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Capitalism from Below

Capitalism from Below: Markets and Institutional Change in China

Copyright Date: 2012
Published by: Harvard University Press
Pages: 360
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  • Book Info
    Capitalism from Below
    Book Description:

    Over 630 million Chinese escaped poverty since the 1980s, the largest decrease in poverty in history. Studying 700 manufacturing firms in the Yangzi region, the authors argue that the engine of China’s economic miracle—private enterprise—did not originate at the top but bubbled up from below, overcoming initial obstacles set up by the government.

    eISBN: 978-0-674-06539-0
    Subjects: Business, Sociology

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Figures and Tables
    (pp. ix-xii)
  4. Acknowledgments
    (pp. xiii-xviii)
  5. 1 Where Do Economic Institutions Come From?
    (pp. 1-11)

    The emergence and robust growth of a private enterprise economy in China was neither envisioned nor anticipated by its political elite. In launching economic reform in 1978, the initial motivation was to address failures of central planning within the institutional framework of state socialism. The political elite approved reform policies in order to stimulate productivity in a command economy weighed down by years of lagging economic performance. With their continuing emphasis on public ownership, the post-Mao reforms seemed nothing other than an ambitious project to shore up the state-owned economy in the aftermath of a calamitous decade of political turmoil....

  6. 2 Markets and Endogenous Institutional Change
    (pp. 12-40)

    In the decades following the start of economic reform in 1978, despite the weakness of formal rules protecting property rights, the private enterprise economy emerged as the fastest-growing sector. By 2008, it provided employment for more than 100 million people, roughly twice the size of the workforce employed by all government-owned enterprises. Through bottom-up endogenous processes, entrepreneurs created a parallel economy of more than 5.5 million officially registered private firms with more than $1.3 trillion of registered capital.¹ From outside the established economic order dominated by state-owned enterprises, entrepreneurs developed from the bottom up economic institutions that enabled them to...

  7. 3 The Epicenter of Bottom-Up Capitalism
    (pp. 41-71)

    If the private enterprise economy in the post-reform period has a geographical center, then it is in Zhejiang Province. This is where entrepreneurs first started private firms and—against then-current law—quickly expanded their businesses. This is where today some of the richest townships concentrate. And this is where domestic and foreign observers first sensed the rise of a distinctive entrepreneurial spirit. The enterprising character of people from Zhejiang, particularly from the city of Wenzhou as the epicenter of private firm development (often labeled the “Wenzhou model”), enjoys admiration nationwide.

    Accounts of robust entrepreneurial action and private wealth accumulation are commonplace here...

  8. 4 Entrepreneurs and Institutional Innovation
    (pp. 72-108)

    Entrepreneurial action drives the aggregate dynamics of capitalism, which in turn motivate the entrepreneur. This is the leitmotif in studies of capitalist emergence since the rise of capitalism as a new economic order in the West. In bottom-up accounts, the institutional conditions necessary and sufficient to launch economic growth do not depend ex ante on effective formal institutions to secure property rights and protect wealth from arbitrary expropriation by politicians and government. Instead, the focus is on specifying the endogenous rise of new institutional arrangements that enable, motivate, and guide self-reinforcing entrepreneurial action. Thus the entrepreneur is inseparable from explanations...

  9. 5 Legitimacy and Organizational Change
    (pp. 109-131)

    In the past, even with robust markets, traditional handicraft and commercial firms in the Yangzi delta did not give rise to “capitalist shoots” as in England and parts of Europe after the Reformation. Instead, family-owned businesses persisted in their traditional form, reliant on part-time household labor as an extension of the agricultural economy. The Qing government had sought to promote corporate development through the enactment of China’s first Company Law in 1904, but the corporate sector remained monopolized by the Western imperial powers and Japan. On the eve of the Communist takeover in 1949, almost 99 percent of the more...

  10. 6 Industrial Clusters and Competitive Advantage
    (pp. 132-160)

    As marginalized, semilegal producers located at the low end of the pecking order, private firms should not have emerged as the most dynamic sector of the Chinese industrial economy. Not only were private manufacturers unable to secure financial capital from state-owned banks, but they often experienced long delays and poor quality from government suppliers. It was the rapid entry of new private start-up firms despite these difficulties and the bottom-up formation of integrated industrial clusters (chanye jiqun) and production chains (chanyelian) of specialty suppliers that allowed private producers to compete in an economy still dominated by state-owned firms.

    The defining...

  11. 7 The Development of Labor Markets
    (pp. 161-194)

    An abundant, nearly limitless supply of young, healthy, and literate workers ready to shift out of agricultural production was a key factor fueling the rapid growth and competitive advantage of the private enterprise economy. In the early 1980s, in response to robust grassroots action to return to household farming by peasants in Anhui Province, one of the poorest and most populated provinces, reform leaders crafted the first major reform policy to dismantle the institutions of collectivized agriculture. In its place, the central government promoted nationwide the household responsibility system, which assigned to every rural household on a per capita basis...

  12. 8 Institutions of Innovation
    (pp. 195-225)

    A distinctive trait of capitalism is that manufacturers need to innovate not only to profit but also to stay in place and to survive. Without the ability to innovate, they would lose market share to a continuous entry of new start-up companies. Large numbers of new market entrants contribute to cycles of boom and bust characterized by quickly eroding profit margins and low survival rates. Absent the leading edge of innovation, such cycles will not give rise to sustained economic development. If the business cycle reflects only the effects of intense, predatory competition without the gains from innovation that are...

  13. 9 Political Economy of Capitalism
    (pp. 226-258)

    The bottom-up evolution of economic institutions made possible the diffusion of private enterprise as an organizational form. In the 1980s, private firms not registered as fake collectives operated in a gray zone as formally illegal businesses, significantly disadvantaged; yet private manufacturing grew in size and scope. Entrepreneurs started up small manufacturing firms with capital borrowed from friends and relatives and recruited unskilled and skilled employees in informal labor markets. In close-knit communities and social networks, enforceable trust and bounded solidarity motivated credible commitment to emergent business norms and economic institutions. Expectation of trustworthy behavior cemented confidence in contracts between principals...

  14. 10 Conclusion
    (pp. 259-264)

    What broader lessons do we draw from our study of the rise of capitalism in China? Our theory-driven narrative of the endogenous rise of economic institutions in the Yangzi delta region turns on mechanisms that are general. A duality of agency and social structure organizes this narrative: Entrepreneurs are the central agents who drive institutional innovations enabling capitalist economic development; once established, these emergent economic institutions facilitate additional bursts of entrepreneurial action that lead to tipping points in the expansion of the private enterprise economy. Within business communities, multiplex relationships provide the sinews of enforceable trust and the conduits of...

  15. APPENDIX 1: Firm Surveys
    (pp. 265-350)
  16. APPENDIX 2: List of Interviewees
    (pp. 351-354)
  17. Notes
    (pp. 355-400)
  18. References
    (pp. 401-422)
  19. Index
    (pp. 423-431)