A Comparative Study of the Government-Enterprise Relationship in China and the United States

Home , Sheng (surname)

BETWEEN THE STATE AND THE MARKET

SIXIN SHENG

A THESIS IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY

SCHOOL OF MANAGEMENT AUSTRALIAN SCHOOL OF BUSINESS UNIVERSITY OF NEW SOUTH WALES

FEBRUARY 2013 PLEASE TYPE THE UNIVERSITY OF NEW SOUTH WALES Thesis/Dissertation Sheet

Surname or Famtly name· SHENG

Ftrst name Sixln Other nameis

Abbrevtalion for degree as gtven tn the Untverstty calendar PHD

School: School of Management Faculty Australian School of Business

Hto· 8.,,..,, tho Stot. '"'tho Morl

Abstract 350 words maximum: (PLEASE TYPE)

Corporate managers nowadays have to carefully cons1der the tnteractton between bus1ness and governments in both domestic and overseas operations, with the main challenge be1ng posed by the persistent conflict between the state and the market. In the context of unprecedented development in China and recent challenges in western economtes, largely attributed to the way governments regulate the business enwonments in these countries, thts d1ssertat1on comparatively examines China's and Untied States' development models with focus on the government-enterprise (G-E) relattonshlp The aim of this comparlson ts to provide a solid theoretical foundation for evaluattng the compet1ng claims of superiority of one model over the other, and to formulate 1nsights for an improved understanding of the G-E relationship In general.

Based on an interdisciplinary comparattve study of the two countries' G-E relationship systems, thts dtssertallon demonstrates that the G-E relationship is an historically path-dependent phenomenon both tn Ch1na and the United States, with institutional and ideological factors playing an essential role in the G-E relationship in both countries. The analysis of the two systems leads to the conclusion that China and the Untied States each have certam advantages and diSadvantages with regard to their G-E relationship models, making it impossible to clatm the superionty of one model over the other However. the analysts presented 1n this d1ssertat1on reveals that the G-E relationship in general I can be improved through a contingent approach aimed at achieving a dynamic balance between the state and the market. The specific theoretical contnbut1on consists tn showing how the historical context of a country. including particular institutional pressures and ideological tradlttons may shape the G-E relationship, while also being the source of potentialtmbalances that must be correctly assessed before recommendtng any adaptive measures.

While analysing the G-E relationship In China and the United States. this thesis moves the conversatton from 1 contrasting country models to acknowledging the value of both market forces and state control when thetr use ts · consistent with the specific htstorical. Jnstltuttonal. and ideological context of a country

Declaration relating to disposition or project thesis/dissertation

I hereby grant to the University of New Soutt'l Wales or its agents the rig hi lo archive and to make avatlable my thests or dissertation in whole or tn part in the University libraries tn all forms of medta. now or here alter known, subject to the provisions of the Copynght Act 1968 I retain all property rights, such as patent nghts I also retatn the nght louse In future works (such as arttcles or books) all or part of thts thests or dtssertalton

I also authortse Untverstty Mtcrofitms to use the 350 word abstract of my tttests tn Dtssertatton Abstracts lntemattonal (this 1s applicable to doctoral '"(-,"'/. "(} /!;j.,'i\., Jlllfi#7J /) rJ ~~ . ~ . ·.. . . JA?f~ . ), '8- Stgnature V ~ .fvrtness Date

The University recogntses that there may be excepttonal ctrcumstances requtrtng restricttons on copying or condittons on use. Requests for restnctton for a penod of up to 2 years must be made tn writing. Requests tor a longer pertod of restriCtion may be considered in exceptional ctrcumstances and re ulre the a roval of the Dean of Graduate Research r:·USEONLV Date of completion of reqwements for Aware!

THIS SliEET IS TO BE GLUED TO THE INSIDE FRONT COVER OF THE THESIS COPYRIGHT STATEMENT

'I hereby grant the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or part in the University libraries in all forms of media, now or here after known, subject to the provisions of the Copyright Act 1968. I retain all proprietary rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation. I also authorise University Microfilms to use the 350 word abstract of my thesis in Dissertation Abstract International (this is applicable to doctoral theses only). I have either used no substantial portions of copyright material in my thesis or I have obtained permission to use copyright material; where permission has not been granted I have applied/will apply for a partial restriction of the digital copy of ::~:~;·~~~

Date . ~.i.) .: .... k.:..t.%......

AUTHENTICITY STATEMENT

'I certify that the Library deposit digital copy is a direct equivalent of the final officially approved version of my thesis. No emendation of content has occurred and if there are any minor variations in formatting, they are the result of the conversion to digital format.'

Signed

Date .."J::f?.l 7.. .' ..... ~ . .·.. .( .8...... ORIGINALITY STATEMENT

'I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis. I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project's design and conception or in style, presentation and linguistic expression is acknowledged.' /A iliA /}~,x.,~v Signed .. . 7-.~ .W..~~ .. / ...... 1-

Numerous people have given me invaluable help with this dissertation. Without their assistance, especially their knowledge and academic insights, I could not have completed it. Now that the end of my doctoral study is within view, it is time to express my appreciation to my supporters.

First of all, I want to express the highest appreciation to my supervisor, Dr. Dan V.

Caprar. He showed faith in my academic potential and capacity and provided strong support for obtaining a full scholarship, which was essential to my ability to complete my studies in Australia. As a supervisor, Dr. Caprar not only imparted important academic knowledge and taught me critical research skills, with great patience, but also offered me considerable substantial and emotional support when I faced challenges and difficulties for various reasons. He spent a great deal of time on this dissertation, giving me very detailed and practical guidance and comments. Certainly, I could not have finished this dissertation without his seemingly endless patience, guidance, help and support.

In the University of New South Wales, several other persons have been important for finishing this research. My co-supervisor, Professor Lex Donaldson, encouraged me to pursue the theoretical research, and discussions with him were always inspiring and helpful. His diligence and reputation have also encouraged me to be a good scholar, and will continue to influence me in my future career. Professor Christopher Jackson, formerly Postgraduate Research Coordinator and now Head of School, gave his very

powerful support to my scholarship application and also to the extension of the scholarship, although he did not know me very well and (I regret) we seldom had the opportunity to speak together. Associate Professor Markus Groth and Dr. Sunghoon

Kim, members of my annual review committee, were both very kind, and showed much concern about my progress. In particular, Dr. Kim made some valuable suggestions for research.

Over the past four years, I have come to owe a great deal to some real friends who gave me their generous help and support. I received powerful academic support from Ms.

Tianyue Ma. She spent a lot of time reading and commenting on my drafts. In particular, her knowledge and training in sociology helped me enormously. Dr. Nanfeng Luo has always been reliable whenever I needed his help with various aspects of my research.

Specifically, he read through the early drafts of this dissertation, and provided a host of useful and critical comments for the revisions. In addition, I often discussed academic questions with Associate Professor Feng Tao, and he provided me with insightful comments on some of my research papers related to this dissertation. I am truly indebted to Ms. Sailuan Fan and her husband Mr. Kongjun Wang. They have supported me consistently in both financial and emotional ways since my undergraduate days.

Special thanks must go to Ms. Yingkai Li who always encouraged and consoled me through the difficult final stage of the writing.

I am also very grateful to many family members for their unconditional love and help in my life. My late grandfather Mr. Zaiming Sheng loved me very much, and always encouraged me to study hard. Unfortunately, he passed away when I was in primary

school, but I think he would be very happy if he knew of my academic progress. I spent most of my childhood with my maternal grand-mother Ms. Juxiu Zhang. She took great care of me, and also taught me many invaluable life lessons through her varied, interesting and meaningful stories. I also want to express my deep appreciation to my father Mr. Zhonglin Sheng and my mother Ms. Guiyin Luo. Their intelligence and diligence created a golden childhood for me, and they also taught me how to become an independent person when the family faced various difficulties. In addition, my uncle Mr.

Zhonghua Sheng and my aunt Ms. Zhonggui Sheng not only offered important financial help but gave strong emotional support during my student career. I owe a lot to my lovely and smart daughter Anqi Sheng and her mother Ms. Haiyan Zhang. I deeply regret that I have not always found sufficient time to take better care of them over recent years due to my responsibilities to the doctoral program. Still, I hope Anqi will be proud of her father’s dedication to obtaining a doctorate and understand that I actually love her very much. Since I am the first PhD degree candidate in the family, I want to dedicate this dissertation to them. I belong to the whole family, after all.

Finally, I want to show my deepest respect for the scholars cited in this dissertation.

Their writings are those shoulders of giants which Isaac Newton admitted climbing on to see further. They lent me the crucial knowledge and insights that motivated the exploration in this dissertation. I hope I will have the honour to become one such shoulder for others in the future.

iii

Brief Contents

Acknowledgements i Brief Contents iv Table of Contents v Abstract viii List of Figures x List of Tables x List of Abbreviations xi

Introduction Chapter One 1

Literature Review, Epistemological Considerations, and Theoretical Chapter Two 12 Framework

China’s Resilient Authoritarianism: Historical Path- 47 Chapter Three dependence and Development Philosophy

Corporate Liberalism in the United States: Evolutionary History and Chapter Four 88 Ideological Foundations

State, Market and Beyond: A Comparative Analysis of the G-E 124 Chapter Five Relationship in China and the United States

Conclusion Chapter Six 147

References 163

Table of Contents

Acknowledgements i Brief Contents iv Table of Contents v Abstract viii List of Figures x List of Tables x List of Abbreviations xi

Chapter One

INTRODUCTION ...... 1 1.1 Background ...... 1 1.2 The Importance of the Topic ...... 6 1.3 Overview of the Thesis ...... 10 Chapter Two

LITERATURE REVIEW, EPISTEMOLOGICAL CONSIDERATIONS, AND THEORETICAL

FRAMEWORK ...... 12 2.1 Literature Review ...... 12 2.1.1 China’s G-E Relationship and Major Research Paradigms ...... 14 2.1.2 The United States’ G-E Relationship and Major Research Paradigms ...... 21 2.1.3 The Debate over the Chinese Model ...... 26 2.1.4 The Research Question ...... 30 2.2 Epistemological Considerations ...... 32 2.2.1 Positivist, Realist, and MultiParadigm Approaches ...... 32 2.2.2 The Case for an Interdisciplinary Approach ...... 35 2.2.3 Methodological Individualism and Holistic Epistemology ...... 37 2.3 An Integrated Theoretical Framework ...... 38 2.3.1 The Perspective of Historical Path Dependence ...... 39 2.3.2 Comparative Institutionalism and Transaction Cost Analysis ...... 42 v

2.3.3 Ideology and the State: The Issue of Embeddedness ...... 43 Chapter Three

CHINA’S RESILIENT AUTHORITARIANISM: HISTORICAL PATH-DEPENDENCE AND

DEVELOPMENT PHILOSOPHY ...... 47 3.1 Economic Governance and the G-E Relationship in China: An Historical Review ...... 48 3.1.1 China’s Tradition of State Control of Business: Pre-Modern Times ...... 52 3.1.2 The Development of the G-E Relationship from Late Ch’ing to Republic of China: 1872-1949 ...... 60 3.1.3 The Chinese Government and the SOEs in the Planned Economy: 1949- 1976 ...... 68 3.1.4 SOE Reforms in the Post-Mao Era: 1976-2012 ...... 73 3.1.5 Summary ...... 77 3.2 Authoritarian Resilience and Its Ideological Structure ...... 79 3.3 The Paradox of Resilient Authoritarianism ...... 85 Chapter Four

CORPORATE LIBERALISM IN THE UNITED STATES: EVOLUTIONARY HISTORY AND

IDEOLOGICAL FOUNDATIONS ...... 88 4.1 The G-E Relationship in the U.S.: An Historical Review ...... 89 4.1.1 State Interventionism vs. Federal Laissez-Faire: 1776-1860 ...... 91 4.1.2 The Establishment of Federal Interventionism and the Rise of Modern Company System: 1861-1928 ...... 95 4.1.3 Government Intervention and Government Regulation: From the New Deal to the End of the 20th Century ...... 102 4.1.4 Regulatory Capture by the Big Corporation in the U.S.: From Enron to the Global Financial Crisis of 2008 ...... 111 4.1.5 Summary ...... 113 4.2 The Philosophy of Corporate Liberalism and Its Problem ...... 115 4.3 Ideological Foundations of American Approach to the G-E Relationship ...... 118 Chapter Five

STATE, MARKET AND BEYOND: A COMPARATIVE ANALYSIS OF THE G-E

RELATIONSHIPS IN CHINA AND THE UNITED STATES ...... 124

5.1 Characteristics of the G-E Relationship in China and the U.S.: Resilient Authoritarianism vs. Corporate Liberalism ...... 124 5.1.1 Mechanisms for the Adjustment of the G-E Relationship ...... 125 5.1.2 Driving Forces behind the G-E Relationship ...... 127 5.1.3 Coordinating Strategies for the G-E Relationship...... 129 5.1.4 Operational Principles for the G-E Relationship ...... 131 5.1.5 Summary ...... 134 5.2 In Search of a Better Model for both China and the U.S...... 134 5.3 Beyond China Model and the U.S. Model: Toward A Contingent Model of G-E Relationship ...... 141 Chapter Six

CONCLUSION ...... 147 6.1 Theoretical Contributions ...... 151 6.2 Implications for Practice ...... 156 6.3 Suggestions for Future Research ...... 159 References ...... 163

vii

Abstract

Corporate managers nowadays have to carefully consider the interaction between business and governments in both domestic and overseas operations, with the main challenge being posed by the persistent conflict between the state and the market. In the context of unprecedented development in China and recent challenges in western economies, largely attributed to the way governments regulate the business environments in these countries, this dissertation comparatively examines China’s and

United States’ development models with focus on the government-enterprise (G-E) relationship. The aim of this comparison is to provide a solid theoretical foundation for evaluating the competing claims of superiority of one model over the other, and to formulate insights for an improved understanding of the G-E relationship in general.

Based on an interdisciplinary comparative study of the two countries’ G-E relationship systems, this dissertation demonstrates that the G-E relationship is an historically path- dependent phenomenon both in China and the United States, with institutional and ideological factors playing an essential role in the G-E relationship in both countries.

The analysis of the two systems leads to the conclusion that China and the United States each have certain advantages and disadvantages with regard to their G-E relationship models, making it impossible to claim the superiority of one model over the other.

However, the analysis presented in this dissertation reveals that the G-E relationship in general can be improved through a contingent approach aimed at achieving a dynamic balance between the state and the market. The specific theoretical contribution consists in showing how the historical context of a country, including particular institutional

viii

pressures and ideological traditions may shape the G-E relationship, while also being the source of potential imbalances that must be correctly assessed before recommending any adaptive measures.

While analysing the G-E relationship in China and the United States, this thesis moves the conversation from contrasting country models to acknowledging the value of both market forces and state control when their use is consistent with the specific historical, institutional, and ideological context of a country.

Keywords: government-enterprise relationship, path-dependence, institution, ideology, resilient authoritarianism, corporate liberalism

List of Figures

Figure 1.1 What An Irony?! Communist China Could Save Capitalism ...... 2 Figure 1.2 Percentage Change of Annual GDP: China, Germany, Japan, and the U.S., 1980-2011 ...... 3 Figure 2.1 Three-Phase Model of Organisational Path Dependence ...... 41 Figure 3.1 Pre-modern China’s Tradition of State Control of Business, 1046BC-- 1872AD ...... 50 Figure 3.2 Government-Enterprise Relationship in China: The Trend of State Control, 1872-nowadays ...... 50 Figure 3.3 The Hard Core-Soft Belt Structure of Ideology in Contemporary China ...... 82 Figure 3.4 The Hard Core-Soft Belt Structure of Traditional Chinese Ideology ...... 83 Figure 4.1 Government-Enterprise Relationship in the U.S., 1776-2012 ...... 91 Figure 4.2 Government Expenditures as a Percent of the U.S. GDP, 1929-2010 ...... 106 Figure 4.3 Distribution of Government Expenditures by Functions, 1959-2010 ...... 110 Figure 4.4 Corporate Tax Rate and Corporate Profits after Tax in the U.S., 1929-- 2010...... 114 Figure 5.1 China’s Internalisation Coordinating Strategy ...... 130 Figure 5.2 The United States’ Externalisation Coordinating Strategy ...... 131 Figure 5.3 Economic Performance Curve of G-E Relationship in China and the U.S. 137

List of Tables

Table 5.1 Characteristics of G-E relationship in China and the U.S...... 134 Table 5.2 Transaction Costs in China and the U.S...... 140

List of Abbreviations

CCP: Chinese Communist Party

CSR: Corporate Social Responsibility

G-E relationship: Government-Enterprise Relationship

GSMO: Government Supervision and Merchant Operation (官督商办)

OMJM: Official and Merchant Joint Management (官商合办)

PME: Privately Managed Enterprises (商办)

SFJV: Sino-Foreign Joint Venture (中外合资)

SOE: State-Owned Enterprise

Chapter One

Introduction

In 1949 only Socialism could save China; (1949 年，只有社会主义才能救中国) In 1979 only Capitalism could save China; (1979 年，只有资本主义才能救中国) In 1989 only China could save Socialism; (1989 年，只有中国才能救社会主义) In 2009 only China could save Capitalism. (2009年，只有中国才能救资本主义)1

1.1 Background

There is ongoing debate with regard to the superiority of the Chinese model against the

Western model in terms of economic development. The above opening quotation was widely spread in China’s internet communities after the 2008 global financial crisis, and so were many other popular accounts alluding to China’s ability to save the global economy, or fix the western world. But such accounts are not to be found in China only.

For example, a front-page article published in one of the major Australian newspapers suggested that Australia was not affected by the global financial crisis mainly thanks to

China’s robust demand for resources, as illustrated by the cartoon reproduced in Figure

1.1.2 This dissertation aims to contribute to the aforementioned debate by evaluating the two development models from the perspective of the relationship between government and business. In particular, the focus is on the relationship between government and

1 The significant historical events which happened around the four calendar years referred in the quotation are: the People’s Republic of China founded by the Chinese Communist Party (1949); China’s economic reform to introduce western capital (1979); the collapse of the Soviet Union and other Eastern European socialist regimes (1989); and the global financial crisis (2008). Retrieved from http://club.china.com/data/thread/1638757/265/06/36/5_1.html on 18 June, 2011. 2 Callick, Rowan. (2008). China Weighing Future Deals. The Australian Newspaper: page 001, October 9th. 1

large corporations - state-owned enterprises (SOEs) and multinational enterprises – as key drivers of economic development in China and the United States.

Figure 1.1 What An Irony?! Communist China Could Save Capitalism

Note: The above cartoon is from http://www.memecenter.com/fun/1237/What-an-irony- Communist-China-could-save-Capitalism, retrieved on 30 June, 2011. The title of the cartoon is the original one.

Indeed, China’s economy displayed consistent striking performance over time in spite of global turbulences. Particularly in the past three decades, China has experienced stunning economic growth. It has been suggested that the lack of effective and sufficient government regulation resulted in the recent subprime crisis of the United States

(Kübler, 2009), while China’s state-led economic performance during the 2008 global financial crisis clearly sparked renewed interest in discussing the viability of the two 2

models. When most other economies were gloomy during and after the crisis, China continued growing at high-speed, surpassing Japan in 2010 to become the second- biggest economy in the world. Also, in 2009, immediately after the 2008 crisis, China replaced Japan as the largest importer of Australian minerals, with the value of the mineral export to China being US$37.7 billion (Australian Bureau of Statistics, 2012).

As illustrated in figure 1.2, China’s average Gross Domestic Product (GDP) growth rate was around 10% in the last thirty years, superior to the performance of other major economies such as Germany, Japan, and the United States. Especially during the 2008 global financial crisis, China maintained a GDP growth rate of around 9%, while

Germany, Japan, and the United States showed negative economic growth.

Figure 1.2 Percentage Change of Annual GDP: China, Germany, Japan, and the U.S., 1980-2011

Notes: 1. Data source: International Monetary Fund, 2012. 2. The percentage change of the annual GDP was calculated using the above data source and the graph was then constructed. 3. The calculation of annual percentage change is based on the GDP at constant price for the four countries, and the base year is 2005. 3

China’s economic boom diverges from the traditional belief that only democratic political institutions and capitalism could bring economic prosperity (Whyte, 2009).

China’s authoritarian regime has been proven effective (or even more effective than democratic regimes) in the context of the financial crisis. This warrants a re-examination of the Chinese development model and its viability in contrast to the western model. In fact there are growing debates with regard to China’s development model (see, for instance, The Economist’s 2010 discussion of this particular topic 3 ) Nevertheless, consensus has not been achieved regarding which model (Chinese versus Western) is better. The difficulty in achieving consensus lies partly in the ideological difference between China and the West. Specifically, China’s socialist ideology and the West’s capitalist ideology are quite different, and these shape their respective people’s differing perceptions toward China and the West’s development models.

Although the ideological difference still exists between the East and the West, an undeniable fact is that both capitalism and socialism have influenced each other in the context of globalisation, particularly over the last century. For example, the state welfare system in western capitalist countries during the Cold War was largely driven by pressures from socialist counterparts (Obinger and Schmitt, 2011). Similarly, China’s economic reform since 1978 has imported western techniques and capital to build a capitalism with Chinese characteristics (Huang, 2008a). A recent symbolic event is the appointment of Justin Yifu Lin, a Chinese professor in economics at the Peking

University, as the senior vice President and chief economist of the World Bank in 2008.

3 A detailed overview of the debate is available at: http://www.economist.com/debate/overview/179, retrieved on 21 June, 2011. 4

No other person from a developing country has achieved such a senior position in the

World Bank since its establishment in 1945 (LaFleur, 2010). Given that the World Bank aims to reduce poverty and improve living standards in the world, Lin’s appointment may be viewed as an acknowledgement that the Chinese experience might be helpful to the world economy, and especially to the developing regions.

There are some other aspects of west-east differences that deserve attention. One fact is the coexistence of China’s economic success and underdeveloped political development, at least as evaluated against western democratic standards, which results in increasing social conflict in China (Tong and Lei, 2010). Largely based on this fact, some researchers (e.g., Shirk, 2007; Chang, 2001) suggest that China’s development is fragile and unsustainable. Another fact is that the economic reform started in China in 1978 did not transform the State-Owned Enterprise (SOE) into a firm purely concerned with business, i.e., being independent from the government (Lu, 1999). One can see the state- owned sector’s expansion while private businesses experienced recession (Guojin mintui 国进民退) in recent years. Also, the Chinese SOEs expanded globally very quickly with support from the government, especially during and since the global financial crisis, while many big western companies have gone bankrupt or struggled to get a government bailout. Indeed, Chinese SOEs are more active on the global market than the country’s private enterprises, while large western multi-national companies are mostly privately owned or publicly traded. Obviously, compared with the relationships western companies have with their own countries’ governments, Chinese SOEs have a closer relationship with the government.

In view of the critical role in economic development played by the government- enterprise (G-E) relationship, in this dissertation I investigate the G-E relationships in

China and the United States from a comparative perspective. Based on the insights gained from this comparison, I explore the principles of what may constitute a recommended development model. As noted earlier, I focus my analysis on the major types of enterprises, dubbed the national team in the two countries (Nolan, 2001). It is well-known that the United States’ economy is based on private corporations. China’s economy, on the other hand, relies more on the SOE sector (Nolan, 2004), and thus the

SOE is more important to China’s economy. For both the United States and China, the relationship between the government and the major type of enterprises may influence and inform the interaction between the government and business in general. Thus, the comparison of the national teams’ relationship with their governments is an effective approach to exploring the general G-E relationship in the two countries. However, this dissertation aims to not only achieve an in-depth understanding of the G-E relationship issue, but to also contribute to the more general conversation around the potential benefits of alternative models of economic development from the perspective of the G-E relationship.

1.2 The Importance of the Topic

In business practice, there is no doubt that managers need to respond to the environment created by the government, and thus the study of G-E relationship is meaningful for their business operation (Steiner & Steiner, 1997). In that sense, companies, especially the large ones, must have a good understanding of the interaction between the government

and the enterprise. There are many examples of unfortunate consequences of limited such understanding. For example, the Chinese company CNOOC Limited initiated a bid for the U.S.-based Unocal in 2005, but the bid failed due to the political boycott from the

United States (Finn, 2007) In 2008, Singapore Airlines was frustrated when its purchase of China Eastern Airline shares was rejected due to the lack of support from the Chinese government (Zhang & Alon, 2011). Similarly, in the case of Chinalco’s unsuccessful bid for the British-Australian Rio Tinto in 2009, the Australian government played an important role in the final result because this deal was perceived as inimical to

Australia’s national interest (Breslin, 2010).

On the other hand, there is increased awareness around the importance of understanding the relationship between business and government. In particular, multinational companies (e.g., Shell, Rio Tinto, etc.) had to learn progressively about the importance of G-E relationship to their business success, especially when operating overseas; many of these companies now have some officer/manager/adviser positions helping the management team deal with the government. Indeed, compared with the situation in the

19th century, business becomes a much more complicated issue in the context of globalisation. As a result, Drucker (2003) calls for managers’ attention to the influence of political factors on the economy and the enterprise, and also points out the importance to the country’s economy of the close relationship between a competent government and the developed business. Indeed, many scholars (e.g., Waddell, Jones, and George, 2011;

Hill, Cronk, and Wickramasekera, 2011) have identified the government as one of the key forces in the general management environment that managers need to consider.

In addition, governments have to understand the G-E relationship issue as well. The issue’s importance lies in the interdependence between the government and the enterprise. From the perspective of resource dependence, the government might have more power than the enterprise (or vice versa) because of the relative position in their interdependent relationship (Pfeffer & Salancik, 2003). In different countries, the relative power of the government and the enterprise might be different. However, in most cases, every government needs to deal with the enterprise in the following ways: firstly, the government needs to set out the framework for the enterprise’s action, and this framework, if effective, is an essential element for the enterprise’ operation in the market. On the other hand, the government needs to make sure the development of the enterprise would not be contrary to the country’s social and political objectives (Lehne,

2005). In that case, there might be some conflicting interests between the government and the enterprise, and the government has to cope with this type of conflict in practice.

Secondly, the government sometimes has to rely on the expertise and power of the enterprise, and ask the enterprise to complete important public projects, or maximise public resources. In that case, both the government and the enterprise are the actor in the market. In general, this second instance is often linked to the government intervention policy to promote the country’s economic development. In the West, it is a common measure adopted in economic crises, while in the East it is embodied in the government’s leading role in the economic development (Tanzi, 2011). In short, the government needs to be clear of its roles in the economy, and the G-E relationship is the key issue in that regard.

The G-E relationship is also an important issue for certain inter-government

organisations such as the World Bank and the International Monetary Fund, especially when they need to give suggestions to those developing and underdeveloped countries, or countries in economic trouble. Stiglitz (2002) already showed it is dangerous to introduce the developed countries’ G-E framework into developing or underdeveloped countries, because there is no single recipe for economic development. When the inter- government organisations draft G-E recommendation for a specific country, they must carefully consider the country’s historical context and the current situation. Also, when inter-government organisations want to provide financial aid to countries, they probably need to decide with the government, and/or the enterprise, how the aid will work

(Tidrick, 2005). Therefore, a successful aid plan is impossible without a good understanding of the G-E relationship in the country. All in all, a deep insight of the G-

E relationship is critical for these inter-government organisations’ success in many projects and provision of aid to the recipient countries.

Insights from organisational studies already note that an organisation may be viewed as an open system, and the interchange between the organisation and its environment is essential for its survival and development (Scott & Davis, 2007; Schermerhorn, 2010).

Of course, the environment is not limited to economic environment, and also includes the political environment as well as the institutional environment. Scholars in the field of institutional studies often explore which institutions are more favourable to the development of a formal organisation (Scott, 2008), and the G-E relationship is an important such institution. On the other hand, institutionalisation may be viewed as a rationalised process involving competition among various forces that have different interests and objectives (Scott & Meyer, 1994). In that sense, the evolution of a

country’s G-E relationship may also be viewed as a rationalised process that may shape individual and collective actors’ behaviour and choice. Thus, this thesis’s topic fits with current concerns in institutional theory, and the insights should contribute to broader contemporary conversations in organizational theory.

1.3 Overview of the Thesis

This dissertation has six chapters. After the introduction, based on a review of existing literature in the second chapter I propose the research question of the dissertation, and set the epistemological foundation for this study. In Chapter Three I investigate China’s history of economic governance from ancient times to the present, with a special focus on analysing the SOE reform and the G-E relationship since China’s economic reform and opening in 1978. From the perspective of historical institutionalism, I introduce and expand the term resilient authoritarianism to summarise China’s approach to G-E relationship. Moreover, I discuss the ideological structure and the paradox behind the approach of resilient authoritarianism. The fourth chapter explores the economic history of the United States, and identifies that the country uses a different approach to G-E relationship, i.e., corporate liberalism. Similarly, ideological foundations and problems associated with this approach are also discussed. Chapter Three and Chapter Four set the stage for the fifth chapter’s comparative study of the G-E relationship in China and the United States. In Chapter Five I analyse the major features of the two countries’ G-E relationships, and then compare and contrast China and the United States’ models of G-

E relationship. Chapter Five points out that both countries’ G-E relationship models have their own strengths and weaknesses. I show the specific reasons why it is difficult

to claim one model is better than the other. Also, I demonstrate that it is not easy for

China and the United States to learn from each other due to historical, ideological, and institutional constraints. However, the consideration of the two countries’ models together provides insights with regard to a potentially superior approach to the G-E relationship. In the concluding chapter, I will summarise the main arguments of the dissertation, and discuss theoretical and practical implications. In addition, directions for further research are suggested.

Chapter Two

Literature Review, Epistemological Considerations, and Theoretical Framework

This chapter includes three sections. The first section reviews the existing literature related to the G-E relationship, examines the progress made on this topic so far and identifies the gaps in research. Based on this review, I then present the research question addressed by this dissertation. The second section explores the major epistemological approaches adopted by the existing literature: the positivist, realist, and inter-paradigm approaches. The philosophical standpoint of this dissertation will be established through discussion of the strengths and weaknesses of these three philosophies’ within existing research. Also, I point out the limitations arising from the discrete application of different disciplines—law, political science, sociology, etc.—to the G-E relationship, and then introduce the inter-disciplinary perspective underlying this dissertation.

Furthermore, I critically evaluate the limitations of methodological individualism

(Hayek, 1955), and analyse why holistic epistemology is important for this study.

Finally, the last section of this chapter describes the integrated theoretical framework used in this PhD thesis, including theoretical insights from the historical path- dependence perspective, comparative institutional analysis, and the analysis of ideology and the state.

2.1 Literature Review

The G-E relationship is a critical pillar for economic institution in a country, and the issue mainly focuses on a choice between the state-dominated mechanism and the

market-dominated mechanism for a country’s economic operation. Wolf (1988) argued that the state and the market are two imperfect alternatives, but a state approach often introduces more problems and challenges to the economy than a market approach. Li

(1998) similarly posited that, except for those public industries in which the market mechanisms do not work very well, most industries would do well to submit to market rather than state control. However, Pfeffer and Salancik (2003) did not think the state and the market are mutually exclusive; on the contrary, they emphasised the interdependence between the state and the market in the G-E relationship. Przeworski

(2003) attached more importance to the market failures, and he viewed the market as a decentralised allocation mechanism, whereas the state was a centralised one.

Furthermore, Tanzi (2011) highlighted the role of the state in the economy (see also

Morgan, Campbell, Crouch, Pedersen, & Whitley, 2010). He thought the state not only corrects for market failures, but can also play a very important part in public spending, which has a tremendous impact on both the economy and the society. Nolan (2004) thought it meaningless to say that either the state or the market is better or worse intrinsically, since the two approaches are essential and must be used cooperatively in the economy, although each can be dangerous occasionally. Obviously, there is no consensus about the choice between the state and the market, and existing studies do not reach a clear conclusion regarding the best choice. It is well-known that China prefers the state approach while the United States relies more on the market, thus a comparative study of the two approaches as applied to their economies is ideal for a better understanding of the G-E relationship and its implications.

Nevertheless, it is very difficult to define academic boundaries for a study on the G-E

relationship. The topic of the G-E relationship has attracted extensive academic attention from various disciplines both in China and the West. With the rise of globalization and the development of organisational theories (Scott, 2003), an increasing number of organisational/management scholars (e.g., Scott, 2006; Walder,

2011) have been concerned with the issue of the G-E relationship, which they have regarded as an essential variant of the organisational environment. The topic is also an important issue in the field of political economics, an interdisciplinary field exploring the relationship between politics and economics (Levin, 2008). Political scientists (e.g.,

Lehne, 2005; You, 1998) are very interested in the G-E relationship as well, given the obvious relevance of the topic to their field. Scholars in law (e.g., Demsetz, 1983; Jiang,

2006) have paid much attention to the G-E relationship from the perspective of corporate governance. Sociologists (Trigilia, 2002; Lin, 2011) have attached more importance to the state-society relations in their research. In addition, the G-E relationship is also relevant to economic history (e.g., Bebchuk & Joe, 1999; Wei, 2009).

With scholars from so many disciplines contributing to the field, the existing knowledge about the G-E relationship has been scattered to a large extent, and there has been little effective integration of the research insights from the different disciplines. Thus, this dissertation contributes to such integration through a comparative study between China and the United States. Next, I review the general knowledge about the two countries’ G-

E relationships and the major research paradigms in the field. Also, I will discuss the most recent debates over the Chinese model.

2.1.1 China’s G-E Relationship and Major Research Paradigms

In the Mao era (1949-1976), China’s G-E relationship adopted a pure state-control approach in the planned economy. The SOE under the government control was almost the only legal enterprise, and it was a production unit and administrative organisation that played both economic and social roles in the country (Walder, 1986). After 1978, through a series of economic reforms, China made great efforts to change the traditional

G-E relationship under the planned economy, including SOE reforms aimed at improving the performance of enterprises in the market. Basically, some scholars (e.g.,

Wu, 2003; Tsai, 2007; Dickson, 2008) thought that the SOE was less efficient than the private enterprise due to its public ownership, so the major task of the SOE reform was de-statisation so that the public ownership could be transformed into a private one (You,

1998). However, other scholars believed that it is more important to construct a competitive market environment for all types of enterprises (Hassard, Sheehan, Zhou,

Terpstra-Tong, & Morris, 2007). From the perspective of the G-E relationship, China’s enterprise reforms in the 1980s aimed to revive the market’s impact on the enterprise.

Although the government’s power has been reduced to some extent in the process, it still can exert great influence on the SOE. A wide-spread belief is that China’s politics and economy nowadays may be viewed as a hybrid of political authoritarianism and economic capitalism (e.g., Tsai, 2007; Huang, 2008a; 2008b). Unfortunately, this kind of argument over-simplifies the rather complicated dynamics of the relationship between the government and enterprises. In general, most existing studies about China’s

G-E relationship fall into two research paradigms: the soft budget constraint and the development state. Both paradigms rest on the perspective of interaction between government and the enterprises, but the former paradigm’s analysis is enterprise-centred and the latter paradigm’s analysis is government-centred. The paradigm of soft budget

constraint has strengths in explaining the inefficiency of the SOE, while the paradigm of the developmental state is more powerful to explore the government’s active roles in economic development.

2.1.1.1 The Paradigm of Soft Budget Constraint

The theory of Soft Budget Constraint is a classical paradigm in the study of socialist enterprises, including Chinese SOEs. Initially this paradigm was proposed by Kornai in the 1980s, and further developed by Yingyi Qian, Justin Yifu Lin and other scholars in the 1990s. It adopts an open system approach (Scott, 2003), and emphasises the continuous interaction of socialist enterprises with external planners and authorities. In general, the paradigm tries to answer why many SOEs are not successful, and suggests that the reason lies in the relationship with the government.

The term soft budget constraint refers to the phenomenon by which the government would always provide various forms of fiscal assistance when an SOE’s market revenue does not cover its expenditure. As a result, the budget constraint imposed on an SOE would become soft, as the enterprise could receive arbitrary financial supplements from the government thereafter (Kornai and Matits, 1984; Kornai, 1986a). Compared with the firm with the hard budget constraint whose fate depends wholly on its cost control and market performance (Leibenstein, 1960; Kornai, 1980), the destiny of the firm with the soft budget constraint depends on not only the payoff from the market but also the relationship with the government (Lee, 1991). For Kornai (1987), the soft budget constraint issue leads to the SOE’s dual dependence on both the market and the government. Kornai (1984) further points out that the main reason for the failure of an

SOE in the market lies in the issue of soft budget constraint that makes the SOE’s behaviour deviate from market principles, because the SOE’s managers may not be quite sensitive to the cost and the market, and they do not have sufficient market incentives to improve profitability.

There are different explanations for the pathological mechanism of the soft budget constraint. Kornai (1986b) argues that the soft budget constraint has two major causes.

One derives from the socialist paternalism that means the state feels it must provide the

SOE with a bailout because of the administrative relationship between them. The other cause stems from political considerations such as securing jobs and gaining political support from SOEs. However, Qian (1994) posits that the soft budget constraint is an endogenetic phenomenon caused by imperfect market information and imperfect information about bad projects. In other words, the government and the state bank have to refinance the SOE’s bad or inefficient projects, as they do not have complete information about the projects and the marginal revenue brought by the refinance, and they are inclined to believe the marginal revenue is higher than the marginal cost brought by abandoning those bad or inefficient projects. Further, Qian and Roland

(1998) explicitly indicate that “the government’s incentives to bail out inefficient projects are determined by the trade-off between political benefits and economic costs”

(p.1143), and that the economic cost paid by the government largely depends on two factors: monetary centralization and fiscal decentralization. Another influential explanation (Lin, Cai, & Li, 1998; Lin & Tan, 1999) advocates that various policy burdens imposed on SOEs have weakened their business viability, which constitutes the root cause of the soft budget constraint. In general, the paradigm of soft budget

constraint suggests that the successful reform of SOEs calls for a hard budget constraint and marketization that transforms the state-controlled SOE into a more market- orientated entity (Lee, 1991).

There is no doubt that the theory of soft budget constraint has a certain explanatory power for the dynamics between socialist governments and their SOEs. However, this paradigm has also some weaknesses. Firstly, it underemphasises the analysis at the firm level and the individual level, although it pinpoints the interactions between SOEs and the government (Lee, 1991). At this stage, the Chinese SOE’s organisational decision- making is still a black box to be opened. In addition, from the individual perspective, the SOE’s soft budget constraint problem may be relieved to some extent by effective leadership. It is also reasonable to speculate that increasing the money incentive is not the exclusive or best solution to motivating SOE leaders and members, given that China has a long tradition of collective culture that always encourages working for public ends in preference to personal interests (Fairbank, 2006; Ge, 2009).

Secondly, the theory supposes a passive government that can do nothing but privatise

SOEs when it wants to resolve the problem of soft budget constraint. However, the history of China’s SOE reform has proven that the Chinese government can tighten its control over SOEs through a series of institutional designs. Also, I find that the dual dependence on both the state and the market has led to the SOE’s ambivalence towards government control: the soft budget brought by the close relationship with the government provides the SOE with unique competitive advantages on the market, while the SOE has to reduce its autonomy as a market entity because of the existence of the

government control.

Thirdly, the paradigm insists that the soft budget constraint is largely a negative feature of SOEs, and therefore SOE reform needs to harden the budget constraint (Lin & Tan,

1999). However, in the practice of Chinese SOE reform, this seems an impossible mission because of the close and strong linkage between government and enterprise.

Moreover, the soft budget constraint is not always a bad thing. It could be the SOE’s unique advantage when it tries to expand rapidly or to confront serious market gloom such as the recent global financial crisis.

Finally, the paradigm ignores the Chinese SOE’s corporate reconstruction and the reformed regulatory framework since the late 1990s, and does not cover the Chinese

SOE’s foreign investment activities in the recent global financial crisis. All of these latest changes and situations may affect the paradigm’s explanatory power. Thus, this dissertation will consider and investigate these factors’ impact on the Chinese SOE as well as its relationship with the government.

2.1.1.2 The Developmental State

The theory of the developmental state is a famous paradigm that focuses on the government’s role in the economy, especially in the Asia-Pacific region (Bello, 2009).

At the beginning, Johnson (1982) introduced the term developmental state to explain the

Japanese economic miracle in the 20th century. He argued that the Japanese state bureaucracy played a central and directed role on the country’s road to capitalism and industrialization. Later on, some scholars (e.g., Woo-Cumings, 1999; Tan, 2005) used

this paradigm to understand the economic success of the Four Asian Tigers, but most of them concluded that government should abandon its dominant role in the economy after industrialization.

In a way, the developmental state is consistent with the statist perspective in the varieties of capitalism paradigm (Moon and Prasad, 1994): the statist perspective also holds that the government should play an active role in the economy and society.

However, both the developmental state and the statist perspective might under-evaluate the potential danger brought by a strong state (see Clark and Chan, 1994).

From the perspective of economic sociology, Evans (1995) further promotes the theory of the developmental state. Evans identifies a paradox in the industrial development of transitional countries, i.e., embedded autonomy. Here the word embedded emphasises the state’s close relationship with the market and society, i.e., the state is supposed to serve the market and society through various policies and institutional designs; while the word autonomy calls for the state and its operations to be independent from the market and society to some extent. In other words, the successful transition country requires a hybrid of the embedded and the autonomous. Furthermore, Weiss & Hobson

(1995) point out that historical factor may influence the hybrid’s success in practice.

Given China’s transitional status and its cultural similarities with the Asian countries analysed by commentators on the developmental state, this concept may help to understand China’s high-speed economic growth in the past three decades as well.

Indeed, some scholars follow the paradigm and try to analyse China’s case. For example,

Huang (2008b) argues that the state-led economy helped China’s development in the past three decades, but it may not help China for a longer time. Pei (2006) uses the term developmental autocracy in lieu of developmental state to interpret China’s economic success. He believes that the state’s central role in the market and society should not be always maintained and that the limitation of the autocracy regime would hinder effective political reform to help China out of the state-led model, because the direction of the transition is already controlled by some interest groups for their own sakes.

Indeed, the development state paradigm has some power to explain China’s development. However, is there any other difference between China and other Asian countries in terms of the developmental state? Moreover, is there any difference between China and developed countries with regard to the role of government? These related questions are in need of further exploration.

2.1.2 The United States’ G-E Relationship and Major Research Paradigms

Two different doctrines influence the United States’ G-E relationship: Adam Smith’s market-orientated doctrine and Alexander Hamilton’s active government doctrine

(Lehne, 2005). The market-orientated doctrine dominates the United States’ G-E relationship in most cases, except for times of economic crisis. It emphasises the free market and minimal government intervention and regulation. Commercial enterprises, especially big corporations, often play a more powerful role than the government in the

G-E relationship. On the other hand, the active government doctrine is often recalled after economic crises. The doctrine argues that the government should pay more attention to economic regulation and economic recovery. In general, when the economy recovers after a crisis, active government would be replaced with market-orientated

reform. However, the active government doctrine in the United States does not mean direct control over enterprises or direct intervention into the economy that is found in

China, and the control or the intervention is often indirect, subject to various constraints and ruled by the law (Campbell, Hollingsworth, & Lindberg, 1991). In other words, the

United States’ G-E relationship is manipulated by private companies to a large extent, and government regulation is limited and of little effect in many aspects (Zysman, 1983;

Fligstein, 1990). In general, two research paradigms are often used in the existing literature about the American G-E relationship: varieties of capitalism and corporate liberalism.

2.1.2.1 Varieties of Capitalism

The paradigm of varieties of capitalism views the firm as the most important actor on the market, and investigates how political economy influences the behaviour of the firm and other economic actors (Hall & Soskice, 2001). In general, the paradigm argues for a divergent trend in modern political economy while acknowledging some convergent features of capitalism. It divides capitalism into a few different types according to certain standards that may provide the study of the American capitalism with some useful perspectives. I identify three important classifications that are worthwhile to consider. The first one is proposed by Hall and Soskice (2001). They divide capitalism into the coordinated market economy and the liberal market economy according to the nature of the adjustment mechanism. Two countries of the coordinated market economy type are Germany and Japan, each with a range of coordinating institutions for the economy in which the state and some organisations play a critical role. The typical liberal market economy, according to the classification, is the United States, where

various players in the market may compete with each other. To a large extent, the liberal market economy is less efficient than the coordinated market economy due to the lack of effective coordinating institutions, and thus the American model should not be applied to other countries (Trigilia, 2002). However, France and Italy are not included in either the coordinated market economy or the liberal market economy category. The second classification, made by Schmidt (2002), includes the two exceptions. Based on the different ways that economic policy and practise operate, Schmidt argues that there are three different models of capitalism in Europe: market capitalism (e.g., Britain), state-enhanced capitalism (e.g., France and Italy), and managed capitalism (e.g.,

Germany). Obviously, the role of the state is very important in Schmidt’s classification, but Schmidt does not simply assert which model is better than others, because she thinks the different models have different evolutionary directions. The third classification is created by Robert Boyer (quoted at Becker, 2011:15-16). This emphasises that economic actors may own different degrees of influence in different countries. According to different regulation models, Boyer argues that there are four types of capitalism: statist capitalism (e.g., Germany and France), market-based capitalism (e.g., the United States and Britain), corporatist capitalism (e.g., Japan), and social democratic capitalism (e.g., Norway and Denmark).

Only very few studies (e.g., Witt, 2010) use the paradigm of varieties of capitalism to study developing countries. According to Lin (2011), the Chinese model of capitalism may also be viewed as an example of the aforementioned managed capitalism. More specifically, it is a centrally managed capitalism. Lin clearly identifies two parallel processes: on one hand, the party-state in China is increasing its control over the

political economy in the aspects of personnel, organisation, and capital; on the other hand, it also creates an environment in which different enterprises may compete with each other in the market. Scott (2009) tries to expand the varieties of capitalism paradigm to analyse more countries (including developing countries) through a conceptualisation of capitalism as a system of economic governance. However, there is no effective and united framework that may be used to study both developing economies and developed countries. As I have shown above, there are too many classifications within the varieties of capitalism paradigm, and each classification only catches limited features of the political economy systems with a focus on a specific category of countries.

2.1.2.2 Corporate Liberalism

The paradigm of corporate liberalism is closely linked to the economic history of the

United States. Most scholars (e.g., Eakins, 1972; Block, 1977) think that the doctrine of corporate liberalism stemmed from the Progressive Era (1890s-1910s) when social and political activists were busy pushing various reforms, and then the rise of modern corporations changed the traditional power structure in the United States. In principle, the theory of corporate liberalism studies the political means of organizing and developing corporate capitalism. Sklar (1988) summarised three different usages of the term corporate liberalism according to different standpoints on political economy: leftist, centre leftist, and centre rightist. The leftist usage of corporate liberalism (e.g.,

Sklar, 1960) refers to the means to achieve the liberal end, i.e., through state control over corporate power. The centre leftists adopt a regulatory perspective toward corporate power. Basically, they believe that a balance between state and market can be

achieved (McQuaid, 1978). As for the centre rightists, they argue that government should maintain a minimum regulatory state in order to promote liberalism through the development of corporate capitalism (Cohen, 2002). To a great extent, this kind of argument falls into the category of laissez-faire. In general, Sklar (1988) identified that there may be a clash between the American tradition of liberalism and the development of corporate capitalism, and viewed corporate liberalism as a cross-class ideological solution which reflects normative relationships between government, corporations, and the rest of society. More broadly, the clash can be seen as the result of the conflict between statist and laissez-faire throughout the 20th century in the United States

(Hawley, 1978).

Although the centre rightists of corporate liberalism dominated political economy in the

Progressive Era, the First World War gave the leftists the opportunity to implement state control over the economy. However, many American political leaders (most of whom were centre leftists) tried very hard to strike a balance between de-nationalisation and regulation toward the big corporation (Rothbard, 1972). After the Great Depression,

President Franklin D. Roosevelt initiated the New Deal, a set of economic policies that favoured the rise of the big corporation. In a way, the New Deal interrupted the previous effort toward achieving a balance between the state and the market, and thus the United

States gradually entered an era in which political economy is dominated by corporate power (Lustig, 1982), which means another usage of corporate liberalism. However,

Block (1977) criticised this usage of corporate liberalism for the way it simplifies the dynamic of political economy in the United States. He argued that the dynamic is embedded in a series of complicated interactions between the state and the corporations.

Based on the above review of the usage of corporate liberalism, one can find that every usage is a one-sided reflection of the G-E relationship in the United States, and the distinction between the three different usages is important. In order to better understand the American approach to the G-E relationship after the Great Depression, I propose integrating the different usages of corporate liberalism and focusing on corporate liberalism as an ideology without the label of left/centre/right.

2.1.3 The Debate over the Chinese Model

Various doubts and scepticisms about China’s economic success in the past three decades have resulted in serious debates over China’s development model (Fewsmith,

2011). The G-E relationship is more or less integral to the debate. Also, the debate itself implies a comparative perspective between China and the West dominated by the

United States, especially because the debate has been heated by the recent global financial crisis that emanated from the United States in 2008.

In general, the debate about the Chinese model focuses on three questions. The first question is: does the Chinese model exist? The second one is: if the Chinese model does exist, what does it really mean? The third question is: is China’s development good in terms of outcomes and sustainability?

For the first question, there are three different theories about the existence of the

Chinese model. The first one may be called the virtual theory, and this theory does not support the existence of a Chinese model. For example, Huang (2008a) argues that

China’s economic success is not unique, and what China does for the economy is not different from what other successful countries did. The second theory may be called the mature theory that claims the existence of a Chinese model. Pan (2009) holds that the

Chinese model summarises China’s successful development experience in the past sixty years. He thinks that the Chinese model is the developmental result of Chinese history and culture, and does not think China should be westernized. The third theory may be called the immature theory. This argues that the Chinese model may exist, but it is still in the process of formation. Yu (2010) points out that China has shown some unique characteristics in terms of socio-economic development, but it is still exploring a stable model for development. In general, most scholars support the mature theory (e.g.,

Barma, Ratner, & Spector, 2009; Pan, 2009), a few western scholars hold the virtual theory (e.g., Huang, 2008a; Gao, 2008), and the immature theory is mainly supported by

Chinese policy research scholars (e.g., Yu, 2010).

As for the second question about the characteristics of the Chinese model, there are also various opinions to explain China’s success. The two most influential schools are the

GDP school and the authoritarian school. The GDP school uses China’s emphasis on

GDP growth to explain its economic development. For example, Meyer (2011) argues that GDP growth has been institutionalised as a routine by Chinese governments at different levels. In that sense, institutionalised GDP growth, rather than vibrant capitalism, is the best explanation for China’s economic success in recent years.

Meyer’s argument is consistent with Zhou’s (2004, 2007) ideas about the tournament model in China’s regional economic development, although the latter attaches more importance to the model’s negative consequence, i.e., over-competition between

different regions. On the other hand, the authoritarian school analyses China’s success based on the assumption that China is a unique type of authoritarian regime. For example, Nathan (2003) coined the term resilient authoritarianism, and argued that the secret of China’s success stemmed from the Chinese Communist Party’s (CCP) capacity to institutionalise many aspects of public life, including greater focus on norms and meritocracy in the succession politics of the party, functional specialization of institutions within the regime, greater public political participation in order to strengthen the CCP’s legitimacy, and so on. Other scholars have partially or fully supported this view by describing the Chinese system as an open authoritarianism

(Barma, Ratner, & Spector, 2009) or adaptive authoritarianism (Chen, 2010). The former explains China’s developmental authoritarianism as a result of its open attitude toward the liberal international order; while the latter emphasises that its institutional adaptiveness ensures the survival of China’s authoritarianism. To some extent the aforementioned works explain China’s success from different perspectives, but I still find limited in-depth explanations of how and why authoritarianism actually works in

China. In other words, given China’s economic performance in the past years, why do the advantages of authoritarianism outweigh its shortcomings in China, at least for the moment?

The third question deals with the nature of China’s development and the issue of sustainability. Considering the nature of China’s development, some observers believe that China’s growth posed a threat to other countries (Roy, 1996), but Zheng (2005) advocated for the theory of China’s peaceful rise. For the issue of sustainability,

Chang’s (2001) argument that China would collapse soon was popular in the western

world in the early 2000s. Indeed, even more recently some scholars (e.g., Shirk, 2007) argue that China’s current power is vulnerable, fragile, and unsustainable due to massive internal problems and inextricable domestic challenges. From the western perspective, the biggest challenge to China’s authoritarianism is the legitimacy of the regime: western scholars believe that the Chinese government will eventually face major challenges if it is not based on common consent (Nathan, 2009). This opinion, however, may reflect more a western view of the world, based on a history in which democracy prevailed, rather than China’s reality, and history, for that matter.

Researchers must not overlook the fact that China has a history of successful totalitarian governments enjoying wide acceptance and respect among the Chinese people in many dynasties. The Chinese government’s legitimacy could be maintained by effective meritocracy and sufficient provision of social welfare. Even though some authors (e.g.,

Fukuyama, 1993; Bell, 2000) suggest that the western democracy model will come to dominate Chinese society as a result of globalization, the institutional competition between eastern authoritarianism and the western democracy is still in progress, and thus it might be too early to predict who will be the winner. On the other hand, other scholars (e.g., Brahm, 2001; Naisbitt & Naisbitt, 2010) claimed that the Chinese model was a new viable system challenging the western development beliefs, and Lin (2011) also thinks the Chinese model’s future will not be a western-style democracy or a matured socialism, but an enlightened authoritarianism. Also, the aforementioned authoritarian school suggests that Chinese authoritarianism may be sustainable for the long term, but their explanations seem to emphasise the favourable features of current

Chinese authoritarianism, and perhaps unintentionally under-evaluate or even ignore that authoritarianism’s destructive effects in the history of China. Walder (2011)

reminds us that China’s economic development in the past three decades has created a new elite group (i.e., corporate elite) that exercises huge economic power quite independent of government, but it is hard to say whether this group will be formed and which kind of impact will be posted in China’s future.

The debate around the Chinese model may be endless if scholars continue to focus on just certain aspects of the phenomenon and limited periods of time. A reconciliation of different opinions and a true understanding can only be achieved with a complete historical investigation that reveals the persistence of certain aspects over time. As

Fligstein and Zhang (2011) highlight, historical and comparative perspectives are important in China studies. Indeed, the existing literature about the Chinese model tends to analyse China’s political-economic development in the past three decades only, and most of them focus only on China’s current achievements and problems. They lack an historical viewpoint, which prevents them from providing a comprehensive understanding of China’s authoritarianism over time, which I believe is essential to explaining the current structures and phenomena in China. In addition, there is a critical question that is still insufficiently explored: to what extent can other countries or regions learn from the Chinese model? This thesis will address this issue from a comparative perspective.

2.1.4 The Research Question

The G-E relationship plays a fundamental role in classifying the political economy

(Lehne, 2005), so it could be used to pinpoint the major features of a country’s developmental model. As I have shown above, the choice between the state and the

market is a very controversial question when it comes to designing a productive G-E relationship for a country, and there is no strong theoretical support and clear guidance for how to design it. As China is a state-dominated country and the United States is a market-orientated country, a comparative study of the two countries’ G-E relationship is particularly helpful to explore the best developmental model for the G-E relationship.

Thus, I propose the following research question for this dissertation:

Does China provide a better developmental model than the United States in terms of the government-enterprise relationship?

This PhD thesis investigates this research question from a theoretical perspective, because the theoretical approach is appropriate for the objective of an in-depth examination of such a general question via integration of existing knowledge from different disciplines. The thesis aims to contribute to the literature regarding the G-E relationship, and more broadly, to the literature related to understanding the relationship between governments and business in general. In addition, the thesis is a response to present academic debates on the Chinese model as well as its competition with the

American model. In particular, the comparative study between China and the United

States is helpful to integrate and promote existing paradigms in studying the two countries’ G-E relationship, and contributes to more general conversations around the potential benefits of alternative models of economic development. In short, the above research question is of great importance in both theory and practice. As a preparation for exploring the research question, it is necessary to consider some epistemological issues related to this theoretical investigation.

2.2 Epistemological Considerations

Epistemology, according to Willis, is concerned with “what we can know about reality and how we can know it” (2007: 10). For any theoretical investigation, epistemology is an important foundation. In most cases, the epistemology behind a theoretical study is often implicit, but that does not mean one can take it for granted without in-depth consideration and careful choice. In the empirical study, the research approach must be appropriate for the research question (Morgan, G. and L. Smircich, 1980; Neuman,

2006). In the same vein, the theoretical study should also choose an appropriate epistemology; otherwise the theory offered by the thesis may have critical flaws and limitations due to the researcher’s failure to develop a clear sense of the strengths and weaknesses for different epistemologies. In summary, there are three major epistemological approaches behind the literature reviewed above: the positivist, realist, and inter-paradigm approaches. I carefully examine their strengths and weaknesses in this section. Also, I consider the strengths and weaknesses of the division of disciplines, and explain why an inter-disciplinary perspective is essential for this thesis at the philosophical level, in particular to this dissertation. In addition, I argue for an holistic epistemology relative to the methodological individualism in this study.

2.2.1 Positivist, Realist, and MultiParadigm Approaches

In general, most studies tend to adopt a positivist approach. In general, researchers taking this approach believe that reality is external to them, and any correct knowledge about reality must be derived from objective data/facts arrived at by scientific methods

(Chalmers, 1999). In that sense, the purpose of the positivist research is to find those universal features of the research object. For example, when researchers (e.g., Nolan,

2004) want to reveal some universal values in China’s or the United States’ G-E relationship model, they may be classified as a positivist in terms of epistemology. For positivist, different theories developed or tested by qualitative and/or quantitative methods may help us understand reality and the truth better (Willis, 2007). Moreover, theories are true or false but incommensurable, as different theories are used as tools to target different phenomena and problems in reality. Thus, this approach emphasises that researchers should develop more theories, as every theory just captures one dimension of reality (Morgan, 1980). Obviously, this approach easily leads to an over-proliferation of theories, which makes knowledge accumulation difficult.

The second approach is critical realism. Critical realists also believe that reality is external to researchers. Theory is viewed as an approximation to reality, and the task of the research is to replace received approximations with better ones that may capture more dimensions of reality (Ackroyd, 2010; Cornelissen & Kafouros, 2008). For example, if researchers (e.g., Fewsmith, 2011) assume the existence of the Chinese model or the U.S. model as well as their uniqueness and superiority in reality, they may be called critical realists. In that sense, different theories are comparable in terms of their explanatory power, and one theory could be more correct than another. In that sense, the approach is quite useful in terms of knowledge accumulation, but it is difficult to convince other people to accept the approach, especially persuading those who do not believe in realism. In other words, this approach is not easily conducted in practise, as a theory would take a very long time to gain dominance. Even if it is

possible in some cases, it may potentially inhibit theoretical innovations due to the dominant status of the theory.

The third way is the multiparadigm approach (Gioia & Pitre, 1990). In a way, it tries to break through the first and second approaches’ single-paradigm limitation, and proposes that theorists may view reality from the perspective of different paradigms (Mingers,

2001). When researchers (e.g., Fligstein and Zhang, 2011) think that single theoretical paradigm cannot explain the Chinese model or the American model, they belong to the cluster of the multiparadigm epistemology. This approach emphasises that researchers should compare and contrast some findings in different theories, so that more in-depth explanations from different paradigms are possible. To a large extent, this approach implies the possible existence of a better theory that could cover more dimensions of reality, i.e., the multiple realities (Schultz & Hatch, 1996). However, this approach is not very powerful to create new theory, because it easily becomes a proposal of synthesizing existing theories.

When I develop my theoretical framework for this thesis, I am mindful of the aforementioned strengths and weaknesses of the three epistemologies in research.

Generally, I adopt an interdisciplinary approach, and aim to integrate some different theories under the same theoretical framework so that I can produce a more powerful theory, and the theoretical framework should be helpful to promote the general understanding of the G-E relationship as well as specific knowledge about the cases of

China and the United States.

2.2.2 The Case for an Interdisciplinary Approach

As I have pointed out above, the G-E relationship is an inter-disciplinary field, and many scholars from different disciplines have investigated the issue. Indeed, the issue of the G-E relationship involves a number of actors and stakeholders who have different dynamics so that the researcher needs to bring different disciplinary perspectives to them. Moreover, at the level of epistemology, the division of disciplines itself also creates cognitive limitations for researchers who study the G-E relationship, and thus, the proposed research requires interdisciplinary approach.

In general, there are two contradictory trends in the development of disciplines nowadays: on one hand, the division of disciplines becomes more delicate and complicated; on the other hand, more and more inter-disciplinary fields are emerging, and the boundary between different disciplines becomes blurred. In a way, the first trend is driven by academic politics and the development of division of labour, while the second trend is mainly driven by practical needs and the intellectual development of human beings. Although the division of disciplines has contributed significantly to the increase of knowledge in society, it also brings some important limitations.

At the epistemological level, the basis for the division of disciplines is the process of classification. Indeed, classification is an inevitable choice for cognitive activity among human being, especially when faced with difficult questions or intricate phenomena, because classification is a method for making the complicated simple. However, while the method brings cognitive convenience, it also results in information loss, since no process of classification ever perfectly matches the reality. To a large extent, the

classification related to the division of disciplines is random rather than the result of intentional control, and has made knowledge more and more fragmented. In addition, due to the development of different terminologies and the effort to seek the independence and authority of a discipline, the gap between different disciplines becomes wider and deeper. As a result, it is difficult for people to develop cross- disciplinary knowledge. The difficulty is strengthened by the education system and the structure of the labour market, and thus acquired knowledge is always confined to one or a few disciplines. As the philosophy of a discipline is to divide knowledge about an issue or an object into many branches, personal insights are easily constrained by the division of disciplines, especially when researchers work within the theoretical assumptions and methods associated with a particular discipline or paradigm. Thus, in order to get the whole picture, researchers have to break through the limitation brought by the division of disciplines.

Still, the interdisciplinary perspective can to some extent help us out of the limitation brought by the division of the disciplines. For instance, for addressing the research question set for this thesis, historical analysis is helpful in understanding the origins and development paths of the G-E relationship in China and the United States, while perspectives from politics and law are useful in exploring the government’s role in the

G-E dynamic. In addition, theoretical insights from organisational studies can help to explain enterprise behaviour as well as institutions and ideologies behind the behaviour.

I will introduce these disciplinary lenses relevant to this thesis’ research question, and furthermore I will attempt an integration of insights from different disciplines in exploring the G-E relationship as the basis of alternative development models.

Indeed, today many successful interdisciplinary studies have improved understandings about nature and human society, because the interdisciplinary perspective may break the cognitive boundary set by different disciplines and enable researchers to get a trans- boundary picture. In a way, the interdisciplinary study can be viewed as addressing the call by some far-sighted scholars (e.g., Wilson, 1999; Neurath, 1983) for unity of knowledge or a unified science. However, in order to achieve the unity of knowledge or a unified since, researchers also need to get rid of the limitation brought by methodological individualism, and adopt in their research an holistic epistemology.

2.2.3 Methodological Individualism and Holistic Epistemology

In social science research, methodological individualism describes the view that the relationship between the individual and society is similar to the relationship between the atom and the object (Arrow, 1994). In other words, society is constituted by individuals only, and there is nothing but individuals in society. This philosophy is very popular among researchers who focus on the individual actor in their discussions. For example,

Hayek (1955) argues for methodological individualism, and understands and explains various social phenomena from the perspective of individuals. As a result, the analysis of methodological individualism generally focuses on individual actors in the system, but it easily turns to reductionism. Since reductionism insists that a system is made up of its parts only (Chalmers, 1999), it often under-evaluates the interaction and the relationship between actors and/or organisations. In addition, Giddens (1984) criticises methodological individualism for overlooking the structure of the social system. It is important to note that even though researchers put the organisation (e.g., a firm or the

government) at the centre of their analyses, this does not necessarily mean that the researcher has already avoided methodological individualism, because such an approach still lacks a focus on interactions, relationships, and structures within the system.

In contrast with methodological individualism, an holistic epistemology is more appropriate to the research question proposed by this thesis. On one hand, holism means that researchers should study any problem more as a whole rather than a collection of different parts; on the other hand, holism also requires that researchers put the problem studied into its context (Dreyfus, 1980; Willis, 2007). In other words, the holistic epistemology argues for systemic thinking. As Albert Einstein (1954) suggested, human thinking should be expanded to the entire world as far as possible. Holism’s implication for this thesis is that, I will not focus on the government and the enterprise only when I study the G-E relationship; I will view the G-E relationship as a system that relies on a specific historical context of current political economy, and not only pay attention to the interaction between government and the enterprise, but also study governance structures and other relationships such as the relationship between ideology and the choice of the

G-E relationship in China and the United States.

2.3 An Integrated Theoretical Framework

The above epistemological considerations call for integrating different theories, practising the inter-disciplinary study, and adopting the holistic perspective. This means that I need to develop an integrated theoretical framework that is appropriate to my research question. Basically, this framework includes three major elements that I try to

integrate in the analysis: the historical perspective, comparative institutional analysis, and the analysis of the ideology and the state. For studies on the development of

China’s capitalism, Fligstein and Zhang (2011) have highlighted the value of historical and comparative perspectives. Traditionally, the state-market dichotomy dominated the study of the G-E relationship (Eisner, 2011), and only very few researchers noticed the importance of the institution. Scott (2009) expanded Friedman and North’s capitalism theory, and viewed the G-E relationship as a system that includes three major parts: government, market, and institution. According to Ostrom (1990), the institution evolves with the development of the conflict between the government and the market.

Thus, besides the historical background of the G-E relationship, I also pay attention to the comparative institutional context of the G-E relationship, i.e., the impact of different states on the behaviour of enterprises. In addition, I also resort to ideological analyses, and try to reveal the role of the state in the system as well as their influence on the choice of G-E relationship. My analysis centres on the interaction between the government and the enterprise, and the discussion of this dissertation tries to cover all important factors that may have great impact on the interaction, including historical factors, institutional factors, ideological factors, and so on.

2.3.1 The Perspective of Historical Path Dependence

Generally, there are two possible sources for a path-dependent system: structures and rules (Bebchuk and Roe, 1999). In particular, David (1994) argued, “systems possessing this [path-dependent] property, if they remain structurally unperturbed, are unable to shake off the effects of past events” (p.208). Although the term path-dependence is widely used in economics, sociology, law, politics, and organisational studies, the

theory of path-dependence developed in this dissertation is different from many other analyses in several ways.

Firstly, most studies on path-dependence emphasise the persistence of the historical phenomenon (Mahoney, 2000), but path-dependence does not mean that history would just simply repeat itself. My focus is on the mechanism behind the path-dependence and how the history influences the present.

Secondly, the writings on path-dependence are mostly found in the organisation-level research, and they are interested in exploring the status of lock-in and how to unlock the system (Liebowitz & Margolis, 1995; Sydow, Schreyög, & Koch, 2009). These studies often link path-dependence with institutional rigidities and structural inertia (Pierson,

2000) that call for organisational or institutional change. However, this dissertation applies path-dependence analysis to the political economy system level, and views path- dependence as a neutral process. The lock-in status in the process does not necessarily mean a negative result for the system, and it may provide the system with better functions and increased adaptations, because it could be the result of natural selection within the evolution of the system. There are some stable political and/or ideological structures that regulate possible evolutionary directions, and thus these structures may explain the defining features and competitive advantages of different systems. For example, this dissertation argues that resilience and flexibility observed in China’s approach to the G-E relationship actually arise from a special and ultrastable ideological structure (i.e., a hard core-soft belt structure---a concept detailed in Chapter Three).

Thirdly, this dissertation aims to integrate path dependence analysis at the macro-level with analysis at the micro-level. More specifically, this dissertation partly aims to illustrate that corporate structure and a corporation’s interaction (micro-level analysis) with the state are heavily influenced by the institutions and ideological structures

(macro-level analysis) in which the corporation started.

Fourthly, in order to avoid the pitfall of an after-the-fact historical analysis, I am mindful of the view of path dependence as a convergence process in which “an equilibrium solution leads to selecting a particular outcome as optimal from a broad set of possible outcomes and starting points” (Goldstone, 1998: 841-842). Figure 2.1 illustrates this idea of convergence in the path-dependent process, with its three phases of organisational development: pre-formation (Phase I), formation (Phase II), and lock- in (Phase III).

Figure 2.1 Three-Phase Model of Organisational Path Dependence

Source: Sydow, Schreyög and Koch, 2009:692

Nevertheless, it is important to note that the above theoretical model does not

differentiate the system’s spontaneous evolution from evolution that is driven by external event(s). For the latter, researchers still need to take the inner characteristics into account, because some of the old system’s features may be maintained due to the existence of those enduring structures. Furthermore, the two different kinds of evolutions are always interdependent so that the possible directions for institutional changes are constrained (Ebbinghaus, 2009).

2.3.2 Comparative Institutionalism and Transaction Cost Analysis

Comparative institutionalism aims to investigate institutional differences between different countries or societies (Morgan et al., 2010). Scott (2008) argues that the institution’s function is to provide order and stability, and that has three elements: regulative, normative, and cultural-cognitive. At the regulative level, the institution means legal enforcement by the state in most cases. At the normative level, the institution refers to the social norms and expectations. At the cultural-cognitive level, the institution means thinking, understandings, and beliefs that are shared by a group of people. The comparative institutional analysis of this dissertation focuses on the regulative level, but also pays attention to the other two levels. In economic sociology, there are two major streams of institutionalisms: organisational institutionalism and historical institutionalism (Gao, 2008). Both of them attach much importance to the state’s regulative role in the institution. In the following two chapters, one may see the difference between the United States’ regulation and China’s control over the economy.

Compared with the United States’ regulation, which depends largely on the institution’s regulative and normative elements, China’s control over the economy is largely based on the cultural-cognitive element that may persistently reinforce and legitimate the

state’s regulative role in the institution. This is why the state’s control over the economy has been maintained in China in spite of many changes in power structures (i.e., dynasties).

Actually, from the perspective of organisational institutionalism, the organisation and the market may be also viewed as two alternative institutions (Aoki, 2001). In that sense, the state is an institution in itself (Williamson, 1985). China’s G-E relationship tends to focus more on the state institution, while the United States’ G-E relationship relies more on the market institution (Yeh, Sit, Chen, & Zhou, 2006). In that sense, researchers may compare China with the United States in terms of transaction costs. The concept of transaction costs is important in explaining the institutional difference between different countries. Generally, transaction costs can be divided into three categories: market transaction costs, managerial transaction costs, and political transaction costs (Furubotn

& Richter, 2000). Market transaction costs are associated with business activities in the market, and mainly consist of information costs and negotiation costs. Managerial transaction costs refer to the cost of management activities in the organisation, and mainly consist of operational costs. Political transaction costs mean the cost of maintaining and operating a regime or government agencies. Comparative institutional analysis will help us to understand how different G-E relationships can influence the transaction costs in different countries. Partly based on that, researchers may get a better sense of the strengths and the weaknesses of some certain G-E relationships.

2.3.3 Ideology and the State: The Issue of Embeddedness

Granovetter (1973, 1985) proposed the term embeddedness to summarise the fact that

the behaviour is enmeshed within relevant social relations, and that the reason for the embeddedness lies in the tie between behaviour and social relations. In that sense, the analysis of the tie is the key to understanding social relations and relevant behaviour.

For the case of the G-E relationship, the ties between this social relationship and the relevant behaviour are the ideology and the state. Thus, the analysis of the roles played by the ideology and the state is helpful to understand the G-E relationship and its impact on enterprise behaviour.

In general, an ideology represents a set of institutionalised ideas that leads and guides the behaviour of individuals and governments, and provides them with perceptions, explanations, justifications, or forces behind their behaviour (Mclellan, 1995; Eagleton,

2007; Baradat, 2008). Millward (2007) argues that political ideologies are very important in the analysis of the G-E relationship. In North’s (1981) framework for understanding institutional change, ideology is one of the three cornerstones (the other two are economic organisations and the state). In the case of China, Jin and Liu (1992) argue that Confucianism played a key role in maintaining a stable political and social structure in China despite changes in the dynasty (see also Jin, 2001). Bian (2005) points out that China’s ideological evolution, rather than revolution, has determined the

Chinese SOE institution after 1949. However, these theories about China’s ideology are very general, and few studies address the ideological foundation of the G-E relationship in China. For this reason I will discuss the ideology’s role in the G-E relationship in more detail in this dissertation. In the case of the United States, some scholars (e.g.,

Hunt, 2009; Bowman, 1996) have already shown the influence of ideology on government and corporate behaviour. In the United States, the discussion about

ideology is often linked to religion, because the foundation of the country’s ideology is largely based on some religious beliefs (Fukuyama, 2011). In that sense, it is necessary to note the trend of secularisation when one discusses ideology in the United States. The trend of secularisation means a phenomenon that the importance of religion in modern society (particularly in the public domain) is declining with economic development

(Taylor, 2007; Bruce, 2002). In summary, ideology may explain different incentives and drivers for China’s and the United States’ G-E relationship, because it is closely tied with the system of political economy. That is also one of the reasons why ideology can make a difference in practising the same G-E relationship in different countries.

For organisational institutionalism, the state is a critical factor in understanding various phenomena and processes in many cases. Furthermore, the state’s dual role is often discussed, i.e., state as actor and state as structure (Gao, 2008). On one hand, the state comprises many different actors (e.g., governments, courts, officials, and judges) who have different interests and behaviour logics (Campbell, et al., 1991), so the understanding of the state’s role in the economy requires the analysis of these different actors as well as their interactions and relations. In that sense, the development state paradigm in the foregoing literature review suggests that the state in total is a coherent and powerful actor that drives the economy in many Asian countries. On the other hand, the state also plays a structural role in the political economy. It not only provides an arena for different actors competing in the policy-making process, but also sets the rules and organisational configuration to influence their competitions (Gao, 2008). In a way, the state’s structural role determines the degree of its political embeddedness into enterprise in general. For example, by revealing the corporate structure as well as its

linkage with the state’s political structure, Bebchuk and Roe (1999) have managed to explain the country difference in terms of corporate governance. In that sense, a new form of institutional isomorphism might be brought about by the G-E relationship’s embeddedness. Traditionally, institutional isomorphism has meant organisational similarities between enterprises or other types of organisations in the same institutional environment (Scott, 2008; DiMaggio & Powell, 1983). However, the similarities between the enterprise’s structure and the state’s political structure may be viewed as another type of institutional isomorphism that results from the embeddedness of social relations. This provides a new angle with which to investigate the state’s influence on the G-E relationship.

Chapter Three

China’s Resilient Authoritarianism: Historical Path-dependence and Development

Philosophy

In this chapter I will build on the term resilient authoritarianism proposed by Nathan

(2003), and use the concept to describe China’s flexible approach to the G-E relationship. From the perspective of history, China’s development since 1949 has been not only cumbered by the negative elements of its traditional control over the economy, but also progressed by the positive elements of that tradition. In that sense, China’s economic development under the CCP regime has been the product of “the unique features of China’s own past” (Perkins, 1975:1). Here “the past” includes both ancient and modern heritages. It is important to note that China’s ancient heritage is not necessarily a barrier to its economic growth, and that many Chinese cultural traditions and values are compatible with the modern economic system (Whyte, 2009).

Meanwhile, China’s modern heritage contributes a lot to its development, in particular to China’s economic boom of the past three decades. For example, the tradition of

China’s resistance to foreign invasion has taught Chinese people the importance of opening up and catching up (Dernberger, 1975), otherwise an unenlightened and underdeveloped China would be invaded by other countries. Moreover, Chinese modern history has brought China valuable ideas about reform that argue for rethinking that history and getting rid of the negative elements of the past.

Next, I will show that modern enterprises emerging in the late Ch’ing period, the last empire of China, challenged China’s traditional control over the economy. Since then,

China’s governments have tried various approaches to the G-E relationship in order to handle the challenge from enterprise and to maintain control over it. This chapter pays special attention to the G-E relationship after the CCP revolution, with a focus on the

SOE in view of its importance and close relation to the state. From the historical perspective, I find that China’s authoritarian government nowadays still has a natural tendency to control the economy, but that economic reform since 1978 has tried to strike a balance between state control and market liberalisation. This approach mixed political authoritarianism with economic capitalism, allowing China’s political economy system to make effective and swift policy changes when the environment triggered the need for change; however, I find these changes are only accepted if they are viewed as useful and not seen as aimed at authoritarianism itself. This unique approach, determined by the CCP’s transformed ideology in the era of Deng Xiaoping (who launched the economic reform in 1978), may enrich the meaning of Nathan’s authoritarian resilience (2003).

The chapter includes three major sections. First, I review China’s history of economic governance from the Zhou dynasty to nowadays. Second, based on this historical review,

I discuss the meaning of resilient authoritarianism from the perspective of the G-E relationship, and explore the ideological structure behind it. Third, I conclude this chapter with an analysis of the paradox inherent in resilient authoritarianism.

3.1 Economic Governance and the G-E Relationship in China: An Historical

Review

From the perspective of path-dependence, this section reviews China’s economic governance over 3,000 years from the Zhou dynasty to the present. This reveals a strong tendency of state control over business in pre-modern China as well as its continuation in modern and contemporary China, and thus identifies state control as a fundamental institution in China. I try to provide both ideological and practical explanations for the dynamics behind this institution. I argue that the enduring institution of state control has not only formed a structure that impacts the interaction between government and enterprise in Communist China (1949-1976), but also resulted in a path-dependent constraint on institutional change in terms of the G-E relationship.

According to the theory of path-dependence in the second chapter, I summarise China’s economic history into two path-dependence processes. Figure 3.1 and figure 3.2 outline the two path-dependence processes. I use the first path-dependence process (figure 3.1) to explain how state control became the dominant approach to economic governance in

China from the Zhou dynasty to the late Ch’ing. Between these, state control as a basic institution was established by the Han dynasty, the critical juncture from Phase I to

Phase II being the salt and iron meeting of 81 BC. China’s state economic governance was in Phase II of path-dependence from the Han dynasty to the Ming dynasty with the consolidation of state control. In the early Ch’ing dynasty, China started Phase III and entered a lock-in status in which state control became an absolute value in terms of the state’s economic policy. On the other hand, I use the second path-dependence process

(figure 3.2) to summarise the development of the G-E relationship from the late Ch’ing to nowadays. In the late Ch’ing, the lock-in status formed in the first path-dependence process was broken by foreign military, political and market pressures, and thus a new

Figure 3.1 Pre-modern China’s Tradition of State Control of Business, 1046BC-1872AD

Key Events: Key Events: Key Event: appointed Key Event: policy salt and iron Key Event: foreign goods regulators of of encouraging meeting designed ports entered to business; salt and agriculture and debating the for international China’s market iron monopoly repressing state control trade with foreign commerce (EARC) over the

Impact: emerged business; Impact: the Impact: EARC established some Confucianism’s control was was important, state controls Impact: the control dominance strong, spread to but the control over business, but strengthened but Impact: EARC foreign trade over foreign not strong the control was became a basic trade relaxed controversial state policy

Western Zhou Warring States Western Han From Eastern Han to Yuan Dynasty Ming Dynasty Ch’ing Dynasty (1046-771BC) (476-221BC) (206BC-9AD) (25-1368) (1368-1644) (1644-1872)

Phase I Phase II Phase III

Figure 3.2 Government-Enterprise Relationship in China: The Trend of State Control, 1872-nowadays

Key Events: foreign Key Events: Key Events: power Key Events: political Key Events: socialist Key Events: the military and business established the State- growth of local unification in 1928; the transformation of government decision of invasions; the first owned Assets governments; wars second Sino-Japanese private enterprises; economic reform; modern corporation Supervision and among warlords war (1937-1945); the Great Leap Forward; the corporate reconstruction (1872); the first Administration domestic war (1945- Cultural Revolution of SOEs company law (1904) Commission (2003); Impact: state control 1949) Impact: market power global financial crisis was weakened; Impact: state control Impact: market was Impact: deregulation; increased while the (2008) liberalized economic was strengthened; killed by absolutely state encouraging private policy of state control Impact: market power policy; private encouraging state control; most big economy; the market’s continued; co-existence is constrained by the enterprises increased capitalism and enterprises were state impact on the SOE of various types of state; state monopoly sharply and even suppressing private owned increased corporations (e.g., over some key dominated many sectors capital GSMO, OMJM, PME) industries

Late Ch’ing Beiyang Government Nanjing Government Mao’s Era Deng & Jiang’s Era Hu Jintao’s Era (1872-1911) (1912-1928) (1928-1949) (1949-1976) (1977-2002) (2003-nowadays)

Phase I 50 Phase II Phase III

path-dependence process opened with the transition from a government-business relationship to the government-enterprise relationship. As a result, China’s G-E relationship entered Phase I (from the late Ch’ing to 1949), and then faced both internal and external driving forces that structured a variety of options for the institution’s evolution. In Phase II (from 1949 to 2002), China’s G-E relationship swayed between the extreme of state control (1949-1976) and the extreme of market liberalisation (1977-

2002). For the past decade, China has been in Phase III (2003-present): market power continues to grow but is constrained by the state; meanwhile, state control is firmly established in many key industries.

Generally, this section shows that there was no serious tension between the government side and the market side in pre-modern China, as the government was strong enough in most cases to suppress the formation of enormous business power and an unconstrained market, and the government had irresistible incentives to do so through tough policies.

This conservative attitude toward business was broken in the late Ch’ing by foreign invasions, and foreign companies’ expansion and national industries’ growth in China greatly reinforced business and market powers relative to political forces in the country.

As a result, conflict between government control and market freedom emerged in the late Ch’ing, and became a long-term issue that brought about institutional change thereafter. In other words, the traditional institution of state control could not be sustained any longer. Since then, China’s governments in different periods have tried hard to solve the conflict between the state and the market. These efforts can be viewed generally as a result of institutional reproduction, in which the institution of state control still plays an important role while the market institution has some impacts as well. In

particular, the co-existence of the two different institutions has deeply affected China’s approach to the G-E conflict since 1978, which is one of the major focuses of this section.

3.1.1 China’s Tradition of State Control of Business: Pre-Modern Times

China’s history has witnessed an ineradicable tradition that the Chinese government tends to control over business in the country. There were three different forms of control with different functions in traditional China. First, government control over some key commodities and their prices aimed to stabilize society, and contributed to government revenue (Chen, 1911; Jiang, 2008). Second, economic interventionism served political centralization in society (Tao, 2000). In China’s history, many dynasties fought against land annexation and big merchants to strengthen government power and political centralization (Zhao, 1998). Third, during some special periods (such as border wars and natural disasters), government would generally maintain a stronger control over business and social wealth in order to deploy various resources effectively and efficiently (Tao,

2000). Bai (1980) argues that the fundamental reason for the policy of controlling business lay in China’s self-sufficient natural economy and low productivity. However, this interpretation cannot explain the policy’s continuation in the Song, Yuan, Ming and

Ch’ing dynasties when an extensive commodity economy developed in China.4 For example, government revenue from various monopolies during the Song dynasty already exceeded land tax, which indicated the growing role of commerce in government finance

(Wang, 1995). In the Ming and Ch’ing dynasties, agricultural products started to become commodified and commercial capital increased rapidly as well (Huang, 2007).

4 Admittedly, the policy of repressing commerce became also soft to some extent in these dynasties (Jiang, 2008). 52

In fact, the tradition of centralised government control may be traced back to the

Western Zhou dynasty (1046 to 771 BC) when the King appointed officials as the regulators of business activities (Jiang, 2008). The marketplace in the Zhou dynasty was set around the King’s palace (Chan, 1997) so that the government could administer it closely and conveniently. Further, Kuan-tzu (管仲), Prime Minister to Duke Huan of Qi in the Spring and Autumn Period (770 to 476 BC), first proposed and then implemented a state monopoly on producing and selling salt and iron, the two most profitable commodities at that time (Fu, 1981). The all-inclusive imperial power in ancient China provided legitimacy for this state control over business.

Nevertheless, state intervention into economic affairs was not an intensive and extensive government policy at that time. Before the Warring States Period (476 to 221 BC) when the policy of encouraging agriculture and repressing commerce (Zhongnong Yishang

重农抑商) emerged, people in China still enjoyed great economic freedom (Hou, 2008).

In short, encouraging agriculture refers to the state’s belief that agriculture, and the agricultural workforce were important for the country’s stability and power, while repressing commerce means that the state inhibited private business and strictly controlled the business population. The efficacy of encouraging agriculture and repressing commerce underwent lengthy debate (Chan, 1997) until it became established in pre-modern China. Among the Hundred Schools of Thought in the

Warring State Period, the Legalist School (Fajia 法家) and Confucianism took different attitudes toward this policy. Legalists argued that agriculture as the source of wealth could make a country strong while commerce was useless and even harmful in this

regard as it would divert peasants from agriculture (Schwartz, 1985; Yang, 1994). Also,

The Writings of Master Kuan (Guanzi 管子) warned that the trader was a decentralised power threatening the King’s authority, and devotion to business rather than agriculture could destroy a country (Guan, 1998). However, some early Confucians endorsed the role played by businessmen in daily life, and their standpoint toward commerce was much softer than that of other schools (Wang, 2006) and even many Confucians after the Han dynasty. Thus, the policy of encouraging agriculture and repressing commerce bore the imprint of legalism rather than Confucianism in that period.

Though the ruler of the first empire in China (the Ch’in dynasty, 221 to 207 BC) claimed he attached great importance to agriculture and opposed the development of commerce, the short-lived empire did not leave much evidence to outline the situation with certainty (Twitchett & Loewe, 1986). However, abundant evidence shows that economic thinking formed in the following Han Dynasty (206 BC to 220 AD) had a remarkable influence on Han’s succeeding dynasties for around two thousand years

(Zhao, 1998). The major event in this period was the salt and iron meeting (Yantie

Huiyi 盐铁会议) in 81 BC. Some Confucians on behalf of the common people argued that government should abandon its intervention in business and allow private business, but Sang Hung-yang, the official representative at the meeting, argued for the government’s centralization policy, and insisted that the government should exercise control over business activities and maintain its monopolies on salt and iron, and also wine. This meeting was viewed as a significant watershed in Chinese history of economic thought (Zhao, 1998), as its final result was the dominance of economic interventionism by all subsequent Chinese dynasties (Chan, 1997). After this meeting,

encouraging agriculture and repressing commerce also turned into a basic state policy

(Zhao, 1998), although the Han’s successor dynasties oscillated between state intervention and liberalised economic policies (Tao, 2000).

Indeed, Sang Hung-yang’s economic idea had great impact on dynasties after the Han

(Jin, 2006). The Jin (Liu, 1994), Sui (Fu, 1986; Wu, Yan, & Yang, 1994), Tang (Liu,

2004; Wu, Yan, & Yang, 1994), Song (Fu, 1989; Jiang, 2008; Lu, 1994), Yuan (Chen,

1994), Ming (Lin, Gao, & Liang, 1994), and Ch’ing (Pang, 1994) dynasties kept Han’s tradition of economic interventionism to a considerable extent. Here an extreme case is

Wang An-shih’s reform (王安石变法) in the Song dynasty (Twitchett & Smith, 2009).

Wang’s reform attempted to turn the imperial economy into pure state capitalism in which the government monopolized almost all business sectors such as banking and even retail trading. Although the reform failed due to lack of support by bureaucrats and grassroots (Liu, 1959) and appraisal of the reform differs (Li, 2004), it did reflect the tension between the state and the market and represents China’s strong tradition of control over commerce and business. A few regimes’ economic policy may have liberalised to some extent in times of division such as the period of Three Kingdoms, the period of Northern and Southern Dynasties, and the period of the Five Dynasties and the Ten Kingdoms (Fu, 1984; Hou, 2008). However, the ideology of the oneness of

China (dayitong 大一统) remained the norm leading up to China’s reunification (Wang,

2007), and generally a united China was inclined to (or had to) oppose economic liberalism. Indeed, the norm of the oneness of China is really helpful for the cohesion of a large country like China, and is one of the intrinsic reasons for China’s tendency to become more politically centralised in pre-modern times. In order to serve the

increasingly centralised politics, state control over business became more and more necessary, and gradually entered lock-in status when China’s political centralization reached its height during the Ming dynasty (Qian, 1996).

There were also some inherent incentives for the government’s policy of encouraging agriculture and repressing commerce. Firstly, pre-modern China’s economy was at the agrarian stage in which state finance largely relied on the agricultural population, so governments had to attach much importance to agriculture in order to get adequate land tax as the major financial source for the dynasties (Zhou, 1981). Secondly, merchants’ mobility and self-interest posed a threat to the stability of the regime and society (Fu,

1981), and thus governments wanted to repress this kind of power (Jiang, 2008).

Numerous merchants in ancient China were punished or even killed by the Emperor or the government (e.g., Chen, 1911; Chang, 1736). The development of agriculture could provide the necessities of life so that people would not rebel (Chan, 1997). Thirdly, governments could obtain additional revenues to cover financial deficits and subsidize defence from its monopoly on basic commodities and its control of business. In most cases, this kind of policy was effective as long as it did not meet serious bureaucratism which easily resulted in corruption and inefficiency. Here it is worthwhile noting that the policy of encouraging agriculture and repressing commerce was not necessary to oppose commerce of all kinds. The policy was to repress private business only, and governments doing business was encouraged and acceptable. An immediate result of repressing commerce was that government regulation and control of business activities restricted most people from competing with the state.

Basically, the policy of repressing commerce included three institutions: the first institution was the monopolies on salt, wine, tea, iron and other resources, by which government monopolized whole industrial and commercial sectors (jinque 禁榷 or guque 辜榷). Secondly, the government imposed strong regulations on the market through equal transportation (junshu 均输), price equalization (pingzhun 平准) and other economic measures (Chen, 1911). Equal transportation aimed to reduce waste and deficiency caused by the uneven distribution of commodities in different areas. Price equalization used government economic power to fight market fluctuations and stabilise prices. Finally, most merchants were subjected to heavy taxes and close supervision. A result of repressing commerce was the merchants’ inferior social position, the lowest among the four major groups of people in the Chinese society: scholar-officials (shi 仕), peasants (nong 农), craftsmen (gong 工), and merchants (shang 商) (Nolan, 2004).

Merchants were even prevented from being officials in many dynasties (Jiang, 2008).

Therefore, as a discriminated and repressed group, Chinese merchants lacked the ability to organise and could not form a strong bloc to confront or challenge the Emperors’ sovereign power. In order to win government protection and more wealth, Chinese merchants had to unite or affiliate with the bureaucrats in local and central governments.

They did not have much independence.

In international trade, imperial China had also held a restraining attitude for a long time.

There were two forms of international trade in ancient China: tribute trade (chaogong maoyi 朝贡贸易) and private foreign trade (Wang, 1994). Tribute trade was carried out between China and its vassal states, and it was not significant in terms of economic scale (Wu, 2002). However, tribute trade was of political importance, and thus it was 57

under tight control by the imperial government according to the suzerain-vassal relationship (fanshu guanxi 藩属关系). As for private foreign trade, it was not developed until the Song dynasty when shipbuilding and the commodity economy were rapidly promoted (Sheng, 2009). A special agency (i.e., Department of Commerce and

Shipping 市舶司) had controlled foreign trade since the Tang dynasty (Zhang, 2002).

Both tribute trade and private foreign trade were allowed to proceed in designated ports only (Gao & Feng, 2005). Due to the pirate issue that threatened the stability of coastal regions (Xue, 2005), governments in the Ming and Ch’ing dynasties prohibited Chinese people from conducting private foreign trade for some time. Despite the political significance of the tribute trade, emperors in the late Ming and Ch’ing dynasties decided to reduce its scale in order to mitigate the financial burden of subsidies and gifts given to vassal states.

The preceding historical review and analysis illustrate that China has a very strong tradition of controlling commerce, largely reflected in the policy of encouraging agriculture and repressing commerce. However, the policy is not unique to China.

There were similar policies in Europe (Chan, 1997), although the policy there was of more recent origin. Some European countries turned to mercantilism or economic liberalism in the 17th century, while China continued to repress trade and commerce. A significant reason behind this divergence is that European rulers had to share their power with a number of feudatories and churches in their territories, because they did not have the Chinese emperor’s absolute power over the whole country (Fukuyama,

2011). Consequently, when European rulers could not get sufficient income from the royal feudatory to meet soaring political and military expenses, they had to give up their

previous policy of encouraging agriculture and resort to industrial and commercial development, because it was easier to tax businessmen and the trading sector than powerful feudatories and churches (Rich and Wilson, 1977). The difference is that

European countries in pre-modern times considered economic policy more from the finance perspective, while China’s economic policy involved more political considerations. Thus, the different considerations make the difference in terms of state control of commerce.

However, the question of why the policy of encouraging agriculture and repressing commerce persisted throughout ancient China remains to be answered. The main reason is beyond economic factors and rests with Confucianism as the dominant ideology in the pre-modern China.

Despite frequent changes of dynasty, Confucianism’s dominance did not change in ancient China, because it served the imperial regime very well: Confucianism not only provided a common belief to unify a large number of people and organise society as a whole, but also worked as a significant tool to mould political institutions and select officials with similar moral convictions so that the bureaucracy could be effective and efficient. That is what Jin and Liu (1992) call “the integration of ideology structure and political structure” (yishixingtai jiegou yu zhengzhijiegou de yitihua 意识形态结构与政

治结构的一体化). This integration was essential to maintain China’s oneness and social ordering, and thus China showed an ultrastable structure in terms of social organisation and social stratification across different dynasties (Jin, 2001; Jin & Liu,

1992). In addition, Hou (2008) pointed out that autocracy politics called for economic

control. In other words, economic control corresponded with China’s autocratic regime, and was reflected in the integration of its political and economic structures. Therefore, the double integration of ideological structure and political structure and of political structure and economic structure indicates a closed linkage between ideological structure and economic structure. In that sense, one may conclude that Confucianism as a dominant and constant ideology has support the policy of encouraging agriculture and repressing commerce in China since the Han dynasty.

3.1.2 The Development of the G-E Relationship from Late Ch’ing to Republic of

China: 1872-1949

Three regimes dominated China from 1872 to 1949: the late Ch’ing (1872-1911), the

Beiyang Government (1912-1928) and the Nanjing Government (1928-1949). This section illustrates that the late Ch’ing’s explorations into the G-E relationship influenced

China for a long time (Chan, 1997) and even till the present day.

The emergence of the modern corporations in the late Ch’ing was the real threshold of the G-E relationship in China. In pre-modern China before the late Ch’ing, merchants and their businesses did not have clear boundaries, and owners assumed unlimited liability for their businesses (Gao, 2009; Li, 2002). In other words, the G-E relationship was a government-merchant relationship, because no enterprise was independent from its investors in that period. As for the series of monopolistic businesses controlled by the imperial government, they were more similar to a government unit than an enterprise in terms of organisation and operation, and market forces played a very limited role in them (Twitchett & Fairbank, 1978). Also, private capital was prevented from being

invested in those official businesses, so feudal governments could maintain control. In a few cases, merchants who had very good connections with the government and bureaucrats could be allowed to join or participate in some businesses controlled by the government,5 but this kind of behaviour was exceptional in most cases, or even illegal

(Yang, 2006). Those merchants and their business interests hardly received institutional protection, as formal interaction between government and enterprise did not establish then. Furthermore, commerce and enterprise in ancient China did not form a strong power-base because of the perennial policy of repressing commerce (Yang, 2006). In brief, the G-E relationship was not an issue until the late Ch’ing.

On the ideology side, Confucianism in the late Ch’ing was seriously challenged by

Western military power and industrial technology, so a number of Confucians (e.g., Wei

Yüan, Kung Tzu-chen, and Lin Tse-hsü) committed themselves to reforming the traditional Confucianism in order to save China. For economic policy, some Confucians argued that commerce and businessmen were of great value to re-construct a rich and powerful state and that the government should change its traditional tough stand against them (Gao, 2009; Hsiao, 1975). Western military invasions (e.g., the Opium War from

1839 to 1842) brought Western corporations looking for resources and markets, and the

Chinese people gradually learned organisation about their competitive advantages in the market: the corporations were more organised and powerful than traditional Chinese family businesses (Gao, 2009; Yang, 2007).

On the political economy side, commerce developed to a high level in the late Ch’ing

5 For example, in Ch’ing dynasty, the government assigned a number of large retailers to deal with salt monopoly business (Yang, 2006; Jiang, 2008). 61

(Fairbank & Liu, 1980). That constituted an important basis for modern corporations to emerge in China. In addition, the crisis caused by foreign invasions in the late Ch’ing compelled some government officials to initiate the self-strengthening movement (1861-

1894). This movement’s major focus was to imitate Western methods and technologies in order to improve China’s military forces and to create business profits in China

(Fairbank & Liu, 1980). As a significant measure in the aspect of creating profit, a few enlightened officials proposed to develop civil industry, but the government did not have much of a budget to support this proposal due to huge military expenses and its war indemnity obligations (Sheng & Zhang, 2005; Zhu, 2008). In order to compete with

Western corporations for the domestic market, the Ch’ing government had to introduce the Western company system, and raised private capital to develop industrial enterprises

(Fairbank & Liu, 1980). In 1872, the China Merchants' Steam Navigation Company (轮

船招商局) was founded in Shanghai, the first modern corporation in China (Zhu, 2008).

The number of modern corporations in China increased to 38 by 1887 (Zhu, 2008), most taking the form of Government Supervision and Merchant Operation (GSMO 官督商办) as their corporate governance structure. Here government supervision emphasises that government had rights to appoint senior managers and supervise corporate finance (Gao,

2009), while merchant operations means that capital came from private investors who assumed the responsibility for the enterprise’s profit and loss (Gao, 2009), and appointed managers to take care of daily business operations (Zhu, 2008).

To a considerable extent, the idea of government supervision inherited China’s tradition of state control over business as stated above. When some enlightened Chinese officials

proposed to start modern companies with private capital, conservative officials in the

Ch’ing government strongly opposed them as they were reluctant to lose traditional state monopoly in the business sector. The form of government supervision in the corporation finally came out to be a trade-off solution. As a result, the late Ch’ing government regulated that a new corporation would have to gain the government’s concession, a concession that legitimated the government’s supervision over the corporation. In addition, government supervision also functioned as an alternative to the credit system, an essential construct for a corporate economy but not yet in existence in China. In order to reduce doubts and attract investors when raising funds for the companies, government supervision promised shareholders a fixed guaranteed dividend (官利) regardless of corporate performance (Zhu, 2008; Yang, 2006). As for merchant operation, that was necessary because the government itself did not have either capital or skills to run businesses, and had to turn to private investors and people who had business skills and management experience. As a return for the government’s help and support provided

(e.g., government lending and some business privileges), almost every GSMO enterprise needed to render to the government a certain amount of money annually (Zhu, 2008).

This was a de facto enterprise tax, but no fixed rate of the rendering was set for GSMO enterprises.

Although the corporate model of GSMO has been criticised (e.g., Jiang, 2006; Yang,

2007; Jiang, 2008), the GSMO model proved to be the best solution to develop national industries (Yang, 2006), especially given China’s political-economy situation and various limitations in that period. In a way, GSMO enterprises can be regarded as the origin of modern state-owned enterprises. In the late Ch’ing (1872-1894), this kind of

enterprise dominated the corporate economy (Yang, 2006). Nevertheless, GSMO enterprises over-emphasised state control in practice (Zelin, 2009), which often damaged their business operations and easily led to their failure in the market. This lesson highlighted the importance of business mechanism in running enterprises. As a result, the dominant enterprise types evolved into Official and Merchant Joint Management

(OMJM 官商合办) and Privately Managed Enterprises (PME 商办) after 1895 (Gao,

2009), in which the government still maintained a certain degree of control or intervention due to the absence of legal protections against interventionism. Even though

China had its first company law in 1904 and made revisions many times, its paramount objective was not to protect the company as a market entity but to strengthen government power and control (Kirby, 1995).

Also, it is valuable to mention a special elite group emerging in the late Ch’ing, that is, gentry merchants (绅商) as managers of China’s major businesses. The membership of this class was a complex of officials and merchants, who could change to a merchant from an official, and vice versa. This is a unique group that did not exist before, because there had always been a clear-cut boundary between merchants and officials (Gao, 2009).

It rose with the late Ch’ing government’s encouragement of industrialization. According to the estimation of Ma (1995), the number of gentry merchants increased to 50, 000 in

1912 from none in 1872, and most of them also held critical positions at local chambers of commerce. As this group controlled a huge quantity of political and economic resources, it is understandable that they exercised a significant role in the late Ch’ing’s political economy (Zhu, 2008). In fact, gentry merchants’ emergence as a group reflected a closer integration between local politics and the economy; this group’s great

economic power manifested an alternative to government’s direct control over enterprises. These trends, though easily lending themselves to monopoly and corruption, continued under the Beiyang government (1912-1928) and Nanjing government (1928-

1945).

Following the turn of the late Ch’ing, the Beiyang government’s (1912-1928) dominant enterprise types were OMJM and PME in terms of scale and economic power (Li, 2007).

The Beiyang government’s financial situation and economic sovereignty were no better than during the late Ch’ing, so it continued to stimulate the domestic economy in order to raise revenue and stabilize society (Wei, 2009). In this process, the Beiyang government largely adopted the form of OMJM, in which it owned some stocks or shares in the company, but was less involved in business operations than government intervention in the traditional GSMO (Yang, 2007). This not only brought the government some returns as the shareholder of the company, but also made the OMJM companies more efficient so that the government received more revenue from enterprise taxes. In addition, a small number of enterprises took the form of Sino-Foreign Joint

Venture (SFJV), aiming to learn Western advanced technologies and gain management experience (Li, 2007). In the 1920s, PMEs grew more quickly than OMJMs and SFJVs owing to liberalised economic policies and economic nationalism (Gao, 2009; Li, 2007).

By 1927, PMEs dominated most economic sectors in China (Yang, 2007). Compared with PMEs, government and officials in OMJM enterprises tended to make inappropriate interventions in corporate operations (Li, 2007; Zhu, 2008), as there was no clear boundary between merchants’ and officials’ responsibility and rights. Thus, the OMJM form proved not to be very successful in practice.

In brief, from the late Ch’ing to the Beiyang period, China’s political centralization continued to decline because of foreign military and business invasions as well as the power growth of local provinces, which resulted in the central government’s difficulty in re-establishing effective state control over the market and the enterprises (Chan, 1997).

In the period of the Beiyang government, frequent wars among warlords further weakened the government’s ability to control business (Gao, 2009). For these reasons, the government had to implement a liberalised policy and release its control to some extent. As a result, a private economy developed quickly, though it was still more or less constrained by the interventions of central and local governments.

The Nanjing government (1928-1949), however, reversed this trend. After the political unification of China’s South and North in 1928, the Nanjing government replaced the previous liberalised policy with tighter economic controls in order to strengthen the authority of the central government (Wright, 1985; Yang, 2007). As the ruling party, the

Kuomintang’s economic thinking was characterised by encouraging state capitalism and suppressing private capital (Gao, 2009). In general, the Nanjing government’s economic policies could be divided into three phases (Zhang & Zhu, 2007). The first phase (1927-

1937) set up a series of central-government-controlled SOEs and related government institutions in order to dominate national resources and key economic sectors (e.g., finance and basic industries). In this phase, enterprises fully owned by the government started to appear for the first time in the history of China, some of which constituted economic pillars in the subsequent Communist regime. In the second phase (1937-1945), the Kuomintang further tightened its control over economic sectors, because the

government needed to mobilise all possible resources during the second Sino-Japanese war. The last phase of the Nanjing government (1945-1949) was the period when SOEs expanded rapidly. Two major factors contributed to that expansion. One was the SOEs’ taking over Japanese assets remaining in China after the war. The other lay in the

Nanjing government’s finance shortage caused by the second Sino-Japanese war and the subsequent domestic war. These circumstances induced the Nanjing government to expand SOEs as its economic foundation to meet military needs and achieve social stabilization. However, the highly centralised economy suppressed private capitalism, and also resulted in high inefficiency among SOEs. Thus the Nanjing government implemented some liberalised policies from 1947 (e.g., selling some SOEs outright or shares in some SOEs to private capitalists), but these policies were limited and failed to promote the private economy because SOEs continued to dominate the national economy. Also, the Kuomintang’s failure in the domestic war in 1949 brought the reform to a stop in mainland China.

It is important to note that the Nanjing government’s national economy had three essential features that can be seen in China’s economic reform since 1978. First, SOEs in the Nanjing period experienced a restructuring in the corporate form, in search of an effective approach to solving the conflict between government control and market freedom. Second, the Nanjing government formed a two-layer SOE management structure: central-government-controlled SOEs and local-government-controlled SOEs.

Third, many officials or their families became big merchants who controlled key companies and industries in China.

It is also important to note that company laws and business laws received revisions many times under both the Beiyang and Nanjing governments (Wei, 2009). Though these revisions had different emphases and made progress in different aspects, their common purpose was to control corporations better and to improve their effectiveness (Kirby,

1995).

3.1.3 The Chinese Government and the SOEs in the Planned Economy: 1949-1976

At the beginning of the discussion of the SOE in China from 1949 to the present, it is necessary to review four possible functions for establishing SOEs in a country: adjusting market failures, ensuring the economic power of the government, serving ideological and political needs, and achieving strategic objectives (Yarrow and Jasinski, 1996). It is obvious that the Chinese SOEs served all four functions. First, China believed that SOEs can help efficient resource allocation, especially when the market does not work. Second,

China has a very long tradition of government control over business, and SOEs were believed to provide direct governmental influence on the economy. Third, SOEs can form a strong restraint on private business power, which helps the Chinese government to justify its claims that China is a socialist country. Fourth, SOEs could also be used to facilitate some strategic plans of the Chinese government: for example, to reduce regional disparity, China started the Western Development Strategy in 2000, and SOEs have been encouraged to invest in Western China ever since.

In the Mao Zedong era (1949-1976), China generally adopted a Soviet-type command economy and a development strategy centred on heavy-industry, and its powerful planners centralised the allocation of resources in the country (Shirk, 1985). The reasons

for the choice, according to Naughton (1995), lay mainly in China’s reliance on the

Soviet Union’s leadership in the socialist world, as well as the CCP’s desire to consolidate its power in China. A more significant reason might be that the Soviet

Union’s model of the command economy is largely consistent with China’s tradition of state control over the economy. This consistency may partly explain why China continues to present some features (e.g., state control over the key sectors) of the

Soviet-type command economy even after 1976, because the traditional Chinese political-economic ideology provided a fertile place for that kind of economy to flourish in China.

The SOE did not perform very well due to two major problems in this period. The first is the aforementioned soft budget constraint (Kornai, 1980) that highlights the lack of market mechanisms. The second is that SOEs shouldered too many non-market responsibilities that seriously hindered their efficiency and effectiveness in the market.

From 1949 to 1976, the SOE in China was often called state-run enterprise (国营企业), which means the government not only controlled the enterprise’s ownership but also directly managed it under the planned economy system. In the highly centralised planning system, the central government directly controlled most SOEs, and they proved to be inefficient because of the lack of market pressure and incentives. However, due to the dominance of public ownership in the Mao era, privatisation was not allowed as a means to reform the SOE. At the organisational level, the state devised the danwei

(work unit) system in which the SOE provided various government services and social welfare (e.g., housing, medical care, and schooling), and every SOE could be viewed as a bureaucratic agency in which all employees’ lives were determined by the SOE to

which they were affiliated (Lu & Perry, 1997). The government could strengthen control over the economy and society through its administration of every enterprise in the planning system (Walder, 1986). In a way, the SOE in China was a kind of non- market governance mechanism that coordinated various social and business relationships. In brief, the SOE lacked independence.

Three distinct phases can be identified in the Mao era’s political economy. The first phase (1949-1956) is characterized by two main objectives: the CCP had to restore the economy destroyed by the civil war on one hand, and it also had to re-establish control over the economy. One of the major institutions for this control was the People’s Bank of China, the central bank of the Communist China, which absorbed deposits from all public sectors and many enterprises because of the strong support from the CCP. As a result, most private banks disappeared; the few remaining had to become public-private joint-ventures under full control of government (Riskin, 1988). Another significant policy for establishing state control was transforming all capitalist enterprises into socialist (public-owned) ones through the measures of buyout, forfeit, or public-private joint-venture (Xu & Xu, 1992). In most cases, these transformed enterprises became

SOEs at the end, and the CCP gradually established its leadership in these organisations: in each SOE there was a CCP committee which monitored and guided the enterprise’s production and management. In addition, it is important to note that there was no sharp difference between the period of Nanjing government (1928-1949) and Mao’s era

(1949-1976) in terms of economic control and the heavy industry centred development strategy (Wright, 1985). Actually, the People’s Republic of China founded by Mao in its early stage continued many economic control policies of the Nanjing government,

but the CCP portrayed these policies under the Nanjing government as state monopoly capitalism (国家垄断资本主义) while claiming that similar policies under its own regime were a manifestation of socialism. Indeed, the CCP’s industrial foundation at the beginning of the new China was largely based on taking over the Nanjing government’s state-owned enterprises and assets. Quickly, the SOE system across all industrial and business sectors gained absolute dominance in the national economy, and the number of private enterprises was reduced to a record low level (Naughton, 2007). Finally, the government’s centralised planning and control replaced the market in guiding the allocation of resources in China, an approach that proved effective at that time.

In the second phase (1957-1965), China tried to explore a faster economic development approach to catch up quickly with Western developed economies. During the Great

Leap Forward (1958-1960), Mao proposed a decentralised and unspecialized way to develop regional industrial economy which constituted an obvious contrast with the

Soviet Union’s centralised planning and specialization approach (Macfarquhar &

Fairbank, 1987). As a result, the economic planners in different regions set industrial outputs and investment targets solely based on their (unrealistic) ambitions and interests, and the enterprises’ productive activities turned out to be a matter of politics more than practical economic decision-making. In other words, the central government’s control over the SOE was released to some extent, but still in favour of government control rather than market influence. In fact, given the low industrial development in that period, the Soviet Union’s approach was appropriate to China’s context (Naughton, 1995), while Mao’s proposal was not suitable for the needs of that time. Due to both the absence of the market and the destruction of effective centralised planning by the Great

Leap Forward, the SOEs’ production and investment scales reduced dramatically

(Naughton, 2007). Finally, the government had to adjust Mao’s economic policies to the previous centralised planning system in 1961 (Riskin, 1988), and the central government’s control over the SOE was reinforced again because of this adjustment.

Furthermore, the role of the market in the economy was still suppressed.

The third phase (1966-1976) is represented by the ten years of the Cultural Revolution.

In the first three years of this period, political issues were always given priority over economic affairs, which resulted in serious economic disruptions from 1966 to 1969

(Xu & Li, 1996). Although the industrial development strategy (military and heavy industry centred) in this decade did not differ much from that of the first phase

(Macfarquhar & Fairbank, 1991), CCP leaders held different opinions as to the best policy. Mao tried to re-establish his economic policies in the Great Leap Forward, and argued for a decentralised and self-sufficient approach (Yang, 2000). In 1970, the state decided to decentralise most central-government-controlled SOEs to local governments, and the number of central-government-controlled SOEs reduced to 142 from 10,533

(Zhang & Zheng, 2008). This reform did not allow market mechanisms to operate, and the political turmoil and economic disorder at the time also resulted in the failure of the reform. Deng Xiaoping in this period, however, thought it was important to maintain effective centralised planning and control over the economy. That is not to say that

Deng did not recognise the shortcomings of the planned system for industrial development. Actually, Deng acknowledged the importance of both state and market in the economy, and argued for proper state control over the economy (Deng, 1984).

Indeed, Deng repeatedly adjusted Mao’s decentralised economic policies in this period,

but political struggles among the CCP leaders seriously limited the success of Deng’s efforts (Naughton, 2007).

To summarise, the G-E relationship from 1949 to 1976 took a radical form, with much more importance attached to the state control side than the market side. In general, this radical approach is not only consistent with China’s traditional ideology, but also suitable for the needs of the new China’s survival and development. Nevertheless, SOE reforms in this period should not focus on the relationship between the central and local governments. This lesson has been learned by China’s SOE reform in the post-Mao era.

In that sense, it is more proper to view Deng Xiaoping’s economic reform after 1976 as a critical development of the Mao era.

3.1.4 SOE Reforms in the Post-Mao Era: 1976-2012

Compared with the adjustment of the central-local relationship in the Mao era, SOE reform after 1976 mainly considered how to deregulate the SOE and make it efficient in the market, with the precondition that the state continually maintains effective control.

Indeed, the SOE under the command economy contributed much to China’s economic development and national security from 1949 to 1976, but its efficiency problems became more and more serious with the development of the industrial economy. A major reason for the inefficiency issue is the lack of market mechanisms. Thus, the SOE reform in the post-Mao era tried to build a market institution into the SOE system, but without giving up state control, or privatising the SOEs. The reform still held the basic belief that SOEs were the most important part of the economy, and should remain that way. In a sense, the reform aimed to explore a practicable hybrid of political

authoritarianism and economic capitalism.

In the post-Mao era, the SOE becomes a controversial issue. Besides their close relationship with the government, they are often criticised for their inefficiency in the market (You, 1998). Hassard, Sheehan, Zhou, Terpstra-Tong, & Morris (2007) summarise three different proposed solutions for this problem. The first one is ownership solution, and argues for the privatisation of the SOEs, based on the belief that private enterprises are more efficient than SOEs. The second solution attaches more importance to creating a more competitive environment, based on the belief that simply privatising SOEs is not enough. The final solution emphasises the importance of corporate governance for SOEs: it calls for the improvement of management in SOEs, while urging the government to reform unreasonable institutions related to SOEs. The

SOE reform after 1976 has combined these three solutions, still with the primary goal in most cases of improving state control over the economy.

Compared with the planned economy era, I find that the SOE reform after 1976 has tried to differentiate the government’s structure role from its actor role. This is because the government as policy maker (structure role) needs to be relatively independent from the government as the shareholder of the SOE (actor role), or else the SOE would not feel much pressure from the market. More specifically, I propose that the government should liberalise the SOE in view of its structure role, while the government should strengthen the control over the SOE based on its actor role. Thus, central issues in the post-Mao SOE reform are: which aspects should be liberalised, which aspects should be controlled, and how to strike a delicate balance between liberalisation and control.

China’s involvement in the global economy after 1976 also pushes the SOE reform forward: on one hand, the SOE has to face fierce market competition from foreign enterprises in China; on the other hand, China’s SOE reform may learn from the

Western corporations in the globalisation process. Indeed, from the perspective of ideology, China after 1976 started to acknowledge Western superiority in technology and economic development, and asked the SOEs to learn from the West. Moreover,

China’s economic development after 1976 has also driven the SOE reform, and the decentralization from the government to the SOE is an inevitable choice, because the whole economy becomes too big and complicated. However, decentralization is not to let the SOE free, and the government just wants to concentrate on crucial SOEs and sectors. Anyway, the ultimate purpose of the SOE reform is to strengthen rather than release government control over the economy.

Based on some historical reviews on China’s SOE reform (Lu, 2008; Wu, 2003; Wu,

2005; Yang, 2008; Xu & Zhao, 2008; Unirule Institute of Economics, 2011), I divide

China’s SOE reform after 1976 into two major periods: 1977-2002 and 2003-2012.

Under Deng Xiaoping and Jiang Zeming’s leadership, the first period (1977-2002) is characterized by the market liberalisation of the SOE. The SOE reform in this period got strong support from Deng Xiaoping’s cat theory: “It does not matter if it is a yellow cat or a black cat, as long as it catches mice” (Deng, 1989: 305). In other words, any measure could be adopted as long as it was helpful to promote the economy, and major measures in the SOE reform in this period included separation of SOE ownership from its operation, reduction of government interventions in enterprises’ operations,

improvement of SOE autonomy, and corporate reconstruction. The government asked the SOE to be responsible for its profits and losses, and increased its openness to market pressure. As a result, market power in this period increased while the government’s influence on the SOE decreased. For example, at this stage, several large SOEs were listed on domestic and/or foreign stock markets (Lv & Huang, 2008) and many small and medium-size SOEs were privatised (Zhang & Zheng, 2008). One of the major problems in this period was inappropriate or even illegal privatisation of state-owned assets (Yang, 2008).

In order to correct problems brought by market liberalisation, the focus of the SOE reform in the second period (2003-2012) was to maintain and increase the value of state-owned assets through a more professional supervision of SOEs. In 2003, the

Chinese government established the State-owned Assets Supervision and Administration

Commission (国有资产监督管理委员会) to act as a SOE’s shareholder on behalf of the government. Meanwhile, in order to improve supervisory efficiency, the government reduced the number of SOEs through privatisation and domestic mergers and acquisitions, and divided all SOEs into two categories: central SOEs and local SOEs.

The former are those large enterprises monopolizing key resources and sectors in China, and which are controlled by the central government; the latter are supervised by local governments, and their scale and significance is generally lower than the scale and significance of the central SOEs (Zhang & Yuan, 2008). The global financial crisis increased China’s confidence in the SOE system, because SOEs could be freed from market constraints during the crisis. This confidence may be the most important reason for the Chinese SOE sector’s expansion over the last few years. Although the party

encourages the development of the private sector, it also tries very hard to control it, and to integrate it into the broader political-economy system. The integration has succeeded, and private enterprises have become part of the state.

In the study of the history of the SOE reform in China, I find that the Chinese government displays strong ambivalence towards the SOE. On one hand, the SOE reform should make the SOE more market-orientated and internationalized (Li, 2006), or else the SOE could not relieve the efficiency problems and improve sustainability.

On the other hand, China’s central government also gives much importance to strong control over the SOE. As I have pointed out, the government needs to maintain its control over SOEs in order to justify China’s socialist ideology, and control is also a fundamental condition for maintaining the CCP’s authoritarianism. Although there are both advances and retreats in different reform periods, the result of the SOE reform has been to blur the boundary between SOEs and private enterprises, the blurred boundary reflecting an active effort to strike a balance between the state and the market. Indeed, there is a perennial conflict between state control and market liberalisation, and China’s incremental approach to reform makes a delicate balance possible. In summary, I find that the main task of China’s SOE reform is not to privatise SOEs but rather to find a trade-off or equilibrium between state control and market liberalisation.

3.1.5 Summary

In order to make the above historical review clear and simple, figures 3.1 and 3.2 are used to summarise some key events and major trends in different times. In the pre- modern period, Chinese governments have always tried to maintain a strong control on

business through various approaches, although they also switched to liberalised economic policies in some periods, especially in the early stages of a new dynasty establishing itself after lengthy wars. However, at the start of China’s modern era, dramatic changes in the late Ch’ing’s political economy made traditional control approaches unsustainable and ineffective, and thus the government had to explore other ways (e.g., GSMO companies) to strengthen its dominance over the state economy. In this process, the conflict between government control and liberalised market was more and more remarkable with the growing market force. The basic reason for the conflict, as

North and Thomas (1973) put it, lies in a persistent inconsistency between the ruler group maximizing the rent (or reducing costs) and an effective system promoting economic growth, on the condition of the ruler group pursuing utility or welfare maximization. Obviously, the late Ch’ing government noticed the conflict, and then adjusted the G-E relationship to solve the issue. Nevertheless, the ultimate aim of those adjustments was still for powerful control of business, and the control’s purposes in the late Ch’ing were not fundamentally different from those in pre-modern China, i.e., increasing government revenue, stabilizing society, consolidating power and governance, and so on. After the Ch’ing dynasty, the state had to release control over business to some extent at one time, but the basic belief in economic operations was still that the involvement of the state was indispensable, with efforts to strike a balance between the state control and the free market.

Economic control in China went to an extreme through comprehensive and thorough socialization in the first period of Communist China (1949-1976), when the market and private economy were reduced to a minimum. Initially, socialisation was quite

successful in terms of stabilizing the national economy after the domestic war, but soon the highly centralised planned economy met serious problems because of the lack of an effective market. With the economic reform since 1978, Chinese governments have gradually relaxed some economic sectors and freed the power of the market. However,

China’s economic reform was to strengthen government control over the economy rather than develop complete privatisation. As a result, the conflict between government control and the free market emerged again. In particular, this conflict was highlighted in

China’s SOE reforms since 1978, in which the government tried very hard to explore a trade-off. In a way, the exploration of the trade-off was the key to China’s economic prosperity in the last three-decades.

3.2 Authoritarian Resilience and Its Ideological Structure

The preceding historical review shows that China’s G-E relationship is a path- dependent phenomenon: from the late Ch’ing to the Nanjing period (1928-1945), China tried very hard to explore various approaches to the G-E relationship. From 1949 to

1976, China firmed its authoritarianism state, but still struggled for a stable and effective approach to the conflict between the state and the market. In the post-Mao era,

China gradually developed a stable but resilient authoritarianism that can make necessary changes when dealing with various challenges in the environment. This system integrates political authoritarianism and economic capitalism very well.

In fact, the authoritarian resilience (Nathan, 2003) is not a new phenomenon in China.

Many authoritarian regimes I have discussed in the modern history of China showed the

ability to make changes or adjustments to address the G-E relationship, and their approach was contingent on the needs of both the internal and external realities. In other words, the authoritarian state had to consider the real situation in many cases, and meanwhile maintained its own interests and considerations as a priority. In the case of the G-E relationship, for example, the late Ch'ing dynasty tried very hard to maintain control over enterprises, but had to release them to some extent when the enterprises did not run well due to excessive political control. When the enterprises became more market-orientated, however, they had a natural tendency to become more independent of the state, and were inclined to resist government interventions that may have negatively affected their interests. Such resistance, however, posed a very considerable threat to authoritarianism because the authoritarian state's political interests and the enterprises' economic interests could end up in misalignment, or even conflict. To a large extent, China’s authoritarian resilience nowadays may be viewed as the adaptive result of the persistent conflict between the state and the market.

How did China arrive at resilient authoritarianism? How did governments in China maintain effective state control while also providing social stability and economic prosperity for the long term? In order to understand these questions, I propose to investigate the ideological transition from the late Ch’ing to today, because ideology has played a very important role in China’s political economy, and both organisational institutionalism and historical institutionalism acknowledge the importance of ideology in structuring both institution and society (Gao, 2008).

When traditional Confucianism ideology collapsed with the demise of the Ch’ing

dynasty in 1912, the Chinese people’s ideological identity experienced a deep crisis, leading to chaos and rupture in the society for over thirty years. China had to reconstruct its ideology in order to integrate the society again. Nevertheless, the ideological reconstruction this time differed from similar situations that occurred many times before in ancient China, because foreign invasions not only made traditional

Confucianism unsustainable in practical terms, but also offered alternative ideologies from abroad (Jin & Liu, 2000). Western Democracy and Marxism-Leninism were the most remarkable doctrines among many competing ideologies in China at that time.

Many Chinese intellectuals used both of them to criticise traditional Chinese culture in the New Culture Movement (1915-1923), with many of them ascribing China’s underdevelopment to Confucianism.

Later, Sun Yat-sen (孙中山), the father of Kuomintang, constructed a new ideology named Three Principles of the People (三民主义), in which nationalism, democracy, and social welfare were the major components (Sun, 1953). This ideology helped

China’s temporal unification in the 1920s, but it quickly reduced its social foundation to a few elite groups (e.g., capitalists and landlords), obviously contrasting the principle of democracy, which implies a broader societal involvement. This deterioration in its nature made Kuomintang’s ideology incapable of mobilising and integrating the total society (Jin & Liu, 1993). In contrast, Maoism (毛泽东思想) as CCP’s official ideology, shaped in the Yan’an Rectification Movement (延安整风运动) from 1941 to 1945, combined Marxism-Leninism with China’s political-economic tradition and reality. Its social foundation was peasants and workers, pitted against capitalists and landlords, and mobilising a large section of non-elite society (Gao, 2000). In addition, largely based on 81

the communist ideology, Maoism always emphasised CCP’s control over the economy and social order. In that sense, Maoism does not conflict with the idea of state control in traditional China, and the CCP’s single-party authority under Maoism is not substantially different from the absolute imperial power specific to Confucianism.

Actually, Jin and Liu (2006) even argue that Maoism became quasi-Confucianism in terms of its moral idealism. In a way, Maoism is a successful hybrid of Confucianism and Communist ideology (especially in terms of the state control), which may explain

Maoism’s victory as an effective modern substitution for Chinese traditional ideology.

Indeed, Maoism also had a great influence on the governance of SOEs from 1949 to

1976 (Naughton, 2007), and determined China’s choice of a planned economy in this period.

After the death of Mao in 1976, Deng Xiaoping started China’s economic reform, and I find that he transformed Maoism into a hard core-soft belt structure (see figure 3.3).

Figure 3.3 The Hard Core-Soft Belt Structure of Ideology in Contemporary China

Soft Belt

Hard Core Gatekeepers Gatekeepers Various Various The Four Cardinal resources, resources, measures, Principles measures, policies...

policies... CCP’s Leadership

Soft Belt

That was similar to what Tung Chung-shu (董仲舒 government official and great thinker in the Han dynasty) did to traditional Confucianism (see figure 3.4).

Figure 3.4 The Hard Core-Soft Belt Structure of Traditional Chinese Ideology

Soft Belt

Various Various Gatekeepers

resources, Gatekeepers Hard Core resources, Monarchial Power measures, measures, （The oneness of China, policies... policies... the isomorphism of men and heaven, and the three cardinal guides and the five constant virtues ）

Soft Belt

Inspired by Lakatos’ research program (Chalmers 1999; Lakatos 1978), I find that Tung

Chung-shu actually reformed traditional Confucianism into a hard core-soft belt structure two thousand years ago. The hard core centres on monarchical power and emphasises several related ideas – the oneness of China (大一统), the isomorphism of men and heaven (天人感应), and the three cardinal guides and the five constant virtues

(三纲五常) (Hu, 1998; Jian, 1999) – which constitute the theoretical justifications for the emperors’ power and the legitimacy of their regimes. The hard core is protected by the ideology’s soft belt, a mix of various schools’ policy proposals that are meant to improve Confucianism’s viability in practice. Similarly, Deng (1984) proposed The

Four Cardinal Principles (四项基本原则) at the end of 1970s: the principle of upholding the socialist path, the principle of upholding the people's democratic dictatorship, the principle of upholding the leadership of the Communist Party of China, and the principle of upholding Marxist-Leninist-Mao Zedong thought. Deng (1984) also pointed out that the centre of the four cardinal principles is the principle of upholding the leadership of the Communist Party of China. Indeed, the four principles became the hard core of the CCP’s ideology and are maintained into the present. Besides the hard core established, Deng Xiaoping also argued for a pragmatic attitude to policy choices in practice, as long as a policy did not contradict the four cardinal principles. This approach creates the soft belt around the hard core; the CCP and the government are the gatekeepers who filter resources, measures, and policies according to the principles of the hard core.

As a result of the hard core-soft belt ideological structure, China developed rapidly with the help of effective and competent gatekeepers over the past three decades. The structure also ensured the resilience of authoritarianism and provides the mechanism for a certain level of contingency. Obviously, the gatekeeper is the key to the authoritarian system. If the CCP and government officials can manage their gatekeeping role effectively, then the system could work properly; if such role is not performed adequately, the system could become dangerous and unstable. Thus, the limit of the authoritarianism lies in the performance of the gatekeeper, which explains why an institutionalised leadership based on true meritocracy is essential for the resilience of

Chinese authoritarianism.

The above analysis indicates that ideology in China enables the Chinese government to hold dual roles. On the one hand, the government’s structure role determines the institutions and policies that regulate the market and the economy, and arises from ideology’s power to integrate the state, the emperor, and the government in ancient

China, or to integrate the party, the state, and the government nowadays. On the other hand, government in China itself could be a major actor in the market as well, and it is often directly involved business in various ways (e.g., government monopolization and

GSMO enterprises). In the case of China, the government’s dual roles of structure and actor are helpful to strengthen state control over the economy. In fact, the integration of the state and government in traditional and contemporary China has even strengthened that control.

3.3 The Paradox of Resilient Authoritarianism

In the historical review of China’s G-E relationship from the late Ch’ing to current times, I revealed the persistence of the conflict between the state and the market, which

Chinese authoritarianism had constantly to address. As a consequence, China’s authoritarianism had to develop a resilient approach in order to maintain a balance between state control and market liberalisation. I revealed that such a resilient approach stems from a hard core-soft belt ideological structure shaped by Deng Xiaoping’s reconstruction of Maoism after 1976. This transformed ideology not only allows for the development of a unique form of authoritarianism defined by a hard core component, emphasizing the Chinese communist party’s unchallengeable leadership, but also has a soft belt component protecting the hard core, allowing certain actors more flexibility,

while others are sacrificed, depending on their relationship with the hard core. More specifically, new elements are allowed to enter the soft belt, facilitating adaptation specific to a market-driven approach to the economy, but filtered against goals and principles considered essential for the stability and protection of the hard core. In other words, the hard-core/soft-belt ideology embedded in the Chinese political economy may have circumvented the known perils of an authoritarian system and harnessed its advantages, ensuring not only its resilience, but also its success.

However, I find that this resilient authoritarianism is paradoxical as well: when control over the economy is released as a response to contingencies in the environment, the independence created generates forces that may potentially threaten authoritarianism, such as the growing corporate elite in China (Walder, 2011). In other words, although authoritarianism’s resilience may promote the regime’s survival and development, the resilience, if uncontrollable, might wreak some destructive consequences on the authoritarian regime. From the perspective of the G-E relationship, the paradox is embodied by the following contradiction: on one hand, the authoritarian state should not over-control enterprise and the market, or else government failure would be an inevitable result. On the other hand, if the authoritarian state does not have effective control over enterprise, the growth of market power would destroy the authoritarianism itself sooner or later, because enterprise operating independently in the market would constitute a powerful impulse to decentralization by nature. In order to handle this paradox well, a successful authoritarianism must carefully explore a trade-off between state control and market liberalisation. However, the trade-off between the state and the market is not easily achieved and maintained, so the cycle of reform (Shirk, 1985) is

inevitable:

“Once liberalised, the SOE comes to life and grows in multiple ways; once the SOE grows, things are out of control; once chaos is felt, the government resumes its control; once control is exercised, the SOE is dead.” (一放就活，一活就乱，一乱就管，一管就死)6

The above cycle of SOE reform is a good illustration of the challenge faced by the authoritarian state, and it also illustrates authoritarianism’s resilience to some extent. In a way, the endless cycle is the reflection of the persistent conflict between the state and the market. As this chapter has shown, historical, institutional and ideological factors create powerful constraints that may impact the balance between state control and market liberalisation in China. It is perhaps the path-dependence long developed that allows Chinese leaders to immerse themselves in the tensions specific to this reinforcing cycle and think paradoxically, which is exactly the recommendation formulated by scholars who focus on explaining paradox in general and the ways to address it (e.g.,

Watzlawick & Weakland, & Fisch, 1974; Cameron and Quinn, 1988; Lewis, 2000).

6 The quotation was originally used to describe the relationship between central government and local governments in China. Please refer to Bian, Yanjie. 2000. "Book Review: Making Sense of China's Transformations." Contemporary Sociology 29:613-624. Here I rephrased it to illustrate the reality of the SOE reform. 87

Chapter Four

Corporate Liberalism in the United States: Evolutionary History and Ideological

Foundations

Free markets could never have come into being merely by allowing things to take their course……Laissez-faire itself was enforced by the state. (Karl Polanyi, 1957:139)

The 2012 Index of Economic Freedom ranks the United States in the top 10 free countries/regions that excel others in four aspects: rule of law, limited government, regulatory efficiency, and open markets (The Heritage Foundation, 2012). Nevertheless, that does not mean there is no conflict between the state and the market in the United

States. Rather, conflict exists in the United States’ political economy as well. Actually, there are two contradictory doctrines when it comes to the United States’ economic governance since the end of the 19th century: laissez-faire orthodoxy and state interventionism (Nolan, 2004). The former supports the free market and limited government; while the latter argues for a powerful state to promote social and economic development. According to Richard Lehne (2005), the two contradictory doctrines may be traced back to the establishment of the United States. In that sense, they may stem from the market-orientated tradition and the active government tradition respectively that I discussed in the second chapter. The historical review in this chapter shows that the market-orientated tradition tends to dominate the United States in most cases, although one could see big and active governments in some periods. In this chapter, I propose that state intervention may mean different things in different countries and in different historical periods. For the United States after the Great Depression, I argue that

state interventionism includes government intervention and government regulation, and we should not confuse the two in either theory or practice.

This chapter aims to reveal the dynamics of the G-E relationship in the United States.

The sections of the chapter are as follows. First, I review American business history from the perspective of the G-E relationship, and show its tendency to path-dependence.

The review of business history also involves discussion of the development of the legal environment, from which we may better understand institutional constraints imposed on the United States’ G-E relationship. Second, based on the business history review, I integrate different usages of corporate liberalism to summarise the United States’ approach to the G-E relationship, and try to offer an ideological explanation for that approach. Finally, I analyse the paradox of the approach of corporate liberalism, and discuss its implications to the G-E relationship in the United States. All efforts in this chapter aim to provide a solid foundation for next chapter’s comparative study between

China and the United States.

4.1 The G-E Relationship in the U.S.: An Historical Review

The United States, established in 1776, has a very short history relative to China, and the history of the company in the country is even shorter. According to Chandler (1962), the emergence of the modern business company was pushed by large-scale and complex projects in the railroad sector at the end of the 19th century. Chandler (1977) views the company and the market as two different coordinating mechanisms that facilitate resource distribution in a country, and he interprets American business history as an

incremental process in which the company replaces the market as a more efficient and profitable coordinating mechanism. Micklethwait & Wooldridge (2003) also discuss the company history of the United States, and suggest that its development was a spontaneous process associated with many historical changes and social movements.

Since the corporate structures largely depend on the characteristics of the state with which the corporation started (Bebchuk & Roe, 1999), it is necessary to consider the economic history before the rise of the modern company in the United States. The review will help us to understand the origin of the G-E relationship.

This section investigates the state’s role in American economic development from 1776 to 1860, and then turns to the development of the company system from the 1ate 19th century to the 1920s. After that I will review how The Great Depression (1929-1933) changed the G-E relationship. I will also show how the United States’ G-E relationship experienced the establishment of government intervention, the collapse of that intervention and the transition of government regulation from The New Deal to the end of the 20th century. Lastly, this section discusses the failure of government regulation since 2000.

According to the three-phase model of path dependence in Chapter Two (figure 2.1) which I used to analyse China’s G-E relationship, phase I for the United States’ G-E relationship is from 1776 to 1860, phase II corresponds to the 1860s until the end of the

20th century, and phase III starts from the collapse of Enron (2001) to today. In general, phase I features an open and liberalised business environment for enterprise growth, and the G-E relationship faced various possibilities. In phase II, the conflict between the

state and the market became significant, and the G-E relationship changed from laissez-

faire to state interventionism and vice versa in this period. Phase III reaches lock-in

status, in which the government’s decisions and behaviour are often manipulated by

corporate power (i.e., regulatory capture), and the corporation dominates the G-E

relationship in the United States. Figure 4.1 summarises the key events and the main

impacts for the G-E relationship in the United States in different historical periods.

Figure 4.1 Government-Enterprise Relationship in the U.S., 1776-2012

Key Events: the War of Key Events: the Civil War Key Events: the Great Key Events: the collapse of Independence; establishment (1861-1865); the Depression (1929-1933); the Enron (2001); Sarbanes- of the U.S.; the 1788 development of railway New Deal; The Second Oxley Act (2002); The Constitution industry; the Sherman World War; deregulation Global Financial Crisis Antitrust Act (1890); the policies (1970s-1990s) (2008 to today) Impact: dominant economic Progressive Era (1890s- Impact: the expansion of thought was laissez-faire; 1910s); The First Word War government size; the state and local courts Impact: a powerful central globalisation of American Impact: the deregulation; facilitated economic government and an corporations; economic various corporate scandals; activities; legal confirmation integrated national market; interventionism (1940s- the profit of the big and protection of property rise of the modern company 1970s); economic corporation continued to rights system and corporate liberalization and increase; the regulatory reconstruction of capitalism deregulation (1970s-1990s) capture

1776-1860 1861-1928 1929-2000 2001-2012

Phase I Phase II Phase III

4.1.1 State Interventionism vs. Federal Laissez-Faire: 1776-1860

In a way, the tradition of government interventionism in the United States originally

comes from the British colonial regime (Engerman & Gallman, 1996), which was

dominated by the philosophy of mercantilism in the 18th century. Mercantilism, the

counterpart of China’s tradition of state control over business in ancient times, also

emphasises the government’s control over a country’s economy, but mainly in the

aspect of foreign trade (Faulkner, 1960). However, the establishment of the United

States was based mainly on its fight over British colonial control of the American

economy. Thus, liberalism has been embedded in the country since 1776, and has provided fertile soil for the growth of a market-orientated tradition in the United States.

The tradition has also received strong intellectual support from Adam Smith and his numerous followers who promote the idea of free market (Bederman, 2008).

In contrast to China, the United States does not have a tradition of centralisation

(Engerman and Gallman, 2000a), and the War of Independence did not bring powerful central government to the United States. Initially, the United States adopted confederation as its fundamental institution: every state enjoyed sovereignty while the central government was more symbolic and weaker within the confederal system. Due to the War of Independence and Britain’s containment policy toward the United States after the war, the country faced serious economic recession in the 1780s, and urgently needed to improve the domestic economy (Geisst, 2006). However, a major obstacle was the institution of confederation as it stood in that period, in which the weak central government could not frame and integrate every state’s policies and actions. As a result, the domestic trade was limited by trade barriers between the states. In order to change the situation, more and more Americans realised the importance of a powerful central government. The Constitution ratified in 1788 transformed the American political institution from confederation to federation, and helped in part to achieve such a central government in the United States (Adams, 2001): while the state governments still maintained great autonomy, the federal government’s power was expanded to include a series of authorities to establish market institutions. For example, the Constitutional

Convention in 1787 allowed the federal government to collect a uniform 5% import tax

(Knowles, 1932), and the federal government also acquired from state governments the

exclusive power to issue currency. All of these meant a significant increase of federal government’s financial power. Moreover, the Constitution in 1788 confirmed an interstate commerce clause that endorsed the federal government’s authority to regulate commerce between states (Friedman, 2005). However, the principle of checks and balances, emphasizing the division and balance of powers among state organs, was introduced to the Constitution to constrain the governments’ powers. The purpose of the constraint was to protect personal freedom and private property from the violation of the government (Engerman & Gallman, 1996). As a result, the federal government could not manage the national economy as a whole under the rule of the Constitution. In particular, the existence of slavery in the Southern States hindered the formation of a fully open national market.

In the early years of the United States, conflict emerged between laissez-faire and government interventionism. Influenced by the Enlightenment, Thomas Jefferson argued for a free national market and a limited federal government strictly bounded by the Constitution, because he thought the two things were essential to protect individual freedom and rights (Wills, 2002). Alexander Hamilton, the person who established a robust federal fiscal system during the presidency of Washington, favoured an active and powerful federal government in the national economy (Engerman and Gallman,

2000a). In a way, the conflict between the two men’s arguments may be viewed as the origins of the contradiction between the market-oriented tradition and the government interventionism tradition in the United States. Nevertheless, the two different traditions should not be regarded as absolutely exclusive; as Karl Polanyi points out, “Laissez- faire itself was enforced by the state” (Polanyi, 1957:139).

From 1776 to 1860, the law played an important role in economic affairs, and many rules related to business and trade were framed by state legislatures and courts in this period. In the aspect of regulating business, the American states and local government had to rely on the legislature and the court’s power. Due to the confederation institution, the state and local courts were more powerful than the Supreme Court, but they tried to facilitate rather than supress economic activities in their respective domains (Skrentny,

2006). In particular, the legal confirmation and protection of property rights as well as the emphasis of the contractual spirit in the economic life, had a very positive impact on the development of capitalism in the United States (Grossberg & Tomlins, 2008a;

Lehne, 2005). With the help of corporate charters issued by the state legislatures, many enterprises were established and developed in the first half of the 19th century, although their growing power also aroused concern about their threat to individual freedom and the balance of power (Friedman, 1985). Actually, this is a persistent concern from the

19th century to today when it comes to the G-E relationship.

In the United States, the dominant economic thinking in the 19th century was laissez- faire (Lehne, 2005), but that is not to say that government did not do anything for the economy. Actually, the doctrine of laissez-faire calls for the market transaction between two parties to be equal and free from any intervention from the government on the one hand; but that the government should protect the process and the result of the transaction on the other (Buder, 2009). In the United States, the federation institution separated political power into three levels: the federal, the state, and the local, and applied the principle of checks and balances at each government level. From the

perspective of economic ideology, there was growing conflict between laissez-faire at the federal level and interventionism at the state and local levels. In other words, while the state and local governments carried out intervention policies to promote enterprise and the economy in their domains, the major role played by the federal government in this period was creating political, financial, and legal frameworks that tried to liberalise economic development nationwide (Friedman, 2005). The federal government was also not able to regulate the national economy effectively due to the disjointed states and their sovereignty. Because of regional competition under the framework set by the federal government, state and local governments expanded the country’s territory and developed the economy (Engerman and Gallman, 2000a). However, with the growth of market forces, economic conflict between states, especially between the Southern and

Northern states, became more and more serious (Faulkner, 1960), and the federal government found itself too weak to resolve the conflict. Finally, the Civil War broke out.

4.1.2 The Establishment of Federal Interventionism and the Rise of Modern

Company System: 1861-1928

Although the Civil War (1861-1865) resolved the conflict between the Southern and

Northern States in terms of slavery, the economic barriers between states remained.

Thus it might be fairer to say that the Civil War did not bring about a free national market immediately, but it did make a powerful federal government possible because the supremacy of the federal Constitution was established after the war. In order to achieve an integrated national market, the federal government must have the capacity and authority to manage the whole economy, but state and local governments continued

to resist the federal government’s efforts in this direction (Bensel, 2000; Sklar, 1988).

From the legal perspective, the federal courts and the congress came to play more and more important roles in economic affairs compared with state courts and legislatures, as an integrated market also called for eliminating conflicts and contradictions between laws and regulations of different states (Friedman, 1985; Grossberg & Tomlins, 2008b;

Engerman & Gallman, 2000a).

On the way to a national market, America’s industrial revolution that started in the

1860s had played an important part in the process. In particular, the development of the railroad industry provided the main impetus for the formation of a national market.

With this impetus, the country’s economic activities transcended state borders more readily than in the past; this situation may be seen as an inevitable result of the industrial revolution. As a matter of course, state and local governments found it difficult to maintain their traditional interventionist regimes, when nation-wide coordination was required. In a way, the development of the railway sector may be viewed as the critical juncture of the path-dependence model I outlined in Chapter Two (Figure

2.1), because it played a pivotal role in shaping an institutional change that has impacted the United States’ G-E relationship for the past two centuries (Andersson-

Skog, 2009).

Indeed, the prosperity of the railway industry brought the conflict between the market and the state to the forefront of American political economy. In particular, the industry’s rapid development not only increased market power, but also promoted a new enterprise type that made large-scale businesses viable (Micklethwait & Wooldridge, 2003). This

kind of enterprise, i.e., the modern company, has repeatedly struggled with state intervention and regulation since its emergence. In a way, its relationship with the state has dominated the modern G-E relationship in the United States. Initially, the new type of enterprise appeared in the railroad sector only. It adopted a multi-divisional corporate form and operated across state borders. From the 1860s to the 1890s, however, it quickly spread to other sectors because of its efficiency and effectiveness compared with older forms of enterprises (Chandler, 1962; Schmitz, 1993). As a response to this business revolution in the second half of the nineteenth century, the federal government had to create judicial and administrative institutions to protect and promote market development (Sklar, 1988). The trend at the end of the nineteenth century was a transition from state intervention to federal intervention (North, 1981). The first symbolic event for this transition is the founding of the Inter-state Commerce

Commission, based on the Interstate Commerce Act of 1887. This commission is the first independent supervisory organisation at the federal level, and its establishment aimed to regulate the development of railroads (Friedman, 2005). In 1890, the Sherman

Antitrust Act was ratified. This Act authorized the federal government to control, regulate, and intervene in the country’s economy beyond the border of any state

(Friedman, 1985). It is important to note that the principal goal for federal interventionism in this period was to construct a real free and efficient national market.

Indeed, the free market economy was growing at a fast pace during this period, although the government had also expanded its size and function in order to deal with a larger economy and more complicated affairs. However, the government’s expansion was slow relative to the growth of the free market (Engerman & Gallamn, 2000a), which helped the company system to rise in the United States.

Compared with traditional enterprises, the modern company in the United States has two major features. The first feature is the separation of the ownership from the controlling power of the enterprise (Demsetz, 1983). With the expansion of the enterprise (e.g., in the railroad industry), owners had to release their control over every detail in their organisational processes, and concentrate on significant issues and decisions (Micklethwait & Wooldridge, 2003). In some cases, because the founders of the enterprise could not always get competent family members to manage their companies, they turned to other people with good management skills. In other cases, some families voluntarily sold their shares on the financial market, or were forced to by institutional constraints such as anti-trust policy or inheritance tax. As a result, professional managers as a new class came into being (Schmitz, 1993). This feature transformed capitalism in the United States from a family-control model to a manager- control one (Morck & Steier, 2005).This increased a company’s effectiveness as an economic tool, enabling it to expand domestically and globally. That is often called

American exceptionalism (Becht & DeLong, 2005) when it comes to corporate control, because many companies in many other countries (including European countries) continued to be controlled by powerful families.

The second feature is the company’s inner structure. The three pillars of a company the board of directors, management team, and board of supervisors – should not only be relatively independent from, but also cooperate with each other, for the company’s sake.

That is similar to the American political structure with the separation of powers between the legislative branch, executive branch, and judicial branch. Furthermore, both

corporate structure and political structure are designed to be constrained by a unique institution of checks and balances. This democratic character is also one of the most important reasons for the company system’s prevalence in the United States (Lehne,

2005), and its structure, with its emphasis on corporate governance, has proved viable and effective. In a way, this market democracy shown in the corporation sector is consistent with political democracy in the United States. It could select competent managers and remove incompetent managers, and thus resolve the problem in traditional enterprises whose younger successors’ business talent could not be always guaranteed.

To a great extent, the economic prosperity brought by the industrial revolution, especially the development in transportation and communications, was the basis for the rise of the company system in the United States (Lamoreaux, Raff & Temin, 2002). The other side of the coin is that the development of the modern company system in the

United States promoted the country’s power to a large extent (Chandler, 1977). With the rise of the company system, a number of large-scale industrial companies emerged by the end of the nineteenth century. From the 1890s to the 1910s, the United States experienced the corporate reconstruction of capitalism: on one hand, more and more enterprises adopted the corporate form; on the other hand, merger and acquisition were very active among industrial enterprises, and thus many big companies were formed in spite of anti-trust laws and public resistance (Bensel, 2000). Traditionally, the type of capitalism in the United States had been based on the family-run model, and thus it may be called entrepreneur capitalism (Clark, 1981). However, corporate reconstruction moved the American economy into the stage of corporate capitalism that relies much

more on managers and their management skills (Sklar, 1988).

By the First World War, a dual structure was shaping in the American economy, with a few big companies located at the centre with a periphery of many small and medium enterprises (Engerman & Gallman, 2000a). In the process of corporate reconstruction, the interaction between the big companies and the government gradually dominated

American society (Steiner & Steiner, 1997). As a result, the problem of systematic corruption appeared. In other words, the government implemented ad hoc interventions or regulations, and created unfair economic interests for those big companies. These companies then used their influence to support their political agents to control the government (Wallis, 2004). In addition, the public became concerned about the way the big corporations restricted competition through their monopoly position in the market

(Engerman & Gallman, 2000b). These problems raised a serious and persistent debate over the state’s role in the economy in the Progressive Era (1890s to 1910s). Social

Darwinists believed that economic development evolved automatically and that the government should not interfere with the evolutionary process. Nevertheless, opponents like Theodore Roosevelt argued that the law of natural selection could also produce very bad consequences, and that the government should play a vital role in restraining those bad consequences (Eisner, 2011; Cohen, 2002). The winners of this debate were the social Darwinists, with the dominant thought being a balanced government with limited power (Nolan, 2004). Nevertheless, the laissez-faire doctrine was still very powerful in dealing with the G-E relationship in the Progressive Era.

The First World War (1914-1918), however, changed the developmental tendency of

100

American political economy. In contrast to the traditional view that the Great

Depression and the New Deal indicated a transition from laissez-faire to government intervention, North (1981) argues that the transition actually started with the First

World War, and that the Great Depression simply sped up this transition. In two presidencies (1913-1921), Woodrow Wilson designed a series of policies that were conducive to the big corporation, but also involved active intervention in the economy.

The intervention not only included a number of nationalized and control measures (e.g., wartime planning and control over the financial industry), but also actively used anti- trust laws to prevent market competition and private freedom from violation by big corporations (Sklar, 1972). In the 1920s, holding the position of Secretary of

Commerce, Herbert Hoover initiated numerous public projects constructed by the government and big corporations, and provided subsidies to many industries as well.

Hoover also argued for the provision of public relief, and tried to incorporate labour unions and their leaders into a harmonised system of corporate capitalism (Rothbard,

1972). In short, Hoover promoted state interventionism in the United States to a considerable extent.

Anyway, federal interventionism in this period aimed to prevent state and local governments from intervening unduly in the corporate economy, and to promote the development of a national free market and the operation of corporate capitalism in that market. The federal government tried also very hard to co-ordinate various conflicts resulting from the rise of the big company, and helped domestic companies to compete in the international market through subsidy and protective tariff. It is interesting to recall that the state and local governments had played a similar role in the early decades

101

of the United States.

4.1.3 Government Intervention and Government Regulation: From the New Deal to the End of the 20th Century

This section discusses the transition of the governmental approach to the G-E relationship from the 1930s to today. At the beginning, it is important to note that state intervention may have different meanings in different countries, depending mainly on the institution that determines the role structure of different actors in a market (Chang,

2000). Also, various misunderstandings around the term probably lie in the paradox that a free market is impossible without the state’s power and action. Here I want to point out that state interventionism in the United States includes two aspects, i.e., government intervention and government regulation; but these aspects are often mixed up in theory and practice. In the context of the United States, the meaning of government intervention is often linked to Keynesian economics, and indicates that the government stimulates the economy through various policies of encouragement and expansion

(Wapshott, 2011). Government regulation refers to a government’s use of administrative tools to control, supervise, and restrain business behaviour that may have a negative impact on individual freedom and market competition (Braithwaite and

Drahos, 2000). According to the state’s dual roles discussed in Chapter Two, government intervention embodies the state’s actor role in the market; while government regulation emphasises the state’s structure role in the economy. Before the

Great Depression, government intervention and government regulation were often mixed when it came to state interventionism. By contrast, the New Deal was a watershed that split the two aspects of state interventionism from each other in

102

American political economy. The United States has attached much more importance to government intervention (the actor role) rather than government regulation (the structure role) since the New Deal, but theoretically the two aspects should be balanced in the political economy. This clarification is essential to understand American economic history since the Great Depression.

Traditional studies hold that laissez-faire caused the Great Depression (Rauchway,

2008; Robbins, 2009). However, I have shown that American political leaders before the Great Depression did not adopt a pure laissez-faire policy, and even tried hard to strike a balance between market liberalism and government intervention/regulation. The latest historical studies also reveal that it might be unfair to accuse the laissez-faire doctrine of causing the Great Depression, and that it is more appropriate to investigate the crisis from the perspective of the global economy, because the United States economy had been negatively impacted by a series of international factors after the First

World War (Engerman & Gallman, 2000b). These factors include unstable international financial structures, a great drop in demand for agricultural products, and the end of the migrant wave into the United States. In the initial phase of the Great Depression, an exchange rate war and a trade war also worsened the crisis and the global economy

(Madsen, 2001; Robbins, 2009).

Another misunderstanding about the Great Depression is that President Herbert Hoover adopted the policy of do nothing during those years (Rothbard, 1972; Rauchway, 2008).

In fact, the foregoing discussion indicated that Hoover was not a faithful believer in the laissez-faire doctrine. He persisted in intervention policies during the Great Depression,

103

but he also tried very hard to strike a balance between the big corporation and the government. He still believed in some traditional meanings of liberalism, and did not want to see the big corporation dominate the economy, because he viewed this dominance as a kind of fascism (Rothbard, 1972). Nevertheless, the timing was not good for Hoover’s attitude, and his insistence lost him the support of big corporations in his re-election attempt in 1933. The end of this story is well known: it fell to Franklin D.

Roosevelt to help the United States economy from the crisis with his New Deal.

However, there is not much difference between Roosevelt’s New Deal and Hoover’s intervention policy. Roosevelt continued many of Hoover’s policies, such as increasing public works, and abandoned Hoover’s idealism when he adopted a pragmatic policy towards big corporations. Indeed, Roosevelt did not limit the big corporation much; on the contrary, his New Deal policies favoured big corporations in practice (Conkin,

1967). On one hand, the big corporation benefitted directly from government projects.

On the other hand, Roosevelt also needed the big corporations to re-launch the economy, and thus he adopted a pro-business policy in the New Deal as well. In other words,

Roosevelt did push the American economy’s transition from laissez-faire to government intervention, though the government intervention of the New Deal did not destroy the dominance of corporate capitalism, and it was even very useful for corporate capitalism’s survival and further development during the Great Depression and thereafter. In that sense, one may better understand why Bernstein (1968) argues that

Roosevelt did not change the political economy system in the United States, and that corporate capitalism was saved and supported in the New Deal.

Of course, Roosevelt also noticed the potential danger of an unrestrained big business

104

sector, particularly the threat to individual freedom and social equity. His solution to the conflict between the big corporation and the market/society was quite simple: individuals and groups were encouraged to form interest groups (e.g., citizenship organisations and trade unions) to fight for their own interests independently. Roosevelt wanted to use the countervailing power of these groups (Galbraith, 1993) to constrain the power of big corporations. In other words, government avoided interfering with the big corporation directly, and it simply provided individuals with institutions and channels to deal with conflict between big corporations and private interests (Rauchway,

2008). Roosevelt’s New Deal has had a long-lasting and profound influence on

American political economy (Engerman & Gallman, 2000b), and was one of the most important forces driving the democratic institution into an era of monitory democracy, in which monitors from civil society could impose constraints on big corporations

(Keane, 2009). However, it is hard to say the constraint of the countervailing power is always effective and efficient. In fact, the countervailing power brings a clear and inevitable result: the conflict between the big corporation and private interest becomes tenser and more complicated. In other words, Roosevelt’s solution did not resolve the problem of corporate capitalism, i.e., the threat to individual freedom and rights brought by the dominance of the corporation (Radosh, 1972).

Anyway, Roosevelt did not follow Hoover’s effort to strike a balance between government intervention and government regulation. Instead, he picked up the policy of government intervention but set government regulation aside (Screpanti & Zamagni,

2005). In essence, Roosevelt’s government intervention stood behind corporate capitalism. The Second World War (1939-1945) not only weakened the big American

105

corporation’s major international competitors (Engerman & Gallman, 2000b), but also helped Roosevelt to strengthen the established intervention regime. This regime involved a dramatic increase in government expenditure, as figure 4.2 shows.

Figure 4.2 Government Expenditures as a Percent of the U.S. GDP, 1929-2010

Notes: 1.The data used in producing this figure is from the U.S. Department of Commerce, Bureau of Economic Analysis (http://www.bea.gov/). 2. All calculations are based on the current dollars in respective years. 3. Total government expenditures exclude the part of intergovernmental transfers.

Compared with the situation in the 18th century and the 19th century, the size of government in the United States in the 20th century expanded at a rapid pace, and there was an obvious trend for the centralisation of federal government (Engerman and

106

Gallman, 2000a; Engerman and Gallman, 2000b). As a natural consequence of this trend, the federal government became much more powerful, and government institutions played more important roles than the courts, in stark contrast with the situation in the

19th century (Margolis, 1979). From figure 4.1, one can see a tendency to fiscal centralisation after the Great Depression. The federal government’s expenditure has exceeded that of state and local governments since the New Deal. Given the logic of government intervention, it is no wonder that the development of big corporations had something to do with the expansion of the federal government from the 1930s to the

Second World War.

From the 1940s to the 1970s, government intervention effectively helped the American corporate economy, primarily by means of the adjustment of industrial and market structures achieved by government’s control over the financial market (Patterson, 1996;

Herrigel, 2007). Beside the government intervention, two further factors promoted the big corporations in this period: the development of science and technology after the

Second World War and the privatisation of SOEs established during the war (Rauchway,

2008). Although the New Deal brought the economy out of the Depression, Roosevelt’s idea of countervailing power proved insufficient to protect individual and social interests under the expansion of big corporations, as I have discussed previously.

Compared with the big companies’ ability to mobilise resources, individuals and social groups were vulnerable to abuses of business power. To that end, governments after

Franklin D. Roosevelt also tried to turn from economic intervention to government regulation, with the aim of protecting individual freedom and rights from market failure.

However, regulation was still limited and big corporations became very skilful in

107

circumventing government regulation through political lobbying and public relations

(Lehne, 2005). In some cases, big corporations managed to persuade the government to regulate their competitors, and government regulation itself could create a market for big corporations. In addition, big corporations may adopt managerial or strategic innovations to reduce the impact of government regulation. For example, many big companies in the mid-20th century decentralised their organisational form so that they could meet more diversified market demands (Chandler, 1962), and this weakened government regulation of the market and the price. In particular, different forms of alliance between enterprises (Engerman & Gallman, 2000b; Lehne, 2005) helped many companies escape the regulation of the anti-trust law at different times.

As a result, the public and society since the 1970s had called for government to relax its regulation, because the legitimacy and the effectiveness of the regulation were in serious doubt (Engerman & Gallman, 2000b). Nevertheless, the American government strengthened the regulation of corporate social responsibility (CSR). The problems brought by the corporate sector attracted more and more public attention, and thus the government felt pressured to implement a series of CSR regulations, with emphases on occupational health and environmental issues. Indeed, CSR regulation would increase corporate operational costs, and what was worse, American companies in the 1970s faced serious competition and challenges in the domestic market from Japanese and

German enterprises (Kozmetsky & Yue, 2005). As a response to rising costs and domestic competition, big corporations in the United States started to go global in the

1970s, weakening the geographic foundation of government regulation. Further, the pressures from global competition induced the federal government to deregulate big

108

corporations and encourage their global expansion, and the idea of a free market came to dominate the United States again. Due to the confirmation of comparative advantages in the international economic system, the United States argued for establishing a single global market (Nolan, 2004) through the World Trade Organisation in the 1980s.

Indeed, the United States set deregulation as the main policy direction from the 1970s to the 1990s, and boosted the economy through liberalising financial innovations in the period. The collapse of the Soviet Union in 1991 increased the confidence in deregulation and the free market system (Fukuyama, 1993). However, the lack of effective regulation/supervision and the over-expansion of the economy hid some dangers and led to future corporate scandal (e.g., Enron) and the subprime crisis in the

21st century (Markham, 2006; Coffee, 2006; Kübler, 2009). On the other hand, the

American government expanded social welfare expenditure since the 1970s (see figure

4.2). There are three reasons for this expansion. First, the awareness of socialist welfare regimes by pressure groups in the US led them to pressure the country to make change in the period of the Cold War (Obinger & Schmitt, 2011). Second, domestic employment was reduced due to technological progress and migration of US industries to other countries (Jackall, 2010). Third, the democratic election system made it difficult to reduce welfare expenditure once it was provided. However, the expansion of welfare expenditure did not add much of burden to enterprise in the United States, because it was run by government deficit to a large extent, which had not only relieved the social burden on big corporations, but also reduced public resistance to them. Fairly speaking, expenditure on social welfare did improve social equity, but it also promoted the development of the corporate economy in the United States. In addition, figure 4.3

109

shows that national defence accounts for over 10% of government expenditure, which means a huge amount given the size of American government. There is no doubt that the United States’ global military deployment helps to protect the interests and global expansion of its big corporations.

Figure 4.3 Distribution of Government Expenditures by Functions, 1959-2010

100%

80%

60%

40%

20%

62 68 71 74 80 83 89 92 98 01 04 07 10 0 1959 19 1965 19 19 19 1977 19 19 1986 19 19 1995 19 20 2 20 20

National defense Health and welfare Administration Education Economic affairs Notes: 1.The data used in producing this figure is from the U.S. Department of Commerce, Bureau of Economic Analysis (http://www.bea.gov/). 2. All calculations are based on the current dollars in respective years.

Here it is also worthwhile mentioning that the American government even tried to use a market approach to transform traditional administrative regulation in the late-20th century (e.g., the adoption of tradeable pollution rights to regulate air pollution),

110

although the approach was not widely used in the United States (Engerman & Gallman,

2000b). This kind of transformation proved partially successful, but the success was confined to the CSR issue, and it most heavily influenced the operations of small and medium enterprises. Big corporations remained resourceful enough to escape government regulation through their international operations (Cohen, 2002). In addition, with the change to a post-industrial society since the 1970s, many big companies also tried to move from traditional industries to service and/or high-tech industries, which further weakened the effectiveness of government regulation because it targeted traditional industries (Cassis, 2007). It seems that government regulation always lagged behind the big corporations’ responses to the regulatory environment. In that sense, the value of a market approach to the regulation still remains high.

4.1.4 Regulatory Capture by the Big Corporation in the U.S.: From Enron to the

Global Financial Crisis of 2008

In the early years of the 21st century, a series of big companies were found to be cheating investors and the public through financial fraud, such as the Enron

Corporation and Arthur Andersen (Markham, 2006). These scandals could be ascribed to the laissez-faire environment created by deregulation from the 1970s to the 1990s

(Coffee, 2006). The scandals also illustrate that it might be very dangerous to see laissez-faire and regulation as mutually exclusive. However, the lesson was not taken seriously by the United States due to the September 11 attacks in 2001, and the issue of anti-terrorism had dominated the policy agenda for a few years. Although the Sarbanes-

Oxley Act was passed in 2002 as a countermeasure to corporate financial fraud, the rise of operational costs brought about by the act made more impact on small and medium

111

enterprises than big corporations, because generally the big corporations are less sensitive to cost rises and they have more ways to escape the regulation of the act

(Romano, 2004). During George W. Bush’s presidency from 2000 to 2009, the deregulation policy continued as a result of political lobbying by various interest groups, and because President Bush is also a traditional liberalist with a strong sense of laissez- faire (Jackball, 2010). Although regulation was not totally abandoned, the existing regulations were limited and the regulators as gatekeepers proved to be incompetent

(Coffee, 2006). Finally, the global financial crisis came in 2008.

Indeed, the United States has failed to make the transition from government intervention to government regulation since the New Deal. In a way, the failure to construct an effective regulatory regime demonstrates that the political economy of the United States has been successfully manipulated by the development of corporate capitalism (Stewart,

1975; Kelso, 1978). Julian Assange, the founder of WikiLeaks, made a brilliant point related to this capture. Although the following quotation focuses on freedom of speech, the analysis is useful for better understanding the nature of corporate capitalism in the

United States today.

The west has fiscalised its basic power relationships through a web of contracts, loans, shareholdings, bank holdings and so on. In such an environment it is easy for speech to be "free" because a change in political will rarely leads to any change in these basic instruments. Western speech, as something that rarely has any effect on power, is, like badgers and birds, free. In states like China, there is pervasive censorship, because speech still has power and power is scared of it. We should always look at censorship as an economic signal that reveals the potential power of speech in that jurisdiction. The attacks against us by the US point to a

112

great hope, speech powerful enough to break the fiscal blockade.7

More specifically, the above quotation reflects regulatory capture, which means the process by which the regulated targets (e.g., big corporations) manipulate the government agency that should regulate them independently (Bó, 2011). In the case of the United States, concrete evidence for this regulatory capture is the shrinking role of anti-trust law. According to some careful reviews on the history of anti-trust law and its enforcement in the United States (Freyer, 2006; Friedman, 2002; Fligstein, 1990; Lehne,

2005), anti-trust law has become more symbolic and is less implemented. Indeed, anti- trust law does not effectively suppress the rise of corporate power in the United States

(Nolan, 2001).

4.1.5 Summary

For a long time, American economic governance has attached too much importance to the move to laissez-faire from state interventionism or vice versa, but I argue that it should not throw the baby out with the bath water when state interventionism is polluted or abused. In other words, laissez-faire asks for the elimination of government intervention only, and government regulation as the key to state interventionism needs to be retained, or else laissez-faire will lead to disaster sooner or later, as American economic history has already shown. Unfortunately, the historical analysis in this part indicates that the G-E relationship in the United States has entered a lock-in status since the New Deal, and that government regulation has been gradually captured by the big corporations. The U.S. government has even expanded social welfare at the expense of

7 http://edition.cnn.com/2010/WORLD/europe/12/03/wikileaks.assange.qanda/index.html, retrieved on 1 November, 2011. 113

soaring government deficits rather than increasing taxes on corporations (see figure 4.4).

From figure 4.4, one finds that American corporate profits after tax fell only slightly in

2008, and quickly climbed to their highest point in record in 2010, while the terrible employment data indicate that small and medium enterprises are still in the nightmare of the crisis. This situation reflects the essence of the G-E relationship in the United States.

In the global financial crisis, history repeated itself: the policy of government intervention was used again in the United States, and more specifically, politicians argue once more that helping the big corporation is the most important thing to stabilize the economic foundation. Due to regulatory capture, many big corporations are too powerful to fail. As for government regulation over the big corporation, its importance lives only in the slogan. As the proverb says, “the only lesson we learn from history is that we do not learn from history” (Labedz, 1989: 251).

Figure 4.4 Corporate Tax Rate and Corporate Profits after Tax in the U.S., 1929-2010

Notes: 1. The data used in producing this figure is from the U.S. Department of Commerce, Bureau of Economic Analysis (http://www.bea.gov/). 2. All calculations are based on the current dollars in respective years.

114

Based on the foregoing historical analysis, I will explore the ideological foundation of the American approach to the G-E relationship in the next section. As I suggested in

Chapter Two, the term corporate liberalism will be used to summarise the American approach to the G-E relationship. Beside the conflict between the state and the market, the G-E relationship in the United States also needs to deal with the relationship between government intervention and government regulation. The approach of corporate liberalism is more market-orientated, and does not place enough emphasis on government regulation. Although corporate liberalism has brought the big American corporations unprecedented development, that development also undermines corporate liberalism itself. I will discuss this paradox and its implications in the last section of this chapter.

4.2 The Philosophy of Corporate Liberalism and Its Problem

The historical analysis suggested that, since the New Deal, the United States adopted a pro-big corporation approach when it came to the G-E relationship. I use corporate liberalism to summarise this approach and then discuss the problems it raises. Based on the review on the usage of corporate liberalism in Chapter Two and the review of

American economic history above, I propose integrating the different usages of corporate liberalism to describe the American approach to the G-E relationship since the New Deal. In this context, the term corporate liberalism denotes a compound of three interrelated components: a minimal regulatory state for big corporations, a centralised government in social welfare affairs, and a liberal market for various interest groups. The first component often means a laissez-faire system in which the big

115

corporation enjoys great autonomy due to insufficient government regulation, and thus it can make the most of both a free market and the regulation. The second component is also known as welfare statism. This refers to the idea that the government is supposed to protect people’s social well-being and economic interests, and the idea provides justifications for government’s expanding roles in welfare expenditure and intervention into the economy. However, in the case of the United States, government expansion is at the expense of increasing financial deficits rather than corporate burdens, so it provides essential support for corporate capitalism’s development: the welfare expenditure helps to reduce public resistance and the social burden on the corporate sector; intervention into the economy often brings business opportunities, policy supports, or bailout plans for big companies. The final component, a liberal market for various interest groups, recognises conflict and competition among different interest groups (i.e., interest pluralism), and this component also legitimates various groups’ actions for the sake of themselves. In a way, this final component is a corrective measure that is supposed to constitute some constraints on any threat to individual freedom and public interest, but it is important to note that this component does not deny big corporations their freedom or the government as an interest group because both can defend themselves. Unfortunately, an open and equal market for interest competition between different groups does not exist in the United States (or anywhere else, for that matter). Although no single player in the market can monopolize decision- making about resource distribution, big corporations and the government definitely are more powerful interest groups and thus able to control the process more (Kelso, 1978).

In other words, the final component of corporate liberalism can only maintain a limited constraint on big corporations and the government, as both of them are very powerful

116

players relative to other actors.

Considering the three components of the philosophy of corporate liberalism, it is not difficult to understand the interdependence of the rise of big corporations (figure 4.4) and the expansion of government (figure 4.1 & 4.2) in the United States. In that sense, corporate liberalism does not assume that big corporations and a big government cannot co-exist. However, the co-existence may not last for long, because big corporations and big government have different interest orientations, and can be contradictory in many cases. By nature, the big corporation always pursues business profit, while big government is supposed to promote public welfare. Indeed, economic interests are often inconsistent with political interests, especially in the globalisation era when economic interests extend beyond political territories. Although the expansion of the American government in the past did not increase the burden of the private sector, that expansion might be difficult to sustain if it is always based on increasing government deficits and the abuse of the U.S. dollar’s international currency status. Sooner or later, the U.S. government would have to deal with its endogenic conflict with the big corporation, and we saw great public pressure and protests on that conflict during the global financial crisis.

From the above analysis, the problem of corporate liberalism is clear. It does not tackle the basic conflict between state and market, but leaves the conflict aside and takes an unbalanced approach to maintain policies that are pro-big corporations, in which individual and public interests are not cared for sufficiently, and the government’s sustainability and stability are even weakened. Furthermore, this approach has worsened

117

the conflict between state and market, so ultimately the United States will be forced to pay more when the country decides to adjust the G-E relationship, though the approach has for some time promoted the development of American corporate capitalism.

However, that is not necessarily to mean that the American approach is inferior to

China’s approach to the G-E relationship, given their different development stages and different contexts. In other words, various differences between the two countries could make a direct and simple comparison unreasonable, and also determine the extent to which the two countries may learn from each other. In the above review on American economic history, I show that the American approach to the G-E relationship is historically path-dependent and subject to a series of institutional constraints. To some extent, the approach has also been strengthened by fierce international competition in this era of globalisation. Therefore, it might be difficult for the United States to change the existing approach of corporate liberalism. In order to understand the difficulty further, the following section will explore the ideological dynamics behind the approach taken by the United States. The effort could help us to gain a more in-depth understanding of the American G-E relationship, which is essential for the comparative study of the two countries’ G-E relationship in the next chapter.

4.3 Ideological Foundations of American Approach to the G-E Relationship

I have defined the approach of corporate liberalism as a mix of three different components: a minimal regulatory state for big corporations; a centralised government in social welfare affairs, and a liberal market for various interest groups. In order to understand the ideological dynamics for the American approach to the G-E relationship,

118

I will explore the ideological foundation for each component of corporate liberalism.

Regarding the first component, the liberal tradition in the United States provides very strong support for a minimal regulatory state for big corporations. Indeed, the principle of liberty plays a fundamental role in the American system of political economy

(Prindle, 2006), and determines that nobody is the natural ruler of the country. Initially, liberalism encouraged the American people to fight for independence from the British empire, and was reflected in the principle of religious freedom established by The First

Amendment of the United States Constitution in 1789 (Witte, 2005). Later on, liberalism became the ideology for anti-slavery and feminist movements. In the economic field, however, liberalism consistently refers to the individual’s market freedom from state interference (Nolan, 2004), which originates from Adam Smith’s idea of the liberal market. Indeed, a powerful government is doubtful or even dangerous in liberal people’s eyes (Lehne, 2005) and the free market perspective is consistent with minimal regulatory state. Nevertheless, a question still remains: how could liberalism help the corporation since traditionally it helped only individuals? The answer lies in the evolution of corporate personality theory in the United States, because the evolution finally makes the corporate body have the status of legal person who can enjoy liberalism as a natural person does.

The corporate personality theory plays a very important role in corporate law, because it deals with the issue of the corporation’s nature. At least five major corporate personality theories have appeared in the United States in the past two hundred years (Sheng, 2006):

1. Grant theory perceives the corporation as an institutional creature (Bowman, 1996); 2.

119

Aggregate theory sees the corporation as a mix of individuals and property (Phillips,

1994); 3. Real entity theory thinks that the corporation is a real person who should be recognised by the law (Jiang and Long, 1998); 4. Contract theory argues that the corporation is a nexus of a series of contracts (Luo, 2004); 5. Corporate social responsibility theory emphasises that the corporation has a social existence (Hamilton,

1996). Although various debates seems endless from the grant theory to the corporate social responsibility theory, a consensus achieved in the theoretical development is that the corporation should be treated as a natural person. In the context of the United States, that means the corporation’s rights and property should be respected and protected by the law. In that sense, the corporation is supposed to enjoy a liberal market in which its development is subject to minimal state regulation or intervention. Actually, minimal state regulation or intervention has become a crucial indicator for market liberalism in the corporate economy of the United States.

The second component of corporate liberalism, a centralised government in social welfare affairs, is linked to the idea of natural individual rights. As McQuaid (1978) points out, one of the ideological bases for the government of the United States is the concept of natural rights, which is closely linked to American Christianity. The government has the obligation to protect people’s rights, particularly their human rights.

That is also one of the major sources for the government’s legitimacy. However, compared with corporate liberalism’s first and third component I will discuss in the next paragraph, the second component’s ideological foundation is not very strong, because a centralised government could not be defended well in most cases in the United States.

As I have analysed, the construction of welfare government in the United States is

120

driven more by the pressure of socialism and democratic election. The major problem is that a centralised government challenges the powerful ideological tradition of liberalism, and may threaten individual rights and freedom. Although the centralised government could promote social welfare, there are many other ways to achieve the same end.

Another problem for the second component is that, the expansion of social welfare in the United States is at the expense of soaring government deficit but not on a healthy and sustainable economy.

The third component, a liberal market for various interest groups, is more related to basic American beliefs in democracy and pluralism. Originally democracy itself refers to the institutionalization of cooperation and competition between different powers, and that political power should be subject to checks and balances (Fukuyama, 2011).

Furthermore, Keane (2009) argues that democracy has moved from parliamentary democracy and entered an era of monitory democracy in the United States. This new form of democracy is rich in various monitory bodies and institutions (e.g., social media and power-scrutinising mechanisms), and it holds that “nobody is entitled to rule without the consent of the governed, or their representatives” (Keane, 2009: 706). That sounds like a thoroughly liberal market for various political powers, although the cost of public policy decision-making might be higher and its efficiency lower. In addition, the

American people have a strong belief in pluralism. From an historical perspective,

Kelso (1978) discusses two forms of pluralism: laissez-faire pluralism and corporate pluralism. The former means an open political-economy arena in which individuals, groups, organisations, and political elites could compete with each other equally. The latter refers to the situation that certain groups (e.g., big companies and political elites)

121

could exert much greater influence on the policy-making process than other groups or individuals, although no single party can dominate the process. With the emergence and rise of the modern company in the United States, the country has experienced the ideological transition from laissez-faire pluralism to corporate pluralism.

All in all, there are always tensions between individuals and society as a whole, and these tensions can be viewed as part of the conflict between the state and the market, about which the government is supposed to play a co-ordinating role. With the rise of modern corporations, however, the conflict becomes more complicated because more interest groups are involved. Besides the above ideological foundations, the approach to the conflict also rests on ethics. Although Mandeville (1988) argued that private vices may create benefits for the public, he emphasised the importance of institutions that can channel the vices to those ends. Obviously, government is an institution of that kind, but the institution would not work without the support of ethics. As Buchan (2006) points out, Adam Smith developed Mandeville’s thought and argued that selfish individuals could drive the economy with the invisible hand of the market. On the other hand,

Smith (2006) also suggested the economy’s moral foundation should not be ignored.

Smith’s moral philosophy aims to control the market rather than letting the market dominate the whole country. To an extent, this idea is similar to China’s philosophical tradition of control over the economy (Nolan, 2004). Unfortunately, Adam Smith’s moral philosophy has been not valued as much as it should in Western society for a long time. A more systematic discussion of the relationship between ethics and economy is made by Max Weber (2002). Weber successfully explained that the development of modern capitalism relies on ethical constraints and moral ideas acquired from the

122

Protestantism. Indeed, the American system’s ideological foundations largely depend on some religious beliefs, and I have hinted at this point more or less in the above analysis.

Nevertheless, here a big problem is that, while religious factors helped the United States to integrate and develop, its significance in various institutions and organisations is diminishing with the trend to secularisation. Paradoxically, one of the key reasons behind the decline of religion is economic development (Bruce, 2002), and conversely, the decline of religion brings some moral problems that could trouble the United States economy, as the country’s situation since 2000 has revealed.

123

Chapter Five

State, Market and Beyond: A Comparative Analysis of the G-E relationships in

China and the United States

There is nothing intrinsically good or bad about either the state or the market. Each has its advantages and disadvantages in serving human needs: The state should be treated essentially like the market – a necessary, but imperfect and occasionally dangerous way of achieving socio-economic goals. (Nolan, 2004: 143)

In the previous two chapters, I have explored the approaches taken by China and the

United States to the G-E relationship: resilient authoritarianism and corporate liberalism, respectively. China and the United States present different features in their G-E relationship through the two different approaches. This chapter will firstly compare the characteristics of the G-E relationship between China and the United States, and then explore which model is better based on the analysis of their strengths and weaknesses.

Furthermore, I will explore whether China and the United States could learn from each other with regard to the G-E relationship, and what they can learn in the general sense.

Finally, this chapter will critically evaluate the successes and failures of the China model and the United States model, and offer insights into a better approach to the two countries’ G-E relationship.

5.1 Characteristics of the G-E Relationship in China and the U.S.: Resilient

Authoritarianism vs. Corporate Liberalism

This section will compare China with the United States in terms of the characteristics of 124

their respective G-E relationships. The comparison includes four aspects: adjustment mechanism, driving force, coordinating strategy, and philosophical foundation. These comprise the major characteristics of any country’s G-E relationship. As I argued in

Chapter Two, existing studies are inclined to use the dichotomy of state-market to discuss the relationship between government and enterprise. In lieu of this simple dichotomy, my discussion of the G-E relationship in the following includes some other factors besides government and enterprise, because other factors might influence the G-

E relationship, such as law, media, and other stakeholders in the market or in society.

This dissertation argues that an in-depth understanding of the G-E relationship inevitably requires a systematic view of a broad range of factors.

5.1.1 Mechanisms for the Adjustment of the G-E Relationship

In China’s case , the adjustment mechanism of the G-E relationship generally adopts a top-down approach, because the government has the discretion and sufficiently independent authority to make any necessary change without much individual/organisational resistance or procedural constraint, as China’s SOE reforms have shown in the past three decades. In a way, this characteristic reflects China’s authoritarian resilience. Compared with democratic states, China’s authoritarian regime does not impose many constraints on its decision-making process, because China’s institutional framework and its hard core-soft belt ideological structure provide the regime with very strong authority as well as considerable flexibility, as long as the

Communist Party’s leadership status is secured. Indeed, the party-state regime in China may be viewed as an organisational emperor (Zheng, 2010), and the government can make efficient policy adjustments according to the changing environment. The

125

efficiency of the G-E relationship adjustments largely comes from China’s trinity summarised by Lin Nan (2011), i.e., the unity of the party, the government (including various monitory agencies), and the SOE; and the three players’ interests are consistent in most cases so that they can easily achieve consensus. This trinity not only brings about a highly-centralised decision-making system, but also makes efficient policy adjustments possible.

Compared with China, the United States’ way of adjusting the G-E relationship is not that simple. It will not only go through a series of strict procedures, but also face a lot of constraints from outside sources, such as various monitory agencies, media, and interest groups. In a way, the decision-making process is a gaming process involving many players, which often leads to a compromise rather than the best solution because it may have to sacrifice some players’ interests. John Keane (2009) argues that, the parliamentary democracy established since the Enlightenment refers to absolute empowerment and independent decision-making under the Constitution, but this form of democracy nowadays has been changed to a new form called monitory democracy, which means that political power and decision-making is defined by the rise of various monitory organisations and institutions. In other words, the authority of the government has been weakened in this way, and the flexibility of political decision-making is also reduced due to the rise of the aforementioned constraints. To some extent, the prevalent doubt about the relationship between government and the big corporation in the United

States (Lehne, 2005) contributed to the change from parliamentary to monitory democracy.

126

5.1.2 Driving Forces behind the G-E Relationship

From the perspective of the driving force, the G-E relationship in China may be viewed as a leadership-driven system, in which government officials and SOE leaders play the most important role in the G-E dynamics. China has a long tradition of rule of men that means leaders rule the country and make decision according to their experience, knowledge, and discretion (Cai and Wang, 2010). This tradition largely helps to shape the leadership-driven system. In order to reveal the difference between China and the

United States, I distinguish leadership from management. Here I view leadership as an interactive process between leaders and followers (Ammeter, Douglas, Gardner,

Hochwarter, & Ferris, 2002), and I use the concept of management in a narrow sense and maintain that management is a technique and craft term, consisting of corporate structure, managers and workers, technology elements, regulations, and management performance (Zaleznik, 1977; Northouse, 2007). In that sense, China’s G-E relationship may be viewed as a system largely determined by the interactions between the leaders, such as government officials and SOE leaders, while other people or organisations are just followers. For a long time, China’s power structure has been highly centralised, and thus it is not difficult to understand the importance of leadership in that context.

China’s authoritarianism may also be viewed as a top-down decision-making system fully supported by the leader’s authority (Zafirovski, 2007). Even for China’s model of resilient authoritarianism today, the core issue is still the leadership. As I have discussed in Chapter Three, ideology in ancient China focused on the authority of the emperor, while the ideology in contemporary China emphasises the leadership of the CCP, particularly a group of elite members in the party. Although SOE reforms over recent years have tried to integrate its traditional control and western management techniques,

127

China’s political leaders still dominate the process of these reforms, and they design or filter various policy options for the G-E relationship.

Compared with China’s G-E relationship as a leadership-driven system, the United

States’ system is more a management-driven system, in which various structures, regulations, and institutions are crucial in explaining the G-E dynamics. Based on the above definitions of leadership and management, China’s system is much determined by the rule of men (i.e., people who occupy leadership positions), while the system in the United States relies more on the rule of law that means the governance is based on a series of stable institutions, rules, and legal principles respected by most people

(especially political leaders) in the system (Ross, 2001; Tamanaha, 2004). In a way, the rule of men aims to enhance the political leaders’ control over the country, while the rule of law aims to restrain political leaders from violating individual freedoms and rights (Costa and Zolo, 2007). Indeed, it is well known that the rule of law is a fundamental principle in the United States, and derives from religious belief in law created by God (Fukuyama, 2011). Although China’s Confucianism philosophy also believes in the will of heaven (Tianyi 天意), the philosophy consistently puts the human

(especially the ruler) at the centre of the system (Ge, 2009). That is quite different from the religious tradition in America. As a result of this kind of difference, in the case of the United States, human factors are not as important as in China in terms of the design or adjustment of the G-E relationship, and government officials and corporate managers are supposed to manage various G-E issues according to existing rules and institutions

(e.g., the democratic institution).

128

5.1.3 Coordinating Strategies for the G-E Relationship

China’s G-E relationship adopts an internalisation strategy to deal with various related issues. As figure 5.1 shows, the government in the centre is a powerful coordinator which can manage various other actors’ behaviour through integrating them into the system of the party-state. That may also be called coordinated capitalism or coordinated market economy in the paradigm of varieties of capitalism (Martin &

Swank, 2008; Nolan, 2007; McNally, 2008). For example, when a SOE is required to achieve some public ends (e.g., stabilizing energy prices) under the instruction of the government, its business viability is often negatively affected. In this circumstance, the government would probably use the tax collected from others to make up for the SOE’s profit loss. That is also one of the major sources for Chinese SOEs’ soft budget constraint problem (Lin, et al., 1998; Lin and Tan, 1999) that I discussed extensively in

Chapter Two. Another example of the internalisation strategy is the particular implementation of China’s anti-trust law. The law does not actually tackle the monopoly status of SOEs in many industries; instead, it is often used by the government to protect the SOE from the fierce competition from domestic/foreign enterprises. The government firstly tries to internalise various conflicts between the SOE and other actors/factors in the market or the society, and then uses its powerful coordinating ability to deal with those conflicts. In the process, the CCP’s interest is always the foremost consideration. The adoption of this internalisation strategy may have something to do with China’s tradition of control over economy, which I have discussed extensively in Chapter Three.

129

Figure 5.1 China’s Internalisation Coordinating Strategy

Compared with China, the United States’ corporate liberalism uses an externalisation strategy to handle the G-E relationship, and different actors are relatively independent from each other based on different interest orientations. As figure 5.2 presents, government is just one of the players in the system, and does not have the power to coordinate all other players in the system. Big companies are even more powerful than the government in many cases. With solid empirical support, Domohoff (2006) has convincingly shown that big corporations, their owners, and their top managers dominate the operation of power in the United States. Although the government may occasionally help companies, such support is subject to various kinds of external examination, and the government and the company are under consistent pressure to convince the public and the stakeholders that the relationship between them is clear and justified. In other words, no kind of internal deal is allowed. That is also the reason why the United States does not have as much of a soft budget problem as China does,

130

because the government is not quick to soften the company’s budget through various measures such as providing subsidies and reducing tax. Meanwhile, every other player

(e.g., media or stakeholders) may impose constraints on the government and the company’s behaviour. From the perspective of varieties of capitalism (Hall & Soskice,

2001), the model of the United States is the liberal market economy, where every player in the system can compete with each other, though the company and the government are more powerful in most cases.

Figure 5.2 The United States’ Externalisation Coordinating Strategy

5.1.4 Operational Principles for the G-E Relationship

The operational principles that inform China’s G-E relationship are pragmatism and meritocracy. The principle of pragmatism means that China adopts a very practical way of operating the G-E relationship, one well embodied by Deng Xiaoping’s cat theory discussed in Chapter Three. Although pragmatism is popular in Western countries as

131

well, Western pragmatism is used largely at the individual level, and is not orientated towards strengthening the state’s control over the economy, as in the case of China. In practice, the nature of the G-E relationship in China is supposed to be useful to the party-state system’s viability. In order to achieve this objective, SOE reforms since

1978 have continually pursued the control and promotion of the key industries in the national economy, as Chapter Three showed. Since China’s G-E relationship is a leadership-driven system, the principle of meritocracy (i.e., choosing political leaders based on merits) is quite critical to the system’s operation as well. Although the United

States favours meritocracy to some extent, ideology in that country attaches much importance to the value of populism and acknowledges the ordinary person’s power in many respects, such as choosing the political elite (Putnam & Campbell, 2010).

Nevertheless, the meritocracy in China allows political elites to make all-important decisions, making them more powerful than their counterparts in the United States.

Indeed, empirical studies (e.g., Bo, 2002) have found that the promotion of government officials in China largely depends on their ability and performance. This is what is called the Tournament Model (Zhou, 2007). As I have pointed out in Chapter Three, the system may get into trouble if government bureaucrats as gatekeepers are not competent.

On the other hand, if the principle of meritocracy in China helps to bring forward the most capable persons and eliminates incompetent leaders, various issues, policies, or conflicts related to the G-E relationship can be handled well in most cases.

From the historical analysis in Chapter Four, one may see that the principles of pluralism and checks and balances support the operation of the G-E relationship in the

United States. Although there are numerous discussions about the two principles, few

132

people notice the linkage between them and the G-E relationship in the United States.

Basically, the principle of pluralism acknowledges the co-existence of different interests, and discourages any single player’s monopoly (Freeden, 1998; Schwarzmantel, 2008).

Pluralism as an ideology I discussed in Chapter Four is slightly different from pluralism as an operational principle here. The former emphasises that pluralism provides the legitimacy and social foundation for the United States’ approach to the G-E relationship, while the latter focuses more on the operationalisation of this ideology at the level of G-

E relationship in practice. As discussed in Chapter Four, the United States’ G-E system is designed to ensure that every player has some channels through which to pursue its own interests, and the government is expected to provide protective measures in order to defend interests of certain disadvantaged groups. However, in practice these channels and measures may not always be sufficient and effective for fully protecting the disadvantaged groups. While the ideology of pluralism may be a good ideal, in reality the actors on the market vary in their ability to benefit from it. The second important principle, checks and balances, has been embedded in the American Constitution since

1787 (Wang, 1997). The philosophy behind this principle is to prevent any kind of power abuse by individual or organisation, and also means that political power faces various constraints and limitations. In a way, the principle of checks and balances plays a cornerstone role in the United States’ G-E relationship. It encourages the adoption of countervailing power to balance the force of the large corporation and the government

(Galbraith, 1993; Prindle, 2006). In reality, various legislative and policy designs ensure the development of the countervailing power in government and also in the big corporation, e.g., in the form of monitory agencies and trade unions.

133

5.1.5 Summary

Table 5.1 summarises the characteristics of the G-E relationship in China and the

United States. In short, China’s resilient authoritarianism adopts a top-down approach to

adjust the G-E relationship when it is necessary. As a leadership-driven system, the G-E

relationship in China uses an internalisation strategy to deal with various issues of the

G-E system; the principles of pragmatism and meritocracy have great impact on the

system’s operation and effectiveness. By contrast, the United States uses the approach

of corporate liberalism in terms of G-E relationship. Due to various institutional

constraints, the adjustment of the G-E relationship is a more competitive process with

different actors having to go through a series of procedures and examinations; thus it is

not as simple as in China. As a management-driven system, the United States adopts an

externalisation strategy to handle problems surrounding the G-E relationship. Therefore,

the principles of pluralism and checks and balances provide guidance while at the same

time imposing constraints on the operation of the G-E relationship.

Table 5.1 Characteristics of G-E relationship in China and the U.S. Adjustment Coordinating Operational Driving Force Mechanism Strategy Principle

Resilient Pragmatism & Top-down Leadership-driven Internalisation Authoritarianism meritocracy

Corporate A gaming process Management- Pluralism and Externalisation Liberalism among various actors driven checks & balances

5.2 In Search of a Better Model for both China and the U.S.

In order to identify the characteristics of an improved G-E relationship model, I will 134

explore and analyse the two countries’ G-E relationship models’ strengths and weaknesses according to the features summarised in table 5.1. Basically, it is difficult to simply say which country’s model of G-E relationship is better. Both the Chinese model and the U.S. model have their own merits and demerits, and I will discuss them one by one as follows.

First of all, China’s resilient authoritarianism is more conducive to the state regulation or control over enterprise and the market, while the United States’ corporate liberalism favours market liberalisation. In that sense, China’s approach can lead to government failure brought about by the state’s over-control of the economy, which was the case from 1949 to 1976, as shown in Chapter Three. Conversely, the United States’ approach is likely to cause market failure brought about by a lack of government regulation. Wolf

(1988; 1993) views the government and the market as two fundamental mechanisms for economic governance, and the two mechanisms may be used alternatively in a country’s economy. In a way, the two mechanisms are a double-edged sword: the government may play a positive role in the system of political economy, but it may bring about government failure if government intervention or regulation is so strong that the healthy development of the market is heavily repressed. A liberal market is important for a country’s economic development, but a country may face market failure if there is a lack of effective market protection and regulation (see also Przeworski, 2003). Since

China’s approach of resilient authoritarianism requires a powerful government, it may rely more on the strength of government control, the approach also easily results in the government failure, especially given that the Chinese government has a natural tendency to controlling the economy (see Chapter Three). Compared with China, the

135

approach of corporate liberalism allows the United States to enjoy more benefits that come with market liberalisation, but paradoxically the country is easily vulnerable to market failure due to the rise of market disorder, as the economic crises or recessions have shown since the 18th century. In addition, a great challenge to the United States nowadays is that the existing approach to the G-E relationship cannot effectively temper the big company’s hegemony or constrain the development trend to bigger government.

Next, China might be more efficient than the United States in terms of making adjustments to the G-E relationship. China has acquired its strength from this feature, and its G-E relationship can respond to environmental change very quickly, while the

United States’ response to changed circumstances might be slower in most cases. For example, in the global financial crisis, the Chinese government encouraged SOEs to go global more boldly, especially in the form of cross-border merger and acquisition

(Sheng, 2009). On the other hand, when Lehman Brothers got into the trouble, the

United States government hesitated to help the company due to great public pressure and political calculation, and finally missed the timing to avoid a worse situation

(Tibman, 2009). Nevertheless, quick response to change is not always a good thing for

China. In practice, it matters whether the change proposed by leaders is indeed the best course of action. Also, if changes are made too frequently or too quickly, they may bring huge costs or risks, and have a negative impact on economic performance. On the other hand, the United States’ slower response to environmental change may have some positive implications for economic performance, because careful consideration often needs more time, especially when the country faces complicated issues or situations. As a result, this more conservative attitude towards change may keep the country’s

136

economic turbulence to a smaller scale than that of China, where the economy fluctuated with greater highs and lows (see figure 5.3), as shown by China’s and the

United States’ economic histories outlined in the previous two chapters. In general, the stability of China’s political economy is not as pronounced as that of the United States, although it has shown high-speed economic growth in the past three decades.

Figure 5.3 Economic Performance of G-E Relationship in China and the U.S.

The United States Time China

From the perspective of the driving force, China’s leadership-driven model emphasises the advantage of centralisation in the G-E relationship, while the United States’ management-driven model highlights the benefit of decentralisation. In general, the leadership-driven model is more suitable for an immature system that faces radical external changes, and the management-driven model is more applicable to a relatively stable and mature system. That may partly explain the Sino-American difference in terms of the driving force. In general, China launched its economic reform as recently as thirty years ago, and is still in the process of working towards a mature development model for the G-E relationship, or toward the scientific development (kexue fazhan 科学

发展) proposed by Chairman Jintao Hu, so the importance of leaders and their leadership are highly significant. In the case of the United States, the situation is quite

137

different, and its basic political economy institutions have not changed since the rise of the corporation at the end of the 19th century. The successful operation of the U.S. system relies much more on the good management of various relationships, institutions and actors. In that sense, it is not proper to argue that China’s model of driving force is superior to the United States’ model, or vice versa, because the two countries’ different choices of the model fit the different statuses of their systems. However, there are also some exceptions: if one accepts the assumption that globalisation is an inevitable and on-going trend, then China’s leadership-driven model might be more powerful in global competition, as it is more adaptable to various changes brought about by that globalisation. On the other hand, China’s success is more determined by its leadership, although excellent leadership is not always guaranteed. Thus leadership changes in

China often add great uncertainty to the system, and bring profound consequences.

Compared with China, leadership is not that influential to the United States’ operation of its G-E relationship, and leadership change does not have much impact on the G-E relationship in most cases.

Moreover, the internalisation strategy of the G-E relationship brings China an obvious strength: various problems and conflicts in the political economy system are easier to solve or relieve. In contrast to China’s strategy, the United States’ externalisation strategy promotes conflicts in the system and makes it difficult to coordinate players’ interests, and thus the solution of those conflicts is often subject to various limitations or constraints. In addition, the internalisation strategy makes China acquire another strength: the dual roles of the government can be fully deployed. On one hand, as one of the players, the government plays an actor role in the system; on the other hand, the

138

government also plays a structure role when it coordinates other players. Obviously, the

United States does not have this strength due to its externalisation strategy. The U.S. government’s actor role is clear, but the government’s structure role is heavily constrained by other players and external institutions, as I have discussed in Chapter

Four. I discussed the analytical framework of transaction costs developed by Furubotn

& Richter (2000) in Chapter Two, and here I use it to compare China with the United

States’ transaction costs in the following three categories: market transaction costs, managerial transaction costs, and political transaction costs. For the reduction of market transaction costs, indeed, China’s internalisation strategy does work, as the inside deal and mutual agreement are much easier to be achieved with the government’s coordination. However, the American externalisation strategy has the strength of reducing managerial transaction costs, as one player in the market is quite autonomous and independent of the other players’ direct interference into its own management decision-making. As for political transaction costs, obviously China would have to spend more in order to maintain a powerful regime that can coordinate other players in the system. Compared to China, the United States spends less in that field because of the externalisation strategy, although the approach of corporate liberalism increases the scale of government.

Table 5.2 roughly summarises the situation of different transaction costs in China and the United States. Obviously, it is not easy to argue which country’s overall transaction costs are higher or lower than the other. The internalisation strategy brings some obvious challenges to the Chinese government. Although the strategy may reduce market transaction costs, it can be detrimental to individual economic players, and by

139

Western democratic standards such an approach sits on the fringes of, or can be fully regarded as, corruption. Compared with China’s internalisation strategy, the United

States’ externalisation strategy may have some disadvantages in terms of market transaction costs, but it has comparative advantages in the aspects of managerial and political transaction costs. Furthermore, the externalisation strategy in the United States could reduce corruption in coordinating different actors in the market.

Table 5.2 Transaction Costs in China and the U.S. Market Managerial Political

transaction costs transaction costs transaction costs China Low High High

U.S. High Low Average

Finally, the philosophical foundations behind China’s and the United States’ G-E relationships give the two countries both strengths and weaknesses. For China, the philosophy of pragmatism provides support and justification for any adjustment of the

G-E relationship that may be helpful for the interest of the party-state, but this kind of pragmatism may sacrifice some other groups when their interests are not consistent with the party-state, and thus easily result in social inequality. This danger is proved real by the rise of social conflicts in China nowadays (Zhao & Sheng, 2010). As for the philosophy of meritocracy, it does ensure that China has the most capable people for the system’s operation, and also these elites can have the power to make strategic decisions without much public pressure. However, recent disorders (e.g., Bo Xilai, one of candidates for China’s top positions, stepped down in 2012 due to power struggles among senior government officials) in competing for the top leadership roles also

140

illustrates that the institutionalisation of Chinese leadership change remains an issue.

This issue, in the words of Nathan (2009), reflects authoritarian impermanence. In other words, the leadership change cannot be institutionalised. On the other hand, the philosophy of pluralism makes the United States a relatively fair society, though it may have weaknesses in terms of providing support for public interest in the long term due to electoral politics (Douglas, 1987). Although the philosophy of checks and balances upholds various constraints on government and corporate power, it contributes much to the system’s stability in spite of periodic leadership change.

In summary, the above comparative analysis shows that, the Chinese model and the U.S. model have different strengths and weaknesses. China’s model excels in some aspects, while the United States’ model excels in others. In many cases, their weaknesses lie paradoxically in their strengths. As a result, it is improper to state directly which country is superior to the other in terms of its G-E relationship model, especially when one considers the question over time rather than at the present moment of global financial crisis.

5.3 Beyond China Model and the U.S. Model: Toward A Contingent Model of G-E

Relationship

Since the Chinese model and the American model for their G-E relationships have different strengths, it is natural to ask if the two countries can learn from each other, and whether there is a best or ideal model for the G-E relationship. The question reminds me of the criticism made by Joseph Stiglitz (2002), the Nobel Laureate in Economics: after

141

the Asian Financial Crisis in the 1990s, the U.S. Department of the Treasury, the World

Bank and the International Monetary Fund proposed that developing countries in the

Asian region should privatise their economies in order to avoid another financial crisis, and the three organisations helped some of these countries to learn from the American model of a liberal economy. However, due to the lack of related institutional environments, economic reform in these Asian countries did not succeed; instead, the reforms even worsened their political economy. Stiglitz argues that the mistake was made largely by the Western ideological preference for the liberal market and the political calculation of foreign policies in the process of globalisation. In addition, the

American model of liberalism had been used to restructure many Latin American countries’ economies since the 1980s, but this kind of restructuring was not very successful either, and it was even subject to serious public resistance in the Latin

America (Guillén, Collins, England, & Meyer, 2002). In this way, it is probably dangerous to directly transplant the American model for the G-E relationship to other countries. Similarly, one must be very careful when planning to introduce the Chinese model of G-E relationship to other countries’ political economy.

Indeed, it might be difficult for China and the United States to learn from each other in terms of the G-E relationship, and for at least three reasons. First, as I have revealed in the last two chapters, both China and the United States have experienced a unique historical path-dependent process, and the dynamics of their systems are different:

China’s G-E system is mainly driven by a unique ideological structure, while the United

States’ system is largely supported by some basic rules shared by society in general.

These differences constitute a powerful constraint on any significant change to their

142

systems. Second, China and the United States have quite different institutional environments, and the strengths of the two countries’ G-E relationship are fundamentally grounded in their distinct political-economic institutions. When the institutional environment changes, the strengths acquired from the original institutional environment might become void or even turn into weaknesses. Thus, different institutional environments represent a major obstacle for China and the United States in terms of learning from each other. Third, the strength of the G-E relationship in a country also relies on certain ideological foundations. Indeed, China’s and the United

States’ G-E relationship models have different ideological foundations, and it is difficult for the two countries to transplant the respective ideologies when they try to learn from each other. Based on these three explanations, I would conclude that other countries would find it difficult to learn from China’s and the United States’ models of G-E relationship.

Although it is difficult for China and the United States to learn from each other directly, they still can improve their own G-E relationship through a comparative perspective and more in-depth reflection, and in particular how their approach to the G-E relationship can be improved by themselves. Indeed, China and the United States should learn more from each other at the level of approach rather than merely technical know-how learning. As I have shown in Chapters Three and Four, both China and the United States are faced with fundamental conflict between the state and the market, and the basic purpose of their G-E relationship models is to deal with this conflict. China’s economic history from 1949 to 1976 has proved that any effort to kill market forces would seriously damage their overall economic system. In this globalisation era, the market

143

has inevitably become a persistent entity, and all countries in the global community are more and more subject to market influences. In respect of the state, the United States’ history before the Civil War also tells us that an integrated and strong government is indispensable for a country’s economic development, or else it is difficult to maintain those institutions and orders essential to players in the political economy. With the rise of cross-border economic activities in modern times, the importance of government lies in providing not only a friendly institutional environment for the domestic economy but also strong protection and support for a firm’s globalisation. Anyway, both the state and the market are supposed to be well taken by a country’s G-E relationship, and extremes in the state or the market is very harmful to the development of the political economy, because, after all, government and enterprise are interdependent (Pfeffer & Salancik,

2003).

Historical experience shows that the corporate liberalism approach brought about the

United States’ economic prosperity, especially when the government takes good care of its actor role and structure role. Even in the global financial crisis, corporate liberalism continues to promote the development of American companies in the world, as I have shown in Chapter Four. From the perspective of the G-E relationship, the secret for

American success in the second half of the 20th century should not be explained simply by the liberalisation of the market or the rise of government regulation. Instead, one should understand its economic success as a result of the co-development of big government and big companies in the United States, although the expansion of government might be unsustainable. On the other hand, the approach of resilient authoritarianism has contributed a lot to China’s economic miracle in the past three

144

decades, but the success does not depend on the introduction of market liberalisation only; on the contrary, the secret lies in the harmonious co-existence of the authoritarian state and the market.

According to the above analyses of unsuccessful and successful experiences in China and the United States, I conclude that the best approach to the G-E relationship must achieve a balance between the state and the market. Partly inspired by the contingency theory that emphasises the match between organisational characteristics and contingencies (Donaldson, 2001), I call this ideal approach the contingent model of the

G-E relationship. More specifically, in order to produce good economic performance, the design and the adjustment of the G-E relationship in a country should aim for a balance between the state and the market that is contingent on the country’s historical, institutional, and ideological factors. For instance, because of the differences in historical background, institutional environment and ideological context, the balance for

China and the United States has different requirements: China needs to restrain the state’s tendency to over-control the economy brought about by its historical path- dependence and ideological tradition, and thus keeping the vitality of the market; while the United States must attach much more importance to the government’s structure role and strengthen government regulation, besides continuing the government’s actor role played by government intervention. It should also continue to provide various players with an equal market environment and show its respect for the market. In addition, it is important to note that the balance should be a dynamic rather than a static one, because the historical background, institutional environment, and ideological context might change with the change of time and external environment. In other words, the balance

145

needs to be contingent to changes in those factors that may impact on the G-E relationship.

146

Chapter Six

Conclusion

Based on an historical analysis, this thesis identifies the G-E relationship, both in China and the United States, as a path-dependent system in which the two countries’ institutions and the ideologies are deeply embedded. However, the nature of these institutions and associated ideologies is different: China has a strong tradition of state control over the economy, while the United States has a strong tradition of free market.

In the process of searching for the better G-E relationship model between China and the

United States, in this thesis I show that the conflict between the state and the market is a fundamental issue for each country’s political economy, and more specifically, for their

G-E relationships. In order to deal with this issue, China adopts the approach defined as resilient authoritarianism, while the United States uses the approach defined as corporate liberalism. China’s resilient authoritarianism allows for efficient policy changes to match changes in the environment, while maintaining the fundamental goal of strengthening the communist party’s leadership position. The United States’ corporate liberalism, leading to a co-development of the big corporation and the big government, may be viewed as a mix of three components: minimal regulatory role of the state with regard to the big corporations, a centralised government with regard to affairs of social welfare, and a free market for various interest groups’ competition.

The development of resilient authoritarianism in China is supported by the hard core- soft belt ideological structure (see figure 3.3 and 3.4, detailed in Chapter Three), generating an inevitable paradox: the authoritarian state’s resilience allows the increase

147

of the market power, but the market power may destroy the authoritarian state itself, if the market power increases to a level that it is beyond the state’s control. As a result, the challenge for this approach is to maintain a careful balance between state control and market liberalisation. China seems to have succeeded in addressing this challenge, especially recently, as many explain its economic success in the past three decades as being the result of achieving such a balance. However, maintaining this balance is not easy: it may be destroyed by a leadership change, government corruption/failure, or attacks from powerful interest groups (e.g., big private corporations and some political leaders). The United States’ corporate liberalism approach is also supported by the country’s ideologies such as democracy and liberty. However these ideologies, rooted mainly in religious beliefs, are likely to weaken with the trend of secularisation associated with economic development (Bruce, 2002). Although the approach of corporate liberalism effectively promoted global expansion of the American corporate capitalism, just like China, the United States also faces the challenge of maintaining the balance between the state’s influence and the role of the market.

In addition, I have also compared specific features of the two countries’ G-E relationship. China’s G-E relationship is a leadership-driven system, in which the government plays both an actor role and a structure role. The actor role means that the government is one of the players on the market; while the structure role refers to the government’s function in setting rules and practicing regulations. With regard to the G-

E relationship, the Chinese government adopts an internalisation strategy to coordinate different players in the system. In general, the operation of the G-E relationship system follows the principles of pragmatism and meritocracy that are explained in the Chapter

148

Five. Compared with China’s G-E relationship system, the United States’ system is more difficult to change or adjust due to multiple institutional constraints. As a management-driven system, the G-E relationship in the United States uses an externalisation strategy to cope with conflicts of interests between different players in the system, where one of the players is the government (i.e., in the U.S. the government exercises its actor role more than its structure role, with limited power over the other players). The principle of pluralism together with checks and balances may largely explain the dynamics of the G-E relationship in the United States in practice.

As Wolf (1993) argues, generally speaking, the choice between the market and the government is not an either-or question. My analysis reveals that in both China and the

U.S., government and market mechanisms are used, but in different forms and to different degrees. It is not proper to simply conclude that China’s development model of

G-E relationship is better than that of the United States, or vice versa, because the two countries’ models have their respective strengths and weaknesses based on their unique features: China’s approach of resilient authoritarianism creates favourable conditions for exercising the “structure” role of the government, while the United States’ approach of corporate liberalism favours market mechanisms.

Although China and the United States’ G-E relationship models have their own strengths and weaknesses, it is difficult for the two countries to learn from each other because their respective strengths and weaknesses are closely linked to their own historical traditions, institutional frameworks and ideological contexts. Nevertheless, the cases of the two countries still provide essential implications for improving approaches

149

to the G-E relationship for both China and the U.S., and also in general. The main goal for the G-E relationship is achieving a balance between the state and the market, but

China and the United States need to act differently in order to achieve this balance. Both countries need to adopt a contingent approach. In other words, when they determine what they should do to achieve balance, they must consider their own historical tradition of economic governance, institutional environment, and ideological context.

Particularly, China needs to avoid over-controlling the economy and enterprises, while the United States must find a trade-off between the government’s actor role and the structure role. Furthermore, the balance between the state and the market should be dynamic, changing with the needs of the time, as the constraints on the G-E relationship will vary according to external environment changes. All in all, China and the United

States need to make the necessary adjustments when the balance between the state and the market is destroyed.

In a way, China’s doctrine of the mean may provide strong philosophical support for the balance between the state and the market. The doctrine asks of all people and all things to pursue a state of equilibrium or harmony (Legge, 1971), and the G-E relationship is no exception, according to this philosophy. In that sense, Toynbee (1972) is right in making the following observation:

China has chosen an imported Western technique to clear away the debris of her stable but suffocating tradition of bureaucratic elitist rule; but Western industrialism, while it can cure some social evils, has created new ones which its originators did not foresee and have no answer for. Yet Western observers should not discount the possibility that China may exercise conscious discrimination in tempering the stability of her own conservative traditional culture with the West's more flexible but more volatile 150

dynamism; the result of such a deliberately controlled attempt at a felicitous synthesis might be a wholly new cultural departure for civilized Man. (p.393)

Indeed, China and the United States should learn from each other. However, Toynbee did not explicitly say how this can be done. One possible reason is that Toynbee’s observation was based on limited understanding of the two systems. From the perspective of the G-E relationship, this dissertation investigates China and the United

States’ economic histories, and elaborates on the two countries’ systems, as well as their strengths and weaknesses. Although Toynbee anticipated the felicitous synthesis of

China and the United States’ systems, he did not specifically discuss the importance of a balance between the state and the market. This dissertation points out that this balance is critical for the two countries’ success in terms of economic and social development, and reveals that to achieve such balance, consideration must be given to historical, institutional, and ideological factors. In addition, Toynbee seems to underestimate the possibility that the United States may develop a unique way to implement this felicitous synthesis. My dissertation argues that both China and the United States may achieve a balance between the state and the market in their own ways. Like China’s doctrine of the mean, the philosophy of checks and balances in the United States has the potential to help the country achieve balance through delicate institutional design.

6.1 Theoretical Contributions

This dissertation investigates whether China provides a better developmental model than the United States in terms of the government-enterprise relationship. In order to answer this question, I have developed a framework that can be used in studying many 151

other countries’ G-E relationships. While analysing China’s SOE and its relationship with the government, my dissertation also provides a new perspective in investigating the issue of soft budget constraint related to the SOE. In addition, while investigating the case of the United States, the analysis contributes to the theory of government regulation. More broadly, this dissertation contributes to the current debate on the

Chinese model and the American model of economic development. I next elaborate on four main aspects of this dissertation’s theoretical contribution.

Firstly, based on the integration of the paradigms of the development state and varieties of capitalism, this study has developed a general framework that may be used to evaluate the G-E relationship in many countries, without denying the existence of ideological difference between them. In general, the paradigm of the development state

(Evans, 1995; Woo-Cumings, 1999) is mainly used to study transitional economies, and its analysis concentrates on the role of the state in economic development and catch-up.

On the other hand, the paradigm of varieties of capitalism (Hall & Soskice, 2001) is mainly used to analyse developed countries, and focuses more on a country’s economic aspects. Its major limitation is that different classifications of capitalism emphasise varying features in particular developed countries, rendering such classifications impracticable when applied to other countries, because it is not always possible to generalise the features summarised by a single classification. Moreover, too many classifications often create confusion and make the existing literature appear as fragmented. The framework developed in this dissertation improves these two paradigms in the following ways: it proposes a focus on the fundamental and pervasive conflict between the state and the market in both transitional economies (e.g., China)

152

and developed countries (e.g., the United States), and investigates how historical, institutional, and ideological factors have an impact on the choice of approach used in addressing the conflict. My framework may not only be used to better understand the role of the state in shaping the conflict between the state and the market, but could also help in understanding the characteristics of a country’s market power. As a result, this framework provides a tool with theoretical consistency that can be used to analyse and compare the G-E relationships of countries in different developmental stages.

Secondly, this study contributes to the paradigm of the soft budget constraint. As I have discussed in the second chapter, the paradigm is often used to criticise the SOE’s inefficiency in socialist countries like China and the former Soviet Union. The widely suggested recipe for addressing the issue of the soft budget constrain is to harden the budget line of the SOE through various means, such as privatisation. According to my study, nevertheless, this recipe might not be practical. To a large extent, the soft budget constraint may be viewed as a reflection of the conflict between the state and the market. Due to the strong constraint posed by the historical background, the institutional environment and the overall ideological tradition, the issue of the soft budget constraint is not easily removed. As Lin et al., (1998) argue, one of the reasons for the soft budget issue is that the SOE often shoulders some policy burdens, and thus the government makes up for the SOE’s loss in profits through softening the SOE’s budget. In addition, the soft budget constraint could be one of the ways to achieve the balance between the state and the market. On one hand, the government must give the SOE some freedom and independence so that it can be a relatively efficient player with market incentives; on the other hand, the government also needs the SOE to achieve some objectives of the

153

state. In that sense, the soft budget constraint itself already suggests a solution to the tension between market efficiency and state control specific to the Chinese G-E relationship: the SOE is supposed to have a hard budget when it acts as a player on the market, while the government needs to soften this hard budget when the SOE plays roles for the state and the public. Thus, the question is how to keep or improve the

SOE’s independent viability on the market while giving the SOE financial help in different forms. The government needs to strike a balance between the two objectives.

Obviously, when the issue is handled well, the soft budget constraint principle can actually be beneficial to both the SOE and the government. For example, during the global financial crisis, the Chinese government helped its SOEs go global and seized opportunities offered by the price fall, while many enterprises in other countries could not receive this kind of help from their governments because such mechanisms did not exist.

Moreover, this study also creates some solid theoretical foundations to the theory of government regulation. A widespread belief is that government regulation is supposed to ensure the effectiveness of the market mechanism (e.g., Polanyi, 1957; Coffee, 2006) and address market failure (e.g., Balleisen & Moss, 2009). In other words, existing studies tend to indicate that the focus of government regulation should be on the market only, but even if this is the case, there is no clear and general guidance with regard to how to achieve proper government regulation. One of the reasons for this limitation might be the confusion between government regulation and government intervention.

Thus, in this thesis I differentiate government intervention from government regulation: the former emphasises the government’s market player role in stimulating the economy,

154

while the latter focuses on the government’s regulatory role in supervising firms and the market (detailed in Chapter Four). In this way this dissertation lends support to the legitimacy of government regulation of both the market and the firm, and validates the necessity and the importance of government regulation in terms of protecting market mechanisms and preventing market failure. Furthermore, I propose a general principle for all countries’ government regulation, i.e., the degree of government regulation should be determined largely by the dynamic balance between the state and the market.

Particularly, the role played by government regulation should not be overshadowed or replaced by government intervention, as the economic history of the United States has taught us (this aspect is detailed in Chapter Four). When determining the form of government regulation in different countries, one must also consider the historical, institutional, and ideological differences between those countries, because these differences, as well as their interactions, may shape different trajectories and models of government regulation. In that sense, this dissertation suggests a diverging trend in terms of the degree and form of government regulation in different countries, and this trend may be the right developmental direction for government regulation.

Last but not least, this study contributes to the current debate regarding the value of the

Chinese model versus the American model from the perspective of the G-E relationship.

Trying to reach consensus in terms of confirming or denying the superiority of the

Chinese model over the American model has been the focus of many recent studies.

Some scholars (e.g., Fukuyama, 1993; Bell, 2000) insist that the American democracy and liberalism represent universal values that are supposed to spread all over the world.

In contrast, other researchers (e.g., Nolan, 2004; Naisbitt & Naisbitt, 2010) believe that

155

China’s economic success may suggest an alternative development model to the U.S.- dominated model, and the global financial crisis has further increased the confidence in this belief., There are, however, also criticisms of the Chinese model. Most critics (e.g.

Shirk, 2007; Chang, 2001) argue that the Chinese model is not a sustainable one because of the existence of massive problems and challenges (as detailed in Chapter

Two). While the pros and cons of the Chinese model and American models may provide some insights, many of them are based on unconfirmed assumptions about the universal value of the market or the politics (Balleisen & Moss, 2009; Fewsmith, 2011). In other cases, some evaluations of the Chinese and Western models may be based on particular, significant historical events, such as the collapse of the Soviet Union in 1989 (e.g.,

Fukuyama, 1993) and the global financial crisis in 2008 (e.g., Naisbitt & Naisbitt,

2010). Given the fact that this dissertation does not rely on any hindsight or preference for China or the United States, and because it centres on the fundamental, persistent, and common conflict between the state and the market faced by the two countries, the insights formulated here provide a more neutral perspective for understanding and evaluating the Chinese model and the American model in terms of G-E relationship.

More importantly, my analysis takes in account the ideological differences between the two countries. In that sense, this dissertation may help to achieve some agreement with regard to potential value in both the Chinese and the American models.

6.2 Implications for Practice

Besides the theoretical contributions already mentioned, this research also provides useful guidance for the practice of the G-E relationship. In their daily operations related

156

to the G-E relationship, major intergovernmental organisations (e.g., WTO, World

Bank, and IMF), the governments of most countries and many large enterprises may gain insights from this study to some extent. Next, I will discuss these potential practical implications.

The intergovernmental organisations that formulate policies which impact on the G-E relationship of various countries must formulate their suggestions based on an understanding of the complex nature of this relationship. As Stiglitz (2002) points out, a widespread phenomenon generated by intergovernmental organisations is the tendency to push countries seeking help to accept certain principles or models developed in other contexts (e.g., the American model of political economy). However, my research suggests that no single G-E relationship model or recipe fits all countries, and a country’s institutional design and development policy must consider its unique historical background, existing/potential opportunities, and comparative advantages/disadvantages. When intergovernmental organisations really want to help a country, they must show respect for the country’s historical background, institutional environment and ideological context, and help the country to establish a balance between the state and the market in a suitable manner for that particular country. This reminder is applicable not only to those intergovernmental organisations helping developing or underdeveloped countries, but also to those providing assistance and guidance to developed countries during situations like the global financial crisis.

At the governmental level, undoubtedly, this study has particular practical implications for China and the United States’ G-E relationship. As I have previously argued, the

157

focus should be on using a contingent approach to achieving a dynamic balance between the state and the market. In the case of China, the government needs to continually ensure the effectiveness of the state control and avoid the over-controlling of the economy (detailed in Chapters Three and Five). In the case of the United States, the government must deal carefully with the relationship between government regulation and government intervention (detailed in Chapters Four and Five). Other countries’ G-E relationship practice may benefit from this study as well. Although every country’s differing historical background results in a different initial condition for development, I argue that the conflict between the state and the market is a common issue. Thus, besides China and the United States, other countries should also seek the dynamic balance between the state and the market, taking into account their unique historical backgrounds, institutional constraints, and ideological contexts. For example,

North Korea now implements full state control over the economy, and thus it needs to allow the increase of market power (e.g., encouraging private capitalists and attracting more foreign investment) in order to achieve a balance between the state and the market. However, North Korea also needs to avoid an over liberalised market so that the state still can maintain effective control over economic order. In any case, in order to produce the best performance of the G-E relationship in a country, the balance between the state and the market needs to be contingent upon the changes of historical, institutional, and ideological factors, as well as the natural evolution of each context over time. When the government designs or adjusts its G-E relationship, it must note that the strength of a particular arrangement paradoxically brings about the weakness of that setup as well. As Wolf (1993) noted, the weakness of an economic system is often grounded in the country’s institutional context. Compared with developed countries,

158

developing and underdeveloped countries may have some advantages in terms of determining the degree and combination of government mechanisms and market mechanisms in their G-E relationships (Weiss & Hobson, 1995), but the strength of their G-E relationships is still subject to the country’s environment and conditions.

From the perspective of the large enterprise, this study provides a framework for evaluating every country’s G-E relationship, i.e., investigating the balance trend between the state and the market in a country. My research is also helpful for large enterprises in gaining an in-depth understanding of the G-E relationship in the countries where they have investment interests, by guiding their understanding of the context, with particular attention to important factors that often are not recognised. For example, my research explains why the SOE in China is very unlikely to be fully privatised under the authoritarian regime. In that case, the foreign investors should not make any decisions based on an expectation of China’s possible privatisation of most SOEs, although this phenomenon was very common in many other countries during their development process (e.g., South Korea, Japan and Russia). In addition, with the help of this study’s insights, large enterprises may devise a much more careful process for identifying the strengths and weaknesses of a country’s context and its G-E relationship.

Moreover, large enterprises would know more about how to persuade the government to adjust or correct policies in favour of their operations in domestic or global operations.

In short, large enterprise would be able to exploit the external environment more skilfully and improve their cooperation with the government.

6.3 Suggestions for Future Research

159

Finally, I offer some suggestions and directions for further research. This study focuses on two countries only, for reasons of parsimony and the ability to conduct an in-depth analysis. In order to achieve a more generalised conclusion, further comparative studies may consider more countries, such as Russia, Japan, Germany, Britain and Australia, because compared with China and the United States, these countries have different historical, institutional, and ideological contexts. Researchers may use the framework developed by this dissertation to study other countries’ G-E relationships, and also help these countries achieve dynamic balance between the state and the market. In particular, the case of Singapore might be interesting and important, because the country seems to have been successful in terms of striking a dynamic balance between the state and the market over the past five decades through an approach of dynamic governance (Neo and

Chen, 2007).

Based on the theory formulated in this dissertation, researchers may develop more specific models or hypotheses that can be tested via empirical methods. For example, based on the central idea that the G-E relationship must be consistent with a dynamic balance between the state and the market, researchers may construct more detailed models of this balance. Przeworski's (2003) concept and model of political-economic equilibrium may provide some inspiration; he uses Pareto efficiency to search for the optimal solution between the public policy (e.g., tax rate) and private benefit (e.g., individual consumption). However, researchers need to consider the historical, institutional, and ideological factors’ constraint on the state-market equilibrium. For the equilibrium model between the state and the market, the economics of regulation (Kahn,

160

1988; Viscusi, Harrington, and Vernon, 2005) may provide some insights for measuring governmental control/regulation. On the other hand, the conceptualisation of economic freedom developed by the Index of Economic Freedom (The Heritage Foundation,

2012) may be considered in designing scales for measuring that aspect of the market.

This study centres on the relationship between the government and the enterprise.

Although the relationship is an essential part of the political economy (Steiner &

Steiner, 1997), there are still many other important relationships and factors that are worthwhile elaborating in further research. For example, how does the interaction between the firm and the society (or other stakeholders) influence the G-E relationship and the balance between the state and the market? How does the interaction between the government and the society (or other stakeholders) impact the G-E relationship and the balance between the state and the market? In addition, for both China and the United

States, the relationship between central/federal government and their local governments is also most likely to influence the enterprise. Consequently, the central/federal government-enterprise relationship may not always be consistent with the local government-enterprise relationship. Thus, it may be worthwhile to consider the following question: how does the relationship between enterprises and governments at different levels in a country shape the G-E relationship in general?

Finally, this study is mainly concerned with the relationship between the Chinese government and its SOEs as well as the relationship between the American government and the large US corporation. However, most of these enterprises are multinational companies, so they have to deal with other governments in their global operations. For

161

example, Chinese SOEs’ overseas mergers and acquisitions often meet with great difficulties due to public resistance and government regulation, while some multinational companies in other countries also face the same problem in China. On the other hand, large multinational corporations may have a privileged position in developing countries. There might be various conflicts between the multinational companies, their home countries’ governments and the host countries’ governments.

Therefore, relevant questions are: how does the relationship between these enterprises and their home countries’ governments impact their relationship with the host countries’ governments and stakeholders? Are there any other factors that may help to explain this relationship? Answers to these questions need to be found, and this dissertation lays the theoretical grounds for such future research.

162

References

Australian Bureau of Statistics. 2012. Year Book Australia. Canberra: Australian Bureau of Statistics. Ackroyd, S. 2010. Critical Realism, Organization Theory, Methodology and the Emerging Science of Reconfiguration. In P. Koslowski (Ed.), Elements of a Philosophy of Management and Organization: 47-78. London: Springer. Adams, W. P. 2001. The First American Constitutions: Republican Ideology and the Making of the State Constitutions in the Revolutionary Era. Lanham, Md.: Rowman & Littlefield Publishers. Ammeter, A. P., Douglas, C., Gardner, W. L., Hochwarter, W. A., & Ferris, G. R. 2002. Toward A Political Theory of Leadership. Leadership Quarterly, 13(6): 751- 796. Andersson-Skog, L. 2009. Revisiting Railway History: The Case of Institutional Change and Path Dependence. In L. Magnusson, & J. Ottosson (Eds.), The Evolution of Path Dependence: 70-86. Cheltenham, UK: Edward Elgar. Aoki, M. 2001. Toward a Comparative Institutional Analysis. Cambridge, Massachusetts: The MIT Press. Arrow, K. J. 1994. Methodological Individualism and Social Knowledge. American Economic Review, 84(2): 1-9. Bai, S. 1980. The Outline of Chinese History. Shanghai: Shanghai Renmin Press. Balleisen, E., & Moss, D. (Eds.). 2009. Government and Markets: Toward a New Theory of Regulation. New York: Cambridge University Press. Baradat, L. P. 2008. Political Ideologies: Their Origins and Impact. Englewood Cliffs, N.J.: Prentice Hall. Barma, N. H., Ratner, E., & Spector, R. A. 2009. Open Authoritarian Regimes: Surviving and Thriving in the Liberal International Order. Democracy and Society, 6(2): 8-11. Bebchuk, L. A., & Roe, M. J. 1999. A Theory of Path Dependence in Corporate Ownership and Governance. Stanford Law Review, 52(No.1): 127-170. Becht, M., & DeLong, J. B. 2005. Why Has There Been So Little Block Holding in America? In R. K. Morck (Ed.), A History of Corporate Governance around 163

the World: 613-666. Chicago and London: The University of Chicago Press. Becker, U. (Ed.). 2011. The Changing Political Economies of Small West European Countries. Amsterdan: Amsterdan University Press. Bederman, D. J. 2008. The Classical Foundations of the American Constitution: Prevailing Wisdom. New York: Cambridge University Press. Bell, D. 2000. The End of Ideology: On the Exhaustion of Political Ideas in the Fifties, with "The Resumption of History in the New Century". Boston: Harvard University Press. Bello, W. 2009. States and Markets, States versus Markets. In M. Blyth (Ed.), Routledge Handbook of International Political Economy (IPE): 180-200. London & New York: Routledge. Bensel, R. F. 2000. The Political Economy of American Industrialization, 1877-1900. New York: Cambridge University Press. Bernstein, B. J. 1968. The New Deal: The Conservative Achievements of Liberal Reform. In B. J. Bernstein (Ed.), Toward A New Past: 263-288. New York: Pantheon. Bian, M. L. 2005. The Making of the State Enterprise System in Modern China: The Dynamics of Institutional Change. Cambridge, Mass.: Harvard University Press. Block, F. 1977. Beyond Corporate Liberalism. Social Problems, 24(3): 352-361. Bó, E. D. 2011. Regulatory Capture: A Review. Oxford Review of Economic Policy, 22(2): 203-225. Bo, Z. 2002. Chinese Provincial Leaders: Economic Performance and Political Mobility Since 1949. New York: M. E. Sharpe, Inc. Bowman, S. R. 1996. The Modern Corporation and American Political Thought: Law, Power and Ideology. University Park, Penn.: Pennsylvanis University Press. Brahm, L. J. 2001. China's Century: The Awakening of The Next Economic Powerhouse. New York: Wiley. Braithwaite, J., & Drahos, P. 2000. Global Business Regulation. Cambridge: Cambridge University Press. Breslin, S. (Ed.). 2010. Handbook of China's International Relations. London: Routledge.

164

Bruce, S. 2002. God is Dead: Secularization in the West. Malden, MA: Blackwell Publishing Ltd. Buchan, J. 2006. The Authentic Adam Smith: His Life and Ideas New York: W. W. Norton. Buder, S. 2009. Capitalizing on Change: A Social History of American Business. Chapel Hill, NC: The University of North Carolina Press. Cai, D., & Wang, C. g. (Eds.). 2010. China's Journey toward the Rule of Law. Leiden, The Netherlands: Koninklijike Brill NV. Cameron, K. S., & Quinn, R. E. 1988. Organizational Paradox and Transformation. In R. E. Quinn, & K. S. Cameron (Eds.), Paradox and Transformation: Toward a Theory of Change in Organization and Management: 1-18. New York: Ballinger Publishing Co/Harper & Row Publishers. Campbell, J. L., Hollingsworth, J. R., & Lindberg, L. N. (Eds.). 1991. Governance of the American Economy. Cambridge: Cambridge University Press. Cassis, Y. 2007. Big Business. In G. Jones, & J. Zeitlin (Eds.), The Oxford Handbook of Business History: 171-193. Oxford: Oxford University Press. Chalmers, A. F. 1999. What is This Thing Called Science? Brisbane: University of Queensland Press. Chan, W. K. K. 1977. Merchants, Mandarins, and Modern Enterprise in Late Ch'ing China. Cambridge: Harvard University Press. Chan, W. K. K. 1997. Merchants, Mandarins, and Modern Enterprise in Late Ch'ing China (Qingmo Xiandai Qiye yu Guanshang Guanxi) (D. Wang, & J. Zhang, Trans.). Beijing: China Social Sciences Press. Chandler, A. D. J. 1962. Strategy and Structure: Chapters in the History of the Industrial Enterprise. Cambridge, Massachusetts: The M.I.T Press. Chandler, A. D. J. 1977. The Visible Hand: The Managerial Revolution in American Business. Cambridge, Massachusetts: Harvard University Press. Chang, G. G. 2001. The Coming Collapse of China. New York: Random House. Chang, H.-J. 2000. An Institutionalist Perspective on the Role of the State: Towards an Institutionalist Political Economy. In L. Burlamaqui, A. C. Castro, & H.-J. Chang (Eds.), Institutions and the Role of the State: 3-26. Cheltenham, UK; Northampton, MA, USA: Edward Elgar.

165

Chang, T. (Ed.). 1736. Ming Shi. Beijing: Zhonghua Book Company. Chen, H.-C. 1911. The Economic Principles of Confucius and His School. New York and London: Columbia University Press. Chen, T. C. 2010. China's Reaction to the Colored Revolutions: Adaptive Authoritarianism in Full Wing. Asian Perspective, 34(2): 5-51. Chen, X. 1994. Economic History of Yuan Dynasty. Beijing: Renmin Press. Clark, C., & Chan, S. 1994. The Developmental Roles of the State: Moving Beyond the Developmental State in Conceptualizing Asian Political Economies. Governance: An International Journal of Policy and Administration, 7(4): 332-359. Clark, R. C. 1981. The Four Stages of Capitalism. Harvard Law Review, 94(3): 561- 582. Coffee, J. C. 2006. Gatekeepers: The Professions and Corporate Governance. Oxford, England: Oxford University Press. Cohen, N. 2002. The Reconstruction of American Liberalism, 1865-1914. Chapel Hill & London: The University of North Carolina Press. Conkin, P. 1967. The New Deal. New York: T. Y. Crowell. Cornelissen, J. P., & Kafouros, M. 2008. Metaphors and Theory Building in Organization Theory: What Determines the Impact of a Metaphor on Theory? British Journal of Management, 19: 365-379. Costa, P., & Zolo, D. (Eds.). 2007. The Rule of Law: History, Theory, and Criticism. Dordrecht, The Netherlands: Springer. David, P. A. 1994. Why Are Institutions the 'Carriers of History'? Path Dependence and the Evolution of Conventions, Organizations and Institutions. Structural Change and Economic Dynamics, 5(2): 205-220. Demsetz, H. 1983. The Structure of Ownership and the Theory of the Firm. Journal of Law and Economics, 26(2): 375-390. Deng, X. 1984. Selected Works of Deng Xiaoping, Volume 2. Beijing: Foreign Languages Press. Deng, X. 1989. Selected Works of Deng Xiaoping, Volume 1. Beijing: The People's Press. Dernberger, R. F. 1975. The Role of the Foreigner in China's Economic Development,

166

1840-1949. In D. H. Perkins (Ed.), China's Modern Economy in Historical Perspective: 19-48. Stanford: Stanford University Press. Dickson, B. J. 2008. Wealth into Power: The Communist Party's Embrace of China's Private Sector. Cambridge and New York: Cambridge University Press. DiMaggio, P. J., & Powell, W. W. 1983. The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organization Fields. American Sociological Review, 48(2): 147-160. Domhoff, G. W. 2006. Who Rules America?: Power, Politics, and Social Change (5th Edition). New York: McGraw-Hill. Donaldson, L. 2001. The Contingency Theory of Organizations. Thousand Oaks, California: Sage Publications. Douglas A. Hibbs, J. 1987. The American Political Economy: Macroeconomic and Electoral Politics. Cambridge, Massachusetts & London, England: Harvard University Press. Dreyfus, H. L. 1980. Holism and Hermeneutics. The Review of Metaphysics, 34(1): 3- 23. Drucker, P. F. 2003. The New Realities (Revised Edition). New Brunswick, NJ: Transaction Publishers. Eagleton, T. 2007. Ideology: An Introduction. New York: Verso. Eakins, D. 1972. Policy-Planning for the Establishment. In R. Radosh, & M. N. Rothbard (Eds.), A New History of Leviathan: Essays on the Rise of the American Corporate State: 188-205. New York: E. P. Dutton & Co., INC. Ebbinghaus, B. 2009. Can Path-dependence Explain Institutional Change? Two Approaches Applied to Welfare State Reform. In L. Magnusson, & J. Ottosson (Eds.), The Evolution of Path Dependence: 191-218. Cheltenham & Northampton: Edward Elgar. Einstein, A. 1954. Ideas and Opinions. New York: Three Rivers Press. Eisner, M. A. 2011. The American Political Economy: Institutional Evolution of Market and State. New York and London: Routledge. Engerman, S. L., & Gallman, R. E. (Eds.). 1996. The Cambridge Economic History of the United States (Volume I): The Colonial Era. Cambridge: Cambridge University Press.

167

Engerman, S. L., & Gallman, R. E. (Eds.). 2000a. The Cambridge Economic History of the United States (Volume II): The Long Nineteenth Century. Cambridge: Cambridge University Press. Engerman, S. L., & Gallman, R. E. (Eds.). 2000b. The Cambridge Economic History of the United States (Volume III): The Twentieth Century. Cambridge: Cambrige University Press. Evans, P. 1995. Embedded Autonomy: States & Industrial Transformation. Princeton, NJ: Princeton University Press. Fairbank, J. K., & Goldman, M. 2006. China: A New History (Second Enlarged Edition). Cambridge (Massachusetts) & London: Harvard University Press. Fairbank, J. K., & Liu, K.-C. (Eds.). 1980. The Cambridge History of China, Vol. II: Late Ch'ing, 1800-1911, Part 2. Cambridge: Cambridge University Press. Faulkner, H. U. 1960. American Economy History. New York: Harper & Brothers Publishers. Fewsmith, J. 2011. Debating "the China Model". China Leadership Monitor, 35: 1-7. Finn, J. D. (Ed.). 2007. China-U.S. Economic and Geopolitical Relations. New York: Nova Science Publishers, Inc. Fligstein, N. 1990. The Transformation of Corporate Control. Cambridge, Massachusetts: Harvard University Press. Fligstein, N., & Zhang, J. 2011. A New Agenda for Research on the Trajectory of Chinese Capitalism. Management and Organization Review, 7(1): 39-62. Freeden, M. 1998. Ideologies and Political Theory. Oxford: Oxford University Press. Freyer, T. A. 2006. Antitrust and Global Capitalism, 1930-2004. Cambridge, UK: Cambridge University Press. Friedman, L. M. 1985. A History of American Law (2nd Edition). New York: Simon & Schuster. Friedman, L. M. 2002. American Law in the 20th Century. New Haven & London: Yale University Press. Friedman, L. M. 2005. A History of American Law (3rd Edition). New York: Simon & Schuster. Fu, Z. 1981. The Economic History of Feudal China (Zhongguo Fengjian Shehui Jingjishi) Volume 1. Beijing: Renmin Press.

168

Fu, Z. 1984. The Economic History of Feudal China (Zhongguo Fengjian Shehui Jingjishi) Volume 3. Beijing: Renmin Press. Fu, Z. 1986. The Economic History of Feudal China (Zhongguo Fengjian Shehui Jingjishi) Volume 4. Beijing: Renmin Press. Fu, Z. 1989. The Economic History of Feudal China (Zhongguo Fengjian Shehui Jingjishi) Volume 5. Beijing: Renmin Press. Fukuyama, F. 1993. The End of History and the Last Man. New York: Haper Perennial. Fukuyama, F. 2011. The Origins of Political Order: From Prehuman Times to the French Revolution. New York: Farrar, Straus and Giroux. Furubotn, E. G., & Richter, R. 2000. Institutions and Economic Theory: The Contribution of the New Institutional Economics. Ann Arbor, Michigan: The University of Michigan Press. Galbraith, J. K. 1993. American Capitalism: The Concept of Countervailing Power. New Brunswick, NJ: Transaction Publishers. Gao, B. 2008. The Changing Chinese Model of Economic Development and the Institutional Perspectives in Economic Sociology. Sociological Studies, 4: 1-16. Gao, H. 2000. How did the Red Sun Rise over Yan'an? A History of the Rectification Movement. Hong Kong: Chinese University Press. Gao, M. H. 2009. Natural Resources: Government Support for Chinese Companies' Global Hunt. In I. Alon, J. Chang, M. Fetscherin, C. Lattemann, & J. R. Mclntyre (Eds.), China Rules: Globalization and Political Transformation. New York: Palgrave Macmillan. Gao, S., & Feng, B. 2005. A Comparative History on Foreign Economic Policy in China and Japan (zhongri duiwai jingjizhengce bijiao shigang). Beijing: Tsinghua University Press. Gao, X. 2009. Corporate Governance in Modern China (Zhongguo jindai gongsizhili). Beijing: Social Sciences Academic Press. Ge, G. L., & Ding, D. Z. 2009. The Effects of the Institutional Environment on the Internationalization of Chinese Firms. In I. Alon, J. Chang, M. Fetscherin, C. Lattemann, & J. R. McIntyre (Eds.), China Rules: Globalization and Political Transformation: 46-68. New York: Palgrave Macmillan.

169

Ge, Z. 2009. The History of Chinese Thinking (Zhongguo Sixiang Shi). Shanghai: Fudan University Press. Geisst, C. R. 2006. Encyclopedia of American Business History (Volume I). New York: Facts on File, Inc. Giddens, A. 1984. The Constitution of Society: Outline of the Theory of Structuration. Cambridge: Polity Press. Gioia, D. A., & Pitre, E. 1990. Multiparadigm Perspective on Theory Building. The Academy of Management Review, 15(4): 584-602. Goldstone, J. A. 1998. Initial Conditions, General Rules, Path Dependence, and Explanations in Historical Sociology. American Journal of Sociology, 104(3): 829-845. Granovetter, M. S. 1973. The Strength of Weak Ties. The American Journal of Sociology, 78(6): 1360-1380. Granovetter, M. S. 1985. Economic Action and Social Structure: The Problem of Embeddedness. The American Journal of Sociology, 91(3): 481-510. Grossberg, M., & Tomlins, C. (Eds.). 2008a. The Cambridge History of Law in America: Early America (Volume I). Cambridge & New York: Cambridge University Press. Grossberg, M., & Tomlins, C. (Eds.). 2008b. The Cambridge History of Law in America: The Long Nineteenth Century (Volume II). Cambridge & New York: Cambridge University Press. Guan, Z. 1998. Guanzi: Political, Economic, and Philosophical Essays from Early China (Volume II) translated by W. Allyn Rickett. New Jersey: Princeton University Press. Guillén, M. F., Collins, R., England, P., & Meyer, M. (Eds.). 2002. The New Economic Sociology: Developments in an Emerging Field. New York: Russel Sage Foundation. Hall, P. A., & Soskice, D. (Eds.). 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press. Hamilton, R. W. 1996. The Law of Corporations in a Nutshell (4th Edition). Minnesota: West Group. Hassard, J., Sheehan, J., Zhou, M., Terpstra-Tong, J., & Morris, J. 2007. China's State

170

Enterprise Reform: From Marx to the Market. London and New York: Routledge. Hawley, E. W. 1978. The Discovery and Study of a "Corporate Liberalism". The Business History Review, 52(3): 309-320. Hayek, F. A. 1955. The Counter Revolution of Science. New York: Free Press. Herrigel, G. 2007. Corporate Governance. In G. Jones, & J. Zeitlin (Eds.), The Oxford Handbook of Business History: 470-497. Oxford: Oxford University Press. Hill, C. W. L., Cronk, T., & Wickramasekera, R. 2011. Global Business Today (Asia- Pacific Edition). North Ryde, NSW: McGraw-Hill Australia Pty Ltd. Hou, J. 2008. Chinese Economic History. Beijing: Xinxing Publisher. Hsiao, K.-c. 1975. A Modern China and a New World: K'ang Yu-wei, Reformer and Utopian, 1858-1927. Seattle: University of Washington Press. Hu, J. 1998. The History of Economic Thoughts of China (Zhongguo Jingji Sixiangshi) Volume 2. Shanghai: Shanghai University of Finance and Economics Press. Huang, Q. 2007. A Collection of Qichen Huang's Papers: Economy and Foreign Relations in Ming and Qing Dynasties. Hong Kong: China Review Academic Publishers Limited. Huang, Y. 2008a. Capitalism with Chinese Characteristics: Entrepreneurship and the State. Cambridge, New York: Cambridge University Press. Huang, Y. 2008b. The Next Asian Miracle. Foreign Policy, (167): 32-40. Hunt, M. H. 2009. Ideology and U.S. Foreign Policy. New Haven & London: Yale University Press. International Monetary Fund. 2012. World Economic Outlook Database, , retrieved on 15 June, 2012 Jackall, R. 2010. Moral Mazes: The World of Corporate Managers (Twentieth Anniversary Edition). Oxford; New York: Oxford University Press. Jian, B. 1999. The History of Ch'in and Han Dynasty (Qinhan Shi). Beijing: Peking University Press. Jiang, P. 2008. Government-Merchant Relationship (Guanshang Guanxi). Beijing: Law Press, China.

171

Jiang, P., & Long, W. 1998. A Study on Nature and Essential Component of Legal Person: A Defense for Constraint Theory. Chinese Legal Science, 83(3): 71-79. Jiang, T. 2006. The Corporate Law: The Game between Government Power and Business Interest (Gongsifa: Zhengfuquanli yu shangrenliyi de boyi). Beijing: China University of Political Science and Law Press. Jin, G. 2001. Interpreting Modern Chinese History through the Theory of Ultrastable Systems. In G. Davies (Ed.), Voicing Concerns: Contemporary Chinese Critical Inquiry: 157-183. Lanham, Marlyland: Rowman & Littlefield Publishers, Inc. Jin, G., & Liu, Q. 1992. The Cycle of Growth and Decline: On the Ultrastable Structure of Chinese Society. Hong Kong: Chinese University Press. Jin, G., & Liu, Q. 1993. The Transformation of Chinese Society (1840-1956): The Fate of Its Ultrastable Strcuture in Modern Times (in Chinese). Hong Kong: The Chinese University Press. Jin, G., & Liu, Q. 2000. The Origin of Modern Chinese Thought: The Evolution of Chinese Political Culture from the Perspective of Ultrastable Structure (Volume 1) (in Chinese). Hong Kong: Chinese University Press. Jin, G., & Liu, Q. 2006. Maoism and Confucianism. Taipei: Strom & Stress Publishing Company. Jin, W. 2006. Influence of Sang Hung-yang's Finance Idea on Monopoly Policy after Han Dynasty. Chinese Economic History Studies, 4: 90-95. Johnson, C. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford: Stanford University Press. Kahn, A. E. 1988. The Economics of Regulation: Principles and Institutions. New York: John Wiley & Sons Inc. Keane, J. 2009. The Life and Death of Democracy. New York: W. W. Norton & Company. Kelso, W. A. 1978. American Democratic Theory: Pluralism and Its Critics. Westport, Connecticut: Greenwood Press. Kirby, W. C. 1995. China Unincorporated: Company Law and Business Enterprise in Twentieth- Century China. The Journal of Asian Studies, 54(1): 43-63. Knowles, L. C. A. 1932. Economic Development in the Nineteenth Century: France,

172

Germany, Russia and the United States. Abingdon, Oxon: Routledge. Kornai, J. 1980. Hard and Soft Budget Constraints. Acta Oecomica, 28(3-4): 231-245. Kornai, J. 1986a. The Hungarian Reform Process: Visions, Hopes, and Reality. Journal of Economic Literature, 24(1697-1737): 1697. Kornai, J. 1986b. The Soft Budget Constraint. Kyklos: International Review for Social Sciences, 39(1): 3-30. Kornai, J. 1987. The Dual Dependence of State-owned Firms in Hungary. In G. Tidrick, & J. Chen (Eds.), China's Industrial Reforms: 317-338. New York: Oxford University Press for the World Bank. Kornai, J., & Matits, A. 1984. Softness of the Budget Constraint: An Analysis Relying on Data of Firms. Acta Oecomica, 32(3-4): 223-249. Kozmetsky, G., & Yue, P. 2005. The Economic Transformation of the United States, 1950-2000. West Lafayette, Indiana: Purdue University Press. Kübler, F. 2009. The Subprime Crisis: Does It Ask for More Regulation? In M. Tison, H. D. Wulf, C. V. D. Elst, & R. Steennot (Eds.), Perspectives in Company Law and Financial Regulation: 570-582. Cambridge, England: Cambridge University Press. Labedz, L. 1989. The Use and Abuse of Sovietology. NJ: Transaction Publishers. LaFleur, R. A. 2010. Asia in Focus: China. Santa Barbara, California: ABC-CLIO, LLC. Lakatos, I. 1978. The Methodology of Scientific Research Programmes. Cambridge: Cambridge University Press. Lamoreaux, N. R., Raff, D. M. G., & Temin, P. 2002. Beyond Markets and Hierarchies: Toward A New Synthesis of American Business History. Working Paper, National Bureau of Economic Research, 9029: 1-63. Lee, K. 1991. Chinese Firms and the State in Transition: Property Rights and Agency Problems in the Reform Era. New York: M. E. Sharpe. Lehne, R. 2005. Government and Business: American Political Economy in Comparative Perspective (2nd edition). Washington, DC: CQ Press. Leibenstein, H. 1960. Economic Theory and Organizational Analysis. Harper, New York: Sage Publication. Levin, W. R. 2008. Political Economy Research Focus. New York: Nova Publishers.

173

Lewis, M. W. 2000. Exploring Paradox: Toward a More Comprehensive Guide. The Academy of Management Review, 25(4): 760-776. Li, H. 2004. The History of Study on Wang An-shih's Reform (Wang Anshi Bianfa Yanjiushi). Beijing: Renmin Press. Li, W. 2006. The Market-Oriented Governance Model of SOEs: China Perspective. Corporate Ownership & Control, 3(4): 108-122. Li, Y. 1998. A Collection of Economic Essays (Jingji Mantan Lu). Beijing: Peking University Press. Li, Y. 2002. A Research on Establishment of Corporate System in Late Ch'ing (Wanqing Gongsizhidu Jianshe Yanjiu). Beijing: Renmin Press. Li, Y. 2007. The Structure of the Corporate System in Modern China Governed by the Northern Warlords (Beiyangzhengfu shiqi qiyezhidu jiegoushi lun). Beijing: Social Sciences Academic Press. Liebowitz, S. J., & Margolis, S. E. 1995. Path Dependence, Lock-In, and History. The Journal of Law, Economics, & Organization, 11: 205-226. Lin, J., Gao, S., & Liang, Y. 1994. Economic History of Ming Dynasty. Beijing: Renmin Press. Lin, J. Y., Cai, F., & Li, Z. 1998. Competition, Policy Burdens, and State-Owned Enterprise Reform. American Economic Review, 2(422-427): 422. Lin, J. Y., & Tan, G. 1999. Policy Burdens, Accountability, and the Soft Budget Constraints. American Economic Review, 89(2): 426-431. Lin, N. 2011. Capitalism in China: A Centrally Managed Capitalism (CMC) and Its Future. Management and Organization Review, 7(1): 63-96. Liu, J. T. C. 1959. Reform in Sung China: Wang An-shih (1021-1086) and his New Policies. Cambridge, Massachusetts: Harvard University Press. Liu, Q. 1994. Economic History of Wei, Jin, and Northern & Southern Dynasties. Beijing: Renmin Press. Liu, Y. 2004. Monopoly System's Development and Change in Tang Dynasty. Academic Studies, 2: 92-99. Lu, F. 1999. State, Market, and Enterprise: The Transformation of Chinese State Industry. Columbia University. Lu, J. 2008. The Industry Characters of State-Owned Enterprise: International

174

Experiences and Governance Implication (in Chinese). Beijing: Economic Science Press. Lu, X., & Perry, E. J. (Eds.). 1997. Danwei: the Changing Chinese Workplace in Historical and Comparative Perspective. Armonk, NY: M.E. Shape. Lu, Y. 1994. Economic History of Song, Liao, Jin, and Xia Dynasties. Beijing: Renmin Press. Luo, P. 2004. A Contract Explanation of Corporate Law (Gongsifa de hetong jieshi). Beijing: Beijing University Press. Lustig, R. J. 1982. Corporate Liberalism: The Origins of Modern American Political Theory, 1890-1920. Berkeley: University of California Press. Lv, Z., & Huang, S. (Eds.). 2008. Research on the 30 Years of China's State-owned Enterprise Reform (Zhongguo Guoyouqiye Gaige Sanshi Nian Yanjiu). Beijing: Economy and Management Publishing House. Ma, M. 1995. Between Officials and Merchants: Modern Gentry Merchants in Drastic Social Change (Guanshangzhijian: Shehuijubian zhong de jindai shenshang). Tianjin: Tianjin Renmin Press. Macfarquhar, R., & Fairbank, J. K. (Eds.). 1987. The Cambridge History of China: Vol.14, The People's Republic, Part 1: The Emergence of Revolutionary China 1949-1965. London: Cambridge University Press. Macfarquhar, R., & Fairbank, J. K. (Eds.). 1991. The Cambridge History of China: Vol.15, The People's Republic, Part 2: Revolutions within the Chinese Revolution 1966-1982. London: Cambridge University Press. Madsen, J. B. 2001. Trade Barriers and the Collapse of World Trade during the Great Depression. Southern Economic Journal, 67(4): 848-868. Mahoney, J. 2000. Path Dependence in Historical Sociology. Theory and Society, 29: 507-548. Mandeville, B. 1988. The Fable of the Bees. Indianapolis: Liberty Fund Inc. Mao, C., Zhuang, X., & Fan, Q. 2008. The Nature of State-owned Enterprises and Research on State-owned Enterprise Reform. Beijing: Chinese Finance and Economy Publishing House. Margolis, M. 1979. Viable Democracy. New York: Penguin Books. Markham, J. W. 2006. A Financial History of Modern U.S. Corporate Scandals.

175

Armonk, New York; London, England: M. E. Sharpe. Martin, C. J., & Swank, D. 2008. The Political Origins of Coordinated Capitalism: Business Organizations, Party Systems, and State Structure in the Age of Innocence. American Political Science Review, 102(2): 181-198. Mclellan, D. 1995. Ideology. Minneapolis: University of Minnesota Press. McNally, C. A. (Ed.). 2008. China's Emergent Political Economy: Capitalism in the Dragon's Lair. New York: Routledge. McQuaid, K. 1978. Corporate Liberalism in the American Business Community, 1920- 1940. The Business History Review, 52(3): 342-368. Meyer, M. W. 2011. Chinese Capitalism. Management and Organization Review, 7(1): 5-18. Micklethwait, J., & Wooldridge, A. 2003. The Company: A Short History of a Revolutionary Idea. New York: The Modern Library. Millward, R. 2007. Business and the State. In G. Jones, & J. Zeitlin (Eds.), The Oxford Handbook of Business History: 529-557. Oxford: Oxford University Press. Mingers, J. 2001. Combining IS Research Methods: Towards a Pluralist Methodology. Information Systems Research, 12(3): 240-259. Moon, C.-i., & Prasad, R. 1994. Beyond the Developmental State: Networks, Politics, and Insitutions. Governance: An International Journal of Policy and Administration, 7(4): 360-386. Morck, R. K., & Steier, L. 2005. The Global History of Corporate Governance: An Introduction. In R. K. Morck (Ed.), A History of Corporate Governance around the World: 1-64. Chicago and Lodon: The University of Chicago Press. Morgan, G. 1980. Paradigms, Metaphors, and Puzzle Solving in Organization Theory. Administrative Science Quarterly, 25(4): 605-622. Morgan, G., Campbell, J. L., Crouch, C., Pedersen, O. K., & Whitley, R. (Eds.). 2010. The Oxford Handbook of Comparative Institutional Analysis. New York: Oxford University Press. Morgan, G., & Smircich, L. 1980. The Case for Qualitative Research. The Academy of Management Review, 5(4): 491-500. Naisbitt, J., & Naisbitt, D. 2010. China's Megatrends: The 8 Pillars of a New Society. New York: HarperCollins Publishers.

176

Nathan, A. J. 2003. Authoritarian Resilience: China's Changing of the Guard. Journal of Democracy, 14(1): 6-17. Nathan, A. J. 2009. Authoritarian Impermanence. Journal of Democracy, 20(3): 37-40. Naughton, B. 1995. Growing out of the Plan: Chinese Economic Reform, 1978-1993. Cambridge: University of Cambridge. Naughton, B. 2007. The Chinese Economy: Transitions and Growth. Cambridge, Massachusetts: The MIT Press. Neo, B. S., & Chen, G. 2007. Dynamic Governance: Embedding Culture, Capabilities and Change in Singapore. Singapore: World Scientific Publishing Co. Pte. Ltd. Neuman, W. L. 2006. Social Research Methods: Qualitative and Quantitative Approaches. Boston & New York: Pearson Education, Inc. Neurath, O. 1983. Philosophical Papers, 1913-1946. Dordrecht & Boston: D. Reidel Publishing Company. Nolan, P. 2001. China and the Global Economy. New York: Palgrave. Nolan, P. 2004. China at the Crossroads. Cambridge: Polity Press. Nolan, P. 2007. Integrating China: Toward the Coordinated Market Economy. London, New York & Delhi: Anthem Press. North, D. C. 1981. Structure and Change in Economic History. Nueva York, EUA: Norton. North, D. C., & Thomas, R. P. 1973. The Rise of The Western World: A New Economic History. New York: Cambridge University Press. Northouse, P. G. 2007. Leadership: Theory and Practice (4th ed.). Thousand Oaks, CA: Sage Publication. Obinger, H., & Schmitt, C. 2011. Guns and Butter? Regime Competition and the Welfare State during the Cold War. World Politics, 63(2): 246-270. Ostrom, E. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press. Pan, W. 2009. The China Model and Singapore. East Asian Institute Working Papers, National University of Singapore, (68): 1-19. Pang, Y. 1994. Economic History of Qing Dynasty. Beijing: Renmin Press. Patterson, J. T. 1996. Grand Expectation: The United States, 1945-1974. Oxford: Oxford University Press.

177

Pei, M. 2006. China's Trapped Transition:The Limits of Developmental Autocracy. Cambridge: Harvard University Press. Perkins, D. H. 1975. Introduction: The Persistence of the Past. In D. H. Perkins (Ed.), China's Modern Economy in Historical Perspective: 1-18. Stanford: Stanford University Press. Pfeffer, J., & Salancik, G. R. 2003. The External Control of Organizations: A Resource Dependence Perspective. Stanford: Stanford University Press. Phillips, M. J. 1994. Reappaising the Real Entity Theory of the Corporation. Florida State University Law Review, 21(4): 1061-1123. Pierson, P. 2000. Increasing Returns, Path Dependence, and the Study of Politics. The American Political Science Review, 94(2): 251-267. Polanyi, K. 1957. The Great Transformation. Boston: Beacon Press. Prindle, D. F. 2006. The Paradox of Democratic Capitalism: Politics and Economics in American Thought. Baltimore, Maryland: Johns Hopkins University Press Przeworski, A. 2003. States and Markets: A Primer in Political Economy. Cambridge, New York: Cambridge University Press. Putnam, R. D., & Campbell, D. E. 2010. American Grace: How Religion Divides and United Us. New York: Simon & Schuster. Qian, M. 1996. The Outline of Chinese History (Guoshi Dagang). Beijing: The Commercial Press. Qian, Y. 1994. A Theory of Shortage in Socialist Economies Based on the "Soft Budget Constraint". The American Economic Review, 84(1): 145-156. Qian, Y., & Roland, G. 1998. Federalism and the Soft Budget Constraint. The American Economic Review, 88(5): 1143-1162. Radosh, R. 1972. The Myth of the New Deal. In R. Radosh, & M. N. Rothbard (Eds.), A New History of Leviathan: Essays on the Rise of the American Corporate State: 146-187. New York: E. P. Dutton & Co., Inc. Rauchway, E. 2008. The Great Depression & The New Deal: A Very Short Introduction. Oxford: Oxford University Press. Rich, E. E., & Wilson, C. H. (Eds.). 1977. The Cambridge Economic History of Europe. Cambridge: Cambridge University Press. Riskin, C. 1988. China's Political Economy: The Quest for Development Since 1949.

178

London: Oxford University Press. Robbins, L. 2009. The Great Depression. Brunswick, New Jersey: Transaction Publishers. Romano, R. 2004. The Sarbanes-Oxley Act and the Making of Quack Corporate Governance. New York University, Law and Econ Research Paper, 04-032. Ross, H. 2001. Law as a Social Institution. Oxford and Portland, Oregon: Hart Publishing. Rothbard, M. N. 1972. Herbert Hoover and the Myth of Laissez-Faire. In R. Radosh, & M. N. Rothbard (Eds.), A New History of Leviathan: Essays on the Rise of the American Corporate State: 111-145. New York: E. P. Dutton & Co., Inc. Roy, D. 1996. The "China Threat" Issue: Major Arguments. Asian Survey, 36 (8): 758- 771. Schermerhorn, J. R. 2010. Exploring Management (2nd Edition). NJ: John Wiley & Sons, Inc. Schmidt, V. A. 2002. The Futures of European Capitalism. Oxford: Oxford University Press. Schmitz, C. J. 1993. The Growth of Big Business in the United States and Western Europe, 1850-1939. London: The Macmillan Press Ltd. Schultz, M., & Hatch, M. J. 1996. Living with multiple paradigms: The Case of Paradigm Interplay in Organizational Culture Studies. Academy of Management Review, 21(2): 529-557. Schwartz, B. I. 1985. The World of Thought in Ancient China. Cambridge, Mass.: Belknap Press of Harvard University Press. Schwarzmantel, J. 2008. Ideology and Politics. London ; Thousand Oaks, CA: Sage. Scott, B. R. 2006. The Political Economy of Capitalism. Harvard Business School Working Paper, 07-037: 1-28. Scott, B. R. 2009. The Concept of Capitalism. London & New York: Springer. Scott, W. R. 2003. Organizations: Rational, Natural, and Open Systems. New Jersey: Pearson Education. Scott, W. R. 2008. Institutions and Organizations: Ideas and Interests (3rd Edition). London: Sage Publication. Scott, W. R., & Davis, G. F. 2007. Organizations and Organizing: Rational, Natural,

179

and Open System Perspectives. Upper Saddle River, NJ: Pearson Education, Inc. Scott, W. R., & Meyer, J. W. (Eds.). 1994. Institutional Environment and Organizations. Thousand Oaks, CA: Sage. Screpanti, E., & Zamagni, S. 2005. An Outline of the History of Economic Thought (Second Edition Revised and Expanded). New York: Oxford University Press. Sheng, S. 2006. Corporate Personality Theories: A Perspective of History. Journal of Social Theory, 9: 97-125. Sheng, S. 2006. Inequality in Globalization of Technology: Case of Chinese SOEs, Harvard Project for Asian and International Relations. Singapore. Sheng, S. 2009. China's Oversea Development: A China-Southeast Asian Perspective. Journal of Macao Polytechnic Institute, 33(1): 56-65. Sheng, S., & Zhang, H. 2005. Preliminary Research on Historical and Cultural Factors behind Chinese Company System. Journal of Macao Polytechnic Institute, 3: 121-131. Shirk, S. L. 1985. The Politics of Industrial Reform. In E. J. Perry (Ed.), The Political Economy of Reform in Post-Mao China: 195-222. Cambridge, Massachusetts & London: Harvard University Press. Shirk, S. L. 2007. China: Fragile Superpower. Oxford & New York: Oxford University Press. Sklar, M. J. 1960. Woodrow Wilson and the Political Economy of Modern United States Liberalism. Indianapolis, Indiana: Bobbs-Merrill. Sklar, M. J. 1972. Woodrow Wilson and the Political Economy of Modern United States Liberalism. In R. Radosh, & M. N. Rothbard (Eds.), A New History of Leviathan: Essays on the Rise of the American Corporate State: 7-65. New York: E. P. Dutton & Co., Inc. Sklar, M. J. 1988. The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, The Law, and Politics. Cambridge: Cambridge University Press. Skrentny, J. D. 2006. Law and the American State. Annual Review of Sociology, 32: 213-244. Smith, A. 2006. The Theory of Moral Sentiments. New York: Dover Publications, Inc. Steiner, G. A., & Steiner, J. F. 1997. Business, Government, and Society. New York: McGraw-Hill, Inc.

180

Stewart, R. B. 1975. The Reformation of American Administrative Law. Harvard Law Review, 88(8): 1667-1813. Stiglitz, J. E. 2002. Globalization and Its Discontents. New York: W. W. Norton & Company. Sun, Y.-s. 1953. Three Principles of the People. Taipei: Cheng Chung Book. Sydow, J., Schreyög, G., & Koch, J. 2009. Organizational Path Dependence: Opening the Black Box. Academy of Management Review, 34(4): 689-709. Tamanaha, B. Z. 2004. On the Rule of Law: History, Politics, Theory. Cambridge, UK: Cambridge University Press. Tan, L. 2005. The Paradox of Catching Up: Rethinking State-led Economic Development. New York: Palgrave Macmillan. The Heritage Foundation. 2012. United States Economy: Facts, Data, & Analysis on Economic Freedom. 2012 Index of Economic Freedom, , retrieved on 13 May 2012. Tanzi, V. 2011. Government versus Markets: The Changing Economic Role of the State. New York: Cambridge University Press. Tao, Y. 2000. Economic Thoughts of Ancient China and Comments (Zhongguo Gudai Jingji Sixiang Pingshu). Beijing: China Economic Publishing House. Taylor, C. 2007. A Secular Age. Cambridge, Massachusetts: The Belknap Press of Harvard University Press. Tibman, J. 2009. The Murder of Lehman Brothers: An Insider's Look at the Global Meltdown. New York: Brick Tower Press. Tidrick, G. 2005. China: An Evaluation of World Bank Assistance. Washington, DC: The World Bank. Tong, Y., & Lei, S. 2010. Chinese Government Learning To Live With Social Protests. East Asian Institute Background Briefs National University of Singapore, (521): 1-12. Toynbee, A. J. 1972. A Study of History, The One-Volume Edition (Illustrated). London: Oxford University Press. Trigilia, C. 2002. Economic Sociology: State, Market, and Society in Modern Capitalism. Oxford, UK: Blackwell Publishers. Tsai, K. S. 2007. Capitalism without Democracy: The Private Sector in Contemporary

181

China. Ithaca & London: Cornell University Press. Tsze-sze. 1971. Confucian Analects, The Great Learning, and the Doctrine of the Mean (J. Legge, Trans.). New York: Dover Publication. Twitchett, D., & Fairbank, J. K. (Eds.). 1978. The Cambridge History of China: Vol.10, Late Ch'ing, 1800-1911, Part 1. London: Cambridge University Press. Twitchett, D., & Loewe, M. (Eds.). 1986. The Cambridge History of China, Vol. 1: The Ch'in and Han Empires, 221 BC-AD 220. Cambridge [England]; New York: Cambridge University Press. Twitchett, D., & Smith, P. J. (Eds.). 2009. The Cambridge History of China: Volume 5, The Sung Dynasty and Its Precursors, 907-1279. Cambridge: Cambridge University Press. Unirule Institute of Economics. 2011. The Nature, Performance, and Reform of the State-owned Enterprises. Beijing: Unirule Institute of Economics. Viscusi, W. K., Harrington, J. E., & Vernon, J. M. 2005. Economics of Regulation and Antitrust. Cambridge, MA: The MIT Press. Waddell, D., Jones, G. R., & George, J. M. 2011. Contemporary Management (2nd Edition). North Ryde, NSW: McGraw-Hill Australia Pty Ltd. Walder, A. G. 1986. Communist Neo-traditionalism: Work and Authority in Chinese Industry. Berkeley: University of California Press. Walder, A. G. 2011. From Control to Ownership: China's Managerial Revolution. Management and Organization Review, 7(1): 19-38. Wallis, J. J. 2004. The Concept of Systematic Corruption in American Political and Economic History. NBER Working Paper Series, 10952: 1-55. Wang, D. 2006. Fundamental and Incidental: A Comparative Study of Economic Thoughts in Ancient Greece and China (Ben yu Mo: Gudai Zhongguo yu Gudai Xila Jingji Sixiang Bijiao Yanjiu). Beijing: The Commercial Press. Wang, G. 1994. State-run Trade and Private Trade in the Chinese History (Zhongguo lishishang de gongying yu siying maoyi). In G. Wang (Ed.), China and Overseas Chinese (Zhongguo yu haiwai huaren). Taipei: The Commercial Press. Wang, G. 2007. Divided China: Preparing for Reunification, 883-947. Singapore: World Scientific Publishing Company.

182

Wang, J. 1997. Feudal Regime and Commodity Economy. In K. Ma (Ed.), Zhongxi Fengjian Shehui Bijiao Yanjiu: 371-410. Shanghai: Xuelin Press. Wang, M. 1997. American Administrative Law. Beijing: China Legal Publishing House. Wang, S. 1995. Financial History in Song Dynasty. Beijing: Zhonghua Book Company. Wapshott, N. 2011. Keynes Hayek: The Clash That Defined Modern Economics. New York: W. W. Norton & Co. Watzlawick, P., Weakland, J. H., & Fisch, R. 1974. Change: Principles of Problem Formation and Problem Resolution. New York: Norton. Weber, M. 2002. The Protestant Ethic and the Spirit of Capitalism and Other Writings. New York: Penguin Books. Wei, S. 2009. The History of Company Law in Modern China (Jindai Zhongguo Gongsifa Shilun). Shanghai: Shanghai Academy of Social Sciences Press. Weiss, L., & Hobson, J. M. 1995. States and Economic Development: A Comparative Historical Analysis. Cambridge: Polity Press. Whyte, M. K. 2009. Paradoxes of China's Economic Boom. The Annual Review of Sociology, 35: 371-392. Williamson, O. E. 1985. The Economic Institutions of Capitalism. New York: Free Press. Willis, J. W. 2007. Foundations of Qualitative Research: Interpretive and Critical Approaches. London: Sage Publications. Wills, G. 2002. Inventing America: Jefferson's Declaration of Independence. Boston: Mariner Books. Wilson, E. O. 1999. Consilience: The Unity of Knowledge. New York: Vintage Books. Witt, M. A. 2010. China: What Variety of Capitalism. Insead Faculty & Research Working Paper, 88/EPS: 1-15. Witte, J. 2005. Religion and The American Constitutional Experiment (2nd Edition). Boulder, Colorado: Westview Press. Wolf, C. 1988. Markets or Governments: Choosing Between Imperfect Alternatives. Cambridge, Massachusetts: The MIT Press. Wolf, C. 1993. Markets or Governments: Choosing Between Imperfect Alternatives (2nd Edition). Cambridge, Massachusetts: The MIT Press. Woo-Cumings, M. (Ed.). 1999. The Developmental State. New York: Cornell

183

University Press. Wright, T. 1985. The Nationalist State and Regulation of Chinese Industry during the Nanjing Decade. In D. Pong, & E. S. K. Fung (Eds.), Ideal and Reality: Social and Political Change in Modern China, 1860-1949: 127-152. Lanham: University Press of America. Wu, J. 2003. SOE Reform and Economic Development. In L. G. Sprague, & J. Wang (Eds.), State-Owned Enterprise Reform: Chinese Practice & Spanish Experience: 8-20. Shanghai: Shanghai Yuandong Publisher. Wu, J. 2005. Understanding and Interpreting Chinese Economic Reform. Mason, Ohio: Thomson/South-Western. Wu, J., Yan, W., & Yang, X. 1994. Economic History of Sui, Tang, and Five Dynasties. Beijing: Renmin Press. Wu, Q. 2002. On Tribute-Trade System (Chaogong Maoyi Zhidulun). Southeast Asian Affairs, 4: 71-77. Xu, H., & Zhao, L. 2008. Breaking Free: Legitimacy and Private Entrepreneurship in China's Transitional Economy, 1978-1996, Academy of Management Best Paper Proceedings, Organization and Management Theory Division. Anaheim, California. Xu, Z., & Li, L. 1996. The Development History of Chinese Public-owned Enterprises (Zhongguo Gongyouzhi Qiyeguanli Fazhanshi Xubian): 1966-1992. Shanghai: The Shanghai Academy of Social Sciences Press. Xu, Z., & Xu, J. 1992. The Development History of Chinese Public-owned Enterprises (Zhongguo Gongyouzhi Qiyeguanli Fazhanshi): 1927-1965. Shanghai: The Shanghai Academy of Social Sciences Press. Xue, G. 2005. The Harm of Ban on Maritime Trade in Ming Dynasty (Lun Mingwangchao Haijin Zhihai). Academic Journal of Wuhan University (Wuhan daxue xuebao), 58(2): 161-170. Yang, K. 2008. State-Owned Enterprise Reform in Post-Mao China. International Journal of Public Administration, 31: 24-53. Yang, S. 1994. The Economic History of Chunqiu-zhanguo Times of China (Zhongguo Chunqiu Zhanguo Jingjishi). Beijing: Renmin Press. Yang, X. 2000. The Notes on Chinese Economic History in a Hundred Years (Bainian

184

Zhongguo Jingjishi Biji). New York: John Wiley & Sons. Yang, Y. 2007. Corporate Governance in Modern China (Jindai Zhongguo Gongsizhili). Shanghai: Shanghai Renmin Press. Yang, Z. 2006. Corporations in Late Ch'ing and Corporate Governance (Wanqing Gongsi yu Gongsizhili). Beijing: The Commercial Press. Yarrow, G., & Jasinski, P. 1996. Privatization: Critical Perspectives on the World Economy. London: Routledge. Yeh, A. G. O., Sit, V. F.-s., Chen, G., & Zhou, Y. 2006. Developing a Competitive Pearl River Delta in South China under One Country-Two Systems. Hong Kong: Hong Kong University Press. You, J. 1998. China's Enterprise Reform: Changing State/Society Relations after Mao. London: Routledge. Yu, K. 2010. The China Model is not in Format. Social Outlook, (12): 95. Zafirovski, M. 2007. The Protestant Ethic and the Spirit of Authoritarianism: Puritanism, Democracy, and Society. New York: Springer Science and Business Media, LLC. Zaleznik, A. 1977. Managers and Leaders: Are They Different? Harvard Business Review, 55(3): 67-78. Zelin, M. 2009. The Firm in Early Modern China. Journal of Economic Behavior & Organization, 71: 623-637. Zhang, S. 2002. Department of Commerce and Shipping's Negative Effect on Foreign Trade (Shibosi dui haiwaimaoyi de xiaojiyingxiang). Academic Journal of Zhejiang (Zhejiang Xuekan), 6: 151-158. Zhang, W., & Alon, I. (Eds.). 2011. A Guide to the Top 100 Companies in China. Singapore: World Scientific Publishing Co. Pte. Ltd. Zhang, W., & Yuan, D. 2008. China's Economic Reform in Three Decades: State- owned Enterprise Volume (Zhongguo Jingji Gaige Sanshinian: Guoyouqiye Juan). Chongqing: Chongqing University Press. Zhang, Z., & Zheng, H. (Eds.). 2008. Chinese State-owned Enterprise Reform in Three-decade: Retrospect and Prospect (Zhongguo Guoyouqiye Gaige Sanshi Nian Huigu yu Zhanwang). Beijing: Renmin Press. Zhang, Z., & Zhu, T. 2007. State-Controlled Enterprises under Nanjing Government

185

(Nanjing Guomin Zhengfu Shiqi de Guoyouqiye). Shanghai: Shanghai University of Finance and Economics Press. Zhao, J. 1998. The History Essentials of Economic Thoughts of China (Zhongguo Jingji Sixiangshi Shuyao). Beijing: Peking University Press. Zhao, L., & Sheng, S. 2010. China's Super-Rich. East Asian Institute Background Briefs, 522: 1-14. Zheng, B. 2005. China's Peaceful Rise to Great-Power Status. Foreign Affairs, 84(5): 18-24. Zheng, Y. 2010. The Chinese Communist Party as Organizational Emperor: Culture, Reproduction, and Transformation. New York: Routledge. Zhou, B. 1981. Finance History of China. Shanghai: Renmin Publisher. Zhou, L.-A. 2004. The Incentive and Cooperation of Government Officials in the Political Tournaments: An Interpretation of the Prolonged Local Protectionism and Duplicative Investments in China. Economic Research Journal, (03): 33-40. Zhou, L.-A. 2007. Governing China's Local Officials: An Analysis of Promotion Tournament Model. Economic Research Journal, (7): 36-50. Zhu, Y. 2008. A Study of Modern Stock Companies in China (Zhongguo Jindai Gufenzhi Qiye Yanjiu). Shanghai: Shanghai University of Finance and Economics Press. Zysman, J. 1983. Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change. Ithaca, N.Y.: Cornell University Press.

186