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December 23, 2024 - February 24, 2025
Using the case of the Glorious Revolution in England in 1688, they argue that once the power of the monarchy was constrained through the establishment of parliamentary institutions and an independent judiciary, bonds and stock markets flourished, and England was catapulted into modern prosperity.
Statute of Westminster
By which, he means providing the necessary hard (physical) infrastructure for operating businesses. For instance: Are there roads? Does electricity run? Are there banks?21 It is difficult—but not impossible—to set up factories in the absence of secure property rights. But it is impossible if there are no roads or electricity or even a basic financial apparatus to deposit funds.
Set basics up first
In particular, this chapter will highlight the reconfiguration of pre-existing personal and informal networks and communist modes of political organization to stimulate capitalist investments. Chapter 4 recounted the harnessing of high-powered incentives embedded in prebendal practices (i.e., allowing public agents to collect a share of public revenue generated rather than paying them fixed formal salaries) to motivate bureaucratic self-financing and entrepreneurism. Chapter 7 will explore the role of communal affiliations, noncodified public financing, and rampant piracy in market building in
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When we place goodness of fit at the heart of analyses, it is not even apt to think about market-building institutions as merely “second-best” or “good enough” variants of market-preserving institutions. This is because each bundle of institutions fits different functions. For example, would we think about hammers as second-best screwdrivers? We need hammers to hit nails and screwdrivers to loosen and tighten screws. Switch their uses around and these instruments cease to be useful. In the context of development, the methods that spark early growth may be supremely ill-suited to the tasks of
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set of meta-conditions that empowered local agents to improvise solutions to particular contingences specific to their locales and that evolved over time.
Turning to the case of Forest Hill, our next step is to examine which particular solutions were improvised at various points of development in a location endowed with certain environmental features.
Once decisions are made, they are implemented by the rest of the bureaucracy, which comprises an administrative civil service and subsidiary extra-bureaucracies that provide administrative support, public services, and charge-based services.
Second, the implementation of market reform required the political support and even enthusiasm of local communist cadres.
Many of these cadres had monopolized the allocation of resources under central planning. If the introduction of markets eroded their traditional base of power and gave them no benefit in return, they would resist reforms.40 What structure of property rights would fit within these constraints, that is, is not private, could incentivize production, and would enlist local communist cadres in the process of industrialization?
The stakeholders needed to be provided power through other ways
Because TVEs fit the nationally defined priorities and parameters of the time: grow industries without going private.
TVEs were aligned with socialist principles because the right of transfer was collectively held by townships and villages. At the same time, however, individual officials and TVE managers could exercise managerial control over daily operational decisions.
Profits earned by TVEs were classified as extra-budgetary revenue and could thus be retained entirely at the local levels.
“Say an enterprising individual wanted to do business, but at that time he or she could not do so. This person could collaborate with township and village officials and start a TVE in the name of the local government.”43 It is impossible to know for sure how many TVEs were actually collective or privately managed or a mixture of the two. Regardless, these enterprises became “the major driving force of our industrial economy.”44 Locals characterized the 1980s as the decade of “a mini growth spurt.”45
During that time, targets that could not be completed [by state-owned enterprises] were turned over to the TVEs, requiring them to produce however much was planned.”
Both restraints and incentives are much easier to establish [under a system of private property rights].
were frequently compelled to entertain party-state functionaries at their expense:
In reality, they went there to eat, drink, and stay, and the companies had to host them. . . . Throughout
Jurisdictions are thus induced to provide a hospitable environment.”61
The more highly ranked and influential the official to whom an investor was connected, the stronger the protection accorded.
companies would prominently display state-awarded “protection plaques” at their factory gates to ward off inspecting and potentially predatory agencies.
The diasporic business community played a significant role in stimulating early growth because of its unique advantage in navigating an environment of weak formal property rights.
Engaging diaspora important
Participation in formal political institutions gave business leaders the opportunity to voice their concerns to the government and potentially influence policy making.
Participation in political institutions
For state and business alike, it was a win-win arrangement.
“The economic success of private businesses . . . offered reformers evidence (against ‘leftists’ or conservative leaders) that enhancing the scope of the private sector would be in the country’s political and economic interest.”
Reminding all the agencies of their personal stake in local prosperity, a deputy mayor once declared at a meeting, “Do not forget that taxes paid by our enterprises are closely and personally connected to your benefits. Taxes collected go toward paying your allowances. So serve our enterprises well!”73 As the tax base grew, the city government could better afford to pay the bureaucracy higher budgets and salaries and thereby reduce their reliance on extracting fees and fines.
Higher tax base means btter allowances for bureaucrats
Once the top leaders took serious notice, those on the ground didn’t dare to mess around.”75 In practice, predatory practices were not eliminated in a snap by top-down commands. Nevertheless, the movement toward administrative rationalization that started in the 1990s continued into the next decade, paving the way for a new phase of market building.
Simultaneously, during the 1990s and into the 2000s, the city government aggressively courted investors and channeled significant efforts into improving the city’s transportation links (more in the next section).
Nowadays, however, there are many enterprises, and the officers cannot eat so much. Moreover, people are more civilized today. I personally know some regulatory officers who really have no desire to harass businesses.
The city also created a one-step administrative center for issuing licenses and collecting regulatory fees, where cameras were installed to deter individual administrators from taking petty bribes or gifts.77
As Weber-inspired scholarship correctly observes, for states to preserve and upgrade markets, a nonpredatory, rules-based administration is a minimum requirement.
ever-revolving doors between public and private sectors;
“Isn’t that what outsiders do?” rural people would say. In rural society, trust derives from familiarity. This kind of trust has very solid foundations.
The city ordered the assignment of investment promotion targets to all the agencies. These targets were included in bureaucratic evaluation. In some cases, such targets were even assigned to individual officials.
“To upgrade the economy and speed up changes in our method of economic development, it is essential to alter the structure of our industries from dispersed to concentrated and their quality from weak to strong.”
In a final step, en masse investment targets along with high-powered bonuses of the past were abolished altogether. Instead, investment work was turned over to a team of specialized economic agencies.
Moreover, as I have also stressed, start-up and mature environments do not only vary by the challenges faced, but also by the type of resources available.
The political economy in Forest Hill was able to evolve from phase to phase because city officials selected particular institutions and strategies they thought fit their changing preferences and constraints. Reformers in many developing countries are often deprived of the autonomy to choose what fits, because they either must conform to international best practices or are bound by too many conflicting demands at home.
Bottom-up experimentation was bounded by top-down guidance.
a city with only a quarter of the population of Hong Kong, we witness astounding complexity over thirty-five years of development, making it all the harder to believe that development among countries could really follow simple paths leading from good institutions to market success or the other way around.
“Many of our county’s TVEs were paired with SOEs. Old equipment from SOEs was passed down to TVEs in a ladder-like transfer.”24 In addition, technicians from SOEs were invited to impart skills to TVE workers. Local cadres also organized young villagers to intern in the SOEs in order to bring knowledge back to the rural enterprises. In other words, as early as the 1980s, the county government began to nurture the collective—and incipient private—sector by tapping into the resources of the formal state sector. This was decades before the concept of upgrading even entered the minds of officials
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also introduced a standardized accounting system for the entire county.26 These measures provided the foundation for a remarkably rapid wave of privatization the year after.
This outcome stands in sharp contrast to Russia, where en masse privatization of state-owned enterprises enriched a tiny handful of oligarchs who came to monopolize natural resource industries like oil and natural gas.
foreign invested enterprises (FIEs), but not to locals. This was not unique to Blessed County. As Huang relates in Selling China, the national government advanced a political hierarchy of companies that stretched from large state-owned firms at the top, followed by FIEs, and then to private domestic enterprises.34 Nationwide, for example, FIEs enjoyed a lower corporate tax bracket of as low as 15 percent, while Chinese companies were taxed at the full 33 percent. Such discriminatory treatment was partly politically driven.
This was phenomenon was known locally as “fake FDI.”39
They rather trust enterprises. Ten thousand words spoken by the government does not even compare to a single good word spoken by a firm who has invested here.
Incentives could not create miracles in the absence of basic factors like access to export markets and the presence of locals with entrepreneurial experience, as abundantly found in Blessed County.
One reason for this regional difference is that the payoffs of risk-taking are high on the coast, given its huge market potential. If local leaders succeed in creating a private economy or bustling commercial downtown, such efforts will generate tremendous benefits for the county, the bureaucracy, and themselves. Additionally, as Officer Zhu pointed out, economic reforms tended to generate quick and visible results on the coast, thus generating momentum for further change:60
Over here, we tried for so long to restructure, but only a few enterprises made it. And even among those that did, they only recently begun to see some positive results. At the end of the day, our markets are small and consumption is weak.
Today, Humble County does not have any state-owned enterprises, as they have all been restructured. But aren’t we still poor? Privatization alone does not guarantee success.
