A Theoretical Framework for Demystifying the Causes of Dysfunction and Disorder in the Chinese Market Economy: A Weberian Perspective

Abstract

This paper explores a theoretical framework for demystifying the causes of the dysfunction and disorder of the present Chinese market economy. It is posited that Max Weber’s classification of the two potentially conflicting ethics he associates with the behaviour of politicians, the ethic of conviction and the ethic of responsibility offers the basis for a more thorough and accurate account of the dysfunction and disorder within China’s current markets and political economy. Indeed, this paper contends that cultural determinism and neo-institutional economics fail to capture the contextual factors influencing the transition from the Maoist era of state control to contemporary China’s market led economy (following the opening-up of the country since 1978) than a wider reaching Weberian analysis of the contextual factors involved might achieve. This paper proposes that the distinct ethical foundation for the Chinese market economy is based upon the ethic of conviction, which is the continuity of the philosophical underpinnings of the national ideology during the Maoist era. In turn, this has led to the distortion of the incentives for firms in China to provide high-quality goods and services. This paper also conducts a study of the ethical foundations of the present Chinese economy from the comparative perspectives of Smith’s concept of the market economy and from a Confucian perspective. Through this comparative examination, it will be demonstrated that the ethical feature of the modern market economy, stemming from Smith and Confucianism, is based on the ethic of responsibility, which is a mutually opposed concept to the ethic of conviction; therefore, firms whose business ethics are founded upon the ethic of “responsibility” are less prone to deceive consumers as they adhere to a contractual “responsibility” towards the consumer that many Chinese firms still see as of secondary importance as the ethic of “conviction” still dominating the policies, society and culture of the centralist economic post-Maoist state. This paper further reveals that larger firms tend to have more corporate social responsibility due to their established branding effect, thus reflecting a more pervasive sense of the ethic of responsibility and vice versa for firms of a smaller size. This paper concludes with an economic model acting as a quantitative framework which further supports the theories proposed.