How China Became Capitalist

By Dorn, James A. | The Cato Journal, Fall 2013 | Go to article overview

How China Became Capitalist


Dorn, James A., The Cato Journal


How China Became Capitalist

Ronald Coase and Ning Wang

Palgrave Macmillan, 2012, 256 pp.

In 1981, shortly after China began to liberalize its economy, Steven N. S. Cheung predicted that free markets would trump state planning and eventually China would "go 'capitalist'." He grounded his analysis in property rights theory and the new institutional economics, of which he was a pioneer. Ronald Coase, a longtime professor of law and economics at the University of Chicago and Cheung's colleague during 1967-69, agreed with that prediction. Now the Nobel laureate economist has teamed up with Ning Wang, a former student and a senior fellow at the Ronald Coase Institute, to provide a detailed account of "how China became capitalist."

The hallmark of this book is the use of primary sources to provide an in-depth view of the institutional changes that took place during the early stages of China's economic reforms and the use of Coaseian analysis to understand those changes. In particular, Coase's distinction between the market for goods and the market for ideas is applied to China's reform movement and gives a fresh perspective of how China was able to make the transition from plan to market. The key conclusion is that the absence of a free market for ideas is a threat to China's future development.

The book has six chapters and an epilogue. It begins with an account of China at the time of Chairman Mao Zedong's death in September 1976, and then examines the transitional period during 1976-78, the rise of Deng Xiaoping, the "marginal revolutions" during 1978-88, the reversal after the 1989 Tiananmen crackdown, and the restart of the economic reforms in 1992, signaled by Deng's famous "Southern tour."

During the first decade of reform, the rise of the nonstate sector--motivated by the terrible costs inflicted on the Chinese people (especially peasants, entrepreneurs, and intellectuals) by Mao's Great Leap Forward (1958-61) and the Cultural Revolution (1966-76)--was characterized by four "marginal revolutions."

First, private farming (the "household responsibility system") arose to replace the state-ran communes that had led to mass starvation. Poor farmers in small villages began the market revolution, not planners in Beijing. Local officials, however, played an important role in giving rural households more autonomy, allowing them to sell their produce on the open market after meeting a state quota. Productivity increased and farmers began to reinvest their profits, which led to the second marginal revolution: the emergence of township and village enterprises. The TVEs released entrepreneurial energy that had been suppressed under the old regime, helped transform the countryside, and spurred industrialization. Both reforms sprung from the bottom up; there was no central blueprint. Local private parties and officials pushed for institutional changes that would allow more freedom and more choices. When local market experiments were successful, central authorities sanctioned them--and the masked reforms became transparent and spread.

Two further marginal revolutions occurred with the rise of private (individual) businesses in urban areas and the approval of Special Economic Zones in Guangdong and Fujian. The opportunity to be self-employed and entrepreneurial outside the state sector, and the liberalization of international trade in SEZs, allowed new markets to emerge and new wealth to be created. The idea was to "save socialism" by permitting "capitalism." But the momentum unleashed by allowing markets to develop and the profit motive to emerge was too powerful to reverse. Shenzhen, the first SEZ, was a small fishing village in 1978. Today it is a booming commercial city with more than 30 million people, and China is the largest exporter in the world.

While the marginal revolutions were taking place during 1978-88, a second track of reforms took place under the top-down, state-led development model. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

How China Became Capitalist
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.