How China Became Capitalist 2012th Edition, Kindle Edition

by R. Coase (Author), N. Wang (Author) Format: Kindle Edition

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How China Became Capitalist details the extraordinary, and often unanticipated, journey that China has taken over the past thirty five years in transforming itself from a closed agrarian socialist economy to an indomitable economic force in the international arena.

The authors revitalise the debate around the rise of the Chinese economy through the use of primary sources, persuasively arguing that the reforms implemented by the Chinese leaders did not represent a concerted attempt to create a capitalist economy, and that it was 'marginal revolutions' that introduced the market and entrepreneurship back to China. Lessons from the West were guided by the traditional Chinese principle of 'seeking truth from facts'. By turning to capitalism, China re-embraced her own cultural roots.

How China Became Capitalist challenges received wisdom about the future of the Chinese economy, warning that while China has enormous potential for further growth, the future is clouded by the government's monopoly of ideas and power. Coase and Wang argue that the development of a market for ideas which has a long and revered tradition in China would be integral in bringing about the Chinese dream of social harmony.

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Editorial Reviews

Review

"Patient readers will be rewarded with a better and deeper understanding of the most extraordinary transformation in modern economic history." - The Wall Street Journal

"As China is sure to become a hotly debated focal point in the presidential election, this book, with its emphasis on markets and history, becomes of paramount importance." - The Washington Times

"Anyone curious as to how China became the world's second biggest economy should read this interesting book." - The LSE Review of Books

"This is a major contribution to the whole literature on economic change as well as on China. Nowhere in all of the literature on economic change and development that I know is there such a detailed study of the fumbling efforts of a society to evolve and particularly one that had as long and as far to go as China did." - Douglass C. North, 1993 Nobel laureate in Economics

"Ronald Coase, now 100 years plus, and Ning Wang have written a compelling and exhaustive commentary about China's fitful transition from Socialism under Mao to today's distinctive capitalist economy. No student of China or socialism can afford to miss this volume." - Richard Epstein, University of Chicago Law School

"This book is one of the greatest works in economics and in studies of China, not only for today, but for the future." - Chenggang Xu, University of Hong Kong

"Coase finds a nation whose philosophy and policy have reflected the same simple principle - 'seeking truth from facts' - that has inspired his own path-breaking analyses of firms, markets and law. A fascinating and exceptionally thought-provoking account of how China, repeatedly seeking more efficient socialism, found itself turning capitalist." - Stephen Littlechild, Emeritus Professor, University of Birmingham, and Fellow, Judge Business School, University of Cambridge

--This text refers to the hardcover edition.

About the Author

Ronald Coase is Nobel Laureate in Economics. His work has had a profound impact on modern economics; it clarified the theory of the firm and gave rise to the field of Law and Economics. Professor Coase is currently Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School, and he is also a research advisor at the the Ronald Coase Institute, USA and founder of the Ronald Coase Center for the Study of the Economy at Zhejiang University.

Ning Wang is Assistant Professor at the School of Politics and Global Studies, Arizona State University, USA.

--This text refers to the hardcover edition.

Product details

ASIN ‏ : ‎ B00885UFU4
Publisher ‏ : ‎ Palgrave Macmillan; 2012th edition (April 30, 2016)
Publication date ‏ : ‎ April 30, 2016
Language ‏ : ‎ English
File size ‏ : ‎ 1168 KB
Text-to-Speech ‏ : ‎ Enabled
Screen Reader ‏ : ‎ Supported
Enhanced typesetting ‏ : ‎ Enabled
X-Ray ‏ : ‎ Not Enabled
Word Wise ‏ : ‎ Enabled
Print length ‏ : ‎ 269 pages
Lending ‏ : ‎ Not Enabled

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M. Lorenzo Warby

Essential reading

Reviewed in the United States on October 13, 2014

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A clearly written, penetrating analysis of the transformation of China as both a "top down" and "bottom up" phenomenon. The authors analyse the transformation of China as a series of discovery processes, making some acute observations about the interaction between politics, ideology, history and institutions. Ronald Coase (1991 Nobel memorial Laureate in Economics), who was over a 100 when the book was published, was one of the most intellectually influential economists of the C20th. (Go through his fellow winners of the Nobel memorial Prize in Economics, tick off those whose seminal work was based on Coase's development of the concept of transaction costs; now find any other economist who started publishing in the C20th whose work has led to that many Nobel memorials. Then consider that his work has also been influential outside economics.)

The pragmatism and political cunning of Deng is a key part of the story, but the authors also connect that pragmatism to continuing tendencies in Chinese history and thought. One of the striking observations is that the disagreements between Deng and Chun Yen opened up policy possibilities because there was no settled "line", just an agreed pragmatism. But the authors also examine how much of the story was of people at the margins taking opportunities presented to them also fed into the processes of institutional change.

This book is essential reading if you want to understand why and how China changed so profoundly.

2 people found this helpful

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Wolfgang Kasper

At long last: the truth

Reviewed in the United States on May 25, 2014

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When I first toured China (and Chinese industries and collective farms) in the early eighties, the future was uncertain, but hopes of reformers ran high. The messages were confusing and confused. Were there property rights? When would the next backlash against individual initiative begin? This book by Economics Nobel Prize winner (a man who had acquired one-hundred years of wisdom) and his Chinese associate makes it clear that the path from failing socialism to China's economic and cultural resurgence was anything by rationally planned. On the margin, markets emerged and set people free to prosper. On the margin, experiments like Shenzhen - going from fishing village to super-prosperous magnet for the young and enterprising in a few decades – were permitted to flourish. This combined with a non-ideological pragmatism: what worked in creating economic development was accepted by Beijing Centre. The book is insightful in explaining why China's economic renaissance has produced these astonishing results to date. The authors are also correct to point out that copying the ideas and technologies of the West will not carry China to developed-country status. What is needed now is competition in the market of ideas. Will the powerful party elites permit this?
The book could have done with some editing to eliminate repetitions and to meld the contributions of the two authors into a more homogeneous whole. Every now and then it is obvious where the historical detail gives way to fundamental economic teaching by the great Ronald Coase. But these are quibbles. It is a great book and obligatory read if you want to know why and how modern China has emerged, and if you want a dose of solid Austrian economics in action.

2 people found this helpful

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Hubert Shea

Marginal revolutions and market of ideas are key pillars to economic growth

Reviewed in the United States on November 2, 2013

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Economists and policy-makers have opined that the phenomenal economic growth in China for the previous three decades is due mainly to their well-established central planning system which is still favourable to the emergence and development of entrepreneurial activities with a well-balanced market mechanism. Besides, a plethora of the recent literature on China’s economy has attributed this phenomenal economic success to the concerted effort paid by the Chinese state leaders (i.e. Deng Xiao-ping) who have determined to transform China into a capitalist economy. In this book, Professor Coase and Wang have provided readers with a more in-depth analysis of how China can transform itself from a closed economy to an international economic nation.

According to Professor Coase and Wang, the three-decade economic reforms in China are zigzag, arduous, and intermittent. First, Chinese state leaders had conflicting views (i.e. Deng Xiao-ping vs. Chen Yuan) towards level of state control over the free market (P.69). Second, deep-seated political ideologies such as Marxism and Maoism have handcuffed and deadlocked full-scale economic reforms led by the state (P.96, P.109, P.115). Third, inefficient state-owned enterprises and the complex centralized administration system are unfavourable to economic reforms (P.69). Fourth, top-down institutional change in factors of production, pricing and tax system, as well as ownership can be very risky to the state which has been long ingrained by the collective economy.

Professor Coase and Wang have maintained that this is not the well-established central planning system which results in effective economic reforms in China. Nor do they regard China state leaders as experienced in building market economy (P.152) and blind-followers of the capitalist economy. The success recipe of the three-decade economic reforms is contingent on a multitude of marginal revolutions (P.65) to start from below and specific regions before the new economic policy can be applicable to the whole country without causing any disastrous political and social consequences. Actors and institutions who have involved in these marginal revolutions encompass peasants (de-collectivization and household responsibility system in Sichuan province: P.46), entrepreneurs (the rise of township and village enterprises and individual economy in Wenzhou: P.58), and local governments and foreign investors (special economic zones in Shenzhen, Zhuhai, Shantou, and Xiamen, Industrial parks: P.63, P.140). These marginal revolutions turned out to be a great success and they are what Professor Coase and Wang has termed as the experimental and hands-off approaches adopted by the Chinese state leaders to reform the economy on the fault-proof formula of “seeking truth from facts”.

Both authors suggest that China might not drift towards the western model of capitalism (P.174) but sustainable economic development in China in the twentieth-first century depends greatly on how China state leaders can upkeep market reform and rules of morality (P.185). Comparing with other developed economies, China economy has demonstrated its fragility and weakness such as a dearth of Chinese brands in the global market, short on innovation and distinctive products, deficiency in education and legal system. The absence of a free market for ideas from education to law and politics can generate a malign effect on China’s economic growth and become an Achilles’ heel to China’s economic and social development in the long perspective (P.199).

This book is highly recommended to readers who are interested in having a better understanding of China’s breathtaking economic reforms and the complex process of institutional changes in the largest emerging country in the world.

5 people found this helpful

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Amazon Customer

Four Stars

Reviewed in the United Kingdom on March 3, 2016

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Perfect for understanding the change within China's economy. referenced it many times in my coursework!

nathsaund

This is a very important book

Reviewed in Australia on August 3, 2020

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This book gets at the heart of how China has risen. The first 30 years of the coercive Communist Party the nation was extremely poor. When Mao died they knew they had to change, but they wanted to save face. They kept their facade (Socialism) but behind every institution privatised as much as possible. That is why the nation's standard of living rose. It was not the Socialism - ironically, it was the Capitalism that saved their "Socialism".
This books needs to read by every liberty minded person because liberty is right and coercion is poverty.

Barbara koch

Five Stars

Reviewed in Canada on April 15, 2017

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Excellent story of the change from Mao to a capitalist economy.

Perez Yannick

Passionnant

Reviewed in France on December 16, 2014

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Bon un dernier livre de prix nobel cela peut être terriblement "has been". Ici il reste encore de l'influx, de l'analyse et des idées percutantes. Bref un regard et un grand cerveau encore en fonctionnement.

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Ivo Cerckel

A Realist Critique - Barter, Truth, and Marco Polo

Reviewed in the United Kingdom on June 3, 2012

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For realists, our human mind has the external world as its object and the objects of the material world subsist independently of this mind. The first act of our intelligence is to grasp being, to grasp "that which is". Being is the first notion of our intelligence. The first thing which falls in the intellect is being ("primo in intellectu cadit ens"), said Thomas Aquinas (1225 - 1274 A.D.). The notion of being is implied in any consequent notion. It is upon this notion of being - not upon practice - that truth is founded ("veritas supra ens fundatur"). Aquinas went on to define truth as ad-equation between the thing and the intellect ("adaequatio rei et intellectus"). (Thomas Aquinas, "On the Truth", ("De Veritate"), article 1).

The book which is hereby being reviewed quotes chairman Mao Zedong, the architect and founding father of the People's Republic of China from its establishment in 1949, who held authoritarian control over the nation until his death in 1976, as saying that a return to barter would eliminate economic inequality once and for all. (p. 81)

After the death of Mao, Deng Xiaoping, the paramount leader of the People's Republic of China from 1978 to 1992, resolved the fundamental challenge of reconciling socialism with its policies of economic reform and opening up by returning to the traditional Chinese principle of "seeking truth from facts". Unimpeachable truth does not exist. Truth emerges only in an endless struggle against ignorance and bigotry and it rarely wins by a single, decisive, once-and-for-all battle. And it is only through this struggle that truth can be tested. The only truth which exists is testable truth and truth can only be tested in or through practice. The facts from which truth is sought are not given, they only "appear" or "emerge" through practice. Deng was therefore willing to change his ideas once they had been proven inconsistent with facts. For ideas to be able to be subjected to the proof of inconsistency with facts, China needs a free and open market for ideas, as China has known during its entire history. And it is possible to have a flourishing market for ideas without a government elected within a multi-party democracy. Nay, the tyranny of the majority can repress the market for ideas, says the book which is hereby being reviewed.

Confucius' (551-479 B.C.) influence in Chinese history compares with that of Socrates (c. 469 B.C. - 399 B.C.) in Europe and the philosophy of both men was compiled and written down by their followers.

Tzu Kung asked: "Is there any one word that can serve as a principle for the conduct of life?". Confucius said: "Perhaps the word is "reciprocity". Do not do to others what you would not want others to do to you".
(Lun Yu, "The Book of Lun Yu", Book 15, Chapter 23)

Many places on this planet recognise Confucius' moral imperative as the Golden Rule. In order to set up the Golden Rule as the moral imperative, you need to assume that there is such a thing as human nature.

Mencius (371 to 289 B.C.) studied with the great-grandson of Confucius and became the foremost follower and greatest developer of the orthodox teaching of Confucius just like Thomas Aquinas (1225 - 1274 A.D.), who wrote textual commentaries on Aristotle, was the greatest developer of Aristotle (384 to 322 B.C.), a contemporary of Mencius.

"Wherever there are things and affairs, there must be their principles", wrote Mencius.
Another translation translates Mencius as writing that:
"Every faculty and relation of mankind must have its law".
(Mencius, "Book of Mencius", Book VI, Chapter 1, point 6)

By referring to "mankind", the second translation of this teaching of Mencius clearly refers to human nature.

On p. 122, the book which is hereby being reviewed traces the principle of "seeking truth from facts" to the writings of a famous Chinese historian during the Han Dynasty (206 B.C.- 220 A.D.), Ban Gu, and to the Song Dynasty's (960-1279 A.D.),
- during which China enjoyed a glorious cultural renaissance (p. 198),
during which paper money became institutionalised as a governmental policy, says silk-road.com,
paper money, which did not emerge in the west until the 17th century, and by the use of which Marco Polo was particularly intrigued in the 13th century (p. 178) -
Zhu Xi.

Did Mencius (371 to 289 B.C.) not say - before the Han Dynasty which started in 206 B.C. - that truth should be sought from facts when he said that "wherever there are things and affairs, there must be their principles", or that, in another translation, "every faculty and relation of mankind must have its law"?

The book which is hereby being reviewed argues, pp. 5-6, that the principle of "seeking truth from facts" demonstrates the pragmatic root of Confucianism.

Pragmatism is the theory which says that the truth of an idea or belief consists in its applicability or its aptitude for practical result, that that is true which succeeds, and thus that a profitable lie becomes truth.

Of course, if you start like Mao and Deng from the truth of socialism, if you maintain that the material basis of reality is constantly changing in a dialectical process
- a process of negation of negation, rather than thesis and antithesis, says Frederick Copleston, S.J., in Chapter XVI "The Transformation of Idealism (2)" of the 1963 Volume 7 of his "History of Philosophy" -,
and maintain that matter has priority over mind,
then practice may be the only way to reveal the lie of socialism,
but socialism admits no absolute truth - except socialism - because, as Friedrich Engels, the associate of Karl Marx, said, reality is permanently changing and moving, thereby following Ancient Greek philosopher Heraclitus (c. 535 - c. 475 B.C.), a contemporary of Confucius (551-479 B.C.).
Engels therefore viewed Heraclitus as a sort of "patron saint" of the dialectic.

In the west, pragmatism was "discovered" in Europe by René Descartes (1595-1650) and was later expanded by William James (1842 - 1910) in America.

Descartes observed that there is more truth in the reasonings of each individual with reference to the affairs in which he is personally interested,
("Discourse on Method", I, 7),
James went on to disregard the traditional notion of truth of Aquinas, "adaequatio rei et intellectus", and to replace it by a theory arguing that
"If there be any life that it is really better we should lead, and if there be any idea which, if believed in, would help us to lead that life, then it would be really better for us to believe in that idea, unless, indeed, belief in it incidentally clashed with other greater vital benefits."
(Lecture II "What Pragmatism Means" of his 1907 book "Pragmatism - A New Name for Some Old Ways of Thinking"),
thereby subordinating knowledge to activity - or practice.

A profitable lie - like socialism - becomes truth.

Ludwig von Mises famously said at the outset of section 2 "The Prerequisites of Human Action" of Chapter I "Acting Man" of his "opus magnum" "Human Action" that man is not only "homo sapiens", but also "homo agens" (acting man).

For the book which is hereby being reviewed, the facts from which truth is sought are not given, those facts "appear" or "emerge" only through practice. This entails that only the "homo agens" can achieve truth and that "being", the first thing which falls into the intellect of the "homo sapiens", cannot be caught by a true judgement. This entails further that the principle of non-contradiction (PNC) - "It impossible to and not to be at the same time and in the same respect" - is no longer the first principle of being, no longer one of the primary or fundamental elements in human knowledge which serve as the basis for all other truths, no longer the judgement which is naturally first and which is presupposed by all other judgements. If there is no PNC, how one prove anything - through practice?

The book which is hereby being reviewed says on p. 122 that "in rejecting class struggle and stressing practice as the only criterion for testing truth, the Chinese economic reform started on a sound epistemic foundation" - an epistemic foundation - pragmatism - which does not admit or recognise the PNC.

The book goes on to argue, p. 196, that truth emerges only in an endless struggle against ignorance and bigotry and that it rarely wins by a single, decisive, once-and-for-all battle.

What Coase and Wang - and Mises for that matter - do not understand is that free will does not intervene in every judgement. The exigencies of life do not make our thoughts true. But the truth of our thoughts is derived from the ad-equation or conformity of these thoughts to reality, being - that which is -, the first thing which falls into our intellect. And yes, this is a once-and-for-all battle, involving no decision, involving no free will, but impelling us to say "This displeases me, but it is nonetheless true", says Réginald Garrigou-Lagrange, O.P., in Chapter 57 "Realism And Pragmatism", of his book "Reality" of which the 1950 translation into English was revised in 2009.

I quoted Ludwig von Mises, the godfather of the Austrian School of Economics. But Coase belongs to the Chicago School of Economics. Whereas the Austrians support either free banking or a gold standard, the Chicago monetarists advocate a controlled fiat-money policy.

The book which is hereby being reviewed therefore writes p. 184 that most economists forget that most economic phenomena are what sociologists call "social facts" distinct from physical and psychological facts and that [...], money - like contract and property rights - is a social construction.
For Coase and Wang, reality does not exist independently of the mind but is a construction of the mind.
Reality is constructed by the mind.
What was constructivism again for Friedrich A. von Hayek?

Ronald Coase achieved prominence in 1937
- the same year that Mao concluded his influential article "On Practice" by writing that the whole of the dialectical-materialist theory of knowledge is to discover the truth through practice and again through practice verify and develop the truth, says p. 121 of the book which is hereby being reviewed -
with his for seminal essay "The Nature of the Firm" which introduces the concept of transaction costs to explain the nature and limits of firms.
Coase argued that the size of a firm will expand until the costs (at the margin) of organising an extra transaction within the firm are equal to the costs involved in carrying out the transaction in the open market
[for goods and services - not the market for ideas which, as I said earlier, the book which is hereby being reviewed deems necessary for ideas to be able to be subjected to proof of inconsistency with facts],
or, to the costs of organising by another entrepreneur.

Coase's main point was that the distinguishing mark of the firm is the "supersession of the market mechanism".
Will it pay to bring an extra transaction under the organising authority of the entrepreneur?

Whereas Coase said 75 years ago that the size of the firm is determined by the answer to the question whether it will pay to bring an extra transaction under the organising authority of the entrepreneur,
the book which is hereby being reviewed argues that the answer to this question, the comparison between the prices paid for the bringing or not of an extra transaction under the organising authority of the entrepreneur, is determined by prices denominated not in something objective but in a social construction called "money".

My writings on Chinese Freegold are available elsewhere on the web.

As I said at the outset, Mao is quoted on p. 81 of the book which is hereby being reviewed as having argued that a return to barter would eliminate economic inequality once and for all. The epilogue of the book which is hereby being reviewed says, p. 206, that "an open society with a market for ideas nudges us to get into closes contact with reality in nature and our human society".

Perhaps, I should conclude by arguing that the book forgets that - as Mao seems to have realised (and thus did not forget) with his advocacy of a return to barter - before we can "get in contact with reality in nature and our human society", we should perhaps get in contact with our own human nature which we know better. But the question is, however, not what we know best, but what we know first, says Garrigou-Lagrange in his quoted Chapter "Realism And Pragmatism".

What we know first is being.

When one party gives something of value and the other party pays him with something, in this case a social construction, of no value, and when one party's wealth is created out of thin air, while the other party has to slave and earn to pay off the ill-gotten credit or loan, is the least one can say about this not that this is an example of economic inequality?

China has learnt the lessons from Marco Polo who was so intrigued in the 13th century by paper money.

In barter, direct exchange, there is ad-equation between what both parties to the exchange ... exchange.
In the (historical) process of moving from direct exchange through barter to indirect exchange through money, one cannot find a moment where money as an intermediary good should be replaced by the social construction "money",
just like "practice" has demonstrated that the European Union company-law harmonisation diktats, er, directives, - which want to protect the members and third parties of companies, i.e., shareholders, creditors and workers - have not promoted cross-border business activity
(Wyatt and Dashwood's, "European Union Law", 2011, 6th ed., p. 700),
Coasean "theory" on "The Nature of the Firm" having demonstrated that the most important creditors of the firm, the workers, are protected and not harmed by the firm - by becoming a worker, this former creditor obtains indeed not only a long-term contract, but also a privileged claim in the event of bankruptcy.

Can the reader now better ascertain the "truth" of Mao's advocacy of a return to barter as a way to eliminate economic inequality once and for all?

The book is silent about the renminbi and, a fortiori, about its gold reserves.

How China Became Capitalist 2012th Edition, Kindle Edition

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