- Where’s the Government?
In his new book, Markets over Mao: The Rise of Private Business in China, Nicholas Lardy takes on those who argue that China has developed a form of state capitalism that is directing and steering Chinese development. To the contrary, Lardy argues that Chinese development has been market-driven, not only in the 1980s as rural and urban markets were liberated from the restrictive policies of the Maoist era but also during the Hu Jintao and Wen Jiabao era when the creation of the State-owned Assets Supervision and Administration Commission (SASAC) and the high profitability state-owned enterprises (SOE) enjoyed in the early 2000s brought cries of “the state advances as the market retreats” (guojin mintui). Lardy argues the obverse: namely, that markets have continued to expand and the state has retreated. Today, SOEs account for about a quarter of industrial production and only 13% of urban employment (pp. 76 and 82). Lardy estimates that private enterprises employ 183 million urban workers, about two-thirds of all urban employment (pp. 83–84).
Much of Lardy’s argument is convincing (and I am not going to argue economics with him), but it is less so when he discusses the role of the government. He disagrees with Steven Green’s assessment that “China has a large and powerful government sector” (p. 138). Interestingly, Wang Jianlin, China’s richest entrepreneur, agrees with Green. A recent article in the New York Times quotes Wang as saying, “It’s a fact that China’s economy is government-led, and the real estate industry depends on approvals, so if you say you can ignore the government in this business, I’d say it’s impossible.”1
In looking at the role of the party-state, it is useful to start with the definition of “private.” As an economist, Lardy is primarily interested in whether the dominant ownership of enterprises is state or private. By this measure, Lardy estimates that the private sector, including privately owned foreign firms, generates about 60% of China’s industrial output. He recognizes [End Page 156] that this figure may overestimate the role of the private sector somewhat because “there must be some firms where the extent of the government’s de facto control exceeds its ownership share” (p. 71). He also regards all agricultural production as private (p. 62). Although these assumptions seem reasonable, it is not clear how “private” private is. For instance, in the agricultural sector, the lack of private land ownership means not only that farmers cannot buy and sell land but also that they cannot mortgage their land to raise capital to start urban businesses. More important, local authorities often feel free to requisition land, giving farmers minimal compensation, in order to attract investment. So there are real limitations on the ability of farmers to control their supposedly private farms.2
Moreover, in the manufacturing sector, large private firms now often have party branches, and the party secretary, usually hired from outside the firm, is generally well-paid and often sits on the board of directors. This seemingly odd arrangement often works to the advantage of both the state and the enterprise. Party secretaries, many of whom worked previously in the government, can lobby the government for necessary permissions. In a polity in which the approval process remains extremely important (as Wang Jianlin, above, reminds us), this relationship is critical for the development of private enterprises. For the government, the expansion of the party into the private realm reflects a continued refusal to acknowledge a legitimate line dividing state and society as well as a continuing distrust of the private sector, despite all the studies that have shown that private entrepreneurs would rather be close to government than push for political change.3
Moreover, the government has been important in both stimulating and retarding economic development over the years. It was a government rethink of rural policy that brought about the household responsibility system in the late 1970s and early 1980s, and the annual Document No. 1 on rural policy that pushed those developments forward. Although land remained collectively owned (a largely ideological impediment to thoroughgoing privatization), these policies...