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Capitalism from Below: Markets and Institutional Change in China Hardcover – May 14, 2012
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Capitalism from Below explains how entrepreneurs, operating in collaborative networks, guided by the reputations and informal sanctions that constitute governance in such networks, were responsible for the economic miracle that is contemporary China. Combining history, industry analysis, community analysis, and hundreds of interviews, the book is a story—rich and remarkable, yet readable—about productive economic institutions emerging as a byproduct of individuals granted a little bit of wiggle room to pursue their interests. This book will be a point of reference for a long time. (Ronald S. Burt, University Of Chicago Booth School Of Business)
Refuting the conventional wisdom that state-centered institutions are necessary for economic performance and growth, Nee and Opper demonstrate how norms and networks promote economic development in the absence of good government policies. Their approach illuminates the phenomenal transformation of the Chinese economy and promises to explain other cases standard institutional theory cannot. (Margaret Levi, University Of Washington And University Of Sydney)
A splendid book, brimming with ideas and full of important insights. This is a massive undertaking, superbly done, combining theory, empirical data on business formation, comparative regional analysis, and insight into profound issues about the governance of the private economy. This will clearly be a major book, one that should be welcomed across disciplines. (Walter W. Powell, Stanford University)
In contrast to the conventional wisdom of many economists that government-run institutions are essential for economic performance and growth, Nee and Opper explain how China's private entrepreneurs created institutional innovations that promote economic growth and development despite the lack of appropriate government policies. This well-researched, well-written volume will be a point of reference for many years to come. Combining economic theory, history, empirical data on enterprise formation (studying more than 700 manufacturing firms), and more than 100 interviews, the authors explain why China's economic reforms were more effective in promoting market-driven structural change and economic growth than the economic reforms recommended for and implemented in eastern Europe and Russia by the IMF and World Bank. The authors splendidly answer challenging, complex questions regarding the emergence and rapid growth of China's private enterprise economy--e.g., why did a dynamic private enterprise economy and institutions of capitalism, initially so disadvantaged, not only survive but thrive in China's transition to a market economy? ...This outstanding contribution should attract broad scholarly attention and stir meaningful discussion as well as controversy." (R. M. Ramazani Choice 2012-11-01)
[Nee and Opper's] main point is that the Chinese market economy was created not from above, by the state, but from below, by entrepreneurs. The state came in later, to legitimize and regulate the institutions that the economic actors created. This is not a new idea, but Nee and Opper's extensive interviews with entrepreneurs in the Yangtze Delta region give a detailed picture of how it happened...Nee and Opper find that political connections were valuable to entrepreneurs when the state began privatizing its assets and that well-connected individuals have been better able to acquire land-use rights and credit from state banks. But they argue that success in the private sector is 'increasingly independent of the direct involvement of politicians.' Rather, it comes from building a reputation for trustworthiness among networks of business peers. (Andrew J. Nathan Foreign Affairs 2012-11-01)
Chinese leader Deng Xiaoping's decision to open China to global markets is often identified as the beginning of the transition, but Victor Nee and Sonja Opper argue in their book Capitalism From Below that the Chinese economic miracle is based on the actions of ambitious entrepreneurs who did not wait for Beijing's sanction to launch their ventures. Nee and Opper claim, 'the emergence and robust growth of a private enterprise economy in China was neither envisioned nor anticipated by its political elite.' This bold assertion is substantiated by the findings from a meticulous study of more than 700 manufacturing firms in the Yangzi region that set up shop following the modest economic reforms of 1978. These companies decoupled from the traditional socialist system and, through informal lending, were able to finance small manufacturing outfits supported by their own networks of suppliers and distributors. While Nee and Opper do not ignore the role communist party leaders played in initiating the shift to a market economy, they ultimately credit entrepreneurs motivated by profit with China's success...Nee's and Opper's hypothesis is especially intriguing considering the current state of the Chinese economy, which in recent months has shown clear signs of a slowdown. The country has entered a new era. If China is to continue its unparalleled growth, it will have to rely on ambitious entrepreneurs to take its economy into a new phase of development. In short, it will need another ambitious wave of the type of people Nee and Opper credit with leading China's last great economic transformation. (Terrance Murray The Financialist 2012-08-31)
A thought-provoking book ...
Daron Acemoglu (MIT) and James Robinson (Harvard University)
Thoughtful and thorough.
Nitin Desai, Institute of Economic Growth, Delhi, Economic & Political Weekly
Capitalism from Below is a fabulous capstone to this body of work. It sets a standard for research in this field and will be essential reading for scholars of Chinas reforms for a generation to come.
Doug Guthrie, George Washington University, The China Quarterly
Capitalism from Below is a stunning book.
Marshall Meyer, Wharton School (University of Pennsylvania), Administrative Science Quarterly
A great piece of scholarship about the non-state sector in China over the last 30 years.
Kerry Brown, University of Sydney, Asian Review of Books
The basis for a new round in the ongoing debate over the political economy of reform.
Andrew Wedeman, Georgia State University, Perspectives on Politics
This book will be useful to entrepreneurship scholars in general, and those studying institutional entrepreneurship and Chinese entrepreneurship in particular.
Stephan F. Gohmann, University of Louisville, Public Choice
About the Author
Victor Nee is the Frank and Rosa Rhodes Professor at Cornell University, and Director of the Center for the Study of Economy and Society.
Sonja Opper is Gad Rausing Professor of International Economics and Business at Lund University.
Top customer reviews
In the West, we know from the history of the Industrial Revolution, that the new entrepreneurs that started factory production did not generally come from the aristocratic land-owning families that had held wealth in the feudal period. Instead, individuals from modest backgrounds started small business that grew rapidly, based on mechanization.
But in China, the Communist Party first permitted only state industries, and the economy failed dramatically. The public has been given the impression that, after the reforms of Deng Xiaoping, the state altered its strategy and set up the institutions that enabled a change to capitalist production and markets.
But this book is a scholarly work based on studying hundreds of firms, and extensive interviews with 111 Chinese entrepreneurs from the Yangzi River delta, now the hub of global manufacturing. It clearly shows that the Communist Party still discriminated against private firms, and that entrepreneurs overcame this resistance to create major corporations that now account for over 70% of the country’s gross national product.
The individuals responsible for the growth of China’s mighty capitalist engine were not wealthy, highly educated, or politically well-connected. The authors explain: “In towns and cities, unemployed youths, demobilized soldiers, and other marginal actors started small private businesses. They learned how to bypass the state-owned banking system and accumulate the start-up capital they needed, and how to set up supplier and customer networks in an economic environment still dominated by state-controlled supply and distribution channels.”
It was only after these capitalist start-ups became an emergent social and economic force in China that central and local government began to put in place the legal and regulatory structures to legitimize private enterprise.
How did Chinese society support the growth of private capitalism against the wishes of the all-powerful Communist Party? The simple answer is through the maintenance of trust and the other social norms necessary for successful trading by peer pressure within the business network. The fact is that information sharing, mutual monitoring, and community sanctions support integrity in business relationships better than do laws and regulations.
Capitalism from Below is 431 pages, including 168 pages of notes, references and appendices, and it is a formal work printed in small type, so I don’t recommend it for holiday reading. But if you want to know why the market always wins against the state, it’s a valuable investment.
Many authors have claimed that China's transformation from a socialist economy to a capitalist economy was initiated by the central government. However, Nee and Opper show that it was local entrepreneurs rather than the central government, which began building new capitalistic institutions. Thus, rather than designing new capitalist institutions, the central government formalized private institutional innovations once they had proven successful.
The book challenges conventional wisdom as to how China has emerged as one of the most powerful economies of the world. But, it does so in a convincing and well argued manner. This is certainly going to become a classic study of how a capitalistic economy was created from below.
The type of private enterprise Nee and Opper observed belongs to a genre whose foundational elements differ from "class-based" or " top-down" models of development. These have long viewed the existence of economic enterprises in most countries as fundamentally creations and dependencies of the state, in that the state alone exercises control over the long chain of crucial material and regulatory inputs enterprises of any significant size need in order to survive. Nee and Opper's evidence reveals, however, that in the highly diverse Yangzi Delta, the primary "actor" was not the state, but thousands of small, independent, mostly rural, determined, minimally financed and relatively inexperienced individuals, family members or small partnerships, essentially disconnected from the economic apparatus of the state.
Following the decollectivization of agriculture, small scale entrepreneurs found opportunities to start private or household-level businesses in rural and small town communities. Traditional arts/crafts and low-tech consumer products of little impact on markets were permitted even under pre-reform policies; but the dividing line was becoming less clear. These new entrepreneurial types, many living in high unemployment areas, tested and found gaps or loopholes in the existing socialist order which could be exploited to open small businesses, even though the economic reforms were intended only to revive a stagnant socialist economy, not to promote free enterprise.
Why did the long arm of a socialist state not act to prevent this, especially after the movement had gathered momentum? The raw facts suggest the new entrepreneurs were careful not to give challenge directly, and as the spread of these profitable new firms reduced unemployment and increased tax revenues of financially strapped local government, overall the communist party could benefit and essentially look the other way. By the mid 90s co-existence between privately-owned and state-owned enterprises became a reality.
But the deeper truth lies in the evidence and the analysis of the authors' comprehensive survey research data mapping the actual behavior of the main actors leading these firms, and how over time they interacted with other social/economic units and groups in their communities. What emerges --- and has important relevance for future studies of societies in transition --- is the primary role of "endogenous" processes, propelling the formation of informal networks and ad hoc institutions that, independent of state action, arose to supply the necessary commercial infrastructure components. It was these new private associations that provided the sinews of capitalist formation: access to capital and finance, rare and semi-finished materials, labor, mechanisms enforcing contracts, market outlets, distribution channels, etc.
Businessmen like the present writer working in China during this period observed firsthand the consequences of the emerging private sector. Few if any understood the underlying social dynamics driving the process, in particular the extent to which these endogenously developed informal norms and institutions had actually created resources to replace the state in the commercial economy. With the exception of projects requiring sophisticated manufacturing --- which were the high value projects dominating the agenda of the Chinese government of that time --- the upstart private sector soon rivaled, then largely replaced the commercial options offered by the established state production and trading corporations, especially for export contracts. Moreover, the startup sector, being "closer to the ground," saw and responded to widespread, unmet consumer demands for new products and services at the lower end of the market place, both domestic and foreign, that had been largely ignored for more than thirty years. From nearly primitive beginnings, capitalist enterprises now dominate all but "strategic" sectors of the economy, and account for the greater percentage of GDP, employment, income, state revenues and other measures of national wealth.
In China there was huge, untapped demand for low-tech consumer products, quite independent of potential export markets, demands the state, for various reasons, did not address. It required the unplanned, independent and individual initiative of thousands of incipient entrepreneurs acting through exogenous, informal networks, to unleash production and distribution entities capable of meeting these demands. Nee and Opper have established a persuasive theoretical construct and analytical framework for exploring, empirically, how this process has been unfolding in China, including a brilliant research design for the study of other transitional societies grappling with poverty, limited resources, power and how to create the capital formation needed to move forward.
David Mozingo, PhD, Califas (US) Ltd.
Formerly Professor of Government
Director of the China/Japan Program, Cornell University
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