‘The Third Wave of Socialism’ (社会主义的第三次浪潮) was originally published in Wenhua Zongheng (文化纵横), issue no. 3 (June 2021).

Capitalism Is Facing a Major Crisis

The 2008 financial crisis and the global COVID-19 pandemic have made clear that capitalism is facing a major crisis. The global economy has experienced prolonged stagnation and decline, widespread unemployment, profound wealth disparities, excessive debt, and asset bubbles. Most tragically, this has been accompanied by a significant loss of human life. The current crisis of global capitalism is the largest and most severe since the Great Depression (1929–1933).

Within this crisis, the limits of capitalism – market, technological, and ecological – have become increasingly apparent. First, new markets and sources of profit have grown scarce, leading to a diminishing driving force for capital accumulation. Second, although crisis-driven technological innovation has remained active, the benefits of such innovation are increasingly concentrated in the hands of a few, leaving the large majority of people marginalised within the current capitalist system. Third, the Earth’s ecosystem can no longer sustain the pressures imposed upon it by capitalist modes of production and lifestyles, as the world’s environmental capacity has been pushed to its limit.

The means traditionally used to resolve capitalist crises have failed, one by one, under the current crisis. After nearly four decades of neoliberalism, capitalist governments are facing a public spending crisis – their push for even more structural economic reforms to stimulate private capital is at odds with the need to maintain the minimum levels of social welfare. Quantitative easing policies have repeatedly created enormous asset bubbles and debt spirals, exacerbating the already severe wealth disparities.

Under this crisis, there has been a resurgence of many of the features that characterised the global capitalist landscape prior to World War I and World War II: the growth of populism, militarism, and fascism; the intensification of internal social divisions; an increase in hostility and zero-sum competition between nations; and trends toward deglobalisation and bloc politics. As international tensions rise, so too does the possibility of another global war.

Crises ignite wars and wars lead to revolutions. This has been a recurring theme in the history of the capitalist system. In the third decade of the twenty-first century, amid this major crisis, will capitalism undergo profound reforms and overcome the crisis? Or is this capitalism’s ‘Chernobyl moment’, as it heads towards its ultimate demise?

History has once again arrived at a critical juncture.

The Three Waves of Socialism

As a critique of and movement against capitalism, socialism has always coexisted alongside capitalism, serving as a powerful counterweight and constantly seeking alternative paths to overcome and replace capitalism. Since the birth of the First International (1864–1876), the global socialist movement has experienced three major waves.

The first wave occurred in nineteenth-century Europe as the European labour movement gradually transitioned from a state of being to a state of self-awareness. The main features of this period included the birth of Marxism, the establishment of international labour organisations, and the initial attempts to carry out a socialist revolution, such as the Paris Commune of 1871. The first wave of socialism propelled the political awakening and consciousness of the working class and gave rise to working-class political parties in a range of countries. However, during this wave, a socialist state form would not yet emerge.

The second wave began as World War I came to an end, with the October Revolution in 1917, and lasted until the dissolution of the Soviet Union and the communist states in Eastern Europe from 1989 to 1991. Across the world, a large number of socialist states emerged, first in the Soviet Union and Eastern Europe, and, after the end of World War II, in China, Cuba, Korea, Vietnam, and elsewhere. Together, these countries formed a global socialist system or camp. In addition to this state system, during the Cold War, a large section of the international socialist movement was concentrated in the national liberation movements of Asia, Africa, and Latin America, many of which identified as socialist or were significantly influenced by socialism. Thus, the two main characteristics of the second wave of socialism were the emergence of the socialist state form, with widespread public ownership and economic planning, and the national liberation movements.

After the end of the Cold War, socialism suffered significant global setbacks. However, despite this, a new wave would emerge. The third wave, which began to form after China launched its reform and opening up in the late 1970s, was able to withstand the severe shocks and tests following the dissolution of the Soviet Union and the communist states in Eastern Europe. While socialism was at a low point worldwide, China remained committed to socialism while also pursuing reform and opening up, gradually exploring a path known as socialism with Chinese characteristics. The main feature of socialism with Chinese characteristics has been the incorporation of a market economy into the socialist system, gradually forming a socialist market economy. Today, just three decades after the end of the Cold War, socialism with Chinese characteristics has undergone a rapid rise, becoming a crucial force that is reshaping the world order and humanity’s future. Although this wave of socialism is still in its early stages, it has already made a significant impact and attracted global attention, providing new options for countries that seek to pursue a path of independent development and posing a strong challenge to those who contended that capitalism marked the ‘end of history’.

Limitations of the Second Wave of Socialism

Before proceeding further in assessing the current reality and future prospects of the third wave of socialism, we must first revisit the second wave of socialism and understand the reasons for its setback.

With the October Revolution in 1917 and Chinese Revolution in 1949, socialism swept the globe, not only forming a camp of states that posed a significant threat to capitalism but also igniting a wave of national liberation movements in the vast Third World of Asia, Africa, and Latin America. In the decades after World War II, the capitalist world system was in a precarious situation. As socialism spread globally, socialist countries widely implemented Soviet-style planned economies and public ownership systems, achieving the initial stage of industrialisation and building socialist national economic systems.

However, the Soviet-style planned economy and pure public ownership model had several profound drawbacks. First, the planned economic system was unable to allocate social and economic resources in an effective and flexible manner, resulting in a rigid and distorted national economic system that could not adequately respond to indicators from the real economy. Second, the pure public ownership and egalitarian distribution system lacked sufficient incentive mechanisms for labour at the intermediate and micro levels, leading to a lack of constructive competition and pressure between enterprises and workers, and resulting in a generally low level of economic efficiency. Third, the restrictions on and elimination of private and commodity economies violated the law of value and surpassed the stage of development of social productive forces. This led to a long-term, systemic failure to meet the complex needs of economic and social life and to realise significant improvements in people’s quality of life. Finally, over time, Soviet-style planning and economic management led to the development of an increasingly inward and closed system, characterised by bureaucratism and dogmatism, and a lack of sensitivity and responsiveness to technological progress and organisational innovation.

While the significant setbacks that the second wave of socialism experienced in the 1980s and 1990s can be attributed, in part, to external factors such as the strength of the capitalist world system and the fragmentation of the socialist camp, ultimately, the inadequate economic and social operating systems and institutional mechanisms within socialist countries were the fundamental determining factors. The unsustainability of these internal systems drove the dramatic changes in the Soviet Union as well as China’s shift towards reform and opening up.

Socialism with Chinese Characteristics and the Third Wave of Socialism

With the continuous advancement of reform and opening up, socialism with Chinese characteristics has taken shape as a development path that is distinct from both traditional Soviet-style socialism and classical free-market capitalism. China’s developmental path and theories are confidently stepping onto the world stage. Although socialism with Chinese characteristics is not a static model and China’s practices undergo continuous experimentation, after more than four decades of exploration, six major features can be identified.

First, priority has been given to the development of productive forces. Socialism with Chinese characteristics dares to learn from reasonable economic forms of capitalism and allows the development of the private economy to promote the rapid development of advanced productive forces. At the same time, the development of the state-owned economy has been strategically planned in key sectors, forming a complementary relationship with the private economy and creating a mixed ownership structure.

Second, China has promoted the close integration of its socialist economic foundation and relations of production with the market economy, to gradually establish a socialist market economic system.

Third, while opening up and integrating with the global capitalist system, China has always focused on maintaining national sovereignty and ensuring the continued socialist nature of the Communist Party of China (CPC). China remains vigilant against the risk of deviating towards capitalism due to the demands of developing a market economy.

Fourth, China has sought to address issues related to social justice and inequality through development. Development can bring about a growth in wealth but, for various reasons, this wealth may also lead to increased social divisions. Only further development can produce the social wealth and material basis to resolve these social divisions and inequalities. Under socialism with Chinese characteristics, development has been the primary avenue to address social justice issues, while other methods have been secondary. This has required dynamic, proactive measures, rather than rigid and one-size-fits-all approaches.

Fifth, the state has also employed a number of other measures to balance wealth inequality within the socialist market economy. Large-scale poverty alleviation campaigns have been carried out to include marginalised groups in the market economy and help them escape poverty through targeted efforts. In addition, the practice of paired-up assistance connects developed areas, public institutions, enterprises, and other actors with poor areas to transfer resources and assistance to underdeveloped regions. Meanwhile, to address regional inequalities, transfer payments from more developed eastern regions to underdeveloped central and western areas have helped to supplement gaps in fiscal revenue and expenditure capacity. Such measures are difficult to imagine, let alone implement, in capitalist countries where private property is considered sacrosanct and where electoral processes only uphold the vested interests of the dominant class.

Sixth, the CPC is not beholden to the narrow interests of certain sectors of society. To maintain this position, the CPC must remain free from the infiltration and control of capital, as well as overcome the influences of populism and rigid egalitarianism, maintaining a dynamic balance between economic vitality and social equity.

The Relationship between Socialism and the Market Economy

History has demonstrated that it is impossible to artificially eliminate the market economy under socialism. The limitations and ultimate failure of traditional Soviet-style socialism serves as evidence.

The market economy is an ancient economic form, and its law of supply and demand spontaneously regulates human economic behaviour. It can be combined with feudalism, capitalism, and socialism. The degree of combination depends on the surplus of social products. Generally speaking, the greater the surplus, the more developed the market economy becomes. As Deng Xiaoping (邓小平) said, ‘There is no fundamental contradiction between socialism and a market economy. The question is how to develop the productive forces more effectively’.^[1] Similarly, he stated, ‘A planned economy is not equivalent to socialism, because there is planning under capitalism too; a market economy is not capitalism, because there are markets under socialism too. Planning and market forces are both means of controlling economic activity’.^[2]

In the movement of a modern market economy, capital is the main actor. Capital has a dual nature: it is the most efficient force for resource allocation in the market economy, but it can also manipulate and monopolise the market. Fernand Braudel, French historian and leading scholar of the Annales school of historiography, argued that the market economy could not be equated with capitalism. For Braudel, the market economy ‘is really only a fragment of a vast whole. For by its very nature, the market economy is reduced to playing the role of a link between production and consumption, and until the nineteenth century it was merely a layer – more or less thick and resilient, but at times very thin – between the ocean of daily life that lay stretched out beneath it and the capitalistic mechanism that more than once manipulated it from above’.^[3] Distinct from the market economy, Braudel wrote that ‘capitalism is the perfect term for designating economic activities that are carried on at the summit, or that are striving for the summit. As a result, large-scale capitalism rests upon the underlying double layer composed of material life and the coherent market economy; it represents the high-profit zone’.^[4] In today’s global market economy that is dominated by modern capitalism, internal forces that resist capitalism continue to emerge, giving rise to demands and movements for economic and social equality. These movements will gravitate towards and advocate for socialism to address and overcome capitalism’s inequalities. As such, socialism is also an internal force of the market economy, an organic component that naturally opposes capitalism.

In addition to capital, the government is another key actor in a modern market economy. The government is a product of the market society’s demand for order and rules. Its existence is not an external force imposed on the market but an intrinsic requirement of the market economy. Even in a market society without a government, quasi-governmental entities such as guilds and chambers of commerce will emerge. Besides regulating and managing the market economy, the government often promotes and develops the market, especially during the early stages of market economies in developing countries. In fact, the government frequently becomes the driving force behind the market economy. Therefore, it is fundamentally incorrect to place the government and the market in complete opposition to one another as dichotomised entities. Liberalism regards the government as an absolute evil, while Soviet-style socialism directly equates the market economy with capitalism – both make formalistic errors.

A socialist market economy is one in which the movement of the market economy is guided by socialist values. On the one hand, this economic system employs national strategic regulation, fully leverages the fundamental role of the market economy in organising production, exchange, guiding consumption, and distribution, and fully harnesses the leading role of capital in developing advanced productive forces. On the other hand, it utilises the powerful state-owned capital and the socialist superstructure to restrain and balance private capital, overcome the inherent tendency of the market economy towards social division, and avoid capital’s control over economic and social life.

The socialist market economy is a system that utilises the decisive role of the market economy while optimising the government’s function. It represents the combination of the modern market economy and the socialist mode of production.

Maintaining the Socialist Character of a Socialist Market Economy

Capitalism constructs a superstructure and ideology that are compatible with its mode of production according to the logic of capital’s operation. Under the conditions of a socialist market economy, this logic does not change. The spontaneous movement of the market economy and the pursuit of profit by capital entities within it will continuously erode the superstructure and ideology of socialism, and may lead to the imbalance or even disintegration of the socialist market economy, leading society towards capitalism. In the era of global capitalism, the challenges faced by socialist market economies within sovereign nations become even more apparent as capital penetrates national borders. How then has China been able to maintain the socialist character and direction of its socialist market economy?

First, the key lies in upholding the leadership of the CPC and ensuring that the socialist nature of the party remains unchanged. In the socialist market economy, the CPC has fully leveraged the role of capital in developing advanced productive forces and promoting the continuous growth of social wealth, while ensuring that the party is not infiltrated nor manipulated by capital. The party has actively controlled capital and made it serve the majority of the people. General Secretary Xi Jinping has emphasised the essential relationship between the party’s leadership and socialism, stating that, ‘The leadership of the Communist Party of China is the defining feature of socialism with Chinese characteristics and the greatest strength of the system of socialism with Chinese characteristics’.^[5]

Second, the stable operation of the socialist market economy also results from the fact that China has accumulated a large amount of state-owned assets during the past seventy years of development, including state-owned enterprises, state-owned financial institutions, and state-owned land. State control of these massive strategic assets forms the foundation of the CPC’s governance and ensures the party’s independence from capital forces, allowing it to govern based on the fundamental interests of the country and the people.

Under the conditions of a socialist market economy, state-owned enterprises and state-owned capital must also operate and compete according to the laws of the market economy. The logic of the market and capital deeply penetrate the daily behaviour of not only private enterprises, but also state-owned enterprises. Therefore, it is particularly important to ensure that the managers of these massive state-owned assets do not become agents of the bourgeoisie, so as to prevent managers from transforming state-owned assets into private assets or establishing internal control that is beholden to bourgeois interests. To maintain the socialist character of the socialist market economy, the CPC must ensure both the operational efficiency and the continued state ownership of these assets.

Third, the superstructure and ideology of socialism must be firmly controlled by the party. In industries or sectors such as education, publishing, and media, the pursuit of economic benefits must be subordinate to social benefits. The logic of the market economy should not dominate these sectors, and the party’s leadership must be integrated into their daily operations. If socialism does not provide ideological and cultural leadership, capitalism inevitably will.

Fourth, under the conditions of a market economy, the CPC has led the development of civil society and non-governmental organisations. The growth of these social forces is an inevitable phenomenon in a market economy. Due to the differentiation effect of the market economy, demands from different interest groups arise to address issues such as wealth inequality, environmental degradation, the demoralisation of society, and other problems generated by private capital. Due to China’s strong historical tradition of ‘bureaucratic feudalism’, the development and construction of these social forces can help overcome excessive bureaucracy and formalism within government departments. Therefore, the party has led the development of these social forces and encouraged them to organise, to promote the stable and long-term development of the socialist market economy.

Promoting the Third Wave of Socialism

At a time when the contemporary capitalist world system is facing tremendous crises, the opportunity for a new global wave of socialism has once again emerged. Socialism with Chinese characteristics is likely to be a key factor in initiating this wave. As China continues to rise and becomes a leading global power, the Chinese path of development will attract more attention as a viable alternative mode of production and way of life, promoting the formation of a new global socialist system and value system that is increasingly accepted by people around the world.

At the same time, during this historic transition period, socialism with Chinese characteristics will also face particularly acute challenges and dangers. Since the 2008 financial crisis, and especially since the COVID-19 outbreak, the strengths of Chinese socialism have become increasingly evident on the international stage. China has turned many of these crises into opportunities, propelling the country to a higher level of development and enhancing its governance system and capacity. The stark contrast between China and Western countries in these respects has fundamentally shaken the narrative of Western capitalism; something that has a greater impact than mere military power and economic growth rates.

In response, various forces of international capitalism are mobilising against China. Attacks and smears from liberal, nationalist, and populist political forces are endless. Even some international left-wing forces harshly criticise China on issues of democracy, human rights, and environmental protection, and even question whether China is truly socialist. Since the Biden administration came to power in the United States, alliance politics have ramped up on a global scale. A US-led bourgeois ‘holy alliance’ is rapidly coalescing under the pretext of containing China.

The emerging third wave of socialism will undoubtedly face a dark night and experience even more intense turmoil and chaos within the capitalist world system. In response, Chinese socialists must be prepared.

Bibliography

Author’s Notes