BOOK REVIEWS

David L. Wank: Commodifying Communism — Business, Trust and Politics in a Chinese City

When there are vast areas of the economic and sociological literature on China devoted to those mastodons—the state-owned enterprises (SOEs)—whose never-ending death throes paralyse Chinese development, a study containing such a wealth of accurate information about the mechanisms by which private companies grow and prosper, or die, could not be more timely.

Xiamen, the city in question, is a stronghold of private enterprise in China. Highly diversified—with commerce, industrial production and services—private enterprise is even spreading into inter-regional and international trade.

The book has a solid theoretical base served by a rich harvest of empirical observations carried out in 1988-1990 and again in 1995. Wank differentiates himself from three methods of analysis of private activity in communist societies—the transition to the market, political economy and culturalist sociology—and develops a conception which he calls the institutional commodification account. His aim is to analyse the workings of the private sector through the social networks which are the bases of the market, of trust and of politics. The work needs to be resituated in the theoretical perspective of economic sociology (Granovetter, Swedberg), almost unknown in France, and that of the network analysts (Hamilton, Orrù, Numazaki). There are also numerous borrowings from neo-institutionalist economics (North).

A detailed introduction establishes the theoretical framework. The first part is devoted to the development of a market economy as it was perceived in field surveys carried from 1988 to 1990. It focuses on the trading networks, which are a response to the hierarchical constraints of the central state, on the exchanges between public and private firms, and on the role of the family unit. The second part returns to the more theoretical questions broached in the introduction: the superior performance of the Chinese economy compared to its counterparts in Eastern Europe. The results of a more recent field survey bring the data collected in 1988-1990 up to date, without modifying the conclusions reached.

Wank’s initial aim is to measure the decline of dependence on bureaucracy and thus to evaluate the growth of the social sphere in relation to the institutions of the state, in the context of the reforms undertaken since the end of the 1970s.

The distinction between public and private, on which he initially bases his research, quickly proves to be an illusion, as the author goes more deeply into his field research. Wank, who shows in particular that a large number of collective enterprises are in fact private—60% in Fujian in 1989—is quickly brought to applying a distinction between property rights and “the social environment”. It is a daring approach if one bears in mind that a certain school, above all American, has sought to identify private enterprise in China on the basis of its legal expression—which, however, in China remains extremely vague. The book shows in great detail how impenetrable property law in China has become because of the interweaving of the various forms of co-operation between the public and the private. Some examples: the co-operatives, where the “patronage” and the site are provided by the local government while the capital comes from private entrepreneurs; co-enterprises in which the “public status” is bestowed by the SOE and the funds are private; leasing (particularly of hotels and restaurants) to private operators, etc.

An underlying structural theme runs through the development of the book: how does a market economy emerge from communism? One of Wank’s theses—and a disturbing one—deals with the lack of any automatic connection between the emergence of market mechanisms and politics: the market does not necessarily promote democracy. The other, fully documented conclusion, is that the resurgence of private enterprise does not lead to any weakening of the patron/client relationship, but rather to the emergence of new, more commercialised or cash-based forms of clientelism. The local bureaucracy as “power-broker” offers its services in return for payment.

Indeed the clientelist connections control business in the domestic market as much as in international trade and reinforce professional affiliations. The book distinguishes with great suability the various levels of accumulation of social capital. The bureaucracy “sells” profit opportunities as well as security. Even though there is a strong correlation between clientelist connections and the prosperity of companies, the point is quickly reached where bureaucratic protection is no longer enough to make profits. It is also necessary to be competitive. Keen business sense rather than political connections is the determining factor nowadays. The quest for patronage is shifting from the objective of profit to that of security. Thus Wank cites several cases where private property is becoming de facto a section of public enterprise. The concern, for the private entrepreneur, still remains guarding against the sudden reversals of economic policy and avoiding the most virulent campaigns of the government.

What is the function of private enterprise? The tolerable one, to the government, of creating jobs, or rather is it at the heart of the creation of wealth and of the independence of the economic sphere? Wank emphasises its function as an expedient: in exchange for a fee, the private sector uses the public sector’s surplus production capacity. But is not this complementary vision of relations between the private and public spheres too optimistic? What guarantee is there that the government will not take back those assets and licences, that breathing space allowed to private initiative?

Wank rightly emphasises the proliferation of administrative agencies, of regulations and licences, which are the common lot of the management of both the market economy and the private sector in China today. Moreover the client/patron relationships reduce uncertainty in a context where the directives can be changed by a decision of the centre, or their application in a particularistic fashion by the local authorities. Building networks, and supporting them with trust, the objective is always to reduce transaction costs: “market rationality as utility-maximizing cannot be considered separately from the normative and cognitive rationality of personal ties” (p. 38).

The exchanges between public and private have many advantages for a public sector partner: links with the private sector are vital for meeting interest payments on loans, paying wages, generating untaxed income, and even for hiring more managers. The very shrewd description of the codes used to identify a large number of economic practices which link the private with the public is illuminating: “creating the opportunity” (chuanzao jihui) is taking decisions that will make a profit possible; “providing information” (tigong xinxi) is specifying the demand and supply of public enterprises.

One difficulty however, is not really resolved by Wank: what constrains private enterprise to such an atrophied development? Or to put the question another way, why cannot private enterprise grow without incorporating itself into that huge mould which is the public sector, its major principal. Certainly, it is because first the SOEs have royal access to funding, and then the size effect comes into play. Nevertheless this relationship still remains within the same framework, that of feeble budgetary constraint.

The same question can be asked of foreign trade. Trading with the outside world is a lucrative business, with beneficial fall-out in terms of improving management and technology. But it is the prerogative of the SOEs, and even though they use the private sector as subcontractor, it is to reduce it to the smallest share. As sovereign predators, the external trading companies take for themselves the very profitable differences which exist between international and domestic prices, while the private firms can benefit only from the minor price differences within China. Of course, the private companies seem to be the only ones to enjoy fruitful contacts among the myriad rural industries. They thus act as intermediaries between the latter—whose bookkeeping is rudimentary: most often they have no bank account—and the state sector. The state sector remains in control of the game, selling or delegating authorisations, concessions and licences as it sees fit.

The re-establishment of small business and the expansion of the informal economy, which have, after all, been the spearhead of growth in Taiwan and in a number of countries in Asia, lead to well-known catch-up effects for the urban economy. But what about the accumulation of capital? Or more precisely, what about the double alchemy which transforms savings into capital on the one hand, and on the other makes possible the accumulation of human capital? If the entrepreneurs who are most successful at converting social capital into tangible assets are former bureaucrats, is it not because there is no endogenous process of capital accumulation?

How is the function of responsibility towards the community which is incumbent on the successful entrepreneur constituted, when the traditional values are demolished and the prestige of the entrepreneur still seems to be low in China?

The parallel with Emilia Romagna, a frequent reference of all the network analysts, is debatable, because there the private sector is dominant, and has been for a long time. What makes the strength of that region, is the osmosis between the universities and industry. The comparison with the countries of Eastern Europe is interesting but perhaps now too different from the Chinese experience to be really illuminating.

These unanswered questions do not detract—quite the contrary—from the very high quality of this work, which remains a major contribution to our understanding of the implanting of market mechanisms in the Chinese social reality. This book, which is remarkably constructed, brings to the student and the researcher a bountiful harvest of observations in the field.