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The Great Recession has taken a grim toll on the city that was the epicenter of the worldwide financial meltdown. As in so many other places across the U.

Honest Capitalist Inadvertently Wrecks Capitalism

Even those with jobs feel little security, knowing that any employee could be the next one to be pink-slipped. The workplace is full of tension. Many companies have gone into survival mode, more concerned about their short-term survival than any long-term goals. To be sure, much of this chaos is typical of any economic downturn—but there are also unmistakable signs that this particular crisis is being magnified by an increasing uncertainty not just about the future, but also about the meaning and value of economic activity and of work itself.

With more than 34, associated companies and affiliates around the world, the Companionship of Works promotes mutual collaboration and consulting activity among its members to foster the human element of business. From his experience running CDO, Scholz understands firsthand the challenges that the current crisis presents to companies and workers; yet, he remains fully certain that work is an expression of the human desire for total fulfillment.

A different approach to work. The visit began simply but intensely as Scholz gathered with about 30 young workers for Sunday Mass near Wall Street, followed by a brunch at the Communion and Liberation office. When you struggle in vain to build a rewarding career or when you reach goals but remain unhappy?

It is a social responsibility to do good business, which contributes to the common good, a value more important than profit. How is all this possible when we are not managers but simple employees or only in middle management? Every person has the right to ask. We have to ask what the meaning of a particular operation is, what the goal of our work is. The relationship with the other person is not an artificial handbook strategy, but it is a gratuitous interest in that person.

Following a mid-week trip to Toronto, where he continued to propose a different way of conceiving work and enterprise, Bernhard Scholz returned to New York for a talk at Columbia Business School, home of one of the top business programs in the country. Rather, it was rooted in the most basic understanding of the human person —we all work to pay the bills, yes, but even more, our work is an expression of the deepest desires of our hearts.

A class of capitalists emerged in the West from a variety of social positions, and gained their primary capital from several sources. In Britain, the earliest capitalists were agrarian: tenant farmers and landowners who expanded their holdings by enclosure. City merchants grew wealthy from overseas trade, slavery and internal commerce, often moving into land and banking.

State borrowing and the Bank of England leavened the growth of finance capital.

Equality and the Spirit of Capitalism: The Impact of Income Equality on Entrepreneurship

The first industrialists got little help from city lenders, but reinvested the surplus value gained from poorly paid, overworked labourers. In the United States, a continent was seized and settled by farmers and plantation owners. Merchants and manufacturers—often in partnership—made fortunes selling to the slave South, prosperous farms and expanding cities. Urban property was a major source of accumulation.

State-chartered banks issued huge amounts of credit to grease the wheels of regional expansion. In France, too, industrialization took place through merchant-led networks of small producers, alongside government-sponsored factories in textiles or steel. Outside capital has indeed blazed many trails—forging links to global trade, bringing in the latest technologies and importing modern design—as well as fuelling the roaring engines of development.

Merchants, financiers and manufacturers from Hong Kong have played a pivotal role, particularly in the development of Guangdong, since the province with the highest gdp. Hong Kong provided just under half of all foreign direct investment between and , but since it can no longer be considered genuinely foreign—though it continues to act as intermediary for capital transfers from elsewhere.

Yet for all this, foreign investment has accounted for less than 10 per cent of capital formation in the reform era—including investment via Hong Kong.

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Rather, the internal processes of primary accumulation have been decisive. A vast production of surplus-value undergirds the Chinese economy. Appallingly low wages, long hours and hard work mean an exceptionally high rate of labour exploitation. Annual growth in capital stock is 3 to 4 per cent higher than was the case with France and Germany at their respective peaks, and close to that of Japan and Korea at theirs. Along with the high rate of capital formation comes the emergence of a new class of the super-rich.

Many are former party and government officials who have been able to translate their positions into ownership of privatized state enterprises. Other functionaries behave like entrepreneurs in pursuit of profit as directors of state agencies and enterprises, but are not yet property owners in their own right.

What are the social positions from which the new capitalist class has emerged? Merchant capital of the classic variety plays a minor role, since the historic period of mercantile trade was cut off by the Maoist revolution; but some of the greatest fortunes in Hong Kong—such as that of billionaire Li Kai-Shing of the Li and Fung Trading Company—are rooted in commerce. In manufacturing, there are four common routes to becoming an industrial capitalist.

The first is to gain an ownership stake in a state-owned enterprise. In the early s, reforms converted many of these soe s into equity corporations or share-based worker cooperatives, making them semi-private—if not wholly privatized—companies. Further privatization measures were imposed in the early s, after the downturn of the late s reduced their number from around , to , and they fell below one-third of national income.

A second route is to gain control of a successful township and village enterprise. The tve s were also subject to widespread privatization by the late s, after a similar shake-out of failed businesses. While many still on the books are mere shells, thousands have been able to grow into substantial companies. In addition, many nominally cooperative or collective enterprises have seen ownership shares consolidated in the hands of managers or party officials—a process helped along by illicit asset-stripping. A third route, which has grown in importance, is to start a private company—independently or with foreign investors.

After size restrictions on private firms were lifted in , the private sector mushroomed, and by the mids it accounted for 40 per cent of non-agricultural employment. At the beginning of the next decade, private companies already employed over 40 million people in the cities—as many as state enterprises—and joint ventures another 20 million. Wholly owned foreign subsidiaries, in contrast, had only 7 million workers. City authorities regularly bulldoze their premises, only to see them rebuilt nearby—an impermanent status that provides a kind of liminal space for the emergence of a free-wheeling capitalism beyond the reach of the state.

Many capitalists are emerging in retail and in business services, but a particularly fertile ground for amassing quick riches is the property sector. In the cities, land rent represents a large slice of the social surplus, and a vast spring from which to siphon capital. There has been an enormous jump in the value of urban land. Buildings originally constructed by danwei are used to yield rents that can be converted to primary capital for subsequent profit-making investment—a spiral of accumulation that continues under fully capitalist enterprise.

To indicate the scope of primitive accumulation via rents, half of the richest people in China today owe their wealth to real estate.

17.1 Three economic epochs

Financial means of accelerating capital formation are very much in play. As the state has withdrawn from direct financing and control of production, its place has been taken by state banks and local government. The banking system is still four-fifths state-owned, but is being cautiously privatized.

More importantly, state banks have been exceptionally generous in meting out credit to all manner of state agencies, state enterprises and private companies. By the s, bank lending exceeded government expenditures by a factor of five. Today, commercial lending stands at per cent of deposits, a much higher rate than in other Asian countries. Approximately half of bank lending is to state-owned enterprises.

These were supposed to become self-supporting, but as growing competition and high taxes cut into profits, managers turned to borrowing to cover expenses—including social obligations to workers. By the late s there was already a build-up of debt, and the early s saw financial tightening and a shake-out. But borrowing increased dramatically later in the decade; as more and more soe s found themselves in danger of going under, they relied on banks to bail them out—even borrowing to pay off previous loans.

They still failed on a massive scale in the late s, but many of those that survived were sustained by state-bank money, then privatized; hence, fictitious capital created by the state ultimately generated real capital operating in the private market. At the same time, local governments—provinces, municipalities and townships—have financed all manner of infrastructure, building and industrial projects in the fast-growing cities.

They have borrowed at a phenomenal rate to support their schemes. One trick they—and soe s—have used is to offer land as collateral for bank loans, a practice that shot up in the property boom of the s. There has thus been an immense growth of capital accumulation in China via credit. Such laxity makes financial crises an inevitable part of the birth-pains of capitalism.

At the end of the s, the banking system became burdened with one of the highest rates of non-performing loans in the world—peaking at perhaps half of all bank lending, though conservative estimates put it nearer 30 per cent. Worries abound, meanwhile, about the overheated state of the stock markets. Throughout the West, early capitalism fostered the expansion of cities and created extensive urban networks, to a far greater degree than all earlier epochs.

A second was the industrial revolution. Factory towns like Manchester and Lowell sprouted up all over nineteenth-century Britain and the United States. A third reason for this urbanization was the intensified flow of spending, the swirl of consumption, and the bright lights of city living. The boulevards, High Streets and department stores of the biggest cities became indelibly etched in national consciousness as sites of modern life.

With the growth of cities in the West came the internal sorting of functions into specialized districts—as a consequence of the expanding social division of labour operating in a commodified urban land market, where like-minded and complementary enterprises bought themselves proximity. Especially in the us there was a marked concentration of business activities in city centres, driving out older residential and commercial functions, and a further distillation into financial, shopping and entertainment districts, industrial and warehouse districts, and so on.

German Society and Capitalism

As cities expanded outward, new subcentres sprang up, making the polycentric metropolises of the twentieth century. Residential housing sorted into distinct neighbourhoods, which have played an essential role as markers of class and geographic motors of class formation. Spatial separation need not be as absolute as in the us to qualify as segregation; European cities have long witnessed effective class divisions in a more compact urban form.

One of the basic goals of Maoism was to break down the social division of labour, especially that between city and country. How well it succeeded is moot, but after the revolution factories were more widely dispersed across the countryside than before, and the growth of cities was curtailed. Within the Maoist city, the economic and social landscape was carved into repetitive, cellular units made up of danwei compounds.

The most spectacular urban growth in the early reform period, strongly linked to export industrialization, was in south China—reversing northern dominance under Maoism. Shenzhen, Guangzhou and Dongguan, each with a population of 7 to 9 million, became the new workshops of the world. By the late s, however, the big northern and central coast cities had moved to the forefront. Beijing and Shanghai each count over 15 million souls and have exploded their old boundaries, now numbering among the largest conurbations on earth. Not all factories are in large cities. Many are in medium-sized towns, as in the Yangtze River delta, or in former villages as in the Pearl River delta; but these are closely linked to the major urban centres of Shanghai and Hong Kong respectively.

In other instances, whole new industrial districts have arisen, as in the metalworking, textiles and furniture clusters of Guangdong or the Chaoyang electronics district of Beijing. On top of this, commercial functions are now propelling Chinese city centres to new heights. These classic elements of the capitalist division of labour have been slower to develop than manufacturing, in part because Hong Kong acted as the keystone city for southern China; Taipei and Singapore also play offshore roles as mercantile and financial centres for the mainland.

Nonetheless, cities like Shanghai and Guangzhou are developing a whole array of mercantile, financial and control activities, along with business services needed to back them up; these are filling up office complexes across the urban landscape. Cities have also become more sprawling. Manufacturing, which once occupied danwei lands in prime central locations, has been relocating to lower-cost industrial districts in the suburbs.

New commercial, industrial and office clusters on the fringes of metropolitan areas have rendered Chinese cities polycentric. New housing has been moving upward into high-rises and outward into the suburbs, even as housing embodies emergent class divisions. Well-off families are moving into suburban housing tracts copied from Napa Valley, Orange County and Long Island that recapitulate the geography of bourgeois class formation in the United States.

Last, but certainly not least, is the role of the state, which has never functioned in the way doctrinaire liberals imagine. Laissez-faire Britain had its vast navy, efficient taxation and bureaucracy, central bank and hard-knuckled legal system. In the rest of Europe, the state played an even more intrusive and vanguard role. The liberal regime of the United States also required a strong national constitution to promote economic development; but Americans hit on the distinctive state model of a federal union that has proved an effective way to integrate and manage a vast national territory.

The federal umbrella guaranteed the free flows of goods, capital and labour, while geographical representation and the autonomy of local governments has meant close cooperation between state and business in pursuit of regional development. American states have enthusiastically promoted growth via their powers over banking, infrastructure and labour law. Land use and development, in particular, have been almost entirely left to city officials. The result has been a diverse array of competing pro-growth coalitions greasing the wheels of commerce; the political economy of boosterism is an essential part of the American scene.

The Chinese leadership has systematically liberalized the economy under the close guidance of the State Council and the Communist Party. The notable factor here, however, is how this transition has reconfigured the form of the state in a way that has unleashed the powers of capitalism. The transformation has brought a metamorphosis in which property, markets and capitalists break out of the cocoon of the socialist state, and a bourgeois social order, economy and state unfold from the old mode of production.

The reorganization of the Chinese state has created a structure of remarkable complexity. But the point is not whether the state is smaller, but how it has been restructured and what its components have been required to do. On the one hand, the tradition of administrative hierarchy is strong. The central government has managed the transition to capitalism every step of the way, issuing a series of directives in the shape of formal laws, policy declarations and general pronouncements.

On the other hand, China has a long history of dispersed power over its enormous territory, with considerable provincial and county integrity, and local-government autonomy. It is not surprising, therefore, that an essential part of the transition to capitalism has been allowing a greater decentralization of the state. Economic liberalization and primitive accumulation have been facilitated, and even accelerated, by a rescaling and downward shift of state power.

The central government has favoured cities, in particular, as vehicles of transition. One policy front has been the relative autonomy granted to large cities, especially the four metropolises—Beijing, Shanghai, Chongqing and Tianjin—and others of prefecture level. These have been given additional powers to annex territory, and to subordinate counties and small cities in their penumbra. While party secretaries and city mayors are centrally appointed, this is done as a function of local jockeying for position or the power of big-city party factions over the Chinese Communist Party as a whole—as with the national dominance of the Shanghai faction in the s.

Local governments have been set loose throughout China in pursuit of economic growth.

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Municipal, provincial and county authorities act as overseers of development, working with whoever offers the best promise of rapid growth. Local officials have a range of implements in the growth-promotion tool kit. Annexation of territory, seizures of farmland and extension of infrastructure have all been useful in urban expansion. Property transfers, favourable leases and land banking have been effective in assisting builders and developers. City plans, redevelopment schemes and modernization discourses have promoted the reconfiguration of urban space.

Manufacturing has been aided through such devices as tax concessions, land grants and industrial parks, as well as through assuring a supply of labour by the manipulation of hukou permits and entry fees, and the policing of labour organizing and protests. State and party officials at a local level have become highly entrepreneurial in promoting industrial expansion, construction and commercial development. Many act as managers of state-owned enterprises and property companies in the public sector, while some serve on boards or have stakes in private businesses.

Others serve as brokers and deal-makers between public and private, or between state agencies; and still others grease the wheels through black-market deals, bribes and informal networking, known as guanxi. In addition, party cadres have come to be judged for promotion on their ability to deliver regional growth, employment and foreign investment. Personal prestige, faith in modernization and general zeal all play a part in motivating local officials to promote their towns and cities. Local governments are motivated, above all, by a fiscal regime in which their revenues depend more on local taxes and rents than on redistribution of national revenues.

Since the s, revenue sharing has taken place upwards, with local governments retaining what is left. China is now one of the most decentralized states in the world in fiscal terms. The largest part of local revenue still came from state and township enterprises in the s, but the proportion derived from private business has risen sharply since then. The other major source of income is landed property, from rents, leases and transaction fees; this has ballooned with the property booms of the s and s.

In addition, there are certain extra-budgetary revenues that local governments do not have to share with those higher up. Altogether, the Chinese situation reminds one of the American federal system and its urban growth politics, from which an array of public and private players profit handsomely. Backroom payoffs are far from unknown in the us , but the exchange of favours and rewards is done to the mutual advantage of many. What the Chinese call guanxi is very like what Americans call horse-trading.

Regional government competition in China is also reminiscent of American federalism.

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It is pointless to complain, in this context, about the duplication and inefficiency of local boosterism. The central state is another matter, of course, and the Communist Party leadership has long derived its power from non-capitalist sources of state revenue, party organization and socialist legitimacy.

One would not expect the State Council to play midwife to the birth of capitalism in the same way as local governments. But there are signs of a new stage in the bourgeoisification of the state. National officials increasingly have their fingers in lucrative local industrial and land-development pies, through vertical administrative connections, or xitong. Moreover, in a highly controversial move in , members from the ranks of private business were welcomed into the Communist Party; some experts claim that capitalist cadres have become a majority among the national party leadership.

Our purpose here has been to dissect the changes in Chinese cities in order to show that the prc has passed the point of transition to a predominantly capitalist order, and that it has followed a path not so distant from those of Europe and North America. There is now a yawning gap between prosperous city-dwellers and poor peasants, and between the roaring east coast and backward interior.

The environmental costs have also been severe: appalling air pollution, massive toxic spills and deadly industrial hazards. What might be done to alter the trajectory of capitalism in China?

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Popular protest is on the rise, spurred by such indignities as contaminated water, wholesale housing clearances and the venality of local officials. But it has not allowed the people to organize and speak for themselves; a tight lid has been kept on democratic awakenings, from Tiananmen Square to Internet 2. This raises a final question. If China is increasingly a liberal state and market economy, why has there been no liberalization of politics? In the conventional liberal view, democratic freedoms flow directly from private property and the market.

Yet despite the potential relation between the parcellization of economic sovereignty in the hands of the bourgeoisie and the weakening of state absolutism, these processes have never been sufficient to assure a democratic order. Western polities only gained a degree of real freedom through popular rebellion, dispersion of property, union organizing, expansions of suffrage and political struggle over two long, difficult centuries in which Britain clung to its monarchs and peerage, the United States to slavery and Jim Crow, while France reverted to emperors and kings and Germany and Italy succumbed to fascist dictators.

Why should we expect better in China today? The abolition of the right to strike in the Constitution and the shooting of dissidents in and are classic examples of the brutal birth of a capitalist order—comparable to the Peterloo Massacre in England, or the Great Railway Strike in the us. An imminent leap to democracy under such circumstances is a liberal fantasy. The people of China face a long and arduous period of popular struggle if they are to tame the beast that has been unleashed. Making of a working class The making of the English working class is well known, likewise the variations that this process took elsewhere in Europe and North America.