Editor's Note: The following essay has been excerpted from the German best-seller "World War for Wealth: The Global Grab for Power and Prosperity" by SPIEGEL editor Gabor Steingart. SPIEGEL ONLINE is publishing a series of daily excerpts from the book.
When it comes to redistributing power and wealth, the state plays an important -- one could argue a decisive -- role. In the West, governments ensure that the most productive members of the economy help the whole of society. Companies keep most of the profits. But not all.
The result is beneficial to everyone, and not just to those directly involved in producing wealth. The social welfare state facilitates the transfer of money from the sphere of production to those sectors of society where no wealth is produced, only consumed. Wealth created in society's economically productive core thus reaches those people on the perimeter not directly involved in a countrys economic activity. Take pensioners as an example. They were once part of the productive core, but now are not -- they have meandered from the hot core to the cold crust. The money these retirees need to survive is now earned by those working today.
This linking of the working world with those who have already retired is called a generational contract. It is a system characteristic of most countries in the West where the core and the crust are connected.
Children are also on the non-productive fringes of society, though they are moving in the opposite direction of the pensioners. Eventually, children will enter the societys economic core and will begin to make their contribution to the production of wealth.
It is important to understand the role of the Western state in all this: The state ensures that the productive sphere is linked to the unproductive sphere -- that capitalism and the welfare state work together. It is a cooperation that reaches back as far as 100 years in some instances and has developed into a number of stable pacts known as the social safety net. It is a system that cannot be cancelled -- indeed it is one of the inalienable characteristics of Western economic systems.
A departure from the welfare state
Around one-third of the wealth created in Europe is transferred from the wealth-creating core to the non-productive fringes of society. Thus, on average in 2003, each of the 82 million Germans -- from the youngest to oldest -- received around €8,400 ($10,500). The social budget -- the money pulled from the economy and transferred to the social net -- comes to around €700 billion in Germany and almost €3 trillion across Europe.
In Germany, the obligation to redistribute wealth is explicitly stated in the constitution. It stipulates that society must use energy created at the productive center to warm those who might otherwise be freezing at the margins. The United States is similar: The government, together with the respective companies, provides a social net for the firms' current and former employees. Indeed, the biggest pension funds in the world are to be found in the United States.
In China, the state has another function entirely: It acts as a firewall between societys center and those at the fringes in order to ensure that nothing from the boiling core is ever allowed to cool at the outer edges. The retreat of state-controlled industry meant bidding farewell to the social net -- a notion Karl Marx would have despised.
When Deng Xiaoping took over leadership of China's Communist Party in the mid-1970s, he described the country as being in an "advanced state of socialism." But he didn't like what he saw and instead decided to set the country back a step to what he described as the "first stage of socialism." The reforms he pushed through ensured that virtually all of the country's social pacts were broken.
Life-long employment contracts were replaced with temporary contracts, and firing workers became a possibility. If employees refused to buy the apartments their companies had provided for them, they were simply forced out. In the private sector, social welfare was ignored right from the outset. It was left up to the family -- or nobody at all -- to take on the social responsibility the government and companies had abandoned. Since then the state has stood ready to defend the separation of the haves from the have-nots with force. And the China of today is home to the ugliest labor market practices in the world.
Giving property more rights than people
Still, the Chinese Communist Party listens to the desires of its subjects and even pays lip service to them. In its 11th five-year plan, which provides an economic and social blueprint for China from 2006-2011, Beijing laid out its goal of building "a harmonious socialist society" by 2010. But the truth is that the Communist Party has just set up the biggest subsidy program for capitalists the country has ever witnessed. Such support existed before, but in secret, almost conspiratorially. It is now part of the governments stated goals.
The Chinese communists are making no secret of their shift in mentality. The constitution has even been amended -- a message to everyone that this is no reform, but a revolution. Until March 2004, the state had been responsible for the "guidance, control and regulation" of the private sector. The state was the big brother that disciplined and badgered private companies -- it carried the carrots and sticks. The new constitution has, for the first time, declared private property to be a private matter.
Property is now defined as inviolable. Even inheritance will be protected in China in the future. Article 11 of the recently approved constitution even calls on the state to serve the private sector and to provide "encouragement and support" to the capitalists. The redistribution of privately earned wealth for the good of society, as the German constitution stipulates, is thus transformed into a state responsibility for protecting the private sphere. Capitalists are the new ruling class and property in China is now bestowed with more rights than the people. Indeed, no other country in the world courts its entrepreneurs to the extent that China does.
Death has even been accepted as an unpleasant but inevitable side-effect of rapid Chinese economic growth. According to Western estimates, there were around 100,000 fatal workplace accidents in China in 2005 -- some 10,000 of those the result of mining accidents. These are the largest such fatality figures that any country has ever reported. Another dimension often brushed off as a side effect is child labor. To promote exports, a significant part of the economic boom, around 7 million Chinese children are sent out to work. In Asia as a whole, that figure is around 130 million. They weave carpets, carry heavy loads, build plastic toys -- but most of all, they drive down prices.
Marx's worst nightmare
Unfettered capitalism on this scale has not been seen since the Wild West days of the industrial revolution. Children are deprived of a childhood and workers of their good health. Indeed, one could be forgiven for thinking that Karl Marx learned everything he knew about the viciousness of capitalism in Chinese mines and Indian textile factories. "Capital eschews no profit, or very small profit, just as nature was formerly said to abhor a vacuum," Marx wrote. "With adequate profit, capital is very bold. A certain 10 percent will ensure its employment anywhere; 20 percent will produce eagerness, 50 percent positive audacity; 100 percent will make it ready to trample on all human laws; 300 percent, and there is not a crime which it will not scruple, nor a risk it will not run, even to the chance of its owner being hanged."
Even the 70 million members of the Chinese Communist Party stand at their service when major corporations make demands. As former president and party leader Jiang Zemin said at the beginning of the new millennium, what began as a party of intellectuals under the emperor now feels beholden to three separate groups. The Communist Party wants to serve the workers and farmers, the creative sector and the developmental needs of the advanced production forces all at the same time. Corporate envoys, such as the chairman of the Chinese manufacturing company Haier, have moved into the partys revered inner sanctum, its Central Committee.
Chinese communists have changed, too, and they are no longer the brand of communists we remember from Moscow. Instead they are nationalists who, after decades of going in the wrong direction, now want to guide the country into the elite club of the worlds wealthiest states.
Today large parts of the country make up a special economic zone, which has the sole aim of allowing profit in its purest, almost crystalline, form to develop. The productive centers of China and India are constantly being enriched with new energy from the population on the fringes of society. The states role has become that of looking after poor and unemployed agricultural laborers by integrating them into the production process. But what may sound like a contradiction isnt. The states role is actually that of helping no one. The process of integration into production is the natural result of the conditions that have been created.
The contrast with the West couldnt be greater. Whereas European workers are increasingly landing in early retirement programs, in work-creation schemes, or on the dole, Asia is heading in the opposite direction. New employees are constantly being brought into the production process -- albeit under the brutal work conditions dictated by the system. The non-existing social state thus fulfils a further function. It not only keeps the inner-core of the economy from wasting energy by heating the fringes, it also brings extra manpower into the system. Because of the lack of social welfare, these workers have no choice but to offer their services at any price.
Companys profits come from the difference between the starvation wages earned by employees and the money made from sales. This is what fuels the steadily increasing temperature at the center of the Chinese, Indian and many other Asian economies. The massive amount of manpower available means that labor costs will remain as cheap as they currently are for the foreseeable future. Each year, millions of people in China alone leave the countryside in order to serve the countrys industry. They live in cramped quarters, share beds with one or two other workers and make do with wages as low as a few cents an hour. And there are an estimated 175 million unemployed people in China and 100 million unemployed people in India who can still be utilized. And that's not even to mention the 375 million people still tilling the land in each of the two countries who are just waiting to get their chance in the city. This manpower reserve alone is larger than the entire working population of the United States and Europe combined.
With both Asian empires still far away from their zenith of population growth, this manpower boom will continue undiminished in the coming years. And as long as it remains possible to employ these people for next to nothing, they will remain a reserve army for Asian industry -- making them India and Chinas biggest advantage in the global economic war. This may lead to worker suffering, but it will also strengthen the countries' economies.
It is important to understand the difference between a state on the march and a society on the wane: The unemployed dont have the same significance in every part of the world. In the West, the unemployed signify the past and are a burden to the state because they cost money. Those out of work in China, on the other hand, are the energy reserve of the future - and are useful to the economy because their presence helps keep wages down for those who do have jobs. They ensure that the Chinese workers who are already employed stay cheap and cheerful.
They also help keep labor costs down elsewhere. When hourly wages fall in China, they fall across Asia. In Taiwan, one of the most developed countries in the region, the monthly salary of the average worker declined from €1,200 per month in 2000 to €850 per month in 2005.
The strategy of the Asian leaders is both brutal and clever. Brutal, because governments are now excluding millions of their fellow citizens from growing prosperity. Many people in the countryside, in particular in the north of the country, see a China on television that has little to do with their daily lives. But the strategy is also clever because it allows the state to jealously guard its core growth. The result could very well be an export industry of proportions terrifying to the rest of the world.