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CHAPTER 1

Analyzing China’s Political Economy

In this chapter, I introduce an approach to analyzing China’s political economy on the basis of the current state of the art. I begin with a broad outline of the relevant discourse in China studies and insights, gaps, and desiderata. In the second part of the chapter, I outline my own research framework.

Insights, Gaps, and Desiderata in China Research

This section provides an overview of relevant traditions and discourse in China research over the past few decades. These yield substantive findings but, at the same time, also exhibit gaps and desiderata. Here I focus on studies from the social sciences and only refer in passing to authors in related disciplines.

In Western social sciences, for many years, the debate about the People’s Republic of China (PRC) mostly was part of the analysis of actually existing “socialist” systems. (A concise overview of the historical development of the relevant theories is provided by Stark and Nee 1989; Scharping 1988.) During the early Cold War era, China was primarily analyzed on the basis of theories of totalitarianism, whereas since the 1980s, institutionalist studies shaped the field.¹

After World War II, approaches based on theories of totalitarianism dominated. These focused particularly on the communist ideology, on the importance of individual leaders, and on the concentration of power in the Maoist Communist Party (see, for example, Lewis 1963). China was viewed as the antithesis of Western-style liberal democracy. Reflecting this, economists depicted a stark contrast between a decentralized market economy and a centrally planned one. Their objective was to construct a clash of ideologies that was politically expedient during the Cold War era. In slightly simplified terms, the studies frequently culminated in the following elitecentric proposition: equipped with almost absolute power and having eliminated autonomous social spheres, a bureaucracy steered by a party apparatus was able to succeed in controlling Chinese society as it saw fit. However, because these assumptions threatened to hypostasize the one-party rule into a stable unchallenged regime and, to a large extent, ignored the CCP’s internal conflicts or social resistance, the hypotheses based on theories of totalitarianism tended to draw rather inaccurate conclusions (for a critical account, see Dreyer 1996, 7–21; see also Shue 1988; Walder 1986).²

In the 1980s, institutionalist approaches took on a certain appeal.³ These theories, which are in contrast to efficiency theory schemata, increasingly took recourse to the institutional contexts of political or economic behavior. In state socialist systems, change was found to be driven by forces beyond the control of the state. The focus here was on examining the charged relationship between state and society. The objective was to be able to define political conflicts and socioeconomic development trends (Xie 1993) or, for example, to pinpoint internal corporate negotiation processes in “communist” enterprises (Walder 1986) by refining overly simplified assumptions of the existence of fixed corporate despotism. Action taken by the state is thus seen within the context of state/society relations in order to shift the focus more toward the processes and conflicts that are inherent in state action (Derichs and Heberer 2008). Accordingly, China can be examined using similar instruments to those that have long since been widely applied to the analysis of Western societies or countries of the Global South.

From the 1990s to date, many different authors have published empirical studies that, in one form or other, picked up on these traditions. Also presented here are certain discourses that were instrumental in providing important insights but also exposed unresolved problems in research on China.

From Command to Market Economy: Discourses in Transformation Research

The transformation process in China has generally been described as a major shift from a command or planned to a market economy, with a distinction being made between liberal rationalist (Nee 1989; Sachs and Woo 1999) and institutionalist theories (Guthrie 2002; McMillan and Naughton 1996). Both approaches frequently refer to the debate that materialized after the collapse of the Eastern Bloc. This debate, which centered on the question of how to transform a command economy into a market economy, had both political and practical ramifications.

While neoliberal authors recommended that Eastern European transition economies take a “big bang” approach based on the premise that the new cannot evolve within the framework of the old, the selfsame authors declared China to be a special case that quite clearly did not follow these political recommendations. For this reason, China was able to grow only because the initial conditions there were more favorable than those in former Eastern Bloc countries. In terms of prospects, a slowdown in growth and considerable instability was expected in China (see, for example, Sachs and Woo 1999). In addition, the lack of clearly defined property rights and state bureaucracies’ interference in corporate processes were seen as the main obstacles preventing the smooth transition to an efficient market economy (D. Yang 2004, 11–12).

By way of contrast, institutionalist authors drew attention to innovative entrepreneurship that did not necessarily manifest itself in the form of abrupt privatization. These authors recommended linking the old with the new, proposing an institutional framework that fosters entrepreneurial risk and establishes trust. Taking into account socioeconomic points of view, authors focused on the effectiveness of existing institutions as well as on path dependencies that affect the development of new markets in China (Guthrie 2002, 8–11, 22–23). Other authors (Wank 1999; M. Yang 2002) referred to the tradition of frequently informal network relationships (guanxi).

Another slant on this can be found in comparative research on post-communist transition countries (see Pickles and Smith 1998). King and Szelényi, for example, employed a class theory method to develop three key models for the formation of new capitalist systems in former “state socialist” societies. The first model uses a capitalism-from-above approach, which is essentially the attempt by the former state and party elite, in Russia in particular, to create a market system based on neoliberal concepts and within the framework of large-scale privatization schemes. The second model described by King and Szelényi is capitalism from without, as seen in Hungary, for example, where foreign investors played a dominant role. The third model—capitalism from below—refers to a new indigenous corporate class that emerged even before 1989 and gradually increased its influence; this model was particularly pronounced in China. By the end of the 1970s, the technocratic staff, including managers, had reached a hegemonic position without ousting the old party officials; an alliance between these two class groups determined the country’s social development from that moment on. The gradual reforms and increasing openness toward direct foreign investors then led to the development of a new type of capitalism in the PRC (King and Szelényi 2005, 220–22; see Eyal, Szelényi, and Townsley 2000).

This undirected experimental dynamic from below also formed the basis for another debate that will now be briefly outlined.

Innovative Entrepreneurship and Marketization

In order to attempt to understand the paradox of unleashing market forces amid a communist-run country, market- or corporate-centered approaches describe the advent of a new entrepreneurship as the essential catalyst for change. The prerequisite for successful growth was and still is, first and foremost, the creative entrepreneur. Accordingly, creative entrepreneurship had found a new home—particularly in parts of rural China of the 1980s—and was rapidly spreading to the cities (see, for example, Yasheng Huang 2008).

In line with this, China’s rigid political system was seen as incompatible with the needs of a market system. China experienced two diametrically opposed development logics—political power and control logic versus economic growth and profit logic. With regard to the resultant development trends, either an inevitable democratization (Rowen 2007) or a collapse of the system (Pei 2006) has been and indeed continues to be predicted (for an overview of this, see Heberer and Senz 2009). In the case of democratization, this would lead to the development of a market economy with liberal characteristics akin to those found in other parts of the world. Especially in recent political economy studies, however, this forecast is justifiably challenged, as shown below.

The Debate over the Adaptive and Regulatory Capacity of the Party-State

A number of studies emphasize the need for a proactive central government and/or subnational political authorities in order to achieve a favorable growth path (see Heilmann 2008, 2009; A. Hu 2010; C. Lin 2006; Perry 2007; D. Yang 2004; Zheng 2010). The Chinese party and state elite is regarded as a pragmatically forward-thinking political power that—similar to the case in other developmental states in East Asia—acts as a driver of modernization.⁴ Seen from this perspective, the authoritarian system in China, which still leaves the elites with some freedom for debate, is regarded as a highly beneficial political driver of economic development. In addition, a relationship structure developed that triggered competition between the political authorities that were subordinate to the central government, boosting economic growth (Oi 1995; see also Montinola, Qian, and Weingast 1995). According to China researchers, the post-1970s party-state had the extraordinary ability to adapt to an ever-changing environment. In the unfolding reform process, moreover, orientation toward national sovereignty was of the utmost importance, as was state control over key areas of the economy and public infrastructure planning.

For this reason, the proposition that China was seeing the emergence of a type of “crony capitalism,” which, as in other developing and newly industrialized economies, encumbers economic growth, has been challenged. On balance, the political leadership’s capacity for learning and adapting in fact helps stabilize the system. Accordingly, party rule is expected to remain in place, albeit by merely “muddling through” more than anything else, even as the process of market expansion continues.

In the course of the present work, repeated reference will be made to these studies. However, I believe they tend to have shortcomings that imply the existence of market/state dualism. While the policy-centered approach indicates that the Chinese government has an astute capacity for foresight—something that does not appear congruent with the anarchic reality of the Chinese reform process—the market or corporate-centered approach (introduced above) is too one-sided in its description of the forces at play in the reform processes. Moreover, the continuing legacy of elite-centered research on totalitarianism may well reinforce the abrupt juxtaposition of state and economy, and, by extension, society, where the state still is largely seen as an external regime of control and not as an actor in society (see Lieberthal 1995, 292–304).

Before addressing this problem in more detail, however, allow me to touch on another discourse that explores the character of the Chinese economy.

China as a Socialist Market Economy and/or Hybrid Model

Until very recently, the prevailing system in China was seen as a form of socialism known as Maoism. In the early 1990s, once even the Chinese government began officially speaking of the transition to a socialist market economy, cracks appeared in this argument. With the party continuing to play a commanding role and areas of the economy remaining in state ownership, however, some authors continue to assume the foundation of the noncapitalist society to be relatively intact (N. Lin 1995; Robins 2010). This was in line with the official position of the Chinese government. Some authors even agree with the government’s belief that the policy of opening up and marketization are transitional stages toward more developed forms of a socialist society and democracy (see Itoh 2003; X. Li 2008).

However, even authors who employ theoretical tools that show a market socialist society to be conceivable in an ideal-typical scenario remain skeptical about these assumptions (Lippit 1997). One line of criticism is that in none of the existing Chinese business types do the workers have more democratic powers than those in capitalist systems. On no level of society, corporate or otherwise, are solidarity-oriented behavioral patterns of disproportionately greater significance in China than in other countries. Moreover, market allocation is not merely an appendage of a system governed mainly in the interests of needs-based production.

Or has a new hybrid form perhaps emerged in China? Does the economy have to be subdivided into capitalist private sectors and quasisocialist state sectors? Or should China be referred to as a “noncapitalist market economy”? According to Arrighi, a capitalist market economy differs from a noncapitalist market economy “in the greater power of capitalists to force their class interests onto others at the expense of national interests” (Arrighi 2008, 120, my translation). It is not the “presence of capitalist institutions and dispositions” that defines “the capitalist character of market-oriented development but the relationship between state power and capital” (Arrighi 2008, 412, my translation; see also Smith 1993). As long as the state is not subordinate to capitalist class interests, the market economy remains noncapitalist.

A stark juxtaposition between market economy and state economy or communist state is flawed, however. As state theorists have discovered, the term “national interest” used by Arrighi cannot be seen as an objective category. According to Arrighi, the state is an apparatus that is an expression of general social interests except when the capitalists impose their restricted interests onto market development. “What this inadequate definition does not take into account is the specific organizational approach taken by a capitalist state and definitions of state functions relating to the safeguarding of property and ownership rights, the reproduction of relations between workforce and capital as well as the preservation of accumulation” (Panitch 2009, 20, my translation). In contradiction with the expectation that the almost unstoppable market dynamics would undermine or even topple the bureaucratic balance of power, the bureaucracy has, to a certain extent, proven capable of reconciling market and plan during the reform process.

It is clearly difficult to establish a theoretical basis for the development of a capitalist economy within the framework of a “socialist” state and society. Consequently, it would appear that many authors are content with continuing to describe the development in China in reference to the transition factor alone, in other words, the hybrid transformation character that is not yet completely formed (see Meyer 2011; Hartmann 2006, 10; Taube 2001, 167–68). Without questioning the appropriateness of an approach that seeks to represent the complexity of linking various institutional forms in China, the term “hybrid” nonetheless appears to be an unfortunate expression to use. After all, every social entity is hybrid or, in other words, made up of different forms. In addition, the word “hybrid” does not reveal which institutional forms are more dynamic than other parts of the complex whole.

It was not until the 2000s that more authors began to use the term “capitalism” when describing China’s development, albeit often more fleetingly than systematically, as pointed out by McNally (McNally 2007c, 3–7). For example, the term is often found in the titles of studies without its being elaborated on in the work itself. Sometimes capitalism is merely equated with a market economy (Yasheng Huang 2008), or social phenomena such as Chinese overseas networks are analyzed as “capitalist” (Guthrie 2002). Within the framework of a restrictive definition of the term “private property,” authors tentatively speak of quasicapitalism and continue to see state property as having noncapitalist characteristics (Breslin 2007b, 79–80).

The main body of this work (Chapters 2 and 3) shows that it is plausible to systematically examine the Chinese economy and, by extension, Chinese society, using theories of capitalism. The political economy framework developed for this purpose is introduced below.

Researching China from a Political Economy Perspective

Although only limited to date, political economy studies with a focus on China have provided a framework for examining the country’s development. The following presents a contingency-sensitive research framework based on a synthesis of diverse theoretical approaches. Using this framework, the present work takes a holistic perspective—for “only in a panoramic view can one truly recognize the details” (Streeck 2009, 17).

Over the next few sections, I will first look at different aspects of research into capitalist dynamics, which have also been the subject of recent comparative capitalism research.

I will then outline the concept of capitalist-driven modernity, that is, the assumption that the path to modernity or modernities over the past one hundred years in various parts of the planet can be described as a process in which drivers of capitalism extensively shape the structure of social order. This will serve to introduce key characteristics of global capitalist socialization and its unstable dynamics.

Subsequently, I will present a few observations on the reality of historical institutional change and how this can impact the capacity to act on the part of social actors. I will also discuss the roles of sociocultural idiosyncrasies or past traditions and social structures that give a specific face to political economies and create various forms of coordination between economic, political and other societal actors.

Finally, five key dimensions of capitalist systems are outlined, which will largely provide the structure for the remainder of this work.

Varieties of Capitalism and Comparative Capitalisms

In order to move closer to a conceptualization of capitalism or of its different guises in the past, I will first refer to theories and concepts found in comparative political economy (CPE), in particular, but not restricted to, varieties of capitalism (VoC) theory, which has become well known in recent years.

VoC theory (Hall and Soskice 2001) includes a differentiation between liberal (US and UK) and coordinated market economies (Germany and Japan) and serves as a contrast to the notion of a (liberal) best-practice model.⁵ According to this theory, market economies are composed of a cluster of functionally coordinated subsystems. Production systems, corporate governance and financing, and corporate and industrial relations, as well as training and education initiatives are examined for their institutional complementarities. Functioning complementary relationships are seen as the source of comparatively long-term institutional stability and economic growth.⁶

In addition, a number of insights have been developed in the CPE field over the past years that are relevant for research on China (see Bohle and Greskovits 2009; Coates 2005; Hancké, Rhodes, and Thatcher 2007; Streeck 2010a). These include the following:

• The knowledge that an in-depth examination must go beyond a strict market and enterprise focus. China’s dynamic economic development is not only a result of resurgent entrepreneurship in parts of the mainland or among the community of overseas Chinese but is also based on, and indeed very much defined by, action taken by state actors.

• The realization that the role played by power relationships, the state, and state regulation cannot be neglected. This will be examined in further detail in the remainder of this chapter.

• The identification of different types of capitalism that cannot be aligned with liberal market or coordinated market economies (LMEs/CMEs) (for examples that attempt to do this nonetheless, see Ahrens and Jünemann 2006; Wilson 2007a; Witt 2010). In critical confrontation with and yet emerging in parallel to the VoC approach, several other models have been employed to describe further (efficient) varieties of capitalism besides LMEs and CMEs that are not limited to the West. These include state-controlled, consensus-oriented, or Asian capitalism, for instance (Coates 2000, Boyer 2005, Amable 2003). Forms of state capitalism or state-permeated capitalism lend themselves particularly well for use as templates for comparative analysis (see Crouch 2005; Fligstein and Zhang 2011; May, Nölke, and ten Brink 2013; V. Schmidt 2000).

• The recognition of the need for a dynamic, nonfunctionalist analysis of historical change that takes into account targeted human action. As illustrated below, this is of major importance, not least when examining the strategic reform projects of state and party elites.

• A perception of institutional complementarities that goes beyond the VoC approach, where complementarity is seen as stemming from coherence or structural similarities among institutions. Höpner claims that this argument cannot be applied to every empirical case examined. Incoherent settings can also have productive consequences: “Complementarity can exist without coherence, and coherence without complementarity” (Höpner 2005, 356). Some authors thus use the concepts of positive and negative “externalities” (Streeck 2009, 93–146) or use the term “productive incoherence” to describe institutional side effects not originating from a coherent basis (Crouch, Schröder, and Voelzkow 2009).⁷

• Finally, the knowledge that studies on national economies must include a transnational focus (Bohle and Greskovits 2009; Nölke and Vliegenthart 2009; ten Brink 2014b). In the case of China, this is particularly important—here, to stay with the complementarities theme, productive transnational “cross effects” have come about over the course of reform. China has been able to benefit more than any other country from the favorable global economic conditions and advantageous circumstances in East Asia.

Taking these insights as a starting point, a more comprehensive social theoretical basis for the study of capitalist systems will be developed below.

Capitalist-Driven Modernity

In the social sciences, the latest macrotheories draw largely on the concept of “modernity” or rather “multiple modernities,” with capitalism playing a lesser role. In contrast to this, in this work I argue that capitalism, as an all-encompassing social order, has sustainably and comprehensively shaped the numerous paths to modernity across several continents over the past hundred years.

Modernity is the result of a growth in human capacity for action and reflection and is characterized by a qualitatively higher degree of autonomy —or potential autonomy—than premodern or early modern societies. Modernity is a network of relations permeated by tendencies toward independence, essentially characterized by institutions for the accumulation of wealth and power, and then expanded to include dimensions such as the normative. In advanced social science theories, such a circumstance is usually gathered into a cluster of autonomous power sources including the juxtaposition of more or less independent institutions. Discussion over the diversity of modernity results in the assumption that different legacies of civilization and macroregional or national paths have come to shape the face of each individual form of modernity (see Arnason 2003a; Eisenstadt 2006; Knöbl 2007; overview: Schwinn 2009).

Studies have been conducted on the diverse dimensions of modernity that can be found in contingent combinations. The most common of these dimensions include the processes of secularization, individualization, pacification, democratization, economization, and bureaucratization. Consequently, the analytical framework developed here is clearly limited, the main focus being on processes of economization and bureaucratization, with only occasional reference to other modernization dynamics.

I argue that economization and bureaucratization processes, interpreted in the current work as driven by capitalist imperatives, are particularly important in this context. This argument is in opposition to broad contingency assumptions. The assumption here is that capitalist institutions are preeminent forms of association in modern societies. Recently, authors convincingly fleshed out this supposition by identifying various empirical characteristics of modern social orders as capitalist dimensions (Callinicos 2006; Deutschmann 2009b; Dörre, Lessenich, and Rosa 2009; Jessop 2007; Schimank 2009; Streeck 2010b).⁸

The following drivers and fundamentals of capitalism are vital to this study:

• Profit orientation and a boundless and excessive imperative to accumulate⁹—combined with legitimate greed and mythical utopian promises—which, unlike traditional, subsistence-oriented societies, help to unleash innovation dynamics and directional dependencies of institutional change

• The role of competition, logics of acceleration, and competitiveness in market and nonmarket social relationships, which threaten to permanently destabilize modern social orders because they prioritize competition over solidarity-oriented behavior

• Structural differences between the strategic capacity for action among the actors, which results from inequality in terms of access to resources or class positions

• The dependency on noneconomic institutions, including the modern state, which plays the predominant role (and also displays a structural interdependency with the economy)

• A fundamental tension between market expansion and social coherence, which in turn affects the social, political, and ideological conflicts in modern societies

• Finally, the drivers of capitalism including both characteristic expansion dynamics and an associated tendency among actors to subvert or bend the rules,¹⁰ as well as the potential to integrate and restructure noncapitalist or precapitalist structures

Against the backdrop of my assumption of a universal efficacy of drivers of capitalism as well as of their divergent outcomes, the aforementioned points will function as a “heuristic checklist” (Streeck 2010b, 10) to determine whether and to what extent these can be traced back to phenomena in recent Chinese history.¹¹

In order to fend off any charges of reductionism, I would like to emphasize that this study is not an attempt to describe all modernization processes currently under way in China. At the same time, it does not support the argument that all noncapitalist forms of action or independent interpretations are eliminated in the processes of capitalist-driven modernization. A modern world predominated by capitalism does not indicate in any way that all noncapitalist autonomous social practices are lost. Rather, there is evidence of recombinations of institutions and ideas, making an examination of variances in modernization processes an absolute priority. However, historical cultural traditions and interpretations are reshaped through capitalist modernization processes. Notably, it is not only the musings of Marx or the hypotheses of his apostles, but also Weber who stresses the notion of capitalism as the “most fateful power in our modern life” (Weber 1991, 12, my translation).

The overlapping of noneconomic institutions or spheres with drivers of capitalism (e.g., housework, family, cultural phenomena, natural relations, social antagonisms and oppressive relationships, which are not directly the result of capitalism) can be expressed using the term capitalist-driven society. As overarching factors linking social, political, and economic processes with one another, the drivers of capitalism exercise a long-term effect on other dimensions of society, without being subject to them to the same extent when the tables are turned.¹²

In order to understand the overarching driving forces of capitalism and their specific national and/or regional manifestations, a multistep examination into the macro-, meso-, and microdynamics of the implementation and reproduction of such forces is required. The historical varieties of capitalism are viewed as multiple outcomes of a global overarching mode of association, which also demonstrates significant variation in the different historical phases of capitalism (such as the state-interventionism phase beginning in the 1930s or the liberalization phase from the 1970s onward). National economies do not simply converge to form a homogeneous economic unit. The global system comprises a network of different yet interlinked forms of capitalism characterized by continual adjustment and differentiation processes.

In order to avoid the dangers of economic functionalism, ahistorical equilibrium models, and political voluntarism, I have integrated the following assumptions and concepts into my analytical framework:

(1) I work under the assumption of the unstable dynamics of capitalist social orders, to which many theories of capitalism rightly attach great significance—Marx’s capital and circulation analysis, Rosa Luxemburg’s theory of accumulation, Schumpeter’s analysis of entrepreneurism, as well as Keynes’s or Polanyi’s theories, for example. The relevance of these theories is found in their insistence on the contradictions and conflicts of the capitalist development process and their structural susceptibility to social tensions and uncertainties.

Thus, the growing interdependencies between socioeconomic processes are just one aspect of the capitalist reproduction process. Even if the modern division of labor can be seen as the primary source of social solidarity and the basis of moral order (Durkheim 1988, 471), it will only develop its distinctive capitalist form as part of competition-driven accumulation, that is, the permanent competition between individual production units that creates an innovation dynamic rife with crises and conflicts. This is linked to the fact that capitalist modernity is an arena for social relationships where rationalization develops only in a particularist way (Adorno 1996, 231). This is precisely because the decisions taken by intentionally rational actors are often anchored in fiction or, in other words, based on unrealistic expectations (Beckert 2011). Thus, I argue for the transformation of China’s political economy to be linked with the unstable dynamics of capitalist development and the constant crisis-ridden and uncertain renewal of the system.

(2) To describe commonalities and differences between types of capitalism, I draw on the concept of an international variegated capitalist world system (see Jessop 2009; Streeck 2010a). Commonalities are based on the fact that the modern world market results from interaction between an incalculable number of different factors. The world market is thus a globally dynamic synergy of actions and exercises significant imperatives to act. The reproduction of the global economy as a whole embodies a process without a steering subject that results in innumerable unintended effects. Even when specific development paths form in a national context, they are subject to external adaptive pressure, which might be relativized through national or regional path-dependent tendencies toward inertia but which cannot be prevented altogether. The relatively simultaneous and universal nature of the great capitalist crises of the 1870s, 1930s, 1970s, and 2008–9, although occurring under different socioeconomic, political, and cultural conditions, points to this very correlation (R. Brenner 2006). This trend has grown stronger since the 1970s, as research into the transnationalization of value chains demonstrates (Gereffi, Humphrey, and Sturgeon 2005). The almost universal appearance of liberalization tendencies since the 1970s is also evidence of this.

At the same time, the differences between individual forms of capitalism have to be taken into account. Contrary to the hypothesis of the neoclassical model (for a critical account, see Kaldor 1972), global competition does not act as a force for harmony between the units of capital, leveling differences between companies, regions, and, ultimately, nations. This convergence hypothesis is based on untenable premises—such as the assumption of perfect competition and market transparency, homogeneous goods, and constant production technology and demand structures. It ignores the spatiotemporal development of companies, and the varying degrees to which institutions are embedded, as well as the reality of disparities in the development of capital due to differences in productivity levels. The expansion of capitalism thus brings about severe spatiotemporal disparities not only between but also within OECD and newly industrialized or developing countries. Global accumulation processes are implemented unevenly because the various national societies provide different conditions for the establishment and reproduction of capitalist production relationships (Block 2005).

(3) In terms of methodology, a transnational perspective is well suited to a study of this nature. Modern-day societies should not be viewed as separate entities but must be seen as a federal, overlapping nexus (Mann 1990). Capitalist-driven societies can be adequately analyzed only in the context of their integration in global economic, global political, and other intersocietal relationships. Limiting observations to national territory is insufficient. Instead, we need to examine how national, international, and transnational mechanisms overlap and engage with one another. As emphasized below, even advanced neo-institutionalist China research often fails to factor in global or macroregional economic conditions. The result is a one-sided explanation of the successful rise of the PRC, which is described as the result of inner-societal innovation and regulatory capacity (McMillan and Naughton 1996; see also the overview of China research by Perry 2007, which excludes international influences almost entirely).

(4) The unstable dynamics of capitalist social orders, specifically those in newly industrialized countries, can be explained by the notion of uneven, combined and interconnected development (Rosenberg 2006; Selwyn 2011; ten Brink 2014b). This refers, inter alia, to the combining of old and new, premodern and modern forms, and intra- and intersocietal developments, which lead to unexpected consequences, particularly in late-developing societies (Gerschenkron 1966). The fact that economic development from the late 1970s, specifically in China, would trigger such a true “leap forward,” beyond the level of development determined by modernization theory, could not really have been predicted. To help overcome its backwardness, the Chinese economy was able to profit from the development advances in dominant economies: through the transfer of technological and organizational expertise, or against the backdrop of the slowdown in growth in the old centers, fueled by foreign direct investment (FDI). Also, the selective adoption of elements of advanced countries led to a combination with autochthonous structures and historical traditions, resulting in a distinctive new type of society.

(5) I also use another research assumption from economic sociologists, who explain that the reproduction of capitalist markets and the companies operating on those markets rely on noneconomic preconditions and mechanisms of cooperation (Aspers and Beckert 2008). Modern societies are coconstituted through the interaction between market-mediated and nonmarket social relationships. As social and political institutions have some capacity to reduce market uncertainties, they need to be included in the analysis of socioeconomic development (Fligstein 2001).

Markets themselves are permeated by a series of nonmarket coordination mechanisms (see Lütz 2003; Thompson et al. 1991). In addition to market-based coordination, the economy is also made up of other governance types such as company hierarchies, networks, associations, and bureaucracy. The production and distribution of goods and services is not merely the product of competition and price mechanisms but is also facilitated by hierarchical regulatory mechanisms (Beckert, Diaz-Bone, and Ganßmann 2007). Trust also acts as a foundation for economic action. “Only after trust has been created, are the necessarily complex transactions possible. In particular, access to capital can be eased, as illustrated by the rotating credit associations among Chinese entrepreneurial families” (Deutschmann 2009b, 21, my translation). Moreover, as with any other form of societal embedding located between market and hierarchy, we must be careful not to underestimate power as a factor in market relationships. These include the network as a form of coordination and, extending on this, communities shaped by solidarity evolving over the course of history or clans. Because of the fact that the various types of coordination can be combined in a number of ways, we must assume that many different forms of capitalism exist (Bradach and Eccles 1991; Stark 1996).

(6) The modern state represents the most important nonmarket-based institution, and not only in China. In contrast to other organizational forms, the modern state can generally rely on support from the legitimate monopoly on the use of force. It should be noted that, unlike in precapitalist societies, where the economically dominant classes normally had to resort to direct force to appropriate surplus product, in capitalist systems free contractual relationships regulated by what is at least formally an independent authority are required in both production and market activity. The state, in defining property rights, creates the main prerequisites for market activity (Bidet 1991). Any economic analysis must therefore always include politics. Without a relatively autonomous political authority with a monopoly on the use of force, establishing successful capital accumulation will prove difficult in the long term. As an ensemble of contradictory relationships, the state guarantees integration and adaptation, making the continuation of capitalist socialization possible in the first place—“they include the pacification of social life (stressed by Elias), the overall rationalization of social rules and norms (central to Weber’s analyses of bureaucratization), and the institutionalization of controls needed to ensure the maintenance of legal order” (Arnason 2005, 33; see also Brand 2006; Jessop 2007; Leibfried and Zürn 2006; Mann 1998; Offe 2006). With regard to economic policy, moreover, it it possible to distinguish between market-creating, market-regulating, and market-restricting measures.

State power can be analyzed as the product of processes mediated by both institutions and discourse within shifting societal power constellations. The objective is therefore to disaggregate the state and examine the characteristics of local government apparatuses, for instance. At the same time, the reliance of the modern “tax state” on material income results in a link between political and economic institutions. Various approaches fail to take sufficient account of the close link between the state and the economy in capitalist-driven societies, and this applies not only to the case of China. State institutions may be based on reproduction criteria that differ from those of modern companies. The latter have to assert their financial strength and hence profitability, while the state has to assert its dominance toward the populace and other countries. Generally speaking, however, the state and the economy form a nexus characterized by structural interdependencies. The paradigm of structural interdependencies “insists … that state action always plays a major role in constituting economies, so that it is not useful to posit states as lying outside of the economic activity” (Block 1994, 696).¹³ Often seen as an “external” force, the government must therefore be viewed as a fundamental component of capitalist systems—despite the fact that state institutions have been able to achieve greater independence in the past than these hypotheses would initially lead us to believe.¹⁴ The overlapping areas of responsibility of the state and its sedimented institutional properties form distinct political systems—such as liberal democracy or, in the case of China, the party-state. In a capitalist system, the state does not necessarily have to follow representative democratic principles.

(7) The contradictory development dynamics of capitalist-driven societies should also be seen as the result of the struggle between market forces or processes of commodification and the desire for social security as well as legal, political, and social recognition that continually arises in the social lifeworlds of the subordinated. According to Polanyi, capitalist dynamics as anonymously linked trade systems (“satanic mills”) destroy permanent social connections and constitute a fundamental contradiction between capitalist development and the requirements for an intact lifeworld (Polanyi 2001). Should the market—in an expanded sense the production relationships—encroach on the foundations of social reproduction, this would inevitably trigger the mobilization of social forces of self-protection, either covert or open. In the capitalist-driven modern era, this self-protection is characteristically expressed as social and political struggles within (and about the politics of) the state and in attempts to institutionalize class conflict (Wright 1997).

Consequently, in contrast to a perception of political processes in nonliberal democratic societies exclusively as a result of functional problem solving dictated from above, the present work aims to illustrate how social power structures and class conflicts played a central role also in China’s past development. Class conflict, for example, could bring about market-limiting measures and improvements in labor and social standards. This illustrates the importance of examining mobilizing, societal actors here. In the case of China, a number of such phenomena can be identified. Arguments are being postulated, however, that, because of the fact that its values contradicted those of the Christian countries of Europe, Chinese history lacks the concepts of autonomy that would form the basis required for a struggle for “fair” wages or social security, for example.

As the next section shows, my research framework requires a definition of institutions that factors in the level of targeted human action over and above mere structuralism.¹⁵

Institutions, Historical Change, and the Sociocultural Embedding of Capitalism

The subsequent sections look at how I have approached the issue of the relationship between structure and action, on the one hand, and path-dependent and path-forming development processes, on the other hand. This is followed by an account of various concepts that will aid the examination of gradual institutional change and the introduction of historical and sociocultural traditions from China and East Asia, which I then integrate into my analysis in a nonculturalist manner.

STRUCTURES, STRATEGIC CAPACITIES, AND CHANGE

In societies where capitalism prevails, social actors are subject to external imperatives to act. Unlike orthodox liberal explanations, which postulate a balance of rational individual choices, such constraints result in practices that are not merely the result of intentional action. For this reason, relationships between structure and action (as well as their meaning) have to be looked at dialectically, as it were (Hay 2002). In addition, the different strategic capacities of social actors—the difference between Chinese migrant workers and influential entrepreneurs, for example—also have to be taken into account because such differences result in an uneven playing field for conscious or strategic intervention.

Human labor power is marked by its creative ability to recognize problems and find innovative ways of solving them. This creative ability is one of those phenomena that are difficult to capture in theory, let alone predict. Similarly, entrepreneurial innovations are difficult to comprehend rationally and, indeed, often come about as a result of spontaneous ideas, or even by chance, during search and learning processes (see Sauer and Lang 1999). Innovations require conditions that, in most cases, do not exist at the moment of innovation, which is why there is only a limited scope to calculate risks rationally. For societal dynamics under capitalism, it is important that not only the socially privileged but also the middle and lower social classes attempt to seize opportunities for advancement: “The exceptional level of commitment or motivation that capital valorization is based on can only be achieved with a strong focus on advancement” (Deutschmann 2009b, 47, my translation). Thus, to facilitate an examination of political economies, the actors’ normative orientation must be factored in. An analysis of social structures must always take into account actors’ options and strategies, as well as their motivation and perceptions:

In stressing the interdependence and co-evolution of … interrelated semiotic (cultural) and extra-semiotic (structural) moments in complexity reduction and their consequences for meaning-making and social structuration, [one can] avoid two complementary theoretical temptations. The first is seen in different forms of structuralism and social determinism, which reduce agents and actions to passive bearers of self-reproducing, self-transforming social structures…. The second temptation is the sociological imperialism of radical social constructivism, according to which social reality is reducible to participants’ meanings and understandings of their social world. (Jessop 2009, 8–9)

Unlike analyses where historical developments are ordered within the tight frame of reference to capitalist development logic, drivers of capitalism should generally be examined within the context of their historical change. In reality, structural dynamics and imperatives to act are shaped by social and political strategies, that is, strategies based on normative motivation, including the power elite’s strategic projects. The latter may possess the power to form structures. Drivers of capitalism must not be viewed in a functionalist light as they are embedded in social, political, and other sociocultural institutions and processes.

On the one hand, specific traditions and social structures give political economies distinctive foundations for economic action. In relation to the postcommunist regimes in Russia and Central Europe, for instance, Eyal, Szelényi, and Townsley refer to path dependencies that fuel the continued existence of what they refer to as “political capitalism.” This can also apply to China’s recent history:

Political capitalism is capitalism in the sense that it is oriented towards the rational acquisition of profits, but it is political because this happens under the tutelage of the state and/or in conditions of systematic political interference in the economic system. There are many reasons why managers who have become owners might feel more comfortable navigating a Weberian world of political capitalism rather than a world governed by the conditions of laissez-faire competition. As former socialist and post-communist managers, they know the rules of the game in a system in which economics and politics are interconnected. (Eyal, Szelényi, and Townsley 2000, 172)

With regard to institutional change, on the other hand, the creation of new paths is essential, as explained by Streeck:

Since institutions always require a modicum of good faith on the part of their constituents, the high social legitimacy under capitalism of creative cleverness in relation to social obligations must give rise to a typical conflict between rule makers and rule takers in which the latter permanently test the vigilance of the former. The result is a particular direction in the evolution of capitalist institutions, in the course of which these are continuously redesigned to anticipate and adapt to a systemic bad faith of interest-seeking rule takers…. The typical rule taker that capitalist institutions must reckon with as the normal case is a rule bender: He reads rules entrepreneurially, untiringly looking for ways of twisting them in his favor. (Streeck 2010b, 14–15)

Here, an understanding of path dependency and path shaping underlines the relevance of evolutionary mechanisms of variation and selection, as well as the partial preservation of institutions. From an institutionalist point of view, the evident relevance of the past’s ongoing effects on the present has long since played a role in China research (see McMillan and Naughton 1996). Nevertheless, any purported tendency toward stability in path-dependent processes ought to be called into question (Beyer 2006).

In line with this, a concept for understanding historical institutional change, which may make a valuable contribution to existing China research, is presented below.

GRADUAL INSTITUTIONAL CHANGE

More recent typologies of gradual institutional change (see Mahoney and Thelen 2010; Streeck and Thelen 2005) are helpful in facilitating an understanding of the astonishing changes that have taken place in China since the 1970s under the continued existence of party rule. Recently, these typologies have also been applied to China research (see Tsai 2006, 2007; X. Huang 2011; Young 2011).

Here, in order to factor in the transitional, adaptable, indeed, hard-fought historical character of institutions, rather than take a formalistic approach, institutions are seen as social regimes or Herrschaftsverbände (organizations of rule) à la Max Weber (Streeck and Thelen 2005). Specifically, social power structures and class conflicts are examined—past structures and struggles that led to the formation of institutions and present constellations that change the face of the institutions under the influence of the past (Mahoney and Thelen 2010, 7–8).

To avoid historical determinism, it is important to take into consideration the political processes behind the formation of institutions as well as the significance of social conflicts and compromises in relation to the transition to a new institutional form. Institutions adapt as a result of changes in the political coalitions on which they are founded. As a rule, such changes are incremental and cumulative; sometimes, however, they can be abrupt and intermittent. The addition of new elements can bring about significant change. Generally speaking, institutional change is associated with radical historical upheaval (war, revolutions, and severe crisis in society). There is also evidence, however, of institutional change that is based on continuous incremental change but that brings about transformational results nonetheless. Thus, far-reaching change can come from small endogenous changes, not from a one-off exogenous shock (see also Lawrence and Suddaby 2006).

When exploring social change in a historical context, it is important to move beyond the scope of static institutional reproduction to examine the ramifications for and feedback loops of institutions. Throughout their development, institutions may very well call themselves into question, thus embodying quite the opposite of path-dependent reproduction. While institutional reproduction refers to phenomena where the routine processes and organizational forms within institutions prevail even in the context of historical caesura—in the PRC, on the surface, this would appear to be the Communist Party—consequences for institutions that point to evolutionary change are evident time and again. And it is this very change that the CCP is subject to. Even if the main actors in the institutions pursue very specific, goal-oriented intentions over a long period of time, the character of the actors within the institutions, as well as between the institutions and their environment, can still be subject to change. This results in discrepancies between the original goals of an institution and its function in reality.

The question arises as to how global liberalization trends observed since the 1970s mask even supposedly stable institutional ensembles in nonliberal forms of capitalism. Against this background, Streeck and Thelen (2005) conceptualize several ideal-typical modes or mechanisms of change that attempt to interpret the gradual change undergone by central institutions in developed political economies. These are used in my study as heuristic tools.

The term displacement refers to the dissolution of existing institutions that can be regarded as incoherent and the replacement of those institutions by new ones, for instance, when their regulatory capacity has been undermined. This term also denotes the gradual incorporation of foreign elements into the institutional system of a political economy, for example, adapting Western social security insurance schemes for use in China. As a result, institutions that were once subordinate can become significantly more important. This fact is evident in the intrastate conflicts surrounding the advancement of certain ministries. The same also applies to external influences (for instance, the role played by Western corporate practices in China, as I attempt to demonstrate below).

For Streeck and Thelen, the term institutional layering describes processes that result in the—albeit often informal—formation of institutions, both alongside and in interaction with existing institutions. These processes also trigger change within the existing institutions. Unlike displacement, no entirely new institutions or rules are introduced here. Groups of actors with too little power to eradicate existing institutions will induce change in institutions from the sidelines, so to speak. As described in Chapter 2, in China, this role was adopted by quasiprivate enterprises (township and village enterprises or TVEs) that put pressure on the entire corporate sector to restructure. New components, or additional layers, are added to the existing system of institutions.

The term conversion, in contrast, denotes processes where the actors in an existing institution (the staff in a ministry, for instance) make an adjustment, and, from that point on, this institution serves a new purpose even if the habitual rules officially continue to exist for the time being. “Different from layering and drift, here institutions are not so much amended or allowed to decay as they are redirected to new goals, functions, or purposes” (Streeck and Thelen 2005, 26). Similarly, changes in the constellations of social actors can affect the purpose of an institution fundamentally. Here, the necessary pressure to adapt is created by involving new social groups—in the PRC, this happened, among other things, in the course of integrating entrepreneurs into the party and state apparatus, as I shall endeavor to demonstrate in the present work.

The phenomenon of drift is the erosion or dissolution of institutions, processes that are induced by what are often tentative deviations from generally accepted rules. Applied to the Federal Republic of Germany, we could interpret the relaxing of the collective bargaining system as drift—given that the institutions that set the tone continue to exist but protect fewer and fewer employees. Bearing this in mind, we should probably ask ourselves whether the gradual erosion of the strict system of registration for residents (hukou) in China might also be an example of this mechanism of institutional change.

Finally, the term exhaustion refers to the possibility of exhausting institutions to the point of collapse. In Chapter 2, I will examine whether the collapse of traditional Maoist political styles and institutions in the 1970s and 1980s might be an example of this.

It would appear that changes to the Chinese institutional system are affected by elements of all five of the aforementioned modes of change. The current work will now seek to ascertain whether certain modes of change have more of an impact than others.

CAPITALISM WITH “CHINESE CHARACTERISTICS”? THE ROLE OF HISTORICAL CULTURAL TRADITIONS

The drivers of capitalism are always mediated by normative and historical cultural traditions. Alongside older historical traditions such as the Confucian tradition and close interpersonal network of relationships (guanxi) this also includes Sino-Marxism. Sino-Marxism’s attempts from 1949 to imitate the Soviet-Marxist modernization model in fact considerably modified it, thus contributing to China’s distinctive path to modernity (see Arnason 2003b).

As mentioned, historical ideational, and social cultural traditions cause path dependencies that call global convergence processes into question. In the case of China, historians, historical sociologists, and anthropologists argue, for instance, that in order to explain its extraordinary economic dynamism, older Chinese and East Asian traditions of merchant capitalism must be taken into account (Pomeranz 2000; Hamilton 2006a). This comprises a rich tradition of merchant groups operating on the basis of familial ties, which coexisted for hundreds of years with the ruling “tributary” state class without ever achieving a dominant role, until they emerged in the course of the twentieth century, under the new “tributary power” of the CCP, as a motor for economic restructuring (Gates 1996). Other authors argue that the rise of capitalism in China draws from other cultural traditions—including, particularly, those of the overseas Chinese. These include family values, network-based relationships, and paternalistic authority structures. The spirit of Chinese capitalism is also described as Confucian (see Redding 1990; M. Yang 2002). Long dominated by a Weber-inspired notion, according to which the roots of China’s inability to modernize lay in the static traditional values of a culture shaped by Confucianism, the discussion now draws on opposite assumptions. Now it is precisely certain Confucian values such as diligence and thrift that are viewed as stimuli for economic growth. In a sense, then, a Confucian way of life is considered to be equivalent to the “Protestant ethic” (see Pohlmann 2002; Arnason 2003a).

In more recent historical sociological research, further arguments are propounded as to why favorable conditions for capitalist dynamics were to be found in China (and East Asia). In comparison to other regions of the world, there was a relative continuity in East Asian history, which derives from the comparative stability of Chinese culture (Arnason 2003a, 304–8). In contrast to the Indian, Islamic, or even the later Western world, what the East Asian historical region had in common during the premodern era was the more developed, more continuous existence of state structures promoting the protracted processes of nation building. “[In China] the result was … a more marked cultural unity than any other imperial order has achieved, and—in due course—an enduring ambition to transform this legacy into a full-fledged national identity” (Arnason 2008, 401). Finally, in comparison to other world regions, the premodern East Asian region was less affected by the influence of foreign powers. Even the colonialism of the nineteenth and (more so) the twentieth century was, for the most part, in spite of significant Western influence, an experience associated with Japanese imperialism. The relatively limited Western presence and military power allowed the region flexibility to more autonomously receive and adapt Western models.

Admittedly, far from the perspectives just outlined, research on China and Asia has long been influenced by approaches that could be described as culturalist (see Weggel 1997; Pye 1998; Jacques 2009). Abstracted in this way, Confucianism for instance is in danger of being essentialized (Dirlik 1997, 311). This reductionist “China-is-China-is-China” viewpoint (Dreyer 1996, 13) leaves no room for a comparative perspective. Rather, such approaches are frequently more concerned with emphasizing the uniqueness of China. According to Jacques, today’s China should be seen as a “civilizational-state,” which, unlike the Western nation-state, preserves within it an over two-thousand-year-old living tradition (Jacques 2009, chapter 2). Its most important moral point of reference is the desire for the unity of the Chinese people. While in the West the relationship between state and society is assumed to be constructed in such a way that the authority and legitimacy of a state essentially result from democratic processes, the Chinese “civilizational-state” acquires its legitimacy through its role as representative of Chinese civilization. The “Chinese,” according to Jacques, experience the state as the head of the family, whereas in Western societies state power is regularly viewed as intrusive and as such to be restricted.

Furthermore, in a culturalist perspective, premodern features of life are often seamlessly subsumed under modern concepts. Prematurely drawn parallels between the emperor and CCP leaders or between Confucianism and communism are in danger of lending too much weight to the power of tradition. There is a risk, then, of neglecting to take into account the fundamental crisis experienced by imperial China from the nineteenth century onward—triggered precisely by an increase in external influence—where many traditions, previously deemed sacrosanct, were called into question. Even if recourse was and is made to certain social cultural traditions, the priority was to tackle a radical modernization and thereby overcome traditional premodern forms (less successfully in the first half of the twentieth century, but in a sustained manner following the Maoist accession to power). Moreover, a fundamental shortcoming of culturalist approaches is a failure to embed the recent historical development of China (and East Asia) in the global capitalist order. “The problem with ‘Chineseness’ based explanations of Chinese capitalism is that they suppress the structural context within which this capitalism has arisen. Whatever resemblances it may have in particular to past practices, this capitalism has acquired an identity of its own only in the very recent past with the success of East and Southeast Asian societies, which has empowered the projection of this newfound identity upon the more remote past and its assertion against others, in particular Euro-American capitalism” (Dirlik 1997, 315–16).

Assumptions that only emphasize a continuity of cultural factors cannot sufficiently explain China’s transformation. In order not to encourage cultural determinism and exaggerated assumptions of inner-civilizational homogeneity, research must be done on the contradictory interaction between “cultures” that produced the interwoven forms of capitalist modernization.

Five Dimensions of Capitalism

To examine the proposition that the political economy of China can be understood within the scope of a broad analysis of capitalism, the research framework will now be set out more concretely on the basis of the ideas discussed so far. For this purpose, I distinguish five dimensions of capitalist systems in space and time.¹⁶ The different proportions of these basic ingredients found in all forms of capitalism give rise to different varieties of capitalism where the three key groups of actors (companies, state actors, and workers) each play an (unequal) role. Bearing this in mind, my intention here is to determine an overarching identity of capitalist driving forces and lines of action also and particularly with respect to the real historical diversity of different types of capitalism.¹⁷

THE HORIZONTAL AXIS OF CAPITALIST SOCIAL RELATIONS

The first dimension of capitalist systems concerns the unstable dynamics of markets and enterprises as well as the significance of competition-driven processes. In capitalist economies the competition between enterprises renders increased accumulation and innovation a necessity. This acts as a social sanctioning mechanism subjecting each individual capital to an imperative to accumulate with a failure to comply being punishable with the enterprise’s existence. In order not to let the concept of competition become too vague, it could be understood from an action theory perspective as the anticipation of a potential danger. In a field shaped by many actors, the potential exists for a competitor or new rival to participate in potential profits and/or to monopolize market segments. The relationship produces an imperative for continuous reinvestment and innovation of production processes, distribution networks, and so on.

Under conditions of competition-driven accumulation, the participating production units are coerced into selling in order to buy, buying in order to survive and reproduce, and ultimately to expand and innovate in order to at least maintain their economic position in relation to other production units (R. Brenner 2006). Under these conditions, it is necessary to produce goods for the market, rather than directly satisfy reproduction requirements and to accumulate capital, that is, to use the surplus product to expand production. The associated movement represents a specific feature of capitalism “because there is absolutely no way of measuring adequate valorization. [This] corresponds with the tendency to increase both the degree of valorization (i.e., increase in the profit rate …) as well as the size of capital to be valorized (i.e., the accumulation of the target profit, whether as investment in productive or in interest-bearing capital)” (Heinrich 2003, 314–15, my translation).

Moreover, capitalist market dynamics can be regulated only to a certain degree. At the same time, capitalist market economies are steered not only by market-based processes, but also through other coordination mechanisms: (company) hierarchies, networks or clans, associations, and state institutions. In this sense, the institutional preconditions and contexts under which the imperative to accumulate is effected determine the cooperative and competitive relations between enterprises. These can include different fractions of capital or business alliances, when specific interests of enterprises unite and become associated with one subjective interest.

THE VERTICAL AXIS OF CAPITALIST SOCIAL RELATIONS

The structure of labor relations, the associated forms of division of labor, as well as the emergence of corporatist industrial relations make up a further basic component of capitalism. The unstable dynamics of capitalist systems do not result solely from the horizontal relations between companies operating in markets. Social stratification and particularly the vertical “class polarization between those who possess wealth and those who do not and the structural social tension created by this” is a further “objective basic condition of capitalist dynamics” (Deutschmann 2009b, 38, my translation; see also Wright 1997). Capitalism as a social order rests on the particularistic appropriation of the goods produced, which, in turn, has no basis in any previously agreed social consensus.¹⁸ The dependency of (competing) blue-collar and white-collar workers on the demand for labor and the capital owners’ control over the means of utilizing labor power along with their right to appropriate the surplus product produced by the wage earners establish a specific character of dominance within the wage labor relation. This also limits the opportunities for participation in economic decision making, planning, and control processes with respect to production, distribution, and consumption.

Historically, institutional mechanisms have been established to try to moderate the polarization of the classes; these comprise diverse varieties of corporatism, that is, processes of coordination and negotiation between employers, workers, and the state. Associated with such mechanisms are prevailing, albeit contentious, norms and values (see Burawoy 1985; Wright 2000). On the other hand, class polarization can be a strong incentive for upward mobility and can foster the competition for innovation. This social tension translates into increased economic activity especially in a situation where the structural class-polarization appears to be individually surmountable (Deutschmann 2009b).

RELATIONSHIPS OF MONEY AND FINANCIAL SYSTEMS

Capitalist social orders rely on monetary and financial systems. Money mediates the exchange of goods. The circulation of industrial capital, for instance, gains its characteristic elasticity through the credit mechanism or the sale of shares. Money, however, not only mediates exchange processes, but can, in the form of financial capital, take on a life of its own (Marx 1986). Because the expansion of capital accumulation depends on credit, modern credit relationships include, in a sense, the commodification of the future. “Capitalism, in other words, is more dynamic than other economic systems because it has found ways to turn promises and expectations into presently available resources, enabling the economy at any point in time to invest and consume more than it has already produced. By creating binding obligations for individuals to devote long stretches of their future lives to working toward paying off their debts, the economy redeems the advances it continuously draws on its future production. While profit is the carrot of capitalist growth, debt is the stick” (Streeck 2010b, 25).

Additionally, in historical forms of capitalism, money, or money transformed into capital, is by no means restricted to playing an economic role; rather it embodies a source of utopian promise and can assume the function of representing the “unity” of society. “As already recognized by Simmel, money is the basis of modern, functionally differentiated association. Law, science, and politics are not possible without organizations; but organizations are not possible without money. And finally: by transforming personal dependencies into functional ones, money allows individuals to find themselves through their estrangement from the anonymity of money. Thus money is not only the basis of the organized social framework but also indirectly of the intimate one” (Deutschmann 2009b, 20, my translation).

Further, the level of state influence on the financial and banking sector becomes a central determinant of the depth of state penetration in the economy.

THE ECONOMY AND THE STATE

On the basis of the historical finding that companies and markets cannot provide continued self-regulation, that a market road to a market economy is not feasible (Polanyi 2001), and a strong state was an essential historical precondition for such a transformation and its stabilization, a central proposition of my work is that the party-state in China is not withdrawing from the tendency toward marketization, but instead is contributing to the constitution of a new form of capitalism. In this sense, the party-state must itself be understood as a central component of the new Chinese capitalism. Because the interactions between economic and political actors embody complex processes, which (not only in research on China) are discussed in very different ways, the fourth dimension of capitalist social orders will be introduced at greater length at this point. First, I will outline the basics of modern statehood, second, forms of state intervention and regulation, and, third, actions of political actors where they directly perform entrepreneurial functions. Here, I advocate going beyond abrupt juxtapositions of market and state and instead examining how economy and state are structurally linked and, to some extent, develop historically in a mutually constituting manner.

(1) The mutual dependency between state and economy can be taken as a central feature of capitalist societies. Economy and politics establish a nexus characterized by structural interdependencies (see Block 1994; Brand 2006; Hirsch 2005; Mann 1998; Offe 2006; V. Schmidt 2009). The state sanctions contractual relations, directs and/or coordinates infrastructure measures, and provides business enterprises with an educated labor force. Unlike nonhierarchical forms of regulation and decision making, the state, for its part, frequently “possesses the means for ultimately decisive intervention” (Mayntz 1996, 159, my translation), whether in the form of legal ratification or the final decision in cases of nonagreement. This is because only the state commands a monopoly on power that enables the creation and maintenance of the institutional fundaments that allow capitalist socialization in the first place. For this a functioning state requires (at least relative) independence from the social classes, associations, and so on, even if, in practice, state power is mediated by both societal institutions and discourse. Because state institutions represent an arena for social conflict, attempts are constantly made to instrumentalize them.

Certainly, it is not only the enterprises that are dependent on state institutions; conversely the existence of individual states depends on the successful activity of enterprises on its territory (and beyond). Political apparatuses are structurally dependent on successful accumulation within their territory, because this secures the basis of tax assessment. For this reason “the general and top political avoidance imperative is to forgo or prevent anything that could endanger economic prosperity. Positively formulated, the state must establish, maintain, or recreate a ‘healthy investment climate’ in order to prevent enterprises from making use of their ‘negative rights of ownership’—the right not to invest” (Schimank 2009, 259, my translation).

Overall, then, it is not so much a case of examining the whether but rather the how of state intervention. For this I can draw from Polanyi, who, analogously to his concept of the three “fictitious commodities”—labor power, land, and money (Polanyi 2001), identified three problems of coordination that could not be solved by markets alone, but first required the assistance of state structures. First, in the course of creating a system of industrial relations, social security, educational institutions, and migration control policies, the supply of and demand for labor as well as the conflict between capital and labor are regulated. Second, private control of capital and land remains subject to the state guaranteed freedom of contract, property laws, rights of use, and other regulations. Third, even money, or at least the quantity of money, is regulated to a certain degree by central banks and other regulatory authorities. Polanyi’s approach can be embellished with further coordination problems: for example, knowledge, a further fictitious commodity is coordinated to a large extent by nonmarket institutions such as universities or research institutes. Finally, to ensure continued market competition, coordination efforts such as antitrust and cartel laws are implemented (Block 2005).

(2) To be able to determine the importance of distinct political systems for the formation of different types of capitalism, different mechanisms and strategies of state intervention and coordination must be taken into account. These have increased since the late nineteenth century and include, for instance, market-creating, market-regulating, and market-restricting measures. More recent studies distinguish between market-mediated ex post coordination, hierarchically prescribed ex ante coordination, heterarchic coordination regulated by processes of self-organization mediated by networks, negotiation, and deliberation, as well as cooperation built on solidarity. State rulers do not usually limit themselves to the command hierarchy but, rather, combine forms of governance in a specific way (see Jessop 2007, 207–24, Brand 2006; V. Schmidt 2009). At the same time, we must take different territorial and administrative levels into account. To examine the local state and territorial levels below the central government, I draw on relevant literature from social-science-based geography (see N. Brenner 2004; N. Brenner and Heeg 1999; Harvey 1989).

For their economic policies, modern states have recourse to direct and indirect methods of influencing the national economy. Thus, in line with Keynesian demand policy, the state can take action to achieve economic effects by implementing (anticyclical) fiscal and monetary policy measures (Aoki, Murdock, and Okuno-Fujiwara 2005). Here, the state does not intervene in companies’ investment decisions and does not plan in the strict sense, but, rather, plays a regulatory role. Indicative planning, on the other hand, goes further. The state negotiates with investors over basic principles of growth and recommends desirable behavior for the private enterprises, without, however, significantly interfering in ownership structures. By contrast, imperative planning is legally binding; the state prescribes certain modes of mandatory behavior and, when necessary, intervenes in investment decisions.

Historically, the structural interdependencies between economy and state emerge in different ways, thus constituting different forms of capitalism. From the 1930s, political authorities played a particularly important role in the various versions of state dirigism; the Keynesian intervention state in the West, the developmental state in the East and also the South. In this context, the concept of state-controlled capitalism or state capitalism was used (for early works, see Castoriadis 1988; Harris 1978; Pollock 1975; Szelényi 1982). In the more recent comparative capitalism research, Vivien Schmidt attempts to use the concept of state capitalism to distinguish countries such as France from coordinated market economies such as Germany (V. Schmidt 2000). For the analysis of East European and Central Asian transition economies, among others, the category of “political capitalism” in Weber’s sense (Eyal, Szelényi, and Townsley 2000) or state capitalism as one of its variants is used (see also Schneider 2008; D. Lane and Myant 2007). Large emerging economies are, as already mentioned, also described as state-controlled or state-permeated forms of capitalism (Nölke et al. 2015).

Because, in terms of economic policy measures, a comparison of China with other East Asian countries suggests itself, I will critically draw on concepts of the developmental state. For the success of a developmental state, a particularly important question is whether the nation-state produces sufficient social coherence to create a close partnership between the local political and the corporate elites (see Gerschenkron 1966). For this it needs first to be equipped with an effective bureaucracy that obeys the rules, and within the state apparatus there must be evidence of bureaucratic rationality, that is, an appropriate distribution of power between ministries and/or between ministerial planning staffs (Evans 1995). Second, sufficient capacity to discipline the private corporate sectors is necessary. As Chibber explains, using India as an example, these corporate sectors do not automatically assume the role of a “national” bourgeoisie prioritizing the development of the nation over commercial considerations (Chibber 2003).

(3) Further, the state itself can act as an entrepreneur. With respect to the economic policies of modern states, state intervention along with state property need not represent a negation of capitalist mechanisms but can, in fact, function as one of many forms of particularistic control over economic and political power—in the form of state capital, for instance. In this way state entities can be subject to the accumulation and competition imperative (N. Lin 2011, 70).

In China, local state actors and local public-private alliances almost act as breeding grounds for the development of productive forces. Thus the “private” owner should not be identified as the only capitalist actor. It is not only individuals or a joint-stock company comprising one or more persons, but rather also state functionaries or authorities, particularly at the local level, who can operate as exclusive controlling owners. Alongside the classic private property, there are other forms of exclusive ownership, including state-owned enterprises (SOEs). The main characteristic of property in capitalism is the separation of those who operate the means of production in exchange for a wage from the control of this means of production. Referring exclusively to the (politically defined) legal position of ownership can distract from this fact (Tamás 2007). Some authors link capitalism and private property too closely, resulting in them positioning state sectors in modern national economies outside the capitalist system (Y. Huang 2008). In the case of China, an analysis that examines state property and state action more generally against the backdrop of the power of the drivers of capitalism would seem more fitting. Thus, in the context of China, McNally speaks of “state capitalism” (McNally 2011), Nan Lin describes China as “centrally managed capitalism” (N. Lin 2011), Jessop uses the term “coordinated market state capitalism” (Jessop 2009, 18), Fligstein and Zhang see similarities with the French “dirigism” model (Fligstein and Zhang 2011, 51–52; see also Pearson 2011, who also includes a comparison with Brazil), and a short time ago, I myself referred to a “liberal market state capitalism” (ten Brink 2010; see also Nee 2005; Nee and Opper 2007; Redding and Witt 2007; Kennedy 2011a).

THE INTER- AND TRANSNATIONAL INTEGRATION OF CAPITALIST SYSTEMS

The fifth dimension of capitalism in time and space is the integration of individual capitalist orders into global economic, international political, and other intersocietal relationships. In order to take this dimension into account, an analysis is required that explores the interaction of national, international, and transnational processes. This particularly applies to the analysis of economic instabilities and crises, the trajectories of which must ultimately also be examined in the context of the development of capitalism worldwide. Analyzing the changes in China in terms of their connection with transnational capitalist dynamics thus prevents a Sinocentric bias (Hart-Landsberg and Burkett 2006; Hamilton 2006a).

Here, as mentioned above, I follow newer concepts that refer to a variegated global capitalism. Varieties of capitalism cannot be effectively analyzed solely on the basis of methodological nationalism and using comparative statistics but rather should be seen as facets of a global capitalist socialization. This allows us to consider varying trajectories of capitalist development in an international, and by extension, intersocietal context (Rosenberg 2006; ten Brink 2012b). Unlike the global economic development phase following the major crisis in the 1930s—in which there was a balance between internationalization and nationalization tendencies—it must be assumed here that, since the 1970s, inter- and transnational integration has gained ground. The question then arises to what extent this has affected the development of China, a country that has a (potentially) extremely large domestic market and a government that, for a long time, had an interest in restricting or steering international influences.

Interim Conclusion

Finally, I will now reiterate the key points shaping the analysis that constitutes the main part of the present work. The following analytical strategy can be formulated to address the three key research questions: (1) the predominant features of China’s political economy, (2) the fundamental driving forces and dynamics of the reform process and the subsequent rapid growth, and (3) the current lines of development and paradoxes inherent in the growth path.

First, I have integrated drivers of capitalist development into my research framework. In the following, I will examine to what extent these driving forces came into play in China, and in what way, and to what extent they contributed and still contribute to the country’s modernization. Here, the analysis of links between state, economy, and other societal actors aims not only to provide insights into the structure of China’s political economy but also explanations for the relative consistency of the political status quo and indications of its potential for destabilization. I expect to identify plausible explanations by incorporating an analysis of close alliances between companies and government bodies as well as of the segmentation, segregation, and subordination of the working population.

My objective here is for my analysis to have a transnational focus because varieties of capitalist development do not unfold counter to the global market but rather with and within it. In other words, the trajectory of reform in China’s history can be adequately and convincingly described only by taking into account its integration in inter- and transnational processes, not least because the PRC was able to profit more than any other large country from favorable global economic circumstances.

Second, the strong assumption of universally applicable drivers of capitalism (manifested differently during different historical phases) has been relativized using approaches from action theory. My research framework has, to all intents and purposes, been historicized: capitalist dynamics in China encountered and continue to encounter preexisting social arenas and sociocultural traditions that lend the country’s political economy a distinctive form. These factors are studied in the main body of the present work and integrated into the notion of interrelated types of capitalist-driven modernization. With a view to the conflictual interplay characterized by power imbalances between the three key groups of actors (entrepreneurs, state actors, and workers), I will describe the dynamics and paradoxes of Chinese development.

Third, on the basis of these key assumptions, I have introduced a series of tools that serve the further analyses. In an attempt to gain an insight into the effectiveness of capitalist driving forces in specific institutions, I combine political economy analyses on the dynamic and crisis-ridden expansion of markets with empirical findings from China studies. This enables me to identify different and, in some cases, distinctive forms of politically integrated entrepreneurship, of competition also occurring in noneconomic institutions, and socioeconomic development trends. At the same time, going beyond a one-sided (neo-)Schumpeterian understanding of the individual entrepreneur’s capacity for innovation, I refer to underlying institutional and organizational conditions provided, inter alia, by the government.

The distinction between five different dimensions of capitalist systems is also useful for a systematic study of the drivers of capitalism in China. With regard to the five dimensions listed—the sphere of the “horizontal” competitive relationships between companies, the “vertical” axis of industrial relations, the interactions between economic and political actors, the financial system, and, finally, the sphere of transnational integration—I will seek to establish whether and how capitalist dynamics emerged at these levels in China and play a dominant role. I will also explore possible complementarities between these spheres and cross effects between institutions that improve economic efficiency.

The tools for examining gradual institutional change serve in particular to provide us with an insight into the significance of informal institutions and negotiation processes in China, the reforms of the party-state, and the phenomenon of circumventing formal regulations (for instance, with regard to comprehensive enterprise reforms).

The assumption of unequal and heterogenous, combined and interlinked developments in capitalist-driven modernization processes is useful for examining unstable dynamics in China. An attempt will be made to substantiate the idea that heterogeneous production regimes, business types, and state policies were not only beneficial for economic development but simultaneously triggered unintended, paradoxical consequences.

Findings from state theory prove invaluable in my analysis of political reform strategies in China’s multilevel system of governance and to explain the adaptive capacity of the party-state, and limitations of political steering. It is thus possible to distinguish between various forms of state intervention and regulation, for instance, market-creating, market-regulating, and market-restricting measures. In addition, based on the assumption of a differentiation between market and state actors in modern societies, using findings from recent China research, further specific features of the political in China’s political economy can be mapped out. These features include the behavior of political actors, in which the latter directly perform entrepreneurial functions, and the relevance of local pilot projects for accelerating the reform processes.

Finally, tools from sociology facilitate an analysis of China’s segmented industrial relations and the phenomenon of labor market segregation.

In the main body of the present work, I will be unable to provide a sufficiently in-depth analysis of capitalist development in China or a satisfactory examination of all the theoretical considerations introduced in this chapter. However, I also see my research framework as groundwork for further empirical research that, by focusing on the case of China, might contribute to an expanded version of a theory of capitalism.