Abstract
Victor Nee has led a storied career. From his early study on the cultural revolution at Peking University (Nee and Layman 1969) and his ethnographic foray in Chinatown (Nee and Nee 1973), he has generated scores of impressive and influential articles and books on Chinese America and China in particular, but also more general and theoretical studies of ethnicity and immigration as well as economic sociology (e.g., Alba and Nee 2003; Nee and Swedberg 2007). Making a major contribution to one subfield is an accomplishment enough; that he has done so in several distinct ones—and repeatedly to boot—speaks to his intellectual reach and scholarly prowess. Indeed, Nee’s oeuvre may very well constitute a scholarly subfield in and of itself.
One therefore waits in eager anticipation for Nee to elucidate China’s recent and ongoing transformation. Very few questions exercise the powers that be more than the “rise of China.” Professional sociologists have of course been privy to tantalizing previews. In a path-breaking article, Nee propounded the “market transition theory,” which conceptualized China’s shift from a system of state redistribution to that of market allocation (Nee 1989). Capitalism From Below, written with the Swedish economist Sonja Opper, is a culmination of his string of articles on Chinese economic change over the past two decades.
The punch line of the argument is in the title: from below. Focusing on the Yangzi River Delta area, Nee and Opper argue that rural entrepreneurs engineered more or less autonomously to create private enterprises in the 1980s. Their argument therefore counters the received wisdom that state institutions, whether local or central, are the key to Chinese economic dynamism. In contrast, the authors argue that private enterprises grew in spite of, not because of, central and local state policies and practices. At both the local and the central level, state bureaucracies generated disincentives for private sector growth via taxation, exclusion from state-sponsored loans, and arbitrary local fees and penalties. Yet market reforms of the 1980s, which were intended to shore up faltering state-owned enterprises after the political strife of the 1970s, unintentionally created opportunities for private enterprises, which relied on social networks, informal cooperative norms, industrial clusters, and self-financing. The agency of Chinese capitalist development in the crucial decade of the 1980s rested squarely on the shoulders of entrepreneurs.
Nee and Opper employ the language of economics to explain the shift from favoring a dominant state sector to creating private sector growth. As entrepreneurs strengthened norms of cooperation, they introduced “oppositional norms” of mutual monitoring, community sanctioning, and reciprocal mutual aid to override costs of state sanction. These norms consolidated into an autonomous social field with its own incentive structure enabling entrepreneurial practices to accrue “marginal increases in individual utility.” Once initiated, four additional mechanisms accelerated the shift: increasing market competition, entrepreneurial innovation, mutual monitoring among entrepreneurs, and institutional mimicry. Moreover, in pursuing this line of argument, Nee and Opper resuscitate Max Weber’s classic thesis: like the Protestant ethic, the Chinese entrepreneurial ethos emerged before the codification of property rights, undermining the strict Marxist assumption of capitalist property relations as a precondition of capitalism.
According to Nee and Opper, change occurred in fits and bursts, accelerating after reaching tipping points. In particular, they stress clever entrepreneurial adaptations to an uncertain terrain for business. When entrepreneurs encountered difficulties in hiring due to employees’ reluctance to work for what were then illicit private enterprises, they registered their companies as a limited liability company (LLC) or joint stock company (JSC). That is, they co-opted legal categories created to privatize state enterprises. Yet Nee and Opper distinguish this subterfuge from the widespread use of “red hat” registration arrangements, in which entrepreneurs paid arbitrary “management fees” to local officials in order to operate as collective enterprises. Unlike red hat firm registration, which exposed entrepreneurs to local state predation, LLC and JSC registration allowed private enterprises to operate legitimately and in ways that established private enterprises as profitable operations, leading eventually to legal recognition of private firms by 1988. By 2001, entrepreneurs could join the Chinese Communist Party, and in 2007 the new Property Rights Law provided legal protection for private enterprises from state expropriation. The authors argue that the shift from penalizing to protecting private enterprise was enacted only after the private enterprise economy had become the dominant mode of exchange.
Nee and Opper provide a systematic and scintillating account of China’s great transformation. As a case study of institutional change, Capitalism From Below is a provocative work which demonstrates China’s private sector to be the product of savvy grassroots experimentation. Relying on an extensive survey of entrepreneurs and replete with legal, economic, and sociological data and concepts, it is an exemplary study. The book is now requisite reading for anyone interested in contemporary China or contemporary capitalism.
As much as we would like to praise and not bury the book, we would be remiss to bypass limitations of their enterprise. Nee and Opper delineate the emergence of private enterprise as an endogenous process driven solely by forces within Chinese society. For example, they stress the entrepreneurs’ tendency to mimic the internal structure of transnational firms as a major mechanism of change. After the proliferation of eMBA programs, they emulated the internal organizational structure of transnational firms and established functional shareholders meetings and boards of directors, rather than maintaining symbolic boards of directors simply to fulfill the requirements of LLC registration. The case, however, suggests evidence contrary to Nee and Opper’s conclusion. The development of private enterprise in China may have been driven from below, but it occurred in a national economy increasingly inundated with foreign direct investment and international know how. That is, Chinese capitalism is perforce embedded in global capitalism.
In stressing change from below, Nee and Opper come close to excising the state from their story. This elision follows logically from Nee’s market transition theory, which posits private enterprise development and state redistribution as mutually exclusive processes: the dominance of private enterprise implies a declining state role in market regulation. Still, what the binary occludes is the improvisational emergence of hybrid public-private partnerships that have been central to Chinese economic change. In exhuming the old terminology of the market transition theory (describing reform as a change in the distribution of bargaining power, material incentives, and market opportunities among actors) Nee and Opper’s framework seems misaligned to the complex reality of contemporary China. Their framework insists on the formal distributive structure of the market even as their account delineates the fluidity of economic practice as a set of malleable norms. More problematically, it cannot make sense of either the core sectors of the Chinese economy, such as steel and oil, which remain dominated by state ownership, or the unchecked levels of state land expropriation that have coincided with and enabled the emergence of the private sector in China.
Nee and Opper embrace and endorse the perspective of their informants and objects of study. It is not surprising that Chinese entrepreneurs, especially those active in the 1980s, should minimize the role of exogenous factors and in particular that of the state. Consider in this regard Yasheng Huang’s study of the same region in the same period (Huang 2008). The two books describe two different worlds. Huang’s reality privileges the role of state rural policies. Whereas he depicts the stagnation of private enterprise and small proprietors after the stifling of state financing after 1989, Nee and Offer delineate their continued growth and emphasize their reliance on informal financing. This Rashomon effect may stem from their differing definitions (Huang’s definition of private enterprise includes township and village enterprises, traditionally understood to be collective enterprises) and methodologies (Huang’s primary data source is state archives, whereas Nee and Opper rely on an extensive survey of entrepreneurs). Huang’s diametrically opposed account suggests not so much that the truth lies in the middle but rather that the Chinese reality is more dispersed and complex than either makes out. There is one point of curious convergence in these two books, however. Both advocate market freedom and a withered state as a prescription for growth in China and elsewhere. In other words, Nee and Offer jettison Karl Polanyi’s premise that markets, far from self-regulating, require constant state intervention, and they instead idolize the self-regulating market, that foundational myth of neoclassical economics, in which entrepreneurs thrive best in the absence of state intervention. There is a time-honored caution to would-be anthropologists against “going native”; the natives’ perspective may be a good heuristic but it is usually misleading if taken as a gospel. Nevertheless, Nee and Offer have given us an unprecedented insight into the actions of Chinese entrepreneurs and therefore we remain in their scholarly debt.