Abstract
This is the second of a three-part polemic against the destruction of state owned enterprises in China (the first, “Against Privatization: A Historical and Empirical Argument”, is published in JCPS 13:1, 2008). It critically examines the ideology of privatization and argues for alternative guidelines of reform. The central contention is that a healthy market economy does not require domination of private property; rather it relies on apposite political-legal-ideological power and regulatory-monitoring regimes of accumulation and distribution socially legitimated within a given public culture. Rejecting the fallacies of ownership determinism and precision requirement on property rights for morality and efficiency, this essay clarifies distinction between the notion of exclusive properties and the vision of their socialized utility and management. Justifications for reforming state and private sectors alike in accordance with a unifying commons of social defense and feasibilities of innovative reform measures and policy proposals in that direction, will be elaborated in a third essay titled “Overcoming Privatization: A Strategic and Institutional Argument”.
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Notes
The monetary tools, for example, are vitally important as manifested in China’s dilemma of holding huge foreign reserves in dollars involving such mortgage giants like Fannie Mae and Freddie Mac while facing steep currency depreciation and a severe subprime crisis in the US.
Typically, a star economist calls for completing privatization which he claims would be the only way for China’s wealth structure and growth pattern to be improved, due to state investment’s heavy industry bias against consumption [2].
According to Ronald Coase, [3]“the rights which individuals possess”, are “with their duties and privileges” anyway (“The Institutional Structure of Production”, American Economic Review 82:4, 1992, p.718). A more extreme case is found in Tokugawa Japan, where “an individual did not own the estate, the estate owned him”, when the landed property and wealth of a farming family were conceived to belong to its ancestors [4]. For a case of nonwestern conceptions about divisibility and indivisibility of resources or rights, the owner and the owned, and subjects and objects, see Marilyn Strathern [5].
Hann, Property Relations, p.9.
In thirteenth century England, for example, the control of wealth was already deemed more important than its mere possession. See G.C. Homans [11].
As Marx points out, the “actually functioning capitalist” is transformed into “a mere manager, administrator of other people’s capital” (as opposed to “a mere money-capitalist”) who is paid a wage “of a specific type of skilled labor, whose price is regulated in the labor market like that of any other labor” (Capital, vol.3, p.436). Note however new complexities here require further research. I owe the following example to Rosa Cao: internet start-ups as the most avant-garde representation of the new economy seem to pose a challenge with their venture capitalist backers and workers paid entirely in stock options.
Hann, Property Relations, p.45.
A great innovation in the modern corporation is ownership without liability. This allows shares to be sold on an open market and limited the shareholder’s liability only to the price s/he pays for the shares. This makes it possible for common people to become investors. In this sense, Marx explains that stock capital possesses the character of social property in its social shares and functions as distinct from private capital and undertakings. And “the antithesis between capital and labor is overcome... if at first only by way of making the associated laborers into their own capitalist, i.e. by enabling them to use the means of production for the employment of their own labor”. However, if dispersed share holding can be seen as a sublate of the capitalist mode of production from within, it still does not resolve the ultimate opposition between social and private wealth when the system also produces a financial parasitic class from the monopoly and speculative movements of capital (Marx, Capital, vol.3, pp. 437–440, 540).
Cf. Hann on both liberal and Marxist paradigms which “elevate a property doctrine into a fundamental principle of social organization” (Property Relations, p.45).
Cf. e.g. Lin Zili [16].
There is also a technical argument: the theory of closed ownership contradicts itself in explaining efficiency. For it cannot resolve the trade-off between incentives of the division of labor and incentives of the scale of coordination. On the one hand, it treats the effort to lower transaction cost as the driving force for setting up firms, hence the larger the firms the higher levels of their efficiency. But on the other hand, it also assumes that the transaction cost of private property is lower than that of public property, thus small private enterprises would have little rational mechanism to develop themselves into big, open ones. Transaction costs in corporate governance tend to be high due to conflicting departmental interests and a free ride problem when bargaining involves large and multiple parties. As such the theory is incoherent and fails to explain reality. Cf. Chen Ping [17].
The ownership of slaves as private properties was only one feature of Roman law, which on the other hand did not promote large landed properties but rather permitted small holders to farm and transmit land within their communities according to custom (Hann, Property Relations, p.12). As one summary has it, Roman law is designed to protect the power and property of the state against the citizens, while English common law is the reverse (quoted in Macfarlane [4] p.114).
Cf. Macfarlane [4].
I appreciate Rosa Cao’s caution against confusion here. The clarification is hers.
Quoted in Chang [23] p.15.
According to Chen Zhiwu, without a system of private property, nothing can be used to develop and protect these values and rights. See [25].
Gareth Stedman Jones [26].
See, for example, Emma Rothschild’s [27]. According to William Rowe, few, if any, of the Qing thinkers advocating modern market-based development “rejected the Confucian ideal of social harmony in favor of a view of unfettered struggle in the market place... and a blanket policy of laissez-faire” [28]. Commenting on Rowe, Giovanni Arrighi views that “although Smith was not Confucian,... the idea of jeopardizing social peace and national security through a blanket policy of laissez-faire was as alien to him as it was” to the Chinese [29].
“The policy that still restricts private ownership of the means of production, including land, may also have limited the spread of social exclusion” in China (Hann, Property Relations, pp.20–21).
Cf. for example, comparative case studies from Africa, Asia, Eastern Europe, Oceania and native America presented in Hann, ed. Property Relations. For M.J. Herskovits [31].
Grey [9] p.79.
Hann, Property Relations, pp.7, 45–6.
And once the market is “disembedded” from its social setting and cultural constraints, typified in the commodification of people and land, self-protection of society arises in what he depicts as “double movement”.
Arrighi considers this translatable to the conditions of multiple sovereignties today if hegemonic states play governmental functions at the global level ([29] p.166).
This interpretation fits Smith’s definition of the contrasting interests of “the three great, original and constituent orders of every civilized society”, i.e. those who live by rent, those who live by wages, and those who live by profits. The last order, or “the interests of profit earners... may clash with the general social interest, because they always involve a widening of the market and a narrowing of the competition” (cf. Arrighi [29] pp.47–9).
Cf. Peter Evans [34].
For Workers’ resistance against privatization and call for democracy through workers assemblies, cf. Stephen Philion’s interviews with SOE workers and protest leaders in [35].
The controversial property law had been submitted to rounds of professional consultation in its provisional versions before the 2007 convention of the National People’s Congress (NPC) and the People’s Political Consultative Conference. During this process complaints mounted over the concern that such a law would shield corrupt officials who enriched themselves by stealing state assets during restructuring. Hundreds signed petitions to the NPC to call for the upholding of the domination of public property (http://www.maoflag.net/forum_shownote.asp?board, February 10, 2006) and a halt of privatization (e.g. a September 2007 letter to the party central committee signed by 170 retired party officials and scholars). While stating equal protection of state and private properties, the law does have a clause which specifies that managers responsible for frittering away assets in state firms should be punished (http://english.people.com.cn, August 24, 2006). Professor Zhang Hongliang asserts that “China’s bad luck lies in a comprador elite group that sells national interests. More than ideological ambiguity, at stake is the nature of ‘private property’ of which a very considerable portion was taken from public wealth lost in a hasty, often unwarranted and fraudulent privatization processes” (“A Property Law (draft) that Violates the Constitution and Basic principles of Socialism,” Links: International Journal of Socialist Renewal” (http://links.org.au/node/221). Cf. Eva Cheng [36].
Cf. Cui Zhiyuan [37].
The Aristotlean notion of humans as social and political animals engaging each other in moral relations of mutual recognition and self-government might be taken as an important addition to the Lockean concept of labor as a natural good and duty. Republicanism and liberalism in this case are mutually enhancing.
For a recent, eloquent account see Janet Coleman [41].
Quoted in Walter Shewring [42].
It is elaborated in the Chinese concept of “datong” or great harmony. Sun Zhongshan , the father of republican China, identified his Principle of People’s Livelihood with “socialism, which is also called communism or datongism” [43]. Datong refers to an equal and crimeless society initially described in the classical Book of Rites: “When the great dao develops, all will be for the public: the best people are selected to govern; peace and trust prevail... The old will be cared for, the healthy well used, the young nurtured, and the lone and the disabled looked after. Men have their shares and women homes...”. In 1902, Kang Youwei, a defeated leader of Qing reformers, called for the elimination of class, state and family in a world of great harmony in The Book of Datong [44].
Hann, Property Relations, p.8.
Coleman [41] pp.138–9. In the Marxist tradition labor is prized further, through which the laborer as the knowing subject transforms nature and him/herself in the given social and class relations. Work, in the “realm of freedom”, is “life’s prime want”.
Locke, Second Treaties, paragraphs 6 and 27.
Cf. Coleman [41] pp.133, 136–7, 139–41.
“Human Rights as Property Rights,” Dissent, Winter 1977.
Collected Works of Marx and Engels (Beijing: People’s Publishing House, 1958–85, vol.26, p.466; vol.17, p.62; vol.23, p.832; vol.48, p.21. Marx’s view on individual ownership was later complicated by his attacks on the “petty bourgeois socialism” of the French and Germen variants. The French anarchist socialist Proudhon famously denounced property in the slogan “property is theft” in What is Property? Or, an Inquiry into the Principle of Right and of Government first published in 1840. He promoted workers’ coops and ownership of individual labourer as the form of socialization of land and workplaces.
[45]. Cf. Elinor Ostrom, “Private and Common Property Rights” (Encyclopaedia of Law and Economics, http://world.std.com/∼mhuben/piv.html/), pp.335, 339.
“Can Privatization Solve the Problems of Soft Budget Constraints?” in Vedat Milor [46].
Methodologically speaking, the sins of mismanagement attributed to public property are not even technically coherent: How can the supposed individual rationality of seeking personal gains and the collective rationality of Pareto optimality be reconciled? For example, “the condition of individual rationality can be disposed of” due to the problem of withholding which is present for any allocation mechanism in the class of Pareto-optimal mechanisms [48].
Cf. Chang [23] pp.14–15.
Cf. Ian Angus [24]. The logical and factual errors make the myth a “pseudo-science”.
This position is summarized in “The Institutional Structure of Production”, p.718.
Coase, “The Institutional Structure of Production”, pp.718–19. In “The Problem of Social Cost” (Journal of Law and Economics 3, 1966), he explains that actions by legal property rights rather than physical entities are what are traded on the market, and that such an open market is a vehicle of bringing resources to their socially sought efficacy when bargaining corrects externalities. Cf. also, The Firm, the Market, and the Law (Chicago: University of Chicago Press, 1988). For a critical evaluation, cf. Andrew Halpin [52].
This was why state property of an entire people was considered a higher form of public property than collective properties in conventional state socialist theory—state was the most powerful actor to be expected to integrate different interests and sectors.
Arrighi [29] p.359.
Note especially James Meade’s point about the economic necessity of state capital income and rent—without which tax burdens would be too heavy, creeping up debts and dampening down incentives. Excessive borrowing in turn would press for raising interest rate which impairs productively optimal investment. Cf. Lin Chun [54].
The nineteenth century American political economist Henry George’s idea about socialized land in the forms of land value tax and rent was taken up by Sun zhongshan and others in China. Hong Kong is a good example of putting the idea in practice. Inherited from a decision made by the British crown in the colonial era, land in Hong Kong still cannot be sold freehold. The rent and income from marketing the use right of land have been effectively allocated to finance public projects. This factor also significantly explains the territory’s celebrated prosperity with low level taxation and its speedy recovery from the 1997 Asian financial crisis.
Cf. Cui Zhiyuan [56]
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Chun, L. Challenging Privatization: A Conceptual and Theoretical Argument. J OF CHIN POLIT SCI 14, 21–48 (2009). https://doi.org/10.1007/s11366-008-9035-5
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DOI: https://doi.org/10.1007/s11366-008-9035-5