Wednesday, 6 January 2016

Latin American left needs to study China’s ‘revolution in production’

By John Ross

The following article appeared in Spanish in Ecuador’s El Telegrafo on 19 December.

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In the later part of the 20th century Latin America suffered an economic catastrophe from neo-liberal policies. Until 1993 average per capita GDP in developing Latin American economies remained below 1981 levels. By 1998 annual average per capita GDP growth was still only 0.9% – taking a five-year average to remove cyclical fluctuations.

Only after Chavez was elected Venezuela’s President in 1998, followed by other left wing Latin American leaders, did economic growth seriously accelerate. By 2007 annual average per capita GDP growth in Latin America reached 2.8%, again taking a five-year average, with faster growth in key countries – Ecuador 3.4%, Venezuela 5.7%, Argentina 7.7%. After 2007 economic growth slowed due to the international financial crisis but remained positive across Latin America as a whole – unlike the decline under neo-liberalism.

It is therefore threatening economically that right wing forces won Argentina’s recent presidential election, Venezuela’s legislative elections, and are attempting to impeach Brazil’s President. Although forces supporting these shifts present themselves as ‘centrist’ for political propaganda purposes this is merely disguise. Their economic programmes represent a shift back towards neo-liberalism. As these policies produced economic disaster not only in Latin America but elsewhere it is serious that such forces have reacquired support in Latin America.

The present author is based in China but follows events in Latin America closely and has travelled there including twice for conferences with President Chavez personally. It may therefore be useful to have observations from this experience comparing China and Latin America.

The truly great historic achievement of Latin America’s left governments was their ‘revolution in distribution.’ During previous periods of rapid Latin American growth the financial benefits went overwhelmingly to better off layers of the population while a large part went abroad. The left wing Latin American governments ensured that this time the benefits from Latin America’s growth went to the majority of its population.

But in comparison to China, the difference was that despite this huge achievement, some of these governments did not successfully make a ‘revolution in production.’ For nearly four decades China’s economy grew at over 8%, taking it from one of the world’s poorest countries to the threshold of a ‘high income economy’ by international criteria. This was the largest ‘revolution in production’ in human history.

Contrary to US myths China’s growth did not benefit chiefly the rich but ordinary people. China lifted more than 728 million people, greater than Latin America’s entire population, from World Bank defined poverty.

The key to the ‘China model’ is clear. China has both a private and a state sector but it is not a ‘mixed economy’ in a Western sense. In such Western economies the private sector is dominant, in China’s official formulation there is ‘the dominant position of public ownership.’ This can be also be expressed in Keynes’s words: ‘the duty of ordering the current volume of investment cannot safely be left in private hands,‘ it is necessary to aim at ‘a socially controlled rate of investment,‘ and this requires ‘a somewhat comprehensive socialisation of investment.’

The ‘China model’ did not eliminate the private sector but made state investment the economy’s driving force - with the private sector benefitting from the resulting growth. Latin American governments such as Ecuador have begun to move towards this. But those economies which achieved a ‘revolution in distribution’ without a ‘revolution in production’ faced difficulties deal with the new problems in the global economy – facilitating the right’s comeback.

For economic success study of China’s ‘revolution in production’ therefore needs to supplement the ‘revolution in distribution’ of which the Latin American left is so justly proud.

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