.@Give_Directly to 1,300 Poor Households in Kenya


Give Directly are my favourite charity and they should be yours too. They give money to poor people. Not just any poor people, but really poor people in East Africa. There’s a minimum of bureaucracy and they are innovating new ways to remove the bureaucracy which currently exists. It is simplicity itself, and it works. And you can donate this month and double your donation.

Supporting Give Directly gives you the warm glow of helping the most needy people imaginable, but more importantly it also gives you the warm glow of having your ideological predispositions confirmed. If you’re anything like me you just can’t beat it. Donate and you too can bask in the heroin-like glow of confirmation bias.

They regularly audit and they get amazing results. Business and agricultural income increased 28% of the average grant size, implying a 28% annual rate of return. With a doubled donation you’ll be getting a 128% rate of return. Plus mental health improves, crime and conflict doesn’t change, it doesn’t cause localised price inflation and it reduces domestic violence and increases female empowerment.

They’ve also begun using community-based targeting: in a subset of villages, they got the community to help them categorize households by poverty level. Wherever there’s cost and bureaucracy they’re looking for ways to remove it. Wherever there is local knowledge they’re looking to use it. So far:

  • Most people think housing materials are the best indicator of poverty — reaffirming the criteria we already use. Furniture and source of income were also popular.
  • People generally agree on how to apply the housing criteria. When we asked communities to categorize each household as “rich” or “poor”, they agreed in 9 out of 10 cases.
  • Engaging local leaders in the process can help, but also raises a risk that they will ask for “compensation” for tasks they are supposed to do for free.

Honestly, if you’re not supporting this charity (I think this would particularly suit Jackart, Chris and Frances) I don’t know what’s wrong with you. Oh, and they have no marketing budget, so yes, you will have to put up with regular half press release, half begging letter posts here, essentially, forever. Or until we end poverty. So its up to you really.

Policy Bullshit Bingo: Robert Rubin in the @FT edition

I wanted an early night. But Nooooooo. Robert Rubin had to publish something stupid and now I’ve had to stay up to mock it. Scheduled to land at 9am. I hope you’re all feeling bitter this morning.

Debates persist in the US and eurozone about growth and job creation versus fiscal discipline. This false choice diverts fiscal focus away from a balanced approach that could achieve both imperatives.

Yes, it’s a false choice and that is why literally nobody on earth is proposing it.

The US recovery remains slow by historical standards – even if recent signs of improvement are borne out. One reason is that our unsound fiscal trajectory undermines business confidence, and thus job creation, by creating uncertainty about future policy and exacerbating concerns about the will of Congress to govern. Business leaders frequently cite our fiscal outlook as a deterrent to hiring and investment.

Actually, in the US policy uncertainty has come from Republic malfeasance in the legislature. It has nothing to do with fiscal policy.

A sound fiscal trajectory is also a prerequisite for interest rates conducive to growth.

Interest rates are zero, and are low a long way out. I don’t think its the 1990s anymore Mr Rubin. Although your glasses are!


Continued unsound fiscal conditions will almost surely destabilise markets at some future point.

Oh, it will “will almost surely destabilise markets at some future point”? That’s a concrete foundation on which to make policy decisions…


Recent reductions in deficit projections do not change the basic structural picture – except that healthcare cost increases are slowing – and are partly based on sequestration, a terrible policy that already looks too onerous to stick.

Policy successes which address exactly what I worry about do not count. For no specific reason.

In the eurozone, the threat is more immediate. Bond markets in troubled countries were in dire conditions until the European Central Bank’s famous – and as yet unimplemented – 2012 promise to do “whatever it takes”.

The promise was the action. You want to bet against the ECB? No? Then it worked, the plan was implemented.

The right criterion for action, however, is not the absence of alternatives, but an assessment of costs and benefits.

This sentence stands apart as a magnificent example of self-parody.

In the US, there are widely posed questions about the benefits of QE3, but the risks are significant. One is that central bank action will reduce market pressure on political leaders to act.

You read that right. The danger is this policy might work. Then people won’t listen to Robert Rubin’s terrible advice. Never waste a good crisis eh Robert?

Yet waiting too long to tighten heightens the risk of inflation at some point. The Fed’s dramatic expansion of bank reserves could feed excessive credit growth. Along with the possible erosion of Fed credibility on inflation, that could also feed inflationary expectations.

If they are feed inflationary expectations nobody is doing much about it. The TIPS spreads on US debt doesn’t show anything. You can lend money to the US government and get a nominal return guaranteed, or an inflation protected return guaranteed. The difference tells you a lot about expected inflation. If inflation was coming you could sell one and buy the other. But that hasn’t happened. Look at expected inflation from 5 year bonds:

fredgraph (1)

Such a regime should be enacted now to stabilise, or preferably reduce, the ratio of debt-to-gross domestic product over 10 years, and protect discretionary spending. Implementation, designed in ways difficult to undo, should be deferred for a limited period to allow for recovery. Fiscal discipline could provide room for reasonable stimulus to create jobs. The partially cancelled sequestration should be fully rescinded to eliminate its fiscal drag. Fiscal funding should come largely from revenue increases and beginning the entitlement reforms necessary for long-term sustainability – as President Barack Obama has proposed.


Structural deficit reduction would address growing deficits in the decades beyond the next 10 years. The eurozone, too, should reject false choices. Instead, it should strike the right balance between fiscal discipline to win market and business confidence, and macroeconomic room for growth.

Unconventional monetary policy and stimulus can be part of a successful economic programme for a period of time. But they are no substitute for fiscal discipline, public investment and structural reform.

Welcome to your policy elite, they’ve literally learned nothing in the last 15 years. They’ve especially learned nothing in the last 5.

A #longread for your weekend: Karl Polanyi in Beijing

Thank you for reading last week. If you would like this week’s posts collated as an essay you can download a pdf of “Karl Polanyi in Beijing.” You can also download a pdf version of Karl Polanyi’s The Great Transformation itself here. I recommend you do both. The collated posts also follow below the fold. I hope you’ve enjoyed reading these as much as I enjoyed writing it.

Continue reading

Karl Polanyi in Beijing: why are China’s capitalists so successful?

The economic reforms introduced in the late 1970s were, argued the CCP, essential to combat economic stagnation and waste of the Mao years. So it was the Party that created the market in China. In Europe, Polanyi described an insurgent middle classes who “developed an all but sacramental belief in the beneficence of profits” and faith in the market. In China the market was introduced to break the bureaucratic control of the economy, but reform has ironically led to the enrichment of China’s bureaucrats. It has also left land and labour deeply unprotected. In contrast, China’s private and state-owned businesses are deeply embedded in social relationships. Its a deeply contradictory and complicated place as only a country of over a billion people can be.

In The Great Transformation (full pdf) Polanyi runs three chapters concurrently, Market and NatureMarket and Man and Market and Productive Organisation. These posts have followed a similar course and this penultimate post will look at China’s breakneck economic growth and discuss whether that invalidates Polanyi’s idea that “a embedded economy will be more efficient than a disembedded market.”

I started by saying that China’s party decided to create a market, that is how Polanyi and I talk about it, but it isn’t the normal parlance. The main school of thought on liberalisation emphasises the spontaneous creation of private enterprise wherever the state withdraws; this school draws on Adam Smith’s assertion about man’s “natural propensity to truck and barter.” I haven’t much truck with this. Capitalism got going in large part thanks to the fiscal strength of the British war state being able to enforce property rights and help capitalists accumulate capital through dispossession. Likewise in the US the government opened up the west with bloodshed and dispossession which helped America’s farmers accumulate land and helped prop up the wages of its working class. But I digress.

One half of Polanyi’s theory was that while laissez-faire was planned, the response was automatic and universal, even capitalists rebelled against the market. Good free marketeers like Tim and Chris see this as lamentable, they should see it as inevitable. Polanyi insisted that against the tide of market utopianism even capitalists will strive to protect themselves against the market. In China there has been no unconditional acceptance of the market, and its implementation has been limited, even if its effects have been broad. Contrary to the liberal belief that those engaged in private business will seek further economic and political freedom, it appears that those engaged in business in China prefer stability to economic liberalism. There’s more parallels to this: authoritarian capitalism can be pretty stable, Bismark’s Prussia, Meiji-era Japan and Pinochet’s Chile were all stable for extended periods of time. Just like in these countries, embedded markets can be remarkably effective at delivering growth.

China’s business operations rely more on connections than on private property, they are embedded networks of guanxi. I think you should conceptualise guanxi differently for migrant workers versus business men. For labour, it has arisen as a protective last resort, a countermovement which provides shelter in place of hollow labour laws. For businessmen it has become an integral part of “doing business.” Rather than decreasing as China’s economy develops, guanxi has increased its prevalence as businessmen develop new ties, and deepen old ones, in order to achieve their aims.On one level it functions, not as a system protecting against the market, but as a method for smoothing the transition between different state policies, in which extralegal activities are permitted in order to maintain smooth operation of business. There’s a parallel in the Soviet Union were boxes of cigarettes and bottles of vodka lubricate the workings of a badly drafted plan. In China gifts lubricate systems of insecure exchange.

At a macro level, the state also supports businesses and economic growth. The ideal developmental state, as described in Monday’s post by Evans possesses a “concrete set of social ties that binds the state to society and provides institutionalised channels for the continual negotiations of goals and practice.” Is is easy to dismiss guanxi as clientalism, or “crony capitalism” that distorts a natural market conditions. In reality China’s capitalists have the ear of the Chinese state and mutually assured destruction ensures they are focused on growth. Where Scott Sumner sees pragmatic policy making I see the fear in their eyes.

The state has laid the foundations for China’s economic growth and like other developmental states, it has sporadically suppressed market activity and supported strategic investment at the behest of its capitalists. China’s business situation is a system in which legal foundations of private property do not matter as much as ensuring that personal connections with local government and party are good. This can be a method by which private capitalists can extort money, power and influence from society at large. But it is also a method for ensuring capital investment is incentivised and profitable opportunities exploited. The institutionalisation of guanxi is a symptom of the decentralization of power which has occurred in China as both an impetus to, and consequence of, China’s economic rise.

To a degree the Chinese state has failed. For the majority of China’s development, while attempting to build global leaders the vast majority of the Chinese economy remained wedded to low-wage manufacturing. “Manufacturing” may prove to be  a superlative a word for what occurs in China. It can perhaps be better described as “assembling” imported inputs. High-value adding components are constructed outside and shipped to China for final manufacturing before being re-exported. The challenge for a developing country is to move up the value added chain. In the mid-2000s I was relatively sceptical of this happening, now I am more optimistic.

From The Independant, taken by Leonardo Finotti

From The Independant, taken by Leonardo Finotti

The tight state-industry link hasn’t been severed and remains very strong. In return for a huge degree of state control Chinese capitalists can help direct infrastructure spending. Britain has built one new runway since the Second World War. China has been building ten a year or more for over a decade. Britain was rather well endowed with runways following the war, but China’s achievement is colossal. China’s expanding its infrastructure at an astounding pace and it is a close coalition of capitalists and bureaucrats directing it. While some reports suggest lots of this investment is in empty ghost cities and roads to nowhere others are more optimistic:

In the case of Henan’s Zhengzhou—frequently dubbed China’s “largest ghost city”—Ms. Wong notes that a number of media portrayals of the city’s newer areas have used photographs taken between 2010-12, before the metro system connecting the district to the city’s more established neighborhoods was completed. On her most recent visit there in August, Ms. Wong said she saw many cars, “hordes of pedestrians” and considerable ground activity in addition to curtains and air-conditioners installed in numerous residential buildings.

“I asked local people about what they think…about Zhengzhou being a ghost city and the answer is, ‘What?’ They don’t actually have any idea they’re being labeled a ghost city,” Ms. Wong said.

Western reporters are the least likely to understand movement and patterns of production in China. Infrastructure investment is being directed by a coalition of capitalists and bureaucrats using local knowledge passed through to the might of the Chinese state.

From the BBC, taken by Pu Yongfang

From the BBC, taken by Pu Yongfang

Of course, the state can also be expected to expropriate the poor as necessary. As the poor and dispossessed become wealthier and therefore more powerful it seems that land grabs are becoming a little rarer than they used to be. This could also be because all the good land has already been grabbed. In any case, capitalist production is closely embedded in the state apparatus. Seizing land isn’t fair, but it is a pretty good way to accumulate capital. Capitalists are also more productive than poor people and development is all about putting things to their most productive use. This is the ugly side of development, and China is very good at it because its capitalists and government need to keep the economy growing.

The Chinese economy contains a business community embedded in close sets of social ties, this having given it the potential to direct its domestic industry in socially productive ways. To some degree it has certainly succeeded. In centres of development on the coast modern economies have grown up but it is unclear that this will spread to China’s interior. Firms are moving up the value added chain but China remains a very poor country. I’ve discussed in past posts that increasingly large tail risk is being built up in the poor treatment of China’s workers and its environment. China has managed to leverage some of the connections between business and state towards useful investment but at great cost to people and planet. Tomorrow’s post will tie together some of the ideas discussed over the last few days.

Good news, bad news for LGBT asylum seekers

Remember Irina Putilova? She was going to be deported to Russia, despite being a lesbian and likely to face severe persecution. Well, she’s not getting deported. At least not yet. So well done to any of you who actually did anything after reading last week’s post.

To maintain balance, of course, our dark lady Theresa May will be instead deporting Prossie N, a lesbian, to Uganda. There’s a petition here to sign, it seemed to do some good last time so please sign and write to your MP.

Click here for an article on “corrective rape” in Uganda. If you want something shorter and therefore slightly less harrowing  please read this account of Prossie N’s life up until now:

Prossie N has fought hard to escape a lifetime of abuse and persecution. An orphan from the age of 8 years old, the only family she had was an uncle who abused and raped her. At 15, she was outed as a lesbian and forced to live on the streets. It was only through a secret relationship with a well-connected married woman that she was finally able to escape to Britain in 2010.

Now, the Border Agency wants to send her back into danger. The department has already tried to force Prossie onto a flight with Ethiopian Airways, but she bravely protested at the gate, and the pilot refused to take her back. Her new deportation date is set for 12 December, back to a country with some of the harshest anti-gay laws in the world, where she has no family and no support network.


Karl Polanyi in Beijing: who are China’s workers?

The labour market in China is in its infancy. It is, in fact, incorrect to speak of a labour market in China at all; there are many disparate situations where we find working people. Although discussion will be on industrial workers it should not be forgotten that there are still more than 200 million peasants working the land in China, however for brevity these must be excluded from discussion. The state began allocating labour in the 1950s and continued until the 1980s when the attempt to commodify labour began. However, the creation of a labour market has not seen the state wither away; instead it has turned its already considerable repressive powers towards the task of creating a Labour market. Polanyi argued that the creation of markets involved a dramatic increase in the coercive power of the state; this is in marked difference to others who emphasise the natural germination of markets, which occur where the state withdraws from the economy as is typical with most economists.

In an examination of China, Polanyi’s account is by far the more convincing than that of conventional economists. Chinese workers have been reshaped into commodities. This has first been done by the central Chinese state through the smashing of the “iron rice bowl” and the stripping of state provided welfare from the employed, and the exclusion of China’s vast migrant workforce from what little support remains. Moreover, enforced redundancy and bankruptcy have created vast reserves of the unemployed, “freeing” them to find their wage on the market. These reforms were met by a series of Labour Laws, intended to mitigate their negative effects. However, the laws concerning minimum wages, factory conditions etc. go largely ignored due to a second movement towards commodification.

Local government has received much devolved power; for example, in fiscal terms, China has perhaps the most devolved government in the world. In return for this power, local government is charged with fostering economic growth, this usually entails the circumvention of these labour laws. Sole responsibility for the bypassing of these laws should not be levelled at the local state. For example, 78% of state-owned enterprise employees and 95 percent of state-owned enterprise retirees were to be covered by the state-run pension scheme. This reform replaced schemes run by individual enterprises but will not be honoured because of the fiscal limitations of the central state.

There are obvious benefits to China’s current configuration, Chinese workers no longer need to contend with the repression Maoist state, and there have been notable relaxations since the Tiananmen Square Massacre. However, this internal confrontation has been replaced by an external one; workers now have to combat the combined legal departments of several transnational corporations. For years they have been engaged in intensive lobbying against the extension of further labour rights in China, Arrogantly declaring that the labour laws in place, already largely unenforced, are enough for China’s workers.

The creation of a labour market has required de jure, and some de facto, ending of lifetime tenure. In 1983 state-owned enterprises were ordered to hire new employees on a contractual basis, this began the drive to convert labour into a commodity, to be bought and sold as a commodity, and abolished the socialist conunitment to full employment. This was consolidated in the mid-1990s with large scale redundancies at SOEs. However, those who still enjoy urban state sector employment remain very immobile; the real effects of market reforms have been felt by the vast and growing rural-urban migrants. The dissolution of the communes led to the creation of a vast migrant labour force, which numbered around 50 million in the late 1980s, and over 150 million now.

This process shares similarities with the making of the English working class: peasants, handicraft workers, artisans and small manufacturers all suffered displacement as their livelihoods were destroyed, whether, through land enclosure or market competition from more productive capitalist fawns and factories. However, in England as the attempt was made to commodify labour in Britain a countervailing measure arose to protect society: Polanyi interpreted legislation concerning public health, factory conditions, social insurance, public utilities, municipal services and trade union rights in Victorian England as countervailing measures to check the societal effects of the unfettered expansion of capital.

This countervailing measure is far from obvious in China. The expansion of the state required to commodify labour is described above. However, the application of the commodity fictions has only been partially implemented. The local state, at times, undermines the institutions designed to embed Labour within a social minimum. Deng aimed to refashion workers as commodities, to be bought and sold. However, the appeal of the Chinese economy was not just cheap labour; there is a wealth of the desperately poor in the world. China succeeded because its labourers were healthy, educated and disciplined. A population more literate, more educated, and with longer life-spans than any country with a comparable GDP, entered the world market in the 1980s. This was achieved with meal Communes and urban Danwei which operated as miniature welfare states, providing cradle to grave security.

The communes have long since been dissolved and so, as SOEs are transformed, most working people have lost access to their social safety net, including pensions, housing, health care and increasingly even primary and secondary education. To illustrate, after three decades of reform, healthcare is in freefall and the World Health Organisation ranks China last in terms of equal access to healthcare. Furthermore, China alone is helping to partially refute the idea that “wealthier is healthier.” The marketisation of its healthcare infrastructure has caused improvements in health to accrue more slowly, and less equitably, than in any comparable state in history — the poorest now go without healthcare altogether. As discussed in my last post, the countermovement against the commodification of land is notable for its weakness and for the damage which has been wrought in its absence; regrettably the same is true, to a lesser degree, of labour. Labour laws exist in China; there are a number of rights which have been introduced, from pension reform to minimum wages. However, the Double Movement is not a matter of formal labour rights. If rights such as those above go unenforced, as they do in China, they cannot be described as constituting a Double Movement.

After examining the conditions of workers in China; both their hardship and their lack of protection offers evidence that might be used to refute the existence of Polanyi’s Double Movement. However, informal institutions of embedding have arisen in order to overcome the abusive application of China’s labour laws. This essay will argue that, as with business in China, rural-urban migrants have developed a complex system of guanxi to insulate themselves from the market. The work of Granovetter describes the limits of spot markets between anonymous individuals to transfer information and build social trust. Moreover, it helps us to understand that legal protection and social security are not the only ways in which the economy can be embedded. Within China, informal systems of embeddedness have come to be incredibly important.

A brief description of the origins of China’s migrant labourers is necessary to place them in the correct context. Revolutionary China used a hukou, or household registration system, to all welfare provision to its population. It also constituted an intrusive method of social control, preventing all but a limited amount of internal migration. Initially registering the population was simply about finding out the numbers involved, but hukou soon became a tool to restrict mobility. The hukou system’s weakening has granted labour the freedom of movement around China, but it also prevents migrant workers from claiming the pensions, schooling, unemployment benefits, etc. enjoyed by those who have an urban hukou. In official Chinese parlance peasant workers in urban jobs are not migrants; as it would denotes a more settled status. They are a “floating population,” without the rights that those who possess urban hukou enjoy. It is this group who make the most extensive use of guanxi as it is they who lack the most basic of protections.

Guanxi is an informal set of ties and obligations whose origin can be traced back to Communist China. In contemporary business relations its importance is well documented (and I will discuss it more tomorrow). Granovetter’s study examined the behaviour of individuals within a developed market, and found that they often substituted embedded social relations for rational economic maximising behaviour. A similar and more intense version is employed to glean useful information from fellow migrants to find work, and protect themselves from unemployment. To illustrate, it is argued that because of the guanxi between current migrant workers and potential migrants as few as just five to ten percent of newcomers to Chinese cities could not find work within a week of arriving. The emphasis placed on guanxi  can help us to understand why it is that China’s rural migrants can survive and remain productive in such a hostile environment.

The demands made by the market can prove utterly disastrous for human beings if their basic needs are not protected. However, the Double Movement is more fundamental than this. Guanxi has helped to explain the survival of Chinese workers in a hostile environment, often devoid of the social protection Polanyi argued was essential; however, this only addresses one aspect of the Double Movement. It is also fundamental in embedding economic relations in a legal system that ensures that the commodity fictions are upheld in a market-society. As explained the Double Movement is not anathema to markets, it is a necessary condition.

Fred Block discusses the embedding of the economy in “law, politics and morality,” the economy insist be embedded within reasonable and lawful practices. Thus, even an approximation of a market system requires embedding within a social minimum. The evasion of Labour standards illustrates the weakness of the Double Movement in China. This view, though controversial in Polanyi’s time, is now firmly embedded in the new institutional economics of people like Douglass NorthDaron Acemoglu and James Robinson.

Non-payment of wages is a major problem in China, sometimes used to discipline workers, it is used to ensure workers do not quit, as if they do they risk losing all right to unpaid wages. It is incredibly widespread, in a survey it was reported to have had affected 72.5 percent of workers. It is cited as a major cause of protest in China; but by using it to discipline workers further protests are being prevented. The non-payment of wages is a method used in China by capitalists to enforce discipline and expropriate capital from their workers. This practice is credited with allowing such a large amount of wealth to be accumulated by such a small group, in such a short amount of time.

At times this is discussed as a shocking denial of human rights, the simple right to be paid what one has agreed as remuneration for one’s labour. It is presented as an example of how brutal capitalist development has been in China. But, the true interpretation of this practice is rather different. Capitalist exploitation under a market system involves the sale of labour as a commodity. The theft of labour is evidently not part of this. This practice illustrates again the weakness of the Double Movement in China; it has failed to provide an adequate legal framework to ensure wages are paid on time, or even at all. Without a Double Movement to embed market structures they don’t exist. You don’t get capitalism you get something even more brutal.

In law the situation concerning labour appears far better than that concerning land. However, in practice both appear to be subject to the damaging infliction of commodity fictions. Giovanni Arrighi suggests that the Chinese state has presided over gradual economic reform and met these with countervailing actions to promote a “synergy between an expanding national market and a new social division of labour.” However, this represents an astonishing, though predictable, misreading of what is occurring in China. With regard to labour the Chinese economy tacks not only the protection necessary to ensure wages are paid on time, but reform has also hollowed out the institutions that made the Chinese economy a success in the first place.

Since I wrote started researching China about half a decade ago a lot has changed. It’s a country that moves at an astonishing rate. Over the past decade, China has rapidly expanded the numbers going to university from from 2.2 million in 2000 to 6.6 million in 2010 students. Job creation hasn’t keep pace and there were 100 job applicants in mid-2013 for every 80 jobs which require a university education in China. The scenario was reversed for jobs which don’t require tertiary education, there were 100 applicants for every 125 slots in China. This has led to a narrowing in wages. Since 2009, professional wages have climbed 12 percent annually. In the same period, average wages in manufacturing, agriculture, and construction have risen 14 percent annually. I’ll chalk this one up as a success for Polanyi’s Double Movement and a sign I was probably too pessimistic 5 years ago.

China has been successful in destroying the old institutions, which allowed it to enter the world economy and out perform all previous expectations. However, they have not been replaced with new institutions to guarantee further success, although some elements are improving. On one level this is evident in the endemic non-payment of of wages, and the callous exploitation of the local state. You can also see the frictions in the mass gathering incidents documented by Jamie.

I would argue there are two seams to the protests now occurring in China. These can be used to locate where people feel threatened by China’s Great Transformation. Some occur because some workers have been left to the mercy of the market, protesting against enforced SOE dissolution, low wages, and a scandalous marketisation of basic services; such as healthcare and education. Others occur precisely because the same set of commodity fictions are not enforced, people are robbed of their labour and land because a market has not been instituted inside reasonable institutions. The same is true in the countryside where Chinese robber-barons have seized huge tracts of land. Both stem from the same source, the weak countermovement in China. If action is not taken to embed the market, then the ecological and human damage that will result will be matched by the collapse of China’s economy. We’ve heard lots about China’s capitalists in passing, but I’ll go into more detail tomorrow.

Karl Polanyi in Beijing: why is there so much smog in Shanghai?

To explain why the smog is so bad in Shanghai you can point to air pressure, christmas, temperature etc. But to really understand, like most things, you have to go back at least half a century. You might think its odd that I begin the meat of these posts with land and nature and not people. But until very recently China was an agricultural country. It makes perfect sense to start with the environment.

So, to kick off, I won’t pretend environmental damage wasn’t widespread in Mao’s China. “Political repression, utopian urgency, dogmatic formalism, and state-sponsored relocations affected and distorted Chinese relationships with nature in the Mao years” as Shapiro wrote in her Mao’s War on Nature. Among the most bizarre attacks was an utterly mad attempt to eradicate sparrows, rats, mosquitoes and flies, from the Chinese countryside. Unfortunately, the environmental degradation produced in the Mao years pales in comparison to the damage which contemporary reforms have fathered.

Mao’s death in 1976 ended the lost decade of the Cultural Revolution, but also created a power vacuum and a period of instability in the Communist Party of China. The elevation of Deng Xiaoping to leader offered a welcome solution to the Chinese people, and he entered office with a mandate for change. The change he proposed was described as “market adjustment” and “adjustment by the plan” at the December 1978 Third Plenum. Reform began in urban areas with an attempt to create an urban labour market by allowing selected managers to hire on a contractual basis. The reforms also included provisions to allow state owned enterprises to raise prices and retain profits. In 1981, amid rising inflation and urban unrest, urban reforms were brought to a halt and focus was switched to rural areas.

Rural reforms began not long after their urban counterparts in September 1980. They initiated a major step in the rural reform process; the commune based agricultural system was to be replaced by the Household Responsibility System (HRS). You don’t understand anything about China unless you understand this. The commodification of land began in the countryside; the HRS divided commune land into individual family farming plots, and tied earnings to the yields produced by each family. They had to make compulsory deliveries to the state but anything above that was free to be sold on the market. Within three years 98 percent of peasant households had been incorporated into this new system. Eager to taste the new life offered to them the Chinese peasants were keen to undertake this transition.

Although the land remained communal property, which was leased out to individual tenant farmers, the HRS amounted to a de facto commodification of land in the countryside. As well as abolishing the old order and implementing the HRS, the Chinese state has also played, and continues to play, a vital role in forcibly commodifying land; dispossessing China’s peasants of their plots . Reflecting on the HRS, The Economist credits the spectacular growth in the Chinese countryside to the free play of market forces. However, what Meisner calls the most “economically successful period in the history of Chinese agriculture” can more accurately be described as the culmination of thirty years of successful state led investment. The rise in productivity being the results of a one-off price increase on compulsory grain deliveries that corrected, previously low, state prices.

Most economists would argue that China suffers because of its ambiguous property system — uncertainty prevents long term planning and investment. However, by equating commodification with free-hold, they ignore that the commodification of land can be done largely on a leasehold basis, as it was in London and New York. Within the Chinese context it is important not to equate the commodification of land merely with status as “private property.” Even as commentators denounce China as Communist in name only, domestically the term private property has still not lost its subversiveness. Therefore, in urban areas, land is often traded in “primary” and “secondary” land-markets, while also remaining state property. This essay will argue, for both land here, and labour in the next chapter, that although unconventional, the commodification which has occurred is subject to the same analysis Polanyi used in The Great Transformation.

The Double Movement does not occur in a vacuum, class interests play an active role in fermenting and directing the countermovement. By mediating the enclosure movement in early-modern England, the monarchy and the Church represented the interests of society and prevented it from massive social upheaval. The countermovement against commodifying land slowed the pace of change and allowed new measures to be developed to deal with the new problems which were part of this new social system. After the experiment of Communal life many peasants were keen to taste the new life offered to them by the HRS. Moreover, the CCP officials who oversaw the dissolution of the Communes, often themselves profited directly from this process. Both of these factors may help to explain the initial weakness of the Double Movement in China. Unfortunately, the enthusiasm of the Chinese peasantry and the CCP for reform, has not prevented a catastrophic destruction of the Chinese environment.

The annihilation of the Chinese countryside is not a certainty; there are some embryonic examples of a countermovement. The Western Development Programme was an attempt to demonstrate the government’s commitment to national unity. It is not a simple or straightforward programme with a discernible single aim. Rather than just attempting to eliminate inequality, most of the programme aims at incorporating the underdeveloped Western China into an enlarged home market. However, this would ignore the element aimed at protecting the environment, the “Grain for Green” programme. In essence it asks farmers to refrain from using the land for profit, and instead to return it to natural forests and grasslands. This serves to protect the natural environment from over-exploitation and callous destruction.

However, projects such as the WDP do not alter the fact that the success of Chinese agriculture is threatened by the market. The institutions which had maintained the major works that allowed China to equitably feed the largest nation on Earth, have been dismantled in an effort to commoditise land. This has not been met by new coping mechanisms or new social projects. Polanyi argues that economies which are embedded will be more successful than those which are not. The HRS was the cause of a cumulatively huge one-off increase in the living standards of millions, but was followed by stagnation in living standard and declining grain yields. Grain yields declined because, precipitated by Deng’s call to diversify, many farmers turned to small-scale private business instead of farming. Moreover, most damaging for individual wealth of those Chinese tied to the land the HRS has put a halt to much mechanisation of Chinese agriculture – a centuries long Chinese ambition.

In 1997, it was suggested that China could take advantage of its backwardness, evade chemical pesticides and fertilisers, refuse to make extensive use of automobiles etc. and bypass the most destructive elements of development. One look at Shanghai shows you that this advice was not heeded and the Chinese people and natural environment have paid the price. The market as instituted in China is incapable of delivering the environmentally balanced development essential in China. Polanyi argued that only by mediating the change and embedding the economy, did the enclosure of England not result in social calamity.

The literature on the environmental damage of modern China abounds, but to be succinct we can restrict our discussion to idea of a “Green GDP” which has been considered by the CCP. A simple idea, the “Green GDP” subtracts the economic cost of environmental degradation, from the increase in a traditional calculation of GDP, more net domestic product than gross. Despite the fact that it “used low estimates of environmental damage to health and did not assess the impact on China’s ecology” the new growth calculations were so meagre that they were politically unusable. The CCP could not maintain its economic credibility with such poor growth figures. The commodification of land has caused huge damage; Vaclav Smil estimated that one seventh of China’s potential GDP in the late 90s was sucked up by environmental abuse. Despite, and perhaps because of, this widespread destruction, there have been some recent movements towards a rebalancing countermovement; such as the WDP described above.

I’ve tried to outline and analyse the problems that have confronted the commodification of the Chinese countryside. In light of; the “Green GDP,” the decline of public works, and the stagnation in peasant living standards since the mid 1980s, the foresight of Polanyi’s argument become clear. An embedded economy will be more efficient than a disembedded market. China is experiencing a continent-wide expropriation of social property, but without being coupled with a concerted effort to maintain the standard of the natural environment essential for the well-being of the Chinese people.

The market is systemically unable to deliver economic growth without doing environmental damage. It is possible to price these externalities, but just because it is possible does not mean it is happening. Pricing externalities requires complex institutional design and a class of people to make the case. The people most badly affected by the damage done to the environment are too weak politically to respond. That a pigou tax is possible but not in place strengthens Polanyi’s position that an economy works better when embedded. Wednesday’s post looks at labour and tells a similarly ugly story.