Chinese Capitalisms: Historical Emergence and Political Implications

International Political Economy Series General Editor: Timothy M. Shaw, Professor and Director, Institute of International Relations, The University of the West Indies, Trinidad & Tobago Titles include: Pradeep Agrawal, Subir V. Gokarn, Veena Mishra, Kirit S. Parikh and Kunal Sen POLICY REGIMES AND INDUSTRIAL COMPETITIVENESS A Comparative Study of East Asia and India Roderic Alley THE UNITED NATIONS IN SOUTHEAST ASIA AND THE SOUTH PACIFIC Dick Beason and Jason James THE POLITICAL ECONOMY OF JAPANESE FINANCIAL MARKETS Myths versus Reality Mark Beeson COMPETING CAPITALISMS Australia, Japan and Economic Competition in Asia-Pacific Deborah Bräutigam CHINESE AID AND AFRICAN DEVELOPMENT Exporting Green Revolution Shaun Breslin CHINA AND THE GLOBAL POLITICAL ECONOMY Kenneth D. Bush THE INTRA-GROUP DIMENSIONS OF ETHNIC CONFLICT IN SRI LANKA Learning to Read between the Lines Kevin G. Cai THE POLITICAL ECONOMY OF EAST ASIA Regional and National Dimensions THE POLITICS OF ECONOMIC REGIONALISM Explaining Regional Economic Integration in East Asia Steve Chan, Cal Clark and Danny Lam (editors) BEYOND THE DEVELOPMENTAL STATE East Asia’s Political Economies Reconsidered Gregory T. Chin CHINA’S AUTOMOTIVE MODERNIZATION The Party-State and Multinational Corporations Yin-wah Chu (editor) CHINESE CAPITALISMS Historical Emergence and Political Implications Abdul Rahman Embong STATE-LED MODERNIZATION AND THE NEW MIDDLE CLASS IN MALAYSIA Dong-Sook Shin Gills RURAL WOMEN AND TRIPLE EXPLOITATION IN KOREAN DEVELOPMENT Jeffrey Henderson (editor) INDUSTRIAL TRANSFORMATION IN EASTERN EUROPE IN THE LIGHT OF THE EAST ASIAN EXPERIENCE Takashi Inoguchi GLOBAL CHANGE A Japanese Perspective

Dominic Kelly JAPAN AND THE RECONSTRUCTION OF EAST ASIA L. H. M. Ling POSTCOLONIAL INTERNATIONAL RELATIONS Conquest and Desire between Asia and the West Pierre P. Lizée PEACE, POWER AND RESISTANCE IN CAMBODIA Global Governance and the Failure of International Conflict Resolution S. Javed Maswood JAPAN IN CRISIS Ananya Mukherjee Reed PERSPECTIVES ON THE INDIAN CORPORATE ECONOMY Exploring the Paradox of Profits CORPORATE CAPITALISM IN CONTEMPORARY SOUTH ASIA (editor) Conventional Wisdoms and South Asian Realities Cecilia Ng POSITIONING WOMEN IN MALAYSIA Class and Gender in an Industrializing State Fahimul Quadir and Jayant Lele (editors) DEMOCRACY AND CIVIL SOCIETY IN ASIA: VOLUME 1 Globalization, Democracy and Civil Society in Asia DEMOCRACY AND CIVIL SOCIETY IN ASIA: VOLUME 2 Democratic Transitions and Social Movements in Asia Ian Scott (editor) INSTITUTIONAL CHANGE AND THE POLITICAL TRANSITION IN HONG KONG Mark Turner (editor) CENTRAL–LOCAL RELATIONS IN ASIA–PACIFIC Convergence or Divergence? Ritu Vij JAPANESE MODERNITY AND WELFARE State, Civil Society and Self in Contemporary Japan Fei-Ling Wang INSTITUTIONS AND INSTITUTIONAL CHANGE IN CHINA Premodernity and Modernization

International Political Economy Series Series Standing Order ISBN 978–0–333–71708–0 hardcover Series Standing Order ISBN 978–0–333–71110–1 paperback (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England

Chinese Capitalisms Historical Emergence and Political Implications Edited by

Yin-wah Chu Associate Professor, Department of Sociology, Hong Kong Baptist University

Introduction, conclusion, selection and editorial matters © Yin-wah Chu 2010 Individual chapters © contributors 2010 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978–0–230–57649–0

hardback

This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

Contents List of Tables

vii

Acknowledgments

viii

Notes on Contributors

x

1 Chinese Capitalisms: An Introduction Yin-wah Chu

1

Part I Capitalist China 2 The “Spirit” of Capitalism in China: Contemporary Meanings of Weber’s Thought Chung-hwa Ku 3 State Neoliberalism: The Chinese Road to Capitalism Yin-wah Chu and Alvin Y. So 4 Postrevolution Transformations and the Reemergence of Capitalism in China: Implications for the Internal Organization of Economic Activities Yi-min Lin 5 Workers in Post-Socialist China: Shattered Rice Bowls, Fragmented Subjectivities James Hudson, William Hurst, and Christian Sorace

19 46

73

100

Part II China’s Capitalism in Comparative Perspective 6 Taiwan’s Industrialization: The Rise of a Demand-Responsive Economy Gary G. Hamilton and Cheng-shu Kao

125

7 Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia Hsin-Huang Michael Hsiao, I-Chun Kung, and Hong-zen Wang

156

8 A Spell Breaker: The Dynamism of the Koo Family Tsai-Man C. Ho and Wenbin Sun

176

9 Capitalism in China? Comparative Perspectives Iván Szelényi

199

v

vi

Contents

Part III Conclusion 10 Chinese Capitalisms: Concluding Thoughts on their Historical Emergence, Political Implications, and Unique Characteristics Yin-wah Chu Index

227

245

List of Tables 4.1

Selected statistics on educational attainment of women (aged 6 and above)

79

4.2

Selected statistics on household size and characteristics

82

7.1

Taiwanese investment in Southeast Asian countries, 1959 to March 2007

159

Regional division of labor in Taiwanese transnational companies since the 1960s

163

7.3

Ethnic division of labor in taishang companies in Malaysia and Vietnam by ethnic group

167

9.1

Comparing varieties of postcommunist capitalisms and various generations of reforms

214

7.2

vii

Acknowledgments This book owes its completion to the hard work and generous support of many people. Unlike most other edited collections, this has not been the outcome of a conference or similar meetings. Rather, it started out as an idea among the former coeditors of an academic journal, Social Transformations in Chinese Societies (STCS), which is the official journal of the Hong Kong Sociological Association. The coeditors asked me to guest-edit a special issue on capitalism in Chinese societies, and thus began the journey. I would therefore like to start by devoting my thanks to the former STCS coeditors, Chan Kwok-bun, Cheung Tak-shing, and Agnes S. Ku. Without their encouragement, I would never have taken the initiative. I was also fortunate to benefit from the advice of two friends and former teachers, Gary G. Hamilton and Wong Siu-lun, who provided valuable ideas on possible contributing authors. It was in part in thinking through their suggestions that I arrived at the intellectual focus of the special issue; and, later, this book. Above all, I must thank all authors contributing to this project for their trust and dedication. Some of them are friends or former teachers who have known me for a long time; others have barely heard of me. Their willingness to consider my invitation, address the topics I suggested, and devote their precious time to this project is very much appreciated. There would have been no special issue or edited collection without their contribution. Furthermore, although the authors may not have had the opportunity to meet and discuss each other’s work, as an editor I am very glad to say that the chapters have come together with a remarkable level of coherence, and provide a vigorous comparative analysis of capitalisms in Chinese societies. Finally, I would like to thank Alexandra Webster and Timothy Shaw at Palgrave Macmillan for taking on this project, and Renée Takken for overseeing the production of the book. Brill Academic Publishers has been most generous in giving permission to publish (with modification) four of the five essays that have previously been published in the special issue of STCS. The Research and Publication Fund at the Sociology Department, Hong Kong Baptist University, has provided partial funding

viii

Acknowledgments

ix

for editorial assistance. Jennifer Eagleton, Lam Oi-yeung, Michael Poole, and Selina Wan have rendered very competent editorial support at different stages. Without the hard work of these people, this book would never have been published. Yin-wah Chu

Notes on Contributors Yin-wah Chu is Associate Professor in the Department of Sociology at Hong Kong Baptist University. She specializes in East Asian development, paying particular attention to social and political movements as well as changes in state–business relationships. Her articles have been published in Asian Survey, Economy and Society, International Journal of Urban and Regional Research, Journal of Contemporary Asia, and Urban Studies. In addition to the present book, she is coeditor (with Siu-lun Wong) of a collection entitled East Asia’s New Democracies (Routledge, 2010). At present, her research focuses on the efforts of Korea and Taiwan to take on the challenge of the global knowledge economy, as well as land rights protests in Greater China. E-mail: [email protected]; [email protected]. Gary G. Hamilton is Professor of Sociology and of International Studies at the University of Washington. He specializes in historical-comparative sociology, economic sociology, and organizational sociology. He also specializes in Asian societies, with particular emphasis on Chinese societies. He is an author of numerous articles and books, the most recent being Emergent Economies, Divergent Paths: Economic Organization and International Trade in South Korea and Taiwan (with Robert Feenstra) (Cambridge University Press, 2006) and Commerce and Capitalism in Chinese Societies (London: Routledge, 2006). E-mail: [email protected]. Tsaiman C. Ho is Postdoctoral Fellow in the Centre of Asian Studies, University of Hong Kong. She obtained her PhD in Sociology at the Tunghai University, Taiwan. Her thesis tackled the transition of a small and medium scale Taiwanese firm to a giant supplier through the adaptation of its production and financial capital strategies, especially with the move of assembly lines to the Chinese mainland and listing of its shares in the Hong Kong stock exchange. Her research interests include globalization and its impact on Asia, and the development of capitalism in Chinese societies. She is currently working together with other team members on a research project focusing on three eminent families, namely the Rong, Gu (Koo), and Ho Tung families that have created business dynasties in the Chinese mainland, Taiwan, and Hong Kong, respectively. She is interested, in particular, in the dynamics between the various institutional conditions and the development of these three families. E-mail: [email protected]. x

Notes on Contributors xi

Hsin-Huang Michael Hsiao is the Executive Director of the Center for Asia-Pacific Area Studies (CAPAS); Research Fellow of the Institute of Sociology, Academia Sinica; and Professor of Sociology, National Taiwan University. His research has focused on civil society and new democracies, the changing faces of middle classes in Asia, Taishang (Taiwanese businessmen) in Southeast Asia, local sustainable development, and Hakka identity in Taiwan and Southeast Asia. His most recent books include: Civil Society and Democratization in East Asia (coeditor, in Japanese), The Frontiers of Southeast Asia and Pacific Studies (editor), Capital Cities in Asia-Pacific: Primacy and Diversity (coeditor), Asian New Democracies: The Philippines, South Korea and Taiwan Compared (editor), The Social History of Social Movements in Taiwan since 1980s (coauthor, in Chinese), The Social History of the Dynamics of Environment and Society in Taiwan since 1980s (coauthor, in Chinese), and The Changing Faces of the Middle Classes in Asia-Pacific (editor), among others. He also received the Distinguished Alumni Award from SUNY at Buffalo in 2005. E-mail: [email protected]. James J. Hudson graduated from high school in Levelland, Texas, and enlisted in the United States Marine Corps, in which he served from 1993 to 1997. From 1999 to 2001 he attended Pepperdine University, in Malibu, California, graduating with a degree in Religion and History. From 2002 to 2005 he taught English at Nanhua University in Hengyang, Hunan, in the People’s Republic of China. He entered the Graduate School at the University of Texas at Austin in Fall 2005, finishing his MA in Asian Studies in the Spring of 2008. His Master’s thesis was titled Motorcycle City: Collapse of State Industry, Urban Spaces, and Informal Economies in China. James is continuing his study of China as a PhD student in the Department of History, UT Austin. E-mail: [email protected]. William Hurst is Assistant Professor of Government at the University of Texas at Austin. His primary specialty is Chinese politics, with particular emphasis on contentious politics, labor, and judicial reform. Beyond China, he is also interested in and engaged in research about Indonesian politics and issues that span other developing country contexts. He has published articles in The China Quarterly, Studies in Comparative International Development, China Information, and Issues & Studies. He is also the author of The Chinese Worker after Socialism (Cambridge University Press, 2009) and coeditor of Laid-off Workers in a Workers’ State: Unemployment with Chinese Characteristics (Palgrave Macmillan, 2009). E-mail: [email protected].

xii

Notes on Contributors

Cheng-shu Kao is Professor of Sociology at Tunghai University in Taiwan. He is also Vice Chairman of the Board of Trustees at Feng-Chia University in Taiwan. He specializes in sociological theory, historical sociology, and the sociology of Chinese economies. He is the founding director and a continuing associate of the Institute of East Asian Societies and Economies at Tunghai University. The Institute is the location of the most extensive archive of interviews with Taiwanese businesspeople. He is the author of many books and articles, including most recently The Boss’s Wife (in Chinese) (Taipei: Lien Chin Publishing, 1999). E-mail: [email protected]. Chung-hwa Ku is Professor of Sociology at the Department of Sociology, National Cheng-chi University in Taipei (Taiwan), and also the Director of the Center of Third Sector in the same university. His endeavor is not confined to academic research, but extends to concern with public issues. Beside his teaching job, he does volunteer work in many nonprofit organizations such as Citizen Congress Watch and the National Association for the Promotion of Community University. Professor Ku is especially interested in the sociological theory of Max Weber, and he is known as an expert in the research fields of civil society and nonprofit organization. He has published books and articles on sociological theory, social capital, and the development of the third sector in Taiwan. E-mail: [email protected]. I-chun Kung is a sociologist and Professor of the Graduate Institute of Southeast Asian Studies, at the National Chi Nan University, Taiwan. She is the author of Immigrant State and Native Society: The Formation of Social Base of KMT State in Taiwan-1950–1969 (1998, in Chinese) and Stepping Out: The Social Formation of Taiwanese Business in Southeast Asia (2005, in Chinese). E-mail: [email protected]. Yi-min Lin teaches at the Division of Social Science, Hong Kong University of Science and Technology. E-mail: [email protected]. Alvin Y. So received his BA from the Chinese University of Hong Kong and his MA and PhD from UCLA. He has taught at the University of Hong Kong and the University of Hawaii before joining Hong Kong University of Science and Technology. His research interests are in development, social class, and the transformation of Hong Kong, China, and East Asia. He is the author of Social Change and Development (Sage, 1990); East Asia and the World Economy (coauthored with Stephen Chiu, Sage 1995); and Hong Kong’s Embattled Democracy (Johns Hopkins University Press, 1999). E-mail: [email protected].

Notes on Contributors xiii

Christian Sorace is a PhD student in the Government Department in the University of Texas at Austin. His research focuses on the politics of China’s floating population. He is also interested in how government legitimacy is constructed and/or contested in relation to its response to disasters, such as the recent Sichuan earthquake. He is the author of a forthcoming chapter on how the Khmer Rouge genocide challenges philosophical conceptions of humanity. E-mail: [email protected]. Wenbin Sun is Honorary Research Fellow at the Centre of Asian Studies, University of Hong Kong, and is working at the Central Policy Unit of the Government of the Hong Kong Special Administrative Region as Senior Researcher. Her major research interests cover areas related to the development of the private sector in post-Mao China; Chinese family enterprises in the mainland, Hong Kong and Taiwan; and entrepreneurship. She received her degrees in Sociology at the University of Bristol, and has since published a number of articles on the development of private enterprise in contemporary China and comparative studies of family enterprises in the Chinese mainland and Hong Kong. E-mail: [email protected]. Iván Szelényi is William Graham Sumner Professor of Sociology and Professor of Political Science at Yale University. He is Fellow of the American Academy of Arts and Sciences and a member of the Hungarian National Academy of Sciences. He has conducted research on urban sociology, sociology of intellectuals, social inequality, class, ethnicity and poverty. Most of his empirical research has been carried out in socialist and postcommunist societies in Europe and Asia. He teaches courses on classical and contemporary social theory, urban poverty, class, and ethnicity. His major publications include Patterns of Exclusion (Columbia University Press, 2006); Theories of the New Class—Intellectuals and Power (Minnesota University Press, 2003); Making Capitalism without Capitalists (VERSO, 1998); Socialist Entrepreneurs (Polity Press, 1988); Urban Inequalities under State Socialism (Oxford University Press, 1983); and The Intellectuals on the Road to Class Power (Harcourt, Brace and Jovanovich, 1979). E-mail: [email protected]. Hong-zen Wang is Professor and Director of the Graduate Institute of Sociology at the National Sun Yat-sen University in Kaohsiung, Taiwan. He has been working on ties between Vietnam and Taiwan since 1999. His research has focused on overseas investment, industrial relations, ethnic relations, and recently on migrant worker and marriage migration issues. His paper coauthored with Australian National University’s Dr. Anita Chan,

xiv

Notes on Contributors

“The Impact of the State on Workers’ Conditions—Comparing Taiwanese Factories in China and Vietnam,” was awarded the William L. Holland Prize by Pacific Affairs. Currently he is working on the impact of global corporate social responsibility on industrial relations in Vietnam and China. E-mail: [email protected].

1 Chinese Capitalisms: An Introduction Yin-wah Chu

Introduction When Adam Smith published The Wealth of Nations in 1776, China was under the rule of Emperor Qianlong (reigned 1735–96). At the time, the country was perhaps exuding the last of its premodern splendor. For despite the rapid ascendance of Europe in the areas of navigation science, military skills, and production technology, China still managed to dazzle George Macartney, head of the British delegation, when he paid a court visit to Emperor Qianlong in 1793. Taken on a trip around the garden of the Emperor’s summer palace, Macartney remarked that the 40 or 50 palaces and pavilions he visited were “all furnished in the richest manner … that our presents must shrink from the comparison and hide their diminished heads” (Robbins 1908, p. 309). But it was not only material civilization that impressed Macartney. Reporting on the ceremony of his reception by the Emperor he wrote that the “commanding feature … was that calm dignity, that sober pomp of Asiatic greatness, which European refinements have not yet attained” (Robbins 1908, p. 307).1 At this time Europeans had also come to appreciate China’s civilization at a more subtle level. According to Michael Adas (cited in Arrighi 2007, p. 3), China was a source of inspiration for the [l]eading figures of the European Enlightenment. Leibniz, Voltaire, and Quesnay, among others, looked to China for moral instruction, guidance in institutional development, and supporting evidence for their advocacy of causes as varied as benevolent absolutism, meritocracy, and an agriculturally based national economy. However in little more than a century, China had degenerated into appalling economic and military backwardness. By 1902 when Yen Fu2 translated 1

2

Chinese Capitalisms

The Wealth of Nations into Chinese, the “superiority of force … on the side of Europeans” observed by Smith had grown further, and so had their capacity to “commit with impunity every sort of injustice in those remote countries,” including China (Adam Smith, cited in Arrighi 2007, p. 3). The country no longer projected the image of an ancient regime blessed with riches and material refinement; it seemed instead a nation afflicted by destitution and despair. China’s appeal as an advanced civilization also passed. Hence, despite Karl Marx’s repugnance for colonialism, he expressed the hope that Western imperial domination would bring material and cultural civilization to break the stasis that so suffocated the East.3 Much scholarly attention has been paid to the factors underlying China’s relative deterioration in the nineteenth and early twentieth centuries, from its position as the forerunner of world development for almost two millennia. A most important line of inquiry focuses on the absence of capitalist breakthrough in the country despite the presence of favorable conditions such as the prevalence of trade, advancement in science and technology, and the emergence of a nascent banking system. Generations of anthropologists, economists, historians, and sociologists—including such noted figures as Mark Elvin (1973, 1983), Gary Hamilton (1985), Philip Hwang (1980), Jin Guantao and Liu Qingfeng (1984), Joseph Levenson and Franz Schurmann (1969), Liu Kwang-ching (1962), Susan Mann (1987), Kenneth Pomeranz (2000), Alvin Y. So (1986), Max Weber (1951), Bin R. Wong (1997), and Yu Ying-shih (1987), among others—have explored the issue from a variety of angles. Essays collected in this edition have been informed by, but do not address, the question of the lack of capitalist breakthrough in premodern China; among the eight substantive chapters, only the one written by Chung-hwa Ku alludes to the longstanding debate as to why China has failed to develop capitalism on its own. The empirical interests of these authors are much more contemporary and they have striven to address three major issues that emerge from theories of economic sociology or the political economy of development. In the first place, despite the deterioration noted above, China and other Chinese societies have experienced rapid economic growth and seen the emergence of capitalist enterprises in the second half of the twentieth century. Indeed, trade and industry have burgeoned in Hong Kong, Singapore, and Taiwan since the 1960s, and for two decades these economies have attained an annual growth rate of about ten percent. Modern economic institutions such as shareholding companies,

Yin-wah Chu

3

banks, and stock exchanges have also taken root. As for China, the same level of astounding economic growth has been recorded for 30 years since the policy of reform and opening up was launched. Step by step, the country dismantled socialist practices such as production brigades in the countryside, the planned economy, and some state and collective enterprises in urban areas. Private enterprises sprang up and foreign investment was given a warm welcome. As manufacturing facilities sprang up throughout the country, China became the “world factory” that generated US$1217.8 billion worth of total export in 2007 (Xinhua News 2008). In the same year, it became the fourth largest economy behind the United States, Japan, and Germany (World Bank 2007). What forces underlie the economic dynamism of China and other Chinese societies? Why have these Chinese societies now been able to overcome all the obstacles that prevented China, over the centuries, from attaining capitalist development? What is the relative importance of the global capitalist economy or local forces such as the state, entrepreneurs, workers, and culture? In mainland China in particular, having pulled the country together by resisting the invading Japanese and winning the war against the Nationalist Party, the Chinese Communist Party sought for 30 years to construct socialist modernity in the country. Why was the country subsequently able to stem the fervent socialist tide and make the capitalist turn? Why, unlike other former socialist countries, which abruptly dismantled their socialist institutions, has China adopted a more or less gradualist approach and performed with exceptional vigor? The second issue addressed in these chapters is that capitalist development in Europe, and in Europe’s offshoots, has entailed much more than economic expansion as such. Just as important have been changes in politico-juridical relations, as well as in the perception and practices of socioeconomic and political rights. What then are the political implications of capitalist development in these Chinese societies? How will different social classes be affected as China recoils from its socialist practices and adopts capitalist ones? Have the fruits of capitalist development been shared equitably in mainland China, in more or less the same way as has occurred in Taiwan during the early stage of its development? Will capitalist development be accompanied by the growth of civil society in China, as has been the case in Western Europe? Finally, a few of the contributing authors have been intrigued by the question of whether these Chinese economies have exhibited unique Chinese characteristics. Have Chinese culture and social institutions left their imprint on the capitalist institutions that have arisen?

4

Chinese Capitalisms

And—a related question—have mainland China and other Chinese societies, especially Taiwan, trodden more or less similar paths to capitalist development? It would be unrealistic to expect a comprehensive, not to mention definitive, treatment of all the above issues within the span of a single book. Taken as a whole, the eight main chapters provide fresh insights on much explored issues, generate new conceptualizations, and point to novel and promising directions of theoretical investigation. The concluding chapter examines these essays’ viewpoints in relation to other noted contributions to the study of Chinese capitalisms. In the following, the main arguments of the eight chapters are summarized.

Chapter plan The edited collection has a total of eight substantive chapters. The first four concentrate on mainland China, examining the “spirit” of capitalism, the party-state, the internal organizational characteristics of the emerging capitalist enterprises, and the post-socialist working class. The next three chapters study aspects of industrial expansion in Taiwan, paying particular attention to global dynamics and the political context of entrepreneurship. The last chapter presents a comparison of China with former socialist countries in Eastern and Central Europe. As noted in the above, Chung-hwa Ku is the only scholar who has tried to connect his study with the longstanding question of why China, unlike the West, has not developed capitalism on its own. He seeks to reexamine Max Weber’s “China Thesis” in Chapter 2 and, in addition, tries to evaluate the nature of China’s capitalism using Weber’s thought. In the first part of the chapter, Ku revisits existing criticisms of the China Thesis, such as Gary Hamilton’s assertion that it is Eurocentric; C. S. Yang’s proposal that it contains a hidden Orientalism; the damage done to the thesis, in Ambrose Y. King’s view, by the surge of the “four little dragons”; theses put forth by Yu Ying-shih concerning the presence of the “spirit of capitalism” among the scholar-merchants; and studies like those undertaken by Bin R. Wong and Kenneth Pomeranz, that have utilized new historical materials.4 In reviewing all these, Ku contends that they have either obliterated Weber’s original purpose or taken the Weber Thesis out of its intellectual context; and have misunderstood or even distorted the significance of the “spirit of capitalism” and importance of “ethic” as a guide to everyday behavior. Having cleared the way and highlighted recent scholarship that sheds light on Weber’s notions of “spirit” and “ethic,” Ku goes on in the second

Yin-wah Chu

5

part of the chapter to evaluate the removal of the obstacles that Weber identified as having originally prevented China from developing capitalism. Importantly, Ku contends that a process of de-traditionalization, made possible by Mao’s strategies to construct a socialist China, inadvertently paved the way for the emergence of the institutional conditions necessary for capitalism. In particular, the introduction of production units and the one-child policy have destroyed the bondage of clan ties, and the replacement of patrimonial bureaucracy by a party bureaucracy has created a bureaucratic state capable of building capitalist institutions such as legal, financial, monetary and other systems. At the same time, however, Ku laments that the “spirit” of capitalism or ethical-political underpinning of capitalist action has yet to develop in China. The communist state elite crushed the 1989 democratic movement for the sake of party survival, in a move similar to the crushing of the May Fourth movement for “national” survival in 1919. Since then it has striven to attain “stability” by separating politics from economics and articulating new ideological frameworks such as that of the “three represents,” or of a “harmonious society.” However, all these are a far cry from Weber’s “spirit” of capitalism. Turning to analysis at the societal level, Ku also maintains that law and institutions have failed to provide ethical guidelines for the behavior of the contemporary Chinese and that the culture of “personal trust” has persisted at the expense of “system trust.” Altogether, Ku suggests that, while China has been able to assimilate market institutions, the country has failed to develop the “spirit” of capitalism and especially the quality of modern citizenship. Furthermore, the capitalism so developed in China is “not the ‘Chinaization’ of modern, Western, and rational capitalism, but a ‘bird-cage capitalism’ that is … unable to extend economic freedom to the socio-political arena” (p. 36). In Chapter 3, Yin-wah Chu and Alvin Y. So adopt a neo-Marxist approach to examine forces that have facilitated the emergence of what they call “state neoliberalism” in China. Engaging David Harvey’s argument on neoliberalism, they suggest that there are at least two differences between neoliberalism that has emerged in Western capitalist societies, and state neoliberalism that is surfacing in China. Whereas neoliberalism in Western societies was spearheaded by capitalists who took the lead in dismantling the welfare state, the Chinese state introduced marketization, deregulation, and privatization when capitalists barely existed. Furthermore, although neoliberalism is associated with the decline of state power in the West, the Chinese state has strengthened its managerial and fiscal capacity, and uses it to implement various economic and social policies.

6

Chinese Capitalisms

Chu and So devote the bulk of their chapter to examining the country’s series of progressive transitions to state neoliberalism, and factors that underlie the changes. In their view, the three transitions that occurred in 1978, 1992, and 2002 had in part been prompted by sociopolitical crises, and also reflected the party-state’s overriding concern with maintaining domination, and the ways in which the political elite and social actors with divergent cultural and material interests had resolved the ideological and political tensions that attended the introduction of neoliberal practices within a socialist country. The 1978 reform was preceded by an acute food shortage that threatened to destabilize the country. As the policy of reform and opening up helped to attain basic stability, the state elite resumed their intensive and at times bitter debates about the appropriate level of marketization for a socialist country. The debates, being a continuation of the left–right contention since the 1950s, also accounted for the uncertain and incomplete movements toward neoliberalism until 1992. Reforminduced structural dislocations, the political impasse in the aftermath of the 1989 suppression, and the downfall of the former Soviet Union and Eastern European regimes made it unrealistic to revert to classical socialism. As China went on to embrace the deepening of neoliberalism, the state elite also sought to recentralize, taking back administrative and fiscal prerogatives from provincial governments. By the turn of the twenty-first century, the emergence of new social actors—influential private entrepreneurs, protesting workers and peasants—urged the party-state to reconsider its strategy of hegemonic leadership. It was against this backdrop that policies within the ideological frameworks of the “three represents” and “harmonious society” were introduced. For Chu and So, these policies failed to enfranchise workers and peasants, and relied on a deficient system of “intra-party democracy” to select competent and conscientious officials to implement them. In their view, so long as state neoliberal policies are in place, local officials and private entrepreneurs will be under systemic pressure to exploit and plunder. Benevolence might alleviate the pains of the social contradictions that attend the functioning of state neoliberalism; it cannot be a cure in itself. Turning to Chapter 4, Yi-min Lin draws our attention to China’s capitalist enterprises and the question of whether they exhibit unique Chinese characteristics. Analyzing research conducted on Chinese capitalist enterprises in non-PRC contexts, Lin identifies three ideal-typical characteristics of such enterprises and contends that they can be considered to flow from China’s civilizational forces. They include, firstly, an internal

Yin-wah Chu

7

organization characterized by a patriarchal structure of family ownership and control cemented by values of filial piety, loyalty, and benevolence; secondly, an external organization that is lodged within intricate networks of reciprocity or guanxi; and thirdly, the intertwining of economic and political entrepreneurial pursuits (p. 74). In the chapter, he confines himself to the first characteristic—internal organization—and examines the impacts of the social and economic policies of socialist China. For Lin, 30 years of Maoist policy and reform since 1978 have brought about changes in mainland China more abrupt than those occurring in other Chinese societies. To name a few examples, collectivization has reduced the economic and social capital of a generation of fathers. The granting of equal rights to women in the early 1950s and stringent enforcement of family planning since 1979 have much enhanced women’s educational level and labor force participation. Just as important, migration from rural to urban areas is increasing even as the hukou system remains intact, and remnants of “communist neo-traditionalism” continue to take effect even as state and collective enterprises undergo privatization. These transformations have imparted rather uneven changes. Analyzing findings of the 2004 CASS–HKUST survey and other databases, Lin finds that—even though a large number of enterprises are family-owned and a sizable portion of the owners are women—parents, siblings, and offspring are rarely involved in their management. Just as filial piety and absolute obedience to parents cease to direct children’s behavior, loyalty and benevolence have weakened as norms guiding interactions between owners and employees. Indeed, benevolence as a guiding principle for employer–employee interactions has been weakened further by the emergence of dual labor markets, owing to the persistence of the hukou system. The use of a particularistic approach to management has also been avoided among the remaining and larger state-owned enterprises, lest its similarity to “communist neo-traditionalism” should make employees suspicious of the commitment to economic reform. Instead of jumping to the conclusion that mainland China is similar to other Chinese societies in that its civilizational forces have exerted a declining influence over capitalist enterprises, Lin contends that we need to wait for further observations. In particular, he wonders if Maoist social engineering has exerted more far-reaching impacts on family relations, and whether the so-called hybrid organizational forms, which combine universalism with elements of the Chinese familist capitalism found in a number of contemporary Chinese societies, could indeed take root in China.

8

Chinese Capitalisms

If Yi-min Lin has examined the internal organization of Chinese capitalist enterprises from the angle of the entrepreneurs and management, James Hudson, William Hurst, and Christian Sorace have in Chapter 5 brought to center stage China’s working class and its fragmented subjectivities. In their view, China’s working class is fragmented in two senses. First, the workers’ experiences and outlooks have been segmented along the lines of age and cohort, gender, region (coastal versus inland), rural–urban residence, and work unit status (public versus private sector employment). Second, at the same time that China’s workers still hold dear their memories of the socialist past, they have been subjected increasingly to the market demand for labor discipline and a discourse of individualism and inequality; as a result of which they experience a “profound and pervasive sense of normative and material uncertainty” (p. 100). In socialist China, workers were revered as the most progressive social class, performing the leadership role both at the revolutionary moment and during the country’s socialist construction. Their lives were organized around the production unit and subsistence was guaranteed by the “iron rice bowl.” With economic reform, the social contract was transformed. Workers were even robbed of the language of class struggle amidst the ascending “market hegemony.” In the words of Dorothy Solinger, whereas the socialist working class was “unified in collaboration, … allegedly accomplishing miracles, the crowd before us now is composed of people struggling, usually singly, just to stay alive” (p. 100). The fragmentation of the working class has had a rather ambiguous impact on the workers. While this fragmentation is associated with the loss of the workers’ guaranteed place in the social structure and hence their means of subsistence, it is through holding onto such fragmentation— for example, being male, urban, an SOE employee—that they have the best hope of maintaining a social and political proletarian subjectivity. The latter point is demonstrated in the last section of the chapter through a study of motorcycle drivers in Hengyang, Hunan. Of the hundred or so motorcycle drivers interviewed by James Hudson, nearly half were laid off from state enterprises. In part because of Hengyang’s inland location and in part because of the incompetence of local officials, the city has been deprived of development. Lacking alternative employment opportunities, these workers have to labor in a marginal condition of both legality and illegality, as a result of which they have become targets of harassment by both the police and criminal elements. In competing for passengers, these motorcycle drivers have also lost the group-oriented bonds that were part and parcel of their former danwei (work unit) existence. However in working as motorcycle

Yin-wah Chu

9

drivers rather than remaining unemployed, they maintain a sense of masculinity; not only by shouldering their family responsibilities and providing for their wives and children, but also by excluding females from their trade. They also gain a sense of pride through the newfound “freedom” that was unavailable to them within the factory space. In presenting the anguish and struggle of the post-socialist workers, Hudson, Hurst, and Sorace also echo Ku’s as well as Chu and So’s concern with the future of China’s civil society. The study of Taiwan begins with the essay by Gary G. Hamilton and Cheng-shu Kao. In Chapter 6, they use the notion of “demandresponsive economies” to depict the industrial expansion of Taiwan and Korea since the 1960s. Relying on an analysis of disaggregated seven-digit US trade statistics, a study of historical changes in manufacturer–retailer relationships in the US, and interviews conducted with Taiwanese businessmen over some 15 years, Hamilton and Kao have delineated ways in which Taiwan’s, and later on China’s, export-oriented capitalism has been shaped by the global capitalist economy. According to Hamilton and Kao, brand-name merchandisers and global retailers, in “generating intermediary demand in anticipation of final demand, have superseded manufacturers as the driving force that organizes … whole sectors of the global economy” (p. 125). A battery of legal, social, and spatial factors has made way for the historical emergence of global retailers in the US. As American retailers’ orders exceeded the capacity and/or willingness of manufacturers in the country, they looked abroad; initially to Japan but gradually also to Taiwan and elsewhere. In Taiwan, small and medium Japanese trading companies served as the intermediary from around 1965, though their salience was overshadowed by American buyers and Taiwanese trading companies after the 1970s. Hamilton and Kao contend that global retailers have shaped Taiwan’s export-oriented capitalism in three ways. In the first place, the global retailers or “[b]ig buyers not only create demand … they also organize suppliers and develop supplier markets to fill that demand” (p. 126). Taiwanese enterprises that were interviewed admitted they would not have dreamed of producing those products if they had not received orders to do so. Japanese trading companies, in serving as the intermediary, played the crucial role of controlling technology, coordinating and supervising manufacturing, and if necessary, arranging finance. From this perspective, indigenous manufacturers from Taiwan were no more than the “price-sensitive organizational extension” of these global buyers (p. 126).

10

Chinese Capitalisms

In the second place, orders placed by global retailers have served to structure the entire internal economies of the exporting societies. As global retailers and merchandisers became more knowledgeable about the capabilities of their suppliers, they ordered different products, and producers from the exporting economies expanded in response to such orders. This, in the opinion of Hamilton and Kao, explains why Korea has become more of a mass producer, whereas Taiwan has moved further down the path of being a batch producer. Thirdly, Hamilton and Kao contend that it was through working with global retailers and especially their Japanese intermediaries that Taiwanese enterprises learnt and perfected an entire model of doing business or “making money” out of the global economy. This model not only led to a comprehensive reorganization of Taiwan’s entire economy, but was also transferred to mainland China when downturns in the US economy forced some Taiwanese enterprises to move there. Their particular way of “making money” has a few features, which cannot be fully reproduced here (see pp. 149–51). Among these characteristics is an interest in generating profit for oneself not only immediately but also in the long term. As such, the needs of buyers, including their need for profits, will be given foremost attention. Given the limited resources possessed by individual Taiwanese enterprises and the social organization they were accustomed to, the manufacturing of each product came to rely on production networks that sought to break down “the production process into distinct steps that standardized the product, the component parts, and the roles of the participants” (p. 149). The other side of the coin is that individual firms were often part of larger economic units—that is, production networks. To survive and thrive, which invariably implies the making of money for oneself, businessmen must take calculated risks; and must find a niche in production networks by innovating, yet also adhering both to buyers’ standards and those of other manufacturers within the networks. Like Hamilton and Kao, Hsin-huang Michael Hsiao, I-Chun Kung, and Hong-zen Wang have drawn our attention in Chapter 7 to the influence of global capital. Although they have used the concept of “defensive globalization” to characterize the spread of Taiwanese transnational capital to Southeast Asia, they concur with Hamilton and Kao that these enterprises and their production networks are highly flexible, efficient, and competitive, so that the role of Taiwanese businesses (or taishang) in the global production chain cannot be easily displaced by business networks from other countries. Similarities between these two chapters, however, end here.

Yin-wah Chu

11

The starting point of investigation for Hsiao and coauthors is Taiwan’s semi-peripheral status. It is with this backdrop that they proceed to examine the globalization strategy of taishang investing in Southeast Asia, analyzing both the reorganization of the regional division of labor and the restructuring of production relations; all along seeking to reevaluate the significance of cultural affinity and ethnic relations. Three main arguments emerge; firstly, these authors criticize the existing literature for essentializing the ethnic economy, assuming it to be homogeneous and static—so that taishang investing in Southeast Asia are supposed to have worked closely with ethnic Chinese businessmen resident in the region. In reality, culture and politico-economic factors have contributed to the emergence of what these authors call “production network enclaves.” In other words, taishang investing in Southeast Asia have mostly persuaded firms within their original production networks to migrate with them. At the same time, industrial policies pursued by Southeast Asian states have favored multinational corporations, leaving local ethnic Chinese businesses to concentrate on trade and commerce so that they have been in a poor position to work with taishang. Although globalization has been pursued by Taiwanese businesses as a defense against their declining cost-competitiveness, the relocation to Southeast Asia has generated tremendous benefits, which is a second point made in the chapter. Specifically, while most taishang investing in Southeast Asia have started out as small and medium enterprises, cost structure in Southeast Asia and the opportunity to supply intermediary goods to US and Japanese transnationals have allowed these taishang to expand in scale and learn new business practices. This has enabled them to become truly global, move to the upper scale of the global commodity chain, and generate valuable knowledge that has helped them to invest in China at a later stage. Altogether, Hsiao and his coauthors argue that it is the scale and the synergy with R & D, production procedures, and service provision that render taishang-type production networks difficult to replicate elsewhere. Having criticized the existing literature’s tendency to essentialize the ethnic economy, the authors make the third and crucial point that ethnicity matters in management and labor control. Taishang enterprises in Southeast Asia are typically multiethnic and, depending on the country in question, might involve Taiwanese, Chinese, Malaysians, Indians, Indonesians, Bangladeshis, and Vietnamese working side by side. Often, Taiwanese and Chinese with Taiwan exposure occupy the most important managerial positions in the hierarchy, whereas ethnic

12

Chinese Capitalisms

cum gender discourses are mobilized to exert authoritarian control over migrant or women workers. Chapter 8, the third chapter on Taiwan, is authored by Tsaiman C. Ho and Wenbin Sun. Instead of focusing on global dynamics, they draw our attention to the entrepreneurial endeavor of the Koo business dynasty that has thrived for four generations in tandem with Taiwan’s capitalist development. For Ho and Sun, entrepreneurship involves undertaking new, unconventional, and in this sense deviant acts, which cannot be understood one-sidedly as either the heroic act of an individual, or as politically and legally facilitated. While it is not uncommon for government policies and the political-institutional context to present new opportunities, especially through the definition of property rights, it depends on individual entrepreneurs to take them up. To take up an opportunity involves risk-taking, and whether an entrepreneur is able to do this depends on a host of factors—including, importantly, the resources and social networks available to her. This point is illustrated by looking at Taiwan’s Koo business dynasty. In reviewing the historical evidence, Ho and Sun argue that “each generation of the Koo family has taken the lead or changed customary practice, often when key economic institutions in Taiwan were in transition or property rights were obscure” (p. 178). In other words, each generation of the Koo family has boldly embraced opportunities made possible by, initially, the Japanese colonial government’s use of marketable bonds to facilitate land reform on the island; secondly, its initiation of the modern banking system; thirdly, the Nationalist government’s pursuit of land reform through the issuance of securities in shareholding companies; and fourthly, its attempt to modernize the stock market. In each instance, even though other enterprises could have benefited, their lack of knowledge and social networks, and the uncertainty of the property rights have prevented them from doing so. For Ho and Sun, the cultivation of political connections, lobbying, and provision of political services were also necessary for the consolidation of economic positions in Taiwanese society. The last section of their chapter is therefore devoted to demonstrating the political connections cultivated by generations of the Koo family. Finally, in Chapter 9, Iván Szelényi leads us away from Chinese societies as such and embarks on a comparison of China with other former socialist countries. His excursion starts with an evaluation of whether the “reform” in China should be characterized as bringing a “market socialist economy” or a transition to capitalism per se. In the second part of the chapter, he goes on to compare the routes taken by China with those followed by Central and Eastern European countries.

Yin-wah Chu

13

To begin with, Szelényi contends that Yugoslavia and Hungary embarked on rather radical reforms in the 1960s and, from this perspective, China’s reform was not really that early. At the same time, although the slow emergence of private property in China, the intimate involvement of the Chinese state in the economy, and the continued domination of the communist party-state may lend support to the position of the Chinese government that it has simply practiced a “socialist market economy,” there are strong arguments to the contrary. Significantly, just as private property has become more prevalent and responsible for much of the country’s economic dynamism, the role of the state is in decline, and the Chinese Communist Party has moved away from an emphasis on Marxism-Leninism and Maoism. Having argued against the characterization of China as a market socialist state, Szelényi moves on to examine definitions of capitalism. Among other issues, he points out that both Max Weber and Karl Marx agree that capitalism can take multiple forms and, referring to Perry Anderson’s classification, he suggests that China can be considered as an “actually existing capitalism” that shows some variations. However, as Szelényi admits, he is far more interested in understanding the actual course of capitalist development than striving for an academically satisfying definition. Referring to Perry Anderson again, he maintains that postcommunist countries have drawn upon their historical reservoir and tapped foreign experiences in order to invent a new modernity. Furthermore, not only have these postcommunist countries invented a rather divergent modernity, but the nature of their capitalisms changes over time, depending very much on the social struggles involved. Armed with this understanding, he suggests that the Central European countries (Czech Republic, Hungary, and Poland) not only revived their tradition, but also looked to Germany as an example and adopted neoliberal policies prescribed by the Washington consensus. As a result, public sector corporations were auctioned out mainly to foreign investors, prices were deregulated, and trade barriers lifted. While the economies performed well in the first decade, the so-called great distributive systems broke down by the 1990s because income was no longer forthcoming due to the privatization of the public corporations. Russia had initially tried to imitate and adopt this shock therapy, yet it quickly changed course and drew on the country’s historical reservoir. The government appealed for respect to authority, co-opted local political and economic bosses, and created a new class of “nomeklatura bourgeoisie” who thrived on Yeltsin’s strategy of voucher privatization. Instead of neoliberalism, we saw the emergence of neo-patrimonialism and political capitalism in the country during the first decade of

14

Chinese Capitalisms

transition. As Russia entered the twenty-first century, neo-patrimonial rule stabilized under Putin and the regime once again dominated rather than persisted in servitude to the oligarch. As for China, while the first decade of reform could be referred to as “entrepreneurial capitalism,” the second phase that began after 1992 could be considered “politicized capitalism” or “state-led capitalism” where reform of the countryside subsided in favor of urban-centered development. Finally, beginning in the twenty-first century, Szelényi thinks that China has changed course again by giving more weight to populist policies. The above rather detailed summaries of the eight main chapters, will, I hope, arouse interest among readers, and eagerness to savor the essays. The concluding chapter will further examine the authors’ arguments by placing them within the broader context of scholarship on Chinese capitalist development.

Notes 1. However, it is important to note that the report on China submitted by Macartney to the British government reflected a far less flattering view of the country. 2. Many Chinese and Asian names are cited in the text of this book. In these cases, we have put the surname first according to convention in these societies. For instance, Yen is the surname of Yen Fu. However, in cases where the person adopts an English first name, such as Alvin Y. So, we follow the English convention of putting the surname last. The practice of citing the surname last is also followed in the table of contents. 3. Of course, Marx was far less sanguine on the transformative capability of colonial and semicolonial domination when he commented on the Taiping Rebellion in a series of articles published in the New York Tribune. However, his views on the relative material and cultural “backwardness” of the East had remained unchanged (Katz 1990). 4. Please refer to Chapter 2 for references to these scholarly works.

References Arrighi, G. (2007) Adam Smith in Beijing: Lineages of the Twenty-First Century (London: Verso). Elvin, M. (1973) The Pattern of the Chinese Past (London: Eyre Methuen). Elvin, M. (1983) Why China Failed to Create an Endogenous Capitalism: a Critique of Max Weber’s Explanation (Amsterdam: Universiteit van Amsterdam, Antropologisch-Sociologisch Centrum, Vakgroep Zuid- en Zuidoost-Azie). Hamilton, G. G. (1985) “Why no Capitalism in China,” Journal of Developing Societies, 2, 187–211.

Yin-wah Chu

15

Huang, P. C. C. (1980) The Development of Underdevelopment in China: A Symposium (White Plains: Sharpe). Jin, G. and Q. Liu (1984) Xingsheng yu Weiji: Lun Zhongguo Fengjian Shehui de Chao Wending Jiegou (Changsha Shi: Hunan Renmin Chubanshe). Katz, S. (1990) “The Problems of Europocentrism and Evolutionism in Marx’s Writings on Colonialism,” Political Studies, 38 (4/December), 672–86. Levenson, J. R. and F. Schurmann (1969) China: An Interpretive History, from the Beginning to the Fall of Han (Berkeley: University of California Press). Liu, K. C. (1962) Anglo-American Steamship Rivalry in China, 1862–1874 (Cambridge: Harvard University Press). Mann, S. (1987) Local Merchants and the Chinese Bureaucracy, 1750–1950 (Stanford: Stanford University Press). Pomeranz, K. (2000) The Great Divergence: Europe, China, and the Making of the Modern World Economy (Princeton: Princeton University Press). Robbins, H. H. M. (1908) Our First Ambassador to China: an account of the life of George, Earl of Macartney, with Extracts from his Letters, and the Narrative of his Experiences in China, as told by Himself, 1737–1806, from Hitherto Unpublished Correspondence and Documents (London: Murray). So, A. Y. (1986) The South China Silk District: Local Historical Transformation and World-System Theory (Albany: SUNY). Weber, M. (1951) The Religion of China: Confucianism and Taoism, translated and edited by H. H. Gerth (New York: Free Press). Wong, B. R. (1997) China Transformed: Historical Change and the Limits of European Experience (Ithaca: Cornell University Press). World Bank (2007) “Gross Domestic Product 2007,” http://siteresources. worldbank.org/DATASTATISTICS/Resources/GDP.pdf, accessed April 4, 2009. Xinhua News (2008) “Window of China: China Ranks 2nd with 8.8% of World’s Exports by 2007,” http://news.xinhuanet.com/english/2008-10/28/ content_10266111.htm, accessed April 4, 2009. Yu, Y. (1987) Zhongguo Jinshi Zongjiao Lunli yu Shangren Jingshen (Taipei: Lianjin).

This page intentionally left blank

Part I Capitalist China

This page intentionally left blank

2 The “Spirit” of Capitalism in China: Contemporary Meanings of Weber’s Thought Chung-hwa Ku

Introduction China’s Property Law was passed on March 16, 2007, in the Fifth Session of the Tenth National People’s Congress (NPC). Among the 2889 representatives in attendance, 2799 cast their votes in favor of the bill, thus putting an end to a debate that has lasted for some 13 years. The Law provides a written recognition of the system of private property rights, and at the same time echoes the revision of Article 13 that was made during the 2004 constitutional reform, which states that “citizens’ legally owned private property is not to be infringed.” The question remains as to whether the legislative changes signify China’s wholesale retreat from socialism and move toward the adoption of the capitalist path. It may be that China’s institutional transition has a long way to go, and in view of the numerous unresolved problems, the passing of the property bill may well intensify political conflicts and social unrest.1 There is already a rich plurality of theses on the policies and implications of China’s economic reform that spans various academic disciplines. This essay attempts to apply the theories of the German sociologist Max Weber (1864–1920) to understand China’s experience of moving toward a market economy and capitalism. Weber’s magnum opus The Protestant Ethic and the Spirit of Capitalism is now one hundred years old; and although it still provides us with a lucid account of capitalism, it is now challenged by situations that were unforeseen when it was written, one of which is China’s rapid economic growth in recent years. To understand the relationship between Weber’s theory and empirical experience, it is necessary to reexamine Weber’s perspective on what constitutes capitalism. Of particular importance is his emphasis on “economic ethic” (Wirtschaftsethik) and “spirit” (Geist), which we can 19

20

The “Spirit” of Capitalism in China

use to ponder whether the Chinese economy has fully established the mechanisms of a capitalist system, both materially and spiritually. A reinterpretation of Weber’s thought will not only enable us to arrive at the truth of the so-called rise of China, but will also enrich our analytical perspective on the changes that are taking place in the world. China’s pursuit of a market economy is a perplexing chapter in its history. The Chinese Communist Party (CCP) has ideologically adhered to the superiority of socialism, yet it has thoroughly implemented the market logic of capitalism, so much so that it has become more tolerant than capitalist countries (such as Taiwan) of the social inequalities induced by the widening income gap. In addition, alongside the thorough “commercialization” (Weber’s term) of economic life, the people of China seem to have become increasingly accustomed to the values of capitalism. Does this assimilation process lend support to the claims made by the modernization theory, developed during the height of the twentieth-century Cold War, that the entire world is converging toward the Western capitalist model? What sea change has occurred in China that has allowed it to convert from being a steadfast opponent of Western imperialism to the most loyal bastion of capitalist production and consumption? What accounts for such a drastic change, and can we really conclude that China has become capitalist from top to bottom? When Weber first analyzed the social structure and cultural content of traditional China, he articulated a range of conditions that were unfavorable to the emergence of capitalism. Is it really possible that all of these conditions have disappeared? Given this background, the problematique of this essay is to reexamine Weber’s theory of capitalism and evaluate it against China’s experiences in recent years. In so doing, I aim to determine whether it is possible to identify the blind spots to provide a more appropriate evaluation of China’s social and economic situations and address the questions that have been raised in the foregoing. In other words, this essay intends to bring together the last two decades of critical discussion of Weber’s theory from academics worldwide and from China in particular, to juxtapose his theory with China’s actual socioeconomic development, and to evaluate whether his theory can account for China’s economic performance. Weber once suggested the use of two yardsticks—“causal explanation” and “meaning adequacy”—to evaluate research outcomes in the social sciences. Through the investigation of theories and the interpretation of empirical experience, this essay hopes to provide readers with a deeper understanding of the spiritual facets of China’s economic growth, while at the same time endowing Weber’s theory with a more contemporary meaning.

Chung-hwa Ku

21

Reception and New Development in Weber’s “China Thesis” What is generally known as “Weber’s Thesis” refers primarily to the viewpoints delineated in The Protestant Ethic and the Spirit of Capitalism. The concern with Weber’s Thesis among Western scholars has not diminished over time: in 2001 and 2002 alone, two new English translations of the work were added to the collection (Weber 2001, 2002).2 In a similar vein, one can regard Weber’s The Religion of China: Confucianism and Taoism as his “China Thesis.” However, Weber’s cross-cultural comparison of non-Western religions has long been viewed as a negative case study secondary to his Thesis, because his analysis of world religions such as Confucianism, Taoism, Hinduism, Buddhism and Islam was merely used to justify his claim that only the “economic ethic” of Protestantism was capable of instigating the spirit of capitalism, thus facilitating the emergence and growth of capitalism in the West. Weber’s strategy of raising only negative questions in his research on the non-Western world, such as “why [there is] no capitalism in China [or India, Saudi Arabia …]?” provides further grounds on which he can be accused of Eurocentrism, raising doubts about his methodology and value stance. Gary Hamilton, for instance, considers Weber’s approach of asking negative questions to be misleading, and proposes that only by employing a China angle to explain its history can one understand the pathways of China’s development and its configuration of social, cultural, political, and economic practices (Hamilton, translated by Chang et al. 1990). Hamilton’s critique of Weber, in line with the recent turn toward a “Chinacentered history” among Western sinologists, may represent a more balanced approach to historical study. However, it has obliterated Weber’s original intent, preventing readers from gaining a full understanding of Weber’s sociological problematique and distorting the inspirational value of comparative research.3 A deeper level of critique involves the contention that Orientalism, by and large, constitutes the hidden assumption and foundational ideology of Weber’s China analysis, leading him to describe China as being in stasis. However, given that Weber’s China study is only a part of his series on “The Economic Ethic of World Religions” (Die Wirtschaftsethik der Weltreligionen), it should not be read in isolation but considered in relation to the entire collection. Thus, grasping Weber’s dynamic narrative of a world history of which China is an integral part is perhaps an effort that must be made to sustain Weber’s scholarship.4 In the century since Weber’s Thesis was first presented to the world, it has been borrowed, appropriated, and misinterpreted in various ways

22

The “Spirit” of Capitalism in China

across different times and space. In carrying on Weber’s scholarship in different locations, we can also see how cultural specificities have led to divergent emphases or interpretations of the Thesis.5 Relative to Weber’s Thesis, which was examined to different degrees from the outset, the China Thesis has rarely been subject to objective evaluation, largely because Weber had no chance to witness the sort of circumstances that would lead China to a “modernized, Westernized, rationalized” mode of capitalistic development. His argument in The Religion of China: Confucianism and Taoism merely attempts to answer the historical question as to why capitalism had emerged exclusively in the West. Insofar as China served as a point of comparison, he naturally refrained from asking the question of how China was to develop capitalism. With the dissolution of the Soviet Union and the Eastern bloc, China progressively integrated into the global division of labor, with the deepening of capitalist economics in China becoming more apparent. At least from the economic perspective, few can deny that China has become a stronghold of capitalistic globalization. This chapter brings the neglected spiritual dimensions into its scope of analysis, outlining whether a unique body of economic ethics has been created during China’s journey toward capitalism, and whether this cultural product enshrines an alternative universality that will allow China to become a great nation that can compete with the West. In his conclusion to The Religion of China: Confucianism and Taoism, Weber classifies traditional Chinese civilization as embodying a “rational adaptation to the world” in contrast to the “rational mastery over the world” epitomized by Protestantism. This view is now challenged by new experiences, and whether it can still be justified is a point of contention. The question hinges directly on whether Weber’s Thesis has been properly understood and developed. The following dissects three respects in which, since its inception, Weber’s Thesis has affected the issues that are explored in this essay; and looks at how the Thesis has triggered a new wave of contemporary discussion and historical interpretation. When one reviews the significance of Weber’s China Thesis, especially in terms of its “history of reception” (Rezeptionsgeschichte), it is notable that there have been few direct responses to The Religion of China: Confucianism and Taoism. On one hand, the topic is too removed from the mainstream academic pursuits of the West, and except for those who possess expert knowledge, is extremely difficult to follow. Unsurprisingly, only a handful of book reviews emerged up to the 1930s, and the English translation of 1951 received little attention (Ku 1987). However, with the propagation of the modernization theory, a few scholars began to

Chung-hwa Ku

23

absorb the implications of Weber’s argument. They contended that the Confucian tradition had hindered the modernization of China, and that modernization would only ensue if traditional culture were thoroughly destroyed (Levenson 1958). This line of argument foreshadowed the debate that was spearheaded by Ambrose King and others on the Confucian ethic and economic development. Modernization became a prominent stream of study in Taiwan during the 1970s, and the dichotomy of tradition and modernity that was popular at that time seemed to advocate the renunciation of tradition in favor of modernization. However, in his From Tradition to Modernity (Cong Chuantong Dao Xiandai), King emphasizes time and again that modernity is the “remaking” of tradition, noting that “the task of ‘cultural remaking’ in China’s modernization project will involve a rational ‘choice’. … This ‘selective transformation’ will entail four major choices: (1) accepting certain new cultural traits; (2) rejecting certain new cultural traits; (3) preserving certain traditional cultural traits; and (4) selectively discarding certain traditional cultural traits” (King 1978, pp. 213–14). However he does not elucidate how these choices are to be made in practice. When the economic growth of the Four Dragons of Asia became acknowledged by the West, King (1983) published his paper “Confucian ethic and economic development” (Rujia Lunli Yu Jingji Fazhan: Weibo Xueshuo De Chong Tan) and launched an attack on Weber’s China Thesis. Inspired by the massive success of the Asian economic miracle, he proposed that the impressive economic development of some Asian countries posed the greatest challenge to Weber’s China Thesis and in particular his comments on the Confucian ethic. Consequently, King proclaimed that the “Confucian ethic is the cultural explanation to the puzzle of East Asian socioeconomics” (King 1983, p. 75), and used it to answer his question on how tradition can be reconciled with modernity. King’s view of the positive effect of the Confucian ethic on Asia’s economic development is adapted from Robert Bellah’s structuralfunctionalist position. King aims to search for the “functional equivalent” of the Protestant ethic. In Tokugawa Religion, Bellah uses Weber’s Thesis as an analogy to explain the significance of religion for Japan’s economy. King also sought to apply this method of analogy to the Four Dragons with a view to revising Weber’s China Thesis and reinstating the Confucian ethic. However, as many scholars have pointed out, Weber was not concerned with how capitalism spread to non-Western cultural areas once it had emerged, but how the West had broken away from the fetters of tradition and acquired the impetus for rationalization. Hence, King’s problematique does not necessarily have to implicate Weber, for it

24

The “Spirit” of Capitalism in China

is an irrefutable historical truth that China had not generated capitalism spontaneously. Weber’s China Thesis therefore is not necessarily shaken by King’s act of rectification (Yang and Tu 1987). Another prominent work is Yu Ying-shih’s (1987) Zhongguo Jinshi Zongjiao Lunli Yu Shangren Jingshen (The Religious Ethic and the Spirit of Merchant in Early Modern China), in which he tries to demonstrate that one can detect in both the Neo-Confucianism of the Song and Ming Dynasties and in Zen Buddhism a turn toward an “innerweltliche (innerworldly) asceticism” comparable to the Protestant ethic of the West. He also posits that the “Way of the Merchant” practiced by the strata of scholar-merchants during the Ming and Qing Dynasties matches Weber’s portrayal of the spirit of capitalism. As such, Yu believes his study has corrected that of Weber. Of course, Weber was a layman in the area of Chinese history, and could not compete with a true professional’s mastery of the relevant historical materials and historical facts. Although Yu’s book has aroused much interest in researching China’s merchant culture, he has not necessarily refuted Weber’s China Thesis. Rather, he seems to have superimposed Weber’s concepts on Chinese religious thought, while oversimplifying the complex relationships between the Protestant ethic and the spirit of capitalism. Furthermore, Yu fails to provide evidence at the behavioral level of how Chinese religious thought facilitated the rationalization of means–end relationships. Attempts as such are not normally deemed successful.6 Second, it is worth mentioning that a few distinguished scholars have emerged in recent years, in the disciplines of sinology and history in the West; in using new historical materials and perspectives, they seem to have formulated a new vision of “Weberian-type questions.” The most representative of these scholars are Bin Wong and Kenneth Pomeranz. Wong’s (1997) book China Transformed: Historical Change and the Limits of European Experience uses China as the focal point to examine the development of different regions in the world. He contends that China and Europe were very similar before the eighteenth century in terms of agricultural production and their degree of commercialization, and that there was no sign of stasis in either (Wong 1997). Pomeranz (2000) built on Wong’s premises to write The Great Divergence: China, Europe, and the Making of the Modern World Economy, analyzing why the East and the West have followed different routes of development since the nineteenth century. Undertaking a holistic assessment and evaluation of economic materials, he studies the impact of long-distance trade on domestic ecological and human resources, and concludes that whereas Europe’s success in colonizing the Americas enabled it to overcome its

Chung-hwa Ku

25

ecological constraints and develop industrial know-how, the Chinese government could only cope with the problem of population increase by inducing out-migration from the center to the periphery, thus achieving balanced regional growth. He concludes that one can better understand why Europe was able to break out from its contemporaneous climate and cross the threshold to industrialism if one focuses on the concept of the regional economic unit in reconstructing the background of the rise of modern capitalism (Pomeranz 2000). A problematique of this sort naturally links with the question of the research conditions to which Weber was subject, when he first formulated his thesis. If he could have made use of the materials that are now available, would the causal relationships in his argument remain unchanged? Would Weber have abandoned his Thesis, and agreed that material and geographical conditions can in themselves account for capitalism having arisen only in Europe? The ever advancing front of cross-cultural comparative research should inspire us to rethink some of the seemingly affirmed answers, and to seek more information that might bring us closer to the historical truth. In this sense, this essay represents an effort to sustain Weber’s Thesis. However, it does not confine itself to Weber’s focus on the two-way relations between religion and economy. Rather, it also considers the social scientific theories that have emerged in the last century, such as neo-institutionalism, civil society, civilization, and the more recent discussion within economic sociology as to how economic activities are embedded in social networks. These theories will help to generate more concrete classifications and observations of the phenomena that have emerged in the process of China’s economic development. Of particular importance is the academic study of “trust,” which has become more mature and will definitely help to elucidate the abstract concepts of “spirit” and “ethic” formulated by Weber. Although Weber was able to “objectify” the development of Western culture through his detailed study of Protestantism, he was only able to invoke the general notions of Confucianism and Taoism when discussing China. Not only has this problem remain unresolved until now, it has been exacerbated by the decline of religion in China and the fading of the literati or “carriers” of Confucianism, such that there are now no ready-made substitutes for the key elements of the Protestant ethic. In spite of this, this essay undertakes a painstaking investigation utilizing all of the available clues to identify the spiritual factors that have accompanied China’s economic restructuring. From this, it is hoped that an assessment can be made as to whether the relationship between capitalism and the rule of the Chinese

26

The “Spirit” of Capitalism in China

Communist Party (CCP) can become symbiotic, or, as the Chinese saying has it, “as close as lips are to teeth”—or whether the two are no more than strange bedfellows awaiting an inevitable split. This essay situates Weber’s concerns in contemporary China, to deal with the dual challenges that arise from the connection of theory to practice. On one hand, it uses Weber’s idea that capitalism needs the support of spiritual elements to challenge the explanation for Chinese economic development; and on the other hand, it employs Weber’s method of cross-cultural comparison to take on the challenge posed by China’s economic transformation. In sum, a survey of the literature inspired by Weber’s Thesis leads to the conclusion that China’s recent economic growth is a mega phenomenon compared with that of Asia’s Four Dragons in the 1980s. In stimulating a greater space for imagination, it is hoped that this essay models Weber’s quest for knowledge and gives new life to his China Thesis.7

Continuity and fracture: What changes have occurred in “Traditionalism” in Chinese social structure? By the time Weber had shifted his attention from occidental history to nonoccidental history, the nonoccidental regions had mostly been penetrated by Western powers and, in the mode that historian Arnold Toynbee termed “challenge–response,” had undergone tremendous transformations. For example, the 1911 revolution involved the replacement of the Qing Dynasty by Republican China, yet Weber said not a word on this momentous issue when he published The Religion of China: Confucianism and Taoism in 1915: what concerned him was China’s state form and social structure, that had seemingly remained unchanged for the past two thousand years.8 Perhaps right from the beginning, Weber was less interested in determining how modernization had expanded to all corners of the world, and focused on questions pertaining to world history, such as how the West became the West of today and why capitalism emerged there exclusively, rather than on who would command the future world or which culture would be the next to ascend. As a matter of fact, Weber was rather reserved when confronted with such practical problems. Nevertheless, in the conclusion to The Religion of China: Confucianism and Taoism, he asserts “the Chinese in all probability would be quite capable, probably more capable than the Japanese, of assimilating capitalism which had technically and economically been fully developed in the modern culture arena. It is obviously not a question of deeming the Chinese [to be] ‘naturally ungifted’

Chung-hwa Ku

27

for the demands of capitalism” (Weber 1951, p. 248).9 If we follow the logic of Weber’s China Thesis, we should perhaps ask whether, having been opened up by the West by force for more than a hundred years (taking the Opium War as a starting point), the conditions have become ripe for China to assimilate capitalism. We should question the changes that have occurred in those elements—be they structural, institutional, material, or spiritual—that Weber considered unfavorable to capitalism. Can we contend that capitalism, subsequent to its globalization and China’s conversion to a market economy, has reached the state where, as Weber describes, “this nullity imagines that it has attained a level of civilization never before achieved,” and “history” is now approaching “the end?”10 It is impossible to handle all of the related overly complex empirical information within the confines of this chapter. All that we can do is retrace the extensive use of “ideal-types” by Weber in The Religion of China: Confucianism and Taoism, making reference to the most central ideal-types of “traditionalism,” and concisely examine whether all of the negative traits originally identified by Weber have undergone fundamental changes. Only armed with this information can we judge whether capitalism has taken root in China and whether China has demonstrated its ability to assimilate the spirit of capitalism. Of course, the method of ideal-types tends to simplify historical truth, yet this has its advantages: we can take charge of the complicated by grasping the simple. Weber identified, by relying on this approach, several elements that he believed prevented China from developing capitalism spontaneously. They include the following: 1 The lack of a specific, acknowledged, formal and reliable legal base to protect the free development of industry and commerce. 2 The lack of a professional and efficient bureaucracy. 3 The lack of a rational monetary economy and fiscal policy. 4 The lack of an independent and autonomous class of citizens. 5 The lack of a self-governing city. 6 The lack of mutually competitive political entities (because of grand unification under a ruler) and the absence of a “reasonable” concept of war. 7 The lack of connection to overseas colonial subjects. 8 The lack of rational systems for administration and law enforcement. 9 The lack of a system directed to professional education and training. 10 The lack of rational science and technology.

28

The “Spirit” of Capitalism in China

11 The lack of rationally organized enterprises. 12 The lack of a rational system in accounting and book-keeping. 13 The lack of a method to direct daily lives that is unique to salvation religions (such as inner-worldly asceticism). 14 The lack of restraints from the instinctual “desire for profits” that threatens to destroy all rational modes of accumulation.11 These are the major elements pointed out unequivocally by Weber. As it would be impractical to examine each of them in detail, the following portrays the current situation in China, focusing initially on the elements that pertain to the institutional level. This is followed by an analysis of the “spirit” level, which is the main theme of this essay. Comparing China’s condition at the beginning of the twenty-first century with that of a century ago, no one could deny that China has undergone profound changes. The tremendous transformation that has been experienced by China following its economic reform far outweighs that experienced by the Asian Dragons, which renders it necessary to reexamine the relationship between tradition and modernity. The concepts of “de-traditionalization” and “post-traditional society,” put forth by the British sociologist Anthony Giddens to describe the societies of the West, provide a lucid account of the chronic pains experienced by China.12 As is well known, under the rule of the CCP, China not only engaged in a massive political struggle to purge the traditional landowning and propertied classes and intellectuals, but also launched the unprecedented Cultural Revolution with the battle cry of “shatter the four ‘olds’ and launch the four ‘news’” (po si jiu, li si xin), proclaiming as they did so the “complete eradication of Confucianism” so as to establish a “new China” totally extraneous to tradition. The radical Cultural Revolution thoroughly destroyed the legitimacy of tradition at both the institutional and behavioral levels. Juxtaposed against the characteristics of traditionalism identified by Weber, we can make at least two major observations. First, communist ideology is diametrically opposed to clan ties, which Weber considered to be the root of Chinese traditionalism. The power of the clan—extant in the social, political, economic, and cultural levels of Chinese society—suffered wave after wave of callous attack and purgation under communist rule. After Mao Zedong established the People’s Commune, which successfully transformed traditional village communities into factory-like production units, the functions of traditional family, lineage, and clan were more or less eliminated. Thenceforth, China became a “unit-society,” which replaced the tradition of self-governance

Chung-hwa Ku

29

(Li 2004). One might venture to say that from a sociological standpoint, China has relied on external power to forcefully transform its social structure from “community” (Gemeinschaft) to “society” (Gesellschaft). This is symbolized by the severing of connections founded primarily on blood-ties and their replacement by the functional ties associated with bureaucratic relations, which has led to the disappearance of customs, institutions, and cultures that were attached to tradition. These incidentally were the overwhelming images outsiders acquired of “Red China” under the rule of Mao, perceiving him to have bred a new type of human being who unquestioningly obeyed the party-state and discarded without hesitation cultural traditions that had persisted for several thousand years.13 Most intriguing is the implementation of the one-child policy following China’s great upsurge in population; this further destroyed the clanship network, such that even though many traditional customs were revived after the economic reform, they could no longer be founded on a traditional social structure centered on clan and lineage. A second antitradition force that cannot be ignored concerns the political transformation from “patrimonial bureaucracy” (Patrimonialbuerokratie) to “party bureaucracy,” or the termination of the tradition of “family rule” (jia tianxia) at the national level and the re-creation of the literati as a simultaneously loyal and specialized (you hong you zhuan) administrative machinery that formally matches Weber’s definition of a bureaucracy. Despite the presence of “one-party rule” (dang tianxia) and the absence of democracy, China has freed itself from the mode of the “pre-modern state” that is characterized by inefficiency and the inability to utilize organizational strength. The CCP has also established its legitimacy through the centralization of violence and the process of nation-building. Under such “modern” conditions, China has been able to thoroughly implement its policies of economic reform since 1978. All of the institutional characteristics that Weber identifies as impeding capitalist development—and particularly “the lack of specific, acknowledged, formal and reliable legal base to protect the free development of the industry and commerce,” “the lack of a professional and efficient bureaucracy,” “the lack of a rational monetary economy and fiscal policy,” “the lack of rational systems for administration and law enforcement,” “the lack of a system directed to professional education and training,” “the lack of rational science and technology,” “the lack of rationally organized enterprises,” and “the lack of a rational system in accounting and book-keeping”—have all been overcome in the process of policy implementation.

30

The “Spirit” of Capitalism in China

In other words, China’s traditionalism has been annihilated by conscious political force under the dictatorial rule of the CCP, the original purpose of which was to help attain the sacred goal of constructing a Socialist China. Yet when the strategy of a planned economy proved ineffectual and unsustainable, Deng Xiaoping’s pragmatism, which gained a new legitimacy and experimentation with a socialist market economy, also bore economic fruit. If we were to analyze this from the angle of historical causality, we would have to admit that had it not been for the violence of the Cultural Revolution, it might not have been possible to eradicate China’s thousand-year traditions and the conditions that Weber considered impeded capitalist development. In this case it is not possible to tell for sure whether China would have proceeded smoothly along the route of economic reform without undergoing a political revolution. Chinese scholars would also find it harder to boast that the “Chinese model” is superior to the “Russian model.”14 Thus far it has been maintained that under the guiding principles of Chinese economic reform, China has successfully implemented commensurate reforms in its market economic institutions. The Property Law highlighted at the beginning of this essay demonstrates how the deepening of reform has gradually reached the level of fundamental value and ideology. From the viewpoint of neo-institutionalism, the series of reform measures has engendered the effects of “path dependency” that are not confined to external, observable institutional changes. China has indeed managed to transplant the capitalist institutions that Weber considers relatively easy for China to assimilate, such as the law, finance, monetary system, trade, and organization of the enterprise. Nevertheless what concerns us most is whether China has created the “spirit” of capitalism at the same time. We must invariably ask whether there have been major changes to the other nonmaterial conditions identified by Weber, such as “the lack of an independent and autonomous class of citizens,” “the lack of self-governing city,” “the lack of a method to direct daily lives that is unique to salvation religions (e.g. inner-worldly asceticism),” and “the lack of restraints from the instinctual desire for profits, which threatens to destroy all rational modes of accumulation.” Questions that demand answers are: to what extent has China been baptized by capitalism as the country undergoes economic development? At the level of spirit and ethos, has China nurtured its own modern-compatible cultural values? Ultimately, we must ponder whether the uniqueness that China manifests will become a potential threat to the “universality” of modern civilization.

Chung-hwa Ku

31

Has China developed a “spirit” or “ethic” compatible with capitalism? The literature is too scant to permit a fair judgment of the changes in spirit or ethic that have taken place in the last 30 years, and the many twists and turns that have occurred in the process of China’s economic reform. The Tiananmen Incident in particular begged the question as to whether China would continue to pursue the Deng Xiaoping way. The real watershed at which China unveiled its capitalist guise can be dated to 1992, when Deng put forth the “Opportunity Thesis” (jiyun shuo) after his southern tour. As a mere 17 years have passed since then, it is too soon to pass final judgment, yet it is hard to imagine that China’s market economic reform will be reversed. Furthermore, if capitalism is given the opportunity to deepen, will a Chinese-style economic ethic emerge to provide the system with a spiritual pillar? Although Weber believed that the asceticism inherent in the Protestant ethic would slip away by the time capitalism became an iron cage, the ethos that will typify future China remains a central issue to be faced by humankind in the twenty-first century. China is a huge country, and the spiritual factors that have affected its economic actions and even institutional dynamics remain to be determined. In this vein, I now review the struggles that China has faced in the past hundred years. After succumbing to the West and suffering the catastrophe of continued invasion and humiliation, China underwent several rounds of large-scale enlightenment campaigns. The most prominent was the May Fourth Movement of 1919, that signified the awakening of the intelligentsia. Its fanatical proposal to adopt a thoroughgoing Westernization can also be regarded as the intellectual sea change that prepared the way for the rise of the CCP. With the outbreak of the Sino–Japanese War, struggles for national survival took priority over enlightenment, the latter indirectly helping the CCP to wipe out the Kuomintang (KMT) and establish the People’s Republic of China. The new authority adopted Marxist guiding principles and slashed all connections to the doctrines of Confucianism at the spiritual and conscious level. Borrowing Michel Foucault’s viewpoint and Norbert Elias’ “Theory of Civilization Process,” one can say that the so-called Ah-Q-ism15 that so characterized the Chinese became disciplined by the doctrinal principles of communism, developing a tendency to exercise self-restraint and eliminating many types of uncivilized behavior. Although the Chinese ruling stratum has not always followed through with its oft-proclaimed goal of constructing a spiritual civilization and has often stopped short at the level of

32

The “Spirit” of Capitalism in China

outward compliance, to a certain extent a paradigm shift has occurred at the spiritual level. Nowadays, the imagery of the average Chinese no longer carries the uncivilized connotations of “disease-ridden Asian,” “opium smoker,” or “coolie,” but unfortunately communist collectivism has not brought about a substantive improvement in people’s livelihood. The ensuing nightmare of backwardness ignited the so-called River Elegy (He Shang) fever among Chinese intellectuals in 1987 in response to a six-episode television series entitled River Elegy that was produced by Su Xiaokang and others. The fever has been likened to the May Fourth Movement, in that it reflected the desire for modernization and had a bearing on the 1989 Tiananmen democratic movement. If we consider the impetus behind the River Elegy fever to be an extension of the May Fourth spirit, then it is somewhat ironic that the democratic movement, which was sustained by the assembly in Tiananmen Square and the erection of the Goddess of Democracy statue, was to end so tragically on June 4 with a bloody suppression. This seems to restage the tragedy of survival taking precedence over “enlightenment,” only this time it was the survival of the political rule of the CCP, rather than the survival of the nation, that was being fought for. After the Tiananmen Incident, China’s ruling stratum seems to have gradually developed a strategy of separating politics from economics. That is to say, “left [politics] moves far left, while right [economics] moves far right” (zuo (zhengzhi) de geng zuo, you (jingji) de geng you), and rapid economic growth has become the foundation of political legitimacy. In view of this situation, China’s ruling stratum has put forth successive official ideological frameworks, including Jiang Zemin’s “Three Lectures” (San Jiang Shuo) and “Three Represents” (San ge Daibiao) and Hu Jintao’s “Harmonious Society” (Hexie Shehui), all of which epitomize the need to maintain stability at all costs, or the consolidation of CCP rule. In none of these frameworks can we find a trace of the spiritual element of capitalism. Perhaps we have to examine, at the societal level, the intellectual activities and modes of behavior of its people to determine whether China shows any sign of developing a spirit or ethic that is compatible with capitalism. As has been mentioned, in attempting to build on Weber’s argument about the elective affinity between the Protestant ethic and the spirit of capitalism, scholars have sought to identify the functional equivalents in non-Western cultures. Examples include Japan’s Tokugawa religion and China’s Confucian ethic. However, after many revisions, the colossal concept of the Confucian ethic has been reduced to the “family ethic” or “folk religious tradition.” As in the cases of Taiwan,

Chung-hwa Ku

33

Hong Kong, and Singapore, it has been impossible to demonstrate that the Confucian ethic has (as was the case with Protestantism) performed the critical functions of providing rational guidance to daily lives and creating institutional innovation. Although they may make reference to the traditional virtues of hard work and frugality and Confucianism’s adaptability to transplanted modern economic institutions, those who excessively praise Confucianism may become trapped in a labyrinth of obscurity that leads to the creation of yet another myth (Ku 1999; see also Wong 1992; Yang and Tu 1987). Just as important, the contributions rendered by the expansion of economic opportunity, the increase in material inducement, and the efficient accumulation of capital seem to be pertinent to China’s economic growth; and it is hard to rely on the Confucian ethic as an explanation. This is also why we have not seen a resurgence of the debate on the Confucian ethic and economic development.16 It would be hard to identify a series of ethical rules for the Chinese in contemporary China. This is so regardless of whether we make a comparison with what Weber did in his day to ascertain the general ethical codes of traditional Chinese culture, or whether we adopt the concept of habitus put forth by the French sociologist Pierre Bourdieu. In the past, the “guide to daily lives” (Lebensfuerung) had mostly been manifested in the “carriers” of the literati or clan leaders, who were the embodiment of the beliefs and attitudes of Weber’s traditionalism and became the basis for his construction of the ideal-type “rational adaptation to the world.” The behavioral codes of the Chinese in contemporary China, as social psychologist Zhai Xuewei maintains, while operating in more or less habitual ways, have been interrupted by the intervention of “everyday relationships” (richang xing de guanxi) and “everyday authority” (richang quanwei). As a result, the codes such as institutions, the law, and rights that are considered important and formal in the West have been taken less than seriously in the daily interactions of the Chinese. Hence, in China, “there has not yet constituted a more stable mode of modernity” (Zhai 2006, p. 182). To continue the comparison with Weber’s time, his observations on the Chinese religion (deviations notwithstanding) at least provide a reference point for Western religion, and so make it possible for him to draw a comparison between Confucianism and Puritanism. Today, however, Confucianism’s impact survives only in the form of remnants and it has no more than an indirect effect on the values and behavior of the Chinese. Meanwhile, other religions have gone underground and cannot be followed publicly. Events surrounding the Falun Gong, furthermore, have led the government to consider folk religions as a source of social instability that must be monitored and suppressed.

34

The “Spirit” of Capitalism in China

The suppression of religious needs is a necessary consequence of the domination of the socialist dogma. From the experiences of the Soviet Union and Eastern Europe, we know that it is hard to eradicate religious belief. As long as the ruling power no longer uses antitheism to attack religion and meets basic human rights such as the freedom of thought, speech and religion that are implied in a democratic system, then religion will play a positive role in civil society and constitute the core content of culture in any capitalist country. The Chinese government’s suppression of religious freedom is another obstacle that prevents outsiders from gaining a better understanding of the spiritual world of the Chinese. Despite the fact that numerous people have made individual efforts to search for religion, this is quite different from Weber’s notion of a world religion (Weltreligion) that provides guidance for believers in their daily activities and has an impact on the economic ethic. If the official Chinese ideology cannot proactively create a spirit that is compatible with capitalism and, at the same time, the Chinese people lack religion-derived systematic guidance in their daily lives, where else can we locate the pillar for China’s spirit or ethic? To some extent, we can say not only that the behavioral style and economic ethic of the Chinese have experienced a “fracture” (duanlie) or break with traditionalism, but also that, as pointed out by Chinese scholar Sun Liping, this “fracture” constituted a big shock experienced by the Chinese in the 1990s. Similarly, Qiu Jianxin uses the case of a circulating credit union (hui) in Chongchuan Township to vividly describe how the culture of trust has deteriorated as traditional social connections have been changed by the transition to a market economy, leading to a serious case of hui breakdown (Qiu 2005; Sun 2003). Qiu writes that the [b]reakdown of the circulating credit union at the Chongchuan Township demonstrates that we live in a time when social capital is being eroded. The social capital being eroded is our traditional culture, the foundational structure of our economy and our country … with social transformation we must locate a new mechanism of trust, one that transcends the trust of the traditional society which is narrow-based and confined to close relations. Otherwise, the force of modern life will stage more spectacles of “slaying the familiar” (sha shu) and put to death the trust based on it. (Qiu 2005, pp. 299–300) Viewed from this perspective, regardless of whether or not China adopts political democracy, the fundamental crisis that confronts it on its road

Chung-hwa Ku

35

to capitalism is its inability to mold a sustainable modern mechanism of trust, and in particular its inability to shift from “personal trust” to “system trust” as emphasized by the German sociologist Niklas Luhmann.17 Here, history teaches us a hard lesson. The Cultural Revolution radically severed the roots of traditionalism, providing an opportunity for Western capitalism to press forth into China without being hindered by traditional factors; yet some traditional virtues were also disastrously eradicated during this process—the proverbial baby really was thrown out with the bathwater. The “spiritual vacuum” that was generated by the Cultural Revolution cannot possibly be compensated for by China’s economic-driven efforts to promote cultural tourism or Confucianism.18 Compelled by imaginings of its “great nation” status, China has been unwilling to openly accept universal values such as human rights, freedom, democracy, and peace, which has led to it being pressed into service as an archetype in Samuel Huntington’s Clash of Civilizations. This seems to imply that no matter how far China develops its capitalist market economy, it cannot completely assimilate itself into the essence of “modernity” embodied by the West. As Yu Yingshih comments, in recollecting China’s traditions, the CCP conjures up images of the Qing dynasty’s imperial rule, hegemonic domination, and the rejection of democracy. Hence, we cannot tell for sure whether China’s determination to go its own way will benefit or pose a threat to modernity.19 Perhaps we can state the problem as follows. China’s numerous cosmetic surgery procedures have helped it to acquire a capitalist “look” that does not appear too different from city life in other countries. Nevertheless, where the “inner spirit” is concerned, probably due to the oppression by Western imperialists in the past, intellectuals and the general public in China are still accustomed to adopting a confrontational stance toward the West. They have not even become a self-conscious and autonomous citizen class, let alone a civil society that can stand up to the state. This general mentality reflects vividly that on the spiritual level, China does not have the least intention of assimilating the values that attend capitalism; namely, political democracy and civil society. Intriguingly, Weber also admits that once Western capitalism has entered its “iron cage” era, the economic system will no longer need “spirit,” as its nutrients and religious roots will long since have withered. Hence, as China “transplants” the Western capitalist system, it will cease to need the economic ethic as a source of nourishment. As long as the personal or organizational interest has been set in motion, the market mechanism will run its course and attain the goals defined by the economic function.

36

The “Spirit” of Capitalism in China

This being the case, does the statement “specialists without spirit, sensualists without heart” predict the future outlook of Chinese capitalism? Starting with Weber’s questions and after a series of investigations, the preliminary answer must be that China has not manifested an ethos at the economic ethic level that is commensurate with its transition to capitalism. All one can say is that China has once again demonstrated its trait of the “ethic of world adaptation,” assimilating market mechanisms at the institutional level yet lacking the core qualities of modern citizenship at the level of action and behavior, including the fight for basic human rights such as freedom of speech, freedom of association, and freedom of religion, and thus also lacks the right to run for political office, lobby on policies, and monitor the government. As Chinese society has been completely de-politicized, it would be totally unwarranted to wait, as Weber did, for the emergence of a politically mature citizen class in China. Hence, what we are seeing is not the “China-ization” of modern, Western, and rational capitalism, but a “bird-cage capitalism” that is confined to the domain of economic exchange, unable to extend economic freedom to the sociopolitical arena. This kind of restrained capitalism, in its inability to emancipate thought and spirit, demonstrates a de facto resemblance to the iron cage of which Weber warned. Its spiritual nihilism, which is manifested in its sole emphasis on money, has furthermore unveiled the state of alienation described by Karl Marx. When the tranquilizer of nationalism loses its effect, Yu Ying-shih’s warning of “revolts and income inequality” will bother China time and again. Perhaps by then there will have been another wave of debate and ensuing change on the question of whether China should also assimilate the capitalist institutions of democratic politics and civil society. Only then will the historical question “Where should China go?” be answered. In sum, China has created a magnetic effect in the process of economic progress, absorbing the inflow of capital from around the world, which has resulted in the gradual integration of its production and consumption into the global economic system. Under these circumstances, the biggest risk facing China is that both its government and its people, with their mass of resources and deficiency in thought and values, could easily follow the track of militarism in the style of preWorld War II Japan and Germany, or alternatively could attain hegemonic domination through a combination of nationalism and fascism. The rise of such a nation would definitely not benefit humankind, and hence we need the key to unlock the question “Where should China go?” Although this chapter has not found the key, it is a first step in that

Chung-hwa Ku

37

direction, and the author looks forward to opportunities to examine different theories in the future.

Conclusion Two thousand years ago, China’s Confucian classic, the Book of Rites, in its “Chapter on Learning” (Liji Xueji Pian) documented a speech by Confucius, in which he proclaimed that [f]or a person who is good at asking questions, it is like chopping a piece of hardwood, he will first start with the easy bits which are soft, then slowly moving to the harder bits. With time, the wood would disintegrate and fall out by itself. For a person who is not good at asking questions, he will use a method exactly opposite to the above. Likewise, for a person who is good at answering questions, it is like ringing a bell, ringing it softly will give out a soft noise whilst ringing it hard will give out a loud noise. The person who rings the bell must not be nervous and work at one’s ease such that the ringing will have resonance and be a lasting one. For a person who is not good at answering questions, he will use a method exactly opposite to the above. All these are ways to increase one’s knowledge. This speech shows the importance of problematique in academic work. It also helps us to understand the nature of knowledge. Knowledge does not remain in stasis, but changes over time and with the appearance of new phenomena, in response to which a new generation of scholars will raise new questions and search for new answers. This constitutes the fundamental principle of knowledge growth and change. With the turn of the twenty-first century and against all indications of the tendency toward globalization, we cannot deny that the movement of China from socialism to capitalism is a significant event that is likely to have a long-lasting impact on human history. At this juncture, if the social scientific community fails to respond to the shock of this experiential fact with the right problematique, they can rightly be accused of being people who are not good at asking questions. In the quest to find an answer by following through with the correct problematique, Weber reminds us that the social sciences deal with “actors” who possess free will and are inclined to endow their actions with subjective meaning. Precisely because of this, social scientists not only need to explain why a phenomenon is historically so and not otherwise, but also need to arrive at an adequate meaning that makes

38

The “Spirit” of Capitalism in China

sense of a phenomenon’s web of meanings in the historical context. With Weber’s expectation of the social sciences in mind, this essay ponders, from the angle of “cultural-meaning” (Kulturbedeutung), whether China has since its implementation of economic reform established a spirit or ethic that is compatible with Western capitalism, and truly assimilated the ideas and institutions of modernity. An investigation at the macro level reveals that China has made continuous progress in building the necessary accessories for the functioning of market mechanisms, such as institutionalizing and perfecting its legal system and introducing technological innovations and knowledge advancement. Where external appearances are concerned, China has become a modern country. However, the ruling stratum of China remains antagonistic to democratic politics and civil society and, since the collapse of the Soviet Union and Eastern Europe and the “color revolutions” in Central Asia, has tightened its grip on thought and speech. From this, it can be seen that the spirit of China’s “traditionalism” will not be so easily shaken. The Chinese are by and large a “docile people” (shunmin) who do not inquire about politics after paying their taxes. With economic growth and the increase in purchasing power, China has become not only the world’s factory but also a mass market for consumer goods. Capitalism in China implies freedom of consumption and the notion that money is everything, which bears no relationship with Weber’s portrayal of Chinese asceticism, let alone efforts to imitate the Western citizen class’s spirit of citizenship, in which China would seek to participate actively in public affairs after gaining economic power. From this perspective, contemporary China is not the perfect setting for the emergence of the spirit of capitalism. On the contrary, it is engaged in a kind of capitalism that has departed from asceticism, and from the spirit of citizens, and the spirit of individual freedom. This type of capitalism is embedded in the authoritarian structure of Chinese politics, and has become the cornerstone of the legitimate rule of the CCP. This is because the magical power of the capitalist market has helped China to emancipate its productive force, accumulate capital rapidly, overcome numerous obstacles to industrialization, and move toward its emergence as a “great nation.” Undoubtedly, from the May Fourth Movement to the River Elegy (He Shang) fever and further on to the Surge of Great Nations (Da Guo Jueqi), the discourse of the Chinese intelligentsia has become more and more selfconfident. It no longer suffers from anxieties about either Westernization or being ousted from the ball game. Instead, its concern has shifted to

Chung-hwa Ku

39

finding the right posture for China to adopt, to rise as a “great nation” and gain the recognition of the world. This sort of collective mentality invariably reminds us of Weber’s warnings about Germany. It seems that the two countries, equally eager to attain the identity of a “great nation,” have under divergent epochal conditions moved toward the same historical situation. His statement is worth thinking over, and can also be taken as the concluding words of this essay: ‘Thousands of years had to pass before thou entered life, and thousands more years wait in silence for what you will do of this life of yours’. Whether an individual is able to, as Carlyle says, guide one’s roles and actions with such historical vision I know not. Yet if a nation were to maintain a lasting place in history, it has to possess this historical breath of mind. (Weber 1997, p. 115) I look forward to seeing China gain the ability to develop this sort of ethos one day, and hope that it does not degenerate into a spiritual wasteland that allows money and material desires to become its only religion.20

Notes 1. As a Taiwanese scholar researching legislative changes in China has commented, “the statement ‘Workers of the world, unite!’ which appears on the back cover of all Chinese translated versions of The Communist Manifesto should remove the exclamation mark, replace it with a dash, and follow with the phrase ‘together we become property owners.’ This might better echo the reality of the institutional reform in the Chinese economy” (Wang 2007, p. 8). The Property Law still emphasizes that at the primary stage of socialism, the country insists on a fundamental economic system that seeks development through relying principally on collective ownership, accompanied by various alternative ownership systems. It thus epitomizes the deep-seated contradiction between private property and collective property, which is not easy to resolve. 2. Weberian scholar S. Kalberg has corrected the new translation mistakes made by T. Parsons’ earlier translation, thus returning to Weber’s original thought. This belongs to the domain of “de-Parsonizing Weber” (for the background to “de-Parsonizing Weber” in American sociology, see Ku 1992, pp. 30–3; for reviews of the two newly translated books, see Kaelber 2002). Other discussions, such as J. Cohen’s (2002), have provided a detailed examination of the discursive mechanism of Weber’s Thesis, including Weber’s understanding of Benjamin Franklin and his writing on whether the anxieties of the Puritans were really so extreme. In a different vein, S. Pierotti (2003) collects together

40

3. 4.

5.

6.

7.

The “Spirit” of Capitalism in China the doubts raised by different scholars and helps to clarify Weber from a historian’s perspective, arguing that Weber’s Thesis can stand up to rigorous testing. In general, discussions of Weber’s Thesis in the last few years have not gone beyond the scope of analysis provided by Weber’s Protestant Ethic: Origins, Evidence, Contexts, a volume edited by H. Lehmann and G. Roth (1993). The simplified Chinese character version was published in 2001. See the debate between Chang (1995) and Ku (1999) for issues around Weber’s methodology in this respect. On this point, see Jian (1988). In addition, the author believes that the concept of the “ideal-type” constitutes the core of Weber’s methodology, thus resulting in a static approach to the appropriation of historical materials. Weber was rather liberal and open in his argument for the rationalization of world history, which rescues him from the pitfalls of Hegelian philosophy. For this reason, the author does not agree with the interpretations of Weber’s China Thesis put forth by Gary Hamilton and research on Orientalism and believes that we can uncover the positive contributions of Weber’s theories on China’s historical and contemporary situations (see Ku 1987, 1992). For instance, Professor Schwentker, who teaches at Osaka University, has traced the history of Weber in the field of social sciences in Japan, providing an in-depth understanding of how the spirit of capitalism in Japan has been understood and interpreted in different eras. See Schwentker (2005). See Chart (1992) for an in-depth review. In his conclusion on Yu, Chart remarks “his [Yu Ying-shi’s] type of cross-cultural comparison does not work out well for either of the two sides compared. On the one side, in reducing it he distorts Weber’s historical ideal-type of ‘inner-worldly asceticism’ and disregards its dimension as a social action. On the other side, he attaches pseudoWeberian labels to his Chinese data, thereby obscuring their meaning.” In China, the first book to systematically discuss Weber’s China Thesis was perhaps Du Xuncheng’s (1993) Zhongguo Chuantong Lunli Yu Jindai Zibenzhuyi: Jian Ping Weibo Zhongguo De Zongjiao. In its conclusion, Du reveals that whenever he heard of “people questioning Weber’s theories on the premises of the economic development of Asia’s Four Little Dragons,” he immediately thought that “the condition of Asia’s Four Little Dragons has yet to refute Weber’s theory. For Weber had pointed to China’s condition as a whole, rather than addressing some regions in China or its neighboring countries, in building up The Religion of China: Confucianism and Taoism.” This “gives rise to the idea of assessing Weber’s theories by referring to the conditions of contemporary China” (Du 1993, p. 211). For responses to Weber’s other classics, see Su (1989) and Liu (1996). In searching for related research materials within the China region, one can find many journal articles that touch upon Weber’s assessment of traditional Chinese culture and whether his theories are serviceable for the establishment of a new ethos and social values. For example, He (2005) in “Weibo Zhongguo Mingti Yu Dongya Zibenzhuyi De Fazhan” maintains that it is desirable to “depart from the Weber Thesis” and construct a “new theoretical framework of cultural explanation.” There are also studies like “Weibo Rujiao Lunli Yu Zibenzhuyi Fazhan Lilun Jieshi” (Yu 2004). In an essay “Shichang Jingji Lunli Jingshen Tan Xi—Weibo Xinjiao Lunli Yanjiu De Shidai Jie Du,” Gao (2003) discusses ways to strengthen one’s understanding of the cultural background of

Chung-hwa Ku

8.

9.

10.

11.

12.

13.

14.

15.

41

the market economy in China. Other theses include “Shichang Jingji Yu Chuantong Lunli De Chuangzaoxing Chong Gou” (Xu 2006), “Weibo Wenti Yu Zhiye Lunli” (Cui 2005), and “Qin Jian, Lunli Yu Dongya Fazhan Bian Xi” (Zhang 2003). All of these works symbolize an increasing concern among China’s young scholars around the relevance of Weber’s Thesis to contemporary Chinese situations. In 1920, Weber increased the size of the original book by nearly half and expanded it into The Religion of China: Confucianism and Taoism, which became the first piece in his Sociology of Religion. Interestingly, when Weber mentions the Japanese in The Religion of India: The Sociology of Hinduism and Buddhism, he describes them as “a people among whom a stratum of the character of the samurai played the decisive role could not attain a rational economic ethic on their own, quite apart from all other circumstances, especially the closure against the outside. Nevertheless, the feudal relationships making for recallable, contractually-fixed, legal relationships offered a basis much more favorable to ‘individualism’ in the occidental sense of the word, than did Chinese theocracy. With relative ease Japan was able to take over capitalism as an artifact from the outside, though it could not create capitalism out of its own spirit” (Weber, translated by Kang and Jian 1996, p. 444; Weber, translated by Gerth and Martindale 1958, p. 275). From this, one can see that Weber holds a flexible view of the transplantation of capitalism and does not believe that any nation would be inherently incapable of accepting capitalism. The “End of history” was proposed by the Japanese-American scholar F. Fukuyama, who adopts a Hegelian vision of history and argues that human beings have become united under liberal democracy and the market economy, with the collapse of the Soviet Union and Eastern Europe and the socialism that they espoused. As there is no longer any large dispute, history comes to an “end” (Fukuyama, translated by Li 1993). The summary relies mainly on Ku’s (1987) PhD thesis and the work of Sun (1987, p. 212). Due to the reliance on different editions of Weber, the original sources are omitted here. Here, I borrow Giddens’ concepts to describe the series of de-traditionalization campaigns launched by the CCP since it came into power (see Beck, Giddens and Lash 1994; Heelas, Lash and Morris 1996). There seems to be inadequate debate on the historical interpretation of the Cultural Revolution. The Chinese government considers it a taboo subject and has prohibited its discussion, even on the occasion of its fortieth anniversary. The Russian model means “politics first, economics later,” whereas the Chinese model means “economics only, no politics.” Chinese scholars have in general criticized the Russian experience so much that even the “color revolutions” in Central Asia have given rise to much caution among Chinese leaders (see Song 2005). Lu Xun, who is known as the “father” of modern Chinese literature, created the figure of Ah-Q in his famous novel “The True Story of Ah-Q” (Ah-Q Zheng Zhuan). Ah-Q is considered to be the personification of the negative traits of the Chinese national character. The term Ah-Q-ism was coined to signify the Chinese penchant for calling defeat a “spiritual victory.”

42

The “Spirit” of Capitalism in China

16. See footnote 7 of Du’s commentary. In another example, Xia (2005, p. 251) contends in his book Dongya Xiandaixing Yu Xifang Xiandaixing that “from a cultural point of view, although Western modernity and Asian modernity share many similarities in material and spiritual factors, Western modernity and Asian modernity have noticeable differences. The main difference lies in Asian modernity’s connection with the remnants of traditional Confucianism or values of post-Confucianism.” Compared with Ambrose King’s overstatement of the Confucian ethic, Xia’s effort to use “the remnants of traditional Confucianism or post-Confucianism” to discuss the connection between Chinese traditional culture and capitalism is more practical and appropriate. After all, since China underwent the baptism of Marxism-Leninism, it is more difficult to consider Confucianism as the mainstream spiritual power. In addition to the various academic discussions, the Tianjin Academy of Social Sciences published in 2004 Qi Yanchen’s Zibenzhuyi De Lingyi Tiaotui, which held Weber’s economic ethos in great esteem (Qi 2004). He contends that Qing-era China had lost the opportunity to communicate with the West, and at the same time inherited Confucianism’s contempt for wealth accumulation. Together with political intolerance, this served to cut China off totally from capitalism, and as a result China remains a “society full of moral risk.” To change this, one must “[have] honesty before respecting one’s occupation.” 17. See Luhmann (1973). Research on trust has gained increasing popularity in China (see Wang and Liu 2002; Zheng 2001; Zheng and Peng 2003). Lin Nan has also formed a research team to conduct a more systematic investigation in this area. 18. Yu openly states that since Deng Xiaoping’s economic reform in the 1990s, China has sought to find a new national identity through a reinterpretation of history. Popular culture has also demonstrated a tendency to embrace tradition: Chinese intellectuals seek to return to the humanistic tradition of Confucianism, and the general public greatly desires to practice the lineage system, to refurbish genealogical charts, and to worship at their ancestral graves. Nevertheless, this tendency carries political connotations, and has become the CCP’s tool for cultural strategy and control. This is because Marxism is no longer convincing. In view of this, tradition is only used as a tool for patriotism. Yu comments that Chinese political rulers and traditional culture are strange bedfellows, and cannot generate an appropriate national identity (Central News Agency April 25, 2007). 19. The Chinese government has recognized that globalization also extends to nongovernmental organizations (NGOs), and has therefore begun to encourage social organizations to exercise their strength and fill in the service gaps caused by state and market failure. However, after the color revolutions in Central Asia, China again tightened its control over foreign foundations operating in the country. Scholar Yu Keping (2007) proposes the implementation of a loose-to-tight assessment and registration system and the introduction of a census to obtain basic information. This shows that despite the encompassing idea of promoting a harmonious society, stability and control remain the principles that guide the CCP in its dealings with civil organizations. China still lacks the basic political conditions to develop an autonomous civil society (Gries and Rosen 2004; Yu 2007). 20. Many Western scholars have also observed that money and wealth are the new religions of China. As Balzer writes, “we need to ask if ‘To be rich is

Chung-hwa Ku

43

glorious’ inevitably translates into ‘Greed is good’. Many China specialists are so caught up in what Charlotte Ikels termed ‘the return of the God of Wealth’ that they seem to think that wealth is the new religion, rather than one god among many” (Balzer 2004, p. 250).

References Balzer, H. (2004) “State and Society in Transitions from Communism: China in Comparative Perspective” in P. Gries and S. Rosen (eds) State and Society in 21st Century China (New York: Routledge). Beck, U., A. Giddens, and S. Lash (1994) Reflexive Modernization: Politics, Tradition, and Aesthetics in the Modern Social Order (London: Polity Press). Central News Agency, April 25, 2007. Chang, W. (1995) Wenhua Yu Jingji: Weibo Shehuixue Yanjiu (Culture and Economy: A Study of Weberian Sociology) (Taipei: Juliu). Chart, P. (1992) “The Protestant Ethic Analogy in the Study of Chinese History,” http://www.cic.sfu.ca/old_site/nacrp/articles/clartyu/clartyu1.html, date accessed May 25, 2007. Cohen, J. (2002) Protestantism and Capitalism: The Mechanisms of Influence (Berlin: De Gruyter). Cui, Y. (2005) “Weibo Wenti Yu Zhiye Lunli (The Weber Question and Occupational Ethic),” Hebei Xuekan (Hebei Academic Journal), 25 (4), 21–5. Du, X. (1993) Zhongguo Chuantong Lunli Yu Jindai Zibenzhuyi: Jian Ping Weibo “Zhongguo De Zongjiao (China’s Traditional Ethic and Contemporary Capitalism: With an Additional Comment on Weber’s “The Religion of China”) (Shanghai: Shanghai Shehuikexue Yuan). Fukuyama, F. (1993) Zheng Xin (Trust), translated by W. Li (Taipei: Lixue). Gao, Z. (2003) “Shichang Jingji De Lunli Yu Jingshen Tansuo—Weibo Xinjiao Lunli Yanjiu De Shidai Jiedu” (An Exploration of the Ethic and Spirit of the Market Economy: a Contemporary Interpretation of Weber’s Research on the Protestant Ethic), Hunan Wenli Xueyuan Xuebao (Shehuikexue Ban) (Journal of the Hunan College of Arts and Science [Social Science Edition]), 28 (6), 16–19. Gries, P. and S. Rosen (2004) State and Society in 21st-century China: Crisis, Contention, and Legitimation (New York: Routledge). Hamilton, G. G. (1990) Zhongguo Shehui Yu Jingji (The Economy and Society of China), translated by W. Chang, J. Chen, and B. Zhai (Taipei: Lianjing). He, X. (2005) “Weibo Zhongguo Mingti Yu Dongya Zibenzhuyi De Fazhan” (Weber’s China Thesis and the Capitalist Development in East Asia), Dongnanya Yanjiu (Southeast Asian Research), 1, 53–8. Heelas, P., S. Lash, and P. Morris (1996) Detraditionalization (London: Blackwell). Jian, H. (1988) Weibo Lun Zhongguo (Weber’s Discussion of China) (Taipei: Taiwan University). Kaelber, L. (2002) “Max Weber’s Protestant Ethic in the 21st Century,” International Journal of Politics, Culture and Society, 16 (1), 133–46. King, Y. (1978) Cong Chuantong Dao Xiandai (From Tradition to Modernity) (Taipei: Wenhua Shibao). King, Y. (1983) “Rujia Lunli Yu Jingji Fazhan: Weibo Xueshuo Chong Tan” (The Confucian Ethic and Economic Development: Revisiting Weber’s Scholarship), Lianhe Yuekan (United Monthly), 25, 70–9.

44

The “Spirit” of Capitalism in China

Ku, C. (1987) “Traditionalismus und Rationalismus: Problem einer Unterscheidung am Beispiel der China-Studie Max Webers,” PhD dissertation, University of Heidelberg. Ku, C. (1992) Weibo Xueshuo Xin Tansuo (A New Exploration of Weber’s Scholarship) (Taipei: Tangshan). Ku, C. (1999) Shehuixue Lilun Yu Shehui Shijian (Sociological Theory and Social Praxis) (Taipei: Yuancheng). Lehmann, H. and G. Roth (eds.) (1993) Weber’s Protestant Ethic: Origins, Evidence, Contexts (Cambridge: Cambridge University Press), Weibo De Xinjiao Lunli: Youlai, Genju He Beijing, translated by K. Yan (Shenyang: Liaoning Jiaoyu Chubanshe, 2001). Levenson, J. R. (1958) Confucian China and its Modern Fate: A Trilogy (Berkeley: Berkeley University Press). Liu, X. (1996) Xiandai Shehui Lilun Xulun (An Introduction to Theories on Modern Societies) (Hong Kong: Oxford University Press). Luhmann, N. (1973) Vertrauen (Stuttgart: Mohr). Pierotti, S. (2003) The Protestant Ethic and the Spirit of Capitalism: Criticisms of Weber’s Thesis, http://www.ecs.gatech.edu/support/sandra/paper.html, date accessed May 25, 2007. Pomeranz, K. (2000) The Great Divergence: China, Europe, and the Making of the Modern World Economy (Stanford: Princeton University Press). Qi, Y. (2004) Zibenzhuyi De Ling Yi Tiao Tui (The Other Leg of Capitalism) (Tianjin: Tianjin Shehuikexue Yuan). Qiu, C. (2005) Xinren Wenhua De Duanlie (Rupture in the Culture of Trust) (Beijing: Shehuikexue Wenxian). Schwentker, W. (2005) “The Spirit of Modernity: Max Weber’s Protestant Ethic and Japanese Social Sciences,” Journal of Classical Sociology, 5, 73–92. Song, L. (2005) “Zhongguo Moshi’ De Chenggong Yu Weilai (The Success and Future of the ‘China Model’)” in J. Huang and K. Wang (eds.) Shehuixue Shiye Xia De Hexie Shehui (The Harmonious Society from the Sociological Perspective) (Beijing: Shehuikexue Wenxian). Su, G. (1989) Lixing Ji Qi Xianzhi (Rationality and its Limits) (Taipei: Guiguan). Sun, C. (1987) “Chong Xinjiao Lunli Dao Rujia Lunli” (From Protestant Ethic to Confucian Ethic) in C. Yang and N. Tu (eds) Rujia Lunli Yu Jingji Fazhan (Confucian Ethic and Economic Development) (Taipei: Yuancheng). Sun, L. (2003) Duanlie: Ershi Shiji Jiushi Niandai Yi Lai De Zhongguo Shehui (Rupture: The Chinese Society since the Nineties of the Twentieth Century) (Beijing: Shehuikexue Wenxian). Wang, S. and X. Liu (2002) “Xinren De Jichu” (The Foundations of Trust), Shehui Yanjiu (Social Analysis), 3. Wang, W. C. (2007) Zhuanbian Zhong De Zhongguo Dalu Fazhi (Transitions in Mainland China’s Rule of Law) (Hinzhu: Jiaoda). Weber, M. (1951) The Religion of China, translated by H. H. Gerth (New York: The Free Press). Weber, M. (1958) The Religion of India: The Sociology of Hinduism and Buddhism, translated by H. H. Gerth and D. Martindale (New York: Free Press). Weber, M. (1996) Yindu De Zongjiao: Yindujiao Yu Fojiao II (The Religion of India: Hinduism and Buddhism II), translated by L. Kang and H. Jian (Taipei: Yuanliu).

Chung-hwa Ku

45

Weber, M. (1997) Minzu Guojia Yu Jingji Zhengce (Nation-State and Economic Policy), edited by Y. Gan (Hong Kong: Oxford University Press). Weber, M. (2001) The Protestant Ethic and Spirit of Capitalism, translated by S. Kalberg (LA: Roxbury Publishing). Weber, M. (2002) The Protestant Ethic and the “Spirit” of Capitalism and Other Writings, edited and translated by P. Baehr, and G. C. Weels (London: Penguin Books). Wong, S. (ed.) (1992) Zhongguo Zongjiao Lunli Yu Xiandaihua (China’s Religious Ethic and Modernization) (Taipei: Shangwuyinshuju). Wong, R. B. (1997). China Transformed: Historical Change and the Limits of European Experience (Ithaca: Cornell University Press). Xia, G. (2005) Dongya Xiandaixing Yu Xifang Xiandaixing: Wenhua De Jiaodu (East Asian Modernity and Western Modernity: A Cultural Perspective) (Guilin: Guangxi Shifan Daixue). Xu, J. (2006) “Shichang Jingji Yu Chuantong Lunli De Chuangzaoxing Chonggou’ (The Creative Reconstruction of Market Economy and Traditional Ethic),” Nanjing Zhengzhi Xueyuan Xuebao (Journal of the Nanjing College of Political Science), 127, 40–3. Yang, C. and N. Tu (eds) (1987) Rujia Lunli Yu Jingji Fazhan (Confucian Ethics and Economic Development) (Taipei: Yuancheng). Yu, M. (2004). “Weibo Rujiao Lunli Yu Zibenzhuyi Fazhan Lilun Jieshi (An Explanation of Weber’s Confucian Ethic and Capitalist Development Theory),” Zhongguo Shehuikexue Yuan Yanjiu Shengyuan Xuebao (Journal of the Graduate School, CASS), 5, 83–6. Yu, K. (2007) “Zhongguo Tese Gongmin Shehui De Xingqi” (The Emergence of a Civil Society with Chinese Characteristics), 21 Shiji Jingji Baodao (Economic Report of the Twenty-First Century), http://www.21cbh.com. Yu, Y. (1987) Zhongguo Jinshi Zongjiao Lunli Yu Shangren Jingshen (Religious Ethics and the Spirit of Merchants in Late Imperial China) (Taipei: Lienjing). Zhai, X. (2005) “Zhongguoren Chuantong Hexie De Shehui Xinli Jichu Ji Qi Shanbian” (The Social-Psychological Foundation and Transitions in the Chinese Tradition of Harmony) in J. Huang and K. Wang (eds) Shehuixue Shiye Xia De Hexie Shehui (The Harmonious Society from the Sociological Perspective) (Beijing: Shehuikexue Wenxian). Zhang, Y. (2003) “Qinjian, Lunli Yu Dongya Fazhan Bianxi” (An Analysis of Hard Work and Frugality, Ethic, and East Asian Development), Huadong Shifan Daxue Xuebao (Zhexue Shehui Kexue Ban) (Journal of the East China Normal University [Philosophy and Social Science Edition]), 35 (3), 54–9. Zheng, Y. (2001). Xinren Lun (On Trust) (Beijing: Zhongguo Guangbo Dianshi Chubanshe). Zheng, Y. and S. Peng (2003) Zhongguo Shehui Zhong De Xinren (Trust in Chinese Society) (Beijing: Zhongguo Chengshi Chubanshe).

3 State Neoliberalism: The Chinese Road to Capitalism Yin-wah Chu and Alvin Y. So

Introduction China has undergone rapid and sustained economic transformation in the last 30 years. Its development has been remarkable for a number of reasons. In the first place, its gross domestic product has increased at close to ten percent per year since 1978, and the country managed to reduce the share of the population living on less than US$1 per day from 64 percent in 1981 to 16 percent by 2006; effectively lifting 400 million people out of absolute poverty (UNDP 2006). The rapid growth rate was matched nowhere in the world except for the so-called miracle economies of Korea, Taiwan, Singapore, and Hong Kong. In the second place, although the Chinese economy has its share of problems, such as tremendous regional disparity, it also succeeded in upgrading its technological capability and escaped the threat of foreign domination. Over the years, not only has China become the global factory for inexpensive consumer goods, it has also enticed BP, General Motors, Intel, Microsoft, Oracle, and other corporations to locate part of their research and development facilities in China. Furthermore, despite the importance of foreign investors both as producers aiming at the global market, or as retailers targeting the domestic one, foreign capital remains largely a junior partner in China’s development project. In the third place, despite the downfall of the former Soviet Union and Eastern Europe, China’s communist party-state has continued to provide leadership for the country. This is the case despite the growth of a nascent capitalist class as well as the emergence of widespread dissent among workers and peasants. How, then, can we account for the spectacular growth of the country and exceptional resilience of the party-state? Numerous scholars have used divergent approaches to answer the questions posed in the above. On the one hand, researchers influenced 46

Yin-wah Chu and Alvin Y. So 47

by Weberian scholarship have explored the importance of social networks and institutional transformations (Hsing 1998; Lin 2007; Nee 1989, 2000; Walder 1994). In particular, we learned the ingenious ways in which capitalists from Hong Kong and Taiwan mobilized their network (or guanxi) and cultural capital so as to overcome the deficient institutional environment of socialist China and, until the 1990s, played the most important role in connecting China with global production networks. We also learned of the “deep involvements” of the socialist state in building market institutions for the emerging market economy and, alternatively, how China’s “multi-organizational” state has propelled accumulation at the local level. On the other hand, Marxist scholars have focused on the changing dynamics of global capitalism and the exploitative relationships that have emerged as a consequence (Hart-Landsberg and Burkett 2004; Petras 2006). They have explicated the unfolding of neoliberalism since the late 1970s and how China has been incorporated into the globalizing capitalist system. Despite their value and importance, these studies have left a few questions unanswered. Concerning the Weberian analyses, while one can appreciate the nuance with which culture and social networks have been analyzed and the “unique” textures of Chinese businesses, the studies have largely ignored the wider context within which Hong Kong and Taiwan capitalists have made their decisions. Indeed, perhaps it was not cultural affinity or patriotism, but the changing global competition that forced these capitalists to relocate to China. Similarly, while we do not deny the importance of the party-state in making the market institutions, and deeply appreciate the value of the notion of the “multi-organizational” state in unraveling the central–local tension of the Chinese state, we believe the role of the Chinese state as a facilitator of capital accumulation should be given more emphasis. Turning to the Marxist analyses, while we applaud their effort in painting the global capitalist dynamism, we believe the accounts have gravely underestimated the agency of the Chinese party-state in the drama of economic transitions. This chapter will develop the idea of “state neoliberalism” as a key dimension in understanding China’s capitalist development. Specifically, we argue that the Chinese economy has been given increasingly to neoliberal practices, and the latter have unfolded in part as a result of the communist party-state’s policy and in part because of the inherent contradictions and divergent interests that attend the practices. The idea of “state neoliberalism” has been coined to highlight both the centrality of the state, and the contradictions and tensions inherent in the neoliberal practices. In other words, the communist party-state’s overriding concern

48

State Neoliberalism

for its survival and continued leadership has been critical in shaping not only its initial decision to insert itself into the global capitalist order, but also subsequent decisions to deepen neoliberal practices, and to reassert its position as leader of emerging social forces and benefactor of the underprivileged. At the same time, neoliberal practices also give rise to ideological and political tensions within the communist party-state. Ideologically, so long as the party-state claims to be socialist, it cannot openly advocate capitalism and endorse neoliberal practices like privatization and marketization or it will have to face criticisms from both the state elite and the general public whose cultural and material interests have been hurt as a result. Politically, neoliberal practices will invariably hurt the cultural and material interests of a segment of the state elite, on the one hand; but, on the other, these practices will make for the emergence of new social classes who will increasingly make demands of quite different dimensions on the party-state. It is through an analysis of the central concern of the communist party-state and its effort to address the inherent contradiction of state neoliberalism that we will be able to understand the processes and characteristics of the emergence of capitalism in China. The following will first examine the meaning of state neoliberalism. The chapter will then move onto a discussion of how the state neoliberal project has unfolded in China as propelled by the project’s inherent political and ideological contradictions. We shall look at the hesitant emergence of neoliberalism in the first years of reform, the Tiananmen tragedy and how the contradictions associated with the nascent state neoliberal project have been addressed through a deepening of the process, and finally how the communist party-state has sought to reposition itself as a leader and a benefactor. The last section will venture into an anticipation of the future trajectory of state neoliberalism in China.

State neoliberalism in China: Distinctive traits Before the late 1970s, capitalism in the West took the form of what David Harvey (2005) called “embedded liberalism.” In order to solve the problems created by the unfettered market during the 1930s depression, the state had to take a more active role in managing the market to provide full employment as well as to promote the economy. In embedded liberalism, the state is taking on more and more roles (like providing more welfare and social services, strengthening workers’ trade unions, imposing more regulations on the market, and imposing higher taxes on the capitalist class). Thus, capital was induced to compromise and to form a new social contract with the working class; and was also embedded in a web of social and political

Yin-wah Chu and Alvin Y. So 49

constraints and in a new regulatory environment that constrained its “greedy” profit making behavior. After World War II, a variety of social democratic, liberal democratic, and dirigiste states emerged in Western Europe and the US that exemplify this embedded liberalism trend. According to Harvey (2005), “neo-liberalism” is a new class project through which the capitalist class fights back against the high taxes and the strict regulations of the state as well as the “rigidities” imposed by the state and the trade union on production relations. On the one hand, neoliberalism aims to liberalize the market so that members of the capitalist class have more freedom to hire and fire their workers, and to expand their trading and investment within the state boundary or beyond into the global space. On the other hand, neoliberalism aims to downsize the state, so that the role of the state is confined to the setting up and preservation of the institutions for market liberalism. Hence, in the late 1970s, neoliberalism was accompanied by deregulation, privatization, and the marketization of social services. Indeed, Harvey (2005, p. 7) uses the term “neoliberal state” to refer to “a state apparatus whose fundamental mission was to facilitate condition for profitable capital accumulation on the part of both domestic and foreign capital.” In the advanced capitalist societies of the West, neoliberalism emerged in a situation where both the state and the capitalist class were fully institutionalized and were the two most powerful players in their societies. Neoliberalism was a new project prompted by members of the capitalist class who wanted to revamp the unfettered market when confronted by a crisis of capital accumulation in the 1970s. As “neoliberalism” replaces “embedded liberalism,” state–market relations shift from a situation of state domination to one of market domination. The historical context from which neoliberalism emerged in China, however, was totally different to that in the West. China is a state-socialist country where property was predominantly owned by the state and the collective. In addition, China in the early 1970s had just gone through the devastating Cultural Revolution, the primary aim of which was to suppress the capitalist market and to destroy the capitalist class. Thus the private sector was almost nonexistent and the capitalist class was very weak at the onset of the reform. The market institution, therefore, had to be constructed from almost nothing. Given this scenario, which agent had the capacity to recreate the market institution in 1970s China in the aftermath of the Cultural Revolution, where anticapitalist sentiment was still very strong? Whereas the capitalist class has been the dominant agent of neoliberalism in the West, the communist party-state had to take the driving seat to propel neoliberalism forward. Thus, we coined the term “state neoliberalism” to highlight the contrast between China’s experience of neoliberalism,

50

State Neoliberalism

and that of the West. Obviously state neoliberalism is a highly contradictory term: while the party-state still claims to be communist and to stand on the side of workers and peasants, it has carried out all sorts of neoliberal policies to assault workers and peasants and undermine their interests. As such, it will be interesting to study how the contradiction of state neoliberalism has led to an oscillation between market-led and state-led development in China, and how the party-state has handled this contradiction over the past three decades, leading not only to the surprising continuation of the Chinese communist party-state, but also to the rise of China as a contending power in the capitalist world-system.

State neoliberalism: Historical emergence and processes of evolution State neoliberalism, as defined in the above, emerged in China through a series of policy transitions after 1978 when the “reform and opening up” policy was inaugurated. There have been three major junctures of policy transition, that include the 1978 inauguration of the reform and opening up policy, the 1992 reinstatement and intensification of this policy, and the 2002 announcement of the policy of the “Three Represents” (san ge daibiao) as well as strategies adopted subsequently to address the dissent of workers and peasants. For each transition, the policies were not initiated once and for all, but in piecemeal and often after the pattern of “two steps forward and one step backwards.” This is particularly true of transitions up to the 1990s. The reason for the cautious and intermittent progress was in part the absence of a blueprint for China to follow, prompting Deng Xiaoping’s famous pronouncement that China’s economic reform could be likened to a person who crosses a river by groping for stones. Equally important for the policies’ intermittent progress was the contradictory nature of state neoliberalism and its ideological and political limits, as suggested in the previous section. As a result, despite the political elite’s shared concern with party survival, they differed widely on the preferred courses of action to adopt. The following will discuss the various policy transitions that led China through economic reforms to state neoliberalism. The initiation of reform and opening up in the 1980s Examining the official narrative of China’s economic reform is a good starting point for understanding China’s road to state neoliberalism. According to this narrative, the turning point was the policy statement issued in the Third Plenary Session of the Eleventh Central Committee of

Yin-wah Chu and Alvin Y. So 51

the Chinese Communist Party, held between December 18 and 22, 1978. In turn, the policy transition was made possible through the leadership of Deng Xiaoping and the defeat of the Gang of Four (and hence of “leftist” excesses) during the Cultural Revolution. In this view, the Chinese economy was on the brink of bankruptcy toward the end of the Cultural Revolution and reform was imperative (Hu 2008; ZZDYY 2002). While there are some truths in the official narrative, it is also oversimplified. The narrative does not account for how the delicate balance between state and market has been maintained. It has also overstated the extent of unanimity within the Chinese leadership and acquiescence at different levels of the polity and society. As a result, the narrative also implies a course of reform that was more frictionless than it really was. The limited and intermittent economic reform can be observed by examining the policy goals and their actual implementation. To begin with, despite the general orientation of reform and opening up announced in December 1978, the idea was confined to developing a commodity economy around the planned one, and changes were confined to three directions. These were, firstly, the need to focus on the enhancement of productivity; secondly the value of opening up by exploring the possibility of exports, introducing foreign investment, and gaining advanced scientific knowledge; and thirdly the need to change production relations by the decentralization of management and remunerating workers according to their work (ZZDYY 2002, pp. 26–8). Not only was there no mention of reforms in basic economic institutions, policy changes that had been recommended were also implemented with great caution. Focusing firstly on the policy of opening up, especially the overtures made to potential overseas Chinese and foreign investors, it is notable that stringent effort was made to ensure that disasters would be circumscribed if the experiments were to fail. Initially, these overseas investors had to work in collaboration with local partners and such investments were to be tested in a handful of carefully selected Special Economic Zones (SEZ). The zones were located in the southern part of the country, far removed from the national center, and were mostly cities with abundant overseas Chinese connections (ZZDYY 2002, p. 93). Turning to the reform of state and collective enterprises, initial changes were confined to enterprise management reform, such as the granting of greater autonomy to enterprises and the introduction of some forms of profit-sharing between the state, management, and workers. These policies had to be tested out, firstly in Sichuan and later in Beijing, Tianjin, and Shanghai. Until the 1990s, further reforms were confined to similar policies such as permitting enterprises to sell products in excess of the national

52

State Neoliberalism

quota at higher prices, delineating the responsibilities of the manager, enterprise, and the state, and allowing the employees to subscribe for shares of their firms (ZZDYY 2002, p. 186). The more drastic strategies of bankruptcy, merger and acquisition, auction, privatization, and the like had to wait till the mid-1990s when China entered the second stage of economic reform.1 Most significantly, personal entrepreneurship and private enterprises were not provided for in the initial agenda. Personal entrepreneurship was tolerated in the countryside in 1978 with experiments in a household-based contracting system. Only in 1980, after a series of debates had taken place, was the practice formally rectified and implemented nationwide (Zhou and Xie 2008, p. 12; ZZDYY 2002, p. 35). Until 1984, these rural entrepreneurs were not encouraged to hire more than seven employees lest exploitation might take place. Even then, rural land continued to be owned collectively and peasants could not be dispossessed (Ho 2001). Personal entrepreneurship (geti jinying) in cities and townships was permitted slightly later in 1979, mainly to ease the pressure of unemployment among youths returning from the countryside. As with the rural entrepreneurs, regulations adopted in 1981 made clear that such urban entrepreneurs could under no circumstance hire more than five trainees (Zhou and Xie 2008, p. 13). Furthermore, even though reputable private enterprises (siying qiye) employing eight workers or more appeared to have emerged as early as 1983, their legal status was affirmed only after the April 1988 constitutional reform, which took place after a series of debates had occurred in 1986 and 1987 both within the party and the National Congress (Zhou and Xie 2008, pp. 14–16). Without going into the details of other dimensions of the reform, the above has shown adequately that at the same time as market reform was being pursued, “socialist practices” such as the centrality of stateand collective-ownership were defended staunchly in the first stage of reform. The emergence of such a pattern could be traced to two main considerations: the communist party-state’s determination to stay in power, and the contending ideas and interests that surround the reform. Most fundamentally, the economic reform was initiated as a means to prevent the collapse of the communist party-state. As pointed out by many observers and the communist leaders themselves, material deprivation and political disillusionment toward the end of the Cultural Revolution had afflicted the country with popular dissent. According to one source, per capita staple food allowance in 1978 was even lower than that of 1957 (ZZDYY 2002). As had become legendary, the simple and fundamental need to survive had prompted 18 peasants and cadres within the tiny village of

Yin-wah Chu and Alvin Y. So 53

Xiaogang Village in Anhui Province to conspire, take risks, and pioneer in secrecy the decollectivization of agricultural production. At the same time, despite the noble aims of the Cultural Revolution to deepen socialism, widespread disappointment set in as the attempt turned into “mass excesses and the conversion of the ideological/class struggle into an elite-bureaucratic conflict controlled from above” (Petras 2006, p. 431). Material deprivation and political disillusionment sent warning signs to the communist leaders and prompted actions to regain popular support. Speaking in relation to the pittance of food allowance at the 1978 Central Work Conference of the Chinese Communist Party (CCP), Chen Yun noted that “We cannot have tension everywhere. There is a need to first stabilize the peasantry. … Having stabilized this end, we will have stabilized the majority … and there will be no turbulence all under heaven (tianxia jiu da ding le)” (cited in ZZDYY 2002, p. 35, our translation). However, if a certain degree of reform and opening up was considered expedient for the continued domination of the CCP, the appropriate level of marketization remained controversial. While Deng Xiaoping had to promote the market without yielding to demands for “bourgeois liberalism,” he also had to criticize leftist excesses and defend his policies as genuinely socialist. Significantly, there were intensive debates on the continuing relevance of “class struggle” and the true spirit of Marxism and Maoism in the early years of the reform. Deng not only had to defend the idea of productivity first and uphold the policy of reform and opening up, he and his followers also expended strenuous effort to criticize the excesses of the Cultural Revolution and restore the honor of party leaders who had been condemned as “capitalist roaders” (ZZDYY 2002, 56–74). At the same time, Deng also responded to demands for human rights and “bourgeois liberalism” as early as March 30, 1979, speaking on “the need to be resolute on four basic principles” ( jianchi sixiang jiben yuanze) (ZZDYY 2002, p. 46). Economic reform should not be confused with the abandonment of socialism, people’s democratic dictatorship, leadership of the Communist Party, as well as Marxism-Leninism and Mao Zedong Thought. The argument for giving priority to productivity, undertaking reform and opening up, as well as adhering to the four basic principles, was elaborated and formalized in the Thirteenth Party Congress held in 1987 (Xinhua News 2003). According to this view, reform and opening up represented the earnest wishes of the people and were consistent with the demands of China as an “early socialist” country. The fundamental line of the party at this stage of social development was therefore to insist on this policy, and upon the four basic principles, and focus on economic construction in leading and uniting all the Chinese people.2

54

State Neoliberalism

Furthermore, the uneasy balance maintained by Deng did not always hold sway. While reform and opening up were given the green light in 1984 and 1987, the so-called conservatives embracing the planned economy had been most vocal in 1980 and 1981–2 (Solinger 1993; Fewsmith 2008). Indeed, contentions such as these between marketization and a formally socialist state were not at all novel. The history of post-1949 China was replete with such competition of ideas and interests. Deng, for instance, talked about the value of learning from the Soviet Union’s experiences and indeed other advanced societies as early as 1957 (Tang and Ma 2008). Even the policies proposed by the supposed conservatives, Chen Yun and Xue Muqiao, in 1979 and 1980 were not too different from those they put forth in the mid-1950s (Solinger 1993). It appears that marketization and the tensions it inevitably invokes within a socialist system have a long history, and were playing out once again in the 1980s. Two generalizations can be made about the early years of China’s economic reform. For one, the above discussion does not favor the idea that the reform was prompted by some levels of class contention (or even struggle). For instance, while Petras (2006, pp. 431–2) was not wrong when he claimed that the failure of the Cultural Revolution had ironically “strengthened the bureaucratic elite favorable to opening up to the market, reinforced the capitalist remnants embedded in the regime, and … opened room for advancement for economists, scientists, engineers, and other party cadres educated or influenced by late Soviet experiments with profit-based enterprises,” he had wrongly attributed the initiation of market reform to the process of “class struggle.” Similarly, the experience of China appears to differ from the Hungarian case described by Szelenyi (2008), where “class consciousness” among the peasantry was the source of economic reform. In China, while popular dissent had prompted the party leaders to act, it was the Communist Party’s commitment to leadership that had proved most critical for initiating the reform. In turn, the coexistence of market reform with socialist practices demonstrated the continued support for socialism from different party elites, though with a rather divergent “scientific” understanding of what socialism in China entailed. Hence, Deng was not entirely putting up a façade when he called his policy “market socialism.” In the understanding of Deng and his followers, the incorporation of market mechanisms into a collective-ownership system was by no means a betrayal of socialist principles. That the Chinese economy was to drift increasingly in the direction of neoliberalism was not something they had foreseen (cf. Hart-Landsberg and Burkett 2004).

Yin-wah Chu and Alvin Y. So 55

Crisis, state rebuilding and the deepening of neoliberalism in the 1990s By the mid-1980s, there were signs of serious dislocations in China. Food production slowed down. Inflation surged as a result of the oversupply of credit and overdevelopment of industries.3 The “double-track” pricing system generated room for profiteering and corruption among cadres and cadre-capitalists (ZZDYY 2002, p. 220). Mounting dissatisfaction coupled with examples from Eastern Europe led to requests for social and political reform that culminated in the Tiananmen protests. Instead of acceding to the protestors’ requests, the Chinese leaders chose to crack down on the dissidents. The fateful events of June 4, 1989 threw into disarray not only the country but also the party. Among other things, it opened to question whether the party should still pursue the reform as defined by Deng, and how the party-state should respond to the massive social changes ignited by the economic reform (ZZDYY 2002, p. 250; Fewsmith 2008, p. 22). The Tiananmen suppression severely tarnished Deng’s reputation. Harnessing remnants of his influence, he affirmed with resolution the correctness of the party line that had been adopted at the Thirteenth Party Congress in his address to leaders of the martial law troops on June 9, 1989. In his view, the focus on economic construction, and the two basic points of “reform and opening up,” as well as the “four basic principles”, were all correct and should be pursued with added vigor. If anything was wrong with the implementation of the party line, it was the inadequacy of education with respect to the “four basic principles” (ZZDYY 2002, p. 250). Deng also managed to prevail in appointing Jiang Zemin, rather than one of the conservatives, as the next party secretary. However, he had to announce his formal step-down in the same Fourth Plenary Session of the Thirteenth Central Committee of the Chinese Communist Party, held between June 23 and 24, 1989, in which Jiang was elected as party secretary. The next two years were spent in bolstering socialist education, on the one hand, and tackling the national economy’s structural dislocations, on the other. Significantly, the party took steps to evaluate the conduct of party members and to enhance education within the party and its auxiliary organizations. It passed a number of resolutions between 1989 and 1990 to address the problem of corruption and other abuses of authority among the cadres and their children. An effort was also made to open more channels for getting in touch with the people (ZZDYY 2002, pp. 250–63). At the same time, the party sought to tackle the “two-track” pricing system, “triangular loans,” the problem of inflation, over-rapid expansion of light industries before the basic

56

State Neoliberalism

infrastructure was ready, and other issues that had led to the dislocation of the economy (ZZDYY 2002, pp. 273–7). However, economic construction ceased to be the Party’s core mission. Party ideologues, central ministries, party cadres working within the state enterprises, and other so-called conservatives rallying around Chen Yun put forward a number of acrimonious criticisms of Zhao Ziyang and consequently criticized Deng himself, blaming their imprudent and overambitious policies for the economic and social disorder. These viewpoints seemed to predominate at the time, and Deng had to travel out of Beijing twice to get his voice heard. Deng visited Shanghai and gave two speeches at the turn of 1991. He also made his famous southern “inspection tour” between January 18 and February 21, 1992. By visiting cities and Special Economic Zones where reform and opening up had proceeded furthest, Deng was in a way soliciting support from the provinces to place pressure on the center. Indeed, Deng’s 1991 speeches aroused support among party leaders in Guangdong, Tianjin, Hebei, Jianxi, and even Beijing. In turn, his 1992 southern tour was embraced immediately by the media in Hong Kong, Shanghai, and Shenzhen. However, the “conservatives” struck back and, in view of the international situation and the heavy cost of party disunity, Deng decided to give way in 1991. In 1992, he seemed determined to reinstate his idea of reform by using all methods at hand.4 With Yang Baibing, the vice chairman of the Central Military Commission, declaring that the People’s Liberation Army was ready to protect and escort (baojia huhang) reform, Deng’s viewpoint came into ascendancy (Fewsmith 2008, p. 67). To recapitulate, a number of factors have underlain the “victory” of the idea of reform and opening up, in the wake of the Tiananmen suppression. In the first place, although some party ideologues had attributed the social disorder leading up to the Tiananmen protests to the policies of reform, a return to the planned economy proved to be unpopular. A decade of reform had facilitated rapid accumulation, which contrasted sharply with the first 30 years of the socialist experiment. Although the reform hurt the interest of state managers, it benefited a vast number of private entrepreneurs, workers, and peasants. This perhaps explains the enthusiastic response of party leaders in the provinces to Deng’s 1991 and 1992 speeches. Hence, while a return to the planned economy was politically a lost cause, deepening reform appeared to be able to gain the compliance of the majority of the people. Intertwined with the contention of divergent economic interests and political values is the problem of legitimacy. As X. L. Ding (1994) has argued, the Tiananmen crackdown pushed popular disillusionment

Yin-wah Chu and Alvin Y. So 57

with the communist ideology to the utmost and undermined the Party’s legitimacy to rule. Deepening reform and greater prosperity appeared to be the only alternative. In this connection, it was perhaps not accidental that Deng’s commitment to reform had been hardened by the failure of the 1992 Soviet coup. Although an unswerving adherence to the socialist planned economy might delay the collapse of the Soviet Union, it could not prevent it. A reform that promised economic betterment for the public without compromising the Party’s political domination was then chosen as the way forward. In contrast to the image of a weakened state in the neoliberal literature, the Chinese state has considerably strengthened its managerial and fiscal capacity in the aftermath of the Tiananmen Incident. A new “cadre responsibility system” was instituted in the early 1990s by the central party-state to strengthen its control over the evaluation and monitoring of local leaders. County party secretaries and township heads sign performance contracts, pledge to attain certain targets laid down by higher levels, and are held personally responsible for attaining those targets. There are different contracts for different fields, such as industrial development, agricultural development, tax collection, family planning, and social order. The Chinese party-state has the capacity to be selective; that is, to implement its priority policies, to control the appointment of its key local leaders, and to target strategically important areas. Thus Maria Edin (2003, p. 36) argues that “state capacity, defined here as the capacity to control and monitor lower-level agents, has increased in China, and that the Chinese Communist Party is capable of greater institutional adaptability than it is usually given credit for.” In addition, the state has strengthened its fiscal capacity. The central party-state introduced a “Tax Sharing Scheme” (TSS) in 1994 to redress the center–local imbalance in fiscal matters (Yep 2007). The TSS is aimed at improving the center’s control over the economy by increasing “two ratios”—the share of budgetary revenue in GDP and the central share in total budgetary revenue. It seems that the TSS did succeed in raising the “two ratios” (Loo and Chow 2006), thus helping to arrest the decline of fiscal foundation of the center and increase the extractive capacity of the central party-state. Zheng (2004, pp. 118–19) argues that the TSS shifted fiscal power from the provinces to the center, so “now, it is the provinces that rely on the central government for revenue.” In addition, in contrast to the neoliberal doctrine’s call for less intervention, the Chinese state has intervened more in the economy. It has engaged in debt-financed investments in huge mega-projects to transform physical infrastructures. Astonishing rates of urbanization (no fewer than 42 cities have expanded beyond the one million population

58

State Neoliberalism

mark since 1992) have required huge investments of fixed capital. New subway systems and highways are being built in major cities, and 8500 miles of new railroad are proposed to link the interior to the economically dynamic coastal zone. China is also trying to build an interstate highway system more extensive than America’s in just 15 years, while practically every large city is building or has just completed a big new airport. These mega-projects have the potential to absorb surpluses of capital and labor for several years to come (Harvey, 2005, p. 132). In addition, the state’s Science Commission made a number of long and short term plans. The party-state has also decided to inject 2.5 billion yuan over the five-year period of 1998–2002, and universities, research centers, and private enterprises were asked to increase their level of collaboration. It is these massive debt-financing infrastructural projects and the increasing attention paid to the input of science and technology that make the Chinese state depart from the neoliberal orthodoxy and act like a Keynesian state, and they also help to lay the foundation for China to move up beyond the labor-intensive, low-tech development path. Furthermore, after the party-state had strengthened its capacity and begun to play a more active role in upgrading the economy, it also pushed for a deepening of neoliberalism capitalism. In the first wave of neoliberal reforms in the 1980s, the reform policies were aimed mostly at expanding the private sector; they left the public sector largely intact. Thus the reformers in the 1980s used the term “market socialism” to stress that China was still socialist because it had a dominant public sector and the party-state was still in control of the strategic sector (or the commanding height) of the Chinese economy. However the party-state turned its attention to reforming the public sector and pushed forward the following neoliberal policies in the late 1990s: • Privatization and corporatization. This was to cut the size of the state sector and increase the size of the private sector. In the 1990s stateowned enterprises (SOEs) were undergoing corporatization, so they were no longer dependent on the state for funding, and had to operate independently in the market. After corporatization, the SOEs were asked to run like independent private profit-making enterprises; if they lost money, they could go bankrupt. The SOEs were given the green light to lay off workers, to increase work intensity and productivity, and to cut workers’ benefits if they found this necessary for remaining competitive in the market. In the late 1990s, millions of state workers were laid off and their benefits cut back.

Yin-wah Chu and Alvin Y. So 59

• Commodification of human services. Whereas the Maoist state provided human services (like housing, health care, welfare, education, and pension) on a needs basis and free of charge to all citizens, the post-reform state has treated human services as a commodity to be distributed to people along market principles. Housing, for example, is no longer provided free to state workers. Instead, workers are now asked to find their own housing in the newly emerged private housing markets. Likewise, workers are now asked to pay a part of the costs for services in most welfare fields and social insurance; for instance, paying for pension, medical care and the newly created unemployment insurance, higher education, and many personal services (Guan 2000). • Deepening of liberalization. Petras (2006) points out that China joining the World Trade Organization (WTO) is likely to lead to a further dismantling of the state sector; a dismantling of trade barriers and removal of subsidies; the savaging of the countryside; a near unquestioning orientation toward the export market strategy; the opening up of the services sectors of telecommunications, banking, and insurance for foreign investors; and the consolidation of foreign production as the leading force in the Chinese economy (see also Hart-Landsberg and Burkett 2004). Despite the above deepening of neoliberal policies, it is important to point out the continued leadership of the party-state. Among other things, it has retained the right and the ability to control the prices of strategic resources, served as the major shareholder of the restructured and most competitive state enterprises, and made tireless efforts to maintain macroeconomic stability, albeit using economic measures of adjustment and control. To recapitulate, the leaders of the Communist Party had initially sought to introduce market reforms with a view to regaining public support after the excesses of the Cultural Revolution. The reform was limited and the command economy existed parallel to the market one. In the first stage of reform in the 1980s, communist leaders were perhaps quite sincere when they claimed that they sought to construct market socialism. However, neoliberal tendencies set in with the suppression of the Tiananmen dissidents in 1989. Deepening of reform was chosen because the communist leaders were determined to stay in power in a situation where an overhaul of the political system was not possible. Consequently, economic prosperity had to be pursued as the only source of legitimacy for the ruling power. Our argument is therefore quite similar to Hart-Landsberg and Burkett’s (2004) analysis that the CCP initially considered itself to be carrying out socialist reforms, hence the term “market socialism.” However, while they consider

60

State Neoliberalism

the CCP to have been pushed in the direction of neoliberal capitalism with no possibility of return as the reform unfolded and the market policies became more and more entrenched in the 1990s, we contend that the CCP did not simply “slip into” capitalism. These changes were the outcome of deliberate policy choices, albeit choices made in specific circumstances defined by their time. Emerging interests, escalating dissents, and continued party leadership at the turn of twenty-first century China’s economy grew by leaps and bounds following the reform. For 30 years between 1978 and 2007, the country’s average annual GDP increased at the rate of 9.727 percent (Chinability 2009). At the same time as the neoliberal policies led to a rapid expansion of industrial output, they also facilitated rapid accumulation of wealth for the capitalist class and ruling elites, as well as a substantial increase in living standard for workers and peasants. There are good reasons to believe that the policies enjoyed widespread support at the outset. However the problems of class differentiation and social inequality that had emerged by the mid-1980s only intensified over time. In terms of income inequality, the Gini coefficient, which stood at around 0.32 in 1980, increased to 0.36 in 1990 and rose to 0.45 in 2001 (Wang 2008).5 Underlying the statistics was a social structure that had become widely differentiated. In a 1999 study of four cities with different levels of development, Lu (2002) and his colleagues found that economic reform had led to fundamental changes in the class structure. Among other findings, the percentage share of agricultural workers nationwide had reduced from 70 percent in 1978 to 44 percent in 1999. The share of production workers had increased to 22.6 percent, while business service workers had increased to make up 12 percent of the nation’s workers. Though they were few, professional technical personnel (5.1 percent), and especially owners of private enterprises (0.6 percent) as well as personal entrepreneurs (4.2 percent), had emerged as new social actors.6 Despite such drastic changes, members of the lower socioeconomic classes remained the most numerous nationwide, though major coastal cities such as Shenzhen, which had grown most dramatically since the reform, did have “olive-shaped” class structures. Most significantly, even for rapidly developed coastal cities with a huge middle class, such as Shenzhen, 60–70 percent of the people earned below the average household income (Lu 2002, pp. 3–26). Coupled with actual inequality was perceived inequality. Lu’s (2002) study found that while people considered market-induced inequality

Yin-wah Chu and Alvin Y. So 61

to be acceptable, most regarded the income gap as too wide and were indignant about advantages gained through power and monopolization.7 Furthermore, while Lu and his colleagues found in 1995 that most people considered their livelihood to have improved since 1978, 15–24 percent of those surveyed in 2001 found their living standards to have deteriorated since 1995 (Lu 2002, p. 38, see also Wang, Hu and Ding 2002). The disgruntled were mostly from the lower social classes, including personal entrepreneurs, production workers, service workers, and peasants. More recently, the 2005 China General Social Survey found that most people considered it necessary to impose higher taxes on the rich, and felt the government should do much more to help the poor (Wu 2008).8 Reflecting the income disparity, perceived injustice, and divergence of politico-economic interests was the rise of forms of social protest. The number of “letters and visits” (xinfang) and collective petitions ( jiti shangfang), two institutionalized mechanisms of voicing dissent, reached 10.2 million cases by 2000, an increase of 115 percent from 1995 (Lee 2007, p. 231). Just as important, the number of “mass incidents” increased from some 8700 cases in 1993 to about 60,000 in 2003, with the number of individual participants increasing from 730,000 to 3.07 million (Tsai 2007). The Minister of Public Security noted that in 2004 there had been some 74,000 cases of “mass disturbances” (quntixing tefa shijian) with more than 3.8 million people involved.9 Furthermore, there were 87,000 cases of “disturbances to public order” in 2005 (Human Rights in China 2006). Because slightly different taxonomies have been used, it is hard to determine whether these figures refer to the same phenomenon. Nonetheless, they show quite unambiguously that social protest has markedly increased in China over the years. The causes of these petitions and mass disturbances have been many. However disputes over land rights and labor issues seem to be most prevalent. Regarding the mass disturbances in the first eight months of 2006, it was found that 18.88 percent of such incidents were attributable to disputes over wages and welfare, 15 percent to land expropriation and resettlement, and 7.66 percent to enterprise restructuring, reform, and bankruptcy. Civil disputes accounted for 5.96 percent, 4.82 percent were prompted by disputes over the rights to mine, forestry, water, pasture, and land resources, and 2.32 percent were induced by stock holding and capital raising (Ren 2006). Similarly, analyzing 62,446 petition phone calls made to China Central Television (CCTV) between January 1 and June 30, 2004 and some 4300 letters sent between August 2003 and June 2004, Yu (2007) and his team found that 22,304 phone calls and 1325 letters were related to issues of land.10 Indeed, protests regarding land

62

State Neoliberalism

rights were reported as early as 1993, and a few of the disputes could involve tens of thousands of participants and some protests could go on for months (Thornton 2004; Chu 2007). Turning to the labor issue, it has been reported that the number of labor disputes arbitrated increased from 19,098 cases in 1994 to 154,621 cases in 2001 (Lee 2007). With the emergence of various grassroots efforts to build new labor institutions in the name of providing service, education, and health, workers have become more conscious of their rights and knowledgeable about channels for voicing discontent. Finally, although middle-class professionals and private entrepreneurs were few in number at the turn of the twenty-first century and their positions were politically precarious, there were signs that they were coalescing into forms of organization that portended the growth of civil society (Howell and Pearce 2001; He 2003). To address these issues, two apparently divergent courses of action were undertaken from the mid-1990s. On the one hand, we observe efforts to court the “progressive” elements, such as the middle-class professionals and nascent capitalists within the country. On the other hand, we also observe efforts to present the party center as the defender of national interests, and to redress the most outrageous inequalities by introducing the “socialist countryside” policy and the Labor Contract Law as a means to developing a “harmonious society.” In other words, the communist party-state sought to become both the leader and the benefactor. In 2000, Jiang Zemin started to present his viewpoints concerning what the party should do to retain the people’s support. In his view, the party received public support because it had always represented the future direction for China’s progressive culture, the fundamental interests of China’s people, and above all the developmental needs of China’s progressive social productive forces at different stages of development. Jiang’s discussion on these “Three Represents” was formalized in his speech delivered for the eightieth anniversary meeting of the Chinese Communist Party held on July 1, 2001. He made it clear that China was still at an early stage of socialist development and that, at the same time, it was in the party’s interest to broaden its social basis. Consequently, when the party adopted a revised constitution during the Sixteenth National Congress held on November 18, 2002, it stated that in addition to workers, peasants, soldiers, and intellectuals, progressive elements from other social strata aged 18 or above who identified with the party could apply to become members. For the first time in history, then, private entrepreneurs could become members of the CCP (Xinhua News 2002). Although communist theoreticians

Yin-wah Chu and Alvin Y. So 63

were not necessarily impressed by Jiang’s approach, the constitutional change generated an official channel for the party to co-opt outstanding members of the emerging social classes and formally enabled the party to provide leadership for all segments of the population. It also gave private entrepreneurs a more legitimate place in socialist China. For some of these people, the new legal status provided a source of reassurance that they had previously lacked. Just as important was the property rights law passed in March 2006. In the Third Plenary Session of the Sixteenth Central Committee of the Chinese Communist Party held between October 11 and 14, 2003, Hu Jintao pointed out that a better definition of property rights would facilitate the development of the private sector (Fewsmith 2008, 252). Although the law was drafted in November 2005, ready for discussion and endorsement by the National People’s Congress to be held in March 2006, massive societal opposition led to its postponement until November. One of the arguments for instituting the law was that it could protect the peasants when the collectively owned land was conscribed. However the immediate effect of the law was without a doubt to provide legal protection to private entrepreneurs and owners of private enterprises. An equally if not more significant development of the Third Plenary Session was the introduction of the idea that the country should aim at “comprehensive, coordinated, sustainable development, and promote comprehensive economic, social, and human development” (Fewsmith 2008, p. 252). In other words, instead of promoting economic growth at all costs, the Chinese authority appeared to have shifted its priorities to emphasize environmental sustainability and social development. In the Fourth and Fifth Plenary Sessions held in 2004 and 2005 respectively, the ideas of promoting a “harmonious society” and constructing a “new socialist countryside” were articulated and endorsed.11 As a result of the change in policy direction, the central state abolished agricultural tax, increased expenditure in the rural areas by 15 percent, and raised its allocation to the health care budget by 87 percent (So 2007, p. 569; Xinhua News 2005). Rural inhabitants were also relieved of the burden of paying for many public services such as miscellaneous fees levied by schools. At the same time, the working conditions were so appalling and employer–employee relationships so abusive that the central government had decided to introduce a new “Labor Contract Law.” To render one example of the abusive relationships, wages that remained unpaid to the peasant-workers up to 2003 amounted to a total of 100 billion yuan. The Labor Contract Law was legislated in June 2007 and was to take effect

64

State Neoliberalism

by January 1, 2008 (PRC 2007). Among other things, the law made provision for negotiations between employers and workers and/or their representatives on such matters as remuneration, working hours, holidays, occupational safety, training, and labor discipline. There were other provisions that, if implemented, could benefit the workers tremendously. For some observers, Jiang Zemin’s attempt to promote the “Three Represents” and Hu Jintao’s quest for a “harmonious society” are contradictory policies that stem in no small part from the divergent personalities and social experiences of Jiang and Hu (Fewsmith 2008). While Jiang represented the coastal regions and the entrepreneurial and professional interests, Hu was said to represent the inland regions and the interests of peasants and workers. However, even if the personal backgrounds of Jiang and Hu did play a part, the above has hopefully demonstrated that Hu’s policies were initiated within the context of escalating dissatisfactions and inflammable social conditions. Above all, it is important to note that the changing policies do not indicate a fundamental alteration of state–society relationships. In the first place, despite better social welfare and enhanced “rights” for the workers and peasants, such welfare and rights were handed out without any intention of “enfranchising” these subterranean social actors. The policies were to be implemented through government agencies, and measures were undertaken to prevent the emergence of autonomous labor and peasant organizations. Hand in hand with the continued effort to de-organize workers and peasants was the discourse that surrounded the granting of rights and welfare. Significantly, although Hu Jintao and Wen Jiabao have been presented as enlightened leaders who care genuinely for the people, they have above all been presented as benefactors who go out of their way to help the people. It is perhaps not accidental that they refer to themselves as “Hu Yeye” (grandpapa Hu) or “Wen Yeye” (grandpapa Wen) when coming face to face with the nation’s young people. In the second place, although Hu Jintao has demonstrated his concern with distributive justice and talks about the need to develop socialist democracy, rule of law, and improve the governing capability of the party, his inclination is far from “liberal” in the Western sense. In responding to the issues of corruption and alleged inability of the central government to control sub-provincial officials, Hu actually calls for the strengthening of party discipline as a means to better control the government bureaucracy. Measures include “democratic recommendation, democratic assessment, multi-candidate examination, public announcement before appointment, and open selection and

Yin-wah Chu and Alvin Y. So 65

competition for post” or in other words “inner-Party democracy” (Fewsmith 2008, p. 256). This, according to Fewsmith (2008), actually reverses the reforms since the 1980s that have sought to separate the government from the party. The intertwining of the two means nothing less than Hu’s determination to prevent the party from going into decline. Finally, and most importantly, the policies have failed to address the key contradiction in state neoliberalism. As noted in the previous section, not only has the policy of reform and opening up encouraged the nascent capitalists and local-level state managers to undertake profit-making activities, but the fiscal redistribution policy and “cadre responsibility system” have also effectively forced the local cadres into embracing neoliberalism, however ruthless it may be (So 2007).12 In introducing these policies, the central state was able to have it both ways. On the one hand, it unleashed at the local level the energy to propel neoliberalism, while maintaining the fiscal and managerial capacity to develop long-term plans and formulate strategic policies. On the other hand, the central state could hold the moral high ground—condemning the local state managers and nascent capitalists for the exploitation of workers, plundering of the environment, and corruptive behaviors—and maintain its authority. Seen in this light, so long as the neoliberal policies and the central–local relationship remain unchanged, policies promoting a “harmonious society” were unable to do more than handle the surface symptoms of neoliberalism.

Concluding remarks and future trajectory In the above, we have reviewed the emergence of neoliberalism in China and argue that the party-state has played a prominent role in the process. While economic reality forced the party-state to initiate reforms in 1978, divergent interests (political and economic) and ideological convictions among the elite have prevented the country from following the “shock therapy” approach adopted in Eastern Europe. Instead, the party-state has drawn upon its 1950s experiment with marketization and has taken a gradualist approach that eventually crystallized into what we call “state neoliberalism.” In doing so, it has avoided the massive protests that attended the collapse of the former Soviet Union and Eastern European regimes. However, the implementation of state neoliberalism by a socialist party-state is fraught with contradictions. Ideologically, so long as the party declares itself to be the “Communist” Party of China, the

66

State Neoliberalism

introduction of neoliberal policies would inevitably attract criticism that draws upon socialist doctrines. Politically, economic reform has hurt the interests of state managers, planners, and party ideologues (Fewsmith 2008). Not only have their living standards declined in relation to private capitalists, their grip on power also dwindles. In time, as neoliberal policies take effect, social differentiation has unfolded. Even though the reform has initially benefited peasants, workers, and the general public, many begin to suffer. Flyaway inflation, evaporation of social welfare benefits, multiplication of miscellaneous and arbitrary charges, nonpayment of wages, deprivations at work, as well as the sheer social and spatial inequalities considered widely to be unjust have fuelled the great many petitions, protests, and even violent clashes with government officials. In other words, not only has intraelite difference in interests and ideological convictions not subsided, it has been aggravated by social and economic conflicts that attend the process of economic transformation. Contradictions that attend the implementation of state neoliberalism have been expressed in three ways. In the first place, different factions of the elite have continued to vie for policy domination, often seizing upon moments of social turmoil to make their case. This explains the rather violent fluctuations and hesitations in the proposal and implementation of policies. Examples include major setbacks in economic reform during the early 1980s and between 1989 and 1992, the pre-1992 efforts to restrict the scale of private enterprises, and the unwillingness to bankrupt or privatize state enterprises until 1997. In the second place, contradictions that attend the implementation of state neoliberalism have been expressed in the apparent bifurcation of the state into the central and local segments, with each of them pursuing rather distinct courses of action. On the one hand, the state is able to mobilize the energy of township and village governments as well as the nascent capitalist class, to develop capitalist enterprises and enforce the thoroughgoing marketization and commodification of social and economic relationships. On the other hand, the central state still maintains its capacity to mobilize resources, plan long-term development (like investing in education and infrastructural projects as well as setting up high-tech zones), and to bargain for its terms of insertion into the global economy with the core states as well as the transnational corporations. Finally, contradictions in the implementation of state neoliberalism have been expressed in the ways the party-state treats the workers and peasants. Although it has as a rule overlooked gross abuses of labor rights and appalling social inequalities, it has stopped short of privatizing landownership until very recently.

Yin-wah Chu and Alvin Y. So 67

When the abuses have become outrageous and the level of dissent inflammatory, the central state has also been rapid to reprimand local governments for their oversight or outright corruption. Just as important, we have seen the party-state’s recent attempts to introduce what might be called “hegemonic” policies not only to provide leadership for the rising social classes—capitalists and professionals—but also to alleviate the hardships experienced by the subterranean ones. The contradictions of China’s state neoliberalism can of course be relieved temporarily by the strategies adopted so far: promoting the “harmonious society” and casting the blame on the local states. However, when the general public has not been “enfranchised,” it is doubtful if the new Labor Contract Law or the policies of the “new socialist countryside” can indeed take effect (see Pun 2008). Furthermore, so long as independent local-level party congresses have not been developed, it is doubtful if the party reform can succeed in curbing corruption or other abuses of power. Although studies of former state-enterprise workers and capitalists have found that they are inclined to support the Party (Gallagher 2005; Dickson 2008), and that workers are unlikely political actors (Lee 2007), the inherent contradictions may still set China on a course of political fluctuations in the years to come. As marketization proceeds, especially with the passing of the private property law, peasants will become dispossessed, and full-fledged proletarianization will set in. When workers can no longer fall back on the countryside for basic survival, they will become more demanding, not only for a more extensive social safety net, but also for greater power at the levels both of the state and of enterprise. Whether China can endlessly balance itself between the market and the state is therefore a wide-open question.

Epilogue: State neoliberalism and global financial crisis in 2009 In the late 2000s, China is again facing very serious developmental problems and social protests triggered by the global financial crisis. In November 2008, Roubini (2008) reported that China may be on its way to a hard landing, as the last batch of macro data from the country points toward a sharp deceleration of economic growth, sharply falling spending on consumer durables, falling home sales, and sharp fall in construction activity. Factories are closing in China’s export region and unemployment is a growing concern in urban cities. China needs a growth rate of at least five percent to absorb about 24 million people joining the labor force every year. The collapse of the export trade has left millions without work and set off a wave of social instability. The Sunday

68

State Neoliberalism

Times reported (Macartney 2009) that social unrest among unemployed workers is spreading more widely in China than officially reported. In response, the party-state quickly unveiled a US$586 billion stimulus plan (roughly seven percent of its gross domestic product) over the next few years to improve infrastructure (building new railways, subways, and airports) and rebuild communities devastated by an earthquake in the southwest of China in May 2008. The stimulus plan covered ten areas, including low-income housing, electricity, water, rural infrastructure, and projects aimed at environmental protection and technological innovation—all of which were intended to incite consumer spending and bolster the economy. The party-state wants to promote domestic consumption and improve collective consumption (through means such as expanding the health care network, lowering tuition and fees for schools/universities, and upgrading the rudimentary social safety net) and social insurance. The assumption is that unless the social safety net and social insurance expands, the Chinese citizen is more inclined to save than to spend, and the enlarged domestic market will not be able to absorb the slack in the export market caused by the global financial crisis in 2008. In addition, Hu Jintao, when giving a speech in December 2008, pointed out that “China should continue to hoist high the great flag of socialism with Chinese characteristics and push forward the sinification of Marxism.” In several CCP meetings in late 2008, President Hu also called on the armed forces and police to pull out the stops to uphold social stability by putting down disturbances and assorted conspiracies spearhead by anti-China forces. Willy Lam (2009) labels the above policies as “The Great Leap Backward” because they signal a sharp U-turn from the neoliberal policies of the late 1990s. Facing sharp economic downturn and growing social unrest, the party-state has abundant reasons to move away from neoliberalism to state neoliberalism. Since the global economic crisis has just started and China just put up a stimulus plan, it is obviously too early to tell whether it will work. If China does continue to move toward the path of state neoliberalism, it could end up in a position that Silver and Arrighi (2000, p. 69) have envisioned; they assert that “China appears to be emerging as the only poor country that has any chance in the foreseeable future of subverting the Western-dominated global hierarchy of wealth.” However, whether China succeeds in achieving this will depend to a large extent on how global capitalism is able to deal with the unfolding worldwide economic and financial crisis that is now threatening the very survival of the global capitalist system.

Yin-wah Chu and Alvin Y. So 69

Notes 1. Even when state enterprise reforms were deepened in the mid-1990s, bankruptcy, privatization, and related strategies were reserved for medium and small state enterprises. Major state-owned enterprises were accorded great attention under the policy of zhuada fangxiao or “grasp the large and let go of the small” (Yang and Zhang 2003). Great care has also been taken to address the issue of laid-off state employees. 2. Fewsmith (2008, p. 28) considers the “two basic points” as no more than Deng’s effort to highlight a “boundary line defining the limits of acceptable public expression.” However it is of interest to note that Zhao Ziyang was reported by Li Peng to have said that only “Party leadership” should be emphasized among the four basic principles (Fewsmith 2008, p. 31). 3. Inflation increased by 18.5 percent between 1987 and 1988 (ZZDYY 2002, p. 232). 4. Gorbachev’s turn to the right (that is, his backing off from radical reform) and America’s swift victory in the Gulf War were highlighted by Fewsmith (2008, pp. 56–7) as the reasons behind Deng’s “wait and see” attitude in 1991. Interestingly, however, Deng insisted on reform despite the failure of the Soviet coup in 1992. 5. The estimation has varied. Citing China’s National Bureau of Statistics, Lin and Liu (2008) have reported lower Gini coefficients for recent years. By contrast, scholars seeking to address the conservativeness of the official estimation have uncovered wider income gaps (Chen, Hou and Jin 2008). 6. Lu (2002) and his colleagues utilized a neo-Marxist approach, classifying the social classes according to the control of economic resources, ownership of social (network) and cultural (education) capital, and taking into account variations in the quantity and quality of such capital. He used a ten-class classification. The classes not mentioned in the text include national and social administrators (2.1 percent), managers (1.5 percent), clerical employees (4.8 percent), as well as unemployed and underemployed (3.1 percent). See Lu (2002, Table 14) for details. 7. Lu (2002, p. 29) contended that the gains made by peasants, entrepreneurs, and owners of private enterprises increased much more than cadres and professionals in the first decade of reform, leading to perceived injustice. As of 1999, the situation was more reasonable. 8. Interestingly, though, 74.8 percent agreed or strongly agreed that even the children of peasants and workers had equal opportunity (Wu 2008). 9. Mass disturbance was defined as “any riots, demonstrations, and protests that involved more than 100 people” (Human Rights in China 2006). 10. Actually, about 20,000 petition letters were sent to the CCTV between August 2003 and June 2004. Yu (2007) and his team managed to process 4300 of them. 11. It is suggested that the ideas were articulated most clearly in the Eleventh Five-year Program endorsed at the Fifth Plenary Meeting of the Sixteenth Central Committee of the Chinese Communist Party held on October 11, 2005 (Xinhua News 2005). 12. It is of great interest to note that even though Wang, Hu and Ding (2002) warned of the social conflicts that might stem from the mass unemployment,

70

State Neoliberalism acute inequality, and outrageous corruption that emerged after the mid-1990s, they considered the main problem to lie with the local cadres who were likely to cover up their mismanagement, which rendered it difficult for the central government to take appropriate actions before the disasters occurred.

References Chen, J., W. Hou, and S. Jin (2008) “A Review of the Chinese Gini Coefficient from 1978 to 2005,” http://ssrn.com/abstract=1328998, accessed February 8, 2009. Chinability (2009) “GDP Growth 1952–2008,” http://www.chinability.com/GDP. htm, accessed February 8, 2009. Chu, Y. W. (2007) “Land Rights Protests in Mainland China: A preliminary analysis of their meanings and political significance,” presented at the Thirty-First Annual Political Economy of the World-System Conference: “Asia and the World-System,” St. Lawrence University, Canton, New York, May 10–12. Dickson, B. J. (2008) Wealth into Power: The Communist Party’s Embrace of China’s Private Sector (Cambridge: Cambridge University Press). Ding, X. L. (1994) Gongchan zhuyi hou yu Zhongguo (Post-Communism and China) (Hong Kong: Oxford University Press). Edin, M. (2003) “State Capacity and Local Agent Control in China: CCP Cadre Management from a Township Perspective,” The China Quarterly, 173, 35–42. Fewsmith, J. (2008) China since Tiananmen: From Deng Xiaoping to Hu Jintao (New York: Cambridge University Press). Gallagher, M. E. (2005) Contagious Capitalism: Globalization and the Politics of Labor in China (Princeton: Princeton University Press). Guan, X. (2000) “China’s Social Policy: Reform and Development in the Context of Marketization and Globalization,” Social Policy and Administration, 34, 115–30. Hart-Landsberg, M. and P. Burkett (2004) “China and Socialism: Market Reforms and Class Struggle,” Monthly Review, 56 (3), 1–116. Harvey, D. (2005) A Brief History of Neo-liberalism (Oxford: Oxford University Press). He, B. (2003) “The Making of a Nascent Civil Society in China” in D. C. Schak and W. Hudson (ed.) Civil Society in Asia (Aldershot: Ashgate). Ho, P. (2001) “Who Owns China’s Land? Policies, Property Rights and Deliberate Institutional Ambiguity,” The China Quarterly, 166, 395–421. Howell, J. and J. Pearce (2001), “Civil Society and Market Transition: The Case of China” in Civil Society and Development (London: Lynn Rienner). Hsing, Y. T. (1998) Making Capitalism in China: The Taiwan Connection (New York: Oxford University Press). Hu, J. (2008) “Zai ji nian dang de shi yi jie san zhong chun hui zhao kai san shi nian da hui shang de jian hua” (Speech Commemorating the Thirtieth Anniversary of the Third Plenary Session of the Eleventh Central Committee of the Chinese Communist Party), http://big5.xinhuanet.com/gate/big5/news.xinhuanet.com/ newscenter/2008-12/18/content_10524481.htm, accessed December 28, 2008. Human Rights in China (2006) “January 2006: China Responds to Increasing Social Unrest with Greater Repression,” Trends Bulletin, http://hrichina.org/public/contents/ article?print=t&revision_id=36026&item_ide=26823, accessed May 5, 2007. Lam, W. (2009) “Hu Jintao’s Great Leap Backward,” Far Eastern Economic Review, (Jan/Feb), 19–22.

Yin-wah Chu and Alvin Y. So 71 Lee, C. K. (2007) “Is Labor a Political Force in China?” in E. J. Perry and M. Goldman (eds) Grassroots Political Reform in Contemporary China (Cambridge, MA: Harvard University Press). Lin, J. Y. and P. Liu (2008) “Development Strategies and Regional Income Disparities in China” in G. Wan (ed.) Inequality and Growth in Modern China (Oxford: Oxford University Press). Lin, N. (2007) “Emerging Chinese Capitalism and its Theoretical and Global Significance,” Social Transformations in Chinese Societies, 3, 13–62. Loo, B. and S. Y. Chow (2006) “China’s 1994 Tax Sharing Reforms: One System, Different Impact,” Asian Survey, 46, 215–37. Lu, X. (ed.) (2002) Dangdai Zhongguo Shehui Jieceng Yanjiu Baogao (Research Report on Social Stratification in Contemporary China) (Beijing: Shehui Kexue Wenxian Chubanshe [Social Science Literature Press]). Macartney, J. (2009) “China Fear Trouble from 20m Jobless Workers,” Sunday Times, February 3. Nee, V. (1989) “A Theory of Market Transitions: From Redistribution to Markets in State Socialism,” American Sociological Review, 54, 663–81. Nee, V. (2000) “The Role of the State in Making a Market Economy,” Journal of Institutional and Theoretical Economics, 156, 64–88. Petras, J. (2006) “Past, Present, and Future of China: From Semi-Colony to World Power?” Journal of Contemporary Asia, 36 (4), 423–41. PRC (2007) “Labor Contract Law of the People’s Republic of China,” http://big5. gov.cn/gate/big5/www.gov.cn/flfg/2007-06/29/content_669394.htm, accessed January 28, 2009. Pun, N. (2008) “‘Reorganizing Moralism’: The Politics of Transnational Labor Codes” in Li, Z. and A. Ong (eds) Privatizing China (Ithaca: Cornell University Press). Ren, H. W. (2006) “The Chinese Communist Party emphasized the mutual adjustment of interests for the enhancement of harmony,” Hong Kong Economic Journal, December 15. Roubini, N. (2008) “The Rising Risk of Hard Landing in China,” Japan Focus, November 4. Silver, B. J. and G. Arrighi (2000) “Workers North and South” in L. Panitch and C. Leys (eds) 2001 Socialist Register: Working Classes, Global Realities (New York: Monthly Review Press). So, A. Y. (2007) “Peasant Conflict and the Local Predatory State in the Chinese Countryside,” The Journal of Peasant Studies, 34 (3/4), 560–81. Solinger, D. J. (1993) China’s Transition from Socialism: Statist Legacies and Market Reforms 1980–1990 (Armonk: M. E. Sharpe). Szelényi, I. (2008) “A Theory of Transitions,” Modern China, 34 (1), 165–75. Tang, R. and Q. Ma (2008) Zhongguo jingji gaige 30 nian:duowai kaifang juan (Thirty Years of Economic Reform in China: Volume on “Opening Up”) (Chongqing City: Chongqing University Press). Thornton, P. (2004) “Comrades and Collectives in Arms: Tax Resistance, Evasion, and Avoidance Strategies in Post-Mao China” in P. H. Gries and S. Rosen (eds) State and Society in 21st-Century China (New York and London: RoutledgeCurzon). Tsai, S. (2007) “Zhongguo di Weiquan Yundong” (China’s Rights Defense Movement), Newsletter of the Hong Kong Alliance in Support of Patriotic

72

State Neoliberalism

Democratic Movements of China http://www.alliance.org.hk/publish/hkanews/ ?cat=22, accessed May 7, 2007. UNDP (2006) UNDP China Wins 2006 Poverty Eradication Awards,” http://www. undp.org/poverty/stories/pov-award06-china.htm, accessed January 10, 2009. Walder, A. G. (1994) “The Decline of Communist Power: Elements of a Theory of Institutional Change,” Theory and Society, 23, 297–323. Wang, S., A. Hu, and Y. Ding (2002) “JingJi FanGrong Beihou de Shehui bu Wending” (Social Instability behind Economic Prosperity), Zhanluue yu Guanli (Strategy and Management), 3 (May/June), 26–33. Wang, X. (2008) “Income Inequality in China and its Influencing Factors” in G. Wan (ed.) Inequality and Growth in Modern China (Oxford: Oxford University Press). Wu, X. (2008) “Income Inequality and Distributive Justice in Hong Kong and Mainland China: A Comparative Analysis,” Conference on Social Inequality and Social Mobility in Hong Kong, Centre of Asian Studies (HKU) and the Central Policy Unit (HKSAR Government), March 14, www.cpu.gov.hk/english/documents/ conference/20080314%20Wu%20Xiaogang.pps, accessed January 20, 2009. Xinhua News (2002) “Zhongguo Gongchandang di shiliuci qunguodaibiu dahui mishuchu jiu shiliuda tongguo de zhongguo gongchandang zhangcheng xiuzhengan da xinhuashe jice wen” (The Secretariat of the Sixteenth National Party Congress of the Chinese Communist Party Replies to the Xinhua News Reporters concerning the “Amendments to the Constitution of the Chinese Communist Party”), http://news.xinhuanet.com/newscenter/2002-11/18/ content_632966.htm, accessed January 28, 2009. Xinhua News (2003) “Zhongguo Gongchandang di Shisanci Quanguo Daibiao Dahui” (The Thirteenth National Congress of the Chinese Communist Party), http://news.xinhuanet.com/ziliao/2003-01/20/content_697049.htm, accessed January 20, 2009. Xinhua News (2005) “Recommendations concerning the Eleventh Five-Year Plan proposed by the Central Committee of the CCP,” http://news.xinuanet.com/ politics/2005-10/18/content_3640318.htm, accessed January 20, 2009. Yang, R. and Y. Zhang (2003) “Globalization and China’s SOEs Reform,” paper presented in the International Conference on “Sharing the Prosperity of Globalization,” organized by WIDER/UNU, Finland, September 6–7. Yep, R. (2007) “Tax Assignment Reform and its Impact on County Finance,” paper presented to the International Conference on “State Capacity of China in the 21st Century,” City University of Hong Kong, April 19–20. Yu, J. (2007) “Nongmin Tudi Weiquan Kangzeng de Diaocha” (A Survey of Land Rights Protests among the Peasants), Zhongguo Nongcun Yanjiu Wan (Network of Chinese Village Research), http://www.chinavillage.org/news_show. aspx?cols=1113&ID=36952, accessed April 20, 2007. Zheng, Y. (2004) Globalization and State Transformation in China (New York: Cambridge University Press). Zhou, L. and S. Xie (eds) (2008) Zhongguo Jingji Gaige 30 Nian: Minying Jingji Juan ( Thirty Years of Economic Reform in China: Volume on the Private Economy) (Chongqing City: Chongqing University Press). ZZDYY [Zhonggong Zhongyang Dangshi Yangjiushi Di San Yangjiubu] (Chinese Communist Party, Central Party Historical Research Section, Third Research Division) (2002) Zhongguo Gaige Kaifang Shi (History of China’s Reform and Opening Up) (Liaoning: Liaoning People’s Press).

4 Postrevolution Transformations and the Reemergence of Capitalism in China: Implications for the Internal Organization of Economic Activities Yi-min Lin Introduction Thirty years after the start of economic reforms, capitalism has reemerged and prevailed in China.1 This evolving phenomenon shares some common features with capitalist economies elsewhere, such as profit orientation, private ownership, and omnipresence of markets. What makes it “Chinese,” however, remains an issue to be closely examined. To establish something as a truly “Chinese” characteristic in the organization and governance of capitalist economic activities, one needs to put it to the test of three criteria. Its origin(s) must be traceable to Chinese society and culture, historically and/or in the contemporary era; it must demonstrate uniqueness in international comparison; and it must have a significant presence, spatially and temporally. For example, the family-owned and controlled firm per se is not a purely Chinese phenomenon and therefore does not qualify as a defining feature of Chinese capitalism, despite evidence of its traceability to Chinese history and its wide adoption by Chinese businesspeople as an organizing platform for capitalism. Pertinent to the examination of the uniqueness of China’s reemergent capitalist economy is an existing literature on Chinese capitalism outside the People’s Republic.2 It focuses on pre-1949 China and non-PRC economies in which ethnic Chinese capitalists have been important players. From this literature one can discern three ideal-typical characteristics of a brand of capitalist organizational practices and institutions. These characteristics embody the profound and lasting influence of Chinese culture and history, and seem to pass the test of the three criteria above. 73

74

Internal Organization of China’s Economic Activities

First, the internal organization of such capitalism features a patriarchal structure of family ownership and control, cemented and reinforced by Confucian values and norms such as filial piety (xiao), loyalty (zhong), and benevolence (ren).3 Second, its external organization is lodged in intricate networks of reciprocity, often known as guanxi,4 where informality permeates and the norm of renqing or personalized mutual indebtedness serves as a central mechanism to forge relational stability, smooth transactions, and leverage resources and opportunities.5 Third, the development of this type of capitalism involves an intimate interplay between economic and political entrepreneurial pursuits.6 Despite difficult beginnings in adverse political environments and persistent obstacles therein, capitalism nevertheless pressed on to transform economic life in pre-1949 China and non-mainland Chinese societies. Essential to its resilience and growth is a political entrepreneurship that has evolved out of a historically rooted weak conviction in legal-rational institutions. Encompassing a wide range of strategies and tactics, it has been informed by the traditional Chinese art of political manipulation and enriched and refined through experience,7 to cope with constraints and/or channel influence from the state.8 A key assumption underlying this ideal-typical imagery of Chinese capitalism is that the incremental nature of the rise and spread of capitalism in pre-1949 China and non-PRC Chinese societies and communities allowed continuity of the impact from what Gary Hamilton (2006) calls “civilizational forces”—culturally and historically derived, widely shared understandings of how various actors in society ought to relate and interact with one another.9 For capitalist development in the People’s Republic, however, there are questions surrounding 1949, when communist rule began. Whether or in what way that year signified a fault line in Chinese history has been a matter of debate.10 But it is a fact that soon after the revolution the ascent of capitalism was abruptly truncated, and that it did not reemerge until the late 1970s. In between, fundamental changes took place in social and economic life under a totalist state. Among others, these included changing policies concerning the patriarchal family system, property rights, and employment relations. How those changes may have tempered or even redefined the impact of “civilizational forces” is key to understanding the reformation of the organizational and institutional foundations of capitalism in post-Mao China. In the following discussion, I will seek partial clues to addressing this question. My analysis will be limited to exploring the implications of post-1949 social transformations for the internal organization of

Yi-min Lin

75

capitalist economic activities in the reform era.11 I will focus on changes in family relations and the workplace. These changes, I argue, have left important imprints on the way the reemergent capitalism in China is now organized and governed.

The internal organization of Chinese capitalism in non-PRC contexts To see in perspective the possible impacts exerted by China’s socialist revolution upon “civilization forces,” let me begin with a cursory discussion of the defining features of Chinese capitalism in non-PRC contexts: the ideal-typical Chinese-style family firm.12 It is based on three pillars of Confucian family relations: male centrality, paternal control of family assets and decision authority, and xiao or filial piety of offspring to parents. Governance of authority relations with nonfamily members in the workplace, on the other hand, draws on an internalization of the traditional ideas of zhong (loyalty) by subordinates and ren (benevolence) by superiors, as well as the mutually reinforcing effects of the behavioral manifestations of these ideas.13 The initial development of the Chinese-style family firm was conditioned by preexisting social forces and institutions. When capitalism first emerged in modern China and among the Chinese Diaspora, Confucianism remained the dominant ideology in society. Women were generally more poorly educated than men. Job opportunities beyond the family were limited for women, especially married women. Patrilocal marriage uprooted women from the social networks in their natal places and thereby limited their social capital. The widely practiced patrimonial inheritance system gave female offspring no rights to family property, further reducing their socioeconomic status and power in the family. In the meantime, partible inheritance among all male siblings obligated them to participate in family business and contribute to its organization and management.14 Presiding as the chief decision maker in the family, the (male) family head assigned important roles and positions in family business, controlled the distribution of financial rewards and the deployment of resources, oversaw the growth of the family estate, and determined the timing and method for the ultimate division of the family estate among male siblings.15 This perpetuated the economic dependence of children and sustained their filial obligations. Constrained by underdevelopment of product and factor markets and instability and weakness of political institutions, the size of family firms was generally small (Gates 1996),16 and internal governance of

76

Internal Organization of China’s Economic Activities

private business rarely followed the legal-rational corporate model from the West (Kirby 1995). The limited group of supra-kin employees often consisted of people having various communal bonds (e.g. common native place ties) with the business family. Such personalized workplace was conducive to the cultivation of a synergetic interplay between zhong (loyalty) and ren (benevolence). This interplay was also found in establishments where firm size was larger and the workforce was socially more heterogeneous (Bell 1999; Cochran 2000). What facilitated it was a two-tier structure of interaction, where social cohesion and patronage between group leaders and their fellow migrant workers with common native place ties were tapped through co-optive inclusion of the former (e.g. as foremen) in the middle management of the family firm.17 Despite the collapse of the Qing Dynasty (1644–1911) and efforts of new political leaders in Republican China, post-1949 Taiwan, or post-1965 Singapore to promote industrialization and to open up the economy, the state did not act to introduce sweeping changes to family institutions.18 With the exception of publicly owned establishments, the reach of the state did not extend to the internal organization of private economic activities either. Some state policies even had a reinforcing effect on certain aspects of the Chinese-style family firm. In the Republican Period (1912–49), for example, the government tacitly condoned the labor supply intermediary practice based on native place networks, so as to contain labor militancy (Frazier 2002). In post-1945 Taiwan the tight credit policy and discriminatory politics under Kuomintang (KMT) rule forced native Taiwanese businesspeople to rely heavily on families and kin for resources and assistance (Greenhalgh 1994). In Singapore efforts by the government to uphold and revitalize Confucian family values and institutions (Quah 1998) supported continuity in the social milieu of Chinese family business organizations. In Hong Kong the government’s laissez-faire policy allowed economic freedom for small business while relegating to familial groups the responsibility of addressing ordinary citizens’ social welfare needs. This, coupled with a long-standing segregation of the power elite and the mass society, reinforced what Lau Siu-kai (1981) termed “utilitarianistic familism” in socioeconomic life. Over time, however, there have been changes that have had important implications for the internal organization of capitalism, especially in non-PRC Chinese societies since 1949.19 During the process of industrialization, women in non-PRC Chinese societies have gradually gained more opportunities to participate in the workforce beyond the family, and their educational attainment has significantly improved (Brinton 2001; Quah 1998; Salaff 1995; Thorton and Lin 1994). There are also

Yi-min Lin

77

more career choices for male siblings outside the family (Whyte 1996). Some of those with a Western education or outlook may be less bound by traditional filial obligations when the opportunity cost of staying within the family appears to be too high. Moreover, the labor market has become more fully developed, and the emergence of new identities centering on workers’ recent places of residency has gradually reduced the importance of regional differences based on ancestral locales on the mainland, especially among younger cohorts of the workforce (Perry 1996). As a result, the once important role of native place networks and solidarity in the labor process, especially the role played by labor supply intermediaries, has declined. Closer integration with the global capitalist system has also meant a greater exposure of domestic economic activities to external shocks, especially since the early 1970s saw the end of post-World War II robust growth. Long-term commitment becomes difficult to cultivate during major economic downturns.20 Given these changes, to what extent does the ideal-typical Chinesestyle family firm remain a useful benchmark for the study of the internal organization of capitalism in contemporary non-PRC Chinese societies? More careful research is needed to address this question. It is noteworthy, though, that the changes in these societies are incremental. Moreover, their effects appear to vary. Despite greater economic independence and improved education, for example, women are still kept from leading roles in family business. Salaff (1995) finds that working women in Hong Kong remain strongly bound by filial obligations even when their income rises. Thorton and Lin (1994) report similar findings from studies on family relations in Taiwan, which indicates a certain degree of tenacity in the impact of values and social norms. On the other hand, studies of labor relations in Hong Kong, Singapore, and Taiwan suggest that with the development of markets and urbanization the interplay between loyalty and benevolence may not have remained as strong an internal governance mechanism as in earlier stages of capitalist development, especially in labor-intensive processes (Deyo 1989; England 1989).21 This may be more likely to be the case in other Chinese Diaspora communities, where migration from mainland China was cut off in 1949 and large numbers of non-Chinese have since been employed in the workforce of ethnic Chinese-owned companies (Kaur 2004). Notwithstanding variations in the changes that influence the evolution of business practices in non-PRC Chinese contexts, what can be said about these changes is that they have by and large been driven by the cumulative forces of social and economic transformation rather than shaped by the immediate impact of systematic state policies aimed at transforming

78

Internal Organization of China’s Economic Activities

family relations and reshaping the workplace. In contrast such policies were an integral part of the social engineering carried out by the communist state in postrevolution China. That undertaking has had far-reaching implications for the reemergence of capitalism there since 1978.

Changes in family relations in the People’s Republic of China Like their counterparts in non-PRC Chinese societies, the majority of private companies in mainland China today are family-owned and/or controlled. According to a 2004 survey of private enterprises conducted by researchers from the Chinese Academy of Social Sciences (CASS) and the Hong Kong University of Science and Technology (HKUST) in eight provinces (n = 511),22 for example, 60 percent of the respondents indicated that company assets were mainly or solely owned by family members and/or relatives. Excluding companies that were in the public sector before being privatized (n = 162) and therefore tended to have more diverse ownership structures, the percentage of broad family ownership for genetically private companies (n = 349) in the survey is 76 percent. Among the companies that had nonfamily members as important co-owners, 34 percent had immediate family members and/or siblings of the chief owner-cum-company leader as key decision makers. The percentage for genetically private companies of this category is 45 percent. In sum, some 74 percent of all the sample companies and 87 percent of those that were genetically private were familyowned or controlled. This finding is consistent with what has been reported in many other studies of private enterprises in China (e.g. Pearson 1997; Tsai 2002; Wank 1999; Sun and Wong 2002). Given the significance of family ownership and control in the private sector, what holds together and governs the internal organization of family business in China’s new capitalist economy needs to be closely examined. In particular, the legacies of postrevolution changes in family institutions merit special attention. Erosion of male centrality The first law that the new government enacted after 1949 was the Marriage Law (1950). Defining man and woman as equals in family life and society, it banned such preexisting practices as concubinage, underage marriage, and restrictions on the remarriage of widows. It also stipulated equal rights for women to choose their own marriage partners, to own and inherit family property, and to participate in the workforce and social activities beyond the family. In accordance with

Yi-min Lin

79

the law, for example, women were given equal shares to those of men in the redistribution of privately owned land during the land reform in 1950–3. Although private ownership of land and capital was subsequently eliminated in the late 1950s, the principle of gender equality continued to be upheld in the ownership of remaining family assets.23 Consistent with this principle, an important development after the revolution was the increase in opportunities for women to receive formal education at all levels of schooling. Figures reported in Table 4.1 show a clear upward trend in women’s educational attainment in the postrevolution era. A parallel development is that women have become an important part of the workforce beyond the family, making them independent income earners. Before the communist revolution, adult women, especially those in rural areas, were mainly confined to working within the family. In 1949, for example, no more than 7.5 percent of the nonfarm workforce consisted of female laborers (SCIO 2000), whereas the entire farm sector was organized along the lines of households. The pattern of female workforce participation changed in the mid to late 1950s, when the government eliminated private ownership and absorbed the entire work-age population and their families into the public sector. In the meantime, the family ceased to function as a basic unit in which to organize economic activities. From the late 1950s to the late 1970s the vast majority of adult women were assigned to work in people’s communes in the countryside and in state-owned enterprises and collective enterprises in urban areas. That experience laid the foundation for continued active participation by women in economic activities, especially those beyond

Table 4.1 Selected statistics on educational attainment of women (aged 6 and above) 1946/47 %

1982 %

2006 %

Illiteracy rate (figures for men are in parentheses)

84 (55)

40 (17)

13 (5)

Females as percent of people with junior high school education

22

39

46

Females as percent of people with senior high school education

22

39

43

Females as percent of people with college education

15

27

43

Sources: Xu 1988, pp. 481, 484; NBSa 2007, p. 78.

80

Internal Organization of China’s Economic Activities

the family. In 2005 females accounted for 45.4 percent of the entire workforce and 38 percent of the workforce in urban areas (NBSb 2006, p. 72), which contribute the bulk of China’s economic output. Moreover, women have become active participants in the economic migration that started in the early 1980s. The total size of China’s migrant working population is around 150 million (NBSd 2005). According to the 2000 census, 43 percent of the economic migrants were females (NBSc 2002, Table 7.5), who mostly came from rural areas. Working away from their home (and especially natal) places, where economic conditions tend to be poorer than those in urban areas, many of these women have accumulated small amounts of capital and gained new knowledge and skills (Jacka 2004). A collateral benefit of such work experience is the expansion of their social networks. This may help alleviate a constraint that women often face in capitalist pursuit—the socially uprooting effect of patrilocal marriage, which has experienced some decline in the postrevolution era but remains predominant in rural areas.24 This disadvantage for women may also have been further reduced as a result of the acceleration of urbanization since the late 1970s,25 as patrilocal marriage is much less significant in urban places. In the 1950s and 1960s there was no sustained and systematic government program on family planning (Xu 1988). Starting from the early 1970s, however, the government embarked on a series of measures, initially focusing on deferring initial marriage age and then culminating in the one-child policy in 1979, to control the growth of the population (Banister 1987; Greenhalgh and Winckler 2005; White 2006; Xu 1988). In part as a result of these policies, the initial marriage age has indeed increased. In 1949 the average age of first marriage for women was 18.57. It edged up to 20.29 in 1971 (when the policy on deferred marriage began) but then sharply rose to 22.66 in 1982 and further to 23.49 in 2005 (Xu 1988, p. 332; NBSd 2005). Such change has made available more time and social space for young women to improve their human and social capital before forming their own families, by getting more formal education and/or training, and gaining more extensive experience through participation in work, migration, and even business activities. With institutionalized co-ownership of family assets and growing economic independence through nonfamilial workforce participation and improvement in human and social capital, the status of women has improved in both family life and society. Despite significant remaining gaps in gender equality (Hershatter, 2004), such improvement has enabled women to play a more active role in the reemergence of capitalism in the post-Mao era than in the early development of capitalism in pre-1949 China and non-PRC contexts.

Yi-min Lin

81

According to the one percent sample survey of the population conducted in 2005, one of every four private business owners was a woman (NBSb 2006, p. 72), though survey data also suggest that female owners of private businesses may concentrate in small organizations. A national survey (n = 11,020) conducted by the All-China Federation of Industry and Commerce in 1991 reveals that female owners accounted for 31 percent of small private business organizations (getihu) that hired no more than seven people. In contrast, in all the subsequent surveys conducted by the same organization on private enterprises hiring more than seven people, the percentage accounted for by female owners ranges between 8.24 percent in 1997 (n = 1941) and 13.9 in 2004 (n = 3012). This, of course, does not necessarily imply that women did not participate in the decision making of family-owned or controlled business organizations. The 2004 CASS-HKUST survey of private enterprises mentioned above reveals that, while only about 10 percent of the owners surveyed were female,26 25 percent of the male-owned enterprises reported direct spousal participation in decision making on key issues. In the 2000 wave of the World Values Survey jointly conducted by the University of Michigan and Peking University,27 some 29 percent of the respondents (n = 1000) in China strongly agreed, and 69 percent agreed, with the statement that “husband and wife should both contribute to family income.” Given what has happened in gender relations, such widely shared perceptions about the important economic role of women in family life are by no means surprising. Weakening of paternal/parental authority The impact of postrevolution changes on family relations is not limited to gender relations. They also have implications for generational relations and authority in the family, including the rise of maternal status and the resultant decrease in the absoluteness and dominance of paternal authority. Before 1949 patrimonial family ownership of economic resources was an important basis on which paternal authority rested. With the elimination of private ownership in the 1950s, family ownership was reduced to the possession and use of basic means of living. Even the deployment of the human resources of family members was placed in the hands of outsiders—officials and managers of public enterprises in urban areas and people’s communes in rural areas. As a result, during the following two decades the family ceased to be a key source of capital accumulation. When capitalism reemerged after the late 1970s, the parental generation had little (if any) economic capital to pass onto the adult offspring born in the 1950s and 1960s. In fact private entrepreneurs from all generations set

82

Internal Organization of China’s Economic Activities

out from scratch. Although people in the parental generation arguably might have accumulated more social capital through experience, they tended to be more poorly educated than their offspring.28 In addition, the economic dependence of the offspring generation on their parents had weakened further due to the fact that inheritance, which had been an important fulcrum of influence for the paternal family head in non-PRC contexts, had virtually became a nonissue after more than two decades of public ownership. When the children of the capitalists from the postrevolution cohorts (born in the 1950s, 1960s and even 1970s) grow up and enter parenthood, however, they face a different family structure from their parents’. The onechild policy started in the late 1970s has contributed to a decrease in the size of the families formed subsequently, as can be seen from the statistics in Table 4.2. This is especially true in urban areas, where the policy has been more stringently enforced (Fong 2004) and where capitalist industry and commerce concentrate today. Unlike their parents, many singletons born after 1980 now do have sizeable family assets, including family business, to inherit. But the absence of siblings and intragenerational rivalry makes their inheritance of all family assets a matter of near certainty.29 This reduces the leverage of parents from the 1950–70 cohorts over their offspring. Where the singleton is female, the traditional practice of patrimonial inheritance cannot be continued and male-centered views have to adjust to reality, further weakening male centrality in family relations.30 Table 4.2

Selected statistics on household size and characteristics Average household size (persons)

1936 census 1947 census 1953 census 1964 census 1982 census 1990 census 2000 census 2005 one percent survey of the population

Percent (in total) of households with members from different generations

Percent (in total) of households of different sizes (persons per household)

1

2

3

1

2

3

4

5.38 5.34 4.33 4.43 4.41 3.96 3.44

— — — — 5 — 22

— — — — 65 — 59

— — — — 17 — 18

— — — — 8 — 8

— — — — 10 — 17

— — — — 16 — 29

— — — — 20 — 23

—

29

53

18

11

25

30

19

Sources: Xu 1988, pp. 498–9; NBSa 2006, pp. 105–6.

Yi-min Lin

83

The lack of intergenerational transfer of family assets as a significant source of seed capital for first-generation private entrepreneurs after 1978, coupled with the growing significance of nuclear families, may limit the presence of multi-generation family business as well as paternal/parental authority in family-owned firms. The 2004 CASSHKUST survey of private enterprise owners mentioned above finds that some 58 percent of the respondents ran their business without any involvement from their parents, siblings, and offspring. Some 33 percent teamed up with their brothers and sisters. Only 8 percent and 14 percent indicated parental and offspring participation respectively. A further tiny one percent reported three-generational involvement in family business, including the owner, parent(s), sibling(s), and offspring. In addition, quite a number of the respondents (accounting for some 40 percent of the sample) pooled resources from nonfamily members. This inclusion of outsiders in decision making adds further constraints on the exercise of paternal/parental authority. To what extent these findings are representative remains to be ascertained. If they are corroborated by additional evidence and if what they indicate is not a transient phenomenon, then this would appear to indicate a break with an important aspect (i.e. paternal/parental dominance) of the idealtypical internal organization of Chinese capitalism highlighted earlier. Changing perceptions of filial obligations Some of the changes discussed above have also posed challenges to the traditional norm of xiao or filial piety. Weak economic dependence of the 1950–70 cohorts on their parents shakes loose the material foundation for unconditional commitment, obligation and obedience of offspring to the patrilineal family, which was the center of filial duty in traditional Chinese society. The shift of residential pattern from large to small households further limits direct parental influence on adult offspring in daily life. Enhanced opportunities in education and spatial and occupational mobility have also led to improvement in the human capital of the offspring generation over that of their parents. This not only helps increase their economic independence but opens up or broadens alternative career paths beyond the confines of the family. The diverse and competing choices that they face clarify or even raise the opportunity cost of engagement in family business, further weakening the foundation for compliance with the norm of filial piety. For parents of the post-reform cohorts (those born in the 1980s and 1990s), there are additional challenges to the cultivation and maintenance of filial piety among their offspring. In the face of the

84

Internal Organization of China’s Economic Activities

constraints imposed by the one-child policy, many parents tend to pamper their only child. For example, 70 percent of the respondents aged 30–49 in the 2000 wave of the World Values Survey in China indicated that they would be willing to sacrifice everything for their offspring. As such, the youngsters brought up in this highly accommodating environment may tend to take parental provisions for granted without a strong sense of reciprocal obligation (Feng 2004; Fong 2004). Moreover, the post-reform cohorts have grown up in an era of fundamental socioeconomic change and globalization (Yan 2006). Compared with those of their parents’ generation, their values and outlooks have been more heavily influenced by foreign cultures, including individualistic and even egocentric ideas that run counter to the idea of filial piety. To be sure, these changes do not necessarily signify the declining importance of the family. According to the 2000 wave of the World Values Survey in China, 61 percent and 37 percent of the respondents indicated that family was “extremely important” or “important” respectively. A full 92 percent agreed that “it is desirable to place more emphasis on family life.” Yet, while 95 percent embraced the view that parents deserve unwavering love and respect from offspring instead of having to earn this, 39 percent of the respondents (and 48 percent of those aged 15–29) disagreed with the statement that “one of my main goals in life has been to make my parents proud.” The nuclear family appears to be what many of these (predominantly adult) respondents had in mind when asked about the importance of the family. If true, this represents a deviation from the focal point of xiao—devotion, subordination, and unconditional obedience of offspring to living parents. The interests of the (nuclear) family and concerns with face and glory shared by immediate family members of all generations may still be key sources of motivation for owners of family businesses. But with the shrinking of family size and the weakening of the notion of filial duty to parents, xiao may have become a less potent integrating mechanism for internal organization in China’s new capitalist economy than in the ideal-typical Chinese capitalist firm.

The workplace and workforce in the People’s Republic of China Unlike the capitalism that grew out of an agrarian economy and private commerce in pre-1949 China and in non-PRC Chinese contexts, the reemergent capitalism in post-Mao China has been built on the organizational and institutional legacies of 30 years of state socialism. Despite the drastic decline of public ownership in the past decade,

Yi-min Lin

85

a number of important players in China’s capitalist economy today are state-owned and controlled entities where the Chinese Communist Party (CCP) maintains its presence in decision making. In the meantime, new owners of former public enterprises privatized since the mid-1990s have had to deal with the organizational practices instituted under the old system. Under the household registration system instituted in the 1950s, about half of the workforce in urban industry and commerce consists of migrants who are second-class citizens excluded from permanent urban resident status and local public goods. As more and more people born under the one-child policy come of age, their presence in the workforce gains growing significance. Their peculiar upbringing fosters behavioral traits that pose unique challenges to organization and management. Together, these factors may have shaped the internal organization of capitalism in ways that are not found in other Chinese contexts. Remnants of political control in SOEs In 1978 over 99 percent of the workforce in the nonfarm sector was deployed in public enterprises, known as state-owned enterprises (SOEs) and collectives; today, their share has dropped to less than 25 percent (NBSa 2008, p. 320). This decline is the result of massive privatization of former public enterprises and the growth of genetically private economic entities since the mid-1990s. In the meantime, however, the government has not let go of many large SOEs in strategically important sectors, such as banking, telecommunications, heavy industries, airlines, and so on. What it has sought to do instead is to carry out corporate restructuring in these entities so as to turn them into true market players in the new capitalist economy (Naughton 2007). The measures of such restructuring include, among others, an increase of decision-making autonomy for management, diversification of ownership through allowance of partial private shareholding and/or cross-holding by other state-owned or controlled entities, implementation of performancebased incentive and discipline schemes, improvement of internal and external monitoring mechanisms, reduction and externalization of social welfare provisions, and overhaul of the legal and regulatory framework for business activities. Together, they have transformed many building blocks of the old system. Yet a longstanding organizational feature has been retained, that is, the presence of the CCP in the remaining SOEs. Before the start of economic reforms, a CCP committee was installed in each and every economic organization as the command center of decision making. During the reform and especially the enterprise restructuring since the mid-1990s, the role of the CCP in SOEs has

86

Internal Organization of China’s Economic Activities

been redefined as one of “supervision” and “guarantee” (for political correctness in decision making). The party secretary and other political functionaries are no longer directly involved in day-to-day decision making, which is now in the hands of professional managers. But the CCP committee still plays an important role in personnel-related issues and continues to take part in a host of key decisions. This dual command structure creates cleavage in authority relations and inevitably spawns rivalry among key decision makers. Whether such rivalry is conducive or obstructive to the management of the remaining SOEs is an open question. On the one hand, CCP functionaries may interfere with managerial decision making, thereby posing at threat to efficiency. On the other hand, there is the possibility of its exerting a constraining effect on self-seeking behavior by professional managers and therefore adding a checks-and-balances mechanism in corporate governance. Further research is needed to investigate how these forces are played out in various organizational contexts. But it seems clear that the organizational politics associated with this institutional arrangement is something not present in capitalist economic organizations in other Chinese societies and beyond.31 Legacies of “communist neo-traditionalism” in former public enterprises In 1995 there were 118,000 state-owned enterprises in China’s industrial sector. As a result of the massive privatization guided by the strategy of zhuada fangxiao (“hanging on to big enterprises while letting go of small ones”) during the following decade, only some 21,000 remained in 2007 (NBSa 2008, p. 321). Many private enterprises today are former public enterprises. In the 2004 CASS-HKUST private enterprise survey mentioned above, for example, about one third of the respondents indicated that their companies were converted from former public enterprises. Under the pre-reform system, the internal organization of economic activities featured what Walder (1986) called “communist neotraditionalism”—a regime of behavioral control based on total economic dependence of employees on state-allocated jobs, extensive use by management of political incentives and divisive tactics, and alignment of informal social relations and networks with formal organizational agendas defined by the party-state.32 That system helped the CCP implement its political agendas and shape individual behavior in the workplace; but it impaired economic performance and eventually self-destructed. For owners and managers of former public enterprises (especially SOEs), a first task to undertake after privatization is to rid the employees

Yi-min Lin

87

of remnant work habits and relationship patterns developed under the old particularistic regime of management; and to discipline, and close off loopholes for, unproductive and/or opportunistic individual and collective behavior. Introducing a seemingly similar but essentially different kind of particularism, such as personalism (which some scholars regard as an important feature of Chinese capitalist employment relations) framed in terms of traditional Chinese notions of zhong (loyalty) on the part of employees and ren (benevolence) on the part of managers, may be confusing and even misleading to employees. It may be misinterpreted as a cue for slipping back into old ways of doing things, thus increasing rather than reducing the difficulty of reconstituting authority relations. As such, many of them may tend to embrace a more rationalist and impersonal approach to organization and management. In the 2004 CASS-HKUST survey, the respondents were asked to rate, on a scale between 1 (lowest) and 10 (highest), the importance of strictly defined work procedures, clearly implemented reward and punishment, and management style with a personal touch. The average scores of the responses were 8.52, 8.32, and 5.75 respectively, suggesting firm leaders’ reservations about particularistic approaches to management. Interestingly, the ratings do not vary significantly between genetically private companies and those privatized from the public sector, perhaps due to the fact that former public enterprise employees made up a sizable proportion (36 percent and 19 percent respectively) of the workforce in both types of companies. More research is needed, though, to further investigate how private entrepreneurs respond to organizational legacies from the Mao era. Persistence of institutionalized urban–rural divide In 1958 the Chinese government instituted the hukou or household registration system (Cheng and Selden 1994). By restricting spatial mobility of citizens, this system helped the government enforce its centrally planned allocation of resources and control the behavior of citizens. It also deepened the preexisting urban–rural divide in that during the ensuing two decades investment by the government went mostly to spatially secluded urban places where local citizens received various forms of trickle-down benefits from such investment (e.g. better physical and social infrastructure). The barriers to migration began to be lowered in the early 1980s, when an increasing number of local governments (especially those in the coastal region) relaxed centrally imposed restrictions to attract migrants to their locales as a key source of cheap labor for foreign-invested entities, and/or to promote the development of local government-owned enterprises in

88

Internal Organization of China’s Economic Activities

labor-intensive sectors. In view of such rule bending and the constraint that the old system imposed on the use of human resources, the central government lifted the ban on economic migration in 1988. Since then the number of migrants has steadily increased. Today the size of the so-called floating population is estimated to be about 150 million, which is equivalent to half of the workforce in urban areas (NBSa 2008, p. 39). Despite the relaxation of restrictions on migration, however, some essential features of the hukou system have been maintained. While migrants have been allowed to take up jobs in places (especially urban areas) away from their original household registration locales, they cannot settle permanently in these places unless one of three conditions is met: marriage to a person with permanent local resident status, purchase of housing at market price, and ad hoc sponsorship from a local business or government organization on special and justifiable grounds. Without local citizenship, migrants are excluded from the provision of public goods available to permanent urban citizens (Solinger 1999), such as subsidized health care, education (of children) at local public schools, public housing, and subsistence allowance for unemployment. These barriers to urban citizenship lead to a sojourner mentality among migrant workers. A companion survey (n = 2059) to the 2004 CASS-HKUST private enterprise survey mentioned above found that only 10 percent of the migrant workers surveyed were determined to seek long-term residence in urban places, and 65 percent said they did not plan to stay with their current employers for long. On the other hand, employers also tend to adopt a high time discount rate when they make decisions on the hiring and treatment of workers. Although since the late 1990s the government has required all urban employers to make contributions to special funding schemes for social security, unemployment, and health care for all their employees, about half of those in the urban workforce are uninsured or underinsured (ICMPH 2005). Most of these people are migrants because their employers have failed to contribute or fully contribute to the funds on behalf of their migrant employees. In the 2004 CASS-HKUST survey mentioned above, for example, only 42 percent of the private firms indicated that they made contributions to health insurance schemes for all their employees and 25 percent indicated that they made no contribution at all. What these findings and facts suggest is that the persistent discrimination against rural migrants makes it difficult to cultivate long-term expectation and commitment in the workplace. This further constrains the use of traditional Chinese-style, personalistic strategies in management that draw upon a synergetic interplay between loyalty (zhong) and benevolence

Yi-min Lin

89

(ren).33 In fact there are numerous reports and accounts about rampant labor exploitation in sweatshop-like workplaces in the coastal region, where the vast majority of migrant workers concentrate and employment relations bear little resemblance to those depicted in the ideal-typical imagery of Chinese capitalism (e.g. Chan 2001; Chan and Senser 1997; Pun 2007). Workforce from the post-1980 generation Nearly three decades have passed since the Chinese government’s adoption of the one-child policy. A new generation of people has grown up and begun to enter the workforce. Based on estimates from the one percent sample survey of the population conducted in 2005, some 445 million people were born between 1981 and 2005 (NBSa 2006, p. 104). Of these, 190 million had reached the age of 15, the threshold of the working population. Together, these new entrants made up 25 percent of the overall workforce and 38 percent of those working in the nonfarm sector in 2005 (NBSa 2006, p. 104; NBSb 2006, p. 80). As the importance of people from the post-1980 cohorts grows, how they behave both in society and in the workplace holds a key to understanding the organization and governance of capitalism in China. An image that figures prominently in media accounts and some scholarly works about the impact of the one-child policy on school behavior is that the youngsters growing up under the policy, especially those who are singletons, represent a “spoiled generation” with distinct behavioral characteristics (Fabo et al. 1997; Feng 2004; Fong 2004; Yan 2006). Compared with people in older cohorts, these “little emperors” are said to be (1) more self-centered, (2) less considerate, (3) less patient, (4) more inclined to seek instant gratification, (5) more rebellious, (6) less bound by the idea of filial piety and other traditional social norms, (7) equipped with poorer social skills, (8) more calculating, (9) less loyal, (10) less hardworking, (11) politically more apathetic, and (12) physically less fit. Obviously, each and every one of these traits, if accurate, has serious implications for work and organization. An extension of this pattern of social behavior to the workplace would imply that employees from the post-1980 cohorts tend to be less responsive to nonmaterial incentives, more disobedient to authority, and less congenial in teamwork than older cohorts. All these tendencies would run counter to salient characteristics (e.g. significance of nonmaterial incentives, obedience to authority, and close cooperation) of intraorganizational relations in the ideal-typical imagery of “Chinese capitalism” in non-PRC contexts. Although there appears to be anecdotal evidence consistent with these assertions and deductions, more systematic examination is needed to cast

90

Internal Organization of China’s Economic Activities

fuller and sharper light on the social and workplace behavior of the post1980 cohorts. Moreover, more careful research is needed to separate the effects of the one-child policy from the effects of concurrent social change, which has also been quite profound. What can be said, though, is that the unique demographic characteristics of China’s fast changing workforce may require unique managerial strategies to address essential issues concerning incentives, authority, and cooperation. Observing how these strategies are formulated in different contexts of work is essential to understanding how capitalism is internally organized in China’s new economy.

Concluding remarks The capitalism that has reemerged and prevailed in China bears (re)birthmarks from the country’s recent history. The overview sketched above identifies several aspects of internal organization that may have been shaped or redefined by postrevolution transformations; it also highlights some resultant variations of this brand of capitalism from its historical precursors and/or contemporary counterparts. Similar to the ideal-typical imagery of Chinese capitalism in pre-1949 China and non-PRC contexts, the new capitalism in post-Mao China is significantly grounded in family ownership and control. But there appear to be important shifts in gender roles, generational relations, and overriding norms in family business organizations. There is greater female involvement and participation in both entrepreneurial pursuits and employment. Paternal and parental authority faces erosion. The patrilineal stem family is eclipsed by the conjugal family as the center of familial commitment and economic organization. Since the post-Mao capitalist economy is built on the remains of state socialism, family-owned and/or controlled business organizations often interact closely with state-owned or controlled companies that have survived privatization. These peculiar participants in capitalism face internal politics complicated by the presence of the CCP in decision making. Private entities converted from former public enterprises may also have to counter remnants of particularistic practices by limiting personalistic approaches (centered on the loyalty–benevolence interplay) to internal organization and management, which figure prominently in the internal organization of the ideal-typical Chinese capitalism in nonPRC contexts. The applicability of such approaches in the reform era is further constrained by the lack of mutual commitment between management and labor due to institutionalized exclusion of migrant workers from permanent urban citizenship and local public goods

Yi-min Lin

91

provision. The rising importance of employees from the post-1980 cohorts in the workforce creates additional complications and challenges to the organization and governance of human resources. While these organizational ramifications from postrevolution transformations in the workplace and workforce in large part seem to represent unique characteristics of China’s new capitalism, those related to changes in family relations may not. A cursory glance at post-World War II socioeconomic transformations in Chinese societies and communities outside the PRC reveals parallel or even similar trends of change in gender status/roles, generational relations, and family norms. Hong Kong, Singapore, and Taiwan, for example, have all experienced an improvement in women’s status, declining fertility, and shrinking family size during the past 30 years (Brinton 2001; Quah 1998; Salaff 1995; Whyte 2005), though the causal mechanisms may have varied among these societies and in comparison with the PRC. The question is whether Maoist social engineering has added any quantitatively and/or qualitatively different twists to these general trends. Has it led to a quicker rise in women’s status and role in socioeconomic life and family business, more serious erosion of paternal authority, and weaker filial piety? Do the familial relations and organizational behavior of singletons born under China’s one-child policy demonstrate any unique features as compared to those of singletons born due to declining fertility driven primarily by other forces in non-PRC Chinese societies? Answers to these questions will help ascertain the magnitude and nature of the impact of China’s postrevolution transformations on the economic organization of capitalism since the late 1970s. Questions also remain as to whether the common challenge posed by the weakening of the major pillars of the ideal-typical Chinese family firm accentuates the role of other integrative mechanisms of internal organization and governance, and whether any of these mechanisms may be related to the lasting impact of “civilizational forces” in contemporary Chinese societies. According to Greenhalgh (1994), the reliance of Chinese businesspeople on the family has been shaped mainly by peculiar historical circumstances that limited their choice sets, rather than by Confucian familistic culture as emphasized by some scholars. It follows that once the limiting circumstances recede and/or the underpinning social (especially familial) institutions erode, the basic model of organization may experience adaptation and change.34 Both conditions appear to have gained growing significance in Chinese societies—including post-Mao China—during the past several decades. Indeed, a salient trend shared by family business organizations in all

92

Internal Organization of China’s Economic Activities

these societies is increasing embracement of rationalization and adoption of bureaucratic organizing principles, though the pace and degree may have varied among firms of different size and complexity. Proponents of the Confucian culture thesis recognize this fact, and the related tension between impersonal/universalistic organizational practices on the one hand and personalistic/particularistic practices on the other. But they argue that such tension is not irreconcilable and that it is possible to develop hybrid organizational forms without giving up the essential spirit of Chinese (familist) capitalism, as evidenced by the continued vitality of family-owned or controlled business organizations in contemporary non-PRC Chinese contexts (Chen 2000; Redding 1990; Redding and Witt 2007). Concrete empirical evidence remains scant about how such hybrid forms are developed among mainland Chinese family businesses. And remarkably little scholarly work has been produced on how, where and to what extent Confucianism has survived and influenced social life and organizational practices since the beginning of communist rule. In view of the foregoing limited account of some of the legacies and challenges engendered by postrevolution transformations in family institutions and the workplace, plus the complexity of the political and economic system of this large country, future findings on these important issues will likely show considerable variations in terms of both the mechanisms at work and the organizational and institutional ramifications.

Notes 1. For broad discussions about the process and ramifications of China’s transformation to capitalism since the late 1970s, see Arrighi (2007), Gabriel (2006), Huang (2008), and O’Leary (1998). Redding and Witt (2007) provide an organizational perspective on this issue. 2. For a sample, see Brown (1995), Chan (2005), Chen (2000), Gates (2006), Hamilton (2006), Kao (1993), Redding (1990), Wang (1991a, 1991b; 2000), Wong (1985, 1988), and Yeung (2004). 3. While these ideas are also found elsewhere, Confucianism provides an overarching frame of reference from which uniquely Chinese connotations and understandings are derived. 4. Hwang (1987) provides a useful discussion of the uniquely Chinese cultural elements in social networking. Boisot and Child (1996) claim that China’s re-emergent capitalist economy represents a form of “network capitalism” rooted in prerevolution institutions. 5. External business networks, however, are not necessarily without stable social structures. They are often anchored in and governed by informal or semiformal occupational and/or communal organizations such as guilds and regional associations (Hamilton 2006; Redding 1990).

Yi-min Lin

93

6. Most studies of Chinese businesspeople in non-PRC contexts reveal a weak involvement of these people in the formal domain of politics, especially high politics. But that does not imply that they lack activism in the informal dimensions of the political system. See Redding (1990), Wang (2000), and Weidenbaum and Hughes (1996). 7. See, for example, Chu (1995) and Pye (1985, 1988, 1992a, 1992b). 8. The constraints that Chinese businesspeople faced in the process of industrialization included not only obstacles in existing political institutions and organizations but also the predatory actions of the state. See Mann (1987) for a discussion of the intensification of state predation and its implications for business. 9. For cultural psychological perspectives that emphasize the importance of the “Chinese mindset,” see Allinson (1989), Bond (1986), and Bond (1991). 10. See, for example, Cohen (2003), Esherick (1995), Faure (2006), Frazier (2002), Goldman and Lee (2002), Wasserstrom (2002), and Wong (1997). 11. The implications for interorganizational relations and business–government relations require separate analyses. 12. See Chen (2000); Greenhalgh (1994); Hamilton (2006); Redding (1990); and Wong (1985). 13. See Farh and Cheng (2000) for a discussion of this aspect of internal organization. 14. According to Ping-ti Ho (1954, p. 167), primogeniture in China was abolished during the Han times (206 BC–AD 220). 15. See Watson (1985) for a discussion of variations in the method of dividing up the family estate for inheritance. 16. According to national industry surveys conducted in the 1930s (Liu 1937), firms hiring more than 100 workers were few and far between, and larger firms tended to be government-owned. 17. Before 1949 a prominent feature of the industrial and commercial workplace in large cities was the intermediation of labor supply by labor contractors who controlled native place networks of migration and often had intertwined ties with gangs (Frazier 2002; Hershatter 1986; Honig 1986; Perry 1993). 18. A noticeable effort made by the Nationalist government in this regard was the “New Life Movement” in the 1930s (Spence 1990). It aimed partly to “modernize” Confucianism but turned out to be largely unsuccessful. 19. For discussions of early signs of these changes in China prior to the communist takeover in 1949, see Ebrey (2003), Hershatter (2004), Watson (1985), and Watson and Ebrey (1991). 20. See Eng (1997) for a discussion of this in the context of Hong Kong. 21. See also Eng (1997). 22. The survey covered a stratified random sample of 511 industrial firms drawn from eight provinces—Guangdong, Hunan, Jiangsu, Liaoning, Shaanxi, Shandong, Sichuan, and Zhejiang. The sample firms were privately owned domestic companies, including both genetically private companies and former public enterprises privatized after the mid-1990s. The respondents were the owners of these companies. The questionnaire contained 63 questions concerning the personal background of the respondent, basic organizational features and history of the firm, government–firm relations, interfirm relations, and internal organization and management. A companion survey

94

23.

24.

25. 26. 27.

28.

29.

30.

31.

32.

33.

Internal Organization of China’s Economic Activities of employees was concurrently carried out in 204 of the 511 firms. The total number of employees surveyed was 2059. China’s Inheritance Law (1985), for example, was formulated in accordance with the basic principle of gender equality defined in the Marriage Law. Under the Inheritance Law, a spouse has equal right to all family property acquired after marriage, even if his or her name does not appear on the formal title of a particular piece of property. When he or she is deceased, his or her portion of the property will be equally divided among the living spouse, their offspring, and living parent(s) of the deceased party. The 2000 census, for example, reveals that women accounted for some 87 percent of the people who changed their household registration status due to marriage-related migration (NBSc 2002, Table 7.3). Permanent urban residents increased from some 173 million in 1978 to about 450 million in 2007 (NBSa 2008, p. 39). The survey did not cover getihu or self-employment establishments, where the female role in ownership and control tends to be more significant. The 2000 wave of the survey was conducted by the Research Center for Contemporary China, Peking University. It covered a stratified national sample of 1000 households drawn from 40 cities and counties. More details about the survey can be found at http://www.worldvaluessurvey.org/. In 1982, 46.7 percent and 28.3 percent of people in the cohorts of 15–19 and 20–4 had a high school education respectively, whereas the percentages were 6.1 percent and 3.5 percent for those in the cohorts of 40–44 and 45–49 respectively (Xu 1988, p. 180). The abolition of the concubinage system and tight monitoring of family life by the state after the revolution virtually eliminated births of offspring outside regular marriage, making the inheritance relationship clearly defined. See Watson (1985) for a discussion of the complications and sibling rivalry that arose between the children of different female partners of the family head. An interesting twist in this connection is that under the Marriage Law of the PRC parents have equal share in family property. Inheritance therefore is a matter that cannot be decided on the paternal side alone. Public enterprises faced party control and penetration during the early years of KMT rule in Taiwan (Frazier 2002). But this control has faded away since the democratization of the political system in the 1990s. A criticism of Walder’s typology is that it overemphasizes the impact of postrevolution restructuring of the workplace, because it overlooks continuity from pre-1949 organizational practices in government-owned enterprises. Areas where parallels could be found between pre- and post-revolution practices include economic dependence of employees on the enterprises for nonwage benefits, co-optation of labor intermediaries, factory-based party cells, and the lasting impact of traditional values and norms (Frazier 2002). Even if all these implied linkages with the past are true, there is no question that the complete economic dependence of employees on the state, the comprehensive polititicization of incentives, and the integration between formal and informal organization during the Mao era were unparalleled and combined to form a qualitatively different regime of labor control. While native place networks may have played an important role in facilitating economic migration, the same cannot be said about labor supply

Yi-min Lin

95

intermediation. For example, 51 percent of the migrants in the 2004 CASSHKUST employee survey indicated that they found their current jobs with the help of their friends (who are likely from their native place networks), whereas only 3 percent said they were recruited through intermediaries. The patron–client relationship is more difficult to develop or maintain in loosely formed native place networks than in labor intermediary arrangements based on such networks (such as those in the prerevolution era). Moreover, the institutionalized discrimination against migrants applies to those who have attained floor-level or even middle management positions too. This adds to the difficulty of co-opting these people and (through them) their native place network members in the same organization. 34. It should be noted that the focus of Greenhalgh’s critique of the Confucian culture thesis is not the evolutionary mechanisms of the Chinese family firm per se. She focuses instead on the inequalities and exploitation embedded in such firms, that she claims are obscured by the thesis.

References Allinson, R. E. (ed.) (1989) Understanding the Chinese Mind (Hong Kong: Oxford University Press). Arrighi, G. (2007) Adam Smith in Beijing: Lineages of the Twenty-first Century (London: Verso). Banister, J. (1987) China’s Changing Population (Stanford: Stanford University Press). Bell, L. S. (1999) One Industry, Two Chinas: Silk Filatures and Peasant—Family Production in Wuxi County, 1865–1938 (Stanford: Stanford University Press). Boisot, M. and J. Child (1996) “From Fiefs to Clans and Network Capitalism: Explaining China’s Emerging Economic Order,” Administrative Science Quarterly, 41 (4), 600–28. Bond, M. H. (ed.) (1986) The Psychology of the Chinese People (Hong Kong: Oxford University Press). Bond, M. H. (1991) Beyond the Chinese Face: Insights from Psychology (Hong Kong: Oxford University Press). Brinton, M. (ed.) Women’s Working Lives in East Asia (Stanford: Stanford University Press). Brown, R. A. (ed.) (1995) Chinese Business Enterprise in Asia (London: Routledge). Chan, A. (2001) China’s Workers under Assault: The Exploitation of Labor in a Globalizing Economy (Armonk, NY: M. E. Sharpe). Chan, A. and R. A. Senser (1997) “China’s Troubled Workers,” Foreign Affairs, 76 (2), 104–18. Chan, K. B. (2005) Migration, Ethnic Relations and Chinese Business (London: Routledge). Chen, M-J. (2001) Inside Chinese Business: A Guide for Managers Worldwide (Boston: Harvard Business School Press). Cheng, T. and M. Selden (1994) “The Origin and Social Consequences of China’s Hukou System,” The China Quarterly, 139, 644–65. Chu, C. N. (1995) Thick Face, Black Heart: The Asian Path to Thriving, Winning and Succeeding. London: Nicholas Brealey Publishing.

96

Internal Organization of China’s Economic Activities

Clegg, S. R. and S. G. Redding (eds) (1990) Capitalism in Contrasting Cultures (Berlin and New York: Walter de Gruyter). Cochran, S. (2000) Encountering Chinese Networks: Western, Japanese, and Chinese Corporations in China, 1880–1939 (Berkeley: University of California Press). Cohen, P. A. (2003) China Unbound: Evolving Perspectives on the Chinese Past (London and New York: RoutledgeCurzon). D. Davis and S. Harrell (eds) (1993) Chinese Families in the Post-Mao Era (Berkeley: University of California Press). Deyo, F. C. (1989) Beneath the Miracle: Labor Subordination in the New Asian Industrialism (Berkeley: University of California Press). Ebrey, P. B. (2003) Women and the Family in Chinese History (London: Routledge). Eng, I. (1997) “Flexible Production in Late Industrialization: The Case of Hong Kong,” Economic Geography, 71 (4), 26–43. England, J. (1989) Industrial Relations and Law in Hong Kong (Hong Kong: Oxford Unviersity Press). Esherick, J. W. (1995) “Ten Theses on the Chinese Revolution,” Modern China, 21 (1), 45–76. Fabo, T., D. L. Poston, and Z. Xie (eds) (1997) Zhongguo dusheng zinu yanjiu (Research on Singletons in China) (Shanghai: Huadong shifan daxue chubanshe). Farh, J. L. and B. S. Cheng (2000) “A Cultural Analysis of Paternal Authority in Chinese Organizations” in J. T. Li, A. S. Tsui and E. Weldon (eds) Management and Organizations in the Chinese Context (London: Macmillan). Faure, D. (2006) China and Capitalism: A History of Business Enterprise in Modern China (Hong Kong: Hong Kong University Press). Feng, X. (ed.) (2004) Zhongguo dusheng zinu: Cong “xiao huangdi” dao xingongmin (From “Little Emperor” to New Citizen: Studies on Chinese Singletons) (Beijing: Zhishi chubanshe). Fong, V. (2004) Only Hope: Coming of Age under China’s One-child Policy (Stanford: Stanford University Press). Frazier, M. (2002) The Making of the Chinese Industrial Workplace: State, Revolution, and Labor Management (New York: Cambridge University Press). Gates, H. (1996) China’s Motor: A Thousand Years of Petty Capitalism (Ithaca: Cornell University Press). Gabriel, S. (2006) Chinese Capitalism and the Modernist Version (London: Routledge). Goldman, M. and L. O. Lee (eds) (2002) An Intellectual History of Modern China (Cambridge: Cambridge University Press). Greenhalgh, S. (1994) De-Orientalizing the Chinese Family Firm,” American Ethnologist, 21 (4), 746–75. Greenhalgh, S. and E. A. Winckler (2005) Governing China’s Population: From Leninist to Neoliberal Biopolitics (Stanford: Stanford University Press). Hall, P. A. and D. Soskice (eds) (2001) Varieties of Capitalism (New York: Oxford University Press). Hamilton, G. G. (2006) Commerce and Capitalism in Chinese Societies (London: Routledge). Hershatter, G. E. (1986) The Workers of Tianjin, 1900–1949 (Stanford: Stanford University Press). Hershatter, G. E. (2004) “State of the Field: Women in China’s Long Twentieth Century,” Journal of Asian Studies, 63 (4), 991–1065.

Yi-min Lin

97

Ho, P. T. (1954) “The Salt Merchants of Yang-Chou: A Study of Commercial Capitalism in Eighteenth-Century China,” Harvard Journal of Asiatic Studies, 17 (1/2), 130–68. Honig, E. (1986) Sisters and Strangers: Women in the Shanghai Cotton Mills, 1919–1949 (Stanford: Stanford University Press). Huang, Y. (2008) Capitalism with Chinese Characteristics: Entrepreneurship and the State (Cambridge: Cambridge University Press). Hwang, K. K. (1987) “Face and Favor: The Chinese Power Game,” American Journal of Sociology, 92 (4), 944–74. Information Center, Ministry of Public Health (ICMPH) (2005) Di canci guojia weisheng fuwu diaocha zhuyao jieguo (Summary Report of Main Findings from the Third National Health Service Survey), Beijing. Jacka, T. (2006) Rural Women in Urban China: Gender, Migration, and Social Change (Armonk, NY: M. E. Sharpe). Kao, J. (1993) “The Worldwide Web of Chinese Business,” Harvard Business Review, March–April, 24–34. Kirby, W. C. (1995) “China Unincorporated: Company Law and Business Enterprise in Twentieth Century China,” Journal of Asian Studies, 54 (1), 43–63. Kaur, A. (2004) Wage Labor in Southeast Asia since 1840 (New York: Palgrave Macmillan). Lau, S. K. (1981) “Utilitarianistic Familism: The Basis of Political Stability” in A. Y. C. King and R. P. L. Lee (eds) Social Life and Development in Hong Kong (Hong Kong: The Chinese University Press). Liu, D. (ed.) (1937) Zhongguo gongye diaocha baogao (Report on survey of Chinese industry) (Nanjing: Jingji tongji yanjiusuo). Mann, S. (1987) Local Merchants and the Chinese Bureaucracy, 1750–1950 (Stanford: Stanford University Press). National Bureau of Statistics a (NBSa) (various years) China Statistical Yearbook (Beijing: Zhongguo tongji chubanshe). National Bureau of Statistics b (NBSb) (various years) China Labor Statistical Yearbook (Beijing: Zhongguo laodong tongji chubanshe). National Bureau of Statistics c (NBSc) (2002) Zhongguo 2000 nian renkou pucha ziliao (Statistics of China’s 2000 Census) (Beijing: Zhongguo tongji chubanshe). National Bureau of Statistics d (NBSd) (2005) 2005 nian quanguo 1% renkou chouyang diaocha ziliao (Statistical Summary of the 2005 1% Census), Table 4.6, http://www.stats.gov.cn/tjsj/ndsj/renkou/2005/html/0604.htm. Naughton, B. (2007) The Chinese Economy: Growth and Transformations (Cambridge, MA: The MIT Press). O’Leary, G. (1998) Adjusting to Capitalism: Chinese Workers and the State (Armonk, NY: M. E. Sharpe). Pearson, M. M. (1997) China’s New Business Elite: The Political Consequences of Economic Reform (Berkeley: University of California Press). Perry, E. J. (1993) Shanghai on Strike: The Politics of Chinese Labor (Stanford: Stanford University Press). Perry, E. J. (ed.) (1996) Putting Class in Its Place: Worker Identities in East Asia (Berkeley: Institute of East Asia Studies Monograph). Pun, N. (2005) Made in China: Women Factory Workers in a Global Workplace (Durham: Duke University Press).

98

Internal Organization of China’s Economic Activities

Pye, L. W. (1985) Asian Power and Politics: The Cultural Dimensions of Authority (Cambridge, MA: Belknap Press). Pye, L. W. (1988) The Mandarin and the Cadre: China’s Political Cultures (Ann Arbor, Michigan: Center for Chinese Studies, the University of Michigan). Pye, L. W. (1992a) The Spirit of Chinese Politics (Cambridge, MA: Harvard University Press). Pye, L. W. (1992b) Chinese Negotiating Style: Commercial Approaches and Cultural Principles (New York: Quorum Books). Quah, S. R. (1998) Family in Singapore: Sociological Perspectives (Singapore: Time Academic Press). Redding, G. and M. A. Witt (2007) The Future of Chinese Capitalism: Choices and Changes (New York: Oxford University Press). Redding, S. G. (1990) The Spirit of Chinese Capitalism (Berlin and New York: Walter de Gruyter). Salaff, J. W. (1995) Working Daughters of Hong Kong: Filial Piety or Power in the Family (New York: Cambridge University Press). Spence. J. D. (1990) The Search for Modern China (New York: W. W. Norton). State Council Information Office (SCIO) (2000) White Paper–Fifty Years of Progress in China’s Human Rights. (Beijing: State Council Information Office). Solinger, D. J. (1999) Contesting Citizenship: Peasant Migrants, the State, and the Logic of the Market (Berkeley: University of California Press). Sun, W. B. and S. L. Wong (2002) “The Development of Private Enterprise in Contemporary China: Institutional Foundations and Limitations,” The China Review 2 (2), 65–91. Thorton, A. and H. S. Lin (eds) (1994) Social Change and the Family in Taiwan (Chicago: University of Chicago Press). Tsai, K. S. (2002) Back-alley Banking: Private Entrepreneurs in China (Ithaca: Cornell University Press). Walder, A. G. (1986) Communist Neo-traditionalism: Work and Authority in Chinese Industry (Berkeley: University of California Press). Wank, D. L. (1999) Commodifying Communism: Business, Trust, and Politics in a Chinese City (Cambridge: Cambridge University Press). Watson, R. S. (1985) Inequality among Brothers (Cambridge: Cambridge University Press). Watson, R. S. and P. B. Ebrey (eds) (1991) Marriage and Inequality in Chinese Society (Berkeley: University of California Press). Wang, G. W. (1991a) China and the Chinese Overseas (Singapore: Times Academic Press). Wang, G. W. (1991b) The Chineseness of China (Hong Kong and New York: Oxford University Press). Wang, G. W. (2000) The Chinese Overseas: From Earthbound China to the Quest for Autonomy (Cambridge, MA: Harvard University Press). Wasserstrom, J. N. (ed.) (2003) Twentieth-Century China: New Approaches (London: Routledge). Watson, R. S. (1985) Inequality among Brothers: Class and Kinship in South China (Cambridge: Cambridge University Press). Weidenbaum, M. and S. Hughes (1996) The Bamboo Network: How Expatriate Chinese Entrepreneurs Are Creating a New Economic Superpower in Asia (New York: Martin Kessler Books).

Yi-min Lin

99

White, T. (2006) China’s Longest Campaign: Birth Planning in the People’s Republic, 1949–2005 (Ithaca: Cornell University Press). Whitley, R. (1999) Divergent Capitalisms: The Social Structuring and Change of Business Systems (New York: Oxford University Press). Whyte, M. K. (1996) “The Chinese Family and Economic Development: Obstacle or Engine?” Economic Development and Cultural Change, 45 (1), 1–30. Whyte, M. K. (2005) “Continuity and Change in Urban Chinese Family Life,” The China Journal, 53, 9–34. Winckler, E. A. and S. Greenhalgh (eds) (1988) Contending Approaches to the Political Economy of Taiwan (Armonk, NY: M. E. Sharpe). Wong, R. B. (1997) China Transformed: Historical Change and the Limits of European Experience (Ithaca: Cornell University Press). Wong, S. L. (1985) “The Chinese Family Firm: A Model,” The British Journal of Sociology, XXXVI (1), 58–72. Wong, S. L. (1988) Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong (Hong Kong: Oxford University Press). Xu, D. X. (ed.) (1988) Dangdai zhongguo de renkou (Population in Contemporary China) (Beijing: Zhongguo shehui kexue chubanshe). Yan, Y. X. (2006) “Little Emperors or Frail Pragmatists? China’s ’80ers Generation,” Current History, 105 (692), 255–63. Yeung, H. W. C. (2004) Chinese Capitalism in a Global Era: Towards Hybrid Capitalism (London: Routledge).

5 Workers in Post-Socialist China: Shattered Rice Bowls, Fragmented Subjectivities James Hudson, William Hurst, and Christian Sorace

For where the earlier crowd, its members unified in collaboration, was allegedly accomplishing miracles, the crowd before us now is composed of people struggling, usually singly, just to stay alive. Dorothy Solinger (2004, p. 54) They are in great mental distress because there is a contrast between their past and their present. Mao Zedong (1971, pp. 14–15)

Introduction China’s socialist proletariat has been consigned to history. In China today, there is no readily identifiable or clearly defined working class. Rather, workers, having been expelled from the Communist Party’s firm embrace and pushed off political center stage, cling to fragmented subjectivities through their memories of the recent socialist past, amidst demands placed upon them to adapt to the labor discipline of the market, and a profound and pervasive sense of normative and material uncertainty (Lee 2007, pp. 140, 153, 221–31; Solinger 2004, pp. 50–66). We focus on the precarious status of a working class that has lost its privileged place within a nominally socialist society. Chinese workers’ lives are becoming more tenuous and ambiguous, as they are exposed to conflicting social and political imperatives and values, under material conditions that diverge across regions and subgroups and evolve over time. We thus conceptualize the plight of the Chinese working 100

James Hudson, William Hurst, and Christian Sorace 101

class as, at its core, an issue of fragmented subjectivities. The emergence and prevalence of capitalist labor practices and dynamics has created fragmented subjectivities for many different groups of people living in China. We define a fragmented subjectivity as characterizing a person who has experienced a marked departure from his or her previous form of life and is forced to acclimatize to new and uncertain socioeconomic conditions. As we will explore in detail, the people suffering most from this fragmentation of prior (egalitarian albeit impoverished) material living standards and subjective expectations (security without real mobility), are members of the urban proletariat. For these workers, the “iron rice bowl” was shattered by economic liberalization. Migrant workers, abandoning rural life in search of prosperity and modernity in China’s cities, also experience subjective fragmentation, especially when they too often are not welcomed as social and political citizens in their destination cities. Increasing segmentation of the working class has also contributed to its political disintegration. As regards the urban working class—whom we keep as our main substantive focus—comparing today’s social and economic inequalities, forms of dependence, and insecurities with those that workers negotiated during the Mao era casts the processes of working class segmentation and subjective fragmentation into sharp relief. The ideational climate of politics has changed much to workers’ disadvantage, evolving away from a discourse of egalitarianism and sacrifice toward a market mentality of risk, individualism, and acceptance of inequality.1 Workers are conditioned by the legacy of the Maoist past, its continued impact on their imaginations, expectations, and grievances, and by the present demands of global capital. But they do not neatly inhabit either space or perspective fully, languishing instead in an uncomfortable limbo between a fading socialist society and a still-inchoate capitalist one. In this context, the idea of the working class as a homogenous group with clearly defined and recognizable attributes is no longer conceptually viable. Though some workers strategically deploy the rhetoric of class solidarity (Hurst 2009b, p. 127), the roots of working class segmentation and subjective fragmentation remain obscure from the everyday experience of most workers. Instead of viewing the working class as a group conscious of its own power and identity, we propose disaggregating the Chinese working class by region, work unit status, age, gender, and urban or rural status. Even as disaggregation prevents the formation of homogenous class solidarity, workers in transitional China share an experience of precariousness. The loss of a familiar organizing paradigm—precipitated

102

Workers in Post-Socialist China

by, or at least intensified by, flows of global capital—has made both migrants and urban workers feel intensely vulnerable. Whether economic reforms have provided personal advantage, profit, or loss and marginalization, workers often describe their lives as less dependable and more vulnerable than in the Maoist past. While the political campaigns of Maoism made workers’ lives extremely volatile (and meant they were sometimes subject to horrible violence), they at least possessed what Frederic Jameson terms a “cognitive mapping” of the social structure, in which they had a guaranteed place and means of existence (Jameson 1991; Lee 2007, pp. 141–6). Such a sense of symbolic social place, along with the material subsistence guarantee of the “iron rice bowl,” are both conspicuously absent for today’s Chinese workers. After further specifying our concept of fragmented subjectivities, we explore the most salient dimensions of working class segmentation in China today. Finally, we present ethnographic data from James Hudson’s fieldwork in Hengyang City, Hunan Province, returning to analysis of our core social group, to illustrate how laid-off workers turned motorcycle taxi drivers have perceived and coped with threats to their urban social status and sense of masculinity.

Conceptualizing fragmented subjectivities There has been no “clean break” between the Maoist past and the postsocialist present. The transition to a market economy, still guided by nominally communist ideological principles, continues to be a rocky and incomplete process. China is still in the process of completing what Wenfang Tang and William Parish view as a change in its fundamental social contract (Tang and Parish 2000, p. 102). Gone are the egalitarian values, promises and expectations of Maoist socialism; but still nascent are the individualistic and risk-oriented values of a market society. This is not run-of-the-mill evolutionary change, but rather a dramatic disjuncture in Chinese society, albeit one effected in fits and starts of meandering restructuring. Reform has eroded the symbolically revered status of the worker as “the most progressive class … [and] the leading force in the revolutionary movement” (Mao 1971, p. 17) during the Mao era, undermining the collective class identity of the urban proletariat. Workers are now called upon socially to understand their success or failure as a result of their individual initiative and character (Blecher 2002), rather than as an effect of the reform policies on the working class as a collective entity. Understanding the continued relevance of socialist institutional mechanisms and official discourses enables a more nuanced analysis

James Hudson, William Hurst, and Christian Sorace 103

of the specific unsettledness of the present. To begin, it is important to note that the “Chinese working class” is a product of the twentieth century, structurally generated by the Communist Party’s unflinching demand for heavy industrialization, following the Soviet model. In his 1926 “Analysis of the Classes in Chinese Society,” Mao himself noted that the number of urban workers in China was small due to China’s underdeveloped industrialization and that a proletariat needed to be created, rather than simply liberated (Mao 1971, p. 17). During the Mao years (and early reform period), the Party organized and controlled the factory, and the factory, in turn, organized the living conditions of the workers (Walder 1988). As Andrew Walder succinctly noted, “all workers are dependent on their enterprises for the satisfaction of their needs” (Walder 1988, p. 4). Institutionally, the Party controlled more than the setting of production quotas for state-owned enterprises; it was also involved managerially and administratively in the factory’s day-to-day operations. Overall, the socialist factory was a political institution and social organization, not an economic enterprise (Hurst 2009a, pp. 39–40). While this resulted in various forms of politically calculated behaviors and psychological anxieties depending on the political atmosphere (zhengzhi qihou), workers were very seldom laid off and could count on the factory to provide a minimal level of subsistence, as well as to distribute other goods and services, ranging from monthly bonuses to education and guaranteed employment for their children. This combination of insulation, protection, and security in exchange for political loyalty and quiescence is commonly referred to as the “iron rice bowl.” In post-reform China, however, the neo-traditional world of the danwei disintegrated. State-owned enterprises (SOEs) entered the market and were forced to compete with private and foreign-owned firms. The massive influx of foreign direct investment into China after the 1990s inculcated capitalist practices of managerial autonomy and labor discipline, that “contagiously” spread to China’s SOEs through what could be viewed as a type of coercive isomorphism (Gallagher 2005; DiMaggio and Powell 1991; Guthrie 1999). The Chinese government actively encouraged transformations in labor discipline. The most prominent endorsement of the accelerating transition from plan to market came during the Fifteenth Party Congress in 1997, when General Secretary Jiang Zemin announced the necessity for SOE’s to become economically viable, by sale, merger, or bankruptcy (Jiang 1997, pp. 23–5). Squeezed by market pressures from below and attacked with governmental sanction from above, the

104

Workers in Post-Socialist China

worker as a cherished model subjectivity, became an historical relic and impediment to social progress. To stem the rising tide of discontent, the CCP attempted to address the problems of massive unemployment, declining access to welfare, and the overall precarious position of workers, particularly beginning at the Sixteenth Party Congress in 2002 (CCP 2002). Despite this new emphasis, the language of markets, modernity, and harmony came to dominate official party discourse, obscuring to near extinction the language of class struggle (Li 2007; Li, Yan and Lu 2005, pp. 50–1, 104; Misra 1999, p. 136). Workers were thus deprived of the political language of class through which they might articulate their grievances and organize collectively. This promoted what Marc Blecher has characterized as “market hegemony”—a new dominant discourse in which the sentiments of workers are governed and expressed through the values of the market (Blecher 2002). Some artifacts and once powerful metonymies for working class struggle have even been commodified in chic cultural markets and decidedly bourgeois “art districts” like Beijing’s “798” (Dutton, Lo and Wu 2008). Workers themselves, however, are living beings with material bodies and memories that cannot vanish so easily. In this sense, the Chinese proletariat is an untimely figure, embodying a fragmented subjectivity in which an irretrievable past uncomfortably inhabits a strange and rapidly changing present. Indeed, Ching Kwan Lee found that laid-off workers in China’s northeastern rustbelt were unable to describe the present without referring to the past (Lee 2002). While most laid-off workers evince an ambivalent attitude to the Maoist past, condemning the volatility and explosions of violence of the continual political campaigns, they also lament the loss of their standard of living in both material and symbolic terms (Lee 2000; 2007, pp. 141–2). In a bitter irony, Mao nicely captured what would be the situation of China’s working class in the twenty-first century, in a comment delivered in the 1920s: “They are in great mental distress because there is a contrast between their past and present” (Mao 1971, p. 14). For some workers in certain regions of China (perhaps particularly in the Northeast), however, Mao’s ideas and images live on past his death. “Mao” is no longer confined to a mausoleum in Tiananmen or to the circulation of consumables and currency notes engraved with his face, but finds new life on the banners and in the protest slogans of laid-off workers. In this respect, the fragmented subjectivity of China’s working class refuses the re-composition of its identity demanded by the market; instead, it remains stubbornly attached to the egalitarian promise

James Hudson, William Hurst, and Christian Sorace 105

of Maoism, not as a means specifically for returning to the days of Mao, per se, but in order to protest the precarious conditions of the present, such as the common failure to receive pensions or secure reemployment (2009b, pp. 115–32). Under reform, workers could no longer identify themselves as a unified class with a collectively shared basis. Workers in some regions blamed the corruption of local government officials for their woes (Hurst 2009a, pp. 111–12). Newspaper stories praise the ethos of migrant workers as a means of chastising “lazy” urban workers spoiled by the legacy of socialism (Won 2004). A few laid-off workers get rich on sideline businesses and entrepreneurial ingenuity, while many older workers protest withheld wages and pensions, employing repertoires of contention some learned as former Red Guards (Hurst and O’Brien 2002). The working class given form in the visions of Marx and Mao, and reality in the Chinese danwei system for nearly half a century, no longer exists. For Deng Xiaoping and his successors, China’s reform process has always been a work in progress, beautifully summarized in the phrase “to cross the river by grasping at stones.” For many destitute workers, however, it may appear that, “we ran out of stones. Now we are in the middle of the river with no easy way forward or back.”2 Even more dispiriting, China’s working class is segmented along multiple dimensions and this division has grown more severe during the reform era. Understanding the political and social status of any one subgroup within the working class requires situating that group within the segmented whole, as well as an appreciation of the significance of that structural position. In the following sections, we first explore the axes of segmentation in such a transitional context and then discuss how some of these are expressed in the lived experiences of laid-off workers in a prefecture-level city.

Axes of segmentation: The view from above There are at least five key dimensions of working class segmentation in China today: urban–rural residence, gender, cohort, region, and work unit status. This section outlines the general contours of each dimension, while the next will explore how urban–rural divides and gender differentiation cut across an otherwise relatively homogeneous population of laid-off SOE workers in Hunan Province’s Hengyang City. Region Earlier studies have highlighted the segmentation of China’s postsocialist working class along regional lines. Ching Kwan Lee neatly

106

Workers in Post-Socialist China

summarized the divisions between SOE workers in China’s “rustbelt” and rural-to-urban migrant workers in its “sunbelt” (Lee 2007). For Lee, these divisions of region overlapped with those of age, gender, and context of working class formation. William Hurst’s analysis of laid-off workers’ politics has focused on regional political economies, the roots of which go back to the pre-reform era (Hurst 2009a). In his portrayal, laid-off workers in different regions experienced distinct forms of Maoism and reform that structured their economic livelihoods, social behavior, and political contention. Such regional divisions also helped engender discrete self-conceptions of the working class that did not translate across all of China. Northeastern workers’ heartfelt use of Maoist rhetoric and symbols in their collective action, juxtaposed with Central Coast workers’ cynicism about pre-reform politics, is one example (Hurst 2008). Similarly, the fact that workers in some parts of China frame their relationship to the traditional working class and its origins in strikingly different ways indicates the degree to which the Chinese proletariat from the days of its inception has been a subnationally bounded class (Hurst 2008, pp. 78–82; 2009b, pp. 121–3). Regional segmentation renders nationwide worker mobilization unlikely, playing perhaps an even more important role than explicit state controls in this regard. But regional segmentation can also impede national-level efforts at political and social control, much to the Party’s chagrin. Work unit status Dorothy Solinger has highlighted distinctions between categories of the unemployed (Frazier 2002; Hurst 2009a, p. 62; Solinger 2001). In particular, she has underscored distinctions between different categories of jobless state sector workers. Indeed, the several categories into which the jobless are classed places subsections of this vulnerable population at odds with each other; with the registered unemployed, for example, receiving many privileges unavailable to those merely laid off (xiagang) or on “long vacation” (Cai 2006, Chapter 4). A first distinction, however, is between those still working and those out of work. The unemployed clearly have a set of experiences and a social position distinct from those of workers still on the job. Those who are still working are further segmented according to their work unit’s type and status. Those in profitable firms face different constraints and incentives than those in loss-making SOEs (Hurst 2009, Chapter 2). Obviously, there is also a sharp divide between state and collective firms on the one hand, and private and foreign firms

James Hudson, William Hurst, and Christian Sorace 107

on the other (as well as smaller divides between subcategories of these camps) (Gallagher 2005, Chatper 3; Lee 2007). Finally, the division between fully urban employees and rural-to-urban migrants cuts deeply, even within individual work units, dividing two otherwise kindred parts of the working class (Solinger 1999). Any meaningful analysis of Chinese workers’ political or social roles must take categories and differences of work unit status into account. Rural–urban residence One of the sharpest axes of segmentation in Chinese society since before 1949 has been the urban–rural divide. During the Maoist era, and especially from about 1985 to 1995, industry sprang up in formerly agrarian rural settings. This called into being a new type of working class, at once distinct from the urban proletariat and clearly different from those still tilling the land or beginning to migrate out of the village in search of jobs. Workers in township and village enterprises (TVEs) and other rural industries have been underresearched. But, as rural workers in rural settings, they form one of three key elements of the working class as defined by urban–rural residence. The second element is composed of urban workers in urban settings—the classically conceived urban working class. The third element, and perhaps the most exploited and most volatile, is composed of migrants—rural workers in urban settings. These “floaters” toil in places as diverse as the sweatshops of the Pearl River Delta and the restaurants of Beijing to make the service sector and construction and export manufacturing businesses work. Much like undocumented immigrant workers in the US, migrants are socially and politically unwanted in their destination cities even while their labor is essential to the urban economy. This renders their status perhaps most tenuous of all. Age and cohort Workers who experienced employment in the planned economy before the introduction of labor contracts in the late 1980s were socialized in fundamentally different environments from their younger counterparts. Within this older subset of workers, three smaller categories can be differentiated: those who came of age prior to the start of the Cultural Revolution in 1966, those who spent their formative years engaged in rural labor during the late 1960s through late 1970s, and those leaving school and entering the workforce after 1978. Members of the Cultural Revolution generation (born roughly 1947–53) spent their childhoods during the lean years of the Great

108

Workers in Post-Socialist China

Leap Forward and were deprived of educational opportunities in their youth while in the countryside. These same individuals have more recently born the brunt of SOE layoffs and are among those most frequently unable to access pensions and health care in retirement. Those who entered the workforce even earlier had much more positive experiences of the Maoist era, despite experiencing the purges of the Anti-Rightist Campaign in 1957 and a general politicization of the workplace. Those who entered the workforce after 1978, however, likely have the fondest impressions of the pre-reform era. Workers who came of age during the heady days of the Cultural Revolution, when workers gained real power on the shop floor, or during the brief reign of Hua Guofeng, when subsidies and investments flowed to SOEs in abundance, have concrete underpinnings for their impressions (Hurst and O’Brien 2002, pp. 354–7). Those even younger did not experience the worst excesses of Maoism and so are free to construct an idealized past to look back to (Hurst 2009b, p. 118). Age is thus best conceptualized not as a continuous variable but as a series of four cohort groups into which workers can be usefully sorted. Rural workers and migrants are also divided by cohort, but with less consequence than their urban counterparts. Those working in rural enterprises before the advent of reform, however, shared experiences distinct from workers who took up employment in township and village enterprises in the 1980s and early 1990s. Workers who entered the workforce as migrants or TVE employees after about 1994, when the TVE sector had begun to contract markedly and urban labor markets became significantly more open to migrant workers, experienced yet another set of circumstances. Overall, cohort-specific shared experiences and worldviews certainly differentiate elements of the Chinese working class and sometimes can be the most important factor in shaping workers’ political and social behavior. Gender Several aspects of gender segmentation have received prominent attention in recent scholarship. Some have noted that women have been more likely to lose their jobs and less likely to find new ones in the course of SOE reform (Hurst 2009a, p. 100). Increasingly gendered worlds of work on the shop floor have also clearly become the norm both in older SOEs and newer private firms (Hanser 2005, 2008; Otis 2003, 2008). Perhaps even more pronounced has been the emergence of a “pink collar” set of jobs—jobs for which only women are deemed suitable and into which many women are shunted regardless of their ambitions or abilities.3

James Hudson, William Hurst, and Christian Sorace 109

This is a problem that by most measures has been accentuated with successive rounds of reform. When formal sector employment was apportioned through the job assignment (fenpei) system, gender equity was perhaps easier to achieve. Today, it is commonplace to see advertisements seeking only men or only women for jobs any applicant, male or female, could perform competently. Employers have become further emboldened recently to blatantly judge applicants and existing employees on the basis of age, height, or physical appearance. All of these trends have helped fragment the working class along gender lines, putting working women at new and significant disadvantages vis-à-vis their male counterparts. Segmentation: Root of alienation or last foothold of fragmented class identity? In the final analysis, it is difficult to determine whether working class fragmentation in China undermines workers’ class identity or preserves it. Many have accurately pointed out that the Chinese working class has been severely segmented since even before 1949 (Perry 1993). For many workers, clinging to intraclass distinctions is their last and best hope of maintaining a social and political proletarian subjectivity—for example, being urban, male, SOE, or older workers resonates more deeply than simply being workers. Segmentation in China is so severe that it gives rise to fragmented subjectivities, as described earlier. But these can also serve as fragmentary social beings in the current Chinese context. When there is little left of working class solidarity or commonality, such remnants of a partial class identity are often all that hold workers back from sliding into anomie. Better to be a member of some fragmentary group or subsegment of the working class than a completely atomized individual adrift in the troubled waters of an incipient market society. As the fieldwork presented in the following section highlights, erosion of established boundaries between segments of the working class can be just as alienating and marginalizing for workers as the imposition of new axes of fragmentation. Segmented elements of the working class may not meld to form a more cohesive whole, but rather might dissolve into an undifferentiated mass offering weaker bases for workers’ identity. For laid-off Hengyang workers plying the motorcycle taxi trade, fear of having one’s urban status or gender identity diluted can be even more powerful than fear of further exploitation or the disarticulation of class on the political stage.

110

Workers in Post-Socialist China

The view from below: Hengyang motorcycle drivers’ lived experiences Fieldwork conducted by James Hudson in the summers of 2006 and 2007 focused on understanding the link between SOE reform and the emergence of informal economies in the reform era in Hunan Province’s Hengyang City. In particular, his findings highlight fragmentation of worker subjectivities along urban–rural and gender lines, even among the population of those laid off from local SOEs. Of 100 male motorcycle drivers he surveyed throughout the city, approximately half were laid off from a former state-owned enterprise, and could be classified as members of the cohort that entered the labor force after 1978. The other half of his interviewees were usually migrant workers (min gong), who varied in age and work experience. Conversations and interviews with these men revealed how the social dynamics of Hengyang’s street life were transformed by mass layoffs from SOEs in the city and throughout the surrounding region. Laid-off workers turned motorcycle taxi drivers created new and unique urban social spaces, becoming permanent fixtures in public areas by waiting for fares on street corners, outside residential compound gates, and near major shopping areas. But these men also struggled to cope with a dominant perception of them as being second-class citizens. Though some motorcycle drivers seemed to enjoy their relative job freedom, they frequently expressed significant cynicism and distrust regarding the local government. Recent scholarship has conceptualized urban citizenship in the reform era as “the quality of the relationship between individual members and the larger political community to which they belong.” (Goldman and Perry 2002, pp. 2–5) Such graded citizenship is a marked departure from the recent past. During Mao’s reign, social inclusion and membership in the polity were absolute: everyone not labeled an enemy or foreigner was a “comrade” (tongzhi). But after China’s free market economic reforms, egalitarian comradeship was brushed aside in favor of profit making and concomitant social stratification. This intensified class distinctions, but also deprived key segments of society of basic rights. Yu Xingzhong further adds that it was the discriminatory nature of the economic reforms that allowed for the emergence of these distinctions, in that the development of certain regions and cities was favored over others, and that low wage earners in Chinese factories—who were usually the first ones laid off—could not compete with those working for the coastal foreign-based companies who benefited from heavy foreign direct investment. This led to the

James Hudson, William Hurst, and Christian Sorace 111

emergence of an “alienated” citizenry, of which laid-off workers were a prime component. They lost confidence in the promises of a political system they used to believe in (Yu 2002, p. 305). Such was the sentiment of many motorcycle drivers in Hengyang. Testimonies of drivers themselves were evidence enough of this, which also was indicative of the reputation Hengyang has throughout much of China as being one of its most dangerous and backward cities. According to the Hengyang City Statistics Bureau (Hengyang Shi Tongji Ju), since 1985 at least 50,000 industrial workers have lost their jobs. By 1998 Hunan was among the top five provinces affected by SOE layoffs (Cai 2006, p. 17). Among the former work units named by motorcycle drivers in Hengyang were: the Hengyang Mechanical Engineering Factory, No. 3 Leather Product Factory, No. 3 Construction Company, Hengyang Plastic Factory, Hengyang Steel Pipe Factory, No. 3 Machine Factory, Dai Huang Ling County Government, Hengyang Geology Team, Hengyang Cement Factory, Hengyang Knitting Mill, No. 2 Construction Company, No. 7432 Weapons Factory, and a Furniture Factory.4 Subjects had been laid off for periods of 1–15 years. One driver thoughtfully remarked that one reason Hengyang was so badly affected by layoffs was that Hengyang is known for its corruption and underground crime networks. Businesses from the outside did not want to invest because the local Public Security Bureau extracted outrageous fees and payments from outside investors looking to start businesses, thereby discouraging market-based development.5 Built in 1958, Hengyang No. 18 Factory,6 a relatively large firm, was one of many closed or abandoned factories where motorcycle drivers had been formerly employed. During the height of the planned economy, it provided as many as 1500 jobs, and manufactured four types of industrial chemicals. In 1997, keeping step with market reforms, the city government attempted to convert the factory into a joint stock company, with 60 percent of its assets remaining under government control, and the other 40 percent in the hands of private owners. But these private owners or former managers became corrupt and inefficient. One borrowed 40 million yuan against the stock of the company to start another private business of his own, but when this business failed, he was unable to pay back the debt. The former manager interviewed was one of twenty or so employees left behind after 1400 workers were laid off, and he described the factory’s situation as being “like a runaway train since the reforms began, because it no longer had any authority to watch over it. It was originally supervised by the Bureau of Chemical Industry, but since it became an

112

Workers in Post-Socialist China

independent entity it has become responsible for its own profits and losses.” The factory finally went bankrupt in 2004, and corruption in that process further sank its fortunes. For instance, the manager said that some 200 employees were able to receive small compensation payments only after they agreed to give away the air conditioners in all their offices to officials on the Residential Committee (juweihui).7 Many motorcycle drivers, such as those laid off from the various other units listed above, were let go from smaller enterprises. One driver, whose former danwei was the “Hengyang Meat and Seafood Company,” said that it had laid off approximately 100 people, suggesting that it was a small operation. It too had attempted to privatize but, like so many other firms, went bankrupt. In addition to a fixed salary the driver was given a monthly stipend for food, living expenses, and some money for health-related costs. When asked if he preferred the planned economy or the market economy, he seemed to have mixed feelings: My life now is better. I like my job now (as a motorcycle driver). Even if I don’t work as a driver, I can still find another job, which was impossible when I was at my work unit. In the planned economy everyone was equal, not too rich or too poor. But in the market economy the distance between the rich and the poor is too great.8 Transitioning from shop floor to street corner has been a difficult process, to be sure, but motorcycle drivers have adjusted. This was done consciously to support themselves and their families, but also unconsciously helped establish a new urban habitus. Workers entering the informal economy came to use public spaces, “without in any way being the product of obedience to rules, [and] objectively adapted [spaces] to their goals without presupposing a conscious aiming at ends or an express mastery of the operations necessary to attain them.” (Bourdieu 1977, pp. 72–3) Therefore, by waiting for fares together in packs along streets and sidewalks, or in public spaces near shopping malls, school gates, residential communities, and transportation centers, motorcycle drivers in Hengyang, by virtue of their plight, created a new urban habitus for themselves; becoming visible in urban spaces where society otherwise would keep them invisible. Marginalized urban citizens On a typical summer night in Hengyang, one will find packs of motorcycle drivers waiting along the major corners that intersect with Jiefang Road (Liberation Road, a common street name in many Chinese

James Hudson, William Hurst, and Christian Sorace 113

cities), the city’s main thoroughfare. During one such night in the summer of 2007, 16 motorcycle drivers were counted, waiting along a busy corner adjacent to a popular urban park. These men preferred working at night because it was the best way to make money during the hot summer months. Of four that were interviewed this specific night, all were laid-off workers, two were let go 4–5 years before from the same former work unit, while the other two had been out of work for more than ten years.9 They chose to work at night to avoid the heat and humidity of the Hunan summer day, but made themselves more susceptible to the dangers of Hengyang’s crime-riddled nightlife, as one anecdote below suggests. Another driver interviewed in the summer of 2006, who worked during the day, also spoke about his marginalization in Hengyang society, commenting that The traffic police will fine us four to six times our daily income if they (choose to) catch us driving a motorcycle. If we refuse to pay the fine, they will quarrel with us and beat us. They will also take our motorcycle keys, and if we refuse to give them up, will beat us. So we often must agree to pay the fine. Sometimes they (the police) will ask other jobless people, claiming to be Public Security Bureau agents, not wearing a uniform, to come and “solve,” our case (meaning to come and beat them up).10 A further example of such marginalization is that traffic police often fine Hengyang motorcycle drivers for mounting umbrellas on their bikes or for carrying extra passengers. From the hours of 7 a.m. to 10 p.m. they are also forbidden to ride or wait for customers on Jiefang Road. One driver was fined 600 yuan (half of his monthly income) one night for having two passengers on his motorcycle, but went on to argue that the reason traffic police were levying fines at traffic stops was because they wanted to raise money to pay off a loan they had taken out to build a new office building. He also said this was common knowledge among many motor drivers.11 But the fact that they were still allowed to work smaller side streets, as well as wait on sidewalks and in other public areas, suggests that authorities tolerated the drivers despite finding them a nuisance. Police checks were also frequent during peak hours of any given day. These were usually when drivers would be fined for umbrellas or extra passengers or for no reason other than simple extortion (as one driver interviewed claimed was the case for umbrella fines). It was common

114

Workers in Post-Socialist China

at these times to see drivers haggling with police, disputing a fine or other matter. Drivers also frequently took detours to avoid traffic checks. One night a different driver, “Mr. Wang,” related that another driver, who was a friend of his, had been killed recently. A girl hired Mr. Wang’s friend to take her to a certain park late one night, where a gang of men were waiting. These men stabbed the driver to death, stole his money and his brand new motorcycle. There was no news of this in the local media, or any discernable effort by police to apprehend the assailants. Mr. Wang had attended the funeral of his friend only a few days before he was interviewed, and explained his frustrations about how motorcycle drivers in Hengyang were in many ways looked down upon in society. Such disdain was said to explain why the police and media had no concern for the man who was killed. This man had been a resident citizen of Hengyang city, but because of his informal job as a motorcycle taxi driver, it seems his urban citizenship had been deemed irrelevant by society. No one seemed to have any regard for the manner in which he was killed or who might have killed him.12 The same night Mr. Wang was interviewed, two more laid-off drivers on a busy corner confessed that they were very cynical about their jobs, and held similar views to Mr. Wang, noting that “in our job there are too many things to avoid: the police and people who want to rob or cheat you.”13 The motorcycle driving profession also invited exploitation because of the ambiguous nature of its legal status. For instance, some motorcycle drivers believed that fines imposed by the traffic police for using umbrellas, deemed extortionate by many others, were fair and necessary. But when asked whether motorcycle driving was legal or not, these same interviewees differed in their responses. Some said “yes,” some “no,” and others did not seem to know. A former factory cadre, who drove a motorcycle, when asked if he thought motorcycle driving was illegal, replied “yes.” The same cadre was then asked if he knew of any written laws in Hengyang that specifically outlawed motorcycle driving, and replied “no.” If such was the case, then how did he know that driving was illegal? He replied that it was obviously illegal because of the number of fines that the traffic police collect.14 One driver, who worked part-time as a cook, said that banning motorcycles in Hengyang would be a very difficult policy to enforce because “Hengyang is not economically developed. The government cannot just ban motorcycles, because there are at least 20,000 of them in the city. If the government stopped issuing license plates for the city, people will just buy county ones.” When asked if it was illegal for a

James Hudson, William Hurst, and Christian Sorace 115

motorcycle with a rural county plate to operate in the city he replied, [i]n the beginning they were illegal, and such motorcycles would be fined for driving in the city if they were caught by the traffic police. Later, as the quantity of motorcycles in the city grew, it was hard to catch them. So even motorcycles with county plates can be seen driving in the city now.15 Such conversations illustrate the ambiguous and contested nature of the informal economy in smaller cities like Hengyang. This driver’s attention to the numerous county plates also suggests that the number of migrant men from the countryside and surrounding smaller towns who work in Hengyang driving motorcycles had been on the rise. But, like umbrellas or excess passengers, the county plates also served as excuses for traffic police to fine motor drivers. Such ambiguity is another reason why the urban citizenship of laid-off workers driving motorcycles in Hengyang was being delegitimized. An additional point to consider is that passengers who took advantage of the cheap and convenient transportation of motorcycle taxis were not subject to punishment or fine if they chose to do so. The poor, middle class, and wealthy often hired drivers for fares. It was only the drivers themselves who faced abuse and marginalization. Marginalized men The traditional conception of the Chinese man in society has typically been one who performs well and is competent in his job, provides for his family, and produces male descendents. Traditional conceptions of Confucian selfhood can increase this burden, because a man is not only expected to fulfill his duties as a son, brother, husband, and father, but is also “seen predominantly as a social being whose basic task is to learn the science and art of adjusting to the world.” (Tu 1985, p. 114) Socialism, with its emphasis on the “iron man” (tie gemen’r), has increased this burden. When he loses his job, a man’s ability to adequately fulfill these duties and to live up to such cultural ideals is placed in serious jeopardy. Therefore, driving a motorcycle replaces something in the man that has been misplaced and lost. The actual work itself, aside from spending large amounts of time outdoors in the harsh summer or winter weather, is not onerous. Often the job involves merely sitting stationary in one place talking and socializing with other laid-off comrades, while waiting for a fare. Thus many of these men felt a need to do a kind of work that revalidated their status as men and vital components of a “patrilineal mode of production of desire,” (Sangren 2000) not only within the

116

Workers in Post-Socialist China

home but within the social sphere; a kind of work that is outdoors, and is visible on the streets, corners, and alleyways of urban space. One driver who frequently waited on a corner in front of a down town bank, worked there everyday to support his son at a local medical school. When asked what he thought about traditional concepts of Chinese masculinity such as jiang yiqi or ones inspired by more socialist ideals such as tie gemen’r, he replied that such ideas imply a strong relationship or bond between friends or fellow workers. But motorcycle drivers, at least in his perception, had lost these special bonds in their social relations with each other, in contrast to the group-oriented bonds that were facilitated by the structure of the danwei. Although he spent quite a large amount of time with other drivers downtown, his relationship with them was deprived of meaning and camaraderie because of each driver’s individual motivations: “They all try to get by each day on their own to make a living to support themselves and their children.”16 This particular aspect was common among relationships that many men had to their children. Providing for their child’s welfare and helping put them through school was the primary reason why so many of them worked long hours every day of the week. There were more than a few conversations with drivers who struggled with the duties of providing for their children, among which paying expensive tuition and other school fees were particularly burdensome. However it should also be noted that although motorcycle drivers in Hengyang were often treated as second-class citizens, they projected a heavily masculine hegemony upon Hengyang’s social life, one that almost totally excluded women. In the case of Hengyang, the number of laid-off women paralleled or was perhaps even greater than the number of men laid off. These women had fewer opportunities than men to find work, especially those who were middle-aged, and considered too old to work in service jobs, but too young to retire. Therefore, jobs like motorcycle driving were exclusively for men; on a few occasions one might encounter a woman driving a car working as a taxi driver, but never a motorcycle. The streets, sidewalks, and corners occupied by these men became spaces of subaltern masculinity, where the motorcycle functioned socially as a phallic symbol of manhood, exploitation, and gendered hegemony (Geertz 1973, pp. 417–21).

Conclusion The image of the Chinese worker as the “iron man,” (Weston 2004) selflessly engaged in producing steel or mining coal for the revolution,

James Hudson, William Hurst, and Christian Sorace 117

is an uncomfortable remnant of socialist China. Effusively praised by Mao, and maintained as an iconic fiction in official discourse, the ideal of a unified working class playing a leading social and political role resonates weakly with contemporary reality. The swarms of motorcycle drivers waiting for fares on Henyang’s streets are but one example of bodies that no longer have a place within China’s harmonious society. Across the board, Chinese workers, subject to global flows of capital, as well as continued state monitoring and control, are in a more precarious situation than at any time since 1949. Dimensions of segmentation and subjective fragmentation revisited Specifying principal axes of working class segmentation and subjective fragmentation is a first step. But how do we determine which divisions are more important? Obviously, the answer depends on the research questions under investigation. In a more general sense, however, we propose a rough order of precedence, from the macro to the micro, in which the dimensions of segmentation cleave the working class into ever-smaller fragments. This, again, is not to suggest that workers were a completely undifferentiated mass in the pre-reform era, but rather to highlight the manner and degree of their current disunity. Region should be privileged above other distinctions, at least to begin with. Given the radically divergent class histories, life experiences, and shared dispositions of workers across regions such as the northeast and central coast—to say nothing of the southeast—this is not surprising that region should be the main axis of segmentation (Hurst 2008; Katznelson 1986, pp. 14–21). Within regions, the urban–rural distinction is probably next in order of precedence. Migrant workers share less with their urban counterparts, even in a single city such as Hengyang, than they do with each other, regardless of other distinctions. Work unit status, then, is the last “macro division” between workers. Laid-off SOE workers or private sector employees, even of different ages and genders, are more cohesive as groups than women or older workers across different status categories. It is difficult to sort out precisely whether gender or cohort should take precedence in differentiating workers. But we propose that age and cohort factors are so pronounced in contemporary China as to relegate the still extremely influential distinction of gender to second place. Given the divergent experiences of many older workers during the Cultural Revolution and its aftermath, and of many younger workers during the height of reform, members of different generations are likely less similar to each other, even within gender categories. This is not

118

Workers in Post-Socialist China

to deny the importance of gender, however, which has indubitably heightened since 1978, and especially over the past decade. Overall, this ordering of distinctions is certainly not intended as the last word. Rather, we hope it may give rise to a more thorough conversation about how to systematize and map out the unmaking of the Chinese working class. Such a conversation, resurrecting debates common in the analysis of pre-1949 China (Mao 1971; Perry 1993), is sorely overdue but yet to get properly underway, despite some recent attempts to open the dialogue (Lee 2006). Future directions Despite the burgeoning literature on Chinese workers, important lacunae remain. For example, the case study and ethnographic character of research so far has given us rich insights into how workers are faring in particular settings, but little information about broader trends or ability to test causal claims. Future research might usefully draw on demographic and survey techniques to rigorously test some of the hypotheses put forward here and elsewhere about working class segmentation and subjective fragmentation and mobilization. Also, new studies explicitly comparing segments of the working class across firm ownership type, in the vein pioneered by Mary Gallagher (2005) and Ching Kwan Lee (2007), would be most welcome. Understanding how different elements of the segmented proletariat relate to and interact with each other is crucial to developing better explanations of the sources and consequences of subjective fragmentation. Finally, we urge a refocusing of research on the locales where most Chinese workers live—places like Sichuan, Hunan, and Shaanxi. While the working class in Shanghai, Guangdong, and the northeast is certainly important both historically and today, a clearer picture of the lives of the majority of Chinese workers would help put existing scholarship into better perspective. Concluding thoughts The world’s largest working class, still nominally under the mobilizational leadership of the world’s biggest and most influential Communist Party, has disintegrated into diffuse segments and subcategories over the past several decades. Though never truly united even in the period of high Maoism, the Chinese proletariat has become an extremely weak political and analytical concept. Recognizing and assessing the effects of various dimensions of segmentation promotes not just a clearer

James Hudson, William Hurst, and Christian Sorace 119

understanding of workers’ political and social lives, but a refocusing of research questions in China studies more broadly. Treating their intraclass divisions systematically and explicitly allows us to better specify the logic behind comparisons of particular subgroups of workers. It could facilitate discussions of working-class elements in relation to other social groups, such as capitalists, peasants, or intellectuals. Such comparisons, we believe, are key to a deeper and clearer understanding of Chinese society in this crucial transitional period. Indeed, the divisions outlined here are not permanent categories sealing the disarticulation of the Chinese working class. Rather, such cleavages are mutable and subject to change in the current uncertain phase of China’s development. The international economic crisis that began in late 2008 is likely to hasten the arrival of a critical restructuring of Chinese state–society relations. Less circulation of global capital and more layoffs on the mainland, might worsen the gaps between segments of the working class, and further atomize individuals. Alternatively, it might reconfigure the relationship between the state and society in a manner that is entirely impossible to predict from our present vantage point. Whether it will decisively vitiate and eviscerate all remnants of a united, politically active working class, or usher in a new wave of postsocialist class-based mobilization and identity construction remains to be seen.

Notes 1. Deng Xiaoping’s “Let some people get rich first” slogan of the early 1980s nicely condenses the shift in ideological values from the Mao era to the present (see Weston 2004, pp. 67–86). 2. 39-year-old laid-off coal miner, quoted in Hurst (2009a, p. 85). 3. For an example of how this can segment laid-off SOE workers, see Hurst (2009a, pp.79–80). 4. Motorcycle taxi drivers, interviews, July 2006. 5. Motorcycle taxi driver 1A, interview, July 2006. 6. The name of this factory has been changed to protect interviewees’ anonymity. 7. Hengyang #18 Factory manager, interview, June 2007. 8. Motorcycle taxi driver 2A, interview, July 2007. 9. Motorcycle taxi drivers 2B, 3B, interview, July 2007. 10. Motorcycle taxi driver 1B, interview, July 2006. 11. “Mr. Zhou,” motorcycle taxi driver, interview, July 2007. 12. “Mr. Wang,” motorcycle taxi driver, interview, July 2007. 13. Motorcycle taxi driver 5B, interview, July 2007. 14. Motorcycle taxi driver 6B, interview, July 2007.

120

Workers in Post-Socialist China

15. Motorcycle taxi driver 7B, interview, July 2007. 16. Motorcycle taxi driver 3C, interview, July 2007.

References Blecher, M. J. (2002) “Hegemony and Workers” Politics in China,” The China Quarterly, 170, 283–303. Bourdieu, P. (1977) Outline of a Theory of Practice, translated by R. Nice (Cambridge: Cambridge University Press). Cai, Y. (2006) State and Laid-off Workers in Reform China: The Silence and Collective Action of the Retrenched (Abingdon: Routledge). CCP (2002) Zhongguo Gongchandang di Shiliu Ci Quanguo Daibiao Dahui Wenjian Huibian (Compilation of Documents from the Sixteenth Party Congress of the CCP) (Beijing: Renmin Chubanshe). DiMaggio, P. J. and W. W. Powell (1991) “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields” in P. J. Powell and P. J. DiMaggio (eds) The New Institutionalism in Organizational Analysis (Chicago: University of Chicago Press). Dutton, M., H-J. Stacy Lo, and D. D. Wu (2008) Beijing Time (Cambridge, MA: Harvard University Press). Frazier, M. W. (2002) The Making of the Chinese Industrial Workplace: State, Revolution, and Labor Management (Cambridge: Cambridge University Press). Gallagher, M. E. (2005) Contagious Capitalism: Globalization and the Politics of Labor in China (Princeton, NJ: Princeton University Press). Geertz, C. (1973) “Deep Play: Notes on the Balinese Cockfight” in The Interpretation of Cultures: Selected Essays by Clifford Geertz (New York: Basic Books). Goldman, M. and E. J. Perry (eds.) (2002) Changing Meanings of Citizenship in Modern China (Cambridge MA: Harvard University Press). Guthrie, D. (1999) Dragon in a Three-Piece Suit: The Emergence of Capitalism in China (Princeton: Princeton University Press, 1999). Hanser, A. (2005) “The Gendered Rice Bowl: The Sexual Politics of Service Work in Urban China,” Gender and Society, 19 (5), 581–600. Hanser, A. (2008) Service Encounters: Class, Gender, and the Market for Social Distinction in Urban China (Stanford: Stanford University Press). Hurst, W. and K. J. O’Brien (2002) “China’s Contentious Pensioners,” The China Quarterly, 170, 345–60. Hurst, W. J. (2008) “Mass Frames and Worker Protest” in K. J. O’Brien (ed.) Popular Protest in China (Cambridge MA: Harvard University Press), pp. 71–87. Hurst, W. J. (2009a) The Chinese Worker after Socialism (Cambridge: Cambridge University Press). Hurst, W. J. (2009b) “The Power of the Past: Nostalgia and Popular Discontent in Contemporary China” in T. B. Gold, W. J. Hurst, J, Won, and Q. Li (eds.) Laid-off Workers in a Workers’ State: Unemployment with Chinese Characteristics (New York: Palgrave Macmillan). Jameson, F. (1991) Postmodernism, Or, The Cultural Logic of Late Capitalism (Durham: Duke University Press). Jiang, Z. (1997) “Gaoju Deng Xiaoping Lilun Weida Qizhi, ba Jianshe you Zhongguo Tese Shiye Quanmian Tuixiang Ershiyi Shiji: zai Zhongguo

James Hudson, William Hurst, and Christian Sorace 121 Gongchandang de Shiwu Ci Quanguo Daibiao Dahuishang de Baogao” (Raise High the Mighty Banner of Deng Xiaoping Theory, Comprehensively Push the Cause of Constructing Socialism with Chinese Characteristics into the Twenty-first Century: Report at the Fifteenth All China Representative Congress of the Chinese Communist Party), as published in Zhongguo Gongchandang di Shiwu Ci Quanguo Daibiao Dahui Wenjian Huibian (Compilation of Documents from the Fifteenth Party Congress of the CCP) (Beijing: Renmin Chubanshe). Katznelson, I. (1986) “Working-Class Formation: Constructing Cases and Comparisons” in I. Katznelson and A. R. Zolberg (eds) Working-Class Formation: Nineteenth-Century Patterns in Western Europe and the United States (Princeton: Princeton University Press). Lee, C. K. (2000) “The ‘Revenge of History’: Collective Memories and Labor Protests in Northeastern China,” Ethnography, 1 (2), 217–37. Lee, C. K. (2002) “From the specter of Mao to the Spirit of the Law: Labor Insurgency in China,” Theory and Society, 31, 189–228. Lee, C. K. (2006) “The Unmaking of the Chinese Working Class in the Northeastern Rustbelt” in C. K. Lee (eds) Working in China: Ethnographies of Labor and Workplace Transformation (London: Routledge), pp. 15–37. Lee, C. K. (2007) Against the Law: Labor Protests in China’s Rustbelt and Sunbelt (Berkeley: University of California Press, 2007), pp. 140, 153, 221–31. Li, H. (2007) Hexie Shehui yu Zhongguo Laodong Guanxi (The Harmonious Society and Chinese Labor Relations) (Beijing: Zhongguo Zhengfa Daxue Chubanshe). Li, Q., S. Yan, and X. Lu (eds) (2005) Shehuizhuyi Hexie Shehui Lun (A Theory of a Socialist Harmonious Society) (Beijing: Renmin Daxue Chubanshe). Mao, Z. (1971) “Analysis of the Classes in Chinese Society” in Selected Readings from the Works of Mao Tsetung Volume 1 (Peking: Foreign Language Press). Misra, K. (1998) From Post-Maoism to Post-Marxism: The Erosion of Official Ideology in Deng’s China (New York, NY: Routledge). Otis, E. M. (2003) “Reinstating the Family: Gender and the Family-formed Foundations of China’s Flexible Labor Market” in L. Haney and L. Pollard (eds) Families of a New World: Gender, Politics, and State Development in a Global Context (New York: Routledge), pp. 196–216. Otis, E. M. (2008) “Beyond the Industrial Paradigm: Market-Embedded Labor and the Gender Organization of Global Service Work in China,” American Sociological Review, 73 (1/February), 15–36. Perry, E. J. (1993) Shanghai on Strike: The Politics of Chinese Labor (Stanford: Stanford University Press). Sangren, S. (2000) Chinese Sociologics: An Anthropological Account of the Role of Alienation in Social Reproduction (London & New Brunswick: Athlone). Solinger, D. J. (1999) Contesting Citizenship in Urban China: Peasant Migrants, the State, and the Logic of the Market (Berkeley: University of California Press). Solinger, D. J. (2001) “Why We Cannot Count the Unemployed,” The China Quarterly, 167, 671–88. Solinger, D. J. (2004) “The New Crowd of the Dispossessed: The Shift of the Urban Proletariat from Master to Mendicant” in P. H. Gries and S. Rosen (eds) State and Society in 21st-Century China: Crisis, Contention, and Legitimation (London: Routledge, 2004). Tang, W. and W. Parish (2000) Chinese Urban Life under Reform: The Changing Social Contract (Cambridge: Cambridge University Press).

122

Workers in Post-Socialist China

Tu, W.-M. (1985) “Selfhood and Otherness: The Father-Son Relationship in Confucian Thought” in Confucian Thought: Selfhood as Creative Transformation (Albany: State University of New York Press). Walder, A. (1988) Communist Neo-Traditionalism: Work and Authority in Chinese Industry (Berkeley: University of California Press). Weston, T. B. (3004) “The Iron Man Weeps: Joblessness and Political Legitimacy in the Chinese Rust Belt” in P. H. Gries and S. Rosen (eds) State and Society in 21st Century China: Crisis, Contention, and Legitimation (New York: RoutledgeCurzon). Won, J. (2004) “Withering Away of the Iron Rice Bowl? The Re-Employment Project of Post-Socialist China,” Studies in Comparative International Development, 39 (2), 71–93. Yu, X. (2002) “Citizenship, Ideology, and the PRC Constitution” in M. Goldman and E. J. Perry (eds) Changing Meanings of Citizenship in Modern China (Cambridge: Harvard University Press).

Part II China’s Capitalism in Comparative Perspective

This page intentionally left blank

6 Taiwan’s Industrialization: The Rise of a Demand-Responsive Economy Gary G. Hamilton and Cheng-shu Kao

Introduction Over the past 40 years, the world’s most globally engaged economies have become increasingly demand-responsive economies. By this we mean that such economies are organized “backwards” from demand to production, instead of “forward” from production to demand. In making this claim, we are arguing that global retailers, generating intermediary demand in anticipation of final demand, have superseded manufacturers as the driving force that organizes, directly through supply chain contracts and indirectly through their vast market power, whole sectors of the global economy. On the surface, this change may not seem all that significant. Ever since Adam Smith, economists have recognized that factors relating to demand are prominent features of all advanced market economies. Without demand, so the dictum goes, supply withers. The timelessness of this maxim, however, masks the changes that have occurred in how supply and demand are configured over time. Conceptualized in the abstract, supply and demand are merely aggregations, respectively, of all sellers and all buyers relative to a good. Far from being static, in reality, at different times and places, supply and demand represent very differently organized groups of sellers and buyers. Since the writing of Chamberlin ([1933] 1962) and Robinson ([1933] 1969) on “monopolistic competition,” economists have recognized that the organization of sellers relative to buyers matters, but implications of monopolistic competition have seldom been applied to retailers, in large part because retailers have been seen as merely conduits between manufacturers and final consumers.1 More importantly, the implications of monopolistic competition have not been applied at the level of national economies. As we point out 125

126

The Rise of Taiwan’s Demand-Responsive Economy

in this chapter, global retailers, or “big buyers” as Gary Gereffi (1994) calls them, are not benign intermediaries. They are big enough to influence the internal organization of entire economies. Big buyers not only create demand, but they also organize suppliers and develop supplier markets to fill that demand. Through using advanced consumer research, point of sale information, supply line management, and sophisticated information technology, retailers and merchandisers have restructured the relationship between buyers and suppliers, making the latter a pricesensitive organizational extension of the former. These forged links between the market-focused big buyers, on the one hand, and globally dispersed and largely faceless manufacturers, on the other hand, have had direct repercussions on economies around the world. In general, the more globally involved the capitalist economy, the more demand-responsive that economy has become. How do economies become demand-responsive, and what empirically and theoretically does that mean? This chapter gives a detailed answer to this question by showing how the Taiwanese economy developed in response to orders given by global retailers and brand name merchandisers. In the first section, we use disaggregated trade data to demonstrate that the globalization of supplier markets for US-based retailers and brand name merchandisers occurred first and most pervasively in East Asia, especially in Taiwan and South Korea, and to show the differential effects of these markets on structuring these Asian economies. The establishment of these suppliers in East Asia created what is known as “the Asian Miracle,” the extraordinarily rapid and ongoing industrialization that occurred from 1965 through the present day. A lot has been written about Asian economic development, but what is less known is that, in response to the retailers’ orders, Asian economies developed in very different ways.2 In the main section of the chapter, drawing on hundreds of interviews done over a period of over 15 years, we show how these supplier markets in Taiwan actually developed and how many suppliers, in turn, responded to changing economic conditions by moving their businesses to mainland China. These interviews allow us to specify how the Taiwanese economy became organized “backwards” from the development of consumers markets in the US to the development of supplier markets for final and intermediate goods in East Asia.

The globalization of supplier markets after World War II3 Modern retailers are the “makers” of two types of markets, consumer markets and supplier markets. In the last half of the twentieth century,

Gary G. Hamilton and Cheng-shu Kao

127

both types of markets have grown tremendously, and have become increasingly global and increasingly rationalized over time. It is important to see these dynamics in a historical perspective because the emergent qualities of these market dynamics create a path dependent momentum that is difficult to alter short of a global economic catastrophe (Feenstra and Hamilton 2006). US supplier markets before 1965 Our point of departure is 1965. Before 1965, consumer goods suppliers for US retailers were almost entirely US firms. After 1965, these suppliers increasingly came from outside the US. Before 1965, retailers had limited influence on large US-based manufacturers, but after 1965, retailers increasingly began to create and organize supplier markets for the main consumer products they sold. In 1965, the “retail revolution” that Bluestone and his colleagues (1981) identified was already well under way. At the end of World War II, US manufacturers had emerged as the most prestigious in the world, and the consumer products they offered represented the most extensive lineup of such products anywhere. The European and the Japanese economies were just in the process of recovering from the effects of the war and some former manufacturing giants in those economies (such as Daimler Benz and Mitsubishi) had reestablished their prominence at home. In the previous decade, in the 1950s, imports of consumer goods into the US hovered around the levels they were at during the Great Depression. Most international trade from the US was outbound. Exports of automobiles as well as a considerable range of consumer goods began to “Americanize” consumer desires in Europe (de Grazia 2005) and other parts of the world. In the midst of this parade of consumer goods, US retailers, led by Sears, J. C. Penney’s, and Macy’s, began to expand their presence in US consumer markets. During the long years of the Great Depression, fair trade laws made discount retailing illegal, and low demand had stymied the effort of retailers to expand throughout the US. But after the war, with economies improved and demand for consumer goods rising, department stores quickly began to expand their consumer markets. Other events pushed this expansion forward. Changes in the 1955 tax code reforms allowed rapid depreciation of capital construction, and a shopping center boom ensued as a direct consequence (Hanchett 1996). The Cold War need for national defense prompted the US Congress, in 1956, to pass legislation creating the interstate highway system across the US, linking all major US cities and creating ring roads

128

The Rise of Taiwan’s Demand-Responsive Economy

around them. At the same time, the desire to own a family home led parents of the baby boom generation to move to newly created suburbs surrounding most large US cities. The number of shopping centers in the US jumped from about 500 in 1955 to 7600 in 1964, an expansion in shopping areas that accounted for about 30 percent of all retail sales in the US in 1964. Only 40 years later, in 2004, the number of shopping centers in the country had reached nearly 50,000. As these new shopping centers developed, the same anchor stores and the same niche retailers began to appear in most places across the country, a development that led to the expansion and diversification of “chain stores.” Before 1965, the products fueling this rapid expansion in retailing came overwhelmingly from the US manufacturers (Feenstra and Hamilton 2006). US imports remained very low from the time of the Great Depression through the 1960s, with a brief upsurge during World War II, and as stated above, most traded manufactured goods after World War II until the late 1960s were US exports. In 1965, the only Japanese import constituting over ten percent of total US consumption for a single product was an intermediate good, steel, that was imported to compensate for a decline in US steel production brought on by a strike in the steel mills. From 1965 onward, however, that picture of limited foreign imports would change rapidly and forever. Starting in the late 1960s, imports of manufactured consumer goods began to rise rapidly and across all basic categories. The rate of import growth as a percentage of total consumption is surprising, but even more surprising is the increase of diversification of the products being imported. As retailers expanded in the late 1950s and 1960s and as they tried to get around fair trade laws, large department stores, such as Macy’s and Sears, began to use private labels more extensively. Kenmore washers and Craftsman tools are two examples of Sears’ in-house brands, but the use of in-house brands for clothing and shoes also became commonplace. This expansion of garment and footwear production quickly exceeded the capacity (and willingness) of US manufacturers to provide these goods and led to the increasing use of Asian intermediaries (e.g. Japanese trading companies) to fill the orders. The growth of East Asian suppliers after 1965 Several aspects of these imports of consumer goods should be emphasized. First, most of the imports in every category came from newly industrializing countries (NICs) in East Asia. Even from the very first decade of growth, Taiwan, Hong Kong, South Korea and Japan supplied

Gary G. Hamilton and Cheng-shu Kao

129

most of these imported goods. Although the large enterprises in Japan and South Korea are well known throughout the world, Taiwan, with by far the smallest economy of the three, supplied an extraordinary number of products in large quantities for the US market. Over the entire period from 1970 to 2000, Taiwan manufactured more products than South Korea, and a wider range. Not counting exports of automobiles, the Taiwanese and South Korean economies combined to send more exports to the US, from the 1970s on, than were sent from Japan. Examining the lists of exported finished manufactured products in those early years of economic growth, it is difficult to find any major product category that was not dominated by contract manufacturing or any major retailers that were not involved in contract manufacturing in East Asia.4 Garments, household appliances, electronic products, toys, bicycles—the majority of all of these finished exports were sold under foreign-owned brand names and product labels. Many manufactured exports from both countries, but especially from Taiwan, were component parts, and other types of intermediate goods such as textiles. A sizable amount of other manufactured exports were inexpensive unbranded products, such as kitchen items and tools of various kinds, which were sold in a range of retail outlets and often in discount stores, such as K-Mart, Home Depot, and Wal-Mart. As long as they were purchased from South Korean and Taiwanese firms in contracted batches for assembly or sale elsewhere, however, even the simplest and least expensive items were driven by intermediary demand. The apparent similarities between US imports from South Korea and Taiwan, however, mask the fundamental differences between these two Asian economies. As Feenstra and Hamilton (2006) have shown in some detail, these economies become progressively organized in response to big buyer orders. These emergent differences are obvious from an examination of the disaggregated seven-digit trade data. In the very early years when US buyers were placing their first rounds of orders, buyers placed similar orders in different locations. For example, before 1975, garments exports were among the highest categories of exports from both countries, with garments providing about a third of the total value of Korea’s exports to the US and a quarter of Taiwan’s. Among the 263 and 345 types of garments that South Korea and Taiwan, respectively, exported to the US in 1972, the top five items provided 42 percent of the total value of garments from Korea and 39 percent from Taiwan. Three of the top five garment items are the same for both countries, namely specific types of sweaters, knit shirts, and trousers, all for women and girls.

130

The Rise of Taiwan’s Demand-Responsive Economy

From about 1975 on, however, the buyers began to grow more sophisticated in terms of both the consumer markets for their products and the supplier markets for the relative capabilities of different manufacturers. Within the next decade, 1975–85, the South Korean and Taiwanese economies developed divergent specialties. The export segment of the Korean economy specialized in vertically integrated Fordist mass production systems. Led by chaebol, such business groups as Hyundai and Samsung rapidly expanded in response to big-buyer orders for large volumes of the same type of finished product. At the time that the large South Korean firms grew larger, the export segment of the Taiwanese economy became more intensively oriented toward the goods that networks of small, medium, and modestly large firms could produce. As Feenstra and Hamilton (2006) have shown, the story is the same in every industrial sector. Before 1985, Korean firms “mass produced,” while Taiwanese firms “batch produced” goods, and both systems of production grew in response to orders. In effect, globalizing retailers and brand name merchandisers patronized different supplier markets for different products. South Korean and Taiwanese manufacturers competed with each other in some of these supplier markets for specific goods, but for most part they specialized in different products (see also Lee and Song 1994; Levy 1988, 1991). Now we will turn to the Taiwanese case in order to show the process by which these supplier markets emerged and by which, in consequence, the entire economy has changed.

Taiwan’s industrialization: The rise of a demand-responsive economy It is hard to date the first moment when industrialization began, and perhaps it is useless to do so. But it is certain that the new economic trend in Taiwan began when the first big buyers arrived. We do not know who these buyers were, because no one sufficiently noticed them to record their arrival. It is also certain that the initial intermediaries were not the Taiwanese themselves. In those early years, as far as the Taiwanese were concerned, Taiwan was a closed island, and they and their resources were locked inside. Martial law was enforced. The government strictly controlled both people and money. The Taiwanese, therefore, simply did not know the foreign markets for which they would soon be making products. And, of course, very few locals spoke any English at all. The historical context makes it clear that the foreigner buyers came

Gary G. Hamilton and Cheng-shu Kao

131

to Taiwan before the Taiwanese went to the buyers in the US, Europe, and Japan, as they would do with increasing frequency in the 1980s. Japanese trading companies It is very likely that the first buyers of Taiwan’s products were Japanese trading companies. In our interviews from the late 1980s, factory owners across a wide range of industries recalled getting their start working with Japanese firms in one way or another. In the late 1960s, as American retailers began to use Japanese trading companies to fill orders for garments and footwear, these trading companies encouraged a range of Japanese firms to relocate to areas outside of Japan where cheaper labor could be found.5 Drawing on their expertise in marketing, financing and information gathering, the Japanese general trading companies: [T]urned into overseas project organizers … and [played] a key role in helping Japanese manufacturers, and particularly small- and medium-sized enterprises, set up shop in labor-abundant developing countries to produce technologically mature, labor-intensive products by investing jointly and providing needed infrastructural services. (Kojima and Ozawa 1984, p. 13) Two former Japanese colonies, Taiwan and South Korea, were the two places Japanese firms placed sizeable investments, first in Taiwan in the late 1960s and then in South Korea in the early 1970s (Feenstra and Hamilton 2006, pp. 262–4). Aside from our interviews and a few scattered references, however, it is difficult to find much on the role played by Japanese trading companies in Taiwan’s first period of rapid growth, from about 1965 to 1975. If they mention Japanese companies at all, most analysts (e.g. Gold 1986; Wade 1990) only refer to those notable cases of large Japanese manufacturing companies establishing joint ventures in the area of consumer electronics, such as Tatung’s 1964 joint venture with Toshiba for producing television sets.6 To most observers in the era, Japanese trading companies seem almost invisible, a presence about which little is known for sure. Our interviews, however, suggest that they served as the brokers that got Taiwan’s industrialization underway, a crucial but unheralded role. Several factors lead us to the conclusion. The first reason is language. In the 1960s, many ethnic Taiwanese older than 35 or so could speak

132

The Rise of Taiwan’s Demand-Responsive Economy

some Japanese. They had learned Japanese during their compulsory primary school education in the colonial period. Moreover, Japanese at this time was not only the language of instruction, but also the language of international business, as well as the language of government. In the earliest years of growth, therefore, Japanese businesspeople and ethnic Taiwanese could speak to one another with some level of understanding and cultural familiarity.7 Second, Japanese trading companies in the 1960s began to expand their operation outside of Japan. In the immediate postwar period, they played an important role in rebuilding Japan’s domestic economy. They coordinated and brokered exchanges among Japanese firms, especially those in the same groups of firms that had constituted the prewar zaibatsu. Having formed around family-owned holding companies, the zaibatsu were disbanded by the US occupation government on the grounds of being illegitimate monopolists. After the American occupation ended, the firms constituting the former zaibatsu regrouped, but without the family-owned holding company at the top. In these reconstituted business groups, now called keiretsu, the general trading company, along with the main banks, served as one of the core firms that maintained the interrelatedness of group firms. By the 1960s, the general trading companies, called sogoshosha, served as the main import/export agents for firms in their respective business groups, and in addition began increasingly to serve as independent agents in establishing sources for goods for which they had received orders, but that were not supplied by member firms in the quantity, quality or price desired by the ordering firm. It was their role as independent agents that was especially important for Taiwan. In the early 1960s, after over a decade of rapid economic growth, Japanese labor costs began to climb. For the years 1964–6, the average monthly cost of labor in Japanese textile factories was three times higher than in Taiwan’s, at 69 US dollars per month as opposed to Taiwan’s 23 US dollars per month (Duan 1992). In the same period, the average wage in US textile factories was 333 US dollars per month. The rising wages in Japan encouraged the general trading companies to begin to look at locations outside of Japan as more profitable places to perform the tasks that they had perfected in Japan: skills in market-making, infrastructure creation, and financial backing. In the same deal, the general trading companies would make money in multiple ways. They would receive orders from American and Japanese retailers, and then would arrange production for the orders. In the early years, they had to create competent suppliers: they would broker deals leading to joint ventures between a Japanese company and a local

Gary G. Hamilton and Cheng-shu Kao

133

company and, if needed, would supply or otherwise arrange for financing. Then they would import and sell the machine tools needed to establish the factory, train the Taiwanese how to use the machinery, supply the intermediate goods needed to make a product, and then coordinate the delivery of the goods to retail markets in Japan or more frequently in the US. Third, during the late 1960s, Taiwan was the largest recipient of Japanese foreign investment (Economist Intelligence Unit 1983). Records on foreign direct investments in Taiwan show that the absolute total of US investments exceeded investments from Japan, but Japanese investments involved over three times as many individual investments than those from the US (Duan 1992, p. 236). These figures point to a difference in investment strategy between the US and Japanese businesses. On the US side, a few large US multinationals (for example, RCA) set up stand-alone manufacturing plants in export processing zones producing consumer electronics, and on average these investments were much larger than foreign direct investment from Japan. In fact, in 1975, nine of the ten largest companies in Taiwan by revenues were all American companies; the other one, Philips Electronics Industries, was a Dutch company (Chu and Amsden 2003, p. 28). By contrast, guided by the general trading companies, Japanese companies usually established joint ventures with Taiwanese firms. Some of these Japanese companies themselves were modest sized companies; others were subsidiaries of the large Japanese business groups. In both cases, however, the firms established with Japanese direct foreign investment were smaller and economically more diverse than American firms. Typically, the Japanese firm controlled the technology and supervised the manufacturing process, and a Japanese trading company secured the order and then marketed the final product. In the 1960s, Hitachi, Matsushita (Panasonic), Sanyo Electric, Ricoh, Mitsubishi Electric, Casio, among many other Japanese firms, started operations in Taiwan. Fourth, although the figures seem more like rough estimates than firm assessments, a number of analysts (Feenstra and Hamilton 2006; Fields 1995; Olson 1970; Wade 1990) state that Japanese general trading companies served as the broker for over half of Taiwan’s exports from the late 1960s through most of the 1970s. If this figure is accurate, then we must conclude that the general trading companies were not just merchants, but rather were active agents in financing, supervising, and supplying the Taiwanese manufacturers. In effect, the Japanese trading companies initiated Taiwan’s supplier markets. This seminal role, however, did not last long; very soon, Western buyers and Taiwanese trading companies began to play active roles in

134

The Rise of Taiwan’s Demand-Responsive Economy

establishing Taiwanese suppliers of goods ordered by Western retailers and brand name merchandisers. In the resulting mix, Japanese trading companies increasingly began to specialize in a narrow but still important segment of the overall market economy; namely, supplying Taiwanese manufacturers with capital goods and intermediate inputs required in the manufacturing process: machine tools, the gear boxes for bicycles, and specialty metals and chemicals needed in a wide range of products. Starting in the 1950s, Japanese exports to Taiwan increased almost every year until the late 1990s (Taiwan Statistical Data Book 1997, p. 194). If our interviews provide a sample of what was happening in the entire economy, it would seem that most of these Japanese exports were the result of orders placed by Taiwanese businesspeople through Japanese trading companies. Through the 1990s, these trading companies continued to source and supply the intermediate goods needed to manufacture Taiwanese exports. In those initial years of economic growth, however, Japanese trading companies played all the crucial roles that enabled the Taiwanese businesspeople to get started. Moreover, they provided the Taiwanese more than just access to distant markets, advanced technologies, and manufacturing know-how. Most importantly, they showed the Taiwanese how to make money off the global economy. They showed them how to participate as suppliers; how to be reliable and trustworthy partners to firms that ordered goods from them, but about which they had little additional knowledge. American buyers and local trading companies Japanese trading companies likely served as the first global brokers for the Taiwanese. Their very success with sourcing goods in Asia, however, soon did them out of business. Soon after the Japanese trading companies came to Taiwan, the American buyers arrived as well. They established buying offices in Taipei, Seoul and Hong Kong. Sears opened their Taiwan buying office in 1967, K-Mart and J. C. Penney’s in 1971, and Associated Merchandising Corporation (buyers for Dayton Hudson, Federated Department Stores and Target) and Mast Industries (buyers for The Limited) in 1973 (Gereffi and Pan 1994). By eliminating the middleman, American buyers could reduce their costs; but more importantly they could begin to work with the Taiwanese manufacturers, and help them be better suppliers—and as they became better suppliers, the Western buyers began to order greater quantities of a much wider range of goods. Here again the US trade statistics are revealing (Feenstra and Hamilton 2006). In the very first year disaggregated data were collected, 1972, the

Gary G. Hamilton and Cheng-shu Kao

135

seven-digit US custom data show that Taiwan was already exporting products to the US in over 2100 categories. By 1985, the number had risen to over 8400 categories. This increase represents an extraordinary growth in the variety of products Taiwan made for export to the US. Most of the value of these exports, however, was quite concentrated, with nearly 30 percent of the total value in only the top ten product categories and nearly 80 percent of the total value in the top hundred categories. The top 20 exports in 1972 were dominated by consumer electronics and items of clothing, most of which were likely the result of multinational manufacturing and joint ventures.8 However, once outside the top twenty or so items, one begins to find a wide variety of products that were almost certainly ordered by US retailers and made in Taiwanese-owned factories. Among the next 20 items of export are types of umbrellas, luggage, bicycles, toys, household utensils, handbags, Christmas tree lights and curtains. Going further down the list of products the array of products is dazzling: types of handbags, sewing machines, loudspeakers, religious articles made of plastic, inflatable rubber toys, guitars, belt buckles, gloves, clocks, headwear, badminton sets, baseballs, bicycle tires, tennis rackets—all these along with many different kinds of garments and shoes. The custom records show that, from 1972 to 1985, these second-tier products were shipped in greater and greater quantities and accounted for more and more of the total value. This shift occurred at the same time as Taiwanese manufacturers took increasing shares of the export production in consumer electronics relative to Western-owned firms in Taiwan.9 By the time our interviews start in 1987, Taiwanese businesses, rather than foreign-owned firms, dominated every sector of Taiwan’s export economy. As we interviewed factory owners from the late 1980s on, the question that we always had in the back of our minds was how each particular factory came to be making its particular product. And, every time, the answer to that question was that they had the order from a buyer. Without the order, they said, they would not make whatever they were making. They explained that the capital invested in the factory and in the inputs used to make the goods had come out of their own pockets, or out the pockets of a small group of family and friends who were the primary investors; therefore, they would not risk making something that had not already been ordered. When we probed where the order came from, they typically told us that American buyers had ordered the products and, as proof, they would show us the US brand names on the products that they were shipping.

136

The Rise of Taiwan’s Demand-Responsive Economy

But at this point the obscurity would start. How were the orders actually arranged? Part of the obscurity was due to our failure to ask the crucial questions. In the 1980s and early 1990s we, along with most other observers, focused more on how Taiwanese businesspeople put together their production networks than on how they obtained their orders. We knew they had the orders, we knew they depended on having the orders, and so we did not question them on the intricacies of how the ordering system worked. However, part of the obscurity also came from the fact that the orders had come from a variety of sources. Some came directly from the retailers or brand name merchandisers, others were handled by Japanese trading companies, and yet others were arranged by local trading groups. Knowing the importance of local trading companies, we interviewed several dozen different trading companies. We learned that in the years of our interviews, mostly in the early 1990s, the owners of trading companies had to work hard to get the orders. They would take their case of samples to the US or Europe, and go from retailer to retailer looking for orders. These kinds of trading companies were colloquially referred to as “suitcase companies” (pibao gongsi). But suitcase companies only became commonplace after the Taiwanese were able to travel overseas freely and after the foreign exchange markets were open, and this did not occur until the mid-1980s. The question that we did not ask was how did the ordering system worked during the crucial decade between 1965 and 1975. During that crucial decade, we also knew that the government did not provide much, if any, assistance. In the early 1990s, a lot of export manufacturers obtained contracts by showing their wares at trade fairs and in fixed stalls at the Taipei World Trade Center. But the Taipei World Trade Center was not opened until 1988. Before that, the China External Trade Development Council handled most of the official matters involving trade. The Council was established in 1970, but was continually short-staffed and underfunded. Allowed only 13 employees, the first general secretary of the Council, Wu Kuan-hsiung, recalled being so frustrated with the lack of government support that he quit after a few years and went to Singapore. As early as 1973, he had recommended the government build a trade center, but the plan was put off year after year. The government, he complained, liked industry, but not commerce or trade. Putting together bits and pieces of information from our interviews and from other sources, we think it is likely that the American buyers and the local trading companies began to collaborate in the early 1970s and

Gary G. Hamilton and Cheng-shu Kao

137

built a momentum that continued through the 1980s. One fact stands out for this period: local trading companies grew in number at a pace even faster than the Taiwanese economy in the same period. In 1973, official records show that there were 2777 trading companies in operations in Taiwan,10 but by 1985, that number of trading companies had risen to 55,000. One out of every ten registered companies was a trading company. The trading companies were uniformly small, averaging less than ten employees each. Knowing the trading companies from our interviews in the early 1990s, we surmise that nearly every category of export product was represented by many local trading companies competing for orders. Although small, the local trading companies took on a multitude of roles, chief among which was to work both sides of the demand–supply equation. Their offices were usually in Taipei, near the buying offices established by American retailers. They worked to identify products that were be salable to the big buyers and then worked to obtain orders for those products, thereby generating demand. Then the owners of the trading companies would help to arrange production networks to fill the order, thereby generating supply. They were more than simply matchmakers; rather they were instrumental in creating competent suppliers for American buyers. Local trading companies helped to create a market of suppliers willing to bid on and to make nearly any product imaginable. Another fact equally stands out about these local trading companies. Once a market of suppliers existed, and once the trade fairs and the World Trade Center were in operation, there no longer existed the same role for the local trading companies. Their basic role had been completed. From the late 1980s on, local trading companies began to diminish in number. Imitation and innovation Although we did not ask many questions about the process of obtaining orders, we did ask again and again how factory owners were able to make the products for which they had the orders. Many products were extraordinarily complex or required very complex manufacturing procedures. It always seemed remarkable to us that the Taiwanese manufacturers, often with very limited education, were able to figure out how to make the products that they were, in fact, making. For instance, the chairman of Thunder Tiger, a firm making airplanes for the hobbyist market, had only an elementary school education, and yet, among his many accomplishments, he figured out how to manufacture miniature drone jet airplanes. Chairman Tseng, a manufacturer of plastic lawn

138

The Rise of Taiwan’s Demand-Responsive Economy

chair furniture, who at the time of our interview had huge contracts from both Wal-Mart and K-Mart, had only the equivalent of a junior high education, and yet he invented a one-step manufacturing process to change raw plastic into finished products. Their stories are not unusual. In fact, most factory owners in Taiwan’s first wave of industrialization not only did not have advanced degrees, but also had no training in manufacturing in general or in making their specific product. The question that we asked repeatedly was how they learned to make the products. The answer that we received was always some form of imitation and innovation based on an existing product or an existing process. This method of imitation and innovation is usually a very difficult and complex process. The term often given to this process is “reverse engineering” which makes the process sound simple, but there is nothing easy or automatic about copying someone else’s design. In the case of OEM (original equipment manufacturing) production, the big buyers would often bring the samples, sometimes amounting to nothing more than an idea designed on paper, with them to Taiwan, and ask the manufacturers—or more likely the owners of trading companies—“Can you make it for such and such a price?” Then, before they could obtain the order, they would have to deliver a prototype, just to show that they could do it. The turnaround time on such a query was often very short, because frequently the buyers would just sit in their hotels waiting for the prototype to appear. With a very short lead time, the Taiwanese manufacturers would have to produce their prototype. This process of innovating based on an existing product design is a skill that Taiwanese manufacturers learned how to perfect. In the first decade of rapid growth, many of the OEM products were comparatively simple and were ordered in fairly small batches. Taiwanese manufacturers learned how to produce these products in a variety of ways, some from their experience in working in other factories, some from instruction provided by Japanese trading companies and suppliers of machine tools, and some from the big buyers themselves. However, once in business, they learned quickly from others in their production network. In this context, learning was both singular and collaborative. It was singular in the sense that one firm typically took the lead to produce the prototype. The owner and key employees of this firm would design and make a prototype. At this stage, very few people might be involved, but those people would have to have a lot of knowledge about the product, and would have to go to some lengths to acquire this knowledge. Factory owners frequently told us that they would obtain this knowledge by going to trade shows, by finding samples of similar

Gary G. Hamilton and Cheng-shu Kao

139

products and taking them apart, by closely reading trade journals where new developments are announced, and by pursuing others who have knowledge about the product or materials the products are made of. Wherever they obtained this knowledge, they would then actively try to innovate on the design to come up with something special that would give their goods a distinctive feel. Learning was also collaborative in the sense that the process of production was a function of the network and not simply the firm. Therefore, learning how to produce a given prototype required considerable cooperation among a group of independent manufacturers. These manufacturers would have to work together very closely on coordinating all aspects of production. In the course of this collaboration, the division of labor among manufacturers had to be cost effective, because any inefficiency would cut into their collective profits. The network of producers, therefore, would constantly learn how to produce products with higher quality while achieving lower costs and how to work together seamlessly. This process of manufacturing also led to improvements in product design. In another location, we show how this combination of individual initiative by, and cooperation among, businesspeople is anchored in distinctively Chinese patterns of social organization (Kao and Hamilton 2006). We refer to these patterns as an adaptation of “round-table etiquette” applied to economic activity, with the result that Taiwanese businesspeople could quickly take advantage of money-making opportunities that began to appear in the 1970s. The constant interaction between the product and the process of production, as well as between the firm and the networks of which the firms are a part, created in Taiwan’s first wave of industrialization a particularly dynamic approach to manufacturing. Some examples from our interviews will illustrate these various levels of interaction. Kai Hsiang: Making jacks The first time we interviewed Ling Wen-chuen, the general manager of Kai Hsiang, a hydraulic jack-manufacturing firm in Chiayi, was in 1990. Although we would revisit him many times during the next 15 years, that first visit left a lasting impression. At the time, he was a youthful 34 years old and was completely at ease with having us in his factory. A very jovial man, he kept us there for the better part of a day, which ended with a banquet that he hosted for the entire research team, for a total of 12 people. A close family friend of one of the Tunghai graduate students, Ling welcomed us warmly and answered all of our questions in detail.

140

The Rise of Taiwan’s Demand-Responsive Economy

In 1990, Kai Hsiang was the second largest of the six major jack factories in Chiayi. It employed about 200 people in the main factory and worked with a large network of subcontractors consisting of over 100 small firms. Kai Hsiang was one of a number of businesses owned by Ling Wen-chuen’s parents, and his role as general manager was given added weight by the fact that it was a family business, technically owned by his father, but in reality collectively owned by the entire family. The family businesses began with Ling Wen-chuen’s grandfather, who owed a pharmacy in Chiayi. Having a taste for business, but not wanting to take over the family store, Ling’s father, Ling Suen-yi, looked around for other opportunities. In the early 1960s, responding to the growing export markets in Japan for agricultural products (Feenstra and Hamilton 2006, pp. 200–10), farmers in southern Taiwan had begun to invest heavily in growing a range of animals commercially, including pigs, chickens, fish, and shrimp. Sensing an opening, Ling Suen-yi started a factory producing feed for chicken and fish. As a part of this business, he had to import the grains, such as corn, to make the feed, and he had to go around the island of Taiwan to market the animal meal to feed shops. Through his contacts in the feed business, Ling Suen-yi heard, in the early 1970s, about a Japanese luggage company that wanted to locate a contract manufacturer to make some low-end luggage. The Japanese were willing to invest some capital in such a company. Ling Suen-yi quickly took them up on the offer, and investing some of his own money in the factory as well, he started making luggage. While Ling Suen-yi worked full time to establish his luggage factory, his wife took over the agribusiness. Through working with the Japanese company, he was able to upgrade the quality of his luggage and then to land some additional OEM contracts. In 1980, running a successful luggage export business, Ling Suen-yi was approached by a friend of a friend. This person owned a jack factory that he wanted to sell. The factory was not doing well, and the person wanted to sell the factory to the Ling family at an attractive price. A few years earlier another jack factory had opened in Chiayi called Hsinfu. The owner of Hsinfu and Ling Suen-yi were friends, and, sensing an opportunity, Ling Suen-yi hoped to collaborate with Hsinfu to produce a wider range and larger quantity of hydraulic jacks. The year before they bought the jack factory, our interviewee, Ling Wen-chuen, had just graduated from National Taiwan University in Taipei, with a BS degree in Forestry. In the year after his graduation, he had worked for his father in the luggage company, learning sales and marketing and making use of the English that he had learned in college. When

Gary G. Hamilton and Cheng-shu Kao

141

Ling Suen-yi bought the jack factory in 1981 for 20 million NT dollars, his son, Ling Wen-chuen, immediately became the general manager. In the late 1970s, in addition to Kai Hsiang and Hsinfu, four other jack assembly factories started operation in Chiayi. Although each one was independent and in competition with the other firms and although each had a network of dedicated subcontractors, they also shared some subcontractors who made specialized parts. As a function of being part of an extensive network of assembly factories and overlapping parts suppliers, the entire agglomeration of firms, although internally competitive, shared substantial knowledge about how to manufacture products with hydraulic components. As general manager of Kai Hsiang, Ling Wen-chuen made good use of this information to improve the production facilities in his factory. The agglomeration of jack factories in Chiayi created a large demand for steel of a certain size and quality. Not far from Chiayi, near Kaohsiung, is the state-owned steel mill, China Steel, as well as several large privately owned steel mills. At first, the jack factories ordered steel from some of these factories, but they soon switched their orders to a newly established local steel mill. This firm had been established in the late 1970s by a local man who had worked as an apprentice in one of the Kaohsiung mills. As the jack factories began to receive substantial orders, this person was encouraged to open a mini-mill dedicated to serving the specific needs of the jack manufacturers in Chiayi. In the first years of operation, Kai Hsiang was a subcontract manufacturer for Hsingfu, which was then on its way to becoming the world’s largest producer of hydraulic jacks. Ling Wen-chuen told us that in the first year of operation, they made NT$200 million in total revenue, with profit margins running to about six percent. After two years, they were able to turn a profit. As a subcontract assembly firm for Hsinfu, however, Kai Hsiang’s production depended on Hsinfu’s ability to get OEM orders. Although the firm was quite successful, Ling Wen-chuen wanted to expand his business. Using his English language skills, he went to Taipei, and eventually to the US, to meet American buyers. When we asked him how he knew which firms to go to, he said that that was no problem. What he had done was to go to the subcontracting firm in Chiayi that was making the brand name-labeled cardboard boxes used to package the finished jacks, and see which American companies were ordering jacks. He then went to those companies, and as a result, he was able get substantial OEM orders on his own behalf. These orders allowed him to expand his network of subcontractors. Within six years after buying the jack factory, by 1987, Kai Hsiang became the second largest jack assembly firm in Chiayi.

142

The Rise of Taiwan’s Demand-Responsive Economy

Our first interview with Ling Wen-chuen was in 1990. Within five years of that first interview, most of the jack assembly firms in Chiayi, including Kai Hsiang, had moved operations to mainland China. The Ling Family luggage business continues in full operation, with one large factory in mainland China and the small factory in Chiayi, where the high-end luggage continues to be made. The factory making animal feed ended operations at about the time that the farmers in southern Taiwan began to quit raising animals and seafood so extensively due to pollution and other causes. No longer running their agribusiness, Ling Suen-yi’s wife opened a stock brokerage firm. The Ling Family jokingly called their businesses “nomadic” ( youmu), because they never stopped searching for new opportunities to make money. Yeh-Bao: Making bicycles Located about 40 kilometers north and west of Taichung City, Ta Chia is one of many small villages lining the coast and skirting the river flood plains along Highway 1. Well removed from the main north–south freeways, Ta Chia before the 1970s was noted only for making small products woven from grass: hats, floor and bed mats, and grass slippers. Only eleven years later, by 1981, Ta Chia had become the center of Taiwan’s export bicycle industry, and by that time Taiwan had become the world’s largest bicycle exporter (Cheng and Sato 1998, p. 8). At the peak of the industry in Taiwan, in 1986, the number of bicycles exported reached more than ten million (Cheng and Sato 1998). Giant, Taiwan’s best-known bicycle company, is located in Ta Chia. It is the largest of many bicycle assembly firms in the region. Yeh-Bao is another firm in Ta Chia, but its owner, Lin Shun-san, built his business by specializing only in the manufacture of bicycle frames. Chairman Lin started his first business in 1975. At the time, he had recently graduated from a nearby technical school with a specialty in telecommunications and had received the equivalent of a high school degree. Not knowing what to do, he returned to his hometown, Ta Chia, to look for opportunities. In the early 1970s, as Ta Chia was just becoming the center of Taiwan’s bicycle production, there were many opportunities in this region to enter the industry in one capacity or another. With only very little capital and acting on the advice of a friend, Lin and his wife decided to start a company making plastic saddlebags that attach to the rear fender of low-end bicycles. They called their company, Jun-ye (successful enterprise), and, depending on the workload, employed between 10 and 20 people, all from the local village. Their orders for the saddlebags came from other firms in Ta Chia. These bags

Gary G. Hamilton and Cheng-shu Kao

143

would be attached to the bicycles in the final stages of assembly, just before the bicycles were packaged and shipped to the OEM buyers. Building on his personal connections within the local community of bicycle assemblers and part suppliers, Chairman Lin, in 1978, got an opportunity to establish a new firm to make one of the most technologically difficult parts to manufacture; the frame. He called his firm Yeh-Bao (wild treasure) in Chinese and A-PRO in English. At the beginning the firm used low-end metals, mainly aluminum and stainless steel, to construct the frame. The first couple of years, he recalled, were extremely difficult because he had to work out the production technique for making the frame solid and unbreakable. To accomplish this task, precision welding is absolutely crucial, because so much pressure is placed on critical points on a bicycle, particularly the metal fork holding the front wheel. “Can you imagine,” he said, “a 200-pound American guy riding on a 10 pound bicycle at a speed of 30 miles an hour. Oh boy, the frame has to hold together. You know an automobile has four wheels, but a bicycle only has two.” Because competition at the low end was so tough, Chairman Lin decided he had to upgrade his position in the network of firms around Ta Chia. He borrowed money from his friends and bought new equipment in order to improve the quality of his frames. He also began to use new metals, such as carbon graphite, titanium, as well as higher grades of aluminum and steel. Then he hired the best welders he could find, paying them double and sometimes triple the going local wage for welders. When he first bought the specialty metals from a Japanese company, the company sent representatives to teach him and his welders the best techniques to cut and weld the frames. But Chairman Lin complained to us that Japanese companies never explain everything. They always keep some of the core technology to themselves. Therefore, as they began to work with the new metals, Lin and his employees had to work out many of the problems on their own, and they had to test and retest the durability of their frames. Chairman Lin, however, continued to buy the high-end materials from Japan (such as titanium and carbon graphite) and to rely on Japanese manufacturers for key component parts, such as the Shimano gearboxes. Once they had perfected the manufacturing process, Chairman Lin began to participate in international bicycle fairs, usually held in Cologne in Germany, and New York, and he started to obtain OEM orders, especially from Europe. Quickly his own business improved. He had successfully upgraded his firm’s position in the manufacturing network, just as the entire network had also upgraded itself as an OEM

144

The Rise of Taiwan’s Demand-Responsive Economy

producer for major European and American retailers of bicycles. As Yeh-Bao grew in size, the firm was able to handle yet larger and more differentiated orders. Chairman Lin’s strategy matched the strategy of the entire network of firms, namely to make differentiated products of mass-produced low-end and middle-range bicycles and batch-produced high-end models, this along with a lot of bicycle accessories. By 1992, when we interviewed Chairman Lin for the first time, he had established six independent factories in Taiwan, each making different component parts. The very first firm, Jun-ye, was still in operation, then managed by Lin’s wife and making sophisticated bicycle accessories. Yeh-Bao was the largest of the six firms. Chairman Lin was the owner and boss (laoban) of each of these factories. We asked him, since he was making so many different bicycle parts, why not vertically integrate and make the entire bicycle himself, or at least become a downstream assembler. He answered decisively that that would not be a wise move. If you try to vertically integrate in Ta Chia, he said, “then everyone will be your competitor. If you keep your firms separate, then you will be everyone’s supplier.” He said there were other reasons not to integrate as well. If you make a small number of products, you do not have to make a huge capital investment in any one of them. Modest investments, he said, get better returns with lower risks. Finally, he noted that Taiwan’s tax code also favors having multiple companies rather than one big firm. Continually starting small firms means that you can deduct startup costs, which would not be available if one began a new operation within an existing firm. Also, multiple firms create multiple lines of credit. One big company only has one credit line. And finally different sizes of firms are subject to different tax rates. Although all these reasons are important, he reflected, the main reason not to vertically integrate is the risk of going it alone, of trying to make money without help from others. Chairman Lin thought it was much better for him to make himself indispensable within the overall network of firms. He described the bicycle industry as a “fashion industry,” continually changing. A network of firms is much more flexible in changing with the trends than is possible in one big vertically integrated firm. As Chairman Lin explained, “It used to be that the big firms in South Korea would make huge quantities of bicycles,” but the Taiwanese producers were able to follow the trends so much faster that the “Koreans got out of the bicycle business.” Pao Chen: Making shoes Among Taiwanese firms, Pao Chen is a legend. In the late 1990s, Pao Chen, along with its subsidiary Yu Yuan, became the largest shoe

Gary G. Hamilton and Cheng-shu Kao

145

manufacturer in the world, making nearly a quarter of all athletic shoes in the world. Also, among private sector Chinese firms, Pao Chen is one of the largest employers with over 250,000 employees worldwide and with over 80,000 employees in one of its mainland Chinese factories alone. Like other Taiwanese firms, however, Pao Chen started small. When we first interviewed Pao Chen’s owner, Tsai Chi-ray, in 1988, it was a considerably smaller firm of about 500 employees, operating five assembly lines producing shoes,11 but by Taiwan’s standards of the day, even then it was relatively large. Our first interview with Pao Chen occurred just at the time when the company was beginning, surreptitiously, to move part of its operations to China. Secrecy was required because the Taiwanese government absolutely forbade everyone from making investments in the mainland, but after the 1985 Plaza Accord, which caused Taiwan’s currency to appreciate, contract manufacturers in Taiwan had increasing difficulty in meeting the buyer’s price points and still earning a profit. At our interview in 1988, we did not learn about their plans to move to China. Instead, we marveled at their operations in Taiwan. In 1969, Tsai Chi-ray, along with his three younger brothers, started Pao Chen in their hometown of Yuanlin, in those years a modest-sized town in Changhwa County, south of Changhwa City. Reasonably prosperous in the 1960s, Yuanlin was noted for its agricultural products, particularly mushrooms, asparagus, preserved fruits, as well as its food-processing plants that canned and bottled and otherwise processed these food products for export and for domestic consumption. A graduate of a local teacher’s college and then a teacher at the local junior high school, Tsai Chi-ray wanted to take advantage of the new economic opportunities that he saw appear in his hometown in the late 1960s. He borrowed NT$500,000 (equivalent to US$12,500) from close family members, so that he and his three younger brothers could start a factory. With ten employees, in addition to the four brothers, Pao Chen began making the kind of plastic slippers known colloquially in the US as “flip-flops.” At the time the Tsai brothers opened their firm, a number of other factories in the area had also started making the same style of plastic shoes. Some Tsai family members had had previous experience making slippers out of woven grass, which they obtained from Ta Chia. Now they began to use that experience to make these new kinds of shoes. The flip-flop had been designed by an American firm in imitation of a style of Italian-made leather shoes for women. The flip-flops initially sold well in the American market, but the price per unit was

146

The Rise of Taiwan’s Demand-Responsive Economy

very low. American buyers for the main retail outlets, especially K-Mart, Sears, and Wal-Mart, then only a regional discounter, began to place orders in Taiwan. The raw plastic material used to make the flip-flops was readily available in Taiwan from Nanya Plastics, a subsidiary of Formosa Plastics. Working through a local trading company, the Tsai brothers were able to land a contract for a quantity of these plastic shoes. At the same time this was occurring, the US demand for flip-flops surged, which led in turn to much bigger orders. The US buyers for the retail chains then began to come directly to the suppliers, Pao Chen included, and began to work closely with them to increase both the quantity and the quality of the products. Chairman Tsai recalled being especially impressed with the buyers from Wal-Mart, with whom they gradually developed a close relationship. In the early 1970s, Pao Chen began to receive some direct orders from the main retail buyers. In response to these orders, Pao Chen increased the size of its factory and began to develop its own subcontracting network. At this time the market for nonleather shoes in the US began to diversify. Pao Chen’s breakthrough came when the company got some large orders for a new type of shoe, a canvas covered plastic shoe, variously called “sneakers” or “tennis shoes.” The construction was fairly easy and the unit price was very low. Working with their production network, however, Pao Chen was able to keep their production costs low, produce these shoes in large quantities, and still make everyone a profit. At the same time that Pao Chen’s orders for sneakers began to come in, two related developments pushed Taiwanese shoe manufacturers in new directions. First, the technology used in making shoes changed dramatically when Mitsubishi’s general trading company, CITC, transferred Japanese technologies for making shoes to Taiwanese suppliers. CITC was one of the primary intermediaries between a range of specialized retailers of sporting goods and Taiwanese shoe manufacturers. In Japan at the time, a new type of shoe was being developed, highly functional and durable, that would become known as the “athletic shoe.” These shoes required new machinery, advanced plastic materials, and high quality sewing and lamination techniques. Making these shoes was also very labor intensive. Taking advantage of Taiwan’s cheaper labor costs and batch production techniques, CITC taught Taiwanese suppliers the new shoe-making technologies and also sold them the machines and the materials to make the shoes. The German shoe manufacturer, Adidas, had been trying to develop a similar type of shoe with technologies similar to those developed by the Japanese. Keeping in step with their Japanese competitors, Adidas,

Gary G. Hamilton and Cheng-shu Kao

147

in 1971, decided to try contract manufacturing in Taiwan as well, and signed an agreement with Hwagang, a shoe company located in northern Taiwan. In the following year, 1972, Reebok came to Taiwan, as did the Japanese company Mizuno. These companies signed contracts with a number of shoe manufacturers, among them Chinglu, a firm located in the same county as Pao Chen. Although they had only been in business for about five years, all these contracts for athletic shoes made Taiwanese shoe manufacturers one of the main global suppliers for this new type of athletic shoe. The extraordinarily rapid growth of Taiwan’s shoe manufacturers created huge demand for specialized inputs and for the machinery to make shoes, much of which was initially supplied by the Japanese trading companies. By the mid-1970s, local firms began to emerge that supplied both the inputs and the machinery. This follows the general rule in demand-responsive economies: orders for final products come first, markets for intermediate inputs for those products come later, which encourages niche suppliers for intermediate inputs to emerge. The second important development in Taiwan’s shoe industry was the arrival of Nike and a surging global demand for athletic shoes that was in part created by Nike. In the early 1970s, Kihachiro Onitsuka, the owner of Asics Tiger, cooperated with the American company called Blue Ribbon Sports, that later became Nike, to manufacturer a shoe designed by Phillip Knight. Knight’s story is well known: He saw that there was no shoe designed for running and other athletic endeavors. He designed the shoe and contracted with Asics Tiger to make it. In only a few years after their introduction, Nike captured a huge share of the newly developed market in athletic shoes in the US. At first this market seemed to be a niche market that filled, as well as created, demand from the new popularity for jogging and aerobics. But the niche expanded, as more and more athletic type shoes were worn for all occasions. At the beginning, Asics Tiger made Nike shoes, but with competition from Adidas and Reebok, Knight decided to move his contract manufacturing out of Japan. He split his orders between footwear manufacturers in South Korea and Taiwan, with Korean companies making mass-produced shoes for low-end markets and Taiwanese companies making the batchproduced specialty shoes. In Taiwan, Nike’s lead firm was Fung-Tai, also located in Taichung County, about 30 minutes north of Yuanlin. From 1966 to 1985, the global export of sport shoes from Asia grew 1200 times. Most of these shoes were produced in only two countries, Taiwan and South Korea. By 1985, Taiwan and South Korea produced 50 percent of all shoes imported into the US. By this time, American

148

The Rise of Taiwan’s Demand-Responsive Economy

shoes manufacturers had gone into a decline from which they would never recover. Because of the sudden demand in the US, for these new types of shoes, the large retailers and trade name merchandisers did a lot of research on how to put the shoes together to get maximum performance. In the early years, recalled Tsai Chi-ray, when Pao Chen made flip-flops and sneakers for the big-box retailers, price was the most important issue. Later, when Pao Chen began to cooperate with brand name merchandisers, the ability to use advanced technology was more important than price. What all these brand name companies most needed were manufacturers who could transform these R & D models into a manufactured commodity that yielded a good profit for all concerned. The secret of the Taiwanese manufacturers was the know-how to do this. As Pao Chen continued to make sneakers for the big box retailers, they started to invest heavily in new equipment needed to produce athletic shoes, equipment sold to them by CITC. By 1977, they also set up their own internal research division (Neibu Yanjiu Xiaozu) to further develop materials to make shoes. They began to do some subcontracting work for other Taiwanese firms that had primary orders for athletic shoes. Then in 1979, they received their first order from Adidas through a local trading company arm of Hwagang. At the time Hwagang handled all of Adidas’s local sales (the sales agent), did a large portion of Adidas’s contract manufacturing, and arranged for subcontracts to do the remainder. The arrangement was very successful for Pao Chen. Then in 1982, Pao Chen became the primary OEM manufacturer for New Balance, and gained a good reputation for the quality of their shoes. The quality of their production attracted Reebok, which signed an agreement with Pao Chen in 1988. Then in 1989, Nike signed on as well.12 By the time Pao Chen received its first big contract from Nike, Pao Chen was then transferring much of its manufacturing capacity to China. The golden period for Taiwan’s shoe production was just ending, and the great rush to China was just beginning. In retrospect, we can see that, in 1989, the golden period for Pao Chen was just about to begin. Demand-responsive manufacturing Between the late 1960s and 1985, Taiwanese manufacturers developed into sophisticated suppliers of consumer goods for global markets. In the beginning of the period, they had little experience in any kind of manufacturing and very limited knowledge of the consumer goods that they would soon be making for overseas markets. At the end of the

Gary G. Hamilton and Cheng-shu Kao

149

period, they had advanced expertise in the process of manufacturing for OEM buyers and equally advanced knowledge of the products that they were making. In slightly over 15 years, Taiwanese manufacturers, the Taiwanese economy, and the global economy had become tightly interconnected and transformed (Kao and Hamilton 2000). After 1985, in the wake of the Plaza Accord that raised the value of Taiwan’s currency about 40 percent relative to the US dollar, Taiwanese manufacturers had increasing difficulty meeting the price points set by US retailers and brand name merchandisers. In the next decade, from 1985 to 1995, waves of Taiwanese SMEs began to move to mainland China, and once in China, the lead firms having the major contracts reorganized their production networks to better fit the needs of overseas buyers. These reorganizations by Taiwanese manufacturers greatly increased their capacity to make products in response to demand from overseas buyers. From this reorganization emerged a new set of Taiwanese-owned business groups that rank among the world’s most successful enterprises. Three such enterprise groups—Pao Chen, the world’s largest manufacturer of footwear; Hon Hai, the world’s largest contract manufacturer for consumer electronics; and Quanta, the world’s largest manufacturer of laptop computers—are barely known outside of East Asia, but are among the largest exporting firms from mainland China. In fact, of the top 20 exporters from China, 10 are owned by Taiwanese. The modular organization designed for flexible production grew out of the demand-responsive production systems that developed in Taiwan during the first 15 years of rapid growth, from 1970 to 1985. Each of these case studies above illustrates this process of transformation. Important dimensions of the demand-responsive production systems, and characteristic features of the manufacturers’ approach, can be summarized thus: • The manufacturing of each product came to rely on production networks that broke down the production process into distinct steps that standardized the product, the component parts, and the roles of the participants (Hamilton and Kao forthcoming). • All varieties of contract manufacturing (e.g. OEM, ODM, and OBM) grew out of a progressively reorganizing economy in which individual firms were parts of larger economic units. As the orders for products increased, this form of manufacturing became highly sophisticated and highly responsive to buyer demand. This form of manufacturing is not a second class or substandard form of production, which some analysts make it out to be. The literature often describes the goal of

150

•

•

•

•

The Rise of Taiwan’s Demand-Responsive Economy

OEM producers as a desire to upgrade, but our interviews show that, even in this first wave of industrialization, upgrading production was an intrinsic aspect of being responsive to big buyer orders, an aspect that became progressively rationalized over time. Demand-responsive manufacturing was the result of self-conscious organizing on the part of Taiwanese manufacturers. It was done intentionally, in part because of the limited resources they possessed and because of the social organization that they were accust omed to. Our interviews show that from the outset, Taiwanese manufacturers operated on three principles. The first principle of contract manufacturing is to make money for the buyer—as, if they don’t make money, they will not be back. This understanding led Taiwanese manufacturers to organize by taking the buyer’s perspective into account and, in fact, by making it their own perspective. The second principle of OEM production is to work for the return contract; meeting the buyer’s expectations in quality, quantity, and price point the first time. If the buyers come back, then they will have made money and will feel that they could make more. The third principle of OEM is to make money for oneself. These three principles are achieved through taking calculated risks. However if the manufacturer doesn’t make money for herself, the enterprise will not be able to survive. Contract manufacturers are aware that, even if they do not make money with the first few contracts, if they make themselves indispensable to buyers, they will make a great deal of money over the long haul. The manufacturer organizes to make money for the buyers by organizing from the perspective of the buyer (organizing backward from the product itself and from the order for that product); as the manufacturer has the specifications for the product, and knows how many the buyer wants. The manufacturer also avoids developing a totally new product, instead reproducing an existing product with high quality, at low cost, and in the desired quantity. The production unit is organized in direct response to the product and the orders. Different ways to organize production evolve over time, but in the early years this was always through a production network. Manufacturers organize to make money for themselves by first establishing a foothold in the production networks, learning by doing, making incremental changes to improve the production process, reducing the cost of the production process, and accepting low margins in the short run in hopes of receiving larger margins going forward. The manufacturer acts as a network player, and accepts

Gary G. Hamilton and Cheng-shu Kao

151

the network agreements about the profit margin; and, when the opportunity arises, will fill the niches that appear in the production process or develop new niches that others will find useful. • Second, a manufacturer tries to get multiple orders for the same product from different sources, so that it is possible to develop a strategy of product differentiation, based on standardized parts for all models. • Third, production is modularized across the producing units. Each step in the production is standardized to make the manufacturing process transparent to all those engaged in making the product. External standards are adopted for the products, as specified by the buyer, and internal standards adopted for the process of production, as developed and specified by the network of independent manufacturers.

Conclusion Taiwanese entrepreneurs developed and perfected a model of how to manufacture for foreign buyers. The model they developed contains a number of elements that led to a comprehensive reorganization of the Taiwanese economy, making the Taiwanese economy into a demandresponsive economy, with the following features. The economy became organized around products that big buyers ordered, and services related to those products. For each product sets of competing core firms emerged; these core firms assembled and sometimes made key parts and then subcontracted components to other firms. This production strategy led to the development of clusters of firms and to internal markets for intermediate goods and services. These flexible networks supplying final and intermediate goods and services would expand when demand was great and would contract when demand was low. Typically, the product concentration led to a geographical concentration as well, because the production system relied on a just-in-time delivery of parts to the assembly location. The Taiwanese learned these techniques from Japanese, but perfected them in Taiwan. As overseas demand for products increased, product differentiation also increased. Product differentiation created concentric rings of manufacturing networks, networks that intersected across numbers of core manufacturers. These intersecting rings contained many niches for expansion and development of additional products and for supporting services. Buyer demand also led to rigid cost controls that fed back across all supporting sectors, which in turn created the continuing need

152

The Rise of Taiwan’s Demand-Responsive Economy

to rationalize production and upgrade products relative to big-buyer orders. As Taiwan’s entire economy became oriented to export production in response to buyer orders, it also became subject to economic trends in the US. Economic downturns and rising retail concentration in the US began to drive fluctuation in the Taiwanese economy, later prompting many Taiwanese businesspeople to move all or a portion of their manufacturing to mainland China. In mainland China, they reorganized their businesses in response to rapid increases in retailer orders. Taiwanese and Hong Kong businesspeople, in turn, played a crucial role in creating export-oriented capitalism in China. This brings us to our final point. It is our belief that the debates about the causes of East Asian industrialization need substantive revision. The current explanations are “supply-side narratives” that entirely ignore the role of intermediaries and of demand, as well as the demandresponsiveness that they helped to produce. Global retailers, and the reorganization of the global economy that retailers have helped create, have changed the way Asian economies fit into a global economic order. To miss these features of capitalist development is to miss some of the most important aspects of global capitalism today.

Notes This chapter is drawn from a book on which we are currently working, entitled Making Money: How the Asian Economy Works from an Asian Point of View. 1. For an exception, see Spulber (1996, 1999). 2. For a related discussion of this literature, as well as an analysis of the rise of capitalism in East Asia, see Hamilton (2006). 3. For a more complete discussion of the transformation of US retailing after World War II, see Feenstra and Hamilton (2006) and Hamilton, Petrovic and Feenstra (2006). 4. Feenstra and Hamilton (2006) and Hamilton, Feenstra and Petrovic (2006) describe these exports in detail through the use of disaggregated trade data collected by US customs. 5. During the decades after the American occupation of Japan ended, Japanese business groups grew at a pace much faster than Japan’s rapidly growing economy. In addition to selling finished products, the general trading companies for the main business groups imported intermediate goods needed by firms within the group. However, in the 1960s, as the main keiretsu firms grew more proficient in securing their own inputs and marketing their own products, many in Japan began to worry that the trading companies would lose their central role. This decline in local business “led to a belief that the trading companies would gradually become less and less useful and would eventually die out, a belief popularized in the so-called ‘demise theory’”

Gary G. Hamilton and Cheng-shu Kao

6.

7.

8.

9. 10. 11.

12.

153

(Kojima and Ozawa 1984, p. 13). This belief prompted most trading companies to internationalize their operations. Constance Lever-Tracy (2000) argues that Japanese trading companies had only a limited role in the development of East Asian economies outside of Japan. However her argument misses the important contribution that the Japanese trading companies made in creating competent suppliers in Taiwan and South Korea. The Kuomintang government, however, did not help in this matter. The government banned speaking Japanese in public, a law that was in force after 1947. The mainland migrants to Taiwan, of course, viewed the Japanese with dislike and distrust; and had after all fought a war against Japan. Taiwanese residents, however, did not experience World War II in the same way. Although they were not without hard feelings toward the former colonizers, local Taiwanese could deal with the Japanese without animosity. Among the top ten exports were two types of televisions, one type of radio, one type of integrated circuit for an unspecified final product, one type of Christmas tree lights and one type of mahogany plywood, as well as three types of clothing (acrylic sweaters, knit shirts, and trousers made from synthetic material) and one category of footwear (vinyl shoes), all for women and girls. The consumer electronic products were likely made in factories wholly or partially owned by Americans or Japanese, but the other products likely came from factories owned by Taiwanese. It was not until 1990, however, that most multinational manufacturers had withdrawn from Taiwan (Chu and Amsden 2003, p. 37). This number is, of course, sizable in its own right, especially as compared to Korea in the same period (Feenstra and Hamilton 2006, pp. 268–72). It is almost certain that the Tsai brothers owned other shoe companies in the region. At the time, the general pattern was to own multiple companies and thereby to be a part of multiple networks, instead of creating one big firm to vertically integrate the operations. Nike’s agreement with Pao Chen came after Nike had made a near disastrous attempt to contract production from Chinese firms in China. In the 1980s Nike located a manufacturer in China to make a large portion of their shoes, but the effort failed due to poor quality manufacturing and the lack of supporting suppliers. Then Nike returned their operation to Taiwan, and started to work with Pao Chen.

References Bluestone, B., P. Hanna, S. Kuhn, and L. Moore (1981) The Retail Revolution: Market Transformation, Investment, and Labor in the Modern Department Store (Boston: Auburn House Publishing Company). Chamberlin, E. H. ([1933] 1962) The Theory of Monopolistic Competition: A Reorientation of the Theory of Value, 8th edition (Cambridge, MA: Harvard University Press). Cheng, L. L. and Y. Sato (1998) “The Bicycle Industries in Taiwan and Japan: A Preliminary Study Toward Comparison between Taiwanese and Japanese Industrial Development,” Joint Research Program Series, No. 124 (Tokyo: Institute of Developing Economies).

154

The Rise of Taiwan’s Demand-Responsive Economy

Chu, W. W. and A. Amsden (2003) Beyond Late Development: Taiwan’s Upgrading Policies (Cambridge, MA: MIT Press). De Grazia, V. (2005) Irresistible Empire: America’s Advance Through TwentiethCentury Europe (Cambridge, MA: Belknap Press of Harvard University Press). Duan, C. (1992). Taiwan Zhanhou Jingji (The Economy of Post-War Taiwan) (Taipei: Ren Jian Publisher). Economist Intelligence Unit (1983) Japanese Overseas Investment (London, UK: The Unit). Feenstra, R. C. and G. G. Hamilton (2006) Emergent Economies, Divergent Paths: Economic Organization and International Trade in South Korea and Taiwan (Cambridge: Cambridge University Press). Fields, K. J. (1995) Enterprise and the State in Korea and Taiwan (Ithaca, New York: Cornell University Press). Gereffi, G. (1994) “The International Economy and Economic Development” in N. Smelser and R. Swedberg (eds) The Handbook of Economic Sociology (Princeton: Princeton University Press). Gereffi, G. and M. L. Pan (1994) “The Globalization of Taiwan’s Garment Industry” in E. Bonacich, L. Cheng, N. Chinchilla, N. Hamilton, and P. Ong (eds) Global Production: The Apparel Industry in the Pacific Rim (Philadelphia: Temple University Press). Gold, T. B. (1986) State and Society in the Taiwan Miracle (Armonk, New York: M. E. Sharpe). Hamilton, G. G. (2006) Commerce and Capitalism in Chinese Societies (London: Routledge). Hamilton, G. G. and C. S. Kao (forthcoming) “Making Money: How the Global Economy Works from an Asian Point of View.” Hamilton, G. G., M. Petrovic, and R. C. Feenstra (2006) “Remaking the Global Economy: US Retailers and Asian Manufacturers” in G. G. Hamilton (ed.) Commerce and Capitalism in Chinese Societies (London: Routledge). Hanchett, T. W. (1996) “US Tax Policy and the Shopping-Center Boom of the 1950s and 1960s,” American Historical Review, 101, October, 1082–110. Kao, C. S. and G. G. Hamilton (2000) “Reflexive Manufacturing: Taiwan’s Integration in the Global Economy,” International Studies Review, 3 (1), June, 1–19. Kao, C. S. and G. G. Hamilton (2006) “The Round Table: A Reconsideration of Chinese Business Networks” in S. L. Wong (ed.) Paradigms and Perspectives on Hong Kong Studies (Hong Kong: University of Hong Kong Press). Kojima, K. and T. Ozawa (1984) Japan’s General Trading Companies: Merchants of Economic Development (Paris: Organisation for Economic Cooperation and Development). Lee, S. H. and H. K. Song (1994) “The Korean Garment Industry: From Authoritarian Patriarchism to Industrial Paternalism” in E. Bonacich, L. Cheng, N. Chinchilla, N. Hamilton, and P. Ong (eds) Global Production: The Apparel Industry in the Pacific Rim (Philadelphia: Temple University Press). Lever-Tracy, C. (2000) “The Irrelevance of Japan” in D. Ip, C. Lever-Tracy and N. Tracy (eds) Chinese Business and the Asian Crisis (Hampshire, UK: Gower Publishing Limited). Levy, B. (1988) “Korean and Taiwanese Firms as International Competitors: The Challenges Ahead,” Columbia Journal of World Business, Spring, 43–51.

Gary G. Hamilton and Cheng-shu Kao

155

Levy, B. (1991) “Transactions Costs, the Size of Firms, and Industrial Policy: Lessons from a Comparative Case Study of the Footwear Industry in Korea and Taiwan,” Journal of Development Economics, 34, 151–78. Olson, L. (1970) Japan in Postwar Asia (New York: Praeger Publishers). Robinson, J. ([1933] 1969) The Economics of Imperfect Competition, 2nd edition (London: Macmillan). Spulber, D. F. (1996) “Market Microstructure and Intermediation,” Journal of Economic Perspectives, 10, 3 (summer), 135–52. Spulber, D. F. (1999) Market Microstructure: Intermediaries and the Theory of the Firm (Cambridge: Cambridge University Press). Taiwan Statistical Data Book (1977) (Taipei: Council for Economic Planning and Development). Wade, R. (1990) Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton: Princeton University Press).

7 Taishang: A Different Kind of Ethnic Chinese Business in Southeast Asia Hsin-Huang Michael Hsiao, I-Chun Kung, and Hong-zen Wang

Introduction Taiwanese transnational capital emerged in the mid-1980s, and its importance is now widely recognized by Taiwanese scholars in various disciplines. There has been an increasing interest in investigating the nature of this newly emerging transnational capital, which is considered to be different from the Western or Japanese forms. Studies of Taiwanese businesses (taishang) in Southeast Asia have concentrated on the domains of overseas investment patterns (T. J. Chen 1994, 1998; Y. C. Chen 1997; Lin 2002), industrial relations (Chan and Wang 2005; Kung 2002; Wang 2002), and ethnic relations and overseas Chinese networks (Hsiao and Kung 1998; Tseng 1999). Some scholars have noted that, to taishang, Southeast Asia is not only a geographical area, but also a cultural entity, and thus their investment behavior as a whole is embedded in the social contexts of the region. As latecomers to transnational capital in Southeast Asia, taishang demonstrate some distinguishing features (see also Shu 2000, 2001). Using taishang as the keyword to search title, abstract, and keywords in the database Zhonghua minguo qikan lunwen suoyin (Index of Republic of China’s journal articles), up to the end of 2006, there are over 500 entries. However, having checked one by one, only 37 articles have really dealt with taishang and Southeast Asia in a specified way. This shows that current research on the taishang of Southeast Asia has not gone beyond the general description of overseas investment, paid attention to the social context of the host country, or examined the social impact of overseas investment. Among these academic articles, about one-quarter are from the field of economics, focusing solely on overseas investment and location choice, taishang’s comparative 156

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

157

advantages in export, or the impact of economic change on taishang production. These studies have not considered the taishang as a social (human) subject that migrates to a strange new world so as to take advantage of local conditions and to engage in production. In addition, the rising power of the mainland Chinese economy in the past two decades has had an unexpected effect in attracting more Taiwanese investment to China. Unfortunately, existing economic studies have ignored the fact that investment in Southeast Asia since the 1980s has actually helped taishang to gain the necessary management skills for large-scale production, or for subsequent investment in China (Lim and Wang 2006). Research on taishang in China or Southeast Asia has often considered them to possess more social connections and economic resources than immigrants to Taiwan and, therefore, assumed that they would not encounter problems of adapting to lives in unfamiliar places. In addition it is often assumed that their social connections with ethnic Chinese in Southeast Asia would necessarily facilitate their business entries and practices, and that they are unlikely to run into too many local political and economic barriers (Wang 2008). Such an approach demonstrates that the existing literature has basically essentialized the ethnic economy, considers it to homogeneous and static, and pays inadequate attention to changes in the global economy and market forces. Therefore, this chapter will argue that the taishang phenomenon in Southeast Asia should be understood first in terms of its capital formation and special characteristics, and second in terms of the influence of the political economy of the host countries. We will tackle the issue of how the taishang have globalized their capital and business strategies to maintain their competitiveness in the world economy. It also explains how the taishang have reorganized their industrial production networks and how they manage labor relations in Southeast Asia. The information that feeds this chapter is drawn primarily from interview data collected in various research projects conducted by the three authors over the past decade. These projects include (1) “Taishang in Southeast Asia: Networks and Ethnicities,” a three-year project sponsored by the National Science Council between 1999 and 2002, which involved fieldwork in Malaysia, Indonesia, Thailand, Vietnam, and China; (2) “Exit: Cross-border Investment and the Local Embeddedness of Taishang in Asia Pacific,” sponsored by the National Science Council in 2002; (3) “Market and State Together? Changing Labor Relations in Taiwanese Companies in Southeast Asia,” financed by the Academia Sinica in 2001; (4) “Transnational Capital, International Migration

158

Taishang: Ethnic Chinese Business in Southeast Asia

and Ethnic Division of Labor: Labor Regimes in Vietnam’s Taishang Factories” and (5) “A New Paradigm or an Old Trick? Effect of Private Codes of Conduct on Industrial Relations in Vietnam,” supported by the National Science Council in 2001 and 2003–4, respectively. The fieldwork interviews were conducted with Taiwanese Business Associations, as well as taishang employers and managers in various Southeast Asian countries. The informants were selected from the membership list of the Taiwanese Chamber of Commerce in Malaysia, Vietnam, Thailand, Indonesia, and China, and from the Taiwan Directory of Overseas Firms published by the Ministry of Economic Affairs.

Reorganizing taishang production networks in Southeast Asia Investment by Taiwanese companies in Southeast Asia has grown significantly since the late 1980s, a phenomenon that has been attributed by many economists primarily to the changing economic environment in Taiwan. The abrupt appreciation of the Taiwan currency in the late 1980s caused problems for many export-oriented and labor-intensive local industries. In 1987, the New Taiwan dollar rose 22.4 percent (from NT$36.00 to NT$28.95) against the US dollar. This led to an increase in the average monthly wage in the manufacturing sector from US$353 in 1985 to US$821 in 1990 and then to US$1086 in 1992, which undermined the competitiveness of labor-intensive small-medium enterprises. Inevitably, overseas investment emerged as an alternative for such businesses. Since then, from being a meager investor in Southeast Asia before 1986, the taishang have emerged as the largest investors in the region. Between 1959 and 2006, Taiwanese companies ranked third in terms of investment in approved projects among foreign investors in Malaysia, third in Thailand, sixth in Indonesia, seventh in the Philippines, and third in Vietnam (Table 7.1). Before 1990, overseas investment from Taiwan was concentrated in Southeast Asia. As the political tensions between Taiwan and China eased at the beginning of the 1990s, and as China began to open up its economy and market, huge amounts of Taiwanese capital began to flow into China from 1991 (IDIC 2002). Most of this investment has gone into the manufacturing industry, which is the most competitive sector in Taiwan’s economy. As the official surveys of the Taiwanese government have repeatedly shown, the most important reason for moving factories abroad is the need to secure cheap labor.

Table 7.1

Taiwanese investment in Southeast Asian countries, 1959 to March 2007 (Unit: US$ million)

Year

Thailand Cases

Amount

Malaysia Cases

Amount

The Philippines

Indonesia Cases

Amount

Singapore

Vietnam Cases

Cambodia

Cases

Amount

Cases

Amount

Amount

Cases

1959–89

642

2,097.25

477

1,257.05

348

349.41

75

1,381.38

35

22.72

2

4.69

0

Amount

1990

144

782.70

270

2,347.83

158

140.70

94

618.30

10

47.60

8

135.80

0

0

1991

69

583.50

182

1,326.17

109

12.00

58

1,057.80

13

12.50

13

224.19

0

0

1992

44

289.90

137

574.70

27

9.10

23

563.30

11

8.79

15

615.80

0

0

1993

61

215.40

86

331.18

21

5.40

20

358.90

12

69.47

30

757.66

0

0

0

1994

88

477.50

100

1,122.76

42

199.15

48

2,484.03

19

171.19

55

575.48

2

1995

102

1,803.90

123

567.80

34

13.60

89

567.40

20

31.65

45

913.34

14

15.87 10.03

1996

66

2,785.20

79

310.40

22

117.11

111

534.60

54

165.00

47

478.62

34

163.73

1997

62

414.30

63

480.40

16

80.56

101

3,419.40

27

230.32

54

249.56

62

44.04

1998

69

253.60

74

263.40

19

30.48

91

165.20

56

158.18

62

258.15

25

138.51 55.39

1999

86

211.10

66

70.26

18

19.15

92

1,486.10

19

324.52

80

201.33

15

2000

120

437.41

92

241.07

10

5.42

82

134.54

40

219.53

135

403.33

15

18.85

2001

50

158.69

88

296.58

9

11.99

69

83.85

26

378.30

140 1,004.92

8

56.97

2002

41

62.93

64

66.29

22

236.35

50

83.18

27

25.76

198

511.82

4

6.82

2003

57

338.83

57

163.69

17

47.11

49

117.54

15

26.40

190

540.67

1

1.00

2004

53

268.53

78

109.09

11

29.52

41

68.87

18

751.78

171

562.53

6

4.60

2005

63

417.66

71

113.64

N.A.

25.30

43

133.39

16

97.68

187

570.59

4

4.19

2006

63

284.30

70

110.48

N.A.

38.05

27

218.62

18

806.30

125

241.61

1

16.44

13

9

10.36

1

0.49

18

101.80

1

5.99

1,172 13,486.76

437

3,548.18

1,575 8,351.89

192

542.43

2007 (1–3)

78.68

10

11.61

N.A.

N.A.

Total

1,893 11,961.38

2,187

9,764.40

883

1,370.40

Ranking

3

3

7

5

N.A.

3

3

10.1057/9780230251359 - Chinese Capitalisms, Edited by Yin-wah Chu

159

Source: ROC, Ministry of Economic Affairs, Department of Investment Services, “Statistics of Investments to ASEAN” [available in Chinese only] http://www. dois.moea.gov.tw/asp/relation3.asp, accessed August 6, 2007.

160

Taishang: Ethnic Chinese Business in Southeast Asia

Production networks enclave When Taiwanese enterprises moved into Southeast Asia, one of the strategies that allowed them to remain competitive was persuading suppliers in the same production network in Taiwan to move to the region as well, so that seemingly new production networks in Southeast Asia have, in fact, been transplanted from original production networks in Taiwan (Jou and Chen 2002). How the transplanted pattern of production network works depends on size and the business strategy of the enterprises and the business environment in the destination country. Nevertheless, an important asset of these newly established production networks is their “Taiwaneseness,” or the fact that they are mainly composed of enterprises of Taiwanese origin. Taiwanese businesses tend to work with other Taiwanese companies, to form an “enclave network” that is founded on past experiences in Taiwan and thus possessing Taiwanese cultural affinity. From the perspective of social embeddedness, these reconstructed overseas production networks are more or less ethnically closed. They serve to reduce transaction costs and the risks associated with an imperfect market mechanism, insufficient information, and the different legal and social systems in foreign countries. Not only do taishang rarely cooperate with indigenous Southeast Asian business to establish a production network, it is also very rare to find cooperation between taishang and local ethnic Chinese capital. If there is any, such cooperation usually takes place at the initial stages of investment when a taishang firm needs to understand local socioeconomic conditions. In addition, when taishang companies want to evade strict regulations on foreign investment, such as caps on the percentage of total shares that they can own, and land purchase restrictions, they use the names of local ethnic Chinese as “fake owners.” However these private agreements are very risky, and it sometimes happens that a taishang company or property registered in the name of a local Chinese person is appropriated. As time goes by, the “fake” cooperation model disappears as true cooperation among the taishang gains significance. Therefore, when we talk about ethnic Chinese cultural affinity, we must distinguish between the different kinds of business networks that are formed between new taishang and old ethnic Chinese business, which, despite conventional beliefs, are quite limited (cf. Gomes and Hsiao 2004a, 2004b). This is not to say that ethnic Chinese cultural affinity is unimportant for understanding taishang investment strategy, as the next section on “production relations” discusses. There are two major reasons why it is difficult for taishang and local ethnic Chinese companies to establish business networks in Southeast

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

161

Asia. First, their differing historical development paths have led them to adopt different business models. The taishang are more familiar with industrial capitalism, which has been the development strategy adopted in postwar Taiwan. The production of the taishang is mainly export-oriented, and emphasizes innovation, human resources, and new skills. In contrast, local Chinese businesspeople in Southeast Asia mostly specialize in businesses that can be liquidated quickly such as finance, trade, or services, so that they can move out swiftly whenever political risks arise (Chen and Liu 1998, p. 107; Tseng 1999, p. 9). Second, the development policies of the Southeast Asian states, which emphasize attracting foreign capital for industrialization, have produced a dual economy in which foreign capital, with its abundant capital and high level of technology, dominates the export sector—whereas indigenous businesses, with less capital and a lower level of technology, remain in the domestic market. This is especially prominent in Malaysia. Malaysian Chinese and indigenous companies usually have only weak links with foreign capital due to the differences in product quality, ways of doing business, and purchasing power, and are therefore only seldom incorporated into the production networks of foreign businesses. As a result, taishang companies find no synergy or benefit in networking with local Chinese businesses in Southeast Asia. Enlarging Taiwanese business When a taishang company starts to invest in a Southeast Asian country, it often quickly realizes that it is difficult to find a local business partner who can provide high-quality and low-price products that are delivered on time, and thus it internalizes production within the group of Taiwanese suppliers that were previously its subcontractors in Taiwan. The enlargement of the scale of operations is the most important feature of the taishang in Southeast Asia, and is the major mechanism by which they continue to accumulate capital. Coming as they do from a semiperipheral country, the position of the taishang in the global commodity chain constrains their overseas investment strategies, timing, and choice of location. However, when buyers in the core countries press the taishang to reduce costs, taishang are obliged to use overseas investment as a strategy to ward off such pressure due to the increasing cost of domestic labor and land in Taiwan. This is different from the situation with Western overseas investment, which is the result of long-term planning backed by abundant financial capital and human resources (Jou and Chen 2002). The overseas investment strategy of the taishang has been termed a “passive and defensive globalization” strategy by Taiwanese scholars (T. J. Chen 1998; Chen and Chen 1998). To compete globally, small

162

Taishang: Ethnic Chinese Business in Southeast Asia

and medium-sized enterprises (SMEs) in Taiwan that produce laborintensive products need to reduce their costs, and increasing the economies of scale to reduce unit costs is an important strategy that allows them to maintain a competitive edge. Amsden and Chu (2003) contend that the core competitiveness of Taiwanese enterprises lies in their ability to swiftly expand their production capacity to a large scale, such that they can beat their competitors and consolidate their dominant position in the global commodity chain. It is cross-border investment that allows Taiwanese SMEs to increase their production scale so rapidly. In this way, a company that in Taiwan hires no more than a hundred workers can expand to employ more than a thousand workers abroad. For Taiwanese SMEs, their overseas investment experience in Southeast Asia often turns out to be the first step toward globalizing their business. Sharing industrial zones with international brand name companies buys them a place in foreign production networks in which they supply components and intermediary goods to US and Japanese transnationals. In the process, they learn new business models and practices that were absent from their domestic production experience, which enhances their production skills and ability to conduct business globally. Experiencing business enlargement and globalization in Southeast Asia helped the taishang to set up business in China in the later stage of Taiwan’s overseas investment in the early 1990s. One of the main factors that attracts foreign capital to China is the country’s unlimited supply of cheap labor, and the mass employment of China’s domestic migrant workers in taishang factories has helped the taishang to achieve even better economies of scale. Indeed, with the help of subsidiaries in Southeast Asia and China, many taishang companies have become the world’s largest producers of specific products, such as notebook computers, motherboards, and mobile phones (Jou and Chen 2002; Lin 2002). Until the 1980s, Taiwan mainly supplied original equipment manufacturing (OEM) industries, but has since then gradually moved to the upper scale of the global commodity chain. Many scholars have pointed out that OEM not only involves the division of labor between core and peripheral countries, but also serves as a channel through which new skills are acquired. Suppliers in the commodity chain acquire technology and managerial skills from the buyers in the core countries (Chao 1998; Cheng 1999; Cheng and Hsu 2002; Lin 2002), a trend that we also witnessed in our fieldwork research. It takes six months to two years for Taiwanese subcontractors to be accredited by buyers. During this period, engineers are stationed by the buyers in the factory to transfer the relevant skills, examine the product quality, labor processes, and factory management until the accreditation certificate

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

163

is issued. The spillover effect of gaining recognition from one big buyer is that other buyers will also recognize the certificate, which allows the Taiwanese subcontractors to expand their business opportunities. For example, after one taishang was accredited by Dell, other buyers recognized the certificate and subsequently adopted the company as a supplier. Therefore, through cross-border investment and subcontracting for core companies, taishang have successfully organized the economic and human resources of the host countries to promote their own productivity, extend their production scale and potential buyer pool, and consolidate their position in the global commodity chain. The taishang can thus be said to be acting as a semi-peripheral middleman between core and peripheral economic resources. Table 7.2 presents the historical development of Taiwanese overseas investment, and clearly shows the significant move between the 1960s and the 1990s from the operation of single production bases in Taiwan to triangle manufacturing in several different countries. The marketing and R & D functions of the taishang are still based in their headquarters in Taiwan, but the major production bases are now in China, along with some R & D, with many of the subsidiaries in Southeast Asia running independent marketing, R & D, and production functions. It can be Table 7.2 Regional division of labor in Taiwanese transnational companies since the 1960s Region

Year 1960~

Mid-1980s~

1992~

Taiwan

Securing orders Operational HQ Manufacturing Securing orders R&D Overseas production coordination

Operational HQ Securing orders R&D Overseas production coordination

Southeast Asia

–

Manufacturing

Starting to secure orders Small-scale R & D Production lines partly moved out

China

–

–

Mass production R&D

The United States – and Europe

–

Warehouses for global logistics

Development stage

ODM

Global logistics management

OEM

Source: Compiled from fieldwork data collected by the authors.

164

Taishang: Ethnic Chinese Business in Southeast Asia

seen that this triangle is mutually supportive, and no area is left to rely on one specific market or product. The products that Taiwanese suppliers make for Western buyers are mostly labor-intensive, involving medium-level technology; such as apparel, footwear, or information technology products. It is often suggested that this kind of subcontracting and the manufacturing of products that are based on low labor costs will inevitably be taken over by other countries with even lower labor costs. As one interviewee described, “It is not difficult at all to produce a keyboard. You just have to take it apart and understand its internal structure. There are very few barriers to this industry.” However latecomers will find it hard to surmount the systematic barrier that is built up by the synergy of R & D, production procedures, economies of scale, and service provision. The taishang understand this competitive advantage well. Such a systematic barrier began to form in the 1960s when Taiwan was incorporated by the First World into the global production chain. The production scale of the taishang progressed from small to medium, and nowadays can be described as large, and their production capacity has become indispensable to the functioning of the global production chain. Taiwan’s semi-peripheral economy is now linked with core economies such as the US, Europe, and Japan, a position that cannot be easily replicated by other countries. Another competitive advantage of the taishang is that, because of their production scale, latecomers are not able to compete to secure orders from Western buyers. It is almost impossible for a newly established company to produce millions of keyboards or sporting shoes per month. One taishang owner candidly stated that, “To enter this market, you need a large scale production capacity and high quality to be able to survive. It is very difficult to have such scale, such a system, and such quality when one enters the market.” Economies of scale are also important for the vertical integration of different companies into an industry. For example, mass production enables footwear producers to support upstream suppliers to develop and supply cheaper and better quality components, which in turn helps footwear producers to strengthen their competitiveness in terms of price, quality, and delivery. There are two commonly held viewpoints on Taiwan’s economic future. The first is that, because of the new international division of labor, overseas Taiwanese investment is driven by low labor costs, and thus in the future Taiwanese capital will move to lower-cost destinations, just as it has done in Southeast Asia and China. Contrarily, the second thesis postulates that China’s economic development will soon allow it to replace Taiwan in the global economy. Both views can be questioned

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

165

on the following grounds. First, labor costs are not the only factor influencing the overseas investment decisions of Taiwanese companies, and thus Taiwanese capital will not necessarily withdraw from Southeast Asia and transfer to China or other regions. Second, it will be difficult for China to replace Taiwan’s role in the global production chain. By coordinating different production sites in China and Southeast Asia and through their capacity to reproduce an efficient and market-responsive production network anywhere, the taishang will be able to maintain their established business networks with their long-term buyers in the core countries, a position that Chinese firms are unlikely to be able to replicate in the foreseeable future. Thus, production networks based on cultural affinity with ethnic Chinese human resources and a large production capacity have ensured the competitiveness of the taishang in the world market in the last two decades. Another important point to note is that enlargement brings about not only a change in industrial network structures, but also a change in internal managerial structures. Before transnationalization, Taiwanese companies in Taiwan were usually small- or medium-sized, each with a staff of just a few dozen workers.1 Upon their move into Southeast Asia and the mass employment of workers, these companies have found it necessary to hire more managerial staff to manage and restructure production lines, which are now totally different from those back home in Taiwan. The internal organizational structure of the taishang companies is no longer characterized by simple boss–worker relationships, but involves more middle layers. In addition, the employment of workers of different ethnicities from the host country in the same factory has forced the taishang to adopt new management styles and approaches.

Restructuring taishang production relations in Southeast Asia Mobilization of the ethnic Chinese managerial class Another unique feature that distinguishes the taishang from other transnational businesses from the core countries is that all the owners speak Mandarin or a Minnanese language, which helps them to build links with overseas ethnic Chinese communities in many of the host countries in Southeast Asia. The data that we collected shows that the ethnic Chinese play an important role in the initial stages of taishang business establishment in the region. As most taishang cannot speak fluent English or the local language, they have to rely on local ethnic Chinese and their relatives, friends, or customers to mediate their initial investment, handle

166

Taishang: Ethnic Chinese Business in Southeast Asia

official documents, and even to help manage the company. For example, taishang companies may need to engage with local civil servants to buy land, apply for a license to build a factory, or obtain approval for operations; these would be impossible without the help offered by the local ethnic Chinese, as they would be unable to communicate with the relevant bureaucrats and officials. To mobilize ethnic Chinese human resources, many taishang also recruit ethnic Chinese employees from other countries in the region, such as China, Malaysia, or Singapore (Wang 2007). Ethnic Chinese of different origins usually occupy different positions in Taiwanese companies in Southeast Asia, earn different wages, and are subject to different forms of discipline from the management (Kung and Wang 2006). Southeast Asian ethnic Chinese can be considered a kind of social resource that helps to link the taishang with individual Southeast Asian markets. However this does not mean that all overseas Chinese are included in this mobilization. Many scholars point out that an important characteristic of ethnic Chinese businesses in Southeast Asia is their networking activity. The taishang initially joined these Southeast Asian ethnic Chinese networks following their mass investment in the region in the mid-1980s, but have since then gradually built up their own types of economic networks. The center of such networks is the industrial capital of the taishang, which they have used to mobilize the local ethnic Chinese networks to achieve their economic goals. In addition to providing them with employment and establishing cooperative relationships with them, the taishang have also mobilized local ethnic Chinese managers to work for them in other Asian countries. For example, the Taiwanese company Hualong has a subsidiary in Malaysia, and when it began to invest in Vietnam, it recruited Malaysian Chinese to work in Vietnam instead of sending Taiwanese managers directly from Taiwan. These taishang-centered networks were virtually constructed around various globalized production sites in different countries, and thus differ from the traditional trade-based Chinese networks in Southeast Asia. Taishang factories in Southeast Asia usually employ an ethnically diverse labor force. In Malaysia, for example, the three major ethnic groups—the Malays, ethnic Chinese, and ethnic Indians—habitually work together, and since the labor shortages that began in 1990 they have been joined by migrant workers from Bangladesh and Indonesia (Kung 2002). The situation is the same in the taishang factories in Vietnam, where Vietnamese workers are supervised by managers from China, rather than Taiwan or Vietnam (Wang and Hsiao 2002). In this multicultural working environment, both the hierarchy of power and the division of labor are different from the norm.

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

167

Table 7.3 Ethnic division of labor in taishang companies in Malaysia and Vietnam by ethnic group Positions in factory Owner and top managers

Administrative managers

Malaysia Taiwanese, with some local ethnic Chinese with “Taiwanese connections” Local ethnic Chinese with “Taiwanese connections”

Low-ranking managers, technicians or supervisors

Local ethnic Chinese

Blue-collar workers

Mainly migrant workers, some Malays

Vietnam Taiwanese

Local ethnic Chinese, mainland Chinese professionals Mainland Chinese professionals, a few Vietnamese Mainly Vietnamese, some local ethnic Chinese

Source: Research data collected by the authors.

Table 7.3 clearly demonstrates that the employees who occupy the top positions in taishang business are mainly Taiwanese, although in some cases in Malaysia, they are local ethnic Chinese. It is important to point out that the ethnic Chinese that occupy these important positions are not just any local Chinese, but are those who have studied in Taiwan as qiaosheng (overseas Chinese students). In contrast, most of the mainland Chinese who work for the taishang are hired as factory heads or middle-level managers. Apparently, the taishang prefer to recruit local ethnic Chinese with Taiwanese connections, rather than mainland Chinese, into the upper echelons of management. Other ethnic Chinese who work in administrative functions normally occupy middle- to lower-level management positions in accounting, finance, or purchasing. They are usually supervised by Taiwanese senior managers, who are not necessarily familiar with how the production lines really work. As the taishang need interpreters to communicate with the local workers, these local ethnic Chinese administrators become indispensable to the functioning of the production facility, and come to occupy better positions in the company than other local staff members. Again, the taishang prefer to hire local ethnic Chinese who have studied in Taiwan for these positions if possible. One taishang told us: The way of thinking of students who have graduated from the American or European schools is very different from ours, and the barrier does not only lie in the language. The difference may have resulted from

168

Taishang: Ethnic Chinese Business in Southeast Asia

cultural differences. … There are more than twenty engineers in the technical department, and all of them graduated from Taiwanese colleges. There were once some MBA engineers who had graduated from the UK and the USA, but they stayed here only for a short period of time. In contrast, most of the engineers who are graduates of Taiwanese universities work in our company for a long time. Experience of living in Taiwan and familiarity with Taiwanese society and culture are the key factors that explain the popularity of Taiwanesetrained local ethnic Chinese among the taishang in Malaysia. Most of the local ethnic Chinese engineers employed by the taishang have lived in Taiwan for more than four years, and can easily acclimatize themselves to the work ethic that is expected; namely, to work hard and take few holidays. The importance of this first-hand knowledge learned from living in Taiwan contradicts what is postulated by the human capital theory, which depicts a person’s ability as deriving only from education and skills. If the local taishang cannot find suitably Taiwan-connected managers, then mainland Chinese may be an alternative, especially as they tend to be paid less. The taishang have thus generated a large ethnic Chinese skilled labor market in Asia. Employing staff from mainland China to work as middle-level managers has become a common human resources management practice among the taishang in Southeast Asia, given the lower salary cost of these workers compared to Taiwanese expatriates and their language proficiency. Mainland Chinese are attracted to work overseas by the higher incomes offered by the taishang companies, and are recruited through three channels: internal corporate transfers, social networks, and placement agencies (Wang 2007). Finally, the major objective of the taishang in Southeast Asia is to build a production facility within as short a period of time as possible to meet their buyers’ demands for lower prices and better quality. The taishang utilize all possible means to mobilize both local and foreign resources to achieve this objective, and in this situation the employment of local ethnic Chinese professionals is highly desirable. The hiring of ethnic Chinese by the taishang can thus be viewed as a way of mobilizing ethnic resources. Authoritarian labor control Southeast Asia is a multiethnic society, and most taishang employ workers from a number of ethnic groups. It is this distinct situation that gives rise to another characteristic of the transnational taishang companies: their use of an authoritarian management style to control their labor. The taishang prefers to employ workers who will “accept

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

169

subordination,” such as Bangladeshi migrant workers in Malaysia or female migrant workers in Vietnam and China. To keep industrial relations in check on the shop floor, the taishang usually employs rather coercive means of disciplining workers of different origins. However this should not be mistaken as an extreme measure as depicted in the hegemonic model described by Burawoy (1985). The labor control practices that are imposed by the taishang on migrant workers in Malaysia cannot be applied to local Malay workers. For example, Bangladeshi migrant workers usually have to work for more than 12 hours a day, and 16 hours is not unheard of. They live in the factory compound, and their daily activities are under strict surveillance. If these workers cannot finish the work that is required of them in the allotted time, then the taishang managers will demand that they stay back to finish it. In contrast, taishang or Malaysian Chinese managers must choose their words carefully when talking to or persuading local Malays or ethnic Chinese to work. Managing Bangladeshi workers “is much easier; you just push them. Just press and press. When I set them a target to achieve, well, they have to reach the goal, no matter how difficult it is.” According to one taishang manager we interviewed, such workers have to work from 8 a.m. to 11 p.m. for the entire year, and they cannot ask for sick leave. Another taishang boss stated even more explicitly: “I told them, ‘give me two thousand pieces tomorrow. If not, I will cancel your residence permit status and send you back.’ I don’t need to remind them to work overtime. It’s enough to scare them to work hard.” Other than threatening to send the workers back home, the taishang also manipulate the wage structure to control migrant workers. One taishang owner described this vividly: The wage is structured into five parts: basic wage, full attendance bonus, efficiency bonus, nightshift bonus and overtime work wage. Do you know how low their basic wage is? Only ten-something Ringgit! If they do work hard overtime, they can earn about thirteen hundreds or more. If they do not follow, they will get no overtime work, and their monthly wage will be about four hundred only. How could they survive with such little money to pay their living cost, and the debt they owe at home for overseas work? I don’t fire them, nor will I send them back. After one or two months, they will come to me and ask for more work. Then, they will show their obedience to me. (Kung and Wang 2006)

170

Taishang: Ethnic Chinese Business in Southeast Asia

In Vietnam, taishang footwear factories employ a large number of female workers, as was the case in Taiwan, South Korea and Hong Kong in the 1960s and 1970s. A clear division of labor on gender lines is practiced; the sewing, gluing, and quality control work are carried out mainly by female workers, while the packaging, loading, and raw material production are undertaken by male workers. The male labor force constitutes only a small fraction of the entire workforce in the factory. The standard explanation offered by the taishang for the “feminization” of the labor force is that the Vietnamese society is a matriarchal society; Vietnamese women have to take care of the family, and are therefore able to put up with the working pressure that is imposed on them, whereas Vietnamese men are “lazy, useless, and not able to work under stress.” However if we look at the labor process in these taishang factories, we find the reason to be otherwise. Female workers are preferred by the taishang in Vietnam because they are more submissive than men to the company labor control mechanisms. Working hours in Taiwanese factories are normally long, sometimes up to 12 hours a day.2 We also found in one of the factories where we conducted interviews that workers are only allowed to go to the washroom three times a day; they must take a card whenever they use the washroom, and only three cards are issued on a production line at any one time. Engaged as they are in labor-intensive industries, taishang try to extract the maximum labor value by imposing an authoritarian management style. Labor control in Vietnam is imposed through a clear ethnic division of labor: the top managers are Taiwanese, professionals hired from mainland China occupy the middle-level management positions, and the Vietnamese work on the shop floor (see Table 7.3). Many taishang invested in the footwear industry in China in the early 1990s, thereby creating a pool of low- to middle-level managers in China trained in the taishang way. When the Taiwanese footwear industry shifted its investment to Vietnam in the mid-1990s, these managers were later mobilized to work in Vietnam. The widely reported militarist management practices that the taishang employed in China were therefore transplanted by the mainland Chinese managers to Vietnam. During our research, we often heard complaints from Vietnamese workers that mainland Chinese supervisors or shop floor managers shout at them or scold them. We also heard of a case where a Taiwanese top manager transferred from China asked his mainland Chinese managers to get up at 4:30 a.m. to go jogging and made them line up under the scorching sun before lunch, which eventually resulted in a strike. Some Taiwanese top managers admitted that although they have refrained from using

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

171

authoritarian management control in Vietnam, they still cannot stop protests by Vietnamese workers. One taishang manager stated: It is too much of a luxury and too early to talk about [labor] human rights in Vietnam. [Sighs]. You have seen our factory, and if you go to their home you can’t imagine what it looks like. It is very ironic. We Taiwanese have already gone through this stage in the past and understand what it was. The key point right now is how to make everyone rich. Strong human rights [for workers] will not make a nation wealthy. They protect workers too much, and they [workers] demand their rights too much. A country with US$370 GDP per capita wants to have the same human rights as in a country with US$10,000 GDP per capita; that is not reasonable. In Vietnam, you can’t even touch Vietnamese workers, let alone abuse them. The manager of a large taishang sports shoes company even commented that his industry basically rests on a patriarchal form of management. Many Taiwanese managers learned to make shoes through an apprenticeship, and the only form of management that they have ever learned in Taiwan is to scold. Indeed, they equate “management” with “scolding.” When this authoritarian management style is confronted with resistance from Vietnamese workers, and male workers especially, this is countervailed by the management accusing these Vietnamese men of laziness and of a lack of interest in working hard. It is for these reasons that the conforming and docile female workers are much preferred by the taishang for their operations in Vietnam, and this has nothing to do with the “matriarchal society” rationale. The construction of Vietnamese society as a matriarchal society is, in fact, a “patriarchal discourse” on the part of the taishang to enforce and maintain their labor regime.3

Concluding remarks The taishang, as a modern capitalist development in Asia, are Taiwanese businesses that have been investing globally since the mid-1980s. Global economic change since the mid-1980s, especially after the Plaza Agreement, has forced Taiwanese companies to seek other means by which their accumulation of capital can be continued. Southeast Asia and the next big investment destination—China—have become strategic regions for the taishang in pressing ahead with their global production plan. The US is no longer the most important trading

172

Taishang: Ethnic Chinese Business in Southeast Asia

partner: it is Southeast Asia and China that have emerged as the most significant areas for the taishang. In tracing the history of the overseas investment of the taishang, it becomes clear that most started out as SMEs, which contradicts the commonly held belief that SMEs have insufficient capital, human resources, or management capacity to proceed with overseas investment. This “rational economic model” apparently does not apply to taishang SMEs after the mid-1980s, which took on the mantle of overseas investment until larger taishang became involved in the early 1990s. This succession pattern of overseas investment is quite different from the course of US or Japanese overseas investment (Cumings 1984; Hsiao and Kung 1998). The rise of the taishang is, of course, a consequence of global capitalist development. As latecomers to transnational business from a semiperipheral state, the position of the taishang in the global division of labor is certainly different from that of transnational companies from the core states, and their paths to globalization are different. In this chapter, we discussed the historical process of taishang investment and analyzed the characteristics of the taishang’s reorganization of industrial production networks to allow expansion and the massive upscaling of production. The taishang also represent a form of transnational capital with a distinct cultural trait, given their cultural affinity with Chinese human resources, which has helped them to mobilize ethnic Chinese human resources all over Asia to support their production networks in various countries. An additional characteristic of the taishang network is the coordination of a host of Taiwanese firms to generate the final product, which has led to the creation of Taiwanese production network enclaves that seldom cooperate with local Chinese business. These characteristics set the taishang outside the discussions of overseas Chinese business networks in the literature. This chapter also demonstrated that the mobilization of ethnic Chinese human resources and the practice of authoritarian labor control have helped the taishang to consolidate and sustain their competitiveness in the contemporary world production system. The taishang have undoubtedly emerged as distinct ethnic Chinese transnational business entities in the modern capitalist world. Finally, it is essential to emphasize again that the development of Taiwan’s semi-peripheral economy has resulted from the combination of economic, social, and human resources from Taiwan, Southeast Asia, and China. It crosses boundaries and is truly global in nature. The ability to respond quickly to market demand, efficient and flexible production, and unique production networks have all helped the taishang to

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

173

remain competitive in the volatile world market. The taishang’s role in the global production chain cannot be easily displaced by business networks from other countries, as this distinct business structure is embedded in a very complex socioeconomic context.

Notes 1. A “large company” in the manufacturing sector, according to the definition of the Taiwanese government, is one that hires more than 200 workers. 2. Compared to the working conditions in the Zhujiang delta in southern China, the working hours in Vietnam are significantly shorter. For further comparisons between Taiwanese factories in China and Taiwan, see Chan and Wang (2005). 3. For a discussion of management practices and discourses on Vietnamese society, see Wang (2004).

References Amsden, A. H. and W. W. Chu. (2003) Beyond Late Development: Taiwan’s Upgrading Policies (Cambridge, MA: MIT Press). Burawoy, M. (1985) The Politics of Production: Factory Regimes under Capitalism and Socialism (London: Verso). Chan, A. and H. Z. Wang (2005) “The Impact of the State on Workers’ Conditions—Comparing Taiwanese Factories in China and Vietnam,” Pacific Affairs, 77 (4), 629–46. Chao, Y. W. (1998) “The Positive Effect of OEM on Taiwanese Electronic Firms,” Sun Yat-sen Management Review, 6 (4), 1113–36 (in Chinese). Chen, H. and T. J. Chen (1998) “Network Linkage and Location Choice in Foreign Direct Investment,” Journal of International Business Studies, 29 (3), 445–68. Chen, H. and M. C. Liu (1998) “Non-economic Elements of Taiwan’s Foreign Direct Investment” in T.-J. Chen (ed.) Taiwanese Firms in Southeast Asia: Networking Across Borders (Northampton, MA: Edward Elgar Publishing). Chen, T. J. (1994) “FDI by Small and Medium-Sized Enterprises form Taiwan: A Survey of Parent Firms,” paper presented at the Workshop on Taiwan’s Small and Medium-Sized Firms’ Direct Investment in Southeast Asia at the ChungHua Institute for Economic Research, Taipei, November 18–19. Chen, T. J. (1998) Taiwanese Firms in Southeast Asia: Networking Across Borders (Northampton, MA: Edward Elgar). Chen, Y. C. (1997) Investment and Regional Development of Newly Industrial Country: The Political Economy of Taiwanese Business in Malaysia (MA thesis for the Graduate Institute of Building and Planning, National Taiwan University) (in Chinese). Cheng, L. L. (1999) “The Invisible Elbow: The Semi-periphery and the Restructuring of International Footwear Market,” Taiwan: A Radical Quarterly in Social Studies, 35, 1–46 (in Chinese).

174

Taishang: Ethnic Chinese Business in Southeast Asia

Cheng, L. L. and J. Y. Hsu (2002) “Revisiting Economic Development in PostWar Taiwan: The Dynamic Process of Geographical Industrialization,” Regional Studies, 36 (8), 897–908. Cumings, B. (1984) “The Origins and Development of the Northeast Asian Political Economy: Industrial Sectors, Product Cycles, and Political Consequences,” International Organization, 38 (1), 1–40. Gomes, T. and H. H. M. Hsiao (eds) (2004a) Chinese Business in Southeast Asia: Contesting Cultural Explanations, Researching Entrepreneurship (London: RoutledgeCurzon). Gomes, T. and H. H. M. Hsiao (eds) (2004b) Chinese Enterprise, Transnationalism and Identity (London: RoutledgeCurzon). Hsiao, H. H. M. and I. C. Kung (1998) The Business Networks between Taiwanese Business and Southeast Asian Chinese, PROSEA Occasional Paper No. 18, Taipei: Program for Southeast Asian Area Studies, Academia Sinica (in Chinese). IDIC (2002) “Taishang zai dalu touzi gaikuang” (Taiwanese Investment in China), http://www.idic.gov.tw/html/c3409.html, accessed April 27, 2007. Jou, S. C. and D. S. Chen (2002) “Latecomer’s Globalization: Taiwan’s Experiences in FDI and Reproduction of Territorial Production Networks in Southeast Asia” in H. H. M. Hsiao, H. Z. Wang and I. C. Kung (eds) Taiwanese Business in Southeast Asia: Network, Identity and Globalization (Taipei: Asia-Pacific Research Program, Academia Sinica) (in Chinese). Kung, I. C. (2002) “Transnational Capital, Ethnicity and Labor Control: Taishang in the Malaysian Laboring System,” Taiwanese Sociology, 3, 253–89. Kung, I. C. and H. Z. Wang (2006) “Socially Constructed Ethnic Division of Labor: Labor Control in Taiwan-owned Firms in Malaysia and Vietnam,” International Sociology, 21 (4), 580–601. Lim, K. T. and H. Z. Wang (2006) “Yimin yanjiu de zhishi shehuixue koacha: yi dongnanya taishang yu hunin yimin weili” (Sociological analysis of migration studies in Taiwan: comparison of taishang and marriage migrants) in Z. F. Shi (ed.) Guojia rentong wenhua lunshu (Discourses on National Identities) (Taipei: Taiwan Guoji Yanjiu Xuehui). Lin, C. P. (2002) “Corporate Transformation and Spatial Interaction Process of Taiwan Business’ Foreign Direct Investment: A Case Study of Taiwan Electronic Firms in Penang, Malaysia” in H. H. M. Hsiao, H. Z. Wang and I. C. Kung (eds) Taiwanese Business in Southeast Asia: Network, Identity and Globalization (Taipei: Asia-Pacific Research Program, Academia Sinica) (in Chinese). Shu, M. L. (2000) Proceedings of the Conference on Taiwanese Enterprises in Southeast Asia: Experiences in Singapore, Malaysia, Indonesia, and the Philippines (Taipei: National Taiwan University) (in Chinese). Shu, M. L. (2001) Proceedings of the Conference on Taiwanese Enterprises in Southeast Asia: Experiences in Vietnam and Thailand (Taipei: National Taiwan University) (in Chinese). Tseng, T. F. (1999) “Foreign Capital and Ethnic Relations: Taiwanese Business in Indonesia,” paper presented at the Conference on Foreign Investment of Taiwanese Business: Perspectives of Economic Sociology, Department of Sociology, National Taiwan University, September 9 (in Chinese). Wang, H. Z. (2004) “Othering Discourses, Business Practices and Local Resistance: Case Studies from Taiwanese Factories in Vietnam,” Taiwan Journal of Southeast Asian Studies, 1 (2), 37–64.

Hsin-Huang M. Hsiao, I-Chun Kung, and Hong-zen Wang

175

Wang, H. Z. (2008) “China’s Skilled Labor on the Move: How Taiwan Businesses Mobilize Ethnic Resources in Asia,” Asian Survey, 48 (2), 265–81. Wang, H. Z. and H. H. M. Hsiao (2002) “Social Capital or Human Capital? Chinese Professionals in Overseas Taiwan Company,” Journal of Contemporary Asia, 32 (3), 346–62.

8 A Spell Breaker: The Dynamism of the Koo Family Tsai-Man C. Ho and Wenbin Sun

Introduction The Koos are an old family of great wealth and power in Taiwan who have been thriving for four generations, challenging the widely known and often-verified Chinese saying that “family fortunes never last more than three generations.” Studying this family provides us a unique opportunity to probe into the source of its dynamism. The metamorphosis from a family business into a business conglomerate echoes the theme of this collection—the development of Chinese capitalism. In his seminal work on the Chinese family enterprise, Wong (1985) points out that the “essence of Chinese economic organization is familism.” Family-owned enterprises were and still are the most popular modes of economic organization as well as the dominant force of economic development in Chinese societies. He builds a model of the evolution of a Chinese family firm; beginning with its formation, and then describing the firm’s developmental cycle—consisting of an emergent, a centralized, a segmented, and a disintegrative phase. In the first phase, the self-made entrepreneur, without enough capital, often relies upon his family members to pool resources together to start a business. The family enterprise thus enters into the emergent stage. The second phase of the model is concerned mostly with the steps taken by the entrepreneur, usually a father and the head of the family enterprise: the father-entrepreneur, with the success of the business, gradually comes to control the decision-making power, and the firm enters the centralized phase. When the father-entrepreneur relinquishes all control over the family business to his heirs, the segmented family usually still keeps the family enterprise as a unit but the decision-making power is decentralized. The person running the firm 176

Tsai-Man C. Ho and Wenbin Sun 177

is more of a caretaker than an innovator in terms of reinvestment and risk-taking. This phase of the development, the segmented one, usually leads to the division of the family enterprise, which thus enters the final disintegrative stage. In reality, family enterprises do not necessarily venture through the full cycle. Some may never reach the second phase, and some develop from the third phase into the second one again instead of the fourth phase. Apart from their internal transitions, family enterprises are bound to be influenced by many external factors, which could also alter the developmental cycles of the enterprises. All of these considerations beg for a serious investigation into the following questions: Why are some family enterprises more dynamic than others? How receptive is an enterprise’s business culture to innovative ideas? What impact will political turbulence have on the development of family enterprises? This chapter examines several critical advances that have transformed the Koo family business and have allowed its family members to exhibit their entrepreneurial talents, thus providing some preliminary answers to the above questions. Compared with the other four big families in Taiwan, the rise of the Koo family has been controversial. This is because the family is considered to have had a long collaboration with various authorities, to advance familial interests, and therefore the reputation of the family and the true reasons behind its success are in question (Szu-Ma 1998; Tu 1992; Yanaihara 2003).1 Previous studies on the relationship between the Koos and various governments have shed light on the sociopolitical background that has shaped the development of Taiwanese enterprises, but have not revealed the dynamic interaction between the government and the business. For instance, a favorable political contact does not necessarily ensure profitable business operations, and there are always challenges and uncertainties when the political regime changes. Political networks may partially explain the success of the Koos, but make up only one of the external factors that affect the rise or survival of prominent family enterprises like the Koos. The ruling socio-business culture is another important external factor. Any entrepreneur has to be very careful about what action to take since he or she is about to do something fundamentally new. Not only does the entrepreneur face tremendous uncertainty concerning how to proceed, he or she is obliged to take a huge business as well as moral risk. Of course, there are also a great number of internal factors that have supported the family’s sustained prosperity over four generations. These draw our attention to the concrete ways in which these entrepreneurs have located and exploited opportunities.

178

Dynamism of the Koo Family

By closely examining the expansion of the Koo family, a pattern of innovation gradually comes to light—each generation of the Koo family has taken the lead or changed customary practice, often when key economic institutions in Taiwan were in transition or property rights were obscure. It is these innovative advances—the very essence of entrepreneurship—upon which this chapter focuses. The remainder of this chapter is organized as follows. The first section discusses the sources of entrepreneurship, and explores the dynamic relationships among the government, entrepreneurs, and society in relation to entrepreneurial activities. Much of the text is then devoted to examining the relationship between the government’s role in securing property rights and the rise of the Koos. The third section focuses on issues related to innovation and risk, and in the fourth part the discussion turns to the question of how each generation of the Koos has enhanced the legitimacy of their innovations, to eliminate risk factors.

Literature review: Sources of entrepreneurship, legitimacy, and risk Is entrepreneurship a matter of individual capability, or a socially grounded construction? What is the source of entrepreneurship? Thornton (1999) classifies the studies of entrepreneurship in the literature into two schools: those that take the supply-side perspective and those that take the demand-side perspective. According to her framework, the former school focuses on the individual traits of an entrepreneur, whereas the latter emphasizes the push–pull factors of the social and political environments. This duality is reflected in most studies of entrepreneurship. Jones and Wadhwani (2006) highlight that although the older generation of entrepreneurial studies placed too much stress on the deterministic role of history and the social environment, newer scholarship has focused exclusively on entrepreneurial behavior and has largely ignored the broader context in which entrepreneurial actors operate. They echo Schumpeter’s plea for an exchange between history and theory in studying entrepreneurship. In Schumpeter’s conception, an entrepreneur is someone who promotes innovation. Schumpeter contends that the essence of entrepreneurial activity lies not only in pulling together a business in established ways, but also in creating “new combinations.” Successful new combinations disrupt the market equilibrium and are a source of “entrepreneurial profits.” Entrepreneurial behavior thus seeks to accomplish something

Tsai-Man C. Ho and Wenbin Sun 179

different, and needs a set of abilities completely different from what is required to sustain the flow of an existing business (Schumpeter 1950). Entrepreneurship means the disruption of the economic status quo, and Goss (2005) identifies from Schumpeter’s work three types of factors that inhibit the expression of entrepreneurial action. The first relates to the nature of the innovation: because it is new, it will be more difficult for one to plan and understand when compared to wellestablished and customary activities. The second refers to the inertia in the businessperson. The third is the fear of social sanction that is heaped upon destructors and deviants, or, as Schumpeter puts it: [T]he reaction of the social environment against one who wishes to do something new. This reaction may manifest itself first of all in the existence of legal or political impediments. But neglecting this, any deviating conduct by a member of a social group is condemned, though in greatly varying degrees according as the social group is used to such conduct or not. (1934, p. 86) Thus the ability to lead and influence others stems from social processes. Schumpeter’s conception of entrepreneurship is about social control “resting upon the constraints of convention, routine, habit, and social sanction” (Goss 2005, p. 207). Such social control regulates behavior and limits the extent to which individuals will be prepared to engage in “deviant” innovative action. Two features inherent in entrepreneurship deserve more attention: newness and deviance. Being new refers not only to the implementation of a new way of running a business, but also to the formation of a new order that seeks legitimacy. Some scholars argue that the degree of approval or disapproval of a certain entrepreneurial act influences the act’s further development (Gerschenkron 1962, 1966; Marris and Somerset 1971). These scholars assume the gaining of legitimacy to be an external factor in the commencement of a new entrepreneurial venture, but the deviant nature of entrepreneurial ventures, as has been noted, begs for such legitimacy. One must ask at this point who possesses the right to legitimize entrepreneurial behavior. For Schumpeter, the answer lies in the legal and political spheres: it is in these areas that entrepreneurs attempt to win legitimacy. Having said this, the legal and political reality may also be a double-edged sword. For instance, the political reality may not necessarily be a hindrance to the development of entrepreneurship.

180

Dynamism of the Koo Family

As Campbell and Lindberg emphasize, the government not only has the power to allocate key resources, but also a huge capacity to manipulate property rights that has been important historically in shaping various institutional organizations in the economy (Campbell and Lindberg 1990, p. 634). By redefining property rights, the state creates a process of selecting new forms of economic organization, in which the entrepreneurial actors will have to conjure up novel actions in response to these selecting pressures. The effect of the selection process on the governance regime and institutional structure may go beyond the state’s intention. Property rights for Campbell and Lindberg are to determine the conditions of ownership and control of the means of production. Therefore property rights do not only refer to a set of relationships between an individual and a commodity but also, more significantly, refer to relationships among people. One of the most important ways in which the government influences the selection process is through its capacity to ratify or undermine new business patterns. One’s ownership and control often signifies another person’s lack of ownership and control. When property rights are being redefined, they create possibilities for new combinations, but also reshuffle the institutional basis of power relations in the process of production, exchange, and accumulation. This explains why entrepreneurship needs government’s approval in particular; and why “values and cognitive systems” should be emphasized as some scholars contend (Aldrich 1999; Aldrich and Staber 1988; Gerschenkron 1962, 1966; Lounsbury and Glynn 2001; Wilken 1979). We argue that government’s role is not only to legitimize innovative action, but also to facilitate new markets, primarily through the redefinition of property rights. The uncertainties that are generated when property rights are in transition offer both opportunities and risks. Not everyone is able to identify the opportunities, even if they result from government-led institutional changes. Because opportunities do not appear in a prepackaged form (Venkataraman 1997), the process of opportunity identification is far from trivial. With any new innovation, entrepreneurs may fail to identify opportunities or may identify the wrong opportunities. The discovery of opportunities is therefore an important part of the domain of entrepreneurship research (Shane 2000). It has been found that the individual capability of entrepreneurs stems not only from their individual personalities, but also from their network positions. Burt’s (2000) seminal work on structural holes suggests that entrepreneurship can be conceptualized as a means of connecting two networks. In tracing the

Tsai-Man C. Ho and Wenbin Sun 181

story of the Koo family, we explore how entrepreneurs locate themselves between two networks or institutional holes, the very place where room is available for the generation of benefits. While governments initiate institutional change, they take a passive role in response to new combinations. Entrepreneurs need political connections to enable their innovations to be secured through property rights, but the real risk for entrepreneurs is incurring the disapproval of the legal system. Mezias and Boyle’s analysis of the US film industry underlines how uncertainties in the legal environment affect the initiation of new actions (2002). Once the re-delimitation of property rights fails, the risks that follow may jeopardize the survival of an enterprise. This study of the Koo family dynasty not only extends the research implications of entrepreneurship, but also highlights the importance of mixing business acumen and political acumen in the Chinese society of Taiwan. We identify that a particular player in each generation of the Koo family has come forward to fulfill the entrepreneurial role, and in the meantime has had to struggle with the redefinition of property rights. It is hoped that this article answers Schumpeter’s call for more historical work on the interaction between institutional forms and entrepreneurial activity (Schumpeter 1990, p. 414).

The role of the government in generating markets and the rise of entrepreneurship In the eyes of Yanaihara, it was by playing up to the Japanese in power that Koo Hsien-jung turned himself from a merchant into an industrial capitalist. The rise of the Koo family has largely been attributed to various monopolistic rights granted by the Japanese colonial government. For instance, Koo Hsien-jung was appointed as the chief executive officer of a wholesale salt distributor (Yanaihara 1956, p. 14). Here, we encounter the question of the social conditions in Taiwan, which was just about to be absorbed into the Japanese capitalistic system at that time. Entrepreneurship may be a universal feature of all societies, but, as Blaug asserts, certain institutional settings help to release the entrepreneurial spirit (2000, p. 86). For Blaug, such institutional settings relate specifically to capitalism, yet we can also find links between entrepreneurship and institutional transition. In other words, Yanaihara’s argument concerning the ability of the Koo family to play up to the Japanese in power was, at most, partially correct. The rise of the Koo family was made possible above all by Koo Hsien-jung’s entrepreneurial actions undertaken at a time when property rights were redefined by the Japanese colonial government.

182

Dynamism of the Koo Family

Land reclamation most probably explains the rapid accumulation of wealth among the first generation of the Koos. Koo Hsien-jung’s land development corporation bought up croplands that were equipped with irrigation functions, which were then rented out to tenants. Following the Kuomintang’s land reform from 1953 to 1954, the Koo family ended up with over 40,000 chia (one chia equals 2.39 acres, or 1.03 hectares) of land scattered all over Taiwan, making the family the biggest landholder on the island (DeGlopper 1995, p. 114). Land was the most vital asset in which Koo Hsien-jung invested; it is what made him a financial capitalist and led his heir, Koo Chen-fu (hereafter KCF), to transform himself from a landlord into an industrial capitalist under the ruling Nationalist Party (hereafter KMT) regime. Nevertheless, the sources of the Koo family’s prosperity need to be examined in the broader context of Taiwan’s social transformation. The Japanese land-tenure reform Before Japanese rule, property rights and land use in Taiwan were in chaos. In 1895, China had signed the Shimonoseki Treaty (or Maguan Tiaoyue in Chinese) that, in ceding Taiwan to Japan, led Taiwan down the path of a different social system. The fourth governor-general, General Kodama Gentaro, assumed office in 1898; most of the policymaking and government supervision that had formerly been conducted in Tokyo was placed under his command. Kodama delegated jurisdiction over domestic affairs to his chief of civil administration, Goto Shinpei. This enabled the Taiwanese governor-general to operate from a more consolidated base, and allowed Goto considerable leeway in shaping plans and policies for the island colony during Kodama’s tenure (Lamley 1999, p. 209). Because Japan itself was under heavy financial pressure after the war, the Japanese colonial government sought to maintain Taiwan’s fiscal autonomy so as not to create a further burden for itself. In this way, Goto launched a variety of projects that laid the foundation for the extensive economic development and modernization of Taiwan. Goto’s goal was to make Taiwan an agricultural appendage of Japan (Lamley 1999). Nitobe Inazo, who had been sent earlier from Japan to research forestry and subtropical agriculture, drew up a long-range program for the development of commercial agriculture (Azuma 2000). According to his plan, more land was to be placed under cultivation and irrigation projects were to be initiated so as to increase rice and sugarcane production on the central and southern coastal plains. However these projects could not be carried out because of the confusion

Tsai-Man C. Ho and Wenbin Sun 183

over ownership. Concerned about both revenues and the development of the agricultural industry, the Japanese colonial government decided to engage in land-tenure reform after an extensive investigation of existing land use and ownership that began in 1898 and ended in 1901. As a result of this investigation, a larger amount of untaxed “hidden land” was registered in 1903, and more landowners were placed on the tax roll when the liability for tax was shifted from the “large rent-holder households” (da zu hu), whose claim to the land was redeemed in marketable bonds, to the “small rent-holders” (xiao zu hu), the actual farmers. By so doing, the colonial government transferred agrarian ownership from the nominal landowners to the people who actually tilled the soil and worked in the fields. Taiwanese people at that time had very little knowledge of the nature of bonds and the modern banking system. Most of the large rent-holders did not know what to do with the redeemed bonds because, to their understanding, bonds could not be used to purchase commodities and the interest rate was too low. In fact the colonial government tried hard to educate people about the value of these bonds. The government sent staff out to buy back the redeemed bonds and encouraged those willing to set up business to use the bonds to do so. The entrepreneurism of Koo Hsien-jung was demonstrated in his confidence during the period of property rights transition. While the short-lived Russo-Japanese War further damaged most people’s trust in government bonds, Koo Hsien-jung bought up a large amount of these redeemed bonds. In fact, among the five eminent families, the Koos were the only family who set up a company to collect the bonds of large rent-holders. According to a study by Tu (1992), World War I boosted the Japanese economy; this precipitated the economic growth of Taiwan, and Taiwanese exports experienced a continuous increase over the period from 1916 to 1920. The soaring price of rice was transferred to ground rents, which made huge fortunes for landlords. The second source of wealth accumulation came from merchant activities. Again the best example of this is Koo Hsien-jung, who made an enormous profit out of speculation in the sugar trade between 1918 and 1919. Furthermore, the amendment to the land tenure laws in 1919 allowed the Koos to move their capital from land rents to newly developed businesses, giving them the opportunity to invest in modern industries and financial banking. In 1897, the Taiwan Bank Act came into force, with three purposes. The first was to develop Taiwan’s industrial and commercial activities and to make Taiwan a supportive node for Japan’s extension into South Pacific trade and finance. The second was to pursue economic

184

Dynamism of the Koo Family

independence for Taiwan, and the third was to bring order to the monetary system and to put Taiwan’s currency in order. To introduce a banking system in the modern sense, the Japanese colonial government established the first bank—the Taiwan Bank—to provide capital flow and mortgages to those who were engaged in the development of industries and the public infrastructure. The 20th Century Anniversary Special Historical Review of the Taiwan Bank gives a description of the social context in which the bank was established: A decent bank was really needed in Taiwan. The inadequacy of capital flow meant that people suffered seriously from underground usury. In addition, the currency system was extremely chaotic. The Taiwan Bank therefore took on the responsibility of stabilizing the financial order here in Taiwan. (Taiwan Bank 1919, pp. 14–15, authors’ translation) Just how advanced Taiwan’s banking system was at that time and how others perceived the new financial organization is pertinent here. Information from the Chang Hwa Bank (1996) records that during the colonial period, Taiwanese depositors outnumbered the Japanese in terms of households; but in terms of the total amount of savings, that of the Taiwanese was far lower when compared to the Japanese. Even 15 years after the Chang Hwa Bank had been established, many Taiwanese still kept themselves at a distance from the modern banking system. Recognizing people’s distrust of the use of banknotes, Koo Hsien-jung minted a huge sum of silver dollars for people to exchange at any time to quell the skepticism toward the “new invention.” Encouraged by the Japanese colonial government, Koo Hsien-jung used the redeemed bonds he collected from large rent-holder households as shares (or investment), and thus became the general manager and a member of the supervisory board of the Chang Hwa Bank. Koo Hsien-jung might be said to have advanced his economic capital by cooperating with the Japanese colonial government. It should be noted, however, that his actions on the front line of his business demonstrate how entrepreneurship manifested in that era, during which property rights and institutions were redefined and reconstructed. KMT land reform Before 1949, there was no securities transaction in Taiwan. In 1953, the KMT government took specific steps to ensure the transfer of agricultural capital into the industrial sector, initiating a land reform program

Tsai-Man C. Ho and Wenbin Sun 185

called “Land to the Tiller.” Under the program, landlords were partially compensated for their land; they were given 70 percent of bonds in kind and 30 percent in shares of the four leading public corporations, namely, the Taiwan Cement Company, the Taiwan Paper Company, the Taiwan Agriculture and Forestry Company, and the Taiwan Industry and Mining Company. It was hoped that this would enable the government to transfer public corporations to private ownership, force land capital into industry, and stimulate the interest of the otherwise conservative landlords in industrial activities. It has been taken for granted that it was KCF’s cooperation with the KMT over the land-reform program that made him the head of the Taiwan Cement Corp. Again, the event should be examined against the backdrop of the society at that time, which did not recognize the significance of this transformation of property rights. The shares of the four major companies were issued in March 1954, and by the end of that year their market price on the stock exchange remained only 40 percent to 50 percent of their face value. The stock market was totally alien to Taiwan’s landlords and the general public in the early 1950s. They knew very little about security investments, and were doubtful about the value that could be redeemed in exchange for land. The operation of a modern corporation and the concept of separating ownership and management were also new to the public and the landlords (Peng 2003). Moreover, inflation rates remained high for quite some time, and the relatively higher interest rates for mercantile business compared to the industrial sector made industrial investment even less appealing. Given the rising price of land and commodities, many landlords were more than willing to dispose of their shares at any price to any stock collector to expand their usury activities. Having inherited a large amount of land, KCF could have stuck to the role of a merchant capitalist, like many others in Taiwan. Nonetheless, he decided to cooperate with the government’s policy of land reform. Unlike others, KCF understood the implications of capital securitization. How did he identify the significance of the opportunities that were generated by this institutional reform? Campbell and Lindberg (1990) are right to highlight the government’s role in influencing the selection process. However, although the institutional change in this case was government-led, very few people were able to grasp the ensuing opportunities. Although a government may encourage innovation, not all members of society, including economic actors, will necessarily be ready for the emergence of a new field. However the network positions

186

Dynamism of the Koo Family

of actors may help them to identify opportunities (Burt 2000), thereby shaping the selection process. In other words, the capability to spot opportunities can be constructed intentionally or unintentionally on the basis of the experiences that an individual derives from separate networks and social institutions. The knowledge and networks acquired by KCF worked exactly in this way. Koo Hsien-Jung died before World War II, and left a sizeable inheritance to KCF. He did not take up the job right away, but assigned the management of the business to his younger brother. KCF went to Japan to continue his graduate studies and to work in Dai-Nippon Seitou, the Japanese company that had bought out Koo Hsien-jung’s sugar business during the Japanese colonial period. KCF started off as a cashier in the company, and underwent training in several positions. Compared with the other major families of Taiwan, KCF’s choice and behavior was pioneering for his era, but all subsequent heirs of the Koo family have since followed suit. His nephew, Jeffrey Koo Sr., a third-generation heir of Koo Hsien-jung, was educated in Japan until he was 13, obtained his bachelor degree in Taiwan, and completed his graduate studies in New York. To ensure the continuance of the Koos’ family business, KCF and Jeffrey Koo Sr. put a premium on management training for the next generation. Many family members studied in Japan for a period of time, and the four principal heirs (two sons from each side of the family) hold MBAs from the elite Wharton School at the University of Pennsylvania, of which the Koos are major benefactors. It is estimated that between 15 and 20 members of the Koo family and executives in the Koo group have passed through Wharton’s MBA and advanced-management programs. The training includes the fast-tracking of family members through two to three years of internships in multinational companies that are friendly to the family. Owing to the Koo family’s experiences in the Chang Hwa Bank and his early training in Dai-Nippon Seitou, KCF was familiar with the structure and operation of the Japanese kabushiki kaisha (joint stock corporation). This helped him to identify and maximize opportunities. Such a central position and ability gives the actor an advantage over others in terms of accessing novel sources of knowledge. As a result, while others disposed of their stock securities, KCF collected them, which allowed him to become the biggest shareholder in the Taiwan Cement Corporation and later the president of the company. The entrepreneurship of Koo Hsien-jung and KCF had something in common: their accumulation and transformation of capital started

Tsai-Man C. Ho and Wenbin Sun 187

when property rights were redefined by the government. As the public was unfamiliar with the new institutions and what they did, the Koos became deeply involved and extended their business boundaries. Their judgment and insight in identifying opportunities can be attributed to their experience and network position. This trait of entrepreneurship was also passed down to the third and fourth generations. In the 1960s, Taiwan’s stock market was characterized by small retail investors, and could thus be easily manipulated by a few large stockholders. Their manipulation of the equity market resulted in repeated episodes of market booms and busts, and eventually the authorities sought to stabilize the capital market by amending the regulations and allowing security companies to be set up within the private sector. The China Securities Investment Corporation (the predecessor of the Chinatrust Commercial Bank) was founded by the Koo family in 1966. Jeffrey Koo Sr. joined the company in the following year. At that time, Taiwan’s stock exchange had only 20 categories of listed companies, each of which comprised very few firms. The scale of operation constrained the development of the underwriting business (Huang and Huang 2005, p. 179). In light of the above, Jeffrey Koo Sr. suggested that the government should allow the security companies to act as underwriters and, in particular, that listed companies should be asked to issue 20 percent of their “right issues” for public placing through securities investment companies. This would also help to decentralize the share structure of the listed companies, making it more difficult for individual minority controllers to maneuver; the release of the table stakes would also help the market to prosper. Reflecting on these years, Jeffrey Koo Sr. stated that, “at that time, no one knew anything about the underwriting business. We taught the government how to regulate us, and meanwhile, instructed other securities investment companies and investors how to play the game. That situation was again just like the beginning of the credit card market in Taiwan” (Lai 2003, p. 275). The Chinatrust Commercial Bank was indeed the first and the biggest credit card issuer on the island. In 1992, Taiwan opened up the financial market, and the China Securities Investment Corporation was the first of its counterparts to be successfully converted into a commercial bank.

Risk and innovation Each of the three generations of the Koo family has been imbued with the venturing spirit that has been exercised in the social context of

188

Dynamism of the Koo Family

the state’s property rights actions. However, in most cases, only one or a very few can see new possibilities and overcome the resistance and difficulties that confront entrepreneurial action, which by definition is outside of the ruts of established practice (Schumpeter 1990, p. 413). At the end of his article on the study of entrepreneurship, Schumpeter raises several questions concerning the economic, cultural, and political conditions that produce, shape, favor or inhibit entrepreneurial activity, and states that “the entrepreneurial function cannot be transmitted by inheritance—except, possibly, by biological inheritance” (1990, p. 419). It is very difficult to tell whether or not entrepreneurship could be transmitted by such inheritance, but to keep the family in business usually demands something new in the generational transition. The challenges do not stop when the entrepreneurial function has been carried out. Risk trails innovation, and not every new economic action will be legitimized and sanctioned by the government and society. The emergence of entrepreneurship is usually related to processes of institutional redefinition, and to discuss the legitimacy of entrepreneurial behavior is to talk about possible opposition from the government, economic actors, or the society as a whole. After all, the government plays an important role in clarifying indefinite property rights. When the Democratic Progressive Party (hereafter the DPP) took power from the ruling KMT in 2000, it launched a series of policies to reform the financial system and encourage the merging of financial groups. The fourth generation of the Koo family, headed by Jeffrey Koo Jr., the elder son of Jeffrey Koo Sr. and the leader of the Chinatrust Financial Holding (Chinatrust), formed a team and initiated an acquisition plan immediately. He made a bold attempt to acquire the statecontrolled Mega Financial (Zhao Feng Jin Kong) in mid-2005 as part of the government’s plans to promote banking consolidation and to halve the number of financial holding firms to seven. Chinatrust bought up three percent of Mega’s shares from the stock market via its subsidiaries, including the Chinatrust Commercial Bank. Later, the Hong Kong branch of Chinatrust Bank bought US$390 million worth of structured notes from a Hong Kong securities firm and demanded that the latter link the notes to Mega shares, thereby securing a further 3.9 percent of Mega’s shares. In February 2006, the Financial Supervisory Commission (hereafter the FSC) approved the request of the Chinatrust Financial Holding to acquire a ten percent stake in Mega.2 Chinatrust’s Hong Kong branch then sold the structured notes to Red Fire Development Ltd.,

Tsai-Man C. Ho and Wenbin Sun 189

which redeemed the notes in mid-February, prompting the Hong Kong securities firm to sell out the linked Mega shares, to cash in US$30 million of profits. Chinatrust secured 70 percent of the Mega shares sold by the Hong Kong securities firm, and on June 23 gained four seats on the board of directors of Mega. This caused serious concern in the government, which had tried to secure its own dominance of Mega Financial. One month after the election of the board of directors of Mega, the FSC exposed the dubious practices of Chinatrust, and Red Fire was suspected of being a front company that was actually controlled by the Koo family. The FSC demanded management changes, and Chinatrust was fined NT$10 million (around US$305,500) for irregularities connected to its controversial investment in Mega Financial. Later, the FSC declared that although Chinatrust’s practice of acquiring shares via “fake” overseas capital was not illegal, it violated the “law-abiding spirit” (Taipei Times October 19, 2006, p. 1). Following the declaration, the FSC halted the bank’s plan to open overseas branches and to engage in fundraising ventures, which led to the resignation of Jeffrey Koo Jr. Afterwards, the French brokerage firm BNP Paribas Securities, and later Moody’s Investors Services downgraded the rating of Chinatrust. Taipei prosecutors then placed Koo Jr. on the most-wanted list and set a 25-year limit. Although Taiwan’s judicial system has deemed Koo’s practice to be inappropriate, analysts in foreign investment companies have taken it as a normal way of conducting business. The device of structured notes is a new invention that relates to synthetic funds that are purchased by investors, and is used as a financial tool to provide customized equity returns or exposure by hedging positions. From the viewpoint of returns, Chinatrust’s practice has not only secured their bid for target companies, but has also earned large profits for its shareholders. Some experts are therefore astonished by the FSC’s poor knowledge of the device of financial derivatives (Economic Daily News June 29, 2006), and Koo Jr. himself stated publicly, “I believe our actions [in conducting the investment] were honorable and honest, and we will fully cooperate with investigations. I believe that the impartiality of the judiciary and the results [of the probe] will help clear our name” (Taipei Times October 19, 2006, p. 1). The recent development of this saga was that Koo Jr. returned to Taiwan in November 2008 after being on the run for almost two years. He was reported to be back to testify that he gave a NT$400 million sweetener to former president Chen Shui-bian’s wife to make a land purchase (Taipei Times November 25, 2008).

190

Dynamism of the Koo Family

The aforementioned case raises the issue that collective sanction is necessary for developing innovation into social action; otherwise, entrepreneurs are unable to execute entrepreneurial functions. It is the government that is tasked with the specific mission to establish property rights actions, as Campbell and Lindberg contend. Property rights are not only about defining the relationship between an individual and a commodity, but also express the relationship among people. As pointed out above, one person’s ownership and control usually corresponds to another’s lack of ownership and control. Because property rights specify the relationship among people, they also define the institutional basis of power relations in the processes of production, exchange, and accumulation (Campbell and Lindberg 1990, p. 635). To enhance the legitimacy of an innovation, the innovator is obliged to struggle with any actor, including the government, which has the power to manipulate property rights. The following section discusses how the Koo family has dealt with the various political regimes in their attempts to win legitimacy.

Sources of legitimacy: Relationships with the government The extent to which the first three generations of the Koos have engaged with Taiwan’s turbulent changes is impressive. Members of the family have sought to reduce the risk and enhance the legitimacy of their entrepreneurial endeavors in part through the cultivation of social networks and in part by engaging in political lobbying. However, as we have seen in the foregoing, there is no guarantee of success for either strategy, especially during the transition of regimes. The operation of social networks A social network has often been referred to as a social structure based on which an individual action takes place. Since an individual is not atomized; he or she in reality always acts in a social relationship, which is made up of a node or ties. How do these social networks come into being? One very effective way for the formation of these networks is to present the ties as “natural,” such as blood, kinship, and so forth. In addition, “artificial” ones could be socially constructed and produced for particular purposes. In the case of the Koos, connections cultivated through various business undertakings, such as KCF’s apprenticeship with Dai-Nippon Seitou, had of course played a role. More important perhaps was the constructed network between the first and the second generations of the Koos and the government, which derived from the family’s contributions to the consolidation of the political regimes.

Tsai-Man C. Ho and Wenbin Sun 191

It has been stated that Koo Hsien-jung was granted monopoly businesses by which he prospered, but it must be asked why these monopolies were given to him. The Japanese army arrived in 1895, the Chinese troops fled, and looting broke out everywhere in Taiwan. To restore social order, Koo Hsien-jung and some other members of the gentry opened the gates and guided the Japanese into Taipei city (Lamley 1999). Intriguingly, among them, only Koo Hsien-jung managed to use this incident to embark upon a new and profitable career as a mediator between the Japanese invaders and the Taiwanese populace. Koo Hsien-jung worked closely with the Japanese and became involved in both foreign and domestic affairs. Domestically, he suggested to Goto that he should adopt the baojia system (an administrative system organized on the basis of households) to guard the city against armed men who could be described either as “bandits” or “loyal anti-Japanese resistance fighters.” He was later nominated head of the Taipei Security Bureau (bao liang ju). In terms of foreign affairs, when the Russo-Japanese War broke out in 1904, Koo Hsien-jung sent his own junk out on patrol and gained valuable intelligence for the Japanese government. In 1921, he was selected as a council member of the Taiwan Governor’s Office, and in 1934 was chosen as the first Taiwanese to be a congressman in the house of the Diet. It was said that the honor was bestowed to give him a legitimate position from which he could represent the Japanese government in political activities. In carrying out the role, he traveled often to China, Japan, and throughout Taiwan, visited several important political figures such as Wang Ching-wei and Tuan Chi-jui, and even helped Chiang Kai-shek in a struggle with a rebel. During the colonial period, the monopoly business had earned the Koo family legitimacy, but as the regime changed, these good connections turned into a negative asset. KCF found himself entangled in a political crisis when the regime was in transition from the hands of the Japanese to the KMT. When Japan was defeated, some Japanese military personnel attempted to cooperate with those in Taiwan who sought independence. A newly established organization, the Taiwan Social Security Maintenance Organization (Taiwan Zhi An Wei Chi Hui), asked the colonial Governor General Andou Rikiti to declare independence. KCF immediately came under suspicion and was imprisoned by the KMT government for one to two years. It was only through marriage alliances and the legacy of his father’s assistance to Chiang Kai-shek that KCF survived the political crises and eventually returned to Taiwan after a period of exile in Hong Kong. He later regained the confidence of the KMT government and successfully reclaimed his assets, enabling him to keep the family business going.

192

Dynamism of the Koo Family

For decades, KCF was one of Taiwan’s most venerated public figures despite the fact that he never held public office. As a confidant of former President Lee Teng-hui, he was the chairman of the quasi-official Straits Exchange Foundation since 1990, and also represented Taiwan on many international occasions, including many of the APEC summits. He rubbed shoulders with the likes of Chinese president Jiang Zemin and US president Bill Clinton. His nephew, Jeffrey Koo Sr., also served as a traveling envoy for Taiwan and a senior advisor to successive Taiwanese presidents. When Japan severed their diplomatic ties with Taiwan, the KMT government relied very much on KCF’s relationship with the Japanese, and in particular the networks extended from the Dai-Nippon Seitou3 to continue the interaction between the two regions. The personal involvement in foreign affairs of these members of the Koo family mirrors the special conditions to which Taiwan has been subject on the international stage. As the Koos have done so much for successive governments, it must be asked what the latter have given in return. The government repeatedly lent a hand in the Koos’ competition with other members of the board of directors for control of, for example, Taiwan Cement. As a joint stock company, the board of Taiwan Cement has long been dominated by three families, of which the Koos are one. Whenever it comes to deciding who will occupy the controlling position of president, the Koos have always gained the upper hand and triumphed over their competitors with the support of the government’s vote. The Koos are also capable of exerting extraordinary power over public companies, even when they own only a minority of the shares. However this relationship between the government and the Koos has changed since the KMT’s authoritarian regime was challenged, at the same time when the power of other capitalists has grown. The government’s support for the Koo family is no longer a given: the government’s vote is now placed with those who have the largest portion of shares. Business competence has become the stake for gaining control. Jeffrey Koo Jr.’s case further indicates that innovative behavior is often deviant, and sometimes criminal. Routine, everyday business practices in general unfold “naturally” or even “automatically,” with each government establishing its code of practice with the business. However, innovative behavior for a businessman necessarily entails going beyond the norm and thus the appropriate course of endeavor. Specifically, in the case of Koo Jr., it may be due to the fact that the DPP was a newcomer to the political scene and had not established its code of practice with the business.

Tsai-Man C. Ho and Wenbin Sun 193

Involvement in property rights actions: Lobbying Although the legitimacy of new actions can be secured by the legal system, the elimination of political risk is also crucial. For instance, after World War II, the KMT government took over Japanese-controlled properties and turned them into state-owned companies. The Lin family, one of the five most eminent families in Taiwan, successfully asserted their ownership of real estate in downtown Taipei that was previously leased to the Japanese colonial government (Szu-Ma 1998, p. 114). This shows that the legal system not only safeguards personal property, but also regulates the role of the government. The changes in the delimitation of property rights are partly attributed to the evolution of economic logic on the one hand, and social variables on the other. In terms of the delimitation of property rights, an actor must gain political support in every aspect, because the new economic action needs a legal status. Nonetheless, such a reformation may not be successful every time, and failure will lead to the abortion of new actions. The obstacles may come from noneconomic sectors, such as internal conflicts within the political sphere. For example, from 1964 to 1985, Taiwan’s money supply increased fifty-fold, and the existing financial system could no longer function. A huge amount of savings were transferred into underground financial activities. Lawmaker Tsai Chen Chow and his brothers, together with Jeffrey Koo Sr. from the Chinatrust as the representative of the industrial sector, gained positions on a bill draft committee through which they attempted to challenge financial policies, proposing that investment trust companies should be allowed to proceed with the business of short-term financing. However, because of a power struggle within the KMT, their first attempt to achieve this in the 1980s failed (Wang 1996, p. 114–9). Becoming a policymaker or engaging in lobbying is compatible with the entrepreneur’s interests. Both the Wu family, owners of the Shin Kong Group (Xin Guang Wu Jia), and the Tsai family, owners of the Cathay Group, had family members who worked directly in the Legislative Yuan as lawmakers.4 Unlike them, the Koo family’s influence on policy has been more indirect. KCF and Jeffrey Koo Sr. were members of the Chinese National Association of Industry and Commerce (CNAIC), that was established in 1952 and comprised leading business elites. In the past, the CNAIC carried out an important lobbying function. KCF was chairman for more than 30 years, and his nephew, Jeffrey Koo Sr., succeeded him in this position for 8 years. During the KMT’s authoritarian period, the CNAIC and the General Chamber of Commerce worked very closely with the ruling party.

194

Dynamism of the Koo Family

They either endorsed policies or lobbied for bills, and functioned as an extension of the KMT’s control over the economic sector. The head and chief secretary of the associations mostly came from the KMT’s party organization. In fact, Koo Cheng-fu, Lin Ting-Sheng of the Tatung Company, as well as Kao Ching Yuen of the Uni-President Enterprises Corporation were members of the KMT’s Central Standing Committee for a long period of time. As directors of these associations, they acted as bridges connecting the political and the business worlds. The advantage of this was that they entered the core of policymaking, and at the very least were able to make suggestions to the government. During the eight years when Jeffrey Koo Sr. was chairman of the CNAIC, the relationships between these three associations and the government went through subtle changes. Each of the political leaders inside the KMT party had their own business networks, and became affiliated with various interest groups. When the DPP took the reins in 2000, the power struggle became even more intense. The rise of the National Association of Small and Medium Enterprises, favored by President Chen Shui-bian, weakened the function of the three associations. More business representatives from other associations or interest groups have later been co-opted into the government, further diluting the influence exerted by the three aforementioned associations. The function of the formal lobbying channels has also changed. After KCF passed away, the Taiwanese government has relied less on the Koo family networks in its foreign affairs. Thus, although each generation of the family has shown their venturing spirit and their excellence in grasping the opportunities afforded by the changes in the rules, it is their interaction with the government that has determined whether or not the risks pay off.

Conclusion The uncertainties generated by institutional change can be both risks and assets in the development of entrepreneurship. Although the risks experienced by the fourth generation of the Koo family with the former DPP government may not threaten the viability of the greater Koo Group, they do demonstrate the challenges that face each heir of the family enterprise in sustaining the business over generations. Preserving the status quo may not be sufficient to overcome the increasing pressure of market competition. After all, as Schumpeter puts it, the cycles of economic activity require only habit and routine, and generate conservative tendencies that eventually lead to a decrease in profits.

Tsai-Man C. Ho and Wenbin Sun 195

By telling the story of the Koo family, this chapter asserts that entrepreneurship is a necessary factor if businesses are to last over generations. It has been discovered that the various instances of entrepreneurship among the Koo family correlate closely with their network positions and the government’s actions in relation to property rights, and it is shown how each family innovator identified the opportunities in the face of public skepticism toward novel developments. Each of the family heirs has used different means to defend their innovations. The effects of good political connections are historically embedded, and the first three generations of the Koo family in particular had assumed special roles in Taiwan’s foreign affairs. The family has attempted to take part in the definition and transformation of property rights and in so doing has attempted to construct more favorable conditions for the family business. This chapter provides a basis for further comparisons in different societies to determine the links between institutional change, the initiation of entrepreneurship in business dynasties, and the way in which such dynasties gain legitimacy for their innovations.

Notes We gratefully acknowledge financial support from the Hong Kong Research Grants Council (RGC) (HKU7264/05H) for the research project entitled “Entrepreneurial Families: the Rong, Gu and Ho Tung Business Dynasties.” 1. There are five prominent families familiar to most people in Taiwan. They are (1) the Lin family of Ban-Chiao, who rose in the Qing dynasty and own more than 40 enterprises, including those in sugar, land, trust, and camphor industries; (2) the Chen family of Kaohsiung, who rose to power through ownership of a large sugar company during the late Qing dynasty; (3) the Lins of Wu-Feng, who also rose in the Qing dynasty and belong to the landlord class; (4) the Yen family of Keelung, whose prosperity began in the Japanese colonial period through their endeavors in the mining industry; and lastly, the Koo family of Lukang, whose prosperity also began in the Japanese ruling period and who concentrated their activities in land reclamation and the sugar industry. 2. The FSC, one of the five independent agencies of the Executive Yuan in Taiwan, was established in 2004 with the objective of consolidating the supervision of the banking, securities, and insurance sectors, and to act as a single regulator. 3. The Dai-Nippon Seitou Company was where KCF spent his years as an intern. The director of the company at the time was Fujiiyama Aiichiro, who later became the Secretary of State for Foreign and Commonwealth Affairs when Nobusuke Kishi was the 57th Prime Minister of Japan from 1958 to 1960. Nobusuke’s brother, Sato Eisaku, was prime minister from 1964 to 1972, and it was during Sato’s term that KCF obtained from Emperor Hirohito the Order

196

Dynamism of the Koo Family

of Sacred Treasure and the Medal with Blue Ribbon for his contribution to society. 4. Cathay’s Tsai Chen Chow was the first supplementary legislator representing the KMT. Shin Kong’s Wu Tong Sheng represented the KMT as supplementary legislator in the second term, and represented the Taiwan Solidarity Union (Tai Lian) as legislator in the fifth term.

References Aldrich, H. (1999) Organizations Evolving (Thousand Oaks, CA: Sage Publications). Aldrich, H. and U. Staber (1988) “Organizing Business Interests: Patterns of Trade Association Foundings, Transformations, and Deaths” in G. Carroll (ed.) Ecological Models of Organizations (New York: Ballinger). Azuma, Y. (2000) The General Economic History of Taiwan (Taipei: Hai Xia Xue Shu) (in Chinese). Blaug, M. (2000) “Entrepreneurship Before and After Schumpeter” in R. Swedberg (ed.) Entrepreneurship: The Social Science View (Oxford: Oxford University Press). Burt, R. (2000) “The Network Entrepreneur” in R. Swedberg (ed.) Entrepreneurship: The Social Science View (Oxford: Oxford University Press). Campbell, J. L. and L. N. Lindberg (1990) “Property Rights and the Organization of Economic Activity by the State,” American Sociological Review, 55 (October), 634–47. Chang Hwa Commercial Bank Editorial Board (1996) Chang Hwa Bank’s 90 Years History (Taichung: Chang Hwa Bank) (in Chinese). Ching, S. (1999) The Legend of Koo Hsien-Jung (Taipei: ChienWei) (in Chinese). Cole, A. H. (1959) Business Enterprise in Its Social Setting (Cambridge: Harvard University Press). DeGlopper, D. (1995) Lukang, Commerce and Community in a Chinese City (New York: State University of New York Press). Economic Daily News (2006) “Structured Notes, Entrepreneur’s Most Favored Secret Weapons,” June 29 (in Chinese). Gerschenkron, A. (1962) Economic Backwardness in Historical Perspective (Cambridge: Harvard University Press). Gerschenkron, A. (1966) “The Modernization of Entrepreneurship” in M. Weiner (ed.) Modernization: The Dynamics of Growth (New York: Basic Books). Goss, D. (2005) “Schumpeter’s Legacy? Interaction and Emotions in the Sociology of Entrepreneurship,” Entrepreneurship: Theory and Practice, 29 (2), 205–18. Hsieh, K. H. (1999) Tainanband: The Rise of a Taiwan Native Business Group (Taipei: Yuanliou) (in Chinese). Hsieh, K. H. (2002) Chen Fong-Yuan (1893–1982) (Taipei: Asian Culture) (in Chinese). Hsu, H. H. (2005) “The Prosperity and Decline of the New and Old Families”, Wealth Magazine, 2, 222–42 (in Chinese). Hsu, P. Y. (1996) The Reminiscences of Hsu Ping and Hsu Po-yen (Taipei: Institute of Modern History, Academia Sinica) (in Japanese, abstracts in Chinese). Huang, T. T. and Z. Y. Huang (2005) The Life of Koo Chen-Fu (authorized by the Koo Foundation) (Taipei: Lien-Ching) (in Chinese).

Tsai-Man C. Ho and Wenbin Sun 197 Jones, G. and R. Wadhwani (2006) “Schumpeter’s Plea: Historical Methods in the Study of Entrepreneurship,” Academy of Management Best Paper Proceedings Series. Ka, C. M. (1993) The Contradictory Relationship Between Rice and Sugar: Development and Dependency in Colonial Taiwan, 1895–1945 (Taipei: Socio Publishing) (in Chinese). Lai, N. (2003) “Nowadays, Taiwan has no Financier: Jeffrey Koo’s Thirty-eight Financial Years,” Wealth Magazine, 6, 274–80 (in Chinese). Lamley, H. (1999) “Taiwan under Japanese Rule, 1895–1945: The Vicissitudes of Colonialism” in M. Rubinstein (ed.) Taiwan: A New History (Armonk, NY: M. E. Sharpe). Liu, G. C. (1995) Economical Analysis of Post-War Taiwan (Taipei: Renjian chubanshe) (in Chinese). Lounsbury, M. and M. Glynn (2001) “Cultural Entrepreneurship: Stories, Legitimacy, and the Acquisition of Resources,” Strategic Management Journal, 22, 545–64. Marris, P. and A. Somerset (1971) The African Entrepreneur: A Study of Entrepreneurship and Development in Kenya (New York: Africana). Mezias, S. J. and E. Boyle (2002) “Organizational Dynamics of Creative Destruction,” Entrepreneurship and the Emergence of Industries (New York: Palgrave Macmillan). Ozaki, H. (ed.) (1939) The Biography of Koo Hsien-Jung (Taipei: Editorial Board for the Biography of Koo Hsien-Jung) (in Japanese). Peng, K. C. (2003) Taiwan Securities Market for the Past Half Century (Taipei: Good Morning Press). Schumpeter, J. ([1934] 1961) The Theory of Economic Development: A Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, translated from German by Redvers Opie (Cambridge: Harvard University Press). Schumpeter, J. (1950) Capitalism, Socialism, and Democracy (London: Allen & Unwin). Schumpeter, J. (1990) “Comments on a Plan for the Study of Entrepreneurship” in R. Swedberg (ed.) Joseph A. Schumpeter (Princeton: Princeton University Press). Shane, S. (2000) “Prior Knowledge and the Discovery of Entrepreneurial Opportunities,” Organization Science, 11 (4), 448–69. Szu-Ma, H. C. (1998) The Koos of the Koos Group: The Rich and Powerful Families in Taiwan (Taipei Metropolis: Taiwan Interminds Publishing Inc.) (in Chinese). Szu-Ma, H. C. (2000) Taiwan’s Rich and Powerful Families: The Old Monies (Taipei Metropolis: Taiwan Interminds Publishing Inc.) (in Chinese). Taipei Times (2006) “Agents Seize Documents in Raid on Chinatrust’s Offices,” October 19, 1. Taiwan Bank (1919) The 20th Anniversary Special Historical Review of the Taiwan Bank (Taipei: Taiwan Bank) (in Chinese). Thornton, P. (1999) “The Sociology of Entrepreneurship,” Annual Review of Sociology, 25, 19–46. Tu, Z.Y. (1992) Taiwan under Japanese Imperialism (Taipei: Renjian chubanshe (in Chinese). Venkataraman, S. (1997) “The Distinctive Domain of Entrepreneurship Research: An Editor’s Perspective” in J. Katz and R. Brockhaus (eds) Advances in Entrepreneurship, Firm Emergence, and Growth (Greenwich: JAI Press).

198

Dynamism of the Koo Family

Wang, J. H. (1996) Who Rules Taiwan? (Taipei: Juliu) (in Chinese). Wilken, P. (1979) Entrepreneurship: A Comparative and Historical Study (NJ: Ablex Publishing Corporation). Wong, S. L. (1985) “The Chinese Family Firm: A Model,” The British Journal of Sociology, 36 (1), 58–72. Yanaihara, T. ([1956] 2003) Taiwan under Imperialism, translated by Zhao Hsien Wen (Taipei: Hai Hxia Press) (in Chinese). Ye, D. P. (1997) The History of Lukang (Chung Hua: Zuo Yang) (in Chinese). Ye, J. C. (2002) The Development of Taiwan’s Modern Financial System (Taipei: Morning Star Press) (in Chinese).

9 Capitalism in China? Comparative Perspectives Iván Szelényi

[There are two distinct kinds of intellectual resource for imagining alternative modernities]. On the one hand, there will be the historical reservoir of thoughts, experiences and struggles connected to the past of the country concerned, its cultural heritage, if you like. On the other hand, there will be a range of foreign experiences that can be studied, imported or learned from, in any given period. … Successful attempts at building an “alternative modernity” have nearly always rested on a creative balance between these two sets of resources—that is selective appropriation of the national past and selective learning from the external inter-state system. Perry Anderson (2005, p. 16)

China, the “late” reformer China is often seen as a socialist country that entered the market reform trajectory early. Whether this perception is correct depends on what we mean by reform and how we evaluate how far away China has moved from the classical system of socialism. János Kornai in his The Socialist System (1992) called the pre-reform socialist regime “the classical system.” According to Kornai, the classical system has three main characteristics: (1) the political monopoly of the one-party state, that legitimates itself with the ideology of MarxismLeninism; (2) exclusively public (state) ownership of the means of production; and (3) redistributive1 rather than market integration of the economy. Some East European countries (Yugoslavia with its workers’ self-management system and Hungary with its second economy or, to 199

200

Capitalism in China? Comparative Perspectives

put it in Chinese terminology, “household responsibility system”) were faced early on with the inefficiencies of the classical system of socialism and had implemented some rather bold reforms by the 1960s. Even the USSR tried to revamp the classical interfirm relations during the Khrushchev era and was accused by some Maoist theorists of “restoring capitalism” (Bettelheim 1976). With 1978 as a starting date for its reform, China could be said to be quite a latecomer. This is not that surprising. The classical system had some initial success in China, in the USSR, and even in the less developed East European countries. Martin Whyte points out that: “the PRC experiences economic recovery after 1949 and considerable economic growth in most years after 1949” (averaging 4–5 percent annual growth of the GDP). He also points out that “China was already recognized in the Mao era as performing [even] better on ‘social development’ than on ‘economic development.’” (Whyte 2007, pp. 11, 13) Y. Y. Kueh concurs. When he poses the question “Was Mao really necessary?” he answers in qualified affirmation: “yes, from an economic perspective” (Kueh 2008, p. 32). It was only from the mid-1960s onwards that the economically more advanced countries began to stagnate and fall behind the advanced West and the late industrializing countries of East Asia. Since China entered the socialist trajectory as an economically rather backward agrarian country, it did not face the problems of economic stagnation as early as did some of the European socialist countries. But the reforms eventually had to come. In his formidable Economics of Shortage (1980) Kornai early on identified internal contradictions in the classical system and, given those contradictions, he believed that “the classical system is transitory. It proves relatively short lived compared with the socioeconomic formations that managed to have survived for centuries” (Kornai 2008a, p. 22). Nevertheless the inherent contradictions of the classical system, its tendency to produce chronic shortages—especially once the extensive growth targets were achieved—began to limit the potential economic dynamism of the socialist economy. In this respect China was not, after all, such a late reformer; it entered the reform trajectory well before the potential of extensive growth was exhausted. In fact, when China began its reform movement in 1978, it still was largely a rural, agrarian country and to some extent the extraordinary explosion of economic growth can be attributed to its gigantic labor supply (Sachs 2005, p. 158). Initially 1978 may not have been much more than an attempt to correct the extremities of the Cultural Revolution and especially to

Iván Szelényi 201

solve the unnecessary food shortages by relatively minor adjustments, namely, through a shift from agrarian communes to the household responsibility system. It was not that hard “imagining” these modestly novel alternatives—to invoke the above citation from Anderson. As I pointed out there were quite a few experiments—and rather successful ones—under way in other countries. In Hungary, the so-called New Economic Mechanism and in particular its agrarian reforms were prime examples (see Szelényi 1988). All that the Hungarian communists did was to allow peasants to cultivate one acre of their own land, and to do what they wanted with what they produced: consume it or sell it on markets at any price they could fetch, and soon food shortages disappeared on farmers markets. But there was an ample “historical reservoir” of rural entrepreneurship in China as well. Indeed as Huang Yasheng repeatedly pointed out, entrepreneurship in China has deep rural roots and not only in agriculture (Huang 2008, pp. 57–62). Whyte also emphasized that China had centuries of extensive commercial development and intensive agriculture; and that, among ordinary villagers, there was ready familiarity with markets (Whyte 2009, see also Rawski 2007, p. 103). One of course has to be careful in ascribing the success of entrepreneurship to such a historical reservoir, namely, China’s cultural heritage. After all, since Max Weber the received wisdom was that Chinese culture, in particular Confucianism and the “sib,” was an obstacle to modernization and entrepreneurship (Weber 1951, pp. 86, 100). The rise of capitalism in East Asia and economic growth in China during the past three decades does not necessarily disqualify the Weberian argument. After all, Weber was interested in the origins of capitalism, and why capitalism emerged in the West and not the Orient. Now the question is: can elements of traditional culture, Confucianism and “sib,” be reassembled in order to fit the requirement of modernity (Peng 2005, p. 345)? The answer to this question is: yes (Vogel 1991, pp. 92–101; Peng 2005; Whyte 2009). Socialist market economy? While China might have been a latecomer to reforming the socialist economy, the discourse (the official discourse exclusively, the academic overwhelmingly) in China remained focused on “reform,” though by the late 1980s in Eastern Europe and Russia reform-economics was replaced by transitology (Yu 2005, p. 28). By 1989, European socialist countries were not reforming the socialist economy any longer; they were in the process of transition to market capitalism.

202

Capitalism in China? Comparative Perspectives

In sharp contrast, within China the reconstruction of economic institutions was not labeled as either transition or transformation. Even the meaning of reform changed slowly and gradually. In 1978 the term “reform” referred merely to modernization, more specifically the “four modernizations” program of Deng Xiaoping (Shi 1998, p. 5). The language changed slowly, though Yu Guangyuan believes Deng might have used the term “market economy” as early as 1979 (though only for foreign consumption, in an interview with the editor of Britannica, see Yu 2005, p. 37) and it began to appear in academic publications by the mid-1980s (the more careful authors preferred to write merely about a “commodity economy”). As late as 1984 the official party line was: “We do not practice the market economy which is completely regulated by the market,” a discourse ambiguous enough to be used both by those who supported and those who opposed the market economy, in order to argue that their position was backed by the party (Yu 2005, p. 37). It was only after Deng’s southern tour in 1992 that reform began to be equated with the transformation of China into a “socialist market economy” (Shi 1998, p. 6) and this remains the official way—and within China, even in academic circles, the dominant way—to describe changes in the country’s economic institutions. In the words of Du Runsheng: We want to build socialism with Chinese characteristics, not capitalism with Chinese characteristics. … The introduction of a market economy is one of the substantive details of “socialism with Chinese characteristics”. … [W]e have proved … that the market system can be compatible with socialism. (Du 2005, pp. 10–11) Or to cite Yu again: “the conclusion that planned economy has a socialist nature, and the market economy has a capitalist nature is incorrect” (Yu 2005, p. 37). The idea of a socialist market economy is not new. It was first proposed by the Polish economist Oscar Lange as early as 1936–7 (see discussion of Lange in Kornai, 2008c, pp. 51–3). Lange, a committed socialist faced with inefficiencies of the Soviet economy by the mid-1930s, attempted to propose a reform that, by leaving the public ownership of the means of production untouched while introducing market mechanisms, would increase the efficiency of the system. The idea of combining public ownership with market coordinating mechanisms haunted the political economy of socialism for quite some time. Similar reform proposals were put forward during Khrushchev’s time by E. G. Liberman in 1962

Iván Szelényi 203

(Liberman 1972 [1962]). Liberman’s ideas influenced Chinese liberals like Yefang Sun, but at that time were firmly rejected by Mao Zedong and the Communist Party (Kueh 2008, pp. 10–22). János Kornai (1984) in a path-breaking article casts doubts on the feasibility of market socialism. He suggests that there is an “elective affinity” between forms of economic integration and forms of property: central planning tends to go together with public ownership, while markets tend to assume private property. By 1989 he takes a stronger position: reforming the economy is a “package deal,” in that if one goes for markets one has to accept private ownership (Kornai 2008b [1989], p. 44). Not surprisingly, Kornai’s idea of a “package deal” implies that China should not be considered a socialist market economy (which by 1989 in his view became a contradiction in terms). In his words: China … cannot be seen as [the historical realization] of Oscar Lange’s theoretical construct of “market socialism.”…. He put great intellectual effort into proving the market can fulfill its coordinating role in the absence [emphasis by J. K.] of private ownership. In the real world of China … the market has become the chief coordinator. … [T]he ownership structure has undergone fundamental changes, in which the state-owned sector has given up its leading role. … The result is far from a classical socialist system, and fairly close to a typical capitalist system. (Kornai 2008c, p. 58) Not everyone agrees. As a Chinese colleague put it to Christopher A. McNally, “China is both far away from socialism and far away from capitalism” (McNally 2008, p. 231). Or to phrase it more positively: China is often seen as a hybrid system, that combines elements of capitalism and socialism. There are at least three reasons why the arguments that China is a socialist formation should be considered seriously: (1) China has been slow in recognizing private property rights and it is often doubtful whether what is being called private property is actually private; (2) the state in China is so intimately involved in economic processes that it is arguably beyond the usual role of “developmental state,” even in its East Asian variant; and (3) the most obvious reason: China is a oneparty state where the party is legitimated by the communist ideology. Let us consider each of these arguments in turn. As Martin Whyte (2009) points out, secure property rights are usually regarded as a major precondition of capitalism and dynamic economic

204

Capitalism in China? Comparative Perspectives

development (Huang 2008, p. 31), yet China has proved to be an outlier in this respect (see also Oi and Walder 1999 about property rights issues). The national Property Law was passed only in 2007 (before 2007 there were various limitations on the number of employees domestic firms could hire) and even that law was rather restricted in scope. In this respect, China diverges radically from the European post-socialist countries, which as far as property rights are concerned followed the Washington consensus cookbook rather closely: most of these countries privatized early and fast and priority was given to creating identifiable owners even if that meant passing public property into the hands of former communist nomenklatura (which happened especially in Russia). China followed a dual track approach: until the late 1990s it rejected the privatization of state-owned enterprises, while allowing foreign capital into the country and permitting domestic private firms with some limitations. In a similar way, private ownership of agricultural land is still restricted. Though during the early 1980s family farming was restored, peasants did not receive title on the land they tilled. They leased land from the villages and the lease was gradually extended up to 30 years in 1984. Although the lease had become practically indefinite by October 2008, still no title is granted to private individuals. Some commentators regard the October 2008 Resolution of the Seventeenth Central Committee of the Chinese Communist Party (CCP) as a “landmark event” (Li 2009) since it gave full rights to farmers to subcontract, lease, exchange, and swap their land use rights. For optimists, it is expected to enable retiring farmers to purchase homes in urban areas, improve capital flow into rural areas, and—especially during the current global financial crisis when China’s export drops sharply—increase domestic production and help China to change course from export-led industrialization to an economic growth driven by domestic consumption. Li Cheng sees in the new land reform a step to eliminating the hukou system, which turned those who hold rural hukou (especially migrant workers in cities with rural registration) as second- or third-class citizens. The land reform might boost the income and consumption of former rural hukou registrants. According to Li’s 2007 data, “China’s total retail sale value of consumer goods was 8.9 trillion yuan while the retail sale value in the rural areas … accounted for only 1.4 trillion yuan.” Out of a population of 1.3 billion only 200 million have the capacity for middle-class consumption; the land reform coupled with the abolishment of the hukou system may tap into this domestic market, which might easily counterbalance the loss of export markets.

Iván Szelényi 205

Furthermore, the issue of property rights is highly politicized and that makes it more difficult to evaluate the actual property relations. In the early stages of the reform when the private sector was still discriminated against, even private firms were classified as collectives. According to Huang (2008, p. 31), for instance, 10 out of the 12 million township and village enterprises (TVEs) during the mid-1980s were actually private businesses, yet they were legally classified as collective enterprises. Since the privatization of state-owned enterprises (SOEs) became a public policy the data are distorted the other way around. According to Huang’s calculations, the share of genuine privately owned enterprises is just about half of those that are registered “on the books” as indigenous private businesses (Huang 2008, p. 13–19). The reason: there is substantial cross-ownership of SOEs in each other. The majority of indigenous “private” owners are “legal persons,” which usually means publicly owned corporations or banks. Huang believes the Organisation for Economic Co-operation and Development (OECD) estimation that “the Chinese private sector—covering both the agriculture and industry—accounted for 70% of GDP as of 2003” is thus a substantial “overstatement” (ibid. p. 277). Huang makes an even stronger claim: in addition to his view that we tend to underestimate since the 1990s the share of public ownership in the economy, he states that there was what he calls a “monumental reversal” (ibid. p. 113) in property relations during the second decade of reforms (the 1990s). According to his data, while “[b]etween 1981 and 1989, the private sector’s share of fixed-asset investments was 21.4 percent; it declined to 19.8 percent during the 1990–1992 period and then to 13.3 percent between 1993 and 2001” (ibid. p. 113). Huang also claims that despite the widely held belief that TVEs were privatized during the 1990s (Brandt, Li, and Roberts 2005; Oi, 1999), there was a “resurgence of collective TVEs” (ibid. p. 133). Apart from the ambiguity of private property rights, the Chinese economy is also characterized by an exceptionally large role of the state and its “politicized” nature, as Huang Yasheng and Victor Nee have suggested, respectively. “[D]espite an economic transformation that is viewed by many as revolutionary, the size and the reach of the Chinese state have not diminished. In fact, by several measures, the Chinese state has grown massively since the early 1990s” (Huang 2008, p. 160). Since 1989 Chinese economic development has been very much top-down and, unlike certain East Asian countries where even authoritarian states were “benevolent” and offered a “helping hand” to private business, the Chinese state had a “grabbing hand” (ibid, p. 276).

206

Capitalism in China? Comparative Perspectives

Victor Nee and Sonja Opper call China’s system “politicized capitalism” (Nee and Opper 2007), and claim that the Chinese state not only sets up the regulatory framework—what one normally would expect from a “capitalist state”—but “remains directly involved in guiding transactions at the firm level,” and they find evidence of “direct state involvement in the firm’s corporate governance” (ibid, p. 106). Nee and Opper also report evidence of the “grabbing hand” by referring to the “predatory behavior on the part of government officials” (ibid. p. 98). They also found that “in heavily state-regulated industrial sectors and regions entrepreneurs must cultivate personal connections with powerful government bureaucrats to gain reliable access to resources and protect their firms from predatory intervention” (ibid. pp. 107–8). This leads us to the sustained role of the Communist Party. The Company Law that finally allowed the privatization of SOEs “still calls for a supervision of enterprises by government and social masses … [and] the continuing influence of the ‘three old political committees’— party committee, labor committee, and trade union … within the firm” (ibid. p. 119). The then General Secretary Jiang Zemin gave guidelines sketching “the party’s activities at the enterprise level. According to his guidelines, the party should focus on four functions: (1) implementation of the party line, (2) fulfillment of party-related tasks with special attention to production and management, (3) participation in the most important business decisions, and (4) support for the board of directors, the supervisory committee, and management” (ibid. pp. 119–20). Jiang Zemin in an important speech in 2001 opened up the door for party membership to private entrepreneurs, that is, capitalists (Huang 2008, p. 164–5). According to the “Investment Climate Survey of 2,400 firms … more than 40 percent of CEOs concurrently hold party positions. … [P]olitically active CEOs are … most common in state-owned enterprises … [but] political participation of management personnel is also widespread in non-state-owned firms … 17 percent of CEOs in officially registered private firms held party offices” (Nee and Opper 2007, p. 120–1). Hence the claims made by Chinese party and state officials—and shared by many academics—that China is a socialist market economy cannot be dismissed lightly. It is not that obvious that private ownership, properly speaking, is as dominant as it is often assumed by Western commentators. The government regulates the market processes and manages property rights quite extensively. Still, a great deal of redistribution may be practiced in hidden (through cross-ownership in publicly owned forms) or decentralized ways (by provincial or local

Iván Szelényi 207

government in forms of “local state corporatism”) (Oi 1999). And while “politics is not in command” the way it used to be under Mao, the Communist Party—often guided by ideological consideration—is still a major force shaping national, local, and firm-level policies and, through the nomenklatura system, controls appointments to crucial positions even in the business world. Capitalism in China—various interpretations Most Western commentators—and a few Chinese academics, like the unnamed Chinese colleague of Christopher A. McNally—share Kornai’s doubt about whether the current Chinese socioeconomic system can qualify in any meaningful sense as a “socialist market economy.” I tried to make the strongest possible case in the previous section of this chapter for why China might be called socialist, or at least why some socialist characteristics still can be located in the Chinese socioeconomic structure. But even that strong case was not so strong. First of all, while property relations are indeed combined, or rather ambiguous, and China without doubt has some “hybrid” characteristics (see Nee and Opper 2007, p. 93);2 nevertheless there can be little doubt about the directionality of the changes in property rights over the past three decades. China not only gradually legalized private property but certainly the private sector has been responsible all along for the dynamism of its economy and, irrespective of measurement problems, its share undoubtedly has been on the increase over time. China is moving away from the monopoly of public ownership of the means of production to the (eventual) hegemony of private property. There can also be little doubt that the Chinese government (and Communist Party) does intervene in the functioning of markets more extensively than states do in so-called coordinated market economies (Hall and Soskice 2001), or even as East Asian states did or do (Huang 2008, p. 276). Nevertheless the historical trend is undisputable: “Market transition is a dynamic transformative process characterized by a diminishing role of central planning and increasing significance of market institutions in economic life” (Nee and Opper 2007, p. 94; but see also Nee 1989). Finally we come to the most complicated question. Can anyone doubt the socialist character of China when it is ruled by the Communist Party? And to make life difficult for those who want to advance the proposition that China is capitalist, this party is not only communist in name, it insists that it is “building socialism” and subjects all those who label China capitalist to rigorous criticism (I myself have received critical

208

Capitalism in China? Comparative Perspectives

reviews from colleagues close to the CCP for being the spokesperson of the revisionist Budapest school and questioning the socialist nature of the Chinese regime). The Chairman’s photo is displayed at Tiananmen Square (or the “Square of Eternal Peace”). But again, despite the name of the party and its insistence on standing for the cause of socialism, it is rather clear that this is not the same party that existed at the time of Mao Zedong. Daniel A. Bell half-jokingly suggests that the Chinese Communist Party might be renamed the Chinese Confucian Party (Bell 2008) and he certainly has a point. The historical trend in the CCP is away from an emphasis on Marxism-Leninism-Maoism, and especially from emphasis on class struggle. Deng Xiaoping placed a great deal of emphasis on one of the central values of Confucianism: meritocracy,3 and in the Hu-Wen era another Confucian idea, that of “social harmony,” has been invoked rather often. For the distant observer the CCP in 2009 more closely resembles the Kuomintang of 1950 than the CCP of 1968. But does it matter whether China is socialist, capitalist or on its way to becoming capitalist? Well, it certainly does seem to matter to the CCP and its theorists. As far as I am concerned, this is of rather secondary importance, a kind of taxonomical question; and I would not attach particular value judgment to the concepts of either capitalism or socialism. The question is interesting for me only to the extent that it helps to identify the kind of economic system that exists (or unfolds) in China and how this compares with economic systems in other parts of the world or at other points in history. Christopher A. McNally offers a useful and comprehensive overview of various definitions of capitalism (McNally 2008, pp. 17–32). My aim here is simpler. I only intend to offer a brief and generic notion of capitalism, that can accommodate the diverse institutional forms that can and did emerge as economic systems when former socialist regimes began to drift away from the “classical model of socialism.” The purpose of this exercise is to lay the conceptual foundation for the last section of this chapter, which deals with the varieties of postcommunist capitalisms as they drift from one form or type to another in various generations of reform or transition. Let me begin with the classics, in particular with Max Weber. Among the classical theorists Weber was really the only one who saw capitalism as a diversity of institutional forms unfolding gradually in history (in some ways Marx tried to do something similar as I will show shortly). Virtually throughout human history one can spot economic action that qualifies as “capitalistic,” though Weber also manages to identify “modern capitalism” as a unique form. He does not offer an explicit definition of capitalist economic action, but with a little reconstruction we can arrive at the

Iván Szelényi 209

following definition: a capitalist economic action is one that seeks profit in market exchange (see a similar but somewhat more focused definition in Swedberg, 2005, p. xxxv; also Weber 1978, pp. 90–100). Weber’s broad definition does allow us to distinguish at least three types of capitalistic systems. A “modern capitalism” achieves profit through production (Swedberg’s definition that there is a “feedback of profit into production” thus captures beautifully the nature of what Weber regarded as “modern capitalism”). Weber also refers to a capitalist system that is “political in its orientation” in which in one way or another political office is the source of profit, and thirdly a “commercial capitalism” where profit emerges simply from market exchange without production playing a role. As I point out above, Karl Marx comes close to this tripartite distinction of various capitalistic systems. However for Marx the crucial institution of capitalism is private ownership rather than the price-regulating market. Private ownership based on the production of surplus value is the key for capitalism as we understand it (or “modern capitalism”), though he also sees the possibility (and dead-end street) of two other forms. These are “merchant capitalism,” where profit is simply generated on market exchange, and “finance capitalism,” where the “normal” circuit of M-C-M (money-commodities-money) is cut short as M-M (money-money) and is therefore not sustainable in the long run, as we unfortunately experienced in the 2008–9 global financial crisis. Merchant capitalism is unsustainable in Marxist theory since surplus value can only be generated at the point of production, when capital buys labor power whose consumption creates higher value than its own value. Michael Burawoy at one point called the post-socialist Russian economy “merchant capitalist” because it produced nothing but generated income from speculative merchants—a system he believed was doomed to fail. If, given the historical trajectory, “socialist market economy” is not a particularly accurate term to describe the way China is evolving, then what is the competing concept of capitalism that would fit the bill? Let me return here to the citation from Perry Anderson at the outset of this chapter. He poses the question: what sort of alternative modernities can we imagine? The four possible futures he sees are: (1) market socialism, advocated by official Chinese theorists, which in Anderson’s view does not exist so far anywhere in the world (though this does not mean it could not emerge in China); (2) actually existing socialism, or what we knew from the Soviet experiment, which might not be that attractive any more after the fall of the USSR; (3) “clean-path capitalism,” which is not unlike (1) and is essentially an idealized version of what capitalism would be like if the ideals of civil society could be

210

Capitalism in China? Comparative Perspectives

implemented; and (4) actually existing capitalism, which is not unlike (2), a prix fixe, not à la carte. “You have to swallow it whole, or not at all” (Anderson 2005, p. 18). As far as I can tell, China comes closest to the prix fixe, though with some (not many) variations in the menu. There are three competing interpretations concerning the nature of Chinese capitalism. In the final section of this chapter I will try to suggest that the real question is not which interpretation is the correct one. The nature of Chinese capitalism is changing over time and how it changes is to a large extent a question of social struggles. First, in my Making Capitalism without Capitalists (Eyal, Szelényi and Townley 1998) I speculated that China may be on the road to building “capitalism from below.” This idea was consistent with Victor Nee’s “market transition theory” and Huang Yasheng’s concept of “entrepreneurial capitalism” (and mirrored the analysis of my Socialist Entrepreneurs, 1988). The key proposition was that China began to build capitalism from the “bottom up,” starting with small businesses in agriculture and gradually opening up to larger, initially domestically owned businesses before opening up to multinationals and large private corporations. This analysis was rather similar to Cui’s (2005) “petty bourgeois manifesto.” A somewhat similar interpretation is the designation of Chinese or generally East Asian capitalism as “Sino-capitalism” or “guanxi capitalism” (Hamilton 1999; Redding 1990; Lever-Tracy 2002), a system based on small-scale, often family-based businesses (McNally 2005, p. 108). The second interpretation is found in Nee’s concept of politicized (or hybrid) capitalism, Huang’s “commanding heights” economy, and the concept of state-led capitalism. Nee’s interpretation is “softer”: he has a conception of “transition,” and China in his view has performed a “partial reform,” but is on its way to market transition. So he does not go as far as Weber and call it political capitalism, which could and likely would be a dead-end street. Nee’s view is that there might be more political interference with the economy than one would wish, but this is temporary and likely eventually to go away. Huang is more critical; while Nee assumes a gradual progression toward a free market economy, Huang sees regression, and the 1990s for him was clearly a step backward, though not necessarily a fatal one. After 2003 he sees signs of hope that the trajectory may change for the better. Finally, there is a darker vision of China’s future: crony or political capitalism. Political capitalism usually refers to the capacity of political actors to use their office to accumulate private wealth. Weber

Iván Szelényi 211

used archaic examples to illustrate political capitalism, but with the transition from communism to capitalism, political capitalism had its home run. Already in 1988 Polish and Hungarian commentators had alerted the public that through the so-called spontaneous privatization former communist nomenklature could turn itself into a new grand bourgeoisie (Hankiss 1990; Staniszkis 1991). Not much of this happened in Central Europe (arguably, critical intellectuals warned of this danger early enough and in reasonably democratic societies with robust civil society), but political capitalism came down with a vengeance in Russia. How much of this has happened in China we still do not know. “Princelings” (children of high-ranking officials) certainly do well in politics (28 percent of the members of the Politburo are princelings, see Li 2009b), but no similar data are available concerning the composition of the new grand bourgeoisie. Such a scenario is not unimaginable in China. According to McNally: Chinese crony capitalism would mean that private entrepreneurs, especially those overseeing large firms, continue to seek close personal ties with state and party officials. There would also be a tendency by the state to clamp down on independent investor interests and to strengthen control over foreign capital. This system would continue China’s present infusion of corrupt practices, and strengthen the monopoly positions of many firms locally and nationally. Chinese crony capitalism thus implies that the political imperatives of the CCP “freeze” China’s capitalist transition … engendering an alliance of weak capital with a strong Chinese party-state. (McNally 2008, p. 241)

Varieties of postcommunist capitalisms and various generations of reforms The weakness of the above analysis is the either/or dichotomy. Upon reflection I came to the conclusion that countries in postcommunist transition not only entered different trajectories, but they changed course—at least somewhat—as they were experiencing different epochs, generations or phases of transition or reform. It certainly seems that, as countries in various regions of the former socialist world began to introduce private property and market mechanisms, they entered different trajectories. This in itself is intriguing, since the last 40 years of experience with socialism (public ownership,

212

Capitalism in China? Comparative Perspectives

redistribution/central planning, and one-party states) seem to place countries from China to Czechoslovakia on a convergence trajectory. By 1980 these countries, despite gigantic differences in economic development and social structure at the time they entered the socialist path, looked somewhat more similar. The gap in per capita GDP increasingly narrowed, while the general level of education and public health standards looked similar. In these countries, people’s relationships with those in authority changed in similar ways. The authoritarian and paternalistic features of socialism even created what one may call the “socialist men,” and gender relations were more egalitarian (at least in public, given the high levels of female employment and reduction of occupational segregation across gender lines). During the early 1970s when I still lived in Budapest, I jokingly told my friend: when I am waiting for somebody at Budapest airport I can tell which plane came from Frankfurt and which from Dresden. East Germans looked different from West Germans, not so much because they wore shabbier clothes, but because their body language was different and they wore the fat on their faces differently—they were “socialist men;” while the West Germans were “capitalist men,” who smiled, moved, and smelled different. There might have been an element of truth to this joke. More importantly, economic, social, and political institutions were very dissimilar; and one had to learn the rules as to how to navigate differently in this brave new world. To put it in Bourdieu’s terms, one had to learn different habituses. As these societies departed from the “classical model,” they began to diverge in substantial ways. Their economic performances were rather different: China grew ten-plus percent every year; Russia experienced a 50 percent drop in its GDP, while the Central European countries recovered fairly fast after a sharp drop in their economies. However they diverged not only, and arguably not even primarily, in their economic dynamism—they differed at least as much in their emergent institutional arrangements and personal characteristics. While the Ossies (a name still reserved for the former East Germans) have remained to some extent Ossies, at Budapest airport I can no longer tell which passenger has arrived on an airplane from the former German Democratic Republic, and which has come from the former Federal Republic of Germany—what a difference 30 years make! To return to the Perry Anderson citation at the beginning of this chapter: the three big historical regions of former socialism—China, Russia, and Central Europe—in imagining their various alternative modernities drew to different extents on their historical reservoirs and foreign experiences. In Making Capitalism without Capitalists

Iván Szelényi 213

(Eyal, Szelényi and Townley 1998), which to the best of my knowledge was the first exercise to map the varieties of postcommunist capitalism (David Lane’s edited volume Varieties of Capitalism in Post-Communist Countries was published almost one decade later, in 2007), I labeled (based on my limited knowledge of China in the 1980s) China as “capitalism from below,” Russia as “making capitalists without capitalism,” and Central Europe as “making capitalism without capitalists.” In 1996, when I was submitting that manuscript to the publisher, it was a cute characterization of the differences. However, as I had to confess in my postscript written for the Chinese edition of my collection of papers Essays on Socialism, Post-Communism and the New Class (Szelényi 2009) the landscape of postcommunism has since changed substantially and over the past decade I have been scrambling to find the “proper name” to describe the Central European, Russian, and Chinese routes out of the “classical system” of state socialism. I began to call Central Europe “neoliberal,” and Russia “neo-patrimonial” (Szelényi 2008), and was searching for the proper name for China. Most recently I settled on the term “corporate neo-patrimonialism” (Szelényi 2009). Huang Yasheng’s book cited earlier and an intriguing paper by Conor O’Dwyer and Branislaw Kovalcˇik (2007) gave me further food for thought. Since postcommunism is a “work in progress” and each region or country seems to be undergoing substantially different stages of reform or transition, it may be more productive to describe the nature of the system epoch by epoch rather than to find a generic name to encompass the whole postcommunist experience. Table 9.1 is the first attempt I have made to do this; the rest of this chapter expands on the analyses in the table. Let me start from the “oven,” the case I know the most intimately (though still not in sufficient detail)—namely, Central Europe. The trajectory of Central Europe after 1989 is dramatically different from the rest of the postcommunist world. Furthermore the history of the region unfolded quite differently during the first and the second decades of postcommunism. In the path it has followed, the region has in part “imitated” its western regions and in part drawn on its historical reservoir. It has tried to do the impossible and restore what the past was; or to think imaginatively how, from that reservoir, one might invent a new Central European modernity. The historical reservoir has not been of small importance. The term “Central Europe”—coined in the nineteenth century by Germans to make their (not necessarily imperial—though eventually imperial too—but at least cultural-commercial) claim for areas east of Germany and west of Russia. The name was by and large forgotten: the “satellite

214

Table 9.1 Comparing varieties of postcommunist capitalisms and various generations of reforms First

Second

Third

Generation of reforms (transitions) Central Europe (Czech Republic, Hungary, Poland, etc.)

Eastern Europe (Russia, etc.)

East Asia (China)

Epoch

1989–2000

2001–9

Type of capitalism

Neoliberalism

Neoliberalism in crisis

Main characteristics

Shock therapy, mass privatization by auction

Failed attempt to introduce liberal means-tested welfare

Economic performance

Transitional recession, after 1995 fast growth

Economic slow down; increasing debt and deficit

Epoch

1991–9

2000–9

Type of capitalism

Political (crony) capitalism

Authoritarian neo-patrimonialism

Main characteristics

Mass privatization by voucher, making of oligarchy

Reestablishment of central authority, control over oligarchy, liberal welfare reform

Economic performance

Transitional depression

Rapid growth

Epoch

1978–89

1989–2003

2003–9

Type of capitalism

Entrepreneurial capitalism (capitalism from below)

Politicized capitalism

Corporatist (populist) neo-patrimonialism

Main characteristics

Declining urban–rural gap, family farming and TVEs

Increasing inequalities, development in cities, benefits for urban middle class, marketization of social services

Social harmony, reemphasis on rural development, attempts to create public welfare provisions

Economic performance

Rapid growth of household incomes

Rapid growth of GDP, export-led industrialization

Rapid growth, reorientation from export to domestic consumption

10.1057/9780230251359 - Chinese Capitalisms, Edited by Yin-wah Chu

No third epoch yet

Iván Szelényi 215

countries” of the USSR in Europe were comfortably labeled as “Eastern Europe” by American Kremlinologists, and even Central Europeans accepted this for a long time without further reflection on their new name. But in the 1980s the idea of Central Europe returned forcefully, not so much driven by the yearning to become a sphere of German influence once more, but rather out of a wish to show the region’s character as distinct from Russia. Proponents of this change emphasized that Central Europe belongs to Western Christianity rather than to Orthodoxy, and invoked this theological argument to make a claim that the region must finally return to “Europe” (not to Germany), and move away from Russia. There were romantic-nostalgic invocations of the reservoir: Many Poles saw their country as the Country of Virgin Mary; Hungarians rehabilitated Kaiser Franz Joseph and even Admiral Horthy, and some on the far right carried the so-called Arpad flag (Arpad was the tribal chief who in the ninth century settled the Hungarians in the Carpathian basin), which had been used by Hungarians before the official national flag (also used by the Arrow Cross, the Hungarian fascists). But of course imitation of other countries was even more important. Indeed, German reappeared soon after 1989. For Central Europeans, the first foreign language during communism was English, but with political change they started rapidly to learn German. Joining NATO and in particular the European Union had extraordinary implications for the social and economic institutions of these countries. It is somewhat ironic however that the “new member countries” of Central Europe did not follow the “European social model.” They did not implement “social market economies” but copied the Chicago cookbook closely, obeyed the Washington consensus, and implemented a rather pure neoliberal model that Ronald Reagan or Margaret Thatcher could only have dreamt of following. At least during the first decade of the transition, it seems reasonable to consider the Central European countries as belonging to the neoliberal model of market capitalism. This might have been the impact of American advisors, who were busy drawing up blueprints for transition for these countries (though they may not have known all that much about them). Jeffrey Sachs candidly tells us that he drew up the 15 pages of the total blueprint for Poland’s transition in one short night—between midnight and dawn—in Warsaw, in May 1989 (Sachs 2005, p. 114). This was, if I count correctly, his third short visit to Poland (each visit lasted just a couple of days and of course he spoke no more Polish than Russian, Russia being the other major postcommunist country he gave “good” advice on how to fix their problems). In Poland

216

Capitalism in China? Comparative Perspectives

it looks as though Sachs did not make mistakes. Or if he did, Leszek Balcerowicz, who became finance minister to implement this shock therapy, corrected the errors and in retrospect did a formidable job; only putting Poland into a brief recession and guiding it back early onto a growth trajectory. Poland, certainly, at least until 2000, was a sort of “miracle.” (Either Sachs’ advice was not that great for Russia, or Russians did not follow what he recommended). One important feature of the Central European neoliberal model was the unique way the public corporate sector was privatized. In this respect there were substantial differences among countries. A substantial sector of corporate business, if not the entirety, was sold off through competitive auctions (more so in Hungary than in Poland or the Czech Republic) and, as a result, foreign direct investment became the driving force of a largely export-led development. Initially there was voucher privatization in the Czech Republic and Poland (and something resembling it also in Hungary), but the big story was the sale of the public sector to foreign investors, early deregulation of prices, the effort to make their currencies convertible, and reduction or elimination of import duties and export subsidies. But the early success turned rather sour by the end of the first or beginning of the second decade (see Szelényi and Wilk 2010). The first generation of reform was indeed partial. While the economy was quite successfully transformed into a market system, what the East European economists call the “great distributive systems” (health care, pensions and education) were untouched, and functioned very much the same way as they had under socialism. These systems did not work well under socialism either: they were inefficient and underfunded. Yet, since their funding came mainly from the revenues of publicly owned enterprises, it disappeared with the privatization of these firms. This led in all countries to increasing budget deficits during the first decade of the twenty-first century, which meant the Central European neoliberal countries entered a second transitional crisis well before the great global financial crisis erupted. They were under tremendous pressure to cut welfare expenditure, and ironically the European Union pressured the new member countries not to follow the European social model, but to adopt the liberal, means-tested American welfare system. This was met with tremendous popular resistance and at least until May 2009 these countries (with the exception of Slovakia) could not implement such reforms and reduce their deficit and national debts. Russia—after some hesitation—entered a radically different trajectory. During the first year or two, Russia tried to follow the Central European example, adopting the Chicago cookbook and implementing shock

Iván Szelényi 217

therapy; and Gaidar, in the capacity of main economic master, promised to build capitalism in one hundred days. This turned out to be more shock than therapy (Gerber and Hout 1998) and the Russian economy went into freefall. Yeltsin decided to abandon the strategy of imitation and, instead, draw on the historical reservoir; appealing to Orthodoxy, tradition, and respect for authority. In place of building liberal democracy he decided to co-opt local political and economic bosses; the result of which was to create a new class of nomenklatura bourgeoisie. If I may use such an historical analogy, he recreated a class of boyars called the oligarchs. This was a sort of neo-patrimonial order: Yeltsin used voucher privatization to enrich followers (by the early twenty-first century, just one decade after the collapse of state socialism, more dollar billionaires lived in Moscow than in London). The nature of Russian capitalism during 1991–9 was a mixture of neopatrimonialism (offering fiefs to loyal followers) and political (and even merchant) capitalism. Public property was expropriated by office holders and often was put not into production, but into circulation (importing luxury cars or computers from the West and selling them for extra profit) or, indeed, resources were simply transferred into Swiss bank accounts. During the first decade of the twenty-first century there were substantial changes. Putin took over the presidency initially, and later the prime-ministership. Yeltsin was rather incompetent as an administrator (though he did show signs of genius as a politician—remembering the role he played in the 1991 coup) and he was captive to the oligarchs. Putin proved to be a skillful administrator and was unwilling to accept the dictates of the oligarchs, especially since some of them began to show political ambitions. Helped by fast-rising oil prices, Putin put the government’s house in order. On his watch Russia’s per capita GDP, measured in constant PPP dollars, jumped in 2000 from US$7627 to US$17,407. This contrasts with Yeltsin, who oversaw the decline of per capita income such that the level in 2000 was lower than that of 1992 (CIA Factbook 2009). Putin, much like his admired predecessors Ivan the Terrible and Peter the Great (or even Stalin, for whom Putin also has a few kind words), took on the boyars. Those who did not serve him well were sent into exile (for example, Boris Berezovky), or locked up—it appears for life—in jail (Michail Khodorovsky); and the less lucky ones were murdered (Sergei Yushenkov). So Yeltin’s boyars were turned into Putin’s pomeshchiks (service nobility); their fiefs were now replaced by benefices. Putin established, for the time being, a stable neo-patrimonial rule (he is also reverential to the Orthodox Church, spending ample resources to renovate formerly greatly neglected churches and appearing very respectful of traditions). He was capable of presenting himself as the

218

Capitalism in China? Comparative Perspectives

“good tsar” and, during the first years of the century, was able—unlike the genuinely democratically elected Central European governments—to introduce a rather brutal neoliberal welfare reform. What undoubtedly helped him was rapid growth, a small budget deficit, and small state debt. While Central Europe struggled between 2000 and 2009, Russia joined the Wundekindern of the world. Russia’s growth rates were just barely behind China’s; but it is another question whether Russia will be able—as Putin keeps promising—to maintain dynamic growth in the face of the global fiscal crisis and decline in oil and gas prices. Turning to China’s experience, while Central Europe and Russia have so far gone through only two generations of reform, China seems to be in her third epoch. In each epoch, capitalism in China has been of a somewhat different brand, though each carries some Chinese characteristics, and each has drawn on its historical reservoir and combined it with imitation of other countries, be it Japan, Taiwan, Singapore or (rarely) the US. Huang astutely calls the first epoch of reforms “entrepreneurial capitalism” (I call it “capitalism from below”). The 1980s, and especially the first 5–6 years of the decade, were a spectacular success. The reforms unleashed family farming, built on the tradition of family production and experience of Chinese families with market exchange, boosted economic growth, and reduced the urban–rural income gap without damaging health care and education in rural areas. The growth was not limited to agriculture. By 1985 about 12 million TVEs were in operation (most of them genuinely private enterprises), which created a substantial number of industrial and service jobs in rural areas and improved the supply of consumer goods in cities. It is unclear whether this generation of reform ran out of steam by 1989 and to what extent the neglect of reform in urban areas was responsible for the unrest in 1989 and especially the Tiananmen tragedy. Y. Y. Kueh (2008, pp. 47–60) puts forth a rather conservative but interesting account, claiming that the peasants and even the urban working class were beneficiaries of Deng’s reforms, whereas Tiananmen Square was a movement of disappointed students and intellectuals. But after a short antireform interval—a reaction to the May–June 1989 events— and following Deng’s southern tour, China under the leadership of the “elitist” Jiang Zemin turned away from rural reform and focused economic development on the southeastern coast, putting special emphasis on large cities; such as Shanghai, which happens to be Jiang’s hometown. This epoch can be properly labeled using Victor Nee’s terminology of “politicized capitalism,” or using Huang phrase, “state-led” capitalist development, where emphasis was put on export-led industrialization

Iván Szelényi 219

and massive investments. While during the “entrepreneurial capitalist” stage—just as Victor Nee described it in his 1989 article—state redistribution and redistributors lost some ground to “direct producers,” peasants, and TVE workers, the state reinserted its role during the “politicized capitalist” stage of the Jiang years. Investment in China reached 50 percent of GDP—a much higher proportion than in Japan and Korea when they were at a similar stage of development (Huang 2008, p. 279). At the same time, while China during the second epoch was rather investment addicted, total factor productivity (TFP) declined quite substantially between 1995 and 2000 (Hu 2007, pp. 60–6). One important reason for the decline of TFP was conspicuous consumption; that is, expensive and not highly productive investments in coastal cities and a neglect of the domestic private sector. During the epoch of politicized capitalism, China still experienced an impressive GDP growth—just slightly lower than in the previous and in the following decade (Hunag 2008, p. 254). However Huang shows numerous downsides to this strategy: (1) while GDP grew the share of labor in GDP declined, and the growth of household incomes, especially rural household incomes, was much more modest; (2) urban–rural inequalities increased tremendously, which led to increasing protest movements in rural areas; (3) welfare provisions were also restructured and, both in health care and education, the role of the market increased substantially. Work units were not responsible any longer for providing welfare services to their workers, and hundreds of millions of migrant workers (probably 200 million) were uninsured. So, for instance, while in 1991 about half of the health care expenditure was private and the other half was publicly provided, 60 percent of health care expenses were paid privately by 2000, and only 25 percent were compensated from public sources (Hu 2007, p. 149). During the last decade it appears that China is changing its course. In the 1990s, Jiang Zemin and his Shanghai gang pursued a rather one-sided policy, one that comes close to the Washington consensus neoliberal prescription (Wang 2003); in that epoch, China was closest to imitating the US development experience and relied minimally on cultural heritage. Substantial changes took place around 2002–3, both in the way China was governed and in its policy directions. The year 2002 saw for the first time in the history of communist China the peaceful succession of leadership. This was particularly surprising since it was the elitist Jiang Zemin who passed the power to Hu Jintao and Wen Jiabao. The emerging leaders did not only belong to a new generation but also offered a substantially different policy that is often referred to as “populism”

220

Capitalism in China? Comparative Perspectives

(see Li 2009b; Wong and Lai 2006). Li Cheng describes China as headed by “one party, two fractions.” Indeed, the rise to power of Hu and Wen was not a replacement of elitists with populists, but a complicated power-sharing arrangement. All major positions were shared equally by populists and elitists (many of the elitists are princelings or children of high cadres), and it is likely that in 2012 when the new leadership is to be elected Hu’s position (president) will be taken over by an elitist (Xi Jinping), whereas Wen (prime minister) will be replaced by a populist (Li Keqiang). This complex set of checks and balances represents very different interests but works smoothly for the time being. On the one hand, the elitists push for fast growth, export-led industrialization, and development along the southeastern coast. On the other hand, the populists advocate social harmony, are sensitive to the question of social justice and inequalities, try to improve conditions in rural areas and the situation of migrant workers in the cities, and endeavor to implement government-run welfare systems. In this way, the current system has uniquely Chinese corporatist characteristics.4 It is not unlike Japanese corporatism or what T. J. Pempel (1999) has called “corporatism without labor,” but it is uniquely Chinese since it operates within a one-party state. How lasting and successful this Chinese corporatist (populist) neopatrimonialism5 will be remains to be seen. As pointed out above, the Hu–Wen third land-reform and mainly rural-oriented stimulus package may substantially increase domestic consumption and rural living standards; and if they can keep the eight percent growth rate that they promised for 2009, China may survive better than any other country through the great global financial crisis. And given the importance of economic dynamism and continued increase in living standards for the legitimacy of the regime, the Chinese regime may remain legitimate despite its very limited reforms in the political system.

Notes 1. Kornai uses the term “bureaucratic coordination,” but my adaptation of Polanyi’s concept of redistributive integration (Szelényi 1978) is more often used in the literature so I will use the term in this chapter. The two concepts are synonymous. 2. See Yeung (2004) on the more general issue of the nature of Chinese capitalisms outside the mainland; and Ho (2001) and Hsing (1998, p. 128) about “fuzzy property rights.” 3. “As far as the leadership and cadre system of our party and state are concerned, the major problems are bureaucracy, over-concentration of power,

Iván Szelényi 221 patriarchal methods, life tenure in leading posts and privileges of various kinds” (Deng Xiaoping, August 18, 1980, cited by Huang 2008, p. 30). 4. See Figure 9.4 in Madden (1998, p. 188) for a discussion of the local system of corporatism. 5. See Redding (1990, p. 83) for a discussion of Chinese patrimonialism mainly among Chinese not residing in the mainland.

References Anderson, P. (2005) “Imagining Alternative Modernities” in T. Y. Cao (ed.) The Chinese Model of Modern Development (London: Routledge). Bell, D. A. (2008) China’s New Confucianism (Princeton: Princeton University Press). Bettelheim, C. (1976) Economic Calculations and Form of Property (London: Routledge and Kegan Paul). Brandt, L., H. Li, and J. Roberts (2005) “Banks and Enterprise Privatization on China,” Journal of Law, Economics and Organization, 21 (2), 524–46. CIA Fact Book, https://www.cia.gov/library/publications/the-world-factbook/ geos/RS.html. Cui, Z. (2005) “Liberal Socialism and the Future of China: A Petty Bourgeois Manifesto” in T. Y. Cao (ed.) The Chinese Model of Modern Development (London: Routledge). Du, R. (2005) “We Should Encourage Institutional Innovations” in T. Y. Cao (ed.) The Chinese Model of Modern Development (London: Routledge). Eyal, G., I. Szelényi, and E. Townsley (1998) Making Capitalism without Capitalists (London: Verso). Gerber, T. and M. Hout (1998) “More Shock that Therapy: Market Transition, Employment and Income in Russia, 1991–1995,” American Journal of Sociology, 104 (1), 1–50. Hall, P. and D. Soskice (eds) (2001) Varieties of Capitalism (Oxford: Oxford University Press). Hamilton, G. G. (ed.) (1999) Cosmopolitan Capitalists: Hong Kong and the Chinese Diaspora at the End of the Twentieth Century (Seattle: University of Washington press). Hankiss, E. (1990) East European Alternatives (Oxford: Clarendon Press). Ho, P. (2001) “Who Owns China’s Land? Policies, Property Rights and Deliberate Institutional Ambiguity,” China Quarterly, 166, 394–421. Hsing, Y.-T. (1998) Making Capitalism in China (New York: Oxford University Press). Hu, A. (2007) Economic and Social Transformation in China (New York: Routledge). Huang, Y. (2008) Capitalism with Chinese Characteristics: Entrepreneurship and the State (Cambridge: Cambridge University Press). Kornai, J. (1980) Economics of Shortage (Amsterdam: North Holland). Kornai, J. (1984) “Bureaucratic and Market Coordination,” Osteurope-Wirtschaft, 29 (4), 306–19. Kornai, J. (1992) The Socialist System (Princeton: Princeton University Press). Kornai, J. (2008a) “The Coherence of the Classical System” in J. Kornai (ed.), From Socialism to Capitalism (Budapest: Central University Press).

222

Capitalism in China? Comparative Perspectives

Kornai, J. (2008b) “Inner contradiction of Reform Socialism” in J. Kornai (ed.) From Socialism to Capitalism (Budapest: Central University Press). Kornai, J. (2008c) “Market socialism? Socialist Market Economy?” in J. Kornai (ed.) From Socialism to Capitalism (Budapest: Central University Press). Kueh, Y. Y. (2008) China’s New Industrialization Strategy: Was Chairman Mao Really Necessary? (Northampton, MA: Edward Elgar). Lange, O. (1936–7) “On the Economic Theory of Socialism 1–2,” Review of Economic Studies, 4 (1), 53–71 and 4 (2), 123–42. Levy-Tracy, C. (2002) “The Impact of the Asian Crisis on Diaspora Chinese Tycoons,” Geoforum, 33 (4), 509–23. Li, C. (2009a) “Hu Jintao’s Land Reform: Ambition, Ambiguity, Anxiety,” China Leadership Monitor, No. 27. Li, C. (2009b) “China’s Team of Rivals,” www.brookings.edu/articles/2009/03_ china_li.aspx. Liberman, E. G. (1972 [1962]) “The Plan, Profit and Bonuses” in A. Nove and M. Nutti (eds) Socialist Economies: Selected Readings (London: Penguin Books). Madden, K. (1998) “The Political Economy of Han Fei Tzu and Adam Smith” in O. Suliman (ed.) China’s Transition to a Socialist Market Economy (Westport, CT: Quorum Books). McNally, C. A. (ed.) (2008) China’s Emergent Political Economy: Capitalism in the Dragon’s Lair (London: Routledge). Nee, V. (1989) “A Theory of Market Transition,” American Sociological Review, 54 (5), 663–81. Nee, V. and S. Opper (2007) “On politicized capitalism” in V. Nee and R. Swedberg (eds) On Capitalism (Stanford: Stanford University Press). O’Dwyer, C. and B. Kovalcˇik (2007) “And the Last Shall be the First: Party System Institutionalization and Second Generation Reform in Post-Communist Europe,” Studies in Comparative International Development, 41 (4), 3–26. Oi, J. (1999) Rural China Takes Off (Berkeley: University of California Press). Oi, J. and A. Walder (eds) (1999) Property Rights and Economic Reforms in China (Stanford: Stanford University Press). Pempel, T. J. (1999) “The Enticement of Corporatism: Appeals of the ‘Japanese model’ in developing Asia” in D. L. McNamara (ed.) Corporations and Korean Capitalism (London: Routledge). Peng, Y. (2005) “Lineage Networks, Rural Entrepreneurship, and Max Weber,” Research in Sociology of Work, (15), 327–55. Rawski, T. G (2007) “Social Capabilities and Chinese Economic Growth” in W. Tang and B. Holzer (eds) Social Change in Contemporary China (Pittsburgh, PA: University of Pittsburgh Press). Redding, S. G. (1990) The Spirit of Chinese Capitalism (Berlin: Walter de Gruyter). Sachs, J. (2005) The End of Poverty (London: Penguin). Shi, Z. (1998) “Review of Experience of Economic Reform in China” in O. Suliman (ed.) China’s Transition to a Socialist Market Economy (Westport, CT: Quorum Books). Staniszkis, J. (1991) “Political Capitalism in Poland,” East European Politics and Societies, 5 (1), 127–41. Swedberg, R. (2005) “The Economic Sociology of Capitalism: An Introduction and an Agenda” in V. Nee and R. Swedberg (eds) The Economic Sociology of Capitalism (Princeton: Princeton University Press).

Iván Szelényi 223 Szelényi, I. (1978) “Social Inequalities in State Socialist Redistributive Economies,” International Journal of Comparative Sociology, 19, 63–78. Szelényi, I. (1988) Socialist Entrepreneurs (Cambridge: Polity Press). Szelényi, I. (2008) “Varieties of Post-communist Capitalism: Convergences and Divergences” in H.-D. Assman (ed.) Perceptions of China: Images of a Global Player (Baden-Baden: L Nomos Verlag). Szelényi, I. (2009) Essays on Socialism, Post-Communism and the New Class (Beijing: Publishing House of the Chinese Academy of Social Sciences) (in Chinese). Szelényi, I. and K. Wilk (2010) “From Socialist Workfare to Capitalist Welfare State” in G. Morgan, J. Campbell, C. Crouch, O. K. Pedersen, and R. Whitley (eds) The Oxford Handbook of Comparative Institutional Analysis (Oxford: Oxford University Press). Vogel, E. (1991) The Four Little Dragons: the Spread of Industrialization in East Asia (Cambridge: Harvard University Press). Wang, H. (2003) China’s New Order (Cambridge: Harvard University Press). Weber, M. (1951 [1915]) The Religion of China (New York: Free Press). Weber, M. (1978 [1921]) Economy and Society (Berkeley: University of California Press). Whyte, M. K. (2007) “A Sociological Perspective on China’s Development Record,” paper presented at the conference Rule and Reform in the Giants: China and India Compared, Harvard University (manuscript). Whyte, M. K. (2009) “Paradoxes of China’s Economic Boom,” The Annual Review of Sociology, 35. Wong, J. and H. Lai (eds) (2006) China into the Hu-Wen Era: Policy Initiatives and Challenges (Singapore: World Scientific Publishing). Yeung, H. W.-C. (2004) Chinese Capitalism in a Global Era (London: Routledge). Yu, G. (2005) “Accomplishments and Problems: A review of China’s Reform in the Past Twenty-three Years” in T. Y. Cao (ed.) The Chinese Model of Modern Development (London: Routledge).

This page intentionally left blank

Part III Conclusion

This page intentionally left blank

10 Chinese Capitalisms: Concluding Thoughts on their Historical Emergence, Political Implications, and Unique Characteristics Yin-wah Chu Introduction Authors contributing to this edited collection have adopted rather different theoretical perspectives and addressed divergent issues in the process of capitalist development. While some have used the Weberian perspective to analyze the process of “demand-responsive industrialization,” others have applied Foucauldian concepts to make sense of China’s working class. On top of these, the Chinese societies they examine are situated at different stages of development. Although China still competes largely on the basis of low wage rates, Taiwan has gradually adopted a transnational strategy of competition. Owing to these three levels of variation, it would make little sense to try to identify in this concluding section the consensual views that emerge from the eight chapters. In place of this, the following will analyze positions of the contributing authors on three major issues they have addressed. Specifically, they raise these questions: what forces have enabled these Chinese societies to break away from constraints that have previously prevented them from embarking on the path of capitalist development? Among the probable factors, what is the relative importance of the global capitalist economy, the national-state, or culture-sanctioned entrepreneurship? In the second place, has economic transformation contributed to greater socioeconomic equality and consolidation of civil society in Taiwan, and especially in mainland China? Finally, have the capitalisms that have emerged in China and Taiwan exhibited unique Chinese characteristics? In addition to examining the viewpoints of the contributing authors, the following will also try whenever possible to situate their findings within the broader scholarly context. 227

228

Chinese Capitalisms: Concluding Thoughts

Capitalist development in Chinese societies: Global capital, national-state, local entrepreneurs The uptake of capitalism, as many observers have pointed out, has involved profound continuity with and creative adaptation of traditional practices and institutions. However insofar as the process implies the pursuit of new routines and emergence of new social relations, it has necessarily demanded a certain degree of rupture with the past. As capitalism has not emerged originally in Chinese societies, foreign influences tend to play an important role. The same point has been put elegantly by Perry Anderson (cited in Chapter 9 by Iván Szelényi) when he suggests that cultural heritage and foreign experiences provide two distinct ways of imagining alternative modernities. Global or national It would be a grave understatement to consider foreign experiences in the form of alternative imaginations alone. Of course, capitalist institutions have often presented their practices as more advanced, and tend to be copied by developing societies (Hirakawa 2005; Young 2003). They have also been adopted, as the modernization perspective suggests, through the compelling force of industrialism and global economic exchanges (Kerr 1960; Parsons 1967; cf. Dore 1973). In recent years concepts such as the “global commodity chain” and “global production networks” have been advanced to make sense of the incorporation of production units into the global capitalist system, though the same concepts do not always imply the imposition of capitalist institutions (Gereffi and Korzeniewicz 1994; Castells 1996). Foreign influences, however, have not always been considered benign. From the perspective of some neo-Marxists, capitalism is inherently global and thrives on the basis of plunder and exploitation of less developed countries (Frank 1966; Wallerstein 1974). Hence the incorporation of developing countries into the global capitalist system would only retard their development. Nonetheless, under some rare circumstances—such as when the developing countries in question occupy strategic geopolitical locations—they might be given an opportunity to grow economically. Cumings (1987), for instance, has made a most convincing argument concerning the integration of Taiwan and Korea, initially into the Japanese colonial system and subsequently into the US-dominated global capitalist system. Among the eight main chapters in this edited collection, only two dealing with Taiwan have paid systematic attention to processes of global

Yin-wah Chu

229

capitalist development. It is of interest to note that Hamilton and Kao (Chapter 6) as well as Hsiao, Kung, and Wang (Chapter 7) have moved away from their previous concern with social institutions and developmental state, respectively, and concentrated on global dynamics in this instance; taking divergent positions on their socioeconomic implications for countries on the “receiving end.” To briefly recapitulate, Hamilton and Kao contend that global (primarily American) retailers have provided the opportunity for Taiwan and other East Asian countries to embark on industrial development in the years following World War II. These global retailers, through their merchandisers who source from contracted industrialists according to their perceived capability, have consolidated if not shaped the structure of capitalist development of these countries; so that whereas Korea specializes in mass production, Taiwan moves increasingly into batch production. Above all, it has been through the coaching of Japanese trading companies that Taiwanese industrialists have learnt a brand new way of “making money” by producing for remote marketplaces. As for Hsiao, Kung and Wang, they argue that global capitalist development has presented stiff competition for the semi-peripheral society of Taiwan and that, in the 1980s, Taiwan’s small and medium enterprises have been compelled to engage in a course of “passive and defensive globalization.” Through investing in and transplanting their production networks to Southeast Asia, these enterprises have been able to work with global firms, learn new business models, expand their scale of production, and become truly global competitors that cannot be easily displaced by cheaper competitors elsewhere. The beauty of Hamilton and Kao’s work is that they have gone beyond the broad and general arguments of the global commodity chains literature, to specify ways in which an essentially capitalist method of “making money” has been introduced to Taiwan and flourished there by building upon culturally-sanctioned guanxi. Similarly Hsiao, Kung and Wang have been remarkable for highlighting the complex ways in which state industrial policies of the Southeast Asian countries, and the sub-ethnic identity of the Taiwanese, have articulated with the globalization strategy of taishang. In both cases, the authors have not ignored the intricate ways in which national social institutions (e.g. guanxi or subethnic identity) have intertwined with global forces. Having said this, Hamilton and Kao, as well as Hsiao, Kung and Wang have essentially pointed to the overriding importance of global capitalist dynamics in shaping the course of Taiwan’s capitalist development. Contributing authors focusing on mainland China have attributed a smaller role to global capitalist dynamics. To be sure, Chu and So

230

Chinese Capitalisms: Concluding Thoughts

(Chapter 3) have considered that China’s effort to deepen its neoliberal reform in 1992 was due largely to global political changes, especially the downfall of the Eastern and Central European communist regimes, as well as failure of the Soviet coup in 1992. Indeed, the relevance of global processes as mediated through enterprises relocated from Taiwan and Hong Kong to the southeastern coast of China, as documented by Hamilton and Kao, and by Hsiao, Kung and Wang in this volume, as well as other scholars (Hsing 1998; Smart and Smart 1999; Wong 1996) would not be denied by most contributing authors. However, for different reasons, and in a way rendering support to Arrighi’s (2007) observation that industrial development in China has always been inward-looking, contributing authors writing on China tend to place their bets on indigenous forces when it comes to accounting for the emergence of capitalism in the country—whether they focus on the state, capitalists, or their complex interrelationships. Capitalists and the state Capitalists (or entrepreneurs, for scholars with different research orientations) as agents of innovation, surplus accumulation, and calculated risk-taking have been considered by some scholars to be the most important driving force in capitalist transformation. This is true of Joseph Schumpeter and to a certain extent of Max Weber and even Karl Marx. In the 1950s when the modernization perspective tried to account for the stagnation of most developing countries, the lack of entrepreneurship and a culture that sanctions such behavior was put forth as an important explanation (Inkeles and Smith 1974, Lerner 1966). Again, in the 1970s when the economic “miracles” of certain East Asian countries came to the fore of academic attention, much effort was expended to make sense of exceptional entrepreneurialism. Family and social networks (guanxi), in particular, are elements in Asian civilizations that have been studied most diligently (Gates 1996; Greenhalgh 1994; Hamilton and Biggart 1988; Kao 1999; Kim 1998; King 1992; Numazaki 1996; Tong and Kee 1998; Wong 1988). Similar factors have also been examined in studies concerning mainland China (Gold, Guthrie, and Wank 2002; Guthrie 1999; Huang 2008; Wank 1999; Yang 2002). For some of these observers, family and social networks have been mobilized to generate initial and working capital, identify investment opportunities, acquire technology, find reliable workers, screen business partners, pool production capacity, share market intelligence, and, in the case of China, get around obstacles or rules and regulations imposed by state actors. In other words, these traditional social

Yin-wah Chu

231

institutions have served as “substitutes” for the much-needed modern market institutions that facilitate the smooth functioning of capitalist enterprises. For other observers, capital accumulation and capitalist development is a complex and disruptive transformation that requires much more than the actions of individual capitalists. The emergence of market institutions and stabilization of the capitalist system tend to be a long and tortuous process wherein the state occupies a central position (Block 1990; Collins 1992; Fligstein 2001; Jessop 2002; Polanyi 1957). The role of the state has been even more prominent in research on late-developing countries (Gerschenkron 1962; Cardoso and Faletto 1979). Perhaps more significant is the idea of the “developmental state,” which was coined in the 1980s to account for the rapid capitalist development of East Asia and, to a lesser extent, the southern cone of Latin America (Amsden 1989; Castells 1992; Evans 1992; Gereffi 1989; Gold 1986; Haggard 1990; Hsiao 1995; Johnson 1982; Lim 1985; Wade 1990). According to these observers, concern for national survival has prompted the state elite to engage in economic planning, and implement such plans by mobilizing resources, working with private enterprises, and managing labor dissent, all with a view to overcoming the domination of global capital and achieving capitalist development. In recent years, students of China have explored the applicability of the concept of the developmental state, with rather divergent conclusions (Belcher and Shue 2001; Breslin 1996; Duckett 1998; Howell 2006; Lin 2007; Oi 1995; So 2007; White 1984), while a few have focused on the role played by the Chinese state in building market institutions (Nee 2000). The above discussion has proceeded as if the state and capitalists are detached from each other and act in isolation. However the complex interactions between the state and capitalists have been highlighted and analyzed in some of these works. Evans’ (1992) concept of the developmental state, for instance, emphasizes not only bureaucratic autonomy but also the deep embeddedness of the state elite in the business community in a way that facilitates information exchange and policy implementation. Similarly, Hamilton and Biggart (1988) have taken note of the differences in business networking among Japan, Korea, and Taiwan, and attribute the differences to their divergent state–society relationships and hence modes of exercising authority. The two chapters in this edited collection that deal explicitly with capitalists in Taiwan and China have examined them in the context of state actions. Ho and Sun (Chapter 8) have of course been addressing a longstanding question in economic sociology, namely, whether

232

Chinese Capitalisms: Concluding Thoughts

innovation is the outcome of social institutional conditions or the exploit of an individual entrepreneur. Although they have relentlessly emphasized the dialectical relationship between state policy and entrepreneurial endeavor, their inquiry indicates that it was not through favor granted by succeeding regimes in Taiwan that the Koo business dynasty achieved its massive success. Instead, it was through the acquisition of new knowledge, cultivation of social and political connections, and the taking of calculated risks that the Koos managed to capture business opportunities that emerged through changes in state regulations on property rights. Insofar as Ho and Sun have emphasized the salience of entrepreneurship and social networks, their position agrees with that of Hamilton and Kao, as well as Hsiao, Kung, and Wang who have examined the articulation of global dynamics within the social networks of the Taiwanese. Lin (Chapter 4) has also sought to delineate the complex relationships between state policy and capitalist enterprises in China. Focusing on their internal organization, he finds that it has been shaped more profoundly by previous and existing state policies than by China’s civilizational forces, or in this instance the “patriarchical structure of family ownership and control, cemented and reinforced by Confucian values and norms such as filial piety (xiao), loyalty (zhong), and benevolence (ren)” (p. 74). In other words, even though post-1978 China has seen a surge of “family-based” private entrepreneurs, many of them are women rather than men. Moreover, at the same time that family members and kinsmen play a small role in enterprise management, employer–employee relationships are barely governed by the values of filial piety, loyalty, and benevolence. This pattern, while superficially similar to situations in Hong Kong and Taiwan, is in Lin’s opinion not attributable to the dynamics of modern capitalism as such. Instead, it results from China’s laws on marriage and inheritance introduced in the 1950s, changes to family relations during the Cultural Revolution, the one-child policy launched after 1979, and the persistence of the hukou system amidst massive internal migration, as well as experience with what Andrew Walder (1986) has called “communist neo-traditionalism.” On the surface, this contradicts Szelényi’s (Chapter 9) argument, which emerges through his comparison of China with Eastern and Central Europe, that China’s post-socialist economy has imagined its modernity largely through getting back to its “traditional reservoir” of history and culture. However, as he puts it in the reformulated version of his argument, China’s capitalism has shifted from “entrepreneurial capitalism” to “politicized capitalism” after 1989, and again to

Yin-wah Chu

233

“corporatist neo-patrimonialism” in 2003. Insofar as the transitions are orchestrated by the state, the predominant importance of the latter can hardly be doubted. Among the four substantive chapters on China, Ku (Chapter 2), and Chu and So (Chapter 3) have paid the most attention to the role of the state. Of course, the center of Ku’s analysis has always been Weber’s “China Thesis,” yet his investigation has led him to China’s state policies, both before and after 1978. Specifically, he finds that the unintended consequences of these policies have actually eliminated the obstacles identified originally by Weber as having prevented China from developing capitalism on its own, and made way for the emergence of institutional preconditions. Among other things, mass mobilization during the Cultural Revolution and the one-child policy have undermined the material foundation of the patrilineal Chinese family and shattered the “sib fetter.” At the same time, however, Ku laments that the same unintended consequences have to China’s great disadvantage shattered the “spirit” or ethical dimension of capitalism. This is a point to be examined in greater detail in the coming subsection. Chu and So (Chapter 3), unlike Ku, have not examined China’s national state for the unintended consequences of its policies. Instead, they believe that China’s turn to market reform and eventually the uptake of neoliberalism have largely been the outcome of policies initiated by the party-state. In turn, of course, the policies are outcomes of a multitude of factors: not least of which are the will of the party-state to stay in power, contention among segments of the state elite and social groups with divergent cultural and material interests, and changing world social and political conditions. To briefly recapitulate the discussion in this subsection: although the role of the state has figured prominently in studies of Taiwan elsewhere, authors contributing to this collection tend to give more credit to the entrepreneurs and their social networks for capturing business opportunities or taking Taiwan’s capitalist development to a higher level. By contrast, the authors here who examine China’s capitalist development have mostly given more weight to the communist party-state. Their analyses have brought them to focus on the state (as in the chapters of Ku, and Chu and So), or attribute a superior position to the party-state in cases where they allude to the complex state–capitalist relationship, (as in the chapters by Szelényi, Ku, and especially Lin). For authors focusing on the communist party-state as such, they have not tried to delineate the state’s role in building up the market institutions (cf. Nee 2000) or applied the concept of the “developmental state” (cf. Belcher and Shue 2001; Howell

234

Chinese Capitalisms: Concluding Thoughts

2006; Lin 2007), though their analyses have effectively argued that the party-state has initiated policies to bring about the material preconditions for the emergence of capitalism, and that the state has not shied away from intervening in the economy where “necessary.” In their analyses of the complex state–capitalist relationship, they consider the party-state to have guided the actions and shaped the internal organization of private enterprises, either directly through policy prerogatives or indirectly through impacts on family and social networks—the social and cultural foundation of entrepreneurship in China. Political implications Capitalist development has historically entailed not only the growth of industries or expansion of capitalist enterprises, but also changes in ideas of politico-juridical rights and a battery of social and political relationships. Will capitalist development in late-developing societies be accompanied by a more equitable income distribution, expansion of civil society, and an extension of political rights, or will it follow an entirely different pattern? (Lipset 1960; O’Donnell 1973; Rueschemeyer, Stephens and Stephens 1992) The case of Taiwan, for instance, has been noted for its so-called growth with equity and, furthermore, hailed as the first Chinese society to undergo democratization (Barrett and Whyte 1982; Tien 1989). Can we expect the same to occur for mainland China? Authors contributing to this book are in general not optimistic. Writing about workers in China, Hudson, Hurst, and Sorace (Chapter 5) contend that the working class has become deeply segmented by agecohort, gender, region, rural–urban residence, and work unit status so that working class action has become difficult if not impossible. In addition the honor and security previously attached to workers as builders of socialism have been shattered, undermining the meaning of their work, their experiences of comradeship, and their individual integrity. Hence, even though these authors differ from Gallagher (2005), Lee (2007), and Pun (2005) in the subject matter and angle adopted for analysis, they agree with each other in bemoaning the tremendous barriers that China’s workers have to surmount in order to fight as a class. Commenting on attempts by contemporary Chinese leaders to introduce the policies of a “harmonious society” and the “socialist countryside,” Chu and So (Chapter 3) question their effectiveness in alleviating hardships endured by workers, peasants, and other disadvantaged members of the country. In the first place, the policies are no more than hegemonic projects enacted to perpetuate the rule of the Communist Party. Benefits are doled out to the needy as an act of benevolence,

Yin-wah Chu

235

rather than in acknowledgment of citizens’ rights. As a result, any attempt to get organized among the dissenting individuals has been viewed with suspicion and dealt with by heavy hands. The state elite relies on party discipline to monitor the conduct of local government officials, which is not very useful when the same state elite demands that local governments deliver goals in line with neoliberalism. In short it is doubtful whether the policies of a “harmonious society” and the “socialist countryside” are very helpful in enhancing distributive justice. Furthermore, their introduction by no means portends the growth of civil society or the emergence of political democracy and, in these respects, Chu and So tend to agree with Dickson (2008) and Lee (2007) rather than the optimism of He (2003) and Howell and Pearce (2001). The sharpest criticism, however, comes from Ku (Chapter 2). Among other things, he finds it shocking that “socialist” China could tolerate a level of inequality that even capitalist Taiwan would consider obscene. He also finds the lack of concern for the advancement of civil society and political democracy among mainland Chinese capitalists disappointing. These, he contends, are symptomatic of China’s capitalism, which has emerged solely on the basis of material institutions without regard for the “spirit” or ethic of capitalism. In his view, the growth of the “spirit” has been retarded on many fronts. For one, the party-state has, since the crackdown of the June Fourth democracy movement, advocated an official ideology that concentrates on economic growth and stability at all costs, both of which are not conducive to the emergence of an autonomous class of citizens. For another, the Confucian ethic and other religions no longer provide guidance for the everyday behavior of the Chinese, especially one that bears some resemblance to “inner-worldly asceticism.” Furthermore, at the same time that “system trust” has failed to take root, the process of de-traditionalization also threatens to undermine the personal trust that has been built on familiarity and preexisting social networks. Altogether, this means that China is “engaged in a kind of capitalism that has departed from asceticism, the spirit of citizens, and the spirit of individual freedom” (p. 38). Essentially, then, it is a capitalist system characterized by an unrestrained search for profit under authoritarian political domination.

Capitalisms: Eastern-Central European, East Asian, and Chinese Authors contributing to this collection have mostly refrained from providing an explicit definition of capitalism, evaluated if the Chinese

236

Chinese Capitalisms: Concluding Thoughts

societies are capitalist, or examined if they exhibit unique Chinese characteristics. However, it would be important and of interest to try to glean from the discussion their positions on these three issues. “Definitions” of capitalism emerging from the eight substantive chapters are rather dissimilar, in part reflecting the divergent theoretical traditions of the contributing authors. In the first place, there are Weberians such as Hamilton and Kao, as well as Ku, and Ho and Sun. Among them, Hamilton and Kao have made a few observations that can be pulled together to constitute a definition of capitalism. Importantly, they note at one point that the Japanese trading companies have shown the Taiwanese how to “make money” off the global economy and, furthermore, how to become “reliable and trustworthy partners to firms that ordered goods from them, but about which they had little additional knowledge” (p. 134). Furthermore, it is suggested that a Taiwanese businessman typically learns to be a “network player,” firstly by complying with both the external standards specified by the buyers and the internal standards emerging from the production networks; and secondly by “fill[ing] the niches that appear in the production process or develop[ing] new niches that others will find useful” (p. 151). Whether “system trust” can indeed be taught is not indisputable. Nonetheless one can safely infer that Hamilton and Kao have adopted Weber’s idea that capitalism involves prudent, persistent, and systemic profit-making, taking of calculated risks, and promotion of standardization and rationality, all taking place in a social context characterized by system trust (Weber 1985 [1904]). Other authors in this volume, such as Chu and So, as well as Hsiao, Kung, and Wang, have come closer to the neo-Marxist tradition. For most Marxists, capitalism is characterized by the perpetual search for profit and therefore the domination of exchange value over use value. In addition, while some neo-Marxists contend that capitalism entails the emergence of free labor (Brenner 1982; Laclau 1977), others believe that different relations of production can coexist in the capitalist world system (Wallerstein 1974). Chu and So, in taking note of the trend in marketization, privatization, and commodification of human services, have effectively followed the Marxist emphasis on the escalating significance of exchange value. Their concern over the emergence of private entrepreneurs (Alvin Y. So calls them “cadre-capitalists” in another context), is also consistent with this theoretical orientation. Finally, Szelényi is unique among these authors in that he has made explicit his conceptualization of capitalism in using three criteria to evaluate if China should be considered a socialist or capitalist

Yin-wah Chu

237

formation. These criteria include, firstly, the recognition and presence of private property rights; secondly, the involvement of the state in economic processes; and thirdly, whether a country is ruled by a one-party state legitimized by communist ideology. Whether they have adopted the neo-Marxist or Weberian conceptualization of capitalism, authors contributing to this collection seem to concur on the prevalence of capitalist relations in both Taiwan and China. The case of Taiwan is uncontroversial. Given the long history of growth in its private enterprises and, to use the terminology coined by Hamilton and Kao, the endeavor to “make money”—by, among other things, working on innovations, operating through production networks, and super-exploiting ethnic minorities in Southeast Asia—the presence of capitalism in Taiwan is indisputable. The case of mainland China is more problematic. Aside from the official designation of the country as practicing “market socialism,” an influential recent study by Huang (2008) has used private ownership as the benchmark for the emergence of capitalism and contends that the lion’s share of equity in the so-called privatized state-owned enterprises remains in public hands. As such, China in his opinion has yet to undergo the capitalist transition. Authors in this volume hold a different opinion. Ku, as well as Chu and So, agree that a few features of China set it apart from capitalisms elsewhere. However they see no reason for not using that designation. In the case of Ku, a major dimension of his project is to identify the material and spiritual conditions for the rise of capitalism. Apart from affirming the presence of material conditions, not least the introduction of the “private property law,” he reports how “profit-making” has become an overarching value to such a degree that individuals may ruthlessly sabotage preexisting social relationships and the country as a whole can turn a blind eye on unscrupulous exploitations. In turn, although Chu and So have noted the predominance of the party-state in the political economy of accumulation and are mindful of the unevenness of development in the country, they emphasize above all the fact that neoliberalism— marketization, privatization, and commodification—has permeated practically all processes and relations of production. To this extent, Chu and So’s notion of capitalism is closer to Wallerstein’s (1974)—and, in a way, concurs with Szelényi that insofar as the directionality of China’s change is concerned, taking into account the expansion of private property, the declining role of the state in economic processes, and the watering down of communist ideology, the country’s move toward capitalism is indisputable. For these authors, Huang’s (2008) fetishist

238

Chinese Capitalisms: Concluding Thoughts

focus on private ownership is too narrow and overlooks other crucial relationships. China’s capitalism: Unique characteristics? As many scholars have noted, capitalism can take and has indeed assumed different forms, depending on economic foundation (e.g. merchant or financial), welfare implication (e.g. social versus neoliberal), and the like (Arrighi 2007; Coates 2005; Miller 2005). As a preliminary effort to examine the uniqueness of China’s capitalism, the following will glean from the main chapters emerging views on China as compared to other former socialist countries and those from East Asia. In this volume, Szelényi has argued robustly that the capitalisms emerging in China, Central Europe, and Eastern Europe have been quite different. He undertakes his comparison by looking at four dimensions: privatization strategy, dominant property rights, authority relations, and political system. In his opinion, China has drawn heavily from its traditional reservoir of history and culture; has attempted initially to build small and medium firms from below, drawing upon domestic and foreign (including Diaspora) capital; and has sought only at a later stage to privatize its state-owned enterprises. This contrasts sharply with the Central European and Eastern European countries where mass privatization occurred early on, leading to the domination of foreign capital among countries in Central Europe, and control by the oligarchy and their successors in Russia. At the same time, instead of dismantling the communist regimes as has occurred in Central Europe and Russia, the pathway from socialism in China has helped to consolidate the power of the communist party-state (see also Walder 1996). Turning to the comparison of China with East Asia, it is notable that none of the authors has made such a comparison. Going through the findings that emerge from studies of mainland China and Taiwan collected in this volume, however, there seems to be a strong case to argue for their dissimilarities. Researchers analyzing the global dimension of capitalist development in Taiwan (Hamilton and Kao, as well as Hsiao, Kung, and Wang) have noted unanimously the spread of Taiwanese enterprises and their practices to China. The same can also be said of Hong Kong enterprises investing in the Pearl River Delta (Wong 1996). However, China’s economy is vast and, even though one should never understate the influence of the overseas Chinese capital, there is no call for an overestimation either. More fundamentally, China’s experiences of family, social relations, and the workplace have undergone profound transformation after 30 years of socialist experiment—so that they differ

Yin-wah Chu

239

from those of Taiwan in important ways even though China and Taiwan share the same civilizational context. Hence although all three chapters on Taiwan have emphasized the high level of trust among Taiwanese businessmen connected through social networks, Ku’s study of China has alerted us to incidents of “slaying the familiar” (sha shu) or the breakdown of interpersonal trust. Similarly, Lin’s (Chapter 4) preliminary findings have suggested subtle differences between the internal organization of China’s emerging family enterprises and that of ideal-typical Chinese family enterprises elsewhere. Remnants of socialist economic relations, and the party-state’s continuing effort of social engineering, are factors Lin highlights as having exerted the greatest influence. Turning to China’s party-state, despite the importance attached to it by all contributing authors writing on China, it would be imprudent with the information on hand to assert that it has played a stronger role than the Taiwanese state in the course of development. However the discussion emerging from this collection does suggest some differences between China’s party-state and the developmental state as portrayed in the East Asian literature. First, an indulgent world political context is sometimes considered an important precondition for the emergence of the East Asian developmental state. Castells (1992) has spoken of it as one dimension of the “double-autonomy” and other scholars have documented numerous ways in which financial assistance and policy convenience have been extended by the US to Japan, Korea, and Taiwan (Cumings 1987; Gold 1986). However China’s capitalist transition has taken place in a totally different global political context, and it has to focus to a larger extent on its national economy. Second, the developmental elite in East Asia have often been considered to be confronted with the threat of national survival, and hence motivated by the “will to develop” (Johnson 1982; Castells 1992). In the opinion of Ku as well as Chu and So, party survival has been as important as national survival in China’s decision to undertake market reform and, in particular, the turn to neoliberalism. The difference in concern has also prompted the party-state to initiate the policies of a “harmonious society” and the “socialist countryside,” which are uncommon among the East Asian developmental states. Third and most significant, the East Asian developmental state is often characterized as being strong: organized as an effective bureaucracy, possessing material and nonmaterial resources, and capable of working closely with private enterprises (Castells 1992; Evans 1992; Haggard 1990). As Ku has argued, China has seen the replacement of patrimonial bureaucracy by a partybureaucracy, thereby creating a bureaucratic state capable of building

240

Chinese Capitalisms: Concluding Thoughts

capitalist institutions such as law, finance, and a monetary system. Chu and So have also documented how the privatization of state enterprises in China has been shaped by “developmental” concerns. Important as these are, it remains the case that China is a vast country so that the performances of local governments vary tremendously. Instead of a developmental state, Howell (2006) has characterized the Chinese state as a polymorphous one. Furthermore, as Chu and So have argued, state rebuilding that accompanies the deepening of neoliberalism has actually placed local governments in an awkward position. At the same time that the state elite at the national center has taken the lion’s share of tax revenue, it still obliges local governments to achieve economic goals it has set. The recent attempt to introduce policies such as the “socialist countryside” might heighten the contradiction so long as commensurate resources have not been given to local officials for implementing them. Altogether there appear to be serious problems that prevent the state bureaucracy from implementing its policies and working with the private sector in ways consistent with the East Asian developmental state. To the extent that the capitalism emerging in China appears to differ from that which is developing in East Asia and former socialist countries, can we expect it to become a stable, enduring “Chinese” way of capitalist development? The question is too complex to be addressed adequately here. In lieu of a thorough examination, I would like to draw attention to the piercing criticisms offered by Ku. In particular, he points to the weakness of civil society, the breakdown of social relations, severe injustice, and governing elites who are ready to mobilize the nationalist ideology as a tranquilizer. All these, in his view, instead of foretelling the becoming of a new civilization, could be a premonition of national disaster. Ku’s arguments are important. However, even though I concur with him that the prevailing system is unlikely to endure unless it addresses public dissent in a fundamental way, I do not share his pessimism. Has it been proved beyond doubt that social relations founded on familiarity have been shattered altogether in China? Are China’s bourgeoisie completely devoid of civic consciousness? Have the hegemonic projects of the “harmonious society” and “socialist countryside” succeeded in gaining the compliance of the general public? I do not think so. In this connection, it would be helpful to relate a small story. China experienced the pain of the Sichuan earthquake on May 12, 2008. Top government officials, including President Hu Jintao and Premier Wen Jiabao, have made every effort to rescue and assist victims of the quake.

Yin-wah Chu

241

Together with other governing elites, they have paid unprecedented respect to the dead during the commemoration services in 2008 and 2009. Despite this, officials investigating the collapse of a disproportionate number of school buildings during the quake announced that no one should be held responsible: construction materials were not deficient and blueprints of the buildings were in line with the national standards. Commenting on this, a village dweller in Sichuan said in a television interview: “Well, I tell you this, do not tell other people. They [government officials] do not regard us as human beings; we are just straws to them” (CableNews May 10, 2009). The sentiment unveiled in this incident is unlikely to be confined to the peasant alone, and it is inconceivable that a society with such widespread disillusionment and cynicism can remain stable for long. Together with the general public’s mutual assistance, and trust, rendered during the Sichuan earthquake, there are reasons to hope that the fabric of China’s society is not incapable of generating some forms of civil society. With this possibility, we may caution against Ku’s pessimism and rejoice in the fact that historical development is seldom deterministic, and that it sometimes takes us by surprise. China’s capitalist development may not necessarily help to consolidate the power of the communist party-state, and it is with caution and hope that we look forward to a more open and equitable society in the future.

References Amsden, A. (1989) Asia’s Next Giant (New York: Oxford). Arrighi, G. (2007) Adam Smith in Beijing (New York: Verso). Barrett, R. E. and M. K. Whyte (1982) “Dependency Theory and Taiwan: Analysis of a Deviant Case,” American Journal of Sociology 87(5), 1064–89. Belcher, M. and V. Shue (2001) “Into Leather: State-led Development and the Private Sector in Xinji,” The China Quarterly 166, 368–93. Block, F. L. (1990) Post Industrial Possibilities (Berkeley: University of California Press). Brenner, R. (1982) “The Origins of Capitalist Development: A Criticism of neoSmithian Marxism,” in H. Alavi and T. Shanin (eds) Introduction to the Sociology of “Developing Societies” (London: Macmillan). Breslin, S. (1996) “China: Developmental State or Dysfunctional Development,” Third World Quarterly 17(4), 689–706. Cardoso, F. H. and E. Faletto (1979) Dependency and Development in Latin America (Berkeley: University of California Press). Castells, M. (1992) “Four Asian Tigers with a Dragon Head” in R. P. Appelbaum and J. Henderson (eds) States and Development in the Asian Pacific Rim (London: Sage). Castells, M. (1996) The Rise of the Network Society (Oxford: Blackwell). Coates, D. (2005) Varieties of Capitalism, Varieties of Approaches (New York: Palgrave Macmillan).

242

Chinese Capitalisms: Concluding Thoughts

Collins, R. (1992) “Weber’s Last Theory of Capitalism” in M. Granovetter and R. Swedberg (eds) The Sociology of Economic Life (Boulder: Westview Press). Cumings, B. (1987) “The Origins and Development of the Northeast Asian Political Economy” in F. C. Deyo (ed.) The Political Economy of the New Asian Industrialism (Ithaca: Cornell University Press). Dickson, B. J. (2008) Wealth into Power: The Communist Party’s Embrace of China’s Private Sector (Cambridge: Cambridge University Press). Dore, R. (1973) British Factory, Japanese Factory (London: Allen & Unwin). Duckett, J. (1998) The Entrepreneurial State in China (London: Routledge). Evans, P. B. (1992) “The State as a Problem and Solution” in S. Haggard and R. R. Kaufman (eds) The Politics of Economic Adjustment (Princeton: Princeton University Press). Fligstein, N. (2001) The Architecture of Markets (Princeton: Princeton University Press). Frank, A. G. (1978) Dependent Accumulation and Underdevelopment (London: Macmillan). Gallagher, M. E. (2005) Contagious Capitalism: Globalization and the Politics of Labor in China (Princeton: Princeton University Press). Gates, H. (1996) China’s Motor: A Thousand Years of Petty Capitalism (Ithaca: Cornell University Press). Gereffi, G. (1989) “Rethinking Development Theory: Insights from East Asia and Latin America,” Sociological Forum, 4 (4), 505–33. Gereffi, G. and M. Korzeniewicz (eds) (1994) Commodity Chains and Global Capitalism (Westport: Greenwood Press). Gerschenkron, A. (1962) Economic Backwardness in Historical Perspective (Cambridge: Belknap Press). Gold, T. B. (1986) State and Society in the Taiwan Miracle (Armonk: M. E. Sharpe). Gold, T. B., D. Guthrie, and D. Wank (eds) (2002) Social Connections in China (Cambridge: Cambridge University Press). Greenhalgh, S. (1994) “De-Orientalizing the Chinese Family Firm,” American Ethnologist 21(4), 746–75. Guthrie, D. (1999) Dragon in a Three-Piece Suit: The Emergence of Capitalism in China (Princeton: Princeton University Press). Haggard, S. (1990) Pathways from the Periphery (Ithaca: Cornell University Press). Hamilton, G. G. and N. W. Biggart (1988) “Market, Culture, and Authority,” American Journal of Sociology July, S52–94. He, B. (2003) “The Making of a Nascent Civil Society in China” in D. C. Schak and W. Hudson (eds) Civil Society in Asia (Aldershot: Ashgate). Hirakawa, S. (2005) Japan’s Love-Hate Relationship with the West (Kent: Global Oriental). Howell, J. (2006) “Reflections on the Chinese State,” Development and Change 37(2), 273–97. Howell, J. and J. Pearce (2001) “Civil Society and Market Transition: The Case of China” in Civil Society and Development (London: Lynn Rienner). Hsiao, M. H. H. (1995) “The State and Business Relations in Taiwan” in R. Fitzgerald (ed.) The State and Economic Development (London: Frank Cass). Hsing, Y.-T. (1998) Making Capitalism in China (New York: Oxford University Press). Huang, Y. (2008) Capitalism with Chinese Characteristics: Entrepreneurship and the State (New York: Cambridge University Press).

Yin-wah Chu

243

Inkeles, A. and D. H. Smith (1974) Becoming Modern (London: Heinemann). Jessop, B. (2002) The Future of the Capitalist State (Cambridge: Polity). Johnson, C. A. (1982) MITI and the Japanese Miracle (Stanford: Stanford University Press). Kao, C.-S. (1999) Toujianiang (The Boss’s Wife) (Taipei: Lianjin). Kerr, C. (1960) Industrialism and Industrial Man (Cambridge, MA: Harvard University Press). Laclau, E. (1977) Politics and Ideology in Marxist Theory (London: New Left Books). Lee, C. K. (2007) Against the Law: Labor Protests in China’s Rustbelt and Sunbelt (Berkeley: University of California Press). Lerner, D. (1966) The Passing of Traditional Society (New York: Free Press). Lim, H. C. (1985) Dependent Development in Korea (Seoul: Seoul National University Press). Kim, E.-M. (1988) Big Business, Strong State (Albany: SUNY Press). King, A. Y. C. (1994) “Kuan-hsi and Network Building” in W. M. Tu (ed.) The Living Tree (Stanford: Stanford University Press). Lin, N. (2007) “Emerging Chinese Capitalism and its Theoretical and Global Significance,” Social Transformations in Chinese Societies 3, 13–62. Lipset, S. M. (1960) Political Man (London: Heinemann). Miller, M. (2005) Worlds of Capitalism (London: Routledge). Nee, V. (2000) “The Role of the State in Making a Market Economy,” Journal of Institutional and Theoretical Economic 156, 64–88. Numazaki, I. (1996) “The Role of Personal Networks in the Making of Taiwan’s Guanxiqiye (Related Enterprises)” in G. G. Hamilton (ed.) Asian Business Networks (Berlin: Walter de Gruyter). O’Donnell, G. A. (1973) Modernization and Bureaucratic-Authoritarianism (Berkeley: Institute of International Studies, University of California). Oi, J. (1995) “The Role of the Local State in China’s Transitional Economy,” China Quarterly 144, 1132–49. Parsons, T. (1968) The Structure of Social Action (New York: Free Press). Polanyi, K. (1957) The Great Transformation (Boston: Beacon Press). Pun, N. (2005) Made in China (Durham: Duke University Press). Rueschemeyer, D., E. H. Stephens, and J. D. Stephens (1992) Capitalist Development and Democracy (Chicago: University of Chicago Press). Smart, J. and A. Smart (1999) “Personal Relations and Divergent Economies: a case study of Hong Kong Investment in South China” in S. M. Low (ed.) Theorizing the City (New Brunswick: Rutgers University Press). So, A. Y. (2007) “The Transition from Neoliberalism to State Developmentalism in China,” International Journal of Modern Sociology, 33. Tien, H.-M. (1989) The Great Transition (Stanford: Hoover Institution Press, Stanford University). Tong, C.-K. and P. K. Yong (1998) “Guanxi Bases, Xinyong and Chinese Business Networks,” British Journal of Sociology 49(1/March), 75–96. Wade, R. (1990) Governing the Market (Princeton: Princeton University Press). Walder, A. (1996) China’s Transitional Economy: Interpreting its Significance (London: Oxford University Press). Wallerstein, I. (1974) The Modern World-System (New York: Academic Press). Wank, D. L. (1999) Commodifying Communism: Business, Trust, and Politics in a Chinese City (Cambridge: Cambridge University Press).

244

Chinese Capitalisms: Concluding Thoughts

Weber, M. (1985) The Protestant Ethic and the Spirit of Capitalism, translated by T. Parsons with an introduction by A. Giddens (London: Unwin). White, G. (1984) “Developmental States and Socialist Industrialization in the Third World,” Journal of Development Studies 21(1), 97–120. Wong, S.-L. (1988) Emigrant Entrepreneurs (Hong Kong: Oxford University Press). Wong, S.-L. (1996) “Chinese Entrepreneurship and Economic Development” in B. L. McCormick and J. Unger (eds) China after Socialism (Armonk: M. E. Sharpe). Yang, M. M. H. (2002) “The Resilience of Guanxi and its New Deployments: A Critique of Some New Guanxi Scholarship,” China Quarterly 170 (June), 459–76. Young, R. (2003) Postcolonialism (Oxford: Oxford University Press).

Index Alienation 36, 109 Business groups 130, 132–133, 149 See also “Zaibatsu” and “Keiretsu” under Japan, and “Chaebol” under Korea Capitalism Chinese capitalism, defining characteristics 73–75, 210–211, 238–241 See entries under “Chinese capitalist enterprise” and “Socialist practices (China)” Commercial capitalism 209 Definition 13, 208, 236–237 Entrepreneurial capitalism 14 Finance capitalism 209 Merchant capitalism 209 Modern capitalism 208–209 Politicized capitalism 14, 206, 209, 218–220 Postcommunist capitalism (Central Europe) 213–216 Postcommunist capitalism (China) 218–220 Postcommunist capitalism (Eastern Europe) 216–218 State-led capitalism 14 China Hong Kong 2, 47, 56, 76–77, 91, 188–191, 230, 232, 238 Mainland 3–10, 78–92, 157, 167–170, 237 Taiwan 9–12, 47, 76–77, 91, 227–239 Chinese capitalist enterprise 73–75, 139 Benevolence 74–77, 87–90, 232, 234 Entrepreneurship 74, 81–83, 90, 139–152, 178–188, 194–195, 201, 206, 210, 218–219, 227, 232, 234

Family 73–84, 90–92, 140–142, 145, 176–178, 186–188, 210, 230, 232, 233, 238–239 Family ownership and control 74, 78, 81, 90, 176, 232 Filial piety 74–75, 83–84, 89, 91 Guanxi 33, 47, 74, 210, 229–230 See “Social networks” Loyalty 74–77, 87, 89, 90, 232 Personal entrepreneurship (post-1978 China) 52 Private enterprises (post-1978 China) 52, 60, 63, 66 See also entries under “Entrepreneurship” and “Innovation” Chinese Communist Party (CCP) 3, 20, 26, 28–29, 32, 35, 38, 42, 85–86, 90, 104, 204, 206, 208, 211 See also “Communist party-state (China)” under the entry of “State” Civil society 25, 34–38, 60–62, 209, 211, 227, 234–235, 240–241 Citizen 35, 36, 38, 110–119, 235 Mass disturbances 61 Organizations (labor, professional, business) 62, 64, 81 Social protests 60–62, 65, 66, 67, 104–105 Tiananmen democratic movements 32, 55–56, 218, 232, 235 Confucianism 75, 115–116, 201, 208, 232, 235 Sib (or sib fetter) 201, 233 Developmental state 203, 229, 231, 233, 239–240 East Asia 201, 229–231, 235, 238–240

245

246

Index

Entrepreneurship 74, 81–83, 90, 139–151, 178–188, 194–195, 201, 230, 232, 234 Change in property rights 178–195, 232 Family-based 73–84, 90–92, 140–142, 145, 176–178, 186–188, 210, 230, 232, 238–239 Innovation 58, 68, 137–139, 178–181, 185–190, 195–196, 230, 232, 237 Making money 139–151, 229, 236 Risk-taking 144, 150, 160–161, 180–181, 187–188, 190, 193–194, 230, 232, 236 The gender dimension 75–81, 91 Ethnic Chinese 157–160, 165–172, 229 Chinese cultural affinity 160 Ethnic economy 11, 157 Labor control 11, 168–172, 237 Production networks enclave 11, 160–161 Family (Chinese) 28–29, 73–84, 90–92 Clan 28–29, 33 Clanship network 29 Confucian selfhood (men) 115–116 One-child policy 29, 80, 84–85, 89–91, 232–233 Global Defensive globalization 161, 172, 229 Global capital 47, 77, 101–102, 125–130, 147–149, 152, 171–172, 228–229, 231–239 Global financial crisis 67–68 See also entries under “United States” Global production chain 164–165, 173, 228, 229 Global retailers 9, 125–137, 144–152, 229 Local (Taiwan) trading companies 134, 136–138 Guanxi 33, 47, 74, 210, 229–230 See “Social networks”

Hamilton, Gary 21, 210 Huang, Yasheng 201, 204–207, 210, 213, 218, 219 Income inequality 36, 60–61, 235 Income disparity 60–61 Income gap 20, 60–61 Injustice 61, 234, 240 Innovation 137–139, 161, 178–181, 185, 187–190, 195–196, 230 Imitation 137–139 Network 137–139, 180–181, 237 Property rights 178–195, 232 Risk 144, 150, 187–190, 193–194, 230, 232, 236 Japan 127–138, 228 Japanese colonial government 181–184, 186, 191–193 Japanese trading companies 128, 131–138, 147, 229, 236 Keiretsu 132 Zaibatsu 132 King, Ambrose 23–24 Korea 129–131, 144, 147 Chaebol 130, 209 Kornai, Janos 199, 200, 202–204 Labor Labor control 168–172 See entries under “Worker” Lange, Oscar 202–203 Legitimacy 28, 29–30, 32, 178–179, 188, 190–195, 199–203, 220 Legitimacy crisis 55, 56–59 Marx, Karl 36, 209, 236 McNally, Christopher 203, 207–211 Modernization theory 20, 23, 26, 32, 228, 230 Nee, Victor 47, 205–206, 210, 218–219 Network Contract manufacturing 129, 136, 138, 140, 145–152

Index Global production networks 47, 228 Innovation 137–139, 180–181 Production networks 10–11, 136–152, 157–165, 172, 229, 231, 236–237 Subcontract 140–141, 148–152 See also “Social networks” Neoliberalism 5–6, 48–49, 230, 233, 235, 237, 238–240 Corporatization 58 Marketization 48, 49, 53, 54, 65, 66, 67, 236, 237 Neoliberal 213–216, 218, 219, 230 Privatization 48, 49, 52, 58, 204–206, 211, 214, 216–217, 238 Washington consensus 204, 215, 219 Property rights 19, 63, 237, 238 Definition 12, 178–195 Private property 67, 203–207, 211 Rational 27–29, 30, 33, 36, 149–152, 236 Iron cage 31, 35–36 Schumpeter, Joseph 178–179, 181, 188, 194 Social networks 25, 47, 75–77, 80, 86, 168, 180–181, 185–187, 190–192, 230, 232–235, 239 Social protests 60–62, 65, 66, 67, 104–105 Mass disturbances 61 Tiananmen democratic movements 32, 55–56, 218, 232, 235 See also entries under “Civil society” Socialism Classical system of socialism 199–200 Socialist formation (China) 203–207, 238 See also entries under “Socialist practices (China)” Socialist market economy 30, 54, 58–59, 201–203, 207, 209, 237 Socialist men 212

247

Socialist practices (China) Communist neo-traditionalism 186, 232 Harmonious society 32, 62–67, 234–235, 239–240 Hukou system 87–88, 204, 232 Iron men 115–116 Labor Contract Law 62–62, 67 Socialism (China) 102, 105, 115 Socialist countryside 62, 63, 67, 234–235, 239–240 State-owned enterprises 85–86, 103, 105–106, 108–111, 117, 204–206, 237–238, 240 The Three Represent 32, 50, 62, 64 Southeast Asia 229, 237 Southeast Asian states 161 Spirit of capitalism 19–38, 233, 235, 237 State 29, 35, 76–77, 180–195, 203, 205–206, 207, 219, 230–234, 237, 239, 240 Bureaucratic state 239 Central-local 47, 51, 57, 65–67, 70, 235, 240 Communist party-state (China) 26, 29, 46–48, 199, 203, 211–212, 220, 233–234, 235, 237, 238, 239, 241 See also entries under “Chinese Communist Party” Legal-rational 74, 76 Party bureaucracy 29 Patrimonial bureaucracy 29 State capacity 57 State neoliberalism 47–68 Trust 25, 34–35, 134, 239, 241 Personal trust 35, 235, 239 System trust 35, 134, 183, 184, 235, 236 United States 228, 239 Plaza Accord 145, 149, 171 Retailers 126–131, 134–137 Walder, Andrew 47, 86–87, 103, 204 Weber, Max 47, 201, 208–209, 210, 236

248

Index

Wong, Siu-lun 176 Workers Ethnic minority 11 Fragmented subjectivities 102–105, 234 Individual[ization] 101–102, 109, 116, 119, 234 Iron men 115–116

Migrant workers 76, 80, 85, 87–90, 162, 166–169 Working class segmentation 105–109, 234 See also entries under “Labor” World system approach 50, 236, 228 Yu, Ying-shih 24, 35, 36