More than 630 million Chinese have escaped poverty since the 1980s, reducing the fraction remaining from 82 to 10 percent of the population. This astonishing decline in poverty, the largest in history, coincided with the rapid growth of a private enterprise economy. Yet private enterprise in China emerged in spite of impediments set up by the Chinese government. How did private enterprise overcome these initial obstacles to become the engine of China's economic miracle? Where did capitalism come from?
Studying over 700 manufacturing firms in the Yangzi region, Victor Nee and Sonja Opper argue that China's private enterprise economy bubbled up from below. Through trial and error, entrepreneurs devised institutional innovations that enabled them to decouple from the established economic order to start up and grow small, private manufacturing firms. Barriers to entry motivated them to build their own networks of suppliers and distributors, and to develop competitive advantage in self-organized industrial clusters. Close-knit groups of like-minded people participated in the emergence of private enterprise by offering financing and establishing reliable business norms.
This rapidly growing private enterprise economy diffused throughout the coastal regions of China and, passing through a series of tipping points, eroded the market share of state-owned firms. Only after this fledgling economy emerged as a dynamic engine of economic growth, wealth creation, and manufacturing jobs did the political elite legitimize it as a way to jump-start China's market society. Today, this private enterprise economy is one of the greatest success stories in the history of capitalism.
Frank and Rosa Rhodes Professor and Director of the Center for the Study of Economy and Society at Cornell University. He is also a visiting professor of Social Research and Public Policy at New York University Abu Dhabi. He earned his Ph.D. in Sociology at Harvard University in 1977. Nee received the John Simon Guggenheim Fellowship in 2007, and has been a visiting fellow at the Russell Sage Foundation in New York.
Capitalism from below is rather interesting in the conclusions it draws. Challenging the commonly held assumption that the PRC government was the main driving factor of Chinese economic moderization and success, Nee and Opper advance a theory of economic advancement through informal social and familial relationships that operated outside the scope of the Chinese Communist Party's bureaucracy. Overall, the argument is a bit too sociological for my tastes. A lot of development literature is big on ground-up development as the key to success, but in doing so they require formal laws and regulations to prosper. IN this case Nee and Opper believe that the economic situation created formal laws and regulations that eventually made the PRC more successful. However, they fail to account for decentralized, but still state-financed, economic development and legal frameworks that allowed the Chinese economy to flourish. Interesting counterpoint to other development literature.