ZHAO Wei

October 2012, Germany

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Capitalism with Chinese Characteristics:

Perspective of State, Market, and Society

Capitalism with Chinese Characteristics:

Perspective of State, Market, and Society

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http://psdblog.worldbank.org/psdblog/2008/08/

Income Inequality in China

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Three China Stories : White, Red, and BlackThe greatest development story (Stephen Roach) :

• Lifted 400 millions from poverty• Economic growth• Infrastructure development

Danger Signs:

• growing income inequality – Gini coefficient 0.47

– city dwellers earning 3½ times as rural residents

• Internal imbalances (spending vs saving, city vs rural, growth vs environment)

• External imbalances (trade surpluses)

• Environmental degradation

• Rise in public protests

The China model:

• Market authoritarian • One party rule• Major role for state

enterprises• Eclectic approach to

free markets• Growth without political

and economic rights• Performance-based

legitimacy • Town and Village

Enterprises

Need a Sociological Perspective on State, Market, and Society in

Transformation ?

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Max Weber’s idea: rational social action based on

“capitalist calculation”

Land

Capital, money

Labour

Organization, technology

Most people most of time behave more and more as economic actors or even entrepreneurs

Protestant ethics evolves into capitalist

spirits

Profit, surplus value,

resources allocation

and utilitarian rationality

Social order of market economy and individual economic action

Reproduction of social structure of economy

Ethics, laws, knowledge, values, ideology and cultures and the institutions for development, maintenance, and transmission of them: religion, family, education, and science

All kinds of social relations and informal ties of authority, conflict, trust, confidence and solidarity constrain actions: State, social classes, status groups, ethnic groups.

All individuals with specific social personalities

Common beliefs with symbols and

subjective meanings

Talcott Parsons’ idea: shared normative values integrate the market economy into society

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(Economic activities) (Political activiteis)

(Reproduction and cultural activities) (Social and regulatory activities)

Juergen Habermas’s idea: money and power “colonize” the life-world of society

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Karl Polanyi’s idea: embeddedness and re-embeddedness

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Market EconomyState

interventionSocial relationship

Society

The political origin of economic transition in China (1)

• Political goal: developing a system of market economy constructed and operated by the whole socialist political structure (central and local governments)

• = “Socialist Market Economy” (SME): Chinese new official ideology

• Objective of rational action: common wealth and profit pursued and created by people led by the Party

• Means of economic action: – mobilizing abundant cheap labour supply– attracting foreign capital and technology– using huge potential domestic demand as a lever– Guangdong was one step ahead in China (Vogel)

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The political origin of economic transition in China (2)

• The affinity between SME and Chinese tradition:1. The respect of established authority and ethic order : State

gives the green light2. Personalism and familism: benefit the self, the relatives, the

closes, etc.3. Pragmatism and formalism (face, relation, and affection):

useful and exchangeable4. Materialism and economism: the Chinese cherish “make a

fortune” just as the Westerners cherish their freedom (Sun Yatsen)

• Incrementalism rather than “big bang”:1. Temporarily, it solves the problem of political legitimacy by

economic performance (GDP growth rate)2. It solves the “social order” problem of communitary shared

value (mechanic solidarity) by market division of labor (organic solidarity)

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Sources of Chinese Industrial Take-off

1. A unique system of rapid capital accumulation and mass investment in fixed assets, whose value is double of the sales of goods in China each year.

2. An unlimited supply of rural cheap labor, in the absence of cost of social protection and job security.

3. An increase in the supply of skilled hands: thanks to its education system and culture, during the last 10 years, the number of university graduates has increased significantly.

4. Low institutional cost of industrial production: little trade unions, little environmental protection, little protection of intellectual property, etc..

5. Over-20-year continuous investment in large-scale infrastructure and ecosystems of suppliers of industrial components built for 20 years.

6. The globalization of industrial production and standardization of complex technologies: most technical processes have become the "common knowledge" and the strategic positioning of the Chinese industry is to use massively the "common knowledge“ to supply the global value chains held by Western firms.

7. Finally, purchasing power and consumption demands growth on the domestic market.

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The State as an Ensemble of Entrepreneurs: Micro Level

15Source: Manfred Nitsch and Frank Diebel (2008)

(entrepreneur)

(wealth owner)(consumer)

(employed worker)

(unemployed labourer)

(work unit)

(central govt.)

(local govt.)

The State as an Ensemble of Entrepreneurs: Macro Level

16Source: ZHAO Wie (2009)

Capitalism and China• If capitalism is as what Weber defined, China is definitely yes.

But…

• “Capitalist (Developmental) State”, rather than State Capitalism– State itself as a collective actor of entrepreneurship to create

business, not just state intervention to regulate market mechanism.

– State itself as a collective financier and banker to accumulate foreign exchange and invest in business projects, not just as a regulator of financial system.

– Strong socialist tradition of economic planning, not just an emerging developmental state.

– Permanent use of Keynesian macroeconomic measures to stimulate investment and create long-term expectations of private entrepreneurs, not just use them shortly for crisis.

– Market competition and cooperation between State and private firms in doing business, so-called “Guanxi” capitalism, not just crony capitalism and government monopoly of profit appropriation.

– The State becomes a capitalist: someone owns property and works for its own profit.

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Economy and China

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China

Free market capitalism

State capitalism

Socialist planned economy

Socialist market economy

Transaction coordinated by

Property rights owned

by

Private firm

State firm

Market mechanism

Government planning

Pragmatism and contingency: the famous saying of Deng Xiaoping is “It makes no difference whether a cat is black or white; as long as it catches mice, it is a good cat”.

Chinese Society as a Market Structuring Process

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Socio-economic status

Percentage of population

Source: LI Qiang (2005)

Lifeworld Pathologies of China (1): Society Embedded in Economy

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Medical and health system

Social stratification

Schooling & education system

Social security system

Family institution

Legal and juridical system

Lifeworld Pathologies of China (2): Impacts on Industrial Upgrading

Medical and health system

Social stratification

Schooling & education system

Social security system

Family institution

Legal and juridical system

Emigration of the rich and elites

Problem of successors of

factories

Workers protests

Lack of technical and industrial

competency

Short of labor

Inter-firm competition

State as an entrepreneur and a

capitalist

State as a pragmatic political

calculator

Conclusion: We know better China’s society through its economy

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Society as market structuring process

Market economy as form of ideology

Col

oniz

atio

nE

mbeddedness

Contexts: Chinese

traditions, sources of

industrialization