Even long after Deng Xiaoping had led China out of the Marxist impasse created by Mao Zedong, official discourse was always centered on the letter P for Proletariat. The leadership emphasized its legitimacy with reference to the working class that is to say producer in supply side economics. From that angle the producer of surplus value was the focus of economic policy.
In his latest interventions in public debate, however, Chinese President Xi Jinping has introduced a new letter, C for consumer. He has emphasized the need to prioritize the interests of the consumer in shaping the economic strategy of the People’s Republic.
The switch from P to C reflects the dramatic changes China has experienced in its emergence as a modern global economic powder.
Twenty years ago the Chinese were producers, supplying the world with inexpensive products that most citizens of the People’s Republic couldn’t afford. Today, however, China has the second largest consumers market after the United States and is set to surpass it in consumer purchasing power parity (ppp).
While the producer was the focus of policy, it was assumed that improvements in living standards could come only with rising wages and salaries. But taking that route was bound to deprive China of one of its comparative advantages, cheap labor. Rising wages and salaries would make Chinese goods and services more expensive and thus lead to loss or shrinkage of its export markets.
It seems that while Chinese economists were looking for other options they run into a semi-forgotten 19th century French economist who challenged the rising
tide of Marxian economics in his time and its emphasis on the producer of surplus value, that is to say the working class.
The rediscovered French challenger to Marx is Frederic Bastiat whose book “Seen and Unseen” was translated into Chinese in 2014 and, according to best information, sold millions of copies. That was followed by the translation of a collection of speeches that Bastiat had made in his stint as member of the French National Assembly.
It is likely that President Xi got hold of Bastiat’s book a decade earlier he and other Chinese leaders had discovered German Carl Schmitt’s treatise on politics.
Schmitt thought Xi about how a state wins legitimacy through success in imposing discipline, ensuring security, offering prosperity and curbing corruption.
For his part, Bastiat taught three things: reducing the state machinery to its smallest size possible, thus allowing the energies of the so called civil society to play a bigger part.
While Marxian economists preached centralized planning and greater state expenditure, Bastiat showed that the most successful states created by the industrial revolution managed to keep the share of the gross domestic product (GDP) controlled by the state to a minimum.
The next thesis Bastiat advanced was that improving the living standards of citizens cannot come only from raising wages and salaries because that could lead to rising prices through inflation and produce the opposite result. He showed that more than 60 percent of improvements in living standards in Western European industrialized nations in the 19th century came through lowering prices rather that rising wages.
That suggestion led to Bastiat’s biggest thesis: the surest way to better lives for all mankind is free trade in a system of market economy.
If lower prices are the key to prosperity, producers would need more consumers, that is to say expanding markets which can foster mass production that brings down the costs. In other words, expand the demand and Bob is your uncle.
In his signature satirical manner in which he argued his theses, Bastiat suggested that the government of the time, concerned with mass unemployment, instead of adopting protectionism should burn Paris down and then rebuild it by employing hundreds of thousands and creating an economic boom.
In its most radical form that thesis would translate into a no-tariffs policy. US President Donald Trump, obviously no fan of Bastiat, says he regards tariffs as the sweetest word in English vocabulary and is determined to dismantle as much of the structure erected by four decades of globalization as possible.
So we are witnessing an unusual spectacle , one in which the leader of a nation that first raised the flag of global free trade for decades facing the leader of another nation based on Marxian theories of command economics as opponent and supporter of Bastiat’s no-tariffs doctrine.
Needless to say, the Bastiat system, though he would have ejected such a phrase, is anti-protectionist.
That the Chinese leaders have discovered Bastiat, the opposite of their former idol Marx is good news for both China and the world. However, it would be wrong to transform Bastiatism, if one could coin such a shibboleth, into a dogma would be wrong.
Much of what Bastiat asserts in support of free markets, comparative advantage, low tariff, no protectionism and putting the consumer before the producer is present in Adam Smith’s “Wealth of Nations” and Richard Cobden’s “The Big Loaf”.
More importantly, Bastiat was not familiar with the modern state structures that have transformed Hobbes’s “Leviathan” into a regulating machine in the service of special interests, fashionable ideologies, and the cult of the imaginary victim.
Bastiat didn’t win the debate even in mid-19th century France when “The Leviathan” was certainly not as all-controlling machine as is the Chinese state apparatus today.
The current war of tariffs pits Trump as a protectionist inspired by David Ricardo, not to say Karl Marx, against Xi Jinping who has discovered Adam Smith via Frederic Basiat. The duel shows that ideas too have a free market and could spread in different directions with different time-spans.
