The London School of Economics and Political Science Authoritarianism, capitalism and institutional interdependencies in the Chinese economy: Implications for governance and innovation Koen Rutten A thesis submitted to the Department of Management of the London School of Economics for the degree of Doctor of Philosophy, London, November 2013 1 Disclaimer I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent if any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 68,859 words. 2 Abstract Recently, the field of comparative political economy has turned to the Chinese economy. Coherent interpretation of the drivers and fundamental institutions of China’s economic system had been frustrated by the coexistence of, on the one hand, continuously developing capitalist institutions and a burgeoning market economy, and on the other, the persisting and proliferating authoritarian system of economic administration. Therefore, commonplace dichotomous frameworks of capitalism/ socialism, or coordinated/market economies are but of little avail. Building on concepts from regulation theory, this thesis argues that the current system is one wherein state and market institutions support a distinctively industrialist orientation. The Leninist apparatus of bureaucratic controls has come to instill a dynamic wherein economic performance begets political influence, and political stature commands control of capital. Financial markets complement industrial demands for capital, while the ostensibly ‘liberalist’ reorganization of the public sector and welfare system have attenuated the financial pressures on enterprise exerted by labor. As a result of the common interest of political actors and industrialists in the continuous expansion of productive capital, growth has occurred predominantly through investments in fixed capital. Stringent limitations exist which undermine achievement of long-term sustainability of the current state-industrialist nexus. Lack of compensatory mechanisms for disenfranchised constituents and the dearth of indigenous innovation are pertinent problems, and moreover, mutually reinforcing. On the one hand, without a continuous increase in relative surplus value (i.e. output per worker) a more egalitarian distribution of income seems unlikely, while on the other, the lack of individual purchasing power subverts intentions to transition towards a model of growth premised on domestic consumption. Indeed, exceptions exist (for example within the telecommunications industry, but ultimately growth in upstream sectors requires commensurate growth in downstream industries. The Chinese ‘variety of capitalism’ is indeed an idiosyncratic one, but seems to have exhausted its potential. 3 Acknowledgements The stereotype of the PhD student as a monomaniac, working in solitude at a project incomprehensible or worse yet, of no interest to most, is well established. Not so with this PhD, which owes to, and has at times been suffered by many. Over the course of these three-and a half years, there have been many people who have contributed greatly to both my insights and enjoyment of the PhD trajectory. I am grateful to each and every one of them, but some deserve special mention. First off, I would like to thank my supervisor, Dr. Jonathan Liebenau for his patience and support. The approach towards completion of the thesis has been circuitous, but I am indebted to Jonathan for allowing me the full range of my theoretical perambulations (on a related note, he ought to also to be duly acknowledged for adding the word ‘circuitous’ to my vocabulary). His forbearance towards my conceptual erraticism, along with his subtle guidance and unwavering confidence in my capacity to see this project through have allowed me to explore, consider and internalize a variety of theoretical perspectives and substantive topics, which I believe will stand me in good stead. Second, a tip of the hat to Samer Abdelnour, who has been a wonderful colleague and has become an even better friend. Dad, thanks for your advice on how to navigate the requirements of the PhD and subsequent professional endeavors. More valued still has been your insistence on appreciating the lighter side of life. Ma, you’ve read each and every draft of every paper I’ve written, no matter how ill-conceived or poorly written, with an enthusiasm only a mother could muster. Finally, a very special thank you to my wife Lin. This thesis brought us to three different countries on two different continents. In each and every way you’ve went above and beyond what anyone could reasonably expect from a spouse. My occasional doubts and frustrations proved no match for your unbridled optimism, boundless sympathy and unparalleled sense of humour. Wow. Very appreciate. Awesome. 4 Contents Contents .............................................................................................................................. 5 List of abbrevations ........................................................................................................... 12 Chapter 1 ........................................................................................................................... 14 Introduction ....................................................................................................................... 14 Chinese development: Practical implications and theoretical challenges ................. 14 The Chinese economy and insights from comparative capitalism ............................ 18 The exceptionalist perspective .......................................................................... 18 The transitionalist perspective .......................................................................... 20 The universalist perspective .............................................................................. 21 Theoretical concerns ................................................................................................. 25 ‘Theoretical degrees of freedom’ and ‘conceptual stretching’: Under- and over-specification of economic systems ........................................................... 25 The theoretical postulations of varieties of capitalism and incongruent cases.. 27 Reconciling economics and politics: regulation theory .................................... 31 The dynamic aspects of system performance: the issue of innovation ............. 35 A framework for analysis of the Chinese economic system ..................................... 37 A main coordinating mechanism ....................................................................... 37 Gauging sustainability and competitiveness ..................................................... 41 Prospective contributions .................................................................................. 42 A note on methodology ..................................................................................... 43 PART I ............................................................................................................................... 46 IN SEARCH OF A MAIN COORDINATING MECHANISM ........................................ 46 Chapter 2 ........................................................................................................................... 47 China’s concept of control: From Maoist-Leninist industrialization to the socialist market economy ............................................................................................................................ 47 Introduction ............................................................................................................... 47 5 The communist paradigm of industrialization .......................................................... 49 The conceptual legacy of the socialist paradigm of industrialization ............... 55 The strategy for economic development in the reform period: “crossing the river by feeling the stones” ..................................................................................................... 57 1978-1993 Reform and opening up .................................................................. 57 1993-2003: Stabilization and consolidation ...................................................... 59 2003-present: Towards sustainability and sovereignty ..................................... 62 Touching the stones: Productivity, stability and sustainability ................................. 65 Constituents and control over capital: aligning functional and normative aspects ... 67 Conclusion ................................................................................................................ 69 Chapter 3 ........................................................................................................................... 72 Accumulation under communism and market socialism: From industrialist concentration to diffusion and back again ............................................................................................... 72 Introduction