SHA 385
The Party State and the Relationship of Government and Markets
Jean Oi, The Role of the Local State in China’s Transitional Economy
What kind of state does China have?
Laissez faire
Leninist state with command economy
Developmental state
Leninist developmental state + local state corportism
Disciplined multiple states with strong incentives to promote economic growth through entrepreneurial action
It is the local Chinese state that is the most active agent in promoting economic growth, creating capitalist firms and acting as capitalists. This is a Maoist state acting as a developmental state, which leads to a fundamentally different kind of state. Maoist state had to be changed to permit local initiative and develop incentives for economic development but its capabilities for promoting growth were substantial.
Maoist state bureaucracy was disciplined and organized down to local levels.
Makes the case for TVEs as collective enterprises, not as private firms
· Property rights of TVEs remain with the local government and much of the decision making responsibility lies with local officials
· But the day-to-day operation is with contracting officials who operate the firm
How did the system of TVEs – Local government operate?
· Economic reforms remove the restraints created by a command economy and marketize the economy and create incentives that push local officials toward entrepreneurial action
· Decollectivize agriculture changes the access of local governments to revenues
· Local officials must act to create incomes for themselves: entrepreneurial reward and risk with hard budget constraints
· County officials could operate multiple TVEs and reap rewards
· General secretaries were judged by higher levels on the basis of economic growth
· The administrative bureaucracy becomes a channel of information and resources for promoting market production
· This information and resource system extends across the region and regions to give firms access to inputs and markets
· Officials serve to provide information and proposals of an entrepreneurial developmental state – officials and managers as entrepreneurial partners with the official facilitating firm interactions across the area and region
· Property rights allow officials to allocate and reallocate resources
· TVEs assume debts of other local TVEs that fail and extend loans to other local TVEs
· Targeted subsidies/loans/resources to TVEs based on performance: administrative guidance of Japan plus the chaebol direction of Korea
· Local governments as owner and regulator of TVEs – nature of embeddedness and autonomy
Why did local officials act as entrepreneurs and not as predators?
Role of the CCP?
Guanxi is not the same as predatory corruption
Local officials do gain some measure of autonomy of central government but still remain under the supervision of the CCP
Is the Leninist nature of the CCP the key to its economic success?
Bureaucrats in Business, Chinese-Style: The Lessons of Market Reform and State Entrepreneurialism in the People's Republic of China
JANE DUCKETT *
In the 1990s, departments within the state administration in China have been setting up profit-seeking businesses to earn income for themselves and to employ their officials. These new state businesses differ from the state enterprises that existed under the command economy in terms of both their organization and their sources of investment, and they have been neither planned as part of the market reform program nor anticipated by central government policy makers. Rather, they are a spontaneous response by individual departments to the needs and opportunities that have emerged in the process of economic liberalization.
This state activity is novel in the experience of implementing liberalization policies around the world. Moreover, it is unanticipated in the literature on the political economy of market reform, where states are typically expected to resist liberalization policies because they reduce their influence.
Neoliberal thinking - These findings reinforce expectations that state intervention
creates bureaucratic and societal vested interests that will seek to maintain the lucrative
status quo and resist economic liberalization, and they apparently give empirical support to NPE theory. As John Waterbury has noted: ``From different disciplinary origins there has been a conflation of assumptions about the likely behavior of public bureaucracies that yields powerful insights into their pathologies but little that would explain why they might change'' It has become part of the orthodox thinking on economic liberalization that state bureaucracies would have little interest in promoting market reform.
At the same time as the dominant thinking in development theory and practice has converged toward anticipating state resistance to economic liberalization, market reform in China has produced a quite contrary phenomenon in which mid- and lower-level officials within the state bureaucracy embrace markets by setting up their own businesses. As competitive markets have emerged, Chinese bureaucrats have become involved in business in a way unanticipated in the dominant thinking on market reform. This paper argues that some of these activities are genuinely entrepreneurial, and concludes that state entrepreneurialism in China reveals weaknesses in current thinking about the state and marketization in development.
the state businesses are only semi-legitimate, and as a result are not generally reported in China. This means that there are no available quantitative data, and documentary reports are scarce. It is because the state officials have invested state assets in the businesses to earn income in a market environment, that I characterize them as adaptive, embracing market reform and acting entrepreneurially. They are promoting rather than hindering market reform in that they are using the businesses to implement policies to cut back state personnel rather than blocking cutbacks. It remains for further research, however, to determine whether the enterprises have in fact operated without advantage derived from their bureaucratic parentage, promoted further deregulation and market reform, and led to state restructuring in the longer term.
ranging from small trading companies or restaurants with only a handful of employees, to large department stores and real estate development companies with several dozen or more sta.. A large number were service sector businesses, partly because this was a small part of the prereform command economy and therefore had most scope for development, and partly because such businesses often require relatively little initial capital investment. Sometimes the businesses were related to the administrative work of the parent department, but many conducted unrelated business. For example, public property departments tended to establish real estate development companies ‹often more than one‹but some had also set up trade companies and one had opened a large department store. Commerce departments, which had managed the distribution of consumer
goods in the prereform planning system, often set up businesses trading in those goods,
but they had also created other kinds of business (Liu, 1993). In addition to several trading companies, the municipal commerce bureau
Sometimes joint venture companies were established with foreign business capital. For example, one Tianjin government department had created several real estate development ventures together with investors from Hong Kong. The profits generated by the businesses are shared with the parent department and are used to pay o.cials' bonuses, supplement administrative expenses, and carry out departments' o.cial work. The new businesses thus help relieve financial problems that have grown for departments in the reform period as the demands on them increase and inflation devalues state funds and officials' salaries.
Leading o.cials have been under pressure to cut back sta.ng levels during the reform period so as to restructure the bureaucracy for the market economy and to reduce budgetary spending. 28 The pressure has been particularly evident in departments required to restructure because markets have encroached on their work, and there the businesses have clearly provided a convenient means of reducing personnel.
The motivation for the new businesses was primarily that they allowed individual departments within the state administration simultaneously to earn new income and comply with the sta. reduction policy without making their personnel redundant.
Some further clarification of ``state entrepreneurialism'' and an outline of the key features of ``the entrepreneurial state'' are therefore necessary. Some of the new state businesses, like those described above, are best seen as a distinctive kind of state involvement in the economy and one that can be distinguished from corruption and profiteering.
Indeed this activity is best termed ``entrepreneurial'' since it involves individual departments investing directly, to generate income, in businesses that operate in a market environment.
In these cases, individual departments invest their own finance in businesses, which
therefore di.er from traditional state enterprises that receive budgetary funding as designated in state plans. Moreover, they do so to employ some of their own sta. and to generate pro®ts for themselves rather than for local or central government. These business ventures also involve an element of risk, often seen as a
defining feature of entrepreneurship. they are set up to build buildings, produce goods, provide catering services and trade commodities in a competitive market
environment. Many were set up to trade in consumer goods or provide services (restaurants and dance halls) in sectors where markets were at their most developed.
It is not yet clear whether the entrepreneurial state will be a short-lived phenomenon in the process of reforming state planning and introducing a market economy in China, or whether it will prove more enduring
State entrepreneurialism also involves a different kind of activity from that found in the ``developmental state'' identified by some as directing development in other parts of East
Asia indeed perhaps also in China itself
Did this low level kind of state entrepreneurialism at the local level reflect a more deep-seated form of practice that was augmented and redefined in the reform of state owned enterprises in the 1990s?
Is state entrepreneurialism very different from that in TVEs or from the peasant behavior in responding to new incentives in farming and production?
Sources of social support for China’s current political order: The “thick embeddedness” of private capital holders
Christopher A. McNally, Teresa Wright
Why hasn’t massive economic growth and the explosion in the size and economic power of the capitalist class led to radical political change?
Why hasn’t some form of cascading institutional change led to cascading political change?
contrary to conventional expectations, China’s capitalists appear to have little interest in pushing for systemic political reforms, but instead seem to seek to embed themselves in the party-state, thereby perpetuating Chinese Communist Party (CCP) rule.
this article investigates the nature and implications of the political embeddedness of China’s private capital holders. The embeddedness of these individuals is “thick” in the sense that it encompasses an inter- twined amalgam of instrumental ties and affective links to the agents and institutions of the party-state. Thick embeddedness therefore incorporates personal links that bind private capital holders to the party-state through connections that are layered with reciprocal affective components. Such close relations work against the potential interest that private capital holders might have in leading or joining efforts to press for fundamental political liberalization.
this “thick embeddedness” is not solely instrumental. Rather, instrumental ties are layered with guanxi and kinship ties – personal links that bind this group to the party-state through sentiment and a reciprocal affective component.
the key is that China’s leaders have successfully embraced and encouraged economic freedom while simultaneously restricting political freedom. In a somewhat more hopeful reading of the policies of post-Mao CCP elites, some argue that significant administrative reform has resulted in a party-state that is much more institutionalized, meritocratic, and responsive to public sentiments and grievances.
From a legal standpoint, private businesses in China may be divided into two groups: first are small enterprises with fewer than eight employees the getihu; second are larger enterprises with eight or more employees private entrepreneurs. Getihu typically run firms that involve family members and rely on very limited capital. In general, these entrepreneurs are not prosperous, but rather are situated within China’s lower classes. Thus, in official Chinese government documents getihu are not considered “private entrepreneurs” or “private capital holders.”
China’s private entrepreneurs are at the helm of the most dynamic and rapidly growing sector of the economy. Domestic private enterprises account for between one third and one half of China’s GDP, employ more than 100 million people, and, together with foreign-invested private firms, provide an estimated 75 percent of employment growth and 71 percent of Chinese tax revenues
Private entrepreneurs have willingly joined government-sponsored business associations, such as the Private Enterprises’ Association and the Industrial and Commercial Federation. These quasi-corporatist organizations are intended both to “maintain state control” over private entrepreneurs and to represent their interests. medium and large private enterprise owners do not see any incompatibility between the associations’ dual functions of state control and member representation. Intriguingly, the more privatized and prosperous a locality is, the higher the likelihood that a private entrepreneur will view him or herself as a partner, not adversary, of the party-state
“thick embeddedness” denotes that relations between China’s private business owners and the party-state feature a blend of material interest and benefit, and affective bonds. This affective element encompasses direct kinship ties and/or affective connections mediated by guanxi practices. Guanxi are reciprocal ties that center on informal and intimate networks of social exchange. Guanxi practices derive from China’s Confucian legacy, but have undergone substantial trans- formation during China’s socialist and post-socialist periods. In the post- 1978 period, guanxi practices have become broader in scope, forming networks of particularistic ties that are maintained and mobilized for combinations of instrumental and affective purposes
Guanxi practices are an expression of a particular Chinese type of personal network. In it the relationship per se, that is, the affectionate/intimate aspect of the transaction comes first or at least is equally seen as an end in and of itself. Relationships are instrumental, but this aspect is layered with affectionate ties and the conscious building of trust (xinyong). In short, guanxi practices represent “strong ties,” ties that have enabled China’s private capital holders to establish long-term reciprocal personal relationships with the institutions and agents of the party-state.4 The result: frequent interactions, sentiments of familiarity and trust, and a “we-group” feeling toward each other that have closely aligned the interests of China’s private capital holders with those of the party-state, at least for the time being.