Capitalism/Socialism With Chinese Characteristics -- A Reporter's Notebook
A few weeks ago, I received an e-mail from Doug Berman, a second year law student at Indiana University School of Law, who speaks Mandarin and will be interning in China this summer. I met Doug a year and a half ago when I was at IU's law school lecturing as an international law "practitioner in residence." Doug and I have stayed in e-mail contact ever since and a few weeks ago he e-mailed me to tell me about an upcoming, invitation only, conference on China at Indiana University Kelley School of Business. The list of attendees was impressive and I found the topic fascinating. But, I could not attend and Doug, as a mere law student, did not think he could wrangle an invitation to this big global event.
So we devised a plan. I would request an invitation for Doug to attend as China Law Blog's first ever on the ground reporter. It worked, Doug went, and this is the first of a serious of posts from Doug on the conference.
This first post gives a brief overview of the conference and discusses its central issue: China as capitalist, yes or no? The second post will discuss the practice of law in China. The third post will delve into the concept of Chinese exceptionalism.
So without further ado, here is the first of Doug's report:
I [Doug] just attended the IU Business School sponsored conference on "Capitalism with Chinese Characteristics" on the political economy of China. The central topic of this conference was the role of capitalism in today’s China. The title of the conference, “Capitalism with Chinese Characteristics,” is a refashioning of the “Socialism with Chinese Characteristics," first used in 1982 by Deng Xiaoping.
Scott Kennedy, a professor in Indiana University's Department of East Asian Languages and Cultures, put together the conference and he gave the opening speech. Dr. Kennedy compared his first trip to Beijing in 1988 to his most recent visit last year and he talked about the huge differences between then and now. He then discussed whether we should be calling China a capitalist country.
Margaret Pearson, a Professor of Government and Politics at the University of Maryland, expressed skepticism of China as capitalistic due to its lack of property ownership rights, which she viewed as inherent in capitalism. Andrew Wedeman, chair of the Asian Studies program at the University of Nebraska, stated that however we define China's current system, it will eventually degenerate into a kind of crony capitalism or booty capitalism (if it has not done so already). Deborah Davis a sociology professor at Yale University, contended that China is more capitalistic than many countries in Europe.
Various speakers talked about how the lack of consensus on this issue stems from China being a mixed-economy, with state ownership and no few real property rights, as in socialism, but at the same time, it has the vibrant and highly competitive business structure one sees with capitalism.
Marc Blecher, a Professor in Oberlin College's Politics Department and East Asian Studies Program, talked about state control in China as relating to his own work in Xinji, a small city in Hebei province undergoing enormous industrial restructuring. Dr. Belcher talked about how we should view China's smaller towns as examples of modernist development aimed at maximizing production, even though many of China's planners are driven largely by political considerations.
Lawyers tend not to put much stock in theories of capitalism or political development or descriptive models of the “state,” focusing instead on the rule of law as a means toward developing stable democratic institutions. In my [Doug's] view, though law is the linchpin of a stable society, we must also realize that trying to understand the kind of system China is (or is becoming) can help in doing business in China. Knowing the relevant laws and regulatory regimes there is crucial, but understanding the roles of China's institutions and the close connections between between politics and industry is also of critical importance.
China Law Blog's [Dan's] comments:
1. Thanks Doug for a job well done.
2. I agree with Doug that in doing virtually any kind of business in China, one must understand the role of the state and, in particular, the state's interest in your particular type of business.
3. I consider China largely capitalistic, at least as it relates to foreign companies doing business there. Yes, its property rights are not even close to what one normally thinks of under a capitalist system, but they are obviously good enough so that countless private entrepreneurs feel safe enough to start and grow their businesses. Competition among most industries is rampant in China.
4. I get the feeling many of the speakers overrate the role of the Chinese state in business. It would be silly to deny it is important, yet, at the same time, without exception, our Chinese clients are dynamic international companies that operate as such. They tend to do whatever they can to avoid the yoke of the state and, for the most part, they succeed. I disagree with the predictions of China becoming a crony capitalistic state mostly because I think that overrates the strength of the central government. If anything, I see the government slowly losing more control over business. I base this on the laws that are being enacted that are freeing up businesses and on the growing percentage of GDP contributed by private enterprise. Now I realize that crony capitalism and private enterprise are not incompatible, but in China, where it is so much easier for government bureaucrats to take their "piece" of a government owned entity, that has so far not been the case. I also see the government as being more interested in maintaining order than anything else.
5. I concur with what seems to be the view of Dr. Belcher that even though the Chinese bureaucrat may be political, his development decisions might be rational and -- dare I say it -- capitalistic. I think one of the differences between China and Russia and between China and Vietnam (though Vietnam is slowly changing in this regard) is that the Chinese system is generally set up so that government employees are rewarded when businesses bring prosperity to their region.
6. I also wonder why there was not more discussion (or maybe there was as Doug was not able to attend every session) of the Chinese government as capitalist actor. For example, I see a city owned factory as being a very different beast than the Beijing central government.
Stay tuned.
http://www.chinalawblog.com/cgi-bin/mt/mt-t.cgi/1238
Capitalism/Socialism With Chinese Characteristics -- A Reporter's Notebook:
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This is Doug Berman's second report from the Indiana University Kelley School of Business sponsored conference on Capitalism with Chinese Characteristics Doug's first post was entitled Capitalism/Socialism With Chinese Characteristics -- A Reporter's N... []
Comments
I think China is largely capitalistic, with Chinese characteristics, of course. The government is dumb in some ways, but not dumb to the core. I would agree that many development decisions by the government are rational.
Posted by: Hang | May 28, 2006 11:19 PM
I recently learned a saying here in Beijing, "The mountains are high and the emperor is far away." Despite what the laws are in China, the Chinese people are not stupid, and the burgeoning industry here is the best indicator of China's transformation into a capitalistic nation. Deng Xiaoping began liberating China's industry when he began implementing a legal system that would make efficient use of the land and permit the people to compete with foreign enterprises, i.e. the evolution of China's modern legal system was precipitated by a desire to make profits. Consequently, the Chinese Communist Party has had to loosen its paternalistic control of the people. China's joining of the WTO has even further hastened China's indoctrination as a capitalistic nation, and as China cultivates more of its own home grown namebrands the greater the incentive to bolster its legal system and trust its citizenry. I concur with Dan, and challenge anyone to show me an example of a truly pure capitalistic nation. Moreover, the evolution of "capitlastic" nations has never been pretty or saintly. The nature of the beast we call "business" comes in many forms and China is one of them.
Posted by: Travis Hodgkins | May 29, 2006 12:57 AM
Travis --
I love that saying because it really does reflect what is going on in China today. I think lawyers like us look at China and we have to say: Capitalist. Competition is intense and, in large measure, wide open.
The academic, however, has to look at the various indicia of capitalism, and discuss it.
Posted by: China Law Blog | May 29, 2006 7:53 AM
Hang --
In my view, governments, by their very nature, can never be terribly smart. But, as far as governments go, I would definitely rank China's up near the top.
Posted by: China Law Blog | May 29, 2006 7:54 AM
With respect to the point that the system of laws defines the order of society, I think it needs to be kept in mind that there are two distinct issues here -- 1. what are the laws? and 2. how are they enforced? The former may proceed from a jurisprudential ordering of society, but the latter tends to be a product of political orientation, and it is the enfocement of the laws, not their mere exisitence that creates a positive or negative business climate. This, of course, is the conundrum in China for businesses concerned about IP protection.
On another note, I think the government in China is doing an incredible job of managing the conversion of their economic system from an agrarian based planned economy to an industrial based market economy. They seem driven to implement a model of transformation in stark contrast to the devolution of Russia's post-socialist economy into chaos driven by cronyism. Thus far they have been incredibly successful, but I think the moment of truth will come when the middle class becomes sufficiently well developed that their desire to have a voice in the political system comensurate with their voice in the marketplace forces the communist party to seriously consider democratic political reforms. They have ceded much of their economic planning power to market forces, but I think they might blanch when the moment of political truth is staring them in the face.
Posted by: Craig Maginness | May 29, 2006 8:13 PM
Craig --
Thanks for checking in. I think it good that you are contrasting China with Russia because virtually every time I discuss China's economic and political transformation with someone Chinese (usually an attorney) they bring up Russia and talk about how much they want to avoid a Russian type transformation in China.
I also think Russia (as well as China) bears out your point about the key being the way laws are enforced, not just the laws themselves. Russia has more laws and, in certain ways is more legalistic, than any country of which I have personal familiarity. I have come to the view that Russia has so many laws so that everyone will be, at any given time, in violation of some law, giving the government near complete discretion as to whether to arrest someone or not. Now I know this is somewhat of an oversimplification, but the general point is valid.
I would not put China in the category of countries where the rule of law prevails, but is that a necessary element of capitalism? I do think many of China's business laws are surprisingly good and the enforcement of them is improving.
Posted by: China Law Blog | May 29, 2006 9:00 PM
"I have come to the view that Russia has so many laws so that everyone will be, at any given time, in violation of some law, giving the government near complete discretion as to whether to arrest someone or not".
Instead in China they don't need any law to arrest someone every time they decide to.
"I would not put China in the category of countries where the rule of law prevails, but is that a necessary element of capitalism?"
Yes, if you want a real free-market capitalism and not a state-oriented capitalism subjected to potential abuse. Are you a lawyer, aren't you? Do you really ask if rule of law is necessary?
Your view of China is so... benign. How much honey for such a hard reality...
Posted by: e.r. | May 30, 2006 8:22 AM
e.r. --
Thanks for completely misconstruing what I said.
1. I talked about Russia in response to the reader who talked about Russia. I went back and read my comment and, if anything, I was putting China and Russia together in the same boat, not contrasting them.
2. My question was whether the definition of capitalism includes a rule of law requirement?
Most dictionaries define capitalism along the following lines:
"An economic system based on a free market, open competition, profit motive and private ownership of the means of production. Capitalism encourages private investment and business, compared to a government-controlled economy. Investors in these private companies (i.e. shareholders) also own the firms and are known as capitalists."
No mention of the rule of law.
Though, I think we can agree the rule of law is important, the question is whether it is required to call a country capitalist? I asked this question because my understanding of capitalism is much more centered on economics than anything else and I was hoping for an answer from a trained economist or political scientist (I am neither) simply because I do not know the answer.
I don't get the sense you do either because you seem more interested in criticizing views you THINK I hold than in rationally answering the question.
BTW -- Is this benign and/or sweet enough for you?
Posted by: China Law Blog | May 30, 2006 9:34 AM
One of the many reasons why rule of law is necessary for capitalism:
http://yaleglobal.yale.edu/display.article?id=7474
You should accept criticism as well. This is blogging.
Posted by: e.r. | May 30, 2006 9:40 AM
e.r.
I accept criticism; I posted your comment, didn't I? Accepting criticism, however, does not mean not pushing back, does it?
I read the article you just cited. It is an excellent article and one with which I completely agree. The article essentially says India is beating China in high tech because India is doing a much better job of protecting IP rights. No doubt.
But, this just goes to show that capitalism functions better under the rule of law, and I would never dispute that. My question, though was whether a country can be capitalist even though it is not governed by rule of law.
Posted by: China Law Blog | May 30, 2006 9:54 AM