Studies of the comparative-advantage theory by Chinese scholars are often defective, because they rarely pay attention to the serious asymmetry between the institutional cost and benefit that is a product of economic growth under Developmentalism. When the governmental officials are formulating policies, they neglect the fact that it is the general population that takes the burden of institutional cost of state industrialization.

For example, the Great Leap Forward industrialization led by local governments in 1958 resulted in economic and political costs much greater and broader in scale than did the central government who accepted investments from the Soviet Union. Nevertheless, no matter how great the cost was, basically that cost was not paid by the government that enjoyed the institutional benefit of industrialization, but was shifted downward to rural areas through the urban-rural dual structure.

One of the authors of this paper has been arguing since the 1980s that different ways of primitive accumulation of capital could lead to different institutions, which will generate different forms of institutional cost and benefit and determine the subsequent path dependence of institutional change in any name of “reform.”12

Accordingly, China’s reform after the 1980s, despite the visage of change in superstructure and ideology, is essentially a consequence of government corporatism that was nurtured during primitive accumulation of capital for state industrialization. Facing waves of fiscal crisis mainly caused by 1970s’ more than 12 billion dollars of investments from the West as soon as China regained diplomatic relations with the

West before the 1980s’ reform, the state retreated from inefficient economic sectors and managed to transfer its institutional cost to society.13

In the late 1970s, under pressure of foreign debts and huge deficiency, the first sector from which the government withdrew was the sector of debt-stricken agriculture that had almost no more surplus value to extract. What emerged afterward was a rural economic base that, in substance, was traditional small-peasant economy plus rural self-governance. In fact, it was the peasants who spontaneously returned to the tradition. Nevertheless, after the superstructure changed from the People’s Commune to local governments that had revenue power, the imposed superstructure could not adapt itself to the economic base of traditional dispersed peasant economy. The fundamental contradiction manifested itself as increasingly complicated conflicts between the government officials and the peasants. After the peasants regained autonomy of land use and labor power, rural industrialization and urbanization were complete. Subsequently, the fundamental institutional contradictions, namely, the binary opposition of villages and industrialized cities as well as rural-urban disparities, became increasingly serious.

The government’s dissolution of the People’s Communes and its withdrawal from the agricultural sector resulted in enormous transactional cost involving 900 million highly dispersed peasants. This institutional cost could only be taken up by agricultural sectors such as rural circulation and agriculture finance. As a result, in the 1980s, these sectors were seriously debt stricken. The government then took its second retreat from those agricultural sectors. Consequently, agricultural sectors such as rural circulation (supplying-purchasing cooperatives) and FCCs (Farmers’ Credit Cooperatives) attempted privatization and marketization. Ultimately, institutional cost in the form of high transactional cost between peasants and market was taken up by so-called San Nong Wen Ti translated into “three dimensional agrarian issues” (peasants’ rights, village sustainability, and agriculture safety).14

After the reform of state-owned enterprises in the mid-1990s, the government still monopolizes finance, insurance, and large-scale state-owned economy that are capable of gaining profits through direct capitalization of resources. These are sectors the government refuses to retreat because of high profits. Therefore, we argue that capital—no matter state-owned, private, or foreign—is the same in essence as long as it is controlled by the state.15

Nevertheless, if we agree with Marx’s historical perspective that human society has evolved into capitalist civilization and the dialectic perspective that the main contradiction of capitalist economy remains to be capital itself, then from the point of view of enormous pressure and challenge in global competition dominated by international financial capital, China as a developing country must follow the leap from the phase of industrial capital to financial capital and keep its edge in global capital competition. As criticisms both from domestic and Western sources say, China’s economic system is state monopolized and has undergone processes of self-monetization and self-capitalization. The system’s rapidly expanding money credit is supported by the state political credit that is underpinned by an authoritarian regime intrinsic to a strong sovereignty.

Despite criticisms, the current system could not be easily judged as just or unjust when compared with lessons of the former Soviet Union and eastern European countries. In the latter cases, along with political liberalization came the collapse of national financial systems. In great opportunities offered by the reckless completely open policy, massive national assets created by millions of people in several decades were instantly “capitalized,” with Western financial agencies flooding in with enormous surplus liquidity due to the financial bubble.16

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