Mia Wong (68:14)
But it's become an extremely political topic because the different theories of steel overcapacity have become a basis for a lot of genuine trade policy. Now, I think a very, very interesting look at Chinese steel overcapacity is from the book Understanding China's Overcapacity, which is written by two Chinese economists that I think is a really interesting literature survey. This is from about 2018. But I think what's interesting about it, it's from before the period where everyone in the west had sort of decided what they think caused Chinese steel overcapacity. And so you can go back. You know, it's sometimes useful to sort of go back in time and look at the other theories that, that were sort of floating around Academia before a few of them got specifically selected for ideological purposes. Now, I mentioned earlier we'd be talking about some economists who don't think that Chinese steel overcapacity is real. That's these people. I think that part of their thesis is not very good. I think their survey of the literature on overcapacity though is very good. And one of the very interesting arguments they make, this is an argument that's made by a couple other economists that has sort of disappeared from the literature, is an argument about, okay, so there's steel production that's happening, that doesn't need to happen. I think it's pretty fair to say that something is over capacity if it's producing a bunch of steel that sits there and rots because no one can sell it, which is a thing that happens with Chinese steel. And one of the most interesting theses that has really been abandoned, even though I think it is actually to a decent extent explanatory of a lot of very, very weird stuff that happens in Chinese policy circles and a lot of just very baffling investment decisions is specifically something about local cadres and their performance incentives. So, okay, something that's very important to understand about the structure of the CCP is that Chinese government institutions are sort of run by these cadres, right? And so if you are, for example, I don't know, you are the mayor of a mid sized city, right? You get performance evaluations and those sort of yearly performance evaluations sometimes are less frequent than that. But those, those performance evaluations rank you at sort of how good you're doing your job. And obviously there's political maneuvering here too. But if you do a good job of hitting your targets, this is your path to advance upwards in the party and be moved from, you know, like sort of running a small city to like being brought into cadre in larger cities and you know, moving your way up the party, moving to national positions. These evaluations are extremely important. You can also get sort of busted down if your evaluations suck again. There's also like politics here too, but these evaluations actually do matter. And one of the issues with these evaluations, and these are also policymaking implementation tools, right? You know, the central government can decide what kinds of policies they want to pursue and then they can use these cadre evaluations to make people at the sort of local level who are usually semi autonomous in ways that I think is not very well understood in the West. These cadre valuations are ways to try to ensure that Chinese sort of local and Provincial government policy kind of aligns with national party policy. And the weighting on these examinations is such that it has very, very weird effects. And what I'm specifically talking about here is that GDP numbers are very, very important to these cadre evaluations. And it matters that it's specifically gross domestic product, because GDP is a very, very weird number. And there's a lot of stuff you can do to sort of juice GDP numbers that aren't really necessarily beneficial to an economy. So you can have a bunch of firms that are basically unprofitable or doing something that's like, not particularly economically or socially useful and that can still boost GDP numbers. And one of the things that happens with this is that you can boost GDP numbers by making a shit ton of steel that nobody actually really wants or uses. And because of the priority that that's set on GDP numbers specifically. And there's also a whole bunch of these sort of weird financial games that you can play. That's also played a major role in the way the Chinese housing bubble has played out and the way that the government has been unwilling to sort of, you know, and when I say the government here, I mean both the national government and also sort of these lower level governments have been unwilling to sort of let a bunch of debt bubbles that they've accumulated pop because those things prop up GDP numbers. And the incentive on the local level is to keep these numbers up. This used to actually be one of the things that people would talk about when they talked about Chinese steel overcapacity. But it's complicated. Like, you can't very, very easily explain this to, you know, like a right wing congressperson and have them go, oh, yeah, right, this is unfair to the American market. And so it kind of has like fallen out of favor in sort of like the explanation to steel overcapacity you see in places like the New York Times. But I actually think this is one of the things that does to some extent cause Chinese steel overcapacity. Now, do you know what doesn't cause Chinese steel overcapacity? That's right. It is the products and services that support this podcast. So I wanted to talk about the local cadre explanations because I actually think these are kind of important. And I, I want to talk about one other argument that's also not really used much, that used to be a lot more common, which is an argument that a Chinese economist makes, that one of the reasons that there's overcapacity in Chinese steel production is that upwards wealth distribution leads to lower levels of consumption and thus overcapacity. And so what this basically means, and this is something that I think is actually also a thing that's been a structural problem in the Chinese economy, is that the Chinese economy is extremely highly unequal. And wages, you know, like, they have risen to some extent, but they're not rising anywhere near, you know, like we've, everyone in the US has seen that famous chart of productivity versus like labor gains, right? It was like wage gains versus productivity increases. Wages in China have gone up. They have absolutely not kept pace with sort of productivity growth. And they also absolutely like have not kept pace with the amount of the profit being produced that is going to a very, very small number of capital owners. And this actually creates a structural problem. And this is, we're seeing a very similar structural problem to this in the US where there is a lot of consumption, that if that money wasn't just all going to a bunch of rich people, people would actually be spending it on things. And particularly in Chinese context, the argument was that if there was a better distribution of wealth, people would buy more houses and this would actually reduce overcapacity because suddenly a bunch of the slack capacity would be to like build houses, except people can't afford the houses. And this is a structural problem that like economists have sort of known about for decades and decades, which is that China has been for a very long time. The whole thing was that they were trying to transition into a consumption economy, which is to say they were trying to transition into an economy that was fueled by its own internal consumption. The US is to a large extent, sort of, kind of works like this where, you know, you want to increase the level of consumption, the amount of stuff that people in your country are buying, buying. And this is, this is a way to sort of like create a middle income country, right? And China has historically not been able to do this and haven't been able to do this because they won't raise wages. But you know, if they won't actually raise wages enough to increase people's consumption levels, then you're left with structural overcapacity because demand is being lowered because people don't have any fucking money. Now this is another argument again that I think is also probably correct that is very much not talked about anymore because the argument that is used in sort of understanding what's going on with Chinese steel capacity is about the Chinese subsidization of state owned enterprises at the expense of sort of private firms. And the argument here basically is that the state is propping up a bunch of unprofitable enterprises and they're holding sectors of the economy that should be taken over by more efficient private firms, but they can't because they're being subsidized by the government. And this is sort of true, but this became a massive geopolitical argument because the argument from the American side, and when you hear anyone talking about steel capacity now this is the argument that you hear, right, which that China is flooding the world with cheap steel because there's a whole bunch of like Chinese state owned industries or just like Chinese businesses are just getting money from the Chinese government to produce steel and they're pumping cheap steel to the rest of the world. And this is not really, I mean like kind of this is happening, but it's also not the reason why there's large scale steel over capacity. And of course the argument is that China isn't competing fairly in the market. Like this is very silly. Markets have never worked without large scale state quote unquote interference. Like American companies also get extremely high level subsidization, et cetera, et cetera. See all of us corn policy. But you know, this is the political imperative that's behind a lot of the rhetoric coming out of steel producers and out of the American right about why there should be tariffs on steel. Now there's a problem though, which is that all of these arguments are very specific to China, right? The argument is that there is specifically steel over capacity in China because there's something structurally specifically wrong with the Chinese economy that makes it not a free market. And because of that, China's like unfairly competing global market. And this is why there's so much overcapacity of Chinese steel. This is wrong. There are individual parts of this where, yeah, like there are things where there is excess capacity being produced by cadre valuations and by to some extent like SOE subsidization. However, comma, there's a problem. And the problem here is that overcapacity and overcapacity in steel is not just a Chinese phenomenon, it is a global phenomena. It has been a global phenomena for a long time and it is largely a product of the fact that we do not live in a global economy that can actually support the amount of production capacity that exists in the world. This has been a problem really since the 70s and arguably even since the 60s where as countries rebuilt from World War II and as some, some sort of developments in global capital that we're going to be sort of like talking about soon happens, the, the product of all of this is that production has. And this is the, this is kind of the thing that the sort of fascist, right, kind of intuitively understands. Production has become zero sum, right? It's very difficult to increase production in one country without having it, you know, affect production in other countries. There isn't enough demand in the market to sort of like fuel all of these things. So why is there not enough demand to fuel the amount of supply that would be, that would be necessary to make there not be overcapacity? The answer to this in sort of Marxian theory is that as they sort of put it, overproduction and under consumption are doubly constructed. I'm going to read a quote from Endnotes volume two, and then we're going to explain a little bit what that means. The wage allocates workers to production and at the same time allocates the product to workers. So what that means is that under consumption and overproduction are in effect the same thing, right? Because the way that we allocate workers to what thing they're going to do and at the same time allocate products to those workers is the wage, which is one thing. So overproduction and under consumption are the same thing, right? And they're caused by the same structural elements of the wage relation. Now this means that the Chinese capacity crisis is actually part of a larger crisis, right? The thing about the double construction of overcapacity and under consumption, the fact that they are really the two thing that's unified in the fact that your wage allocates what kind of production you're doing and what you can consume. The fact that both those things combined are realized in this sort of secular crisis in what's called Marx's absolute general law of capitalist accumulation. So what the fuck is that? The short version is over time, in capitalist economies, there's supposed to be an increase of what's called the organic composition of capital. Basically, the organic composition of capital is a way to measure how much in the Libra process is fixed capital, variable capital. So it's like how much factory is there relative to the amount of worker? There is. And Marx's thesis, which has generally been borne out, although we'll talk a little bit about that more later, is that this composition is going to increase. And as it increases, accumulation also needs to increase in order to maintain employment levels. This is sort of accomplished by things like automation, which reduces the size of the labor force. And thus, to quote end notes again, as accumulation proceeds, a growing superabundance of goods lowers the Rate of profit and heightens competition across lines, compelling all capitalists to, as Mark said, economize on labor. So basically, what this means is like as. As capital gets turned into more capital and larger amounts of capital, this is the accumulation process. As this continues, right, you get this massive sort of increasing the amount of goods that are being produced. Eventually that lowers the rate of profit in a sector. And eventually what that does is in order to sort of economize on labor, capital increases the amount of automation, reduces the amount of people that they need in the labor process. This is what's generally known as automation. And the sort of crisis of people getting kicked out of the jobs because of it. As this process is sort of generalized across sectoral lines, across different parts of the economy, the relative demand for labor decreases and workers are spit out of the wage relation, which is the fancy Marxist way to say they become structurally unemployed. And, you know, the thing that happens when you get kicked out of the capitalist wage relation is you get kicked into informal labor and slums, which, you know, decreases demand and increases overproduction. At the same time, overcapacity is skyrocketing, right, because you have increasing numbers of people who have been spat out the formal economy, who no longer have access to regular wages. The wages they get in the informal economy are less than the ones they would get in the formal economy. And as we were saying, right, access to, like, the wage both determines production and consumption. So if you lose access to the wage, right, and there's still more stuff being produced because of automation levels, what you get is a massive skyrocketing double increase of overproduction and under consumption, right? Because there's just not enough money to fucking buy the stuff. And the result of this is immiseration. Everything gets fucking worse. This sort of used to be an academic argument. It is no longer an academic argument. It is just the terrain on which economic policy unfolds. Now, the immiseration thesis, as this, as you know, as a sort of like, general law of capitalist accumulation is called, has been argued about constantly. There have been ways that it's been avoided. One of the biggest ways traditionally has been by capitalism sort of transforming goods into services. So, for example, like the operative example of this is the transition in the US from rail lines to cars, something that endnotes points out. So you get these new industries that are both labor and capital intensive. By replacing train with car, you can absorb huge populations of workers as well as incorporate the peasantry into the industrial economy by sort of like converting these things into services. This has sort of been what the economy has been increasingly converted into, a service based economy of various kinds of. That's kind of what's happening now. And you can see this process at work in the Chinese economy back when it was really growing in the 90s and 2000s. But once the peasantry had been absorbed as both a new market and a new labor force with lower cost of reproduction because wages are cheaper, for a bunch of structural reasons, the old tendencies of capital set in. And so what happens inside of China was what was happening everywhere else in the world, which is that as labor saving technology begins to be implemented and a bunch of services refuse to be turned into new goods to bolster the ranks of the industrial working class, you get what's happened in the US which is this full transition to service economy shit that doesn't actually really grow. And if you look at Chinese growth rates, they've been slowing for a decade, actually a little bit longer than a decade. And so, you know, as China was integrated into the global economy, it too became caught in this cycle of industrial booms where, you know, you, you get an industrial boom where you have a country with favorable exchange rates, the US Dollar, that inevitably sets off, you know, the economies on the bad end of the exchange rate to collapse as they're forced to bear the weight of global overcapacity. As, as I've mentioned 100 billion times on this show, it is the one thing I will make sure every it could happen here listener will be able to explain the Plaza Accords and the reverse Plaza Accords, you know, but this is sort of, this is sort of what the reverse Plaza Accords and the Plaza Accords were about was the U.S. this is the last time the U.S. tried to, you know, use its just sort of like pure political power and military might to be like, eat shit, I'm going to force all of your countries to fuck with your currency so that our manufacturing economy will come back. And again, the US did that successfully and the Japanese economy collapsed because we kneecapped Japanese economy to do it. Right? And to some extent Trump is attempting the farce as farce version of this with, with these steel tariffs, right? To some extent this is, these tariffs are his attempt to pull the Reagan maneuver of, okay, we can just like force other countries to lower their capacity and increase our capacity at their expense. The problem is that again, this production is zero sum and if you do this, it will annihilate the rest of the global economy. And this is the sort of context behind all of the stuff that we've been seeing for the last like 30 years, which is that actual profit rates have been collapsing for ages. And right now we're in the middle of a just unbelievably, hideously, staggeringly massive bubble that is maintaining the sort of last like fake vestiges of economic growth where billions and billions and billions of dollars have been sunk into all of this AI bullshit. And it's, you know, like tech driven AI is a significant, specifically the AI stuff is a significant portion of total US economic growth. If you want to listen to why that's all going to go to shit, turn on effectively literally any episode of Cool Zone Media's own Ed Zitron's podcast Better Offline. And you will, you will hear a lot about this. But you know, this has been that like tech has been sort of the escape strategy of the United States traditionally. It's going to implode, it's going to do tremendous damage to everyone. But in the remains of that, and in this world in which profit rates are declining, and in this world in which increasing portions of the population are being spat out of the capitalist production cycle, in which increasing percentages of the world population are being kicked into an informal economy, and in this world of generalized overproduction under consumption, what's happening is that there is an enormous effort to get everyone to think that this is because of very specific tendencies of the bad government over there, right? That, you know, overcapacity and steel. Oh, it's just because the, like, the evil communist government in China is cheating at capitalism by giving their companies money and so we're going to do tariffs on them instead of that. And again, like, it's easier for these academics to make this argument because there is kind of stuff going on, right? Because there is this sort of cadre valuation stuff because there is to some extent state subsidization of steel production. They can present this boogeyman to sort of pin what is really a global overproduction and under consumption crisis onto just, you know, it's just this government we don't like. And then you can sort of implement these ultra nationalist tariff policies. It's, it's a way of deflecting the blame from capitalism onto another country and using nationalism to paper over the actual economic contradictions of capitalism. And if you want to escape that, it's not enough to sort of just get rid of Trump and go back to the previous free trade regime. You have to actually structurally change the thing at the center of all of this, which is the wage relation, right? You have to fundamentally change the fact that this economy, the entire economy, is based on there being classes of people who make money from owning things, and that there's an entire class of people whose labor is stolen every single day so that those other people can make money by owning things, who do all of the actual work. And that's what's actually fundamentally at stake here. It is this question of are we going to continue to do tariff bullshit or are we going to take power from the people who caused all of this, from Trump, from Elon Musk, from all of the billionaires, from Thiel, from all of the tech billionaires that funded them, from all of the Republican Party Koch brother networks? Are we going to destroy these people completely by getting rid of the social relations of capital that make this all possible? Or are we going to sit here and let them continue to produce AI videos of them shitting all over us while they take all of our money and commit an ethnic cleansing and continue to fund genocides abroad?
