Spontaneous Capitalism: An Entrepreneur-Centered Analysis of Market Transition

Abstract

Capitalism from Below offers a highly original and compelling analysis of the growth of a thriving private manufacturing sector in China over the past three decades. From a marginal role limited to tiny family firms in the early 1980s, private enterprises grew rapidly in numbers and scale at the expense of state firms, and now comprise roughly 70 percent of national output and employment. Victor Nee and Sonja Opper find existing explanations for this evolution to be partial and one-sided, focusing too exclusively on the evolving role of the Chinese party-state. They contrast their perspective with what they call ‘‘state centered’’ views of the growth of capitalism offered by Douglas North and others, which emphasize the prior construction of institutions that clarify property rights, creating a ‘‘credible commitment’’ on the part of states not to expropriate assets or engage in arbitrary or unpredictable forms of revenue collection. They point out that a thriving private manufacturing sector has grown up in China despite the absence of clearly defined and legally enforceable property rights, and moreover that this is the way that economic history has unfolded as capitalism has developed elsewhere in the world. States respond to pressures created by entrepreneurs who create capitalism from below. The alternative offered in this study is a micro-analytic perspective that focuses single-mindedly on endogenous grassroots processes of institution-building, as entrepreneurs build networks, develop trust, and create informal enforcement mechanisms in the context of relentless competition on product and labor markets. These in turn alter the choices and incentives for government, creating pressures for the design of supporting regulations and laws. Nee and Opper do not dispute the important role of the state, but they make a compelling case for their claim that any account of the emergence and growth of private enterprise in China that neglects these micro-level processes will be partial and ultimately incomplete. It is beyond dispute that the literature on the evolution of China’s economy over the past three decades has been dominated by analyses of the state and its agents at various levels of the government hierarchy. This literature, however, is not founded on the premise that states must first create clear and enforceable property rights and regulatory institutions in order to permit a market economy to flourish. The focus on state actors, instead, was motivated by the very same puzzle that intrigues Nee and Opper: how is it that a thriving market-oriented economy was possible in the absence of the clear and enforceable property rights for private enterprise emphasized in some branches of economic theory? The most common approach, taken up primarily by political scientists, is perhaps more accurately characterized as ‘‘political economy’’ rather than ‘‘state-centered.’’ The political economy literature is now quite extensive and has a history that goes back to the beginning of China’s market reforms. Like Nee and Opper, it has also emphasized the construction of market economies ‘‘from below,’’ although it has often emphasized the behavior of government officials at the grassroots—in villages, townships, cities—as opposed to the design of formal institutions by the central state. The political economy literature essentially strives to view grassroots officials as themselves important actors in local economies, and seeks to explain the incentives and Capitalism from Below: Markets and Institutional Change in China, by Victor Nee and Sonja Opper. Cambridge, MA: Harvard University Press, 2012. 431pp. $45.00 cloth. ISBN: 9780674050204. 40 Symposium