ANRV381-SO35-18 ARI 2 June 2009 15:51 Paradoxes of China’s Economic Boom Martin King Whyte Department of Sociology, Harvard University, Cambridge, Massachusetts 02138; email: [email protected] Annu. Rev. Sociol. 2009. 35:371–92 Key Words The Annual Review of Sociology is online at development, postsocialist transition, developmental state, market soc.annualreviews.org reforms, property rights This article’s doi: 10.1146/annurev-soc-070308-115905 Abstract Copyright c 2009 by Annual Reviews. China’s stunning economic performance for the past three decades was All rights reserved by HARVARD UNIVERSITY on 07/20/09. For personal use only. not only unexpected but contradicts much received wisdom in the study 0360-0572/09/0811-0371$20.00 of development. Four paradoxes posed by China’s record are critically Annu. Rev. Sociol. 2009.35:371-392. Downloaded from arjournals.annualreviews.org examined: (a) China’s traditional culture and institutions as obstacles to development; (b) the necessity of big bang comprehensive reforms to transform a centrally planned economy into a market economy; (c) the perils of state-directed economic development (especially when the state is composed of lifelong communist bureaucrats); and (d ) the necessity of getting the institutions right in order to foster develop- ment, particularly by establishing secure private property rights. Rea- sons why China was able to defy expectations and the received wisdom and develop so successfully are discussed. The Chinese case indicates that countries cannot succeed at development by a standard cookbook approach but must tailor their development policies and institutions to their distinctive history, potentials, and limitations. 371 ANRV381-SO35-18 ARI 2 June 2009 15:51 For the past three decades, China has experi- were launched in 1978. After all, who would enced an extraordinary economic boom. Eco- have thought that lifelong communist bureau- nomic growth rates averaging close to 10% crats could successfully direct the transforma- a year have been maintained despite serious tion from an increasingly inefficient centrally bumps in the road, such as foreign sanctions planned system to a vibrant market economy? after the 1989 Tiananmen massacre and the In multiple respects China’s approach to eco- 1997 Asian financial crisis. Hundreds of mil- nomic development contradicts received wis- lions of mostly rural Chinese citizens have dom on how to pursue growth. In reading the been lifted out of grinding poverty, and rapidly existing literature on economic development, growing middle and wealthy classes now en- one thinks of the analogy between China’s joy consumption levels that are approaching economic performance and the bumblebee— First World standards. Multiple other indica- by all rights it should not be able to fly, but tors convey the spectacular successes of China’s nonetheless it does, and in fact it soars spec- economic boom. For example, China went from tacularly! By considering briefly several strands having negligible foreign direct investment at of past research on China and economic de- the time Mao Zedong died in 1976 to being the velopment, and then by examining key features developing world’s largest recipient of foreign of China’s approach in the post-1978 period, direct investment in recent years. China in the this review attempts to contribute to an ex- same period went from having essentially zero panded debate about economic development foreign exchange reserves to having the world’s possibilities in the contemporary world. The largest accumulation (with close to US$2 tril- primary generalizations to be critically exam- lion in 2008). The country that in 1958 pro- ined here in light of China’s experiences are the voked a combination of pity and amusement following: with its failed attempt to use backyard steel fur- China’s traditional institutions and naces to catch up with Great Britain in steel culture as obstacles to economic production has since the mid-1990s been by far development; the world’s largest producer of steel. Similarly, The need for comprehensive, big bang China went from producing limited ranges of market reforms in order to successfully very unstylish clothing (Would you like your dismantle a centrally planned socialist Mao-jacket and pants in blue, gray, or olive- economy; green?) to being the major provider of inex- The necessity of undergoing a dual tran- pensive but relatively stylish clothing marketed sition from state management to mar- around the world; a nation that had virtually by HARVARD UNIVERSITY on 07/20/09. For personal use only. kets and from autocracy to democracy, no privately owned cars in 1976 now has more while avoiding a variety of perils of state- than 9 million sold each year, with more Buicks directed economic development; Annu. Rev. Sociol. 2009.35:371-392. Downloaded from arjournals.annualreviews.org purchased annually by Chinese consumers than The imperative to get the institutions by Americans. As a symbolic tribute to China’s right by adopting the institutions and development success, when the World Bank ap- policies required in a modern market so- pointed a new chief economist in 2008, the post ciety, particularly secure private property went to a Chinese researcher, Justin Yifu Lin, rights. rather than to a Western economist (although having a PhD from the University of Chicago may have helped). What are the explanations for China’s dra- FROM DEVELOPMENT FAILURE matic turnaround and spectacular economic TO DEVELOPMENT SUCCESS successes of recent decades? This success The first paradox concerning China’s recent was unexpected at the time China’s reforms economic boom is that this is the society about 372 Whyte ANRV381-SO35-18 ARI 2 June 2009 15:51 which a considerable literature accumulated and comfort with, technological tinkering and over the years as a case study in economic de- scientific experimentation. velopment failure—indeed, failure not once but Not all explanations of China’s first failure twice. The first failure involves the fact that, at economic development adopt this cultural although China was in many respects more deficiency framework, however. Elvin (1973) developed than Western societies until as late coined the term “high level equilibrium trap” to as the eighteenth century, subsequently it was refer to his claim that the late imperial Chinese England that launched the industrial revolu- commercial system was so sophisticated and re- tion, while China failed to do so. The second sponsive to changes in demand and supply that failure involves the fact that when both China severe shortages and bottlenecks that might and Japan were presented with military and have stimulated technological breakthroughs economic challenges from Britain and other (for example, a shift from household weaving to Western powers in the nineteenth and early factory textile production) were avoided. Thus, twentieth centuries, Japan rose to the chal- for Elvin, China was a victim of its own success lenge through reforms that launched it on a in constructing over the centuries a highly ef- path to becoming a modern industrial power, fective and responsive preindustrial economic while China failed to do so. How did a country system. A more recent critique of the cultural that was a case study of economic development deficiency approach to explaining China’s first failure become so successful, and what does failure at development has been presented by this turnaround say about the assertions in the Pomeranz (2000), whose argument in oversim- existing literature? plified form says that England had two key re- The most famous analysis of China’s first sources that China lacked—coal and colonies. failure was, of course, developed by Max Weber China did have ample coal deposits, but un- in works such as The Protestant Ethic and the like England these were located far away from Spirit of Capitalism (1930 [originally 1905]) and the coastal cities where textile and other facto- The Religion of China (1951 [originally 1915]). ries might be established, and China lacked any Weber contended that although Chinese means to transport the coal from the interior culture was in many ways sophisticated and to the coast quickly and cheaply. In addition, imbued with a fairly high level of rationality, English colonies provided both manufacturing it nonetheless was in key respects deficient in inputs and finances to fuel growing factories the institutions and values necessary to allow without putting excessive burdens on the do- modern capitalism to arise—for example, with mestic population. a culture stressing reverence for the past, Works dealing with China’s second by HARVARD UNIVERSITY on 07/20/09. For personal use only. stability, and harmony rather than openness failure—her inability to match Japan’s eco- to change and the pursuit of individual self- nomic response to the West in the nineteenth Annu. Rev. Sociol. 2009.35:371-392. Downloaded from arjournals.annualreviews.org interest; denigration of merchants and weak and early twentieth centuries—generally can development of urban political autonomy and also be divided into those that take a cultural social classes; strong family obligations that deficiency approach and those that do not. In generally trumped rational economic calcu- terms of the former, Bellah (1957) argued that lations; and weak development of scientific by historical chance Japan was endowed with a experimentation and rationality (all in compar- rough functional equivalent of the Protestant ison with preindustrial