WHAT IS SOCIALIST TRANSITION?

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I. RETHINKING SOCIALISM: WHAT IS SOCIALIST TRANSITION?

Socialist transition is the period of time that transforms a non-communist society to a communist society. During the socialist transition there is no certain predetermined path by which policies and events can be judged to determine whether this path is being followed. Instead, the analysis of socialist transition depends on the general direction of the transition. Therefore, one single and isolated event cannot determine whethe the transition is socialist or capitalist. We have no predetermined path in mind and, thus, have no specific yard sticks to measure our evaluation. As Lenin said, "We do not claim that Marx or the Marxists know the road to socialism in all its completeness. That is nonsense. We know the direction of this road, we know what class forces lead along it, but concretely and practically it will be learned from the experiences of the millions who take up the task"[1]

There are, however, some general and broad guidelines on the direction of transition toward communism. Most generally accept that socialism (or what Marx called the elementary stage of communism) is a stage of development when the direct producers gain control of the means of production and distribution is made "to each according to his work." Under capitalism, capitalists own the means of production, and direct producers have no control. Since the purpose of production under capitalism is value valorization, capitalists must relentlessly extract as much surplus value as possible from the workers. The purpose of production under socialism, on the other hand, is to produce products of use value to meet the needs of the people. Thus, socialism represents a fundamental change in the captalist relations of production: it is the antithesis of capitalism. These general guidelines give the direction which is a developmental process of transforming the relations of production from commodity production to non-commodity production. Correspondingly, there have to be fundamental changes in the political, social, and cultural aspects of the society. The socialist transition is by no means a smooth one; it is marked by many twists and turns. Expected setbacks and retreats occur. However, the general direction is always clear. Due to certain circumstances retreats are sometimes necessary before advances. In such cases, the reasons behind the retreats should be clearly explained.

1. Re-examine the Concepts of State Ownership and Economic Planning

A. State Ownership of the Means of Production Does Not Equate With Socialist Relations of Production

In countries which attempted to establish socialism, as a rule the state first took the step to nationalize industries. Therefore, legal transfer of means of production to the state has often been taken as the beginning of socialism. In other words, conventional analysis often equates state ownership of the means of production to socialism. We disagree with such an analysis, because when the legal transfer occurred, there was no way to judge the nature of the transition: socialist or capitalist. Thus. we do not regard legal transfer of the means of production to the state as the point of departure on the embankment of socialism. Judicial change in ownershlp was only a point of reference; it was merely an index that marked the historical development until that time. Judicial change in ownership provided the possibility for future changes. Whether the transition was socialist or capitalist depended on the concrete events after the legal transfers.

We first need to clarify the meaning of state ownership. State ownership exists both in a capitalist system and in the transition period toward

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communism. State ownership simply means that the state has effective control over the means of production. During the transition state ownership does not in any way imply a change in the relations of production. Under capitalism, the state apparatus may take effective control over the means of production of some enterprises and made them state owned. There are many reasons for the state to take ownership of the means of production of some enterprises in a capitalist country. The most important one probably is that state ownership makes it possible for the state to steer, in a limited way, the direction of development and thus serves to complement and to enhance the accumulation of capital in both the state sector and the private sector. For example, the state may own large enterprises in utilities, transportation, communication, banking, etc. Another reason for state ownership under capitalism in the Third World countries is to defend certain enterprises against foreign takeover. When a Third World country tries to develop its economy independently and its domestic private capital is very weak, state ownership is often the only way to fend off foreign capital.

For our analysis of the transition period between capitalism and communism, making the distinction between the legal transfer of ownership of the means of production to the state and the beginning of socialist transition is very important to clarify the question of revisionism. In many countries, China included, the Communist Party claimed and continues to claim that it practiced (s) socialism because the majority of their industries were (are) still state owned, when in fact the transition was already reversed from socialist to capitalist. At the current time, the Chinese Communist Party uses state ownership as an indicator of practicing socialism in order to legitimize its rule. As we explained earlier, state ownership exists in both capitalist system and during the period of transition, thus state ownership does not in any way indicate or express the relations of production.

Marx distinguished judicial change from real change in the relations of production. Marx criticized M. Proudhon, because Proudhon considered the legal aspect, not the real form, as the relations of production.[2] For the same reason, we differ from the traditional Chinese use of the term. After the Communist Party overthrew the Nationalists and established the peoples' government in 1949, the new government confiscated all bureaucratic capital and foreign capital. It nationalized all major assets in transportation, communication, and manufacturing. Then, in 1952 it completed the land reform. After 1952, the government took several steps to nationalize the remaining private capital and it also took several steps in the cooperative movements in agriculture. By 1956, it completed both the nationalization of industry and the collectivization of agriculture. The government legally transferred the ownership of the means of production to the state and to the collectives. China called (and still calls) the period between 1952 to 1956 the transition to socialism, and the period since 1956 socialism. According to our analysis, during the period of 1949-1978 the state instituted policies that clearly indicated the direction of transition was toward communism, therefore, the transition was socialist. On the other hand, the policies of Deng's reform since 1979 has clearly indicated that the direction has been reversed toward capitalism, therefore, the transition since 1979 is capitalist.

The analysis above should not be mistaken to mean that state ownership of the means of production is not necessary during the socialist transition and thus justifies the masslve privatization that has been carried out in China under Deng's reform. We will explain this point further in our analysis below, we will also explain the difference, between legal ownership and economic ownership.

B. State Participation in Planning Does Not Mean a Socialist Economy

Planning versus market is another measurement used by conventional analysis to distinguish capitalist transition and socialist transition. This kind of analysis often equates planning with socialism and market with capitalism. Like state ownership, the state in the capitalist system also uses planning as an instrument to steer the direction of the economy. In many capitalist countries, the state participates in planning which can take place with or without the legal transfer of ownership to the state. Although it varies among capitalist countries, the state apparatus in capitalist countries has played an important role in both direct production (through ownership) and planning. The issue of the extent of state participation in these activities has been debated among the bour-

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geois economists (in the US between the conservatives and the liberals) in capitalist countries for many decades. The basic contradiction of capitalism is the socialization of production and the private ownership of the means of production. As long as the capitalist system exists, this intrinsic contradiction will manifest itself through periodic and deepening crises. Since the Great-Depression, the state in capitalist countries has attempted to deal with problems resulting from this basic contradiction. The state has used the power vested in them to regulate the business cycles through tke Keynesian fiscal and monetary policies. To deal with the problem of economic fluctuation and long term stagnation, the state has also actively participated in building the public infrastructure and managing the labor power (the employment, education and training programs; and the unemployment and welfare programs). Through credit policies (low interest and guaranteed loans), the US Federal government helps the expansion of the housing industry. The military build-up boosts the defense industry. The state also helps regulate the financial markets in order to facilitate the link between financial capital and production capital. In the circulation sphere, the state regulates and promotes domestic and international trade. To enhance the competitiveness of US business in the international market, the US government provides export subsidies and export credits to corporations. Local governments also joined in by offering corporations "the most favorable investment environment" which includes providing the corporations with building sites, roads, power, and tax concessions. The purpose of state engagement in all of these activities is to facilitate the accumulation of capital, yet the expenses involved are paid by the taxpayers, the majority of whom are workers.

In other advanced capitalist countries, state participation in planning is even more extensive. In Japan, for instance, the state has both short term and long-term plans for the economy which give indications of target rates of growth, energy use, the need for labor power, etc. In developing countries, state planning also plays an important role. In Taiwan, for example, the state has actively promoted an export-led growth economy. It projects the need for future public infrastructure to facilitate the transportation of goods for export. The state also has been directly involved in the planning of energy use, the production of raw materials for export manufacturing (steel and plastic, etc.). Therefore, it is a myth that in the capitalist countries there is a "free enterprise system" which solely relies on the market mechanism to function. Planning is not the opposite of market, the two compliment each other in a capitalist system.

State intervention through ownership or planning, can not, however, change the fundamental nature of capitalism. Many liberal economists in capitalist countries have the wishful thinking that the state can play a major role in altering the purpose of production from capital accumulation to meeting the needs of the people. They fail to realize that capital accumulation is fundamental to the capitalist system; it can not be altered at will. Instead, the state plays an important role in facilitating the accumulation of capital. At most, the state could influence, to a very limited extent, the appropriation of products between capital and labor in order to maintain the stability of the society, and this was done only when labor was able to exert pressure.

To conclude, old concepts such as state ownership of means of production and state economic planning do not help us in any way to clarify the issue of what socialism is, instead, they further confuse us. It is, therefore, necessary for us to seek new concepts for our analysis.

2. The Direction of the Transition and the Question of Revisionism

We believe the question of revisionism should be determined by the direction of transition, instead of whether the state still owns the means of production or still practices state planning. Capitalist transition, i.e. revisionism, begins when the state machine reverses the direction of transition from socialism/communism to capitalism. This does not mean that, at this point, the revisionists are able to complete transforming the relations of production from socialist to capitalist. The transformation itself takes time, as we have witnessed in the former Soviet Union, in Eastern European countries and in China. In addition, we can not judge the direction of transition by examining one single policy or one isolated event. Instead, policies have to be evaluated in totality. We introduce some new concepts -- capitalist project and socialist project -- as tools for our analysis.

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The goal of capitalist projects is toward capitalism. Capital projects are concrete ways to establish, to maintain, or to expand the capitalist relations of production, and to establish, to maintain, or to reinforce the dominating and dominated relation between the owners of the means of production and the direct producers. The purpose of production in capitalist projects is value valorization. If the state is able to continue implementing capitalist projects in a consistent way during the transition, it will eventually remove the direct producers from having any control over the means of production or the product of their labor. By expanding the capitalist projects, the state (or private capital) is in a position to speed up its capital accumulation by extracting more and more surplus value from workers. The distribution of capitalist project is based on the size of capital (constant and variable), not on the amount of work contributed.

Diametrically opposed to the capitalist projects are socialist projects, whose direction is toward communism, when the direct producers will have control over the means of production and the product of their labor. Under socialist projects, the distribution will be, at first, according to the amount of labor contributed with serious consideration given to meeting the basic needs of people. Later, when productive forces are fully developed, distribution will then be made according to need. Socialist projects are projects designed to enhance the long-term class interest of the proletariat and they are not the same as the so called social welfare programs in the advanced capitalist countries. Socialist projects are economic policies (programs) derived from political decisions; this is the meaning of what Mao said about "politics in command." Socialist projects are designed to restrain, contain, and interrupt the accumulation of state and/or private capital.

We need to emphasize here that a socialist project is not simply an economic program, it includes social, political. and ideological aspects. In fact, all these aspects can not be separated from one another. The same is true for a capitalist project. Moreover, the socialist project is not some thing with certain fixed and unchanged features, rather, the socialist project itself has to go through fundamental changes during the transition toward socialism/communism. We will use concrete examples to elaborate this point later.

During the transition, both socialist projects and capitalist projects are necessary, therefore, we can not judge the direction of the transition by one single policy or one isolated event. Instead, we need to look at the overall development to determine the direction of the transition. In the following analysis of China's transition, we will use concrete examples to show why it was necessary for capitalist projects and socialist project to coexist during the socialist transition, and at the same time socialist projects competed with and replaced capitalist projects to move the society forward. In addition, we use concrete examples to show how it was possible for the revisionists to reverse the direction of transition by implementing a set of well coordinated capitalist projects.

II. CHINA'S CONCRETE EXPERIENCES DURING THE SOCIALIST TRANSITION

As we explained earlier, there are some general and broad guidelines on the direction of transition toward communism. During what Marx calls the elementary stage of communism the development reaches a stage when the direct producers gain control of the means of production and distribution is made "to each according to his work." With the general guideline in mind, we can learn a lot from China's experiences by studying the concrete historical events of the past forty-some years. Viewing from its entirety, analysis of concrete historical events and policies in China during the period between 1949 and 1978 clearly indicated that the direction of the transition was toward communism. Therefore, it was a peiod of socialist transition. Deng's reform in 1979 abruptly ended the socialist transition and reversed the direction toward capitalism. Concrete policies under Deng's reform in the past 16 years clearly indicated their direction has been toward capitalism. Thus, the period from 1979 up to now is capitalist transition.

In our analysis we will present concrete examples to demonstrate why the transtion between 1949 and 1978 was socialist and how the direction of the transition was reversed by Deng's reform since 1979. Policies of different periods are exam-

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ined to see whether these policies were to institute capitalist projects or to institute socialist projects.

1. The Implementation of Socialist and/or Capitalist Projects

A. >From Land Reform to People's Commune in the Collective Sector [3]

During the period of transition toward socialsm, both socialist projects and capitalist projects coexist. For example, during the socialist transition in China (1949-1978), land reform, viewed by itself, was a capitalist project. However, land reform was a necessary part of the long-term socialist strategy. Between 1949 and 1952, land reform was completed in the newly liberated areas in China's countryside. For the first time in their lives, hundreds of millions of peasants owned a plot of land, averaging only 0.2 hectares per capita. They cultivated their land with great enthusiasm. The output of grain and cotton both went up rapidly during the three-year period between 1949 and 1952. However, by 1953 and 1954, grain production became stagnant and cotton production actually decreased sharply in both years.[4]

After one hundred years of destruction from wars and even more years of total neglect by landlords, China's natural environment for agriculture was very fragile, and her extremely scarce arable land was infertile. Aside from owning very small plots of barren land, the majority of peasants owned very few productive tools. Among the poor and lower middle peasant households, which were 60 percent 70 percent of China's peasantry, many did not even own a plough, let alone other farm tools or draft animals. Without farm tools, enthusiasm alone could no longer continue to increase production. Moreover, in 1953 and 1954, floods and drought affected large areas of farmland. Individual peasants who stood on their own were defenseless against such natural disasters. Also, any personal mishaps, such as illness or the death of a family member, would force a peasant family into debt. When debt began to mount through usury, many peasants were forced to sell their land. Before the cooperative movement began, activities in land sale and private borrowing had started to rise, as had the number of peasants who had hired themselves out as farm hands.[5] Had there not been the cooperative movement, the tendency would have been to further polarize and to recon centrate land owner~hip.

Around 1954, when peasants organized themselves into mutual aid teams, they were trying to find a way out of their difficult situation. In mutual aid teams, members shared their productive instruments (draft animals, hoes, carts, etc.) and their labor power with one another to increase production. They exchanged human labor power with the use of draft animals. Then, in 1955, the peasants went one step further and organized the elementary co-ops. In the elementary co-ops, members who owned productive instruments loaned them to the co-op and received a share of the output in return. Both mutual aid teams and elementary co-ops were also capitalist projects. However, both were necessary steps toward the organization of advanced co-ops and people's communes, thus it was part of the overall socialist strategy. The advanced co-ops were organized in 1958 together with the Great Leap Forward movement. At the advanced co-op level peasants who had owned their productive instruments sold them to the co-ops. The distribution at this level was made only according to labor contributed; members no longer received a share of output according to the amount of capital (dead labor) they had owned. Before distribution, taxes were first paid and then a portion of gross income was put aside in the accumulation fund for investment purpose. The rest was distributed to team members according to the amount of labor they contributed during the year. Therefore, as far as distribution is concerned, the advanced co-op was a socialist project.

It was precisely because land reform, mutual aid teams and elementary co-ops were all capitalist projects, that Mao believed that the Chinese Communist Party should provide the leadership for the organization of advanced co-ops and the people's communes. Otherwise, capitalist, instead of socialist, development would occur. It was at this juncture that Mao's opponents in the Chinese Communist Party fiercely fought against taking the next step. It is important to note that land reform only destroys the land tenure system, when land is taken from the old landowning class and distributed among the peasants. In many cases, China included, the situation after the land re-

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form was not a stable one, because peasant households who owned a small plot of land and hardly any productive instruments, could not sustain themselves. In China, soon after the land reform, some peasants began to sell their land due to personal misfortune and/or natural disasters. In many third world countries, the situation was similar: after the land reform, peasants could not support themselves and they eventually had to sell their land to owners of large commercial farms. In these cases, land reform merely transferred land from the old landowning class to the new capitalist class and would thus help capitalist development.

The commune system, established in 1958, was the political and administrative identity that incorporated the economic organization of the advanced co-op. Under the commune system, there were three levels of ownership of the means of production -- the commune, the brigade, and the team. The communes owned large productive instruments, including the irrigation and drainage systems and electric stations, available to all members of the communes. At the next level, the production brigade owned instruments that all teams could use including the milling stations, sewing stations, etc. In addition, starting in the mid-1960's both the communes and the brigades began to build and own industrial units that produced a variety of manufacturing products. The team was the basic accounting unit where work was assigned to members, and their work points (gong fen) were recorded and paid accordingly after the deduction for taxes, accumulation fund, welfare fund and quota grain. The accumulation fund was for investment in farm tools, machinery and equipment, the welfare fund was used to help those households which did not have any productive labor, and each member of the team (young or old, productive or unproductive) was entitled to a certain amount of grain, thus the term quota grain. During the period between 1958 and 1978, under the leadership of Mao Zedong until he died in 1976, the class forces that supported the commune (as a socialist project) promoted policies that favored more control by the direct producers and policies that solidified the alliance between workers and peasants.

Under the commune system, a young and strong member of the team, who did the most strenuous work and/or work that required experience and skill, would earned at most 10 workpoints for each day worked. (A team member could only earn 10 work points a day, if he/she also had a good attitude toward work and was helpful to others.) If he worked 300 day a year, he earned 3,000 work points during the year. Another older and/or weaker member who did less strenuous work that required less experience and/or skill, might only earn, say, six work points per day worked; if this person worked 200 days a year, he or she earned 1,200 workpoints during the year. The number of workpoints per day each member earned was discussed and decided by all team members during their meetings. With these workpoints, each claimed a share of the net income (after the deduction for the accumulation fund, welfare fund and the quota grain) of the team. The worth of a workpoint in money terms is calculated by the net income (after deductions) of the team divided by the total number of workpoints received by all team members. Team members received part of their workpoints in grain and part in cash. The difference in income received from work between the strongest member and the weakest member of the team was limited to less than a ratio of three to one. In addition, the young, old and weak members were also supported by the team by receiving their quota grain not related to work. The socialist project eliminated earnings from nonproductive work and placed a limit on the income gaps. In other words, the amount of work done along with the intensity of work and/or the experience, skill, and attitude of workers for the most part determined the distribution of products.

The team members of the commune also had their own private plots of land (a capitalist element) where they planted some vegetables, raised some chickens, and one or two pigs to supplement their diet or to sell these products for cash. The size of these private lots was limited and the little income the families earned from their private lots came mostly from their own labor. However, if the private lot were to expand without limit (See the discussion of "Three Freedoms and One Contract" below.), higher sales from bigger lots gave families money to buy new productive tools and thus the chance of earning a higher future income from bigger sales. One the other hand, as long as the peasants could earn more from a day's labor in their private lots than the equivalent in workpoints

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from a day's labor in the team, convincing them to give up the private lots was difficult. By the 1970's the private plots in some very rich communes began to disappear, because the industrial shops built by the brigades and the communes during the mid-1960's began to prosper and the worth of workpoints increased as a result. The higher worth of workpoints team members could earn by working for the team made working in their private lots unattractive.

The commune system, a socialist project, benefited the majority of the peasants. For the first time in thousands of years, most Chinese peasants lived secure lives. From guaranteed quota grain, they got enough to eat. From the cash they earned from workpoints, they bought clothes, shoes, towels, soap, hot water bottles and other necessities of life. Their children went to school and got an education. Barefoot doctors took care of their minor medical needs, and there were commune or county hospitals for more serious illnesses. Even though they themselves had to pay for some of the medical costs of major illnesses, these costs were low. During spring planting, they did not have to worry about buying seeds and fertilizers. The accumulation fund took care of replacing old tools and adding new ones. At harvest time, they did not have to be concerned with selling their crops or the fluctuating market prices. Households that did not have productive labor received the five minimum guarantees which were food, housing, medical care, caring for the aged, and burial expenses for the dead. During the winter months, when farming work was slow, the communes organized their members to build infrastructure, such as irrigation and drainage systems, roads and electric stations. They also invest their labor heavily in land by terracing the land, filling up small creeks with soil, joining small pieces of land together to prepare for the use of agricultural machinery. During the 1970's, the communes responded to the call, "learn from the Dazhai model," and as many as 80 million peasants participated in farmland capital construction work each year, accumulating a total of 8 billion work-days in land. It was estimated that during the early and mid-1970's, as much as 30 percent of the total rural labor force was devoted to land investment and the building of infrastructure.[6]

The income that peasants received under the commune distribution system was basically for meeting their living expenses; the accumulation fund was already deducted from the total income before it was distributed to the peasants. The accumulation fund took care of investment for long term development. When peasants had more income than they needed for daily expenses, they gaved it both to be used as contingency fund and for the purchases of luxury items such as bicycles, sewing machines, watches and radios. Under the commune system, peasants had little or no opportunity to turn their savings into capital.

Even though the majority of communes did very well, there were a significant number of poor communes. These poor communes had infertile land and were in areas that had higher incidence of floods and/or drought. There was little surplus left each year, so little could be invested to expand production. These communes often had to rely on state aid, but state aid was limited. Under the collective ownership, the distribution within a team and a brigade was equitable, but at the same time the rich brigades/communes got richer and the poor brigades/communes got poorer. The income differences became widened after the mid-1960's when brigades and communes began to develop their own industries. The brigades/communes which had surplus were able to invest in these industries and in turn accumulated even more capital. These brigades/communes also had the advantage of a good location where there were major highways or railways. Thus, they were able to sell the industrial products they produced outside of the immediate areas. The poor communes usually had infertile land and were located in areas where the transportation system was inadequate. This is the limitation of the collective ownership. When brigade a has prosperous due to the expansion of its industries, the benefits only went as far as members of the brigade. The exchange between the brigades was based on equal value exchange. Therefore, even within a commune, there were rich and poor brigades. The law of equal exchange also applied to the exchange between the communes. By the end of 1970', the income ratio between the rich and poor communes might be as much as ten to one. The collective ownership could not solve the problem of widening income gaps in the coun tryside. The state attempted to moderate the income gaps by state aid, but state aid to poorer areas was limited. Unless the accounting unit could be expanded, the unequal development would be-

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come worse. Mao was worried about the co-exist ence of two types of ownership -- state ownership and collective ownership, and he was keenly aware of the need to resolve this contradiction be fore it became worse.

B. Socialist Projects In the State Sector [7]

As we explained earlier, legal transfer of ownership of means of production to the state in 1956 could not be used to indicate the departure point of socialism. It is the policies after the legal transfer that determine whether the transition is socialist or capitalist. Based on concrete policies, the state-owned enterprises between 1956 and 1978 were socialist projects. During this period, the state had effective control of these enterprises. Indivitual enterprises had the possession of the means of production, but the state effectively limited the possession through political control. The state prohibited individual enterprises from buying or selling in the market. The state, by drawing up the economic plan, determined what each enterprise produced, including the categories of products and the quantity of each category. In the economic plan, the state determined the "prices" of the products "sold" by the enterprise to the state, as well as the "prices" of raw materials and machinery that the enterprises "bought" from the state. The enterprises also received wage funds from the state, which went directly to the payment of workers' wages and benefits. At the end of each year, the enterprises handed over their "profits" ("revenues" minus "costs excluding depreciation"). The state subsidized the enterprises that incurred "losses." Then, according to the economic plan, the state appropriated funds to different enterprises for the purchase of new machinery and equipment and/or to build new buildings and plants for expanded reproduction. In China, the state was able to impose all these legal limitations on individual enterprises; the state, in fact, dominated the use of the enterprises' possession. In other words, the state had both legal ownership and economic control of the means of production. (The distinction between legal ownership and economic ownership is important.) Still, there were elements of private capital in state owned enterprises. Until the Cultural Revolution, the capitalists still received fixed dividends and they were still involved in the management of state enterprises. However, they were under strict state control and with the expansion of the state-owned enterprises, the relative share of private capital declined significantly.

The state enterprises are socialist projects and the direction of the state enterprises is toward phasing out commodity production and wage labor. During the period between 1956 and 1978, the economic reality corresponded with the legal limitation imposed on the enterprises. The state took away from the enterprises (production units) the responsibility for its "profit" or "loss." The enterprises sold all of their products to the state at pre-set prices, thus leaving little room for managers in individual state enterprise to involve themselves in the value valorization process. When socialist projects were incorporated into planning, it became possible to change the purpose of production from value valorization to the satisfaction of the peoples' need. At the same time, planning made it possible to pursue economic policies that focus on long-term overall development. In each individual enterprise, workers were entitled to certain wages and benefits. Managers in these enterprises received the wage fund from the state to cover their total wage bill plus the costs of providing benefits to workers. The transfer of wage funds from state to workers (through the enterprises) removed from the managers of the enterprises the responsibility for meeting the wage and benefit payments from their revenues as well as the power of extracting surplus value from the workers. The "prices" of products and/or input were not set according to their values, and the success or failure of an enterprise was not judged by their "profits" or "losses". Instead, different standards were used to measure the performance of the enterprises: these standards were "quantity, speed of production, quality, and saving of raw materials and labor." The majority of state enterprises not only met the targets set for these standards, they strove to exceed the targets and their own record targets in the past.

State ownership and political intervention made it possible for managers of state enterprises to dissociate themselves from being the agents of capital, and thus it was a step taken in the direction of phasing out wage labor. Workers in state enterprises had permanent employment status, an eight-hour day, and an eight-grade wage scale. They received medical benefits; subsidized food, housing and child care. Workers were also entitled

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to paid maternity and sick leaves, pension and other benefits for retirement. It took industrial workers in capitalist countries many years of often bloody struggle to gain similar rights and benefits. The Chinese workers got them overnight through the political power of the state.

However, there existed a contradiction between the workers and the state and party bureaucrats. Managers in state enterprises who had the power and responsibilities to carry out the day-to-day operation of the enterprises could not turn their power into material wealth for themselves. More importantly, those higher level state and party bureaucrats who were supposed to control the managers of state enterprises were also in a position to use their power to benefit themselves. In China during the socialist transition, this contradiction was resolved from time to time by the mass movements. Before the reform began in 1979, those in powerful positions were very much aware that they were under the watchful eyes of the masses.

As we stated earlier, a socialist project is not something with certain fixed and unchanged features, rather, the socialist project itself has to go through basic changes during the transition toward socialism/communism. A socialist project like the state enterprise instituted in 1956 in China had the danger of becoming an established institution, if continuing changes were not made in the production process (including many work rules) within the state enterprise. In other words, these continuing changes were necessary to alter the dominating and the dominated relations between the managers and the direct producers within the state enterprises. This is why Mao Zedong considered the adoption of the Anshan Constitution in state enterprises as especially important. (See discussion below.)

2. The Dual Characteristics of Capitalist Projects and Socialist Projects During the Socialist Transition

During the socialist transition, it may be necessary to institute more capitalist projects under certain circumstances. The New Economic Policy in the Soviet Union was a good example. NEP was a necessary retreat and it should be recognized as such. Therefore, one can not use a single event or policy to determine the general direction of transition. In fact, during the socialist transition capitalist projects and socialist projects co-exist, and at the same time socialist projects compete with the capitalist projects.

During the socialist transition, it may be necessary to institute some capitalist projects. One example was the land reform mentioned earlier. Land rerorm was necessary before the collectivization of agriculture. Therefore, land reform was a capitalist project with dual characteristics. Calling a project capitalist only indicates the principal aspect of the dual character. There were other capitalist projects with dual characteristics. Mao made a comment on state capitalism in July 1953. Mao said, "The present-day capitalist economy in China is a capitalist economy which for the most part is under the control of the People's Government which is linked with the state-owned social economy in various forms and supervised by the workers. It is not an ordinary but a particular kind of capitalist economy, namely, a state-capitalist economy of a new type. It exists not chiefly to make profits for the capitalists but to meet the needs of the people and the state. True, a share of the profits produced by the workers goes to the capitalists, but that is only a small part, about one quarter, of the total. The remaining three quarters are produced for the workers (in the form of the welfare fund,) for the state (in the form of income tax) and for expanding productive capacity (a small part of which produces profits for the capitaIists). Therefore, this state-capitalist economy of a new type takes on a socialist character to a very great extent and benefits the workers and the state."[8]

The period between the very beginning of the People's Republic and 1978 was a period of socialist transition during which socialist projects competed with capitalist projects. Like capitalist projects, socialist projects also have their dual characteristics. The socialist project contains both capitalist elements and communist elements. Calling a project socialist only indicates the principal aspect of its dual characteristics. For exmple, the state enterprise as a socialist project that still contained the dominating and dominated relations between the managers and direct producers which was a capitalist element. During the socialist tran-

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sition changes have to take place to get rid of these capitalist elements. Moreover, up to the very end of this socialist transition period, China still had two types of ownership, state and collective, and it was still not possible to have distribution according to labor on a national scale. It was obvious that what a worker in the state sector received for an hour of work was very much higher than what a peasant received for an hour of work. State workers also received many benefits (medical, educational, vacation, pension, child care and more) while peasants did not. Differences also existed among peasants of different communes. The worth of a workpoint (gong-fen) in a rich commune (team, brigade) could be several times of that in a poor commune (team, brigade). There were also eight different grades of wages for state workers. If the socialist transition had continued, the two types of ownership would have to be phased out eventually to form one single ownership. It would have taken many more years to distribute products according to labor on a national scale. When distribution could finally be made according to labor, there would still be the bourgeois right -- a non-commnunist element.

However, as early as 1958, working people in China were ignoring the principle of equal exchange. During the Great Leap Forward, the Chinese people were so enthusiastic in their endeavor to build a socialist China that they worked long hours into nights and never questioned whether they were receiving equal exchange for their labor. Therefore, it was possible to have communist elements even in the initial phase of the socialist transition. The peasants in Dazhai and the workers in Daqing were held as heroic examples for the nation to learn from. Under Chen Yung-Kuei's leadership, the peasants in Dazhai overcame the most severe conditions, and they worked long hours without rest in bitter cold weather, terracing the land and building irigation to prevent floods and droughts. The thought of carefully calculating how much each would get for an hour of their work never even entered into their minds. These peasants only cared to know what they did was going to benefit everyone in Dazhai in the long run. Similarly, in the Daqing Oil Refinery, workers worked long and hard hours to complete their projects and created what amounted to an industrial miracle. They were motivated by a much bigger and higher goal than receiving an equal pay for equal work. Mao considered these communist elements possible throughout the socialiat transition. Mao de-emphasized the material incentive of work. Liu and Deng, on the other hand, treated the two phases (initial and advanced) of the transition as distinguishably separate from each other. Liu and Deng regarded the actual events during the socialist transition as being premature for the initial phase of communism. In contrast to Mao, they over-emphasized the material incentive of work and insisted that workers would work hard only when they were rewarded with bonuses. They disregarded the possibility of any communist elements during the socialist transition.

Marx did say that there will be an initial phase and a higher phase in the transition from capitalism to communism. Each phase has certain characteristics. However, we do not think he meant that there should be a partition between the phases as if they were separate entities. For that reason, there are both capitalist elements and communist elements during the socialist transition. Mao believed that both capitalist projects and socialist projects had dual characteristics. On the other hand, Liu and later Deng argued that any communist elements during the initial stage would be premature. It becomes more clear today that what Deng and his supporters have done is to use the "intial phase of socialism" and the emphasis they placed on material incentives as excuses to expand commodity production and to institute their capitalist projects in order to reverse the direction of the transition.

3. Competition Between Socialist Projects and Capitalist Projects

A. Competition in the Collective Sector

We can use the competition between capitalist projects and socialist projects to analyze the situation of the countryside after the revolution. Land reform, as we explain earlier, was a capitalist project but from the perspective of Mao and those who supported the transition toward communism, land reform was also part of the overall socialist strategy. However, for Liu and Deng land reform was part of their overall capitalist strategy. This explains why from the very beginning, some Chinese Communist Party members strongly opposed the collectivization of agricuiture, and their oppo-

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sition continued after the formation of the people's communes. Following this line of reasoning, it is easy to explain why the current regime in China praises Mao as a national hero during the revolutionary war and portrays him as a villain since the Great Leap Forward.

Although land reform was a capitalist project, the way land reform was carried out made a difference on the development afterwards. Land reform in China was not simply an economic policy of land redistribution: taking the land deeds from landlords and handing them out to the peasants. Rather, it was a mass movement sponsored by the Chinese Communist Party for economic, political and ideological changes. The CCP mobilized the poor and lower-middle peasants and organized them to seize the land from the landlords and in exposing the landlords' crimes. The enthusiasm of the peasants swept across the countryside -- they were the main actors in the land reform. The land reform turned passive peasants into active participants, and then their action went beyond the land reform to the cooperative movement that followed. In the land reform mass movement, as was in any other mass movement, the masses needed to be clear what was the opposite. The opposite in the land reform movement set up by the Chinese Communist Party was the landlords and some rich peasants. Throughout the land reform, a new ideology was appropriated among the peasants. Even though the peasants always experienced exploitation and suffering, the ideology of feudalism -- like the ideology of any exploitative society -- justified such exploitation. The mass movement turned the old ideology upside down, and at the same time it articulated and appropriated the new ideology. The new ideology professed that it was wrong for the landlords and the rich peasants to take the products of labor from the poor and lower middle peasans, and it was wrong for a privileged few who held the power to abuse and enslave the under-privileged majority. It was the trend and the atmosphere which was created in the land reform that encouraged the poor and lower middle peasants to express themselves for the first time in their lives. When these peasants finally dared to speak their mind, serious crimes committed by some landlords were exposed. Land appropriation changed the dominant-dominated economic relationship between the landlord and the peasants, the new ideology reversed the master-serf relationship between the landlord and the peasants. Mass participation in the land reform gave the landless peasants the determination to right past wrongs, sparked their enthusiasm, and empowered them to carry the land reform to its completion and beyond. For this reason, we conclude that even though China's land reform (1949-52) was a capitalist project, the class stand of the Chinese Communist Party was very clear, so was the direction of the transition at that historical point.

The collectivization of agriculture -- from elementary co-ops to the people's communes -- made it possible for the workers to form and to solidify their alliance with the peasants. Since the majority of China's working people were peasants, the alliance between the workers and the peasants was the decisive factor in winning the struggle against the bourgeoisie. After the land reform there were rich, upper-middle, middle, lower-middle and poor peasants. Without the collectivization movement, with whom could the proletariat form alliance? The polarization of the peasantry after the land reform, if it had continued, would have given the bourgeoisie the excellent chance to form their own alliance with the rich peasants who had surplus grain and other products to sell. When the state took complete control over the buying and selling of grain and other raw material by implementing the unified purchase system in 1953, it took an important step to cut off the connection between the grain merchants in the cities and rich peasants in the countryside. After 1953 rich peasants in the countryside had no other option but to sell their surplus grain and other raw material to the state at prices set by the state. This policy made it impossible for the merchants and rich peasants to use grain trading and speculation to get rich.

Land reform was a revoution of towering magnitude, involving hundreds of millions of people. Since the land reform changed the social order that existed for more than three thousand years, it met with strong resistance from those who lost their economic and political advantages during the process.[9] It was a political struggle from the start which only grew much more intensive as the movement progressed. When peasants began organizing mutual teams and then the co-ops, it was apparent that the rich and upper middle peasants who had (comparatively) substantial amounts of land and capital would not benefit by joining the

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team or the co-ops. On the other hand the poor and the lower-middle peasants who were the majority of the Chinese peasant population had few or no productive instruments and only a very small plot of land. They faced many difficulties in reproduction, let alone any expanded reproduction. In many cases these peasants had either lost their land or might lose it in case of personal mishaps and/or natural disasters. They were eager to find an alternative. Both the mutual aid teams and elementary co-ops proved that when they pulled their resources together, they increased production. The middle peasants who could go either way were the crucial elements for the organization of co-ops. The middle peasants had a plot of land, some productive instruments and one or two strong laborers in the household, so they could do well on their own. They were inspired by the prospect of becoming rich peasants. Even though the poor and lower-middle peasants were enthusiastic about forming collectives, with their meager resources they faced real hardship and might not make it by themselves. Eventually the middle peasants were won over when they saw the results of cooperation. After the middle peasants joined the co-ops, the rich and the upper-middle became isolated. Even though the rich and upper-middle peasants had more land and more productive instruments, with everyone in the co-ops they could not hire any one to work for them. They were "forced" to join. The formation of co-ops was the only way to block the avenue for the rich and upper-middle peasants to enrich themselves by exploiting the labor of others.

During the co-op movement, Mao repeatedly reminded the cadres who worked in organizing the cooperatives to make sure that the leadership of the co-ops remained in the hands of the poor and lower-middle peasants who supported the movement most strongly.[10] The rich peasants, who would rather see the cooperative movement collapse, often worked to sabotage it, whenever they had a chance to do so. It was actually quite remarkable that a cooperative movement of such nature and magnitude was carried out with so little chaos and bloodshed. In addition to the fact that this movement so benefited the majority of the peasants that it enjoyed broad support; the credit for the success should be given to the leadership of the Chinese Communist Party and the hundreds of thousands of party members at the grassroots level, these lower level cadres who had just finished fighting the revolutionary war and knew next to nothing about organizing cooperatives (except for some experience gained in the previously liberated areas,) but who were very much in tune with the needs of their fellow peasants. However, the top leadership of the Chinese Communist Party was deeply divided on the direction of development not just in China's agriculture but in the overall development.

At the elementary co-op level, the rich and upper-middle peasants still claimed a share of the output produced based on the productive instruments they owned. When the co-ops progressed to the advanced level, the co-ops bought the productive instruments from the rich and upper-middle peasants. As we explained earlier, this socialist project eliminated the distribution of products to households who had owned the capital. The distribution in advanced co-ops was made according to labor contributed only. Through the process of collectivization, the class forces that supported this socialist project led by Mao won. Mao's strategy was to rely on the poor and lower-middle peasants and unite the middle peasants. Under Mao's leadership, the class line of the Chinese Communist Party was clearly revealed.

When a socialist project, like the advanced co-ops or the communes was instituted, it was against the interest of certain elements of the society. When the cooperative movement progressed to the advanced stage, the ones who lost were clearly those who had to sell their property to the co-ops. These more well-to-do peasants would have been better off if they had been allowed to continuously draw dividends from such property, rather than having been paid off with a final lump sum based on a "negotiated" price to which they had only reluctantly agreed. Those who had gained from the progression of the cooperative movement were clearly the majority of the peasants who had never owned anything but a small strip of land and their own labor. Included in this majority were those families who did not even have any productive labor. They were the elderly peasants without sons and widows with young children. Many of them lost their beloved ones in the revolutionary war. Mao was very concerned about the livelihood of these people because the state was not in any position to help. Mao said that each co-operative should be able to "carry" a few of these

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families.[11] These families could not contribute anything to the "pot", but had to eat from the "pot". From a purely self-interest point of view, no cooperatives would be willing to "carry" such a burden. They indeed had to be, in the spirit of cooperation, persuaded to do so.

>From the analysis above, we can see that certain class forces gained and other class forces lost during the process of collectivization. The class forces which lost their interest were not ready to quietly surrender. They had to seek their own representatives and spokespersons either from within or from without the power base. On the issue of collectivization, Mao's opponents in the Communist Party reflected these class forces and they continued to push forward their capitalist projects even after the establishment of the commune.

The "Three Freedoms and One Contract" scheme was one example of the capitalist projects in the collective sector. Liu and Deng strongly supported this capitalist project from the beginning of the advanced co-ops and continued to push this project after the formation of the communes. The three freedoms were the freedom: 1) to enlarge private lots, 2) to promote free markets, and 3) for each individual household to be responsible for its own profit or loss. The one contract was for each individual household to sign a contract with the state for the production of a pre-set amount of crop. Aftar the pre-set amount was met, the peasants would be free to sell everything in the free market. As early as 1956, Liu and his supporters strongly advocated the "three freedoms and one contract" and, at times, forcefully put it into practice. Enlarging private lots encouraged peasants to put more labor and effort into their own land. The promotion of free markets facilitated the sale of products from the peasants' private lots. If individual households were held responsible for its own profit or loss, the accounting unit would be changed from the team to the individual household. This material incentive, according to the promoter of the "three freedoms and one contract" would encourage peasants to produce more.

Under the commune system, as we showed earlier, private savings could not turn into capital. The accumulation of capital was done collectively, not privately. The accumulation fund belonged to the team for the purchase of new productive instruments that benefited all members of the team. If a capitalist project like the "three freedoms and one contract" had been allowed to be implemented and to expand, then, instead of the team, each private household would have become the new accounting unit. If the household had been able to earn profits from selling their products in the free market, they could have invested it in new productive tools with which they could have earned more profits. The "three freedoms and one contract" project promotes the accumulation of private capital which participates in the distribution of product. At the same time, under this project, households with a loss would face the danger of losing everything altogether. As far as the promoters of this project were concerned, this would be a good way to get rid of those who could not produce efficiently. The distribution under the "three freedoms and one contract" returned to the stage of elementary co-ops, where owners of capital received larger and larger shares of the products. When Liu and Deng pushed to implement the "three freedoms and one contract," they presented the project as if it was only to promote production by providing material incentives to individual peasant households. The hidden agenda of this capitalist project was to reverse the direction of the transition from communism to capitalism.

Since the beginning of the collectivization of agriculture, capitalist projects such as the "three freedoms and one contract" competed with the collective ownership under the commune system. If capitalist projects had been able to develop and expand during the 1950's and 1960's, the commune system would have collapsed then. Through the competition between the socialist projects and the capitalist projects, the interests of different class elements of the society were revealed and articulated. The mass movements led by Mao and those in favor of socialist development promoted the socialist projects. During each of the mass movements, an antithesis was set up so that the class forces which opposed the socialist projects were forced to defend their interests openly. When socialist projects were carried out through mass movements, the interests of opposing class forces were revealed and articulated. Through the implementation of socialist or capitalist projects, certain class forces were strengthened and other classes forces were weakened. At the same time, the different class forces reproduced themselves.

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What Liu was not able to do earlier, Deng did by his reform in the countryside two decades later and he went far beyond the original project. Between 1979 and 1984, Deng took several steps to redistribute land to individual peasant households. Like the 1949-52 land reform, Deng's land redistribution was a capitalist project. The argument Deng and his supporters gave for dismantling the communes was "eating from a big pot breeds laziness." While this might have been true in a small number of cases, Deng dismantled all communes in one sweep, despite the fact that the majority of communes were doing well. The de-collectivization in the countryside broke up the worker-peasant alliance which was the most important strategy during the socialist transition. Deng's land redistribution carried out with other capitalist projects he and his supporters instituted, such as the phasing out the unified purchase system, the privatization of rural industry, the reduction of state support for the production of agricultural machinery and other agricultural inputs, and eventually the privatization of state enterprises and the replacement of permanent state workers with contract workers, are all capitalist projects in an overall capitalist strategy. These capitalist projects have made it unequivocally clear in which direction the reform is headed. Deng's capitalist strategy reveals the class line of his reform. His reform deliberately broke up the worker-peasant alliance, and it strengthened the alliance between the bureaucratic capitalists and the new "entrepreneurs" who are either party officials themselves or have close connection with the party officials in high places.

We need to go one step further to identify the class elements which supported Deng when he began his reform. Even though the majority of peasants benefited under the commune system and they enjoyed the better living conditions and the security of life, a significant minority were not content. There were several reasons for their discontent. First, in the very poor communes, peasants encountered many difficulties to increase production. Their grain production was often barely or not quite enough to feed everyone, so little or nothing was left after meeting the quota grain. In these communes, the distribution could not be made "to each according to work." (The poorest communes often had to rely on state aid.) The strong members in these communes worked harder but were not rewarded accordingly. This created an incentive problem for stronger members of the team and brigade.

Second, and more importantly, Deng's support has come from the more well-to-do communes where there were substantial surpluses and expanded reproduction. By the late 1960's, many brigades and communes that had surpluses from agricultural production invested in manufacturing industries. By the mid-1970's, these rural industries prospere