Abstract
The basic facts of China’s economic development have called into question Western transition economic theory, most famously presented in the works of János Kornai. On the other hand, the three most representative approaches to explaining China’s development experience have variously emphasized the resource endowment structure, or the property rights system, or the incentive mechanism behind the behavior of local governments, as the key to China’s economic development. Although they focus on different dimensions of China’s economic practices, they ultimately converge on the logic of marketism as the explanation. The “social science of practice” approach proposed by Philip Huang is distinguished from these orthodox theories in that, first, it attends to the rise of the huge informal economy in China and reveals the historical roots of contemporary social inequality. This approach has three closely related characteristics: theoretical formulations based on analyses of paradoxical phenomena, a broad historical perspective on current problems, and the idea of substantive justice. The main significance of this approach lies not only in its insightful and practice-focused understanding of the key realities that have been ignored by mainstream theories, but, more importantly, in its multiple inspirations for constructing a social science theory that incorporates Chinese subjectivity.
Keywords
The basic facts of China’s economic development have challenged mainstream Western economic theories. As Justin Lin 林毅夫 has pointed out, even though the economics profession encompasses diverse views on practically every issue, there is a “surprising consensus among mainstream economists for adopting shock therapy based on the Washington Consensus” to reform socialist economies (Lin, 2019: 125). The main proposition of the Washington Consensus is to “eliminate government interventions and distortions so as to create a private property-based efficient, open, competitive market economy” (125). Lin believes that the shock therapy that was promoted in the former Soviet Union and Eastern European (FSUEE) countries for the transition to a market economy was a version of the Washington Consensus, because its main assertions are: Private ownership is the foundation for a well-functioning market system; real market competition requires a real private sector; most problems encountered by state-owned enterprises (SOEs) in a transitional economy can be ameliorated by rapid privatization; privatization must take place before SOEs can be restructured; economic transformation requires comprehensive and big-bang price liberalization; government fiscal discipline must be tightened to maintain macroeconomic stability so that prices can guide resource allocation and the market mechanism can work well. (Lin, 2019: 125)
However, the outcome of the shock therapy transition model in these countries has been contrary to the optimistic predictions of mainstream Western economists. Lin points out: In the ten years after the transition started, according to World Bank statistics, Russia’s inflation rate reached 163% per year, while Ukraine’s reached 244% per year; the cumulative output in countries in Central and Southeastern Europe and the Baltics declined 22.6%; output fell 50.5% in countries of the Commonwealth of Independent States. In 2000, Russia’s GDP was only 64% of what it had been in 1990, while in Poland, the best performing economy in the FSUEE, GDP increased only 44%, compared with 1990. At the same time, the Gini coefficient of income per capita increased in most of these countries. In addition to severe inflation and economic decline in the first decade, these countries generally experienced great difficulties in their reforms, as demonstrated in the following seven features: output declined, capital shrank, labor was displaced, trade was reoriented, there were structural changes, institutions collapsed, and transition costs increased. (Lin, 2019: 126–27)
The Washington Consensus and shock therapy postulate a dichotomous opposition between state and market; advocate the exclusion of the government from the market; regard market transition as unilinear, with given objectives and clear-cut results; and exclude the possibility of interaction, exchange, and integration between the two different economic systems. As is well known, China’s economic reform has adopted neither shock therapy nor a clear blueprint. Instead, it has taken a gradual path of “feeling for stones while crossing the river.” However, it is this very Chinese economic reform disparaged by mainstream Western economists that has achieved stunning success. As Justin Lin, based on his personal experience, points out: The various policies implemented by the Chinese government during the transition from a planned economy to a market economy basically contradict the fundamentals necessary for a well-functioning market economy that I learned during my PhD studies at the University of Chicago. Neoliberalism was the mainstream in Western economics during the 1980s and 1990s. It argued that an effective economic system is built upon private property rights; prices and resource allocation must be determined by the market; a planned economy is inferior to a market economy; a gradual and dual-track transition is worse than a planned economy because it will not only lead to misallocation of resources but will also breed corruption. China was then following the approach that was deemed the worst possible by Western economists. (Lin, 2019: ii)
Lin points out that in fact China has achieved remarkable results with gradual reforms: In the twelve years from 1978 to 1990, GDP grew 9.0% annually and trade volume grew 15.4% annually; living standards increased significantly and disparities between urban and rural areas decreased; the Chinese economy not only withstood the shocks of the East Asian financial crisis and the recent global financial crisis but also contributed to a quick recovery; China’s average GDP growth rate accelerated from 9.0% annually in 1979–1990 to 10.3% in 1991–2012. (Lin, 2019: 126)
Mainstream Western transition economic theories lack convincing explanations for these phenomena.
Mainstream Western transition economics theories, as represented by János Kornai, have had a profound impact on analyzing the socialist economic system. Kornai believes that the socialist system is fundamentally different from the capitalist system. The key to understanding the former is to recognize the dominant role of bureaucratic coordination, which differs from the coordination mechanism that relies on the market to allocate resources to optimize economic efficiency (Kornai, 1992: esp. chap. 7). The logic here presupposes that the socialist system and the capitalist system operate according to fundamentally opposite “institutional paradigms,” and that the internal economic mechanisms of the two stand in opposition to each other and are irreconcilable. The only solution is privatization, since “no partial alteration of the system can produce a lasting breakthrough. For that a change of system is required” (Kornai, 1992: xxv). However, the FSUEE countries that followed Kornai’s theoretical model suffered disastrous results with their reforms: “most of the developing countries experienced economic decline in this period. William Easterly viewed the 1980s and 1990s as their ‘lost decades’” (Lin, 2019: 124). Kornai, in short, denies the possibility of positive interaction between “bureaucratic coordination” and “market coordination.”
Contemporary explanations of China’s economic reform experience often focus on market coordination. Philip Huang has summarized these explanations.
First, the simple neoclassical economics thesis, predicated on the axiom that a freely competitive market mechanism is the most efficient allocator of resources. [ . . . ] Earlier Chinese planning violated that “fundamental law” by artificially emphasizing capital-intensive heavy industry, to the neglect of labor-intensive light industry, until the coming of reforms, which finally acted by market principles and gave top priority to light industry, thereby making full use of China’s “comparative advantage” in its abundance of labor. [ . . . ] Second, the “new institutional economics” explanation [ . . . ]: China adopted privatization and marketization, thereby benefitting from the incentives for innovation and profit-making that come with private ownership, and the lower transaction costs that have come through institutional changes (including especially property laws) that have come with privatization and marketization. [ . . . ] The state’s interference in the economy can only be negative in its consequences. [ . . . ] Third, the local governments-as-firms explanation. By that theory, everything began with China’s rural industrialization, which was powered by “local” (township and village) Chinese “governments” coming to behave like firms under the “hard budget constraints” of private firms operating in a market environment. (Huang, 2015b: 259–60)
As Huang notes, all these theoretical explanations of China’s economic reforms cannot account for the fact that the driving force behind development since the mid-1990s has been local governments’ vigorous support for outside enterprises in their quest to “draw in business and investment.” Huang points out that the huge accompanying informal economy has been the main force behind China’s striking GDP growth as well as its mounting social and environmental crisis (Huang, 2011: 3). The biggest shortcoming in trying to explain Chinese practices with mainstream Western theories is that those theories are built on the notion of binary oppositions and ignore the complexities of practice itself.
Objectively speaking, the three approaches, all of which have been influential in attempts to explain China’s development experience, recognize the importance of China’s economic practices and seek to develop theories that better fit Chinese realities (Lin, 2019: ii). The theorization of China’s economic practices can inform current Western theoretical thinking and thus promote a subjective theoretical interpretation. This is an important opportunity for a theoretical breakthrough, but the domination of Western discourse is so overwhelming, as discussed below, that interpretations of China’s development experience eventually revert back to the mainstream Western discourse.
A way out of the impasse is needed. The “social science of practice” 实践社会科学 approach proposed by Philip Huang has important implications for the construction of a subjective interpretive theory. China’s development experience can only be understood by examining its actual practices, and not through abstract theorizing divorced from reality. These practical realities reveal logics that can be the basis for creating new theoretical insights—in other words, investigation and analysis must move from practice to theory, not from theory to practice. Huang’s research emphasizes basic realities, the “paradox” between Chinese realities and Western theories, and the close connection between experience and theory. Applying Western theoretical analysis to China’s realities results in countless paradoxes, mainly because of the tension between the complexity of Chinese practices and the simplisticness of formalistic logic. Western theories are mainly abstract condensations of Western social practices and rely on formal logic in order to deduce general propositions. Although Western theories may help clarify the internal logics involved, they also oversimplify the complexities of real life and create a series of false binary oppositions as well as an outlook that views causality as moving in one direction only. The fact is that the complexity of contemporary Chinese society cannot be fully explained by any one theory. China’s process of development since the modern era has integrated various elements from China’s traditions, the West, and the Chinese revolution, and thus requires a realistic theory derived from complex practices. To this end, Huang’s research makes the important contribution of demonstrating that the interaction between the state and market is the key driving force behind contemporary China’s economic development, albeit also the cause of many problems. This key reality is missing in prevailing theories. In terms of policy implications, the issue is not excluding the state from the market (a step that, in reality, would be impossible), but finding a way to achieve a positive interaction between the two.
Therefore, this article adopts the social science of practice approach, and focuses on the main approaches’ analyses of China’s development experience to highlight their interpretation of the interplay of “state” and “market” in the gradual reforms. To reiterate, these three approaches to explaining China’s development experience have focused on China’s resource endowment structure, or its property rights system, or the incentive mechanisms behind local government behavior, as the key to China’s economic development. Although they emphasize different dimensions of China’s economic practices, they ultimately converge on the logic of the market, as evidenced by the tension between formal theory and the complexity of Chinese practice. In view of this tension, a social science of practice approach extricates the most important concepts from the most basic realities and then returns to practice to test them. This is of critical significance in the construction of a real interpretative theory with Chinese subjectivity.
Formalism and the Analysis of the Classical Socialist System
In order to gain an in-depth understanding of the reform of socialist economic systems, it is imperative to begin by exploring the workings of the classical socialist economic system. Here, János Kornai’s main scholarly contribution, as Sun Liping has pointed out, is his solid empirical research and keen insight, from which he unravels the [ . . . ] theoretical nuances of the “economics of shortage” as a unique economic phenomenon of state socialism, and the distinctive mechanism of “soft budget constraints” in state socialist economic systems. (Sun, 2002: 84)
The following sections explore Kornai’s efforts to juxtapose the state and the market as binary opposites, and the incorporation of his analysis of the socialist system into mainstream Western theoretical trends.
Kornai’s analysis of the classical socialist economic system contends that only absolute privatization can resolve its inefficiencies, a position that denies the multiple and complex links between the state and the market. He begins with the phenomenon of shortage under the socialist systems in Eastern Europe: “Shortages are, either as the cause of other phenomena or as their consequence, connected by a million ties to other components of the economic system” (Kornai, 1980: 11). He fashions the abstraction of shortage into a “shortage economy” and argues that the socialist economy, unlike the capitalist economy, is a “shortage economy” (Kornai, 1992: 233). He further distinguishes between “horizontal shortage” and “vertical shortage” in the “shortage economy.” The former mainly occurs between the buyer and seller, while the latter occurs in a vertical relationship between superior and subordinate. The two are closely connected (240). A “shortage economy,” Kornai argues, is the result of the allocation of resources by “bureaucratic coordination.” As long as “bureaucratic coordination” predominates, the key mechanism of the classical socialist system, “soft budget constraints,” are unavoidable (chap. 11). Kornai thus incorporates the concept and analytical method of “budget constraints” in Western microeconomics into his analysis of enterprises in classical socialism. He believes that enterprises that exceed their budget constraints in the classical socialist system will adjust the constraints to match their repeated overspending. These enterprises often receive external assistance (Kornai, 2007 [1992]: 140–45), which results in the serious problem that firms exhibit weak price responsiveness, and “weak price responsiveness is one of the main reasons for low efficiency” (Kornai, 1992: 146). Kornai’s theory highlights the shortcomings of the planned economy. However, the way he frames his argument implies that state intervention in the market will inevitably cause economic inefficiency.
The various elements of the “institutional paradigm” in Kornai’s theory are closely connected. Kornai’s dualistic thinking is readily apparent, for example, in his analysis of two different ideal types (in the Weberian sense) of enterprises, namely the classical capitalist firm and the traditional socialist enterprise. Kornai argues that these two types are completely different in resource constraints, demand constraints, budget constraints, and production planning (Kornai, 1980). In short, he believes that the socialist economy and capitalist economy are two radically opposed systems with irreconcilable internal economic mechanisms. Hence, he advocates fundamental privatization reforms and rejects the possibility of positive interaction between state and market. However, scholars such as Timothy Frye and Andrei Shleifer in their analysis of the different economic results of the shock therapy in Poland and Russia, both of which implemented similar “reform packages,” have shown that the state can act as either a “helping hand” or a “grabbing hand” (Frye and Shleifer, 1997: 354). In short, it is clear that there exist multiple and complex relationships between the state and market.
First, countries that have undergone structural adjustments according to the shock therapy model tend to bear out the predictions of Kornai’s theoretical model, but the real results have been disappointing. This shows that complete market privatization does not necessarily mean high economic efficiency. Sociologist Michael Mann points out that Western neoliberalism prevailed when Russia and the Eastern European countries underwent economic transformation. However, this large-scale neoliberal liberalization brought on worse rent-seeking behavior (Mann, 2013: 202–4, 207–8). Additionally, Mann also quotes the study of twenty-one post-communist countries by David Stuckler et al. which found that large-scale privatization reduced growth, eroded state power, and weakened property rights protection (205). Even if one is cautious in drawing conclusions, it is clear that the complete privatization shock therapy Kornai advocated has basically been a failure.
More importantly, China’s development experience clearly runs counter to Kornai’s theoretical predictions. China has achieved stunning economic success and demonstrated that state intervention in the market does not necessarily lead to economic inefficiency. Philip Huang has used solid empirical evidence to show that from the mid-1990s on, the cutting edge of development shifted from local government enterprises to the influx of outside investment [ . . . ] and the rapidly expanding nonstate corporations [ . . . ] and smaller private enterprises. [ . . . ] , and the role of local governments changed from starting and running their own enterprises to drawing in outside enterprises with proffered support. (Huang, 2011: 10)
These key points are something that Kornai’s theory simply does not take into account. As Huang has pointed out, for Kornai, “the socialist and capitalist systems form coherent wholes unto themselves, each obeying a contradictory logic. [ . . . ] Each is incompatible with the other; mixing of the two can only lead to ‘incoherence’ and conflict” (14). Similarly, Kornai does not attach importance to the efficiency and competitiveness of SOEs, since he believes that state intervention will incur “soft budget constraints” and hence economic development must rely on market allocation. However, Chinese realities, as Huang points out, are that, since the first decade of the twentieth-first century, SOEs have been transformed into profit-making state firms and occupy an important position in the global economic system (Huang Zongzhi, 2012a: 5; 2012b: 9–10).
The crux of the problem is that Kornai’s theory holds that only complete privatization can eliminate the disadvantages of the socialist economy. This belief is, in fact, an oversimplification that treats the relationship between the state and market as inevitably one of opposites, thus denying the existence of multiple substantive and complex relationships between the two. Kornai combined an analysis of corporate economic behavior with a macro-dynamic model of the socialist economy to construct a rigorous theoretical system and penetratingly analyze the shortcomings of the planned economic system—an important contribution. However, his theory is an oversimplification (reducing modern economies to two mutually exclusive types) and is idealistic (supposedly applicable to the economy of all socialist countries) in order to illustrate the logical relationship between the two. This ignores the reality that there are multiple links between the market and state. In fact, the market and the state are not necessarily opposed to each other. Abstract theoretical modeling does not equate to practice, and a model cannot be taken as practice. The Eastern European countries and Russia adopted economic practices different from China’s economic reforms. China’s gradual reforms have achieved remarkable economic results, in sharp contrast to the former. China’s development experience has challenged mainstream transition economic theories as represented by Kornai. To gain a thorough understanding of the theoretical significance of China’s development experience requires that we return to China’s economic practices in order to deepen our understanding of the multiple and complex relationships between the state and the market.
China’s Economic Practices and the Study of China’s Development Experience
Kornai’s theory has had a wide audience in China because it is not a purely ideological exercise but rather a blueprint for reform based on an in-depth analysis of the operations and shortcomings of the planned economy. Furthermore, his theory deals with a core issue of economic reform: how to handle the contested relationship between state and market. It was this question that was at the heart of many of the debates over economic theory in China’s economic reforms in the 1980s and 1990s. This can be seen in some of the influential approaches listed by Zhang Yu et al. (2011). Initially, Chinese academics were most concerned with analyses of the socialist system by economists of the Soviet Union and East European countries. These economists included Oskar Lange, Włodzimierz Brus, Ota Šik, Kornai, Alec Nove, and others. Chinese scholars such as Liu Guoguang 刘国光, Dai Yuanchen 戴园晨, and Zhang Zhuoyuan 张卓远 put forward the idea of “dual-model transformation” of the system model and development model, and the reform strategy of “bidirectional coordination” based on the cooperation of the two major lines of enterprise reform and price reform; Li Yining [厉以宁] et al. put forward the idea of enterprise reform as the main line and the shareholding system as the major form of enterprise reform; Wu Jinglian [吴敬琏] and Zhou Xiaochuan [周小川] et al. proposed the idea of “coordinated reform” [with] comprehensive supporting reform centering on the price reform; Dong Fureng [董辅礽] put forward the idea of mixed economy [and] that the socialist economy should be [ . . .] Eight Treasures Rice;
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and Wei Xinghua [卫兴华], Hong Yi[n[xing [洪银兴] and Wei Jie [魏杰] put forward the operating model of [ . . . ] “plan adjusting the market, market adjusting enterprises.” (Zhang, 2017: 25)
In the West around the same time were several schools of thought on economic transition. First, the neoclassical economics paradigm, “represented by Jeffrey Sachs [who] advocated the Washington Consensus with privatization and liberalization as the core and the radical shock therapy.” Second, the New-Keynesian paradigm, represented most famously by Joseph Stiglitz. Third, the evolutionary approach, represented by such economists as Peter Murrell and Barry Naughton, which argues that reforms should be implemented gradually and through experimentation (Zhang, Zhang, and Cai, 2011: 70–72). Although the arguments are varied and complex, mainstream economists have emphasized the key role of market allocation in reforming the closed and rigid planned economic system.
The analysis of China’s economic reform by Wu Jinglian, a prominent exponent of so-called “holistic reform theory” 整体改革论, is a prime example of Kornai’s influence in China. In his analysis of China’s reform experience, Wu mentions that Kornai uses “shock therapy” and “gradualism” as categories to describe the shortcomings of market economy transition strategies. Kornai believes that the implied standard of this categorization is speed, but speed should not be the standard for evaluating the success of reforms. In Kornai’s eyes there are two strategies for economic transformation: an “organic development strategy,” which seeks to create favorable conditions for the bottom-up growth of the private sector; and the rapid privatization of SOEs, which aims to transform SOEs into private enterprises as quickly as possible. Based on the transition experiences of East European countries, Kornai believes that the former strategy is the appropriate choice since the healthy growth of the private sector and the hardening of budget constraints promoted productivity and solved the problem of unemployment (Wu, 2017: 78). Wu concurs with Kornai’s analysis, and considers it equally applicable to understanding China’s economic reform—for example, the growth of non-state-owned enterprises or the transformation of SOEs as indicators to measure China’s economic reform. He concludes that China’s incremental reform strategy created favorable conditions for the development of private enterprises. Yet, the “dual track” system, Wu argues, has created a rent-seeking environment conducive to corruption and thrown up obstacles to further transformation (78–79).
In Kornai’s theory, the outcome of reform centers on the question of whether state power is involved. He advocates the bottom-up development of private enterprises, in which there is no state intervention and, therefore, no rent-seeking behavior. As the economic reforms of Russia and other countries have shown, state intervention will affect the efficiency of resources allocation, and thus Kornai argues for a reform in which the state is completely excluded. However, the problem here is that, in practice, economic development in any country obviously does not occur in a vacuum, and the state cannot realistically be excluded from the economy. Especially in a large developing country like China, many factors such as the structure of the economy, economic institutions, and state behavior affect economic development. The following sections focus on China’s economic practices and analyze existing theories’ interpretation of them and their “marketism” explanation.
China’s Factor Endowment Structure and the New Structural Economics Theory
Justin Lin’s notion of “new structural economics” 新结构经济学 specifically targets the assumption of neoclassical economics that, in a competitive market, all firms can be viable. He argues that this hypothesis may hold true in Western scenarios, but is clearly problematic when analyzing the difficulties of non-viable firms in transition economies. Hence, he proposes that the viability assumption be relaxed, thus enriching and developing neoclassical economics, and helping redefine the role of the state in economic transformation (Lin, 2019: 135). The awkward situation of “shock without therapy” is mostly caused by the failure to fully recognize both the endogenous nature of economic distortions and the structural differences between developed and developing countries. It also springs from disregarding developing countries’ suboptimal efforts to reform various distortions (135). Lin emphasizes that the structure of economic endowments is the point of departure in the analysis of economic development. Countries at different levels of economic development have different economic structures, which are, in turn, determined by the differences in their factor endowment structure. Only when industry is compatible with the comparative advantages determined by the factor endowment structure can enterprises be viable in an open, competitive market (135). Lin thus highlights the question of the compatibility of any development strategy and resource endowment structure, and, in essence, accepts the basic concepts of neoclassical marketism.
In Justin Lin’s framework, the key to China’s development experience during the reform lies in the adoption of labor-intensive industrial strategies appropriate to China’s resource endowment structure and comparative advantage. This framework is an elaboration of his earlier research on the link between development strategies and economic reforms. Here Lin confronts two fundamental questions: the source of China’s slow development before the reform, and the source of its rapid development after the reform. He attributes the first to the incompatibility of the heavy-industry-oriented development strategy with China’s resource endowment structure and comparative advantages. He believes the answer to the second question is that the reform of the traditional socialist economic structure (with its trinity of a price-distorting macro-policy environment, a planned resource allocation system, and a puppet-like micro-management mechanism) has enabled China to exploit its comparative advantages in resources (Lin, Cai, and Li, 1994: 269). Lin sharply contrasts these two aspects: The goal of traditional development strategy is to prioritize the development of capital-intensive heavy industries, and discourage labor-intensive industries, which are actually more consistent with China’s comparative advantage. The development of labor-intensive industries corrected the distorted industrial structure and unleashed China’s comparative advantage in resources. This was the source of the epic growth of China’s economy. (Lin, 2019: 269)
Lin thus reduces the complex economic relationships during the periods before and after the reforms to a simple dichotomy.
Justin Lin rightly points out that China’s factor endowment structure differs greatly from that of Western countries, but since he does not stray far from the basic propositions and conclusions of neoclassical economics, he ultimately reverts to the one-sided emphasis on market coordination and does not fully analyze the multiple complicated relationships between the state and market. In terms of industrial development, as Philip Huang points out, based on the authoritative quantitative research by Dwight Perkins, China achieved an average annual growth in industrial output of 11 percent in 1952–1980, “setting the heavy industry base for economic development in the Reform period” (Huang, 2019: 366). Even after the reform, the Chinese government has never stopped its planning for economic development. Are the government’s economic planning considerations consistent with China’s resource endowment structure? Are the internal incentive mechanisms completely different from those before the reform? In the view of many scholars, China’s economic comparative advantage is closely related to the reform of its economic system. This calls for revisiting the research on the relationship between the Chinese economic system and economic development.
The System Costs of the Chinese Economy and the New Institutional Economics
The theoretical resources used in research on the Chinese economic system have been mainly drawn from the new institutional economics, as represented by Ronald Coase. Coase elaborates on neoclassical theories by spotlighting “transaction costs.” He was dissatisfied with the lack of substantive content in neoclassical formal analysis, because in this analysis, the consumer is not a human being, but a consistent set of preferences. The firm to an economist, as [Martin] Slater has said, “is effectively defined as a cost curve and a demand curve, and the theory is simply the logic of optimal pricing and input combination.” (Coase, 1990 [1988]: 3)
Coase points out that, in neoclassical economic theories, the firm and the market are assumed to exist, and are not themselves the subject of investigation. He believes, however, that economic assumptions should simultaneously be “both manageable and realistic” (Coase, 1990 [1988]: 33). He points out that, “in the absence of transaction costs, there is no economic basis for the existence of the firm” (14), and that firms will emerge to organize what would otherwise be market transactions whenever their costs were less than the costs of carrying out the transactions through the market. The limit to the size of the firm is set where its costs of organizing a transaction become equal to the cost of carrying it out through the market. (Coase, 1990 [1988]: 7)
In short, Coase argues that “so much that happens in the economic system is designed either to reduce transaction costs or to make possible what their existence prevents” (30). Coase’s framework was further developed and mathematicized by other scholars. New institutional economics focuses on the impact of institutions on the economy, which, unlike neoclassical economics, could be described as an approach that deals with actual realities. New institutional economics became very influential in the last two or three decades of the twentieth century and continues to be influential to this day. The fact that four economists associated with new institutional economics won the Nobel prize is a reflection of its clout. Coase himself was awarded the Nobel prize in 1991 “for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy” (Nobel Prize, 1991). Douglass North won the prize in 1993 for his work on the role of institutions in economic growth, and Oliver Hart and Bengt Holmström won in 2016 for their contributions to “modern contract theory,” which is closely related to the new institutional economics. Other new institutional economists such as Armen Alchian, Harold Demsetz, Yoram Barzel, and Steven N. S. Cheung 张五常 expanded the works and influence of this school. In short, many scholars have contributed to its emergence as an influential theoretical school.
Here I take Zhou Qiren’s research as an example to illustrate the basic approach of the new institutional economics to analyzing China’s development experience. Zhou, influenced by Coase’s thinking, is particularly impressed by Coase’s attention to “real-world economics,” which perhaps stems from Zhou’s personal experience in the “Down to the countryside” movement and his long-term rural investigations. Zhou emphasizes that China’s economic growth since the reform is mainly due to the lowering of high, pre-reform “system costs,” which unleashed China’s comparative advantage in the process of globalization. Thus he argues that system costs are the key to understanding China’s economic development. Zhou’s research on China’s development experience mainly relies on the new institutional economics. He argues that the cost of systemic institutions consists of transaction costs and institutional costs. He points out that the cost of systemic institutions refers to the cost of running any economic system; an economic system is a set of institutions; all of the costs associated with the establishment, running, and changing the institutions can be defined as the costs of systemic institutions, and they have a decisive impact on economic growth. (Zhou, 2017: 264)
In Zhou Qiren’s analysis of rural reform, system costs before the reform were extremely high and inefficient. The reduction of those costs has thus been crucial in rural reform.
The reform redefined the boundaries of collective property rights, giving the front-line parties concerned [第一线当事人] the right to choose a suitable system with lower operating costs, and at the same time drastically reduced system costs, released a flood of rural labor, and enhanced productivity. Since the mid-1980s, these waves of surplus rural labor have flooded the nonagricultural industries and urban sectors, which has boosted these workers’ productivity and formed a solid foundation for China’s rapid growth. (Zhou, 2017: 266–67)
Zhou Qiren concludes that the key to China’s development has been the reduction of system costs: “this is the prerequisite for economic growth, for China to exploit its potential production cost advantages and increase its exports, and demonstrate to the world that the Chinese economy has impressive comparative advantages” (Zhou, 2017: 267). His concept of system costs expands the scope of Coase’s transaction framework and echoes Lin’s comparative advantage argument.
Essentially, new institutional economics frames China’s economic reform as a bottom-up reform, with the withdrawal of state from the economic sector, thereby reducing transaction costs, and bringing economic vitality and development. Its theoretical analysis is based upon two aspects of reality. The first is China’s rural reform and the emergence of private enterprises. The state abolished the commune system, implemented the household contract responsibility system, respected and protected peasant’s autonomy in production, and increased their enthusiasm for production. The internal driving force of China’s rural reform lies in the peasants themselves, rather than a design imposed from above. The logic of “crossing the river by feeling for the stones” is the state’s recognition and promotion of the legitimacy of peasants’ autonomous reforms. Profit-making private enterprises have gained legitimacy, and the state respects and protects their legitimate rights. Withdrawal of the state also has brought about vitality and autonomy in the social field. Second, the state has established a modern corporate system, whereby the law has come to recognize and protect private property rights; instituted a modern market economy and legal system; lowered transaction costs; and promoted economic development. In short, the new institutional economists’ analysis of China’s development experience stresses the importance of reducing transaction costs, and assumes that the withdrawal of the state from the economic sector gives rise to the protection of private rights and social vitality.
The issue is that China’s property rights reform, in practice, has never adopted complete privatization, a key feature of the shock therapy. Naughton points out that in the case of the rural reform, the land system did not change over to a simple private property system. Although land is worked by individual households, the formal ownership still remains with the “collective.” A complete formal system of private property of rural land does not exist. (Naughton, 2007: 120, emphasis in the original)
The key here is that the state retains ownership while transferring the managerial rights. In addition, both local governments and restructured SOEs have continued to play an important role in economic development. Therefore, the withdrawal of the state from the economic sector is not pivotal; rather it is the place of the state in economic development and the positive interaction between the two that are important. This calls for a close look at the role of local governments in China’s economic development.
The Incentive Mechanism Behind the Behavior of China’s Local Governments and China’s Economic Development
Research on economic development and the incentive mechanism behind government behavior is closely related to China’s economic practices. Kornai’s theory does not effectively deal with this issue, and his concept of “soft budget constraints” does not touch on the question of the internal incentive mechanisms of the government. It is impossible for Kornai to constructively analyze this issue because he presumes a binary opposition between the state and the market. Yet, attention to the incentive mechanism behind local governments’ behavior and economic development cannot be avoided since the two are part of the reality of China’s development process: first came the development of county-owned enterprises, followed by the fiscal subcontract model and the subsequent “tax sharing system” reform, and then, finally, local governments’ vigorous promotion of investment. All these are different from the path of the Eastern European countries that Kornai studied.
Andrew Walder’s and Qian Yingyi’s research on the relationship between the incentive mechanism behind bureaucratic behavior and economic development has expanded on Kornai’s notion of “hard budget constraints” and brought it to bear on the analysis of bureaucratic behavior. Walder points out that in Kornai’s concept of “soft budget constraints,” the government is assumed to have fixed organizational characteristics. However, in reality, government’s jurisdiction varies greatly. Within the huge Chinese public sector, the fastest productivity growth has occurred in places where property rights are clearest and easiest to enforce. The harder budget constraints are, the greater the impetus for economic development. This thus propels officials to manage public enterprises as “a diversified market-oriented firm” (Walder, 1995: 263).
Similarly, Qian Yingyi’s notion of “Chinese-style federalism” is based on the reality that after the implementation of the fiscal subcontract system (and the subsequent reform of the “tax-sharing system”), the central government’s decentralization of the fiscal and taxation systems induced economic competition among local governments, thereby directly restricting both the central government’s control of the economy and the behavior of local governments, while promoting economic development (Montinola, Qian, and Weingast, 1995: 50). Fiscal decentralization, a crucial aspect of the transformation, has two effects: first, the fiscal competition among local governments “in the presence of local factors increases the opportunity costs of bailout at the margin [ . . . ] (the “competition effect”); and second, the conflict of interest between monetary centralization combined with fiscal decentralization increases budget constraints and decreases inflation (“checks and balances”) (Qian and Roland, 1998: 1143). In short, Qian contends that decentralization and economic competition between local governments are important forces driving economic development.
Qian’s research has deeply influenced scholars such as Zhou Li-An. Zhou’s work has explored economic competition among local governments and the incentive mechanisms behind their behavior. The centerpiece of Zhou’s analysis is the “promotion tournament model.” The key to understanding the incentive system and economic growth since the 1980s, according to Zhou, is the competition among local officials in the race for GDP growth (Zhou, 2007: 38). In a recent study, Zhou uses “bureaucracy + market” to illustrate China’s unique approach to economic growth and the interaction between the state and market. This new framework incorporates his earlier notions of “political tournaments” and the “administrative contracting” model and expands on the “comparative institutional analysis” research approach of his mentor, Aoki Masahiko. Zhou posits that China’s economic growth has been fostered, first, by local officials’ competition to advance their careers by aggressively promoting economic development within their jurisdictions, and second, by market competition among enterprises, which is embedded in the political competition among officials. His model stresses the significance of government-enterprise collaboration for economic development and three conditions for a positive and effective collaboration: providing political incentives to local governments, external market constraints, and the necessary feedback and guidance mechanism for information. The “bureaucracy + market” growth model provides these three crucial conditions (Zhou, 2018: 1). Zhou’s interpretation incorporates regional differences, and, in a broad sense, reveals its subjective value in the context of global history.
Zhou Li-An’s research incorporates a broad academic vision underpinned by an attempt to break the stranglehold of market-oriented neoclassical economics by emphasizing practice. His model, based on China’s experience, shines the spotlight on the framework for the positive interaction between the government and the market. This framework has a close fit with “the third sphere” postulated by Philip Huang. Zhou argues that government-business cooperation within a jurisdiction cannot be described as simply government intervention or market domination; it is, rather, a close interaction between government and market. This is another form of the third realm, not in the sense of the state-society relations as defined by Huang, but in the sense of government-market relations. [ . . . ] The third realm of government-market relations since the Reform era has offered a Chinese model of economic development and opening up by stimulating the entrepreneurial spirit of government officials and businesspeople in intensive cross-regional competition and the cooperation of local political and economic elites. (Zhou, 2019: 408)
Most importantly, as the work of both Zhou Li-An and Philip Huang shows, it is essential “to place Western theories into their historical background and context in order to analyze and dialogue with them, and reconstruct them into new theoretical formulations that are anchored in Chinese realities” (Huang, 2019: 385). Nonetheless, Zhou’s research does not consider the informal economy and social injustice.
The Social Science of Practice Approach and China’s Development Experience
Philip Huang’s view of the state-market relationship grows out of his understanding of China’s informal economic practices. This approach is not only very different from the mainstream but also reveals the historical roots of social injustice in China. His research shows that the key to China’s development experience, which has been ignored in the mainstream discourse, lies in the connection between the state and market. In China the state and the market coexist in practice, and are not, as neoclassical economics would have it, mutually exclusive. It is therefore essential to closely examine this coexistence at the level of practice and the multiple complicated relationships involved in order to identify the key driving force behind China’s development and reflect on the roots of wealth disparity in China. Huang’s approach connects practice and theory, emphasizes starting from the most basic empirical facts, and then, on that basis, deriving theoretical explanations through dialogue with important theories, and, finally, returning to practice to test one’s hypotheses. Divining the connection between experience and theory cannot be done by simply comparing theories with empirical facts, nor by trying to verify (or falsify) existing theories with empirical facts. Rather, it requires investigation of the paradoxical relationship between basic empirical facts and important theories, selectively evaluating different theoretical explanations based on empirical evidence, and, by closely connecting experience and theory, building an interpretive framework that fits reality.
Looking at China’s development experience from this perspective, Philip Huang believes that the collaboration of the state and the market is both the key driving force behind China’s remarkable economic growth and the source of many problems, since both coexist and spring from the same source. His analysis of China’s development experience has three main features: constructing a theory based on the analysis of paradoxical phenomena, developing a broad historical vision underscoring the analysis of real problems, and calling for an ethical concern for disadvantaged groups. The greatest significance of his research lies not only in unveiling the multiple complex relationships and influences between the state and the market at the level of practice, but also in its dual critique: on one hand, Huang uses China’s development experience to reflect on mainstream theories; and on the other hand, he uses the wealth disparity in Chinese society to reflect on the complexity of the outcomes of local governments’ behavior. Both are complementary and attempt to “go beyond the left and the right” perspectives.
First, state intervention in the economy does not necessarily lead to economic inefficiency. Mainstream theories are singularly preoccupied with market allocation, and do not take into account the important role of government actions in economic development. Philip Huang has pointed out that interpretations of China’s economic reform mainly are based on new institutional economics, with its strong emphasis on market-oriented private enterprises and related laws. Both Andrew Walder and Qian Yingyi have noted that local governments, and especially their rural enterprises, have played a key role. Both streams of analysis, however, cannot explain China’s experience since the mid-1990s, that is, the switch in the driving force of China’s economic development to local governments’ strong support for outside enterprises in the quest to draw in businesses and attract investment (Huang, 2011: 4). Related to this is the fact that mainstream theories insist that there is a binary opposition between the state and the market, and ignore the role of SOEs in economic development. Huang shows that, based on convincing empirical evidence, the restructuring of SOEs in the planned economy into profit-making firms drove the rapid growth of the Chinese GDP during the first decade of the twentieth-first century (Huang Zongzhi, 2012b: 8).
The theoretical ground for the construction of a social science of practice approach lies in the coexistence of the state and market in practice, and their multiple complicated relationships, and on that basis analyzing the paradoxical phenomena in Chinese development and building a theoretical explanation with Chinese subjectivity. The neoclassical discourse portrays the state and market as diametrically opposed, and holds that the state should be completely withdrawn from the market in order to protect the rights of market entities and promote economic development. It further equates “privatization” or “marketization” with “development,” and constructs a framework of universal linear causality. This is a self-explanatory premise. In reality, it is the close collaboration of the state and market that has led to remarkable economic success in the course of China’s development, a paradoxical outcome from the perspective of mainstream Western theories. Neoclassical theories posit that economic phenomena should be studied in the same way as one would conduct an analysis in the natural sciences. In other words, studying the market and productivity requires the use of sophisticated mathematical formulas and quantitative models. But this excludes the scrutiny of state power and production relations and, naturally, also ignores ethics. Furthermore, it deems the analysis of production relations to be ideological and not scholarly. In short, the social science of practice approach is conducive to constructing a theory with subjectivity based on economic practice, and to confronting the multiple complicated relationships between the state and the market, rather than simply echoing the presumptions of mainstream theories.
Philip Huang’s research begins with a recognition of the coexistence of the state and the market in practice and thus departs from neoclassical theories’ singular attention to the market. The combination of the two is mainly manifested in the practices in China’s massive informal economy. This is a subject that mainstream discourse ignores, even though the informal economy has had a great impact on China’s development and, at the same time, has exacerbated the disparity in social wealth. Here, once again, we see the same paradoxical relationship: the key to China’s development and the problems that arise in the process of development are closely related. However, neoclassical theories deny the possibility of multiple complicated relationships between the two and are thus unable to account for this paradoxical relationship. They are also incapable of providing a route to the realization of social justice. Huang’s research, however, cuts to the heart of the China’s informal economy, and his findings show concern for the working people.
The critical nature of the research is also demonstrated in its findings on local governments, which wittingly or unwittingly are complicit in the circumvention of labor law in the massive informal economy. It must be emphasized that the informal economy is not the sort of market criticized by classical leftists, but, nonetheless, is, to a degree, a source of social injustice. The informal economy here refers to China’s 664 million strong workforce consisting of peasant-workers, laid-off workers, and others, which accounts for 85 percent of the country’s total 780 million working population (including peasants). However, although the law generally protects employees in the formal economy, there are few or no labor regulations that cover the vast majority of workers in the informal economy (Huang Zongzhi, 2012b: 8). Huang combs through the evolution of labor regulations and finds that the real working people in contemporary urban China are neither the industrial proletariat as pictured by classical leftists, nor the working people integrated into a unified domestic labor market as imagined by classical neoliberals. Rather, they are for the most part employed in the informal economy, where they work without the protection of labor laws and regulations (Huang Zongzhi, 2013: 56). Huang’s study of litigation cases shows that most of the workers in the informal economy currently find jobs in the cities through the rapidly expanding “dispatch work” method, whereby the law differentiates between “labor relationships” and “dispatch work relationships,” and the “employer of the person” and the “user of the work,” thereby freeing the employer from any contractual relationship with the people who do the actual work. In the new dispatch work relationships, laborers sign contracts with dispatch agencies, but they are managed by the firms where they actually work. The result is a black hole in labor law both in theory and practice, one where management is not bound by law. Firms that use the labor of “dispatch workers,” but are technically not their employers, are thus exempted from the legal obligations of employers (Huang, 2017: 248–50). Huang points out that the National Bureau of Statistics, partly misguided by mainstream economic (and social) theories, has not taken the employment statistics of the informal economy into account (Huang, 2009: 423–28). His research shows that the power of local government and formalist laws may collude, thereby exacerbating the problem.
Philip Huang’s findings show that instead of solely emphasizing the growth of economic indicators, social justice should also be prioritized. Local governments have adopted many measures to promote economic growth, especially land finance and investment promotion. However, ignoring social justice can easily lead to a certain degree of wealth polarization. Huang views wealth polarization as both a social and economic problem: it severely curbs domestic demand and forces the Chinese economy to continue its reliance on unsustainable exports to promote development (Huang Zongzhi, 2012b: 9).
Therefore, the principal difference between the social science of practice approach and formalist theory lies in whether the approach proceeds from practice, recognizes the complexity and diversity of social change, and acknowledges the multiple complicated relationships between the state and the market. Neoclassical theories allow no more than a linear perspective on Chinese realities and disregard the complex realities and social injustice in China’s transformation. This because such theories posit that marketization and privatization can solve all problems, and future society will tend to become homogenized. This reasoning has an obvious universalist orientation, denies historical pluralism, relies on a pan-marketization interpretation, and ignores the most basic social facts that restrict economic change. Philip Huang’s research shows that China’s land-population relationship and the market form a complex interactive relationship, which sets boundaries on economic development and eventually influences economic change (Huang Zongzhi, 2015b: 349). Neoclassical theories do not call attention to the huge number of workers in the informal economy, nor to the historical roots of China’s informal economy. Huang, on the other hand, analyzes the history of the relationship between the informal economy and China’s development, and reveals the historical roots of the complicated relationship between the state and market in practice. His approach is clearly different from formalist theories.
Philip Huang’s analysis of the combination of the two practices that lies at the root of China’s informal economy shows that it arises from China’s historical reality, namely, the land-population ratio and the logic of survival in a subsistence agricultural economy. His studies, focused on practice, spotlight the historical roots of the complex relationship between the state and market. It is precisely the fact that the logic of practice in China is different from Western historical realities which lays the foundation for the construction of an interpretive theory with Chinese subjectivity. In Huang’s study of the peasant economy in North China, he differentiates between the “family farm” and the “managerial farm” and finds that these two types of farms, although differing in labor use, had similar output per unit land area. Their productivity differences were mainly due to their different responses to population pressure. The family farm relied mostly on family labor, which could not be hired or fired at will. Thus, the family farm, under the pressure to survive, could not fully utilize its surplus labor and, unlike the managerial farm, could not avoid applying ever higher labor inputs per unit land area. The degree of labor intensification could far exceed diminishing marginal returns, which, theoretically, may even be zero. Based on a systematic examination and comparison of the historical transformations of the two types of farms, Huang maintains that the majority of peasant households in North China depended on “farming + handicrafts and casual jobs” under nearly three centuries of commercialization and population growth (Huang, 1985: 16–18, 69–70, 293–95). The underlying logic is the persistence of subsistence agriculture as a survival strategy. In the Yangzi Delta region, the richest in traditional China, the economic behavior of peasants also operated according to the same logic. The involuted growth in the Yangzi Delta region discouraged further labor intensification of rice cultivation, because rice yields had reached a plateau and labor productivity could not be increased without limit. Facing increasing population pressures on the land, the peasants thus turned to labor-intensive cash crops, particularly cotton and silk. The peasant family thus combined the cultivation of cash crops—cotton, in particular—with silk handicrafts to survive. Even in modern times, when the Yangzi Delta experienced highly commercialized conditions and the expansion of the market, the peasant economy continued and peasants still lived at a subsistence level (Huang, 1990: 13–15, 78–80, 84–86, 305–8).
The economic behavior of the huge number of workers in the informal economy shows the persistence of the survival logic under subsistence agriculture. Actually, “farming + handicrafts and casual jobs,” “cash cropping + cottage industry,” and the contemporary “half-worker half-cultivator 半工半耕,” all exist because it is impossible to rely solely on agricultural production to maintain a normal livelihood under the pressure to survive. The current massive outflow of rural labor is evidence of this fundamental reality. This outflow accounts for the majority of workers in China’s informal economy (Huang Zongzhi, 2006: 30–31). In Huang’s view, this subsistence agriculture is the historical source of China’s informal economy. The long-term continuation of the half-worker half-cultivator status under the logic of survival is obviously different from the behavioral logic and actual economic transformation that occurred in the West, as described by Adam Smith and Karl Marx. Huang’s object is not to construct a universal theory, but to undertake an analysis anchored in the most basic realities of Chinese society, engage in a dialogue with various theories, and form new analytical concepts, so as to promote understanding of both facts and theories. China’s historical realities and behavioral logic provide a basis for the construction of an interpretive theory with subjectivity.
It is readily apparent that Philip Huang’s research is based on a deep analysis of history, an approach that is different from the intellectual underpinnings of Pierre Bourdieu’s “theory of practice.” Bourdieu surveys the distance between the observer and the observed to distinguish between objectivism and subjectivism in epistemology. The former does not rely upon the objective rules of the subjective will (structure, regulations and relational network, etc.) and is an absolutely priority. Bourdieu claims that this actually affirms the observer’s cognitive privilege, since it does not consider the distance and externalities between the conditions and results of the objective activity and the original experience. The latter completely separates local experience from its representation and focuses solely on rules and representation, treating the distance between the observer and the observed as absolute, which is a form of dichotomous thinking. In interpreting the subject’s behavior, Bourdieu criticizes the teleological approach of voluntarism by arguing that behavior decisions are influenced by inclination (such as expected outcomes, intended action goals, etc.), but he does not consider constraining conditions, because voluntarism explains the behavior of “rational actors” solely based on rational decisions, especially the consistency and continuity of preferences across time. He also opposes the structuralist approach of reducing history and society to a “process without subject,” which is equivalent to replacing the “creative subject” of voluntarism with robots subject to the outdated laws of natural history, mechanically subjecting the will to the external structure. Therefore, he points out that although a logical model that most rigorously explains as many facts as possible is valuable, if such a model is regarded as the true principle of practical activities, the model will become fallacious and dangerous (Bourdieu, 2003 [1990]: 17–18, 22–23, 29, 37–40). In Bourdieu’s view, the appropriate approach is to explore the logic of practice, because practical logic is more complex, diverse, and inclusive. It is neither completely logical nor completely illogical, neither fully controlled nor a fully native experience of an unconscious symbolic system (133–36). Practice theory, Bourdieu as presents it, provides much inspiration for reflecting on social science formalist theories. The key here is, as Qin Yaqing put it, practice theory actually separates knowledge into representational knowledge and background knowledge; the former informs rational actions and the latter leads to spontaneous actions. Background knowledge is the main driving force and basic logic of action, because action is, for most of the time and in most cases, led by background knowledge. Thus, action is not chiefly prompted by rationality, but by the actor’s history, experience, culture, and practice. (Qin, 2013: 188)
Qin points out that the significance of this shift is that it challenges the rationalist assumptions of mainstream Western theories, and, more importantly, it creates legitimacy for innovation of social theories in the context of “other cultures,” since background knowledge prioritizes the practical experience of the actor, the variety of the practical experience determines cultural diversity, and cultural diversity leads to the construction of pluralistic theories (189–90). Bourdieu’s own research, regrettably, failed to achieve the theoretical proposition he was pursuing, and lacked attention to historical change.
Philip Huang’s research, unlike Bourdieu’s, is informed by a profound sense of history. It is predicated on the complexities of Chinese history, in which the fundamental reality is an intermixing of the Chinese with the Western. Viewed only in terms of a single cross-section frame, it is impossible to grasp the complex changes that have occurred and accumulated over time in China. Huang's research emphasizes especially the complex relationships between "representation" and "practice," which Bourdieu does not consider. At the same time, Huang is concerned with the issue of China's subjectivity, with its multiple differences from the West. Those deeply rooted tendencies mean that China's future may not necessarily be like the West's, that the solutions to its problems will be rooted in Chinese realities, and not just a matter of Westernization. Those differences are a matter of dissimilar scholarly ideals: while Bourdieu is fundamentally interested in the pursuit of universal theory, Huang seeks mainly to root his conceptulizations in actual practice, with little concern for universal theory, which in his view often runs counter to empirical realities.
Huang analyzes social change in China and contemporary China’s development experience from a broad historical perspective and in a spirit of historical rationality. His historical perspective is primarily determined by the complexity of Chinese society, which has undergone entanglement and fusion with the West since the modern era. The China-West relationship has long been in the state of “you are in me as I am in you,” hence an observation of a cross-section of Chinese society cannot reflect the full complexity of society. The complexity of contemporary society is a result of the accumulation of sweeping social structural changes since the beginning of modern times. Huang’s research, unlike Bourdieu’s, is attentive to the complicated relationship between expression and practice, which is also very important for understanding Chinese society. Furthermore, his research has a clear sense of historical subjectivity—that is, Chinese history and cultural traditions are different from those of the West, and are profoundly resilient. Thus, China’s future may not be the same as that of the West. The solution to China’s problems should also be rooted in Chinese social realities, and cannot simply mimic the West. What this difference illuminates is a contrast in scholarly vision. Bourdieu as a theorist seeks to universalize theory while Huang emphasizes theoretical generalization based on practice and empirical evidence. Huang has no intention of pursuing universalization, which, as he argues, often leads away from reality.
Lastly, it should be emphasized that, although the social science of practice approach, unlike formal theories, is anchored in realities, this does not imply that all practice is reasonable. Philip Huang’s study of China’s development experience clearly entails moral ideals, and thus his approach is not only retrospective but also prospective. Huang’s perspective is clearly different from Max Weber’s “value neutrality” and formalist logic’s equation of “demoralization” with “rationalization.” The issue here is not whether scholarly research requires moral ideals, but how to integrate moral ideals and truth-seeking as the driving force in the pursuit of scholarly truth (Huang Zongzhi, 2015a: 123). Huang’s research shows his empathy for the underclass and concern for fair treatment, which is one of the motivating forces behind his work. His research particularly stresses the Confucian maxim “do not do unto others what you would not wish others do unto you” and Immanuel Kant’s “practical reason” to reflect on practice (Huang, 2015a: 25–28), through which he connects practice and prospective analysis, and his concern for social justice in China’s development. Ultimately, the human economic world and the natural world are essentially different, and as Huang points out, human society is full of subjectivity, diversity, and contingency. Thus, understanding society requires the interaction of subjectivity and objectivity, diversity and unity, and contingency and certainty. The social sciences should reject the formalist approach, start from induction based on empirical evidence, apply deductive reasoning to make reliable inferences and hypotheses, and then revisit the empirical world to test one’s formulations. This is a never-ending process whose purpose is to form theories and insights applicable under specific empirical conditions and with a limited range, rather than construct universal and absolute truths (Huang and Gao, 2015: 131–32). Only in this way can the social sciences transcend binary opposition thinking and value differences to open the way to an interpretive theory with subjectivity in line with China’s realities.
Conclusion
Dichotomous thinking obviously did not end with conclusion of the Cold War, but academic research should transcend this mindset and build, based on practice, theories that more closely conform to reality. Kornai’s research on the socialist system was published in the early 1990s. Then, following the upheaval in Eastern Europe and disintegration of the Soviet Union, popular Western thinking emphasized Western values above all else, and held up Western unilinear-type theories as universally applicable. Binary opposition in Kornai’s model was even more prominent than in previous works. Similarly, Jürgen Habermas’ notion of a “public sphere” consisting of “civil society” in opposition to the “political state” gained much popularity in the Western academic world (Huang, 1993). Philip Huang has reflected on the impact of binary opposition on research from a methodological perspective. He points out that, viewed through the lens of Western theories, there are many paradoxical realities in China that run counter to theoretical predictions, and therefore challenge assumed causal relationships (Huang Zongzhi, 2015b: 55–57). The social science of practice approach proposed by Huang provides many insights for the construction of an interpretive theory with genuine Chinese subjectivity.
First, economic practice is critical to the construction of theory. “Practice” here refers to the specific acts and operations of the system. Practice is open, while theory is closed due to its emphasis on logical self-consistency. Hence, new practices can help us formulate fresh interpretations in an unending process that can evolve into a new theoretical system. Practice is definite, and interpretations based on practice can lessen our dependence on abstracted value differences, and hence can form the basis for agreement on theoretical interpretations, thereby promoting knowledge. Practice is also complex: opposing schemes can coexist in practice, and thus theoretical interpretations based upon this complexity can help us reflect critically on existing theories. As Huang has pointed out, the contemporary Chinese political economy is a composite of multiple paradoxes: an involuted peasant economy coexisting with giant state-owned industries from the planned economy era, and also with private enterprises emerging from marketization, including SOEs that have undergone strategic reorganization. Such complex multiple paradoxical realities cannot be explained by any one theory (Huang Zongzhi, 2015b: 24). This complex reality can form the basis for theoretical innovation and critical reflection on orthodox theories.
Second, the role of theory is mainly to raise questions, and not to provide answers. The social science of practice emphasizes the selective use of theories based on practice. Since practice is complex while theory frequently spotlights singular characteristics and aspects, contradictions between the complexity of practice and oversimplification of theory are common. One needs to test and select from among various theories on the basis of practice in order to formulate theoretical explanations that are congruent with practice. Furthermore, one needs to better grasp empirical paradoxes with the help of conflicts, as well as shared beliefs, among multiple theories. This is imperative for critical reflection on existing theories and the causal relationships they presume (Huang Zongzhi, 2015b: 62–63). This can also aid in constructing more consistent theoretical explanations, and inspire us to study theoretical schools in addition to mainstream formalism, and to research China’s development experience with a broader academic vision and a more open-minded mentality.
Lastly, relating experience to theory should not be based on universalizing any one particular theory, but rather on using new conceptualizations founded on new realities. Dichotomizing subject and object—whereby the subject is presumed capable of explaining everything in the objective world through scientific methods—has been the basis for understanding the objective world since the Western Enlightenment. Closely connected with this is the belief that studying human society requires the same sort of methodology as studying the natural sciences. Scholars therefore have tended to devote themselves to the construction of universal theories. The social science of practice approach, on the other hand, acknowledges the difference between human society and the natural world, the complexity of real practices, and the distinctiveness of various countries’ development experience. History and practice have shown that the development experience of any one country cannot be the basis of a “universal history” and that universal generalizations that run counter to reality cloud our understanding of the world. The differential development experiences of different countries can provide better guidance for future studies. Similarly, the key to theory-building is to formulate new conceptualizations on the basis of empirical realities, rather than imposing universal laws on the world. This approach can then transcend the either/or dichotomous mode of thinking, and the ideological differences that accompany such thinking, making possible scholarly contributions of enduring value.
Footnotes
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
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