Contagious Capitalism: Globalization and the Politics of Labor in China

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Contagious Capitalism: Globalization and the Politics of Labor in China. By Mary Elizabeth Gallagher. Princeton: Princeton University Press, 2007. 256 pp. $18.95 (paper).

Since the beginning of the reforms in 1978, China's experience has defied the recurring predictions of economic collapse, political upheavals, and other pessimistic calculations. Yet, understanding why the country continues to advance on a destabilizing path of reforms and openness at a fairly steady pace remains an imposing intellectual challenge. Mary Elizabeth Gallagher's book offers a solid and elaborated contribution to the debate on the mechanisms and consequences of China's economic reforms. Her work concentrates on Chinese labor practices and the reasons why she finds them to converge despite the differing types of ownership structures involved and the absence of major political change and large-scale privatization.

Her main argument can be summarized in one word: sequencing. According to Gallagher, the whole dynamic of Chinese reforms resides in the timing and order in which they were allowed to happen. This is what ultimately explains the convergence of labor practices on the ground.

Gallagher argues that one of the most important elements in the Chinese reforms was the choice to open up the country to foreign direct investments (FDI) before privatizing the state sector and before allowing the emergence of a domestic private sector. The opening to FDI allowed three different mechanisms to take place.

First, it unleashed competitive pressures, which soon built up between regions, firms, and ultimately workers. This was allowed to happen because of an early policy of decentralization that granted power to the local authorities but also increased their responsibility to find alternative sources of revenues. The competitive pressures were also made possible because of the creation of different types of ownership structures and the eventual blurring of the boundaries between them. This gradual process of FDI liberalization started with the creation of special economic zones (SEZs) in 1979. It gradually created incentives for the managers of foreign invested enterprises outside the SEZs to demand more autonomy and more flexibility in hiring labor, in order to be able to compete for FDI. These incentives impacted the managers of state-owned enterprises as the hybridization of ownership structures continued. Ultimately, these competitive forces contributed to the decline of the "iron rice bowl" practices and to the emergence of the phenomenon of contract labor. The author concludes that these contagious competitive forces have contributed to the fragmentation of the labor force, which resulted in the absence of both strong labor unions and organized political challenge to the reforms. Gallagher finds that the movement toward more liberalization was mainly a microphenomenon, in that it wasn't guided from the top but rather demanded by the local level.

The second mechanism to take place as a result of FDI liberalization, according to Gallagher, was the creation of "laboratories for change." These laboratories allowed the government to test the effects of contentious reforms. The workers who were first allowed into the SEZs were either too young to have experienced socialist work practices or were qualified technicians who were gaining by jumping the fence. These laboratories for change allowed Chinese managers to build tip experience in capitalist managing practices while allowing the government to maintain control of the pace of the reforms. …