,” and these village communes were also subject to the authoritarian control of the state.  As compensation for having served the Tsar, the Tsar gave the nobles certain village communes as fiefs, and the peasants were ordered to serve the nobles as servants, which produced the barbaric Russian serf system.  But the Tsar had not really granted the nobles rights to private property, and the serfs, as commune members, had rights to farm the commune lands (nor could they escape their obligations to the land).  Nor was there any notion that they had “rented the nobles’ land and thus had to pay him rent,” instead they served as commune members of the "father of the commune" (the Tsar), sent by him to serve the master.  This was the case until the destruction of the serf system, when the Tsar “ceded the territory,” allocating part of the land to the nobles as their private property, so that they were no longer reliant on serfs, but maintained their status through land revenue, after which the nobility gained the status of "landlord." Does this mean that prior to this point that the serfs were “exploited” because they “had no land”?  At the time the sole demand of Russian Marxists aiming for the liberation of the peasantry was that they be free to withdraw from the community, and freely buy and sell land.  Plekhanov[16] even said: "The Russian people are divided into two classes: the exploiting commune and exploited individual." The formation of the communes had created "a new version of the ancient Chinese or the Peruvian empire – an autocratic empire with a communist base."  In light of this, surely it was not the case that only “capital” was seeking “freedom” while “labor” did not?
 
Furthermore, since Piketty insists that r > g is a fixed law, exceptions to which include only “miracle” periods of high economic growth, then the slower economic growth becomes, the more this “fixed law” should stand out.  But we know that during the unfree conditions of ancient times and the middle ages, the economy was often stagnant.  In Piketty’s own words:  "Economic growth was near zero at most stages of human history."  In such situations, r > g, or the problem of “capital” mistreating “labor” though “free exchange” should intensify, which logically means that they needed to further restrict “freedom” and allow unrestricted power to ruthlessly attack "capital"—in other words in the era of serfdom, they should particularly suppress "freedom." This is too painful to hear.  Unhappily, if Piketty wants to use his “fixed law” in this period of history, logic tells us that we must arrive at this conclusion.
 
After the publication of Piketty’s book, many free market types roundly criticized him.  They grouped him together with Marx, and said that both of their arguments concerning “the basic laws of capitalism” had failed.  In fact, regardless of whether Marx's specific critiques of capitalism (such as surplus value theory, etc.) can be sustained as academic theory, criticism of the inequality resulting from a free competitive economy did not start with him, nor will end because of his so-called "failure," and Marx is already the most symbolic representative of this criticism.  Today's "socialist market economy A," or democratic welfare state, reflects the enormous impact of this criticism. On this point, Marx is immortal.
 
Regardless of whether Marx's "general laws of capitalism" stand the test of time, at least Marx did not intend to extend it to "all societies in all historical periods."  He certainly would not have said there was too much “freedom” in the serf system (in the same way that liberals of the period might have said that there was too much “welfare” in the slave system). Marx was a great critic of capitalism, but his praise for the progress capitalism had achieved in history is also well known. Marx lived in Europe in the middle of the nineteenth century. At that time, constitutional democracy in most countries (including his native Germany) was still in the process of being established.  Authoritarian factors were still very strong. At the same time that he criticized capitalism, he also attacked political authoritarianism and the intrusions of the pre-capitalist authoritarian state. 
 
For Piketty, the child of the twenty-first century, there is nothing to attack except “capitalism.”  From a liberal or a “Leftist” angle his position is hard to accept, but from a Marxist perspective, Piketty’s theory of “pan-capitalism” is even harder to accept.  And on this question it may be Marx who is right, and not Piketty.
                               
     8.  Prevent What “Comeback”?  Free Markets and the Welfare State are both Facing the Challenge of “Low Human Rights” Countries 

This is not to say that Piketty is to the “left” or “right” of Marx.  Superficially, Marx confined his criticism of capitalism to "capitalist society." When discussing the era of "pre-capitalism," he not only refrained from criticizing capitalism, but also emphasized the progressive nature of capitalism when compared with “feudalism” and “authoritarianism.”  By contrast, Piketty extends his criticism of capitalism to “any society and any historical period,” which perhaps puts him to the “left” of Marx.  On the other hand, Piketty does not argue for political revolution, nor nationalization of the economy, and his prescription for the ills of capitalism includes only “democratic supervision” and a tax of “global capital.”  Although it is doubtful that one could levy such a tax on international capital in the absence of a global government, Piketty’s proposal is of a piece with traditional thinking associated with democratic welfare states, or what I have called “type-A socialist market economies.”  Despite what the Chinese translation of Piketty’s work as The Twenty-First Century’s Das Kapital might lead one to believe, Piketty has maintained a certain distance from Marx and those who have subsequently carried his banner.  In the introduction, Piketty says that he grew up in the period following the fall of the Berlin Wall: “Our generation witnessed the collapse of the Soviet Union, and we had no fondness nor nostalgia for this political system or for the Soviet Union.  I have always been immune to traditionally crude ‘anti-capitalist’ arguments.”  After the success of his book, he told journalists that he was different from Marx: “I believe in market competition, private property and the private economy, not only for reasons of economic efficiency, but also for reasons related to the personal freedom to establish an enterprise and manage it freely.”  Still, certain critics made much of Piketty’s “quarrels with Adam Smith and Karl Marx.”
 
In fact, the background to Piketty’s book is precisely the serious crisis facing the “socialist market economies” of the type-A countries.  These debates are basically an extension of the protracted arguments opposing the “free market” and the “welfare state.” The “Right wing” that favors free markets mostly criticized Piketty, while the “Left wing” that favors the “welfare state” basically supported him.  We can call this a debate within the type-A “socialist market economy” countries, in which Piketty on the one hand calls for more “socialist” elements and expresses his resistance to the reduction of “socialism” in the type-A countries (i.e., growing inequality), arguing that the “savage capitalism” of the nineteenth century is making a comeback.  Those who oppose him on the one hand demand more “market economy” elements—or at least oppose the shrinking of such elements—and at the same time argue that the socialist elements in the type-A countries have not really diminished, their faith in a future Kuznets optimism has not dimmed, and for this reason they raise many doubts concerning Piketty’s data.
 
In my view, while Piketty’s critics have scored limited victories in their attacks on his data, they still cannot challenge the general picture (which goes beyond Piketty), that in the past thirty years, inequality in the West has increased, and the optimism generated by the Kuznets curve regarding the future of equality has been reversed.  Still, Piketty’s explanation of this is not completely convincing.  The problem is that both supporters and critics are actually discussing the problem from within the context of the type-A countries (Piketty says that his theory covers all time and space, which is the same as equating all of history with “capitalism,” which is not a true historical vision), and continuing debates between Left and Right since the nineteenth century. 
 
But the problems we are facing today may well be completely new, as I have suggested above:  the negative results of the exchanges between A- and B-type countries under conditions of high-level globalization.  We cannot understand this through the lens of the arguments between Left and Right in the West, and it is even more impossible to find a solution following the thoughts of the Left or the Right or some combination of the two.  Piketty fears the comeback of a nineteenth century “Dickensian capitalism,” and his opponents seek to remove this worry and bring back a Kuznets-style optimism.  I don’t accept Piketty’s argument, and in fact am more pessimistic than he is.  Given the current state of development in the democratic “socialist market economies,” a return to the “pure capitalism” of the nineteenth century is all but impossible, and the future of the exchanges between A- and B-type countries is hard to predict.  As proponents of free markets and proponents of the welfare state engage in yet another round of debate, I wonder if they have considered another possibility which, if not great, remains possible:  that free markets and the welfare state be defeated by a system that lacks both freedom and welfare, which would mean the return of something much worse that “nineteenth century capitalism” (as understood by either the Left or the Right).
 
Concerning debates in the nineteenth century, as I mentioned above, at the same time that Marx criticized capitalism he was also extremely concerned with the question of “opposing feudalism” (feudalism in a broad sense, i.e., all types of authoritarianism having preceded the rise of capitalism), and liberals, at the same time that they “opposed feudalism,” also debated with Marx.  In addition, “negative forces” not included in Marxism and liberalism—from medieval forces to modern totalitarianism—destroyed liberals and democrats as well as social democrats, and were resisted and counterattacked by these.  Yet—or perhaps it is precisely because Western success over the past century has produced a certain self-satisfaction—the arguments seem much “simpler:”  Piketty criticizes “capitalism” and his opponents protect “capitalism”—both sides seem to be obsessed with the same thing.  We have already seen the undesirable consequences of using Piketty’s “critique of capitalism” in the context of the Middle Ages; it would be just as ridiculous to use a “critique of the welfare state” in this context.
 
Of course, slavery and serfdom, in the classical definition of the terms, may no longer exist (outside of particular situations like that of ISIS), but unfree persons and unfree property—especially “unfree” in the sense used when talking about authoritarian regimes—are not rare in today’s world.  And more important is that today’s globalization is much deeper and broader than that of the nineteenth century.  Even if we believe that the nineteenth century Left and Right could arrive at new insights while ignoring India and China and discussing only English capitalism, in today’s globalized world, those who do not understand type-B countries not only cannot discuss China’s problems, I fear that they cannot arrive at convincing analyses of the problems facing type-A countries.
 
Piketty blames the growth of inequality in recent years completely on “the free reign” of “capital.”  This made sense when Marx talked about it, but in today’s type-A “socialist market economies, where is the “free reign”?  On this point I don’t want to join the Western “Right,” but will simply illustrate to the reader the thinking of the Chinese official “Left.”
 
In 2010, in China a few “Leftists” came together to criticize the West, and eventually focused their anger of the “welfare state.”  To quote the head of an institute: “The financial crisis is really a welfare crisis.  In the West, since Roosevelt’s New Deal they have been sucking up to the people, but the politics of welfare has accumulated a great number of problems, finally resulting in this crisis.”  Another added: “To be honest, the problem of the West is that (the welfare state) has made people lazy.”  “Chinese people are willing to work hard, and to accept low living standards.”  He is of course right!  Another vice-president of an institute added that in the West “human rights policies mainly focus on the grass roots, in such a way as to address social contradictions that currently exist in China,” which is “extremely frightening.”[17]  He said it all:  Is not the West hoping to employ its “socialism” to overturn our “capitalism with Chinese characteristics” and to “peacefully evolve” our sweatshops into hateful welfare countries?  
 
Piketty might not be surprised:  in the West we can hear the voice of those who favor the “free reign” (of capital) and who criticize the welfare state, but their anger is not that great.  What he doesn’t know is that  those who curse the welfare state [in China] are not those who advocate the free reign of capital, but just the opposite—they oppose both freedom and welfare!  And even more interesting is that while these friends curse both Western welfare and Western freedom, they also receive the praise of those in the West in favor of welfare (“You refuse the free market?  Yes!”), as well as the praise of those in the West in favor of economic freedom (“You refuse the welfare state?  Yes!”).  I wonder if, outside of the “debate on free markets and the welfare state,” there are other Westerners who argue that the lack of freedom proves that one has welfare, or the lack of welfare proves that one has freedom.  And a situation in which there is neither freedom nor welfare, they cannot understand at all.
 
     9. Take it from the People, Store it with the State?  Piketty’s Concept of “Public Capital” and the Type-B “High-Tax, Low-Welfare” Model 

Piketty doesn’t understand this at all, and consequently some of his arguments strike me as really bizarre.  For instance, he notes bitterly that in the West, “private capital” now eclipses “public capital,” so that private capital makes up “more than 90%” of all national capital, and in some countries even exceeds 100%.  In the case of Italy for example, public capital is negative, which means that the public debt exceeds public capital, which only increases the percentage of private capital.”  But China stands out on this measure, as “public capital seems to account for about half of national capital,” which earns China a vote of praise.
 
But everyone knows that all Western countries practice high-tax, high-welfare “redistributive socialism,” even those that are most in favor of free competition, and for this reason, even the United States, which Piketty greatly dislikes, and where tax rates are lower than in Europe, has much higher taxes than it did in the past.  Some of my Chinese friends on the “Left” see this as a model, and complain that official China’s “extractive capacity” is not as great as that of other countries, and even if this theory seems overly modest (in addition to taxes, the Chinese government also practices “land-sale finance,” state-owned enterprises profit, and "extra-budgetary" extortion, earning income that exceeds Western tax revenues), it also illustrates that on the face of things we have learned from the West in our expansion of “public capital.”  How, according to Piketty’s explanation, can China’s “public capital” be so much wealthier than theirs?
 
It turns out that for Piketty, “public capital” means net capital after deducting public expenditures!  Logically, this indicator has nothing to do with "capitalism" or "socialism", "laissez-faire" or the "welfare state."  The reason is simple: the low-tax, low-cost welfare of the laissez-faire economy will naturally leave little money in state coffers given relatively low state receipts, but will low receipts in the context of high taxes and high welfare balance not also leave little money in state coffers?  In fact, although the modern Left and the various socialists generally oppose "market spontaneity" and emphasize the economic role of the state, with the exception of those “production socialists” who want the state the control a great deal of productive capital (Piketty does not seem to make such a demand), most emphasize state intervention in the redistribution of resources.  But they advocate “taking the resources from the people and employing them on the people.”  No one advocates “public capital” stagnantly accumulated in this manner.
 
From the point of view of redistribution, logically, as long one has high taxes and low welfare, with more income and less expenditure, then state coffers will be full.  But isn’t this the exact opposite of the “democratic supervision of capital" advocated by Piketty?  James M. Buchanan (1919-2013)[18] and others have proven that, all other conditions being equal, government finance in democratic systems tends toward deficit.  His argument is quite complex.  I have used the metaphor of the “inchworm response”[19] to explain it:  because in democratic systems, both the Left and the Right want to please the people, and because the people naturally like to let the Right lower taxes and let the Left increase welfare, they wind up wanting to have their cake and eat it too.  In the same way any emperor naturally likes to let the Left wing expand his powers, and let the Right wing help him to shirk responsibilities, producing a situation where the state runs roughshod over the people.  In Europe and the US, taxes are high, but welfare demands are high as well, and their condition as type-A “socialist market economies” dictates that their public finances be “taken from the people and used on the people’s behalf,” and there is no way to “take it from the people and store it in the government.”  In fact, quite often what is taken from the people is relatively little, and what is bestowed on the people is comparatively great, which creates public debts, which, in Piketty’s view is a case of “negative public capital” and “private capital exceeding 100%.”
 
What is to be done?  Piketty seems perplexed.  But in my view, it’s too obvious!  All we have to do is get rid of the democratic system, and the emperor can do what he pleases.  The people cannot ask him for welfare, but must thank him profusely for every crumb he dispenses, and if he gives nothing they can only look on in despair.  Taxes are “taken from the people and employed on the government,” and if the state can’t squander all the money it has taken in it can store it up, spend it overseas…Why worry if the government coffers are full?  As Sima Qian said in the Records of the Grand Historian, “the state granaries fill up year after year, even if the grain is rotten and can’t be eaten.”[20]
 
So, for the type-B “socialist market economy,” the “accumulation of public capital” is really too easy.  Unfortunately Piketty lives and works in the wicked West, and has no idea such a thing exists.  He worries that in Western countries “public finance” is insufficient.  He is not talking about type-B countries, that “take from the people to give to the government” and that demand that “the people serve the state.”  Instead, he is hoping that type-A countries can find a way forward, that tax receipts in democratic governments can catch up with the increase in democratic welfare expenses. In his head there is only the comparison of “private capital” and “public capital,” and he doesn’t know that there is something else which is neither, but instead an “imperial tax.”  He points out that the choice is between laissez-faire capitalism and “forcing capitalism to accept democratic supervision.”  This almost made me laugh out loud:  he really doesn’t know that there is a choice outside of these two, which is to have capital and labor both submit to the supervision of the emperor!
 
Throughout his weighty tome, Piketty argues over and over that becoming rich through labor (which for him includes management) is more reasonable and just than getting rich through inheritance.  Unlike in the time of Marx, when all sorts of “capital” were derided without distinction, Piketty, writing about the twentieth century, emphasizes the “democratic supervision of capital,” and does not deny the significance of the work of entrepreneurs, company founders, and managers.  What irritates him is “capital” that does not come from one’s own labor but has been inherited.  He points out that in today’s developed countries with declining birth rates this problem has become more acute.  In the past, when a family had ten or more children, even the children of wealthy people had a hard time maintaining wealth down to the second generation once it was divided among many hands.  But now when families have only one or two children, the possibility of “wealthy family lines” has increased.  And it is clear that this is indeed a problem.  And Piketty is aware that because China practiced its one-child policy[21] for a long time, the problem is severe there as well.  This is one of the few points in his book where he expressed disapproval of China.
 
Piketty’s solutions include a progressive income tax to “suppress wealth,” as well as a substantial increase in the estate tax.  From the position of the Western Left, such arguments are certainly logical, and he is not the first to make them.  There has long been an estate tax, and is one of the characteristics of the type-A “socialist market economy.”  It’s just that playing with tax rates is not going to get Piketty where he wants to go.
 
      10.  My Only Hope is that the Honecker Parable is just a Parable 

But for type-B countries, can Piketty’s prescription cure the disease, even it is based on a Leftist viewpoint?  Surely the paths to riches are not limited to “relying on labor” and “relying on inheritance.”  As a French Leftist, perhaps Piketty doesn’t need to think about other possibilities, but what about those in type-B countries?  Can’t you get rich by relying on power?  Through theft?  Through inheritance—of power, status and special privilege?  Perhaps Piketty has heard someone mention the “my father is Li Gang” incident.[22]  Is Li Gang a “capitalist”?  “Master Kang”[23] himself, born into in ordinary family, is now incredibly wealthy, as are the rest of his family.  Is this all because of “Master Kang’s” “labor”?  Or because “Master Kang” inherited something from his father?
 
It’s not only Piketty; in general Western scholars of the Left and the Right cannot imagine that there is a “third possibility.”[24]  And that is because this third possibility is not possible in the West.  Among scholars in the West, Leftists think that it is only laissez-faire that it preventing them from pursuing the welfare state, while Rightists think that only the welfare state prevents them from pursuing laissez-faire.  Thus when Leftists see a place where freedom is very limited, they naturally think that welfare will be great, and they encourage it.  When Rightists see a place where welfare is very limited, they naturally think that this place is very free, and they also celebrate it.  And if this place has achieved high economic growth, then both sides think that this place can be useful to them in the arguments they are having back home, which results in a strange song in which “the left praises low freedom and the right praises low welfare.”  Actually, we can imagine a scenario where one day the economy of the country suffers great problems, at which point “the Left would curse the low welfare, and the Right would curse the low freedom,” thus continuing their mistake of using this country as proofs in their arguments.
 
What can I say here?  We who live in that country, knowing its sweetness and hardships, also know the most about its problems. We cannot be led by the nose by other people (whether Leftists or Rightists) who are just thinking about their own problems.
 
I would like to point out, however, that “our problems” and “their problems” did not grow out of some perpetually unchanging cultural fate or an unchanging special “national characteristic.”  They might not have our problems now, but they had them in the past.  So their thinkers at the time, including those on the Left, would not have thought about things in the way that Piketty does.  Taking Marx as an example, when the great Leftist master wrote Das Kapital in the nineteenth century (and not On Nineteenth Century Capital), his hatred of capitalism was no less than that of Piketty.  But Marx, who had been forced out of his country by the Prussian Junkers, and who had fled to England, the world’s most capitalist country, to speak out—Marx knew that there were things in the world that were worse than capitalism.  Marx’s critique of “private capital” is perhaps the origin of Piketty’s, but his critique of his age’s “public capital,” in particular that of his native country, was much more strident than Piketty’s, to the point that Marx approved of economists who were in favor of laissez-faire over those arguing for government control, finding them more “progressive.”  Quesney (1694-1774), the seventeenth-century advocate of free trade, was more progressive than Colbert (1619-1683), who argued for state control; Adam Smith (1723-1790), who in the eighteenth-century argued for laissez-faire was more progressive than List (1789-1846), who argued for state control, etc.
 
As for the “states” of that period, Marx criticized their “use of arbitrary taxation, confiscation, privileges, bureaucratic interference in industry and commerce to manipulate property.”  As for the even more authoritarian Tsarist Russia, Lenin’s draft of the program for the social democratic party clearly states: “We oppose all plans to provide welfare for the working classes through unlimited government or official protection…What the Russian people need is not the help of an unlimited government or its officials, but to be liberated from their oppression.”  Does this not look a lot like the demands of today’s “Right”?
 
In fact, the fact that the Left supports the welfare state, and opposes laissez-faire, and that the Right opposes them, is part of the constitutional democratic system, and is a particular characteristic of universal elections in constitutional democracies.  In history, when there were constitutions but not yet universal elections, the rulers often used gifts of “welfare” to eliminate the demands of the lower classes for democratic rights.  At the time, the “founders of the welfare state” were Rightists like the British Disraeli (1804-1881) and the German Bismarck (1815-1898), and the Left and the liberals were the opponents of this "Tory party socialism" (in the words of American sociologist Seymour Lipset’s) or "feudal socialism" (in Marx’s).  Prior to this, when there was no constitution and no universal elections, autocratic power “used arbitrary taxation, confiscation, privileges, bureaucratic interference in industry and commerce to manipulate property,” which was known as Colbertism, and which was resisted all the more by all classes in the push toward constitutional rule.  At the time there were no struggles between Left and Right as we now see them; what existed (to use standard Marxist terminology) was “the bourgeoisie and the proletariat both demanding an end to feudalism.”    
 
Piketty doesn’t think about such questions.  His concern is how to ensure that “capitalism under democratic control”—our type-A country—can continue going forward, not allowing “the profit-eaters, the enemy of democracy” and “hereditary democracy” to make a comeback.  Piketty has a strong political belief in the Western democratic system, and in economic terms has no interest in “production socialism.”  His book does not discuss the comparative benefits of private enterprise and state enterprise, and instead from beginning to end is concerned with redistribution, and his final suggestion is to add a “global capital tax” to progressive income taxes as the major elements in a revamped redistribution system, so as to solve the problem of massive Western public debts which call into question the future of the welfare state.  People who endorse Marx’s theory concerning the total eradication of capitalism will not see Piketty’s work as the twenty-first century Das Kapital, nor did Piketty himself see it that way.  But he keeps his focus on “redistributive socialism”, the development of the welfare state, demanding a labor advantage over a capital advantage—a very clear Left-wing position.  That Western Rightists who criticize the welfare state and advocate laissez-faire dislike this book is no surprise.
 
But even from a Leftist standpoint, questions about China still remain unanswered in this book, and I doubt that the book can provide answers even for the problems faced by the West.  This is because for the West, the question of “the welfare state or laissez-faire” is indeed a real question, and it was natural for them to debate the question during the Cold War and even before.  But now thirty years have passed, and what is completely different from the “two parallel markets” of Cold War period, with little exchange between them, is today’s unprecedented model of globalization, in which both the welfare state and laissez-faire face challenges (or perhaps crises) under globalization.  In other words, the challenges faced by the welfare state do not come uniquely from “laissez-faire,” in the same way that the challenges facing laissez-faire do not come uniquely from the welfare state.  Piketty worries that nineteenth-century capitalism is “coming back,” and in fact today’s Western Right-wing thinkers, including economists seen as Right-wing “neoliberals,” are just as worried as Piketty, and are afraid the free markets are facing challenges in the face of a “socialist” comeback.  In fact, there is not much danger of the return either of Adam Smith’s capitalism or of Karl Marx’s socialism, but is there not a danger of the return of things worse than nineteenth-century capitalism or socialism, like the “Colbertism” that the French scholar Piketty is quite familiar with or like Marx’s “Asiatic mode of production”?  Might these not return under conditions of high-tech globalization?
 
In my view, the real questions, in an age of globalization, are not those of “the welfare state and laissez-faire,” or even less “capitalism and socialism,” but rather the interactions, exchanges, and challenges between the type-A and type-B models of socialist market economies.  As globalization accelerates the process of exchange, the bad outcomes of the mutual exchanges between A and B countries will tend to worsen, and will infect one another.  Bad currency might chase out good currency or good currency chase out bad currency—anything is possible.  In the thirty years of reform and opening, while we in China studied Western “market economies,” we were also studying “socialism” (modern public welfare and social guarantees).  But from another perspective, our “comparative advantage in low human rights” under conditions of globalization also evolved into a trend whereby “our sweatshops destroyed the welfare state,” which I once described with the analogy of the Honecker parable:[25]
 
In 2009, I was in Germany, and had a long discussion with Hans Modrow, the former premier of the East German Communist Party.  In the process of unification, Western Germany “absorbed” Eastern Germany, which was a great advance for Germany, although it also brought serious problems.  After the destruction of East Germany’s former low-wage industrial system, there were limits to new industrial development, and East Germany faced the problem of “deindustrialization” to a certain degree.  Despite great advances in the service sector, the unemployment rate remained higher than in the West.  Modrow, who was in the opposition, was unhappy.  Why?  Because after unification, West Germany used a huge “unification tax” and the convertability of the Eastern and Western marks at par to create conditions whereby salaries in both Germanies were basically the same, as were high welfare, strong unions, and labor power—everything was like in West Germany.  As a result, East Germany was no longer particularly attractive to capital.  So even if the government tried hard to convince Western German capital to invest and renew East Germany, the results were limited.  West German capital preferred massive investments in China to produce vast numbers of German cars, and didn’t want to rebuild East German car factories.
 
I asked Modrow whether he had ever thought of another possibility, that after German unification, the East might have swallowed the West?  He said it was impossible, because the system in East Germany was a clear failure, and in democratic terms, there were 60,000,000 votes in the West and 16,000,000 in the East.
 
I said, what if we think of a third possibility.  Imagine that twenty years ago, East Germany had suppressed democratization and kept the Berlin Wall.  East Germans had no freedom, low-wages, and low human rights, and there was no policy of on-par conversion of East and West German marks.  What if Honecker toured the West, visiting Las Vegas and the Moulin Rouge, discovering that the developed world was great, after which he developed a great interest in market economies, and decided to abandon utopia to make money.  He left the politics the same, but changed the economy to be part of West Germany’s.  He opened the doors wide to Western capital, demanding in return that the West keep the doors open to accept East German products.  He would use authoritarian means to provide the best investment opportunities:  whatever piece of land you decide you need he would get it for you; workers had to toe the line and could not protest; if people’s homes were in the way of a business deal he would get rid of them; he could decide on allotment of rights to enterprises, there would be no need to deal with anyone, labor unions and agriculture unions were not allowed, he would reward anyone who came to invest and get rid of anyone who got in the way of investment…What do you think would have happened had that come to pass?  Modrow said it was impossible, as did all the German people I asked about, who found it equally unimaginable.  Still, what would have happened?
 
The answer is simple.  If the state had insisted, the East German people would have stood for it, and the results might have been completely different from what they are now.  Western capital would no longer head for China, or Romania, and West Germany wouldn’t be employing Turkish workers.  They would have swarmed into East Germany, and sweatshops would have sprung up all over East Germany, which would have poured tons of cheap commodities onto the Western markets, completely renewing East Germany’s original industries…East Germany would immediately have had an economic miracle, and the “deindustrialization” and high unemployment rates would have appeared in West Germany.  With the flight of capital from West Germany, labor would have lost its bargaining power, unions would have declined, welfare would have diminished, and the people’s capitalism, built over more than a century, the “social market economy” and its welfare state, would no longer exist.  Of course, East Germany would experience serious social problems, such as inequality, alliances between the state and merchants, rampant corruption, environmental pollution, etc.  But if the East Germans could withstand all of this, then what would have happened to West Germany?
 
I said, if East Germany didn’t change, then West Germany would have only three choices:  one would be for West Germans to build their own economic wall, refusing unification, preventing capital from leaving the country and external commodities coming in.  In fact, this is an extreme version of the common practice of trade protection.  But in so doing, they would have paid a high moral price, because they had originally proposed tearing down the Berlin Wall.  And in fact it would not have worked, because West Germany could not use the measures that East Germany had employed to maintain the wall:  East Germany shot her citizens who tried to cross the wall.  Was West Germany going to execute her capitalist entrepreneurs?
 
The second was if they didn’t build this Berlin Wall, they would have to reduce their conditions to those found in East Germany, because otherwise competition was impossible under conditions of unification.  West Germans would have had to learn to be “migrant workers,” welfare and human rights would have suffered important declines, the welfare state would have given way to sweatshops, and bad currency would have driven out good currency.  If Western Germany had done that, it would be as if East Germany had carried out the unification, because the West would have assimilated to the Eastern system.
 
The third possibility was that the changes to the Western German democratic system would have been unacceptable to the people, whether it was the reduction of freedom or of welfare, resulting in a great social mobilization which would have refused the importation of the East German system.  But if West Germany had suffered major social chaos, East Germany might have use extraordinary means to unify West Germany.
 
But the real question is, if East Germany had swallowed West Germany, then at no level of meaning would it would have signified socialism’s victory over capitalism; instead it would have been simply sweatshops’ victory over the welfare state, “savage capitalism’s” victory over democratic socialism.  I asked Modrow:  let’s set aside for the moment the reaction of the “Left” to this scenario, but you, as a Leftist, would you like to see this kind of “victory?”
 
He didn’t give a straight answer, and just repeated that it was impossible.  Of course, everyone knows that this did not happen in Germany, which is why I call it a parable—the Honecker parable.  But elsewhere in the world, is this unhappy scenario merely a “parable”?  The fact that it isn’t has come to constitute a bigger challenge to freedom and welfare than the internal “debate over laissez-faire and the welfare state.”
 
But since the publication of Piketty’s book, the Left has basically been singing its praises, and those that oppose it look at things only from the Right.  And neither the Left nor the Right seems to be aware of “world trends”.  If you say that we [i.e., in China] do not understand your type-A socialist market economy enough, I might answer that you [Westerners] understand our type-B system even less, and those that try end up engaging in wishful thinking.  Of course, in the past, when globalization had not progressed to this point, this failure of understanding was perhaps not all that critical, but today, it is time to take it seriously.

Notes

[1] 秦晖, “21世纪的全球化困境：原因与出路: 兼评21世纪的资本论,” originally published in Leaders 领导者, 63 (2015), also available online at http://www.aisixiang.com/data/90079.html .
 
[2]  Qin Hui, “’High and Low,’ ‘Positive and Negative’ Welfare and China’s Transformation 福利的“高低”“正负”与中国的转型, Twenty-First Century 二十一世纪, 2013.10.
 
[3] Translator’s note:  Qin Hui is playing on two expressions commonly used in China to describe the change from a planned economy to a market economy.  In a planned economy, an enterprise would “seek out the mayor, not the market” 不找市场找市长, while in a market economy the enterprise would do the opposite (不找市长找市场).  The Chinese words for “mayor” shizhang 市长 and “market” shichang 市场 are very similar, so the expression is a pun, or a play on words.  “Mayor” here simply means the “government;”.  The basic notion is that in a planned economy, the rules are set by the government; in a market economy, the rules are set by the market. 
 
[4] Translator’s note:  These are all “revolutionary” slogans praising workers’ commitment to production.
 
[5] Translator’s note:  Qin’s reference is to Frederick Taylor (1856-1915), a leading proponent of scientific factory management.
 
[6] Translator’s note:  Nicolai Bukharin (1888-1938) was a Bolshevik politician and political theorist.
 
[7] Translator’s note :  See Sunita Gajare, Maharashtra in twentieth Century (Solapur: Laxmi Books, 2016), p. 107.
 
[8] Translator’s note:  Qin’s various references to the “emperor” in this essay are meant to suggest parallels between the power of the contemporary Chinese Party-State and that of the traditional Chinese emperor.  We would probably say “autocrat.”
 
[9] Translator’s note:  The “social market economy” generally refers to the modern German capitalist welfare state and its variations.
 
[10] .  See Qin Hui, “My Views of the Globalization Crisis:  The Interaction of Two Inchworm Effects 我看全球经济危机：两种尺蠖效应的互动,” Leader 领导者, 2009.2.
 
[11] Translator’s note:  One of Piketty’s central arguments is that the “earning power of capital,” what Qin Hui calls the “capital advantage” regularly outpaces the earning power of labor, in other words that in most periods throughout human history, it has been more profitable to invest in financial instruments than in the productive economy.  His “law” of r > g is another expression of the same phenomenon.
 
[12] Translator’s note:  Qin is implicitly drawing a parallel between China’s migrant workers and black labor in South Africa, arguing that both are representative of a “comparative advantage in low human rights.”
 
[13] See Guo Yuhua and Huang Binhuan 郭于华、黄斌欢, “A World Factory with ‘Chinese Characteristics:’ An Overview of Workers’ Conditions in the New Era 世界工厂的“中国特色”：新时期工人状况的社会学鸟瞰,” Society 社会, 2014.4:  49-65.
 
[14]  Ibid.
 
[15]  Ibid.
 
[16] Translator’s note:  Georgi Plekhanov (1858-1916) was a Russian revolutionary and a Marxist theoretician.
 
[17] “The Peace Prize is the Epitome of the new Collision between China and the West: Seven Famous Chinese Scholars Talk about the 2010 Nobel Peace Prize 和平奖是中西方新碰撞的缩影：七位中国知名学者谈2010年诺贝尔和平奖,” Global Times 环球时报, November 20, 2010.
 
[18] Translator’s note:  James M. Buchanan was a well-known American economist.  Qin is referring to his  Democracy in Deficit.
 
[19] Translator’s note:  See for example Qin Hui, “My Views of the Globalization Crisis:  The Interaction of Two Inchworm Effects 我看全球经济危机：两种尺蠖效应的互动,” Leader 领导者, 2009.2.  The basic notion is that the opposition between those arguing for “greater welfare” and those arguing for “freer markets” in contemporary politics allows little room for progress. 
 
[20] Translator’s note:  Qin elaborates on a quote from chapter 30 of Sima Qian’s Shiji.
 
[21] Translator’s note:  China’s one child policy, introduced in 1979, was an effort to reduce China’s burgeoning population and stimulate economic growth by limiting population growth.  The policy largely came to an end in 2015.
 
[22] Translator’s note:  A privileged young man, whose father was a powerful local figure, ran over two poorer women while driving intoxicated.  When authorities sought to arrest him, he challenged them, saying “my father is Li Gang.”  See https://www.nytimes.com/2010/11/18/world/asia/18li.html .
 
[23] Translator’s note:  “Master Kang,” or “Chef Kang,” is the brand associated with China’s most popular instant noodles.  The company is based in Taiwan.
 
[24] Translator’s note:  Qin is ridiculing arguments that China might offer the long-sought “third path”—an alternative to capitalism and socialism.  See for example Philip C.C. Huang, “Chongqing:  Equitable Development Driven by a ‘Third Hand’?” Modern China 37.6 (2011): 569-622.
 
[25] Qin Hui, “The Honecker Parable:  The Counter-Factual Case of East Germany Absorbing West Germany “昂纳克寓言”：东德吞并西德的“反事实推论,” Thought 思想 17 (2011).