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Despite common misconception, China's socialist market economy is actually more inline with classical Marxism than historical economic systems. A lot of westerners are brainwashed by their media to believe that socialism = the Stalin Model of the USSR, that "true Marxism" is whatever Stalin wrote and because most socialist countries abandoned the Stalin Model, therefore "they abandoned Marxism and it's a thing of the past."

However, this isn't actually true, but in fact modern day China is more directly what historical Marxists like Marx, Engels, Lenin, and Hilferding had openly called for rather than the Stalin Model. To understand this, you have to understand the basics of what Marxian theory says, so let me give you a brief rundown.

Marxism is basically the idea that human societies are material things just like anything else so there is no reason we cannot study them as a material science. If we study human societies scientifically, we can gain an understanding of how they develop and evolve. If we know this, we can use it to inform our politics, kind of like how you can use biological science to inform medicine.

But how do you actually develop a science of how human societies develop? This is where historical materialism comes into play. Historical materialism is the notion that the direct connection between humanity and nature is through production: the transformation of nature into the means of subsistence to propagate the continuation of that society. Human society thus naturally structures itself around production, and the structure of that society will depend upon the available productive forces at the given time.

The productive forces are just whatever plays a role in the production process: infrastructure, technology, education institutions, etc. Marx once gave an analogy as to how when firearms were invented, the whole structure of battles had to change, because you could not use old battle tactics in an era with new tools of battle. As the productive forces develop (new infrastructure, tech, institutions, etc) it gradually leads to a change in how society structures itself.

Engels once compared historical materialism to Darwinian evolution but for the social sciences. The comparison here wasn't meant to draw attention to the natural selection part, but to the gradual change part. Over many centuries, how human societies organize themselves can gradually change (due to gradual improvements in the productive forces) to the point where society today looks incredibly different than how society was organized a few hundred years ago. Marx, for example, credited the dissolution of the feudal system largely to the industrial revolution, because the feudal organization of society was centered around agriculture and it required the industrial revolution to break free of agricultural-centric production, thus rendering the feudal system obsolete.

Marx also believed that eventually, too, human society would change so much that capitalism would eventually become obsolete as well. Why? His argument was effectively that if you follow any sector of the economy, it has a tendency to become dominated by larger and larger enterprises over time, what he called the laws of the centralization and accumulation of capital. Free markets are always temporary and if you follow any sector of the economy long enough it will eventually become dominated by monopolistic corporate giants. Interestingly, Marx made this prediction in a time where this hadn't yet occurred to a high degree, but it's obvious today it is true.

The capitalist system is based on private property, which makes sense in a world dominated by small enterprise. But as small enterprise centralize into larger and larger enterprises, capitalism becomes a less effective model. A small number of big private enterprises inherently implies an enormous stark contrast in wealth inequality, and huge wealth inequality means a huge power imbalance, i.e. as capitalism develops there will be more social instability because fewer and fewer people will control everything while the overwhelming majority of people have less and less political influence. On top of this, capitalist enterprises don't have really any incentives to continue developing once they reach monopolistic status.

Marx did not believe in the liberal solution that you can just "bust up" big enterprises forever. Yes, sometimes enterprises become big due to bad monopolistic practices, but sometimes they become big because what they are producing is big. You can't start a smartphone manufacturing plant in your garage, it takes hundreds of millions in capital to even begin producing smartphones. "Busting up" one of these big companies will actually destroy their ability to continue production.

Hence, Marx believed highly-developed capitalism with very advanced productive forces actually begins to outgrow the utility of the capitalist model and that there is nothing you can do in the framework of capitalism to salvage it. You have to change the framework by nationalizing the big enterprises, to change their incentives and to resolve social instability by handing the power back to the people.

You have to understand this to understand China's model and why classical Marxism is more inline with the Chinese model than historical models. You see, the point of nationalizing private enterprise is not a moralistic one, it is not because "private property = evil and bad." Marx was not developing a moral philosophy but a scientific analysis. The point of nationalizing private property is to resolve the contradiction between big enterprise and capitalism (between "socialized production" and "private appropriation"), because the capitalist system is simply not suited for big enterprise.

Hence, in a classical Marxist framework, it only makes sense to nationalize big enterprises. It is actually in contradiction to classical Marxian economics to try and nationalize the whole economy, and in fact most early Marxists all in agreement on this. For example, if you even read the Manifesto, you will see that when Marx actually put forward policy proposals, he only suggests an "extension" of enterprises owned by the state and that the rest could come "by degrees" (gradually) alongside the development of the productive forces.

The proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total of productive forces as rapidly as possible....the following will be pretty generally applicable...Extension of factories and instruments of production owned by the State

Manifesto

The reason he says gradually alongside the development of the productive forces is because if Marxian economics generally holds true, then over time all sectors of the economy will become dominated by big enterprise and ripe for nationalization given enough time. But this of course takes a very long time, small business sector is still very large in even very developed countries.

Marx/Engels were openly opposed to simply nationalizing small businesses because in a Marxian economic framework they have to develop into big enterprises as a result of market forces. So they have to remain on the market sector as long as that sector is dominated by small enterprise.

Free competition is necessary for the establishment of big industry, because it is the only condition of society in which big industry can make its way....Will it be possible for private property to be abolished at one stroke? No, no more than existing forces of production can at one stroke be multiplied to the extent necessary for the creation of a communal society. In all probability, the proletarian revolution will transform existing society gradually and will be able to abolish private property only when the means of production are available in sufficient quantity.

The Principles of Communism

In fact, even Lenin agreed with this. He had said repeatedly that it would be "suicide" for any communist party to try and disperse the small producers by force and that we have to learn to live with them.

What is to be done? One way is to try to prohibit entirely, to put the lock on all development of private, non-state exchange, i.e., trade, i.e., capitalism, which is inevitable with millions of small producers. But such a policy would be foolish and suicidal for the party that tried to apply it. It would be foolish because it is economically impossible. It would be suicidal because the party that tried to apply it would meet with inevitable disaster. Let us admit it: some Communists have sinned “in thought, word and deed” by adopting just such a policy. We shall try to rectify these mistakes, and this must be done without fail, otherwise things will come to a very sorry state.

The Tax in Kind

The abolition of classes means, not merely ousting the landowners and the capitalists—that is something we accomplished with comparative ease; it also means abolishing the small commodity producers, and they cannot be ousted, or crushed; we must learn to live with them.

"Left-wing Communism": An Infantile Disorder

Yes, China has a private sector, but half the private sector is self-employment, and the other half is almost entirely dominated by small enterprise. It makes zero sense in a Marxian framework to nationalize that sector, and the only justification of nationalizing it is a purely moralistic one: "private property bad." The problem is that Marxism is a science and not a moral philosophy, and Marxian economics tells us that we have to sustain the market sector in order to maximize development. The moralists were the Gang of Four who said that they would prefer to be poor than to have a market sector.

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