Capitalism without Democracy

The Private Sector in Contemporary China

Kellee S. Tsai

• Publisher: Cornell University Press
• Year: 2011
• eBook ISBN: 9780801462351
• Topic: Économie
• Subtopic: Économie du développement

Over the past three decades, China has undergone a historic transformation. Once illegal, its private business sector now comprises 30 million businesses employing more than 200 million people and accounting for half of China's Gross Domestic Product. Yet despite the optimistic predictions of political observers and global business leaders, the triumph of capitalism has not led to substantial democratic reforms.

In Capitalism without Democracy, Kellee S. Tsai focuses on the activities and aspirations of the private entrepreneurs who are driving China's economic growth. The famous images from 1989 of China's new capitalists supporting the students in Tiananmen Square are, Tsai finds, outdated and misleading. Chinese entrepreneurs are not agitating for democracy. Most are working eighteen-hour days to stay in business, while others are saving for their one child's education or planning to leave the country. Many are Communist Party members. "Remarkably," Tsai writes, "most entrepreneurs feel that the system generally works for them."

Tsai regards the quotidian activities of Chinese entrepreneurs as subtler and possibly more effective than voting, lobbying, and protesting in the streets. Indeed, major reforms in China's formal institutions have enhanced the private sector's legitimacy and security in the absence of mobilization by business owners. In discreet collaboration with local officials, entrepreneurs have created a range of adaptive informal institutions, which in turn, have fundamentally altered China's political and regulatory landscape. Based on years of research, hundreds of field interviews, and a sweeping nationwide survey of private entrepreneurs funded by the National Science Foundation, Capitalism without Democracy explodes the conventional wisdom about the relationship between economic liberalism and political freedom.

1

The Myth of China’s Democratic Capitalists

The biggest problems in China are corruption and absence of the rule of law. But democracy wouldn’t solve these problems because the Chinese masses are too ignorant to participate in politics.

Private entrepreneur in Shanghai, 2005

The Myth

In the summer of 1989, when college students were squatting in Tiananmen Square, demanding democracy, Beijing’s street vendors donated food and water to the students. Private copy shops operated their fax machines around the clock to spread the word. A brigade of private entrepreneurs on motorcycles dubbed the “Flying Tigers” spontaneously formed to deliver messages and patrol the perimeters of Beijing for signs of troop movement toward the square (Li et al. 1989, 189–193).1 The privately owned Stone Corporation provided computer equipment and cash donations to the students. To domestic and international audiences, these accounts were quite moving. The idea that China’s new capitalists were altruistic and supportive of the spontaneous student-led democracy movement, the idea that China’s bourgeoisie were also becoming democrats like their historical counterparts in Europe and North America, was encouraging.2

Even a decade after the Tiananmen crisis, Jonathan Adelman boldly asserted, “It is hard for the great majority of Americans who have not visited China or followed it closely to realize that China is in the middle of a historic transition to capitalism and ultimately democracy” (Adelman 2001, 41A).3 The global business community soon added its euphoric prognostications that encouraging private sector development would ensure a democratic transition in China. The American Society for Competitiveness instructed its corporate readers that “global entrepreneurs must continue to invest in corporate infrastructure to help insure stability, success and the inevitable attainment of full democracy there” (Global Competitiveness, January 2002, S183). A number of political scientists have gone as far as pronouncing that democratization is inevitable in China and will be brought about by its growing economy. Larry Diamond (1999) asserted that “sooner or later, economic development will generate growing pressures (and possibilities) for China to make a definitive regime change to democracy.”4 Hu Shaohua elaborates on this general logic in Explaining Chinese Democratization (2000):

China is one of the fastest-growing economies in the world, and its economy probably will continue to expand in the foreseeable future. The growing economy will bring higher living standards, a higher level of education, and a more complicated socioeconomic structure in its wake. Under these circumstances, more people will demand more freedom and democracy. (155)5

Other scholars have devoted their energies to identifying the economic benchmarks for regime transition. Stanford economist Henry Rowen predicted that if China maintained a 5 percent per capita growth in gross domestic product, then by 2015 it will reach a critical threshold of $7,000–8,000 per capita GDP and become democratic (Rowen 1996, 61, 68–69).6 Xia Li Lollar (1997) not only finds evidence for “a positive correlation between a market economy and democracy” (4) but contends that China has already commenced a dual-step transition to democracy such that “China has gone through its first stage of transition from totalitarianism to authoritarianism and is on the verge of starting the longer-term, second transition toward democracy” (83–84). Using a resource distribution index, Tatu Vanhanen (2003) finds that China has already reached the “transition level” for democracy.

Such predictions are inspired in part by the stunning expansion of China’s private sector since the late 1970s. In 1977, China did not even keep official statistics on private enterprises because they were illegal and negligible in number. By 2005, there were 29.3 million private businesses, employing over 200 million people and accounting for 49.7 percent of the GDP (China Daily, December 14, 2005).7 Yet private property rights are not protected consistently by rule of law, private entrepreneurs lack access to most conventional sources of credit, and business owners are denied the opportunity to vote for political leaders who will defend their material interests. Hence, based on the evolution of democracy in a handful of Western countries, many observers expect that China’s growing population of capitalists will naturally agitate for democracy in the spirit of “no taxation without representation.” They will strategically leverage their economic resources to acquire political ones. As Zheng Yongnian puts it, “Chinese business classes are likely to play a role that their European counterparts did in the past. Capitalism is generating a Chinese bourgeoisie. It is a class with teeth” (Zheng 2004, 311).

The Reality behind the Myth

The 1989 images of private business owners helping democracy activists are outdated and misleading.8 Today most private entrepreneurs are not donating resources toward building a democratic People’s Republic of China (PRC) in their spare time. Instead, most are working eighteen-hour days and struggling to stay in business. Others are saving their profits to educate their one child, pay for medicine, buy a house, or retire. Some are planning to leave the country. Quite a few entertain local officials as necessary business expenses, and many are members of the Chinese Communist Party (CCP). Remarkably, most entrepreneurs think that the system generally works for them. One told me in 1996, “Even though I spend about 70 percent of my profits on fees and bribes, running this restaurant still gives me a better life than what I had as a state factory worker.”9 This entrepreneur’s loyalty to the regime was especially apparent when he voluntarily expressed strong approval for the way that the central government dealt with student protestors in 1989. He believed that the crackdown “maintained the social stability necessary for continued economic growth.”

Rather than assuming that Chinese entrepreneurs are going to demand democratic reforms, I suggest that it is more instructive to assess whether members of the current generation of capitalists share a common identity and definition of interests—which would be necessary for constituting a politically assertive class or even part of a class (Thompson 1966; cf. Katznelson 1986). China’s business owners are diverse. Most do not fall into the income and lifestyle strata that we regard as constituting the “middle class.”10 Because of their diversity, entrepreneurs deal with the government in different ways and have different political views—if they have any. And to the extent that China’s capitalists are politically assertive, they are not inclusive in their demands. Existing studies and my own research demonstrate that class formation, to the extent that it results in a common identity, has not occurred among private entrepreneurs and is unlikely to in the near future.11 This is not to say that private sector development is politically irrelevant or that China will never develop some form of democracy but, rather, that the sequence of events leading to capitalist demands for democracy in a handful of other countries is distinctive and unlikely to be replicated. China’s private entrepreneurs should be analyzed on their own terms to understand how and to what extent they are politically consequential. Based on hundreds of in-depth interviews and an original national survey of business owners, in this book I demonstrate that China’s capitalists are pragmatic and creative but they are not budding democrats.

Why, then, do general observers continue to have high democratic expectations of China’s toiling entrepreneurs? Whether voluntarist or structuralist in orientation, few scholars propound a simple linear model of political development based on an overgeneralization of Barrington Moore’s famous quotation “no bourgeois, no democracy” (Moore 1966, 418).12 Yet a number of vocal observers remain influenced by a handful of classic works in political science that can be summarized by Joseph Schum-peter’s declaration that “modern democracy is a product of the capitalist process” (Schumpeter 1976 [1942], 296–297).13 Post–cold war notions of convergence toward capitalist democracy as a global norm have also revived the logic of modernization theory, which associates economic prosperity with political liberalization (Fukuyama 1992; Lipset 1959; Pye 1990). As Bruce Gilley asserts in China’s Democratic Future (2004), “The laws of social science grind away in China as they do elsewhere, whether people like it or not” (xiii). But in reality, the path to democratization is not nearly so simple.14 The belief that capitalists must demand democracy is a myth, not a law of social science. Historically, the processes that lead to democratization are highly contingent and involve a multiplicity of actors and institutions. China is no different in this regard, so debunking this popular myth is not difficult. In this book I do not predict whether China will someday become a liberal democracy. I do, however, assert with a high level of certainty that should democratization occur in China, it will not be led by a disgruntled horde of private entrepreneurs.

Private entrepreneurs may not be clamoring for democracy, but they are influencing Chinese politics. In the course of their day-to-day interactions—with one another and with local officials—entrepreneurs are changing the country’s formal political institutions in ways that reflect their needs and interests. Although liberal democracies permit many direct forms of political expression, what China’s entrepreneurs are doing is more subtle and possibly more effective in conveying their policy concerns than voting, lobbying, and protesting. In this book I thus engage the more complex issues of what it really means to be a private entrepreneur in China, how entrepreneurs actually perceive themselves, and, most fundamentally, how they get things done. We will see that business owners must navigate a myriad of political and regulatory restrictions—and in doing so, how they have fundamentally altered the formal political landscape. We will also see that the private sector’s political influence has unfolded in an indirect and incremental manner. In examining these issues, I explain why China’s private entrepreneurs are not out on the streets demanding democracy and why significant institutional transformations have occurred in China’s political economy in the absence of regime change. The answers to these apparent paradoxes are grounded in the daily practices of business owners and their official regulators. Local economic and state actors have evaded, exploited, and appropriated formal institutions through a variety of informal adaptive strategies. Ultimately, the adaptive informal institutions of private entrepreneurs have had a structural impact on the formal institutions governing China’s political economy.

The Broader Implications of China’s Experience

These claims have broader implications for theoretical debates concerning political and institutional development as well as implications for the study of democracy. China does not fit preexisting models of political economy, and indeed it defies the expectations of many familiar explanations in the study of comparative politics. Analyzing the process of private sector development in reform-era China does, however, yield insights into the dynamics of endogenous institutional change. Despite ongoing regime durability, a number of the country’s political, economic, and even social institutions have undergone momentous transformations since the late 1970s. Rather than confirming prevailing theories of political development, the causal mechanism underlying many of these transformations lies in the informal interactions among local state and nonstate actors. Conventional explanations of democratic development and regime change generally overlook the causal potential of informal practices and institutions to change or sustain formal institutions.15 Meanwhile, studies of transitions from socialism have been more attentive to the relevance of informal institutions and socialist-era legacies, but they have focused more on how deep-rooted informal institutions undermine formal ones rather than how they may contribute to the resilience of formal institutions.

The best-known comparative historical theories of democratic development predict capitalist class formation and democratic mobilization on the basis of structural transformations in the economy and society.16 Instead of focusing on classes and social structure, voluntarist approaches to regime transition expect that disgruntled business elites will join forces with other elites to promote fundamental political changes.17 Yet thus far evidence for both the structural and the voluntarist explanations of democratization and regime change is absent in China. In the macrolevel sweep of traditional structural approaches, social groups or classes are defined in overly broad terms, which obscures the possibility that various members of those groups may have widely varying identities and interests—and, of particular interest to this study, varying formal and informal resources for interacting with state agents. Even in areas as geographically small as Hong Kong and Taiwan, private capital is segmented along socioeconomic, territorial, and ethnic lines (e.g., Wu 2005). By the same token, China’s business owners have different backgrounds and different ways of dealing with their concerns, including the strategic decision to maintain a low profile. Because of this, coherent class formation and collective action have not occurred.18 Meanwhile, voluntarist explanations overemphasize bargaining among elites and the role of formal associations. In China the wealthiest businesspeople generally have little trouble gaining access to local officials, some of whom are unofficially on their payrolls. And most business associations are either organized or co-opted by the state in a noncontentious manner (Chan and Unger 1995; Dickson 2003; Kennedy 2005; Nevitt 1996; Unger 1996).

The socialist transition literature points out that historical legacies and informal institutions continue to shape political and economic dynamics even after the collapse of Communism and deliberative democratic institutional design on the part of elites. As a result, studies concerning the rapid economic and political transitions of former socialist countries have reached indeterminate conclusions about the post-transition sustainability of liberal democracy, as well as their economic performance under newly installed market institutions.19 In contrast to the post-Communist countries of the former Soviet Union and East Europe, China has experienced piecemeal, gradualist economic transition over the last two decades, while political reforms have been even more limited. Most of the existing comparative literature therefore focuses on explaining either the institutional endurance of the Chinese Communist Party (Solnick 1996; Walder 1994) or the reasons for China’s impressive economic growth (McMillan and Naughton 1992; Woo 1999). Unfortun...

Table of contents

• Preface
• 1. The Myth of China’s Democratic Capitalists
• 2. Bypassing Democracy
• 3. The Unofficial and Official Revival of China’s Private Sector
• 4. Private Entrepreneurs’ Identities, Interests, and Values
• 5. Diversity in Private Entrepreneurs’ Coping Strategies
• 6. Local Variation in Private Sector Conditions
• 7. Changing China
• Appendix A
• Appendix B
• Glossary of Chinese Terms
• References