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Paradoxes of China’sEconomic BoomMartin King WhyteDepartment of Sociology, Harvard University, Cambridge, Massachusetts 02138;email: mwhyte@wjh.harvard.edu

Annu. Rev. Sociol. 2009. 35:371–92

The Annual Review of Sociology is online atsoc.annualreviews.org

This article’s doi:10.1146/annurev-soc-070308-115905

Copyright c© 2009 by Annual Reviews.All rights reserved

0360-0572/09/0811-0371$20.00

Key Words

development, postsocialist transition, developmental state, marketreforms, property rights

AbstractChina’s stunning economic performance for the past three decades wasnot only unexpected but contradicts much received wisdom in the studyof development. Four paradoxes posed by China’s record are criticallyexamined: (a) China’s traditional culture and institutions as obstaclesto development; (b) the necessity of big bang comprehensive reformsto transform a centrally planned economy into a market economy;(c) the perils of state-directed economic development (especially whenthe state is composed of lifelong communist bureaucrats); and (d ) thenecessity 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 wisdomand develop so successfully are discussed. The Chinese case indicatesthat countries cannot succeed at development by a standard cookbookapproach but must tailor their development policies and institutions totheir distinctive history, potentials, and limitations.

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For the past three decades, China has experi-enced an extraordinary economic boom. Eco-nomic growth rates averaging close to 10%a year have been maintained despite seriousbumps in the road, such as foreign sanctionsafter the 1989 Tiananmen massacre and the1997 Asian financial crisis. Hundreds of mil-lions of mostly rural Chinese citizens havebeen lifted out of grinding poverty, and rapidlygrowing middle and wealthy classes now en-joy consumption levels that are approachingFirst World standards. Multiple other indica-tors convey the spectacular successes of China’seconomic boom. For example, China went fromhaving negligible foreign direct investment atthe time Mao Zedong died in 1976 to being thedeveloping world’s largest recipient of foreigndirect investment in recent years. China in thesame period went from having essentially zeroforeign exchange reserves to having the world’slargest accumulation (with close to US$2 tril-lion in 2008). The country that in 1958 pro-voked a combination of pity and amusementwith its failed attempt to use backyard steel fur-naces to catch up with Great Britain in steelproduction has since the mid-1990s been by farthe world’s largest producer of steel. Similarly,China went from producing limited ranges ofvery unstylish clothing (Would you like yourMao-jacket and pants in blue, gray, or olive-green?) to being the major provider of inex-pensive but relatively stylish clothing marketedaround the world; a nation that had virtuallyno privately owned cars in 1976 now has morethan 9 million sold each year, with more Buickspurchased annually by Chinese consumers thanby Americans. As a symbolic tribute to China’sdevelopment success, when the World Bank ap-pointed a new chief economist in 2008, the postwent to a Chinese researcher, Justin Yifu Lin,rather than to a Western economist (althoughhaving a PhD from the University of Chicagomay have helped).

What are the explanations for China’s dra-matic turnaround and spectacular economicsuccesses of recent decades? This successwas unexpected at the time China’s reforms

were launched in 1978. After all, who wouldhave thought that lifelong communist bureau-crats could successfully direct the transforma-tion from an increasingly inefficient centrallyplanned system to a vibrant market economy?In multiple respects China’s approach to eco-nomic development contradicts received wis-dom on how to pursue growth. In reading theexisting literature on economic development,one thinks of the analogy between China’seconomic performance and the bumblebee—by all rights it should not be able to fly, butnonetheless it does, and in fact it soars spec-tacularly! By considering briefly several strandsof past research on China and economic de-velopment, and then by examining key featuresof China’s approach in the post-1978 period,this review attempts to contribute to an ex-panded debate about economic developmentpossibilities in the contemporary world. Theprimary generalizations to be critically exam-ined here in light of China’s experiences are thefollowing:

� China’s traditional institutions andculture as obstacles to economicdevelopment;

� The need for comprehensive, big bangmarket reforms in order to successfullydismantle a centrally planned socialisteconomy;

� The necessity of undergoing a dual tran-sition from state management to mar-kets and from autocracy to democracy,while avoiding a variety of perils of state-directed economic development;

� The imperative to get the institutionsright by adopting the institutions andpolicies required in a modern market so-ciety, particularly secure private propertyrights.

FROM DEVELOPMENT FAILURETO DEVELOPMENT SUCCESS

The first paradox concerning China’s recenteconomic boom is that this is the society about

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which a considerable literature accumulatedover the years as a case study in economic de-velopment failure—indeed, failure not once buttwice. The first failure involves the fact that,although China was in many respects moredeveloped than Western societies until as lateas the eighteenth century, subsequently it wasEngland that launched the industrial revolu-tion, while China failed to do so. The secondfailure involves the fact that when both Chinaand Japan were presented with military andeconomic challenges from Britain and otherWestern powers in the nineteenth and earlytwentieth centuries, Japan rose to the chal-lenge through reforms that launched it on apath to becoming a modern industrial power,while China failed to do so. How did a countrythat was a case study of economic developmentfailure become so successful, and what doesthis turnaround say about the assertions in theexisting literature?

The most famous analysis of China’s firstfailure was, of course, developed by Max Weberin works such as The Protestant Ethic and theSpirit of Capitalism (1930 [originally 1905]) andThe Religion of China (1951 [originally 1915]).Weber contended that although Chineseculture was in many ways sophisticated andimbued with a fairly high level of rationality,it nonetheless was in key respects deficient inthe institutions and values necessary to allowmodern capitalism to arise—for example, witha culture stressing reverence for the past,stability, and harmony rather than opennessto change and the pursuit of individual self-interest; denigration of merchants and weakdevelopment of urban political autonomy andsocial classes; strong family obligations thatgenerally trumped rational economic calcu-lations; and weak development of scientificexperimentation and rationality (all in compar-ison with preindustrial Western Europe, andwith England in particular). This intellectualtradition is still very much alive—for examplein the recent works of David Landes (e.g.,Landes 2003) on the advantages WesternEurope gained from greater historical skill at,

and comfort with, technological tinkering andscientific experimentation.

Not all explanations of China’s first failureat economic development adopt this culturaldeficiency framework, however. Elvin (1973)coined the term “high level equilibrium trap” torefer to his claim that the late imperial Chinesecommercial system was so sophisticated and re-sponsive to changes in demand and supply thatsevere shortages and bottlenecks that mighthave stimulated technological breakthroughs(for example, a shift from household weaving tofactory textile production) were avoided. Thus,for Elvin, China was a victim of its own successin constructing over the centuries a highly ef-fective and responsive preindustrial economicsystem. A more recent critique of the culturaldeficiency approach to explaining China’s firstfailure at development has been presented byPomeranz (2000), whose argument in oversim-plified form says that England had two key re-sources that China lacked—coal and colonies.China did have ample coal deposits, but un-like England these were located far away fromthe coastal cities where textile and other facto-ries might be established, and China lacked anymeans to transport the coal from the interiorto the coast quickly and cheaply. In addition,English colonies provided both manufacturinginputs and finances to fuel growing factorieswithout putting excessive burdens on the do-mestic population.

Works dealing with China’s secondfailure—her inability to match Japan’s eco-nomic response to the West in the nineteenthand early twentieth centuries—generally canalso be divided into those that take a culturaldeficiency approach and those that do not. Interms of the former, Bellah (1957) argued thatby historical chance Japan was endowed with arough functional equivalent of the Protestantethic in its own samurai code and that, throughreforms that eliminated Japan’s feudal estates,that society was able to turn many formersamurai toward becoming entrepreneurialmerchants. By implication, China was lesssuccessful in responding to the West because

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she lacked the cultural basis for a construct-ing a new and proud entrepreneurial class.Levy (1955; see also Rozman 1981) arguedthat Japan benefited from having strongermerchant family traditions than China as wellas from key differences in traditional familypatterns. Specifically, Japanese families, unlikethe Chinese with their custom of partibleinheritance, had to settle on a male heir tosucceed the father as head of the main family.Although most often the oldest son becamethe family head, if that son was deemed insuffi-ciently capable, another son could become thechosen heir, or in some cases the family wouldeven adopt a boy from outside to become theheir in preference to their own biological sons.Thus, for Levy, in the Japanese family systemcompetence trumped kinship, rather than theother way around as he claimed was the case inChina.

Again, other works adopt alternatives to cul-tural deficiencies to explain the second failureof China to develop. In particular, the weak-ness, incompetence, and venality of successivegovernments in China in the period 1840–1949and the prolonged and damaging distractionscaused by political chaos, warfare, and foreigninvasion posed severe obstacles to any suc-cessful response to the West (see Coble 1980,Feuerwerker 1977, Perkins 2004, Rawski 1989),a situation that contrasts sharply with Japan’sexperience of state strength and greater politi-cal stability in the same period.

Studies of the sort cited here have beensharply criticized in recent years. Some of thecriticisms challenge whether the first questionposed—Why did the industrial revolutionoccur in England rather than in China?—is areasonable or useful question in the first place.However, the most frequent criticism is a fairlyobvious one: that track records of economicdevelopment since 1950 make the idea ofChinese cultural deficiencies implausible. Themost dynamic region in the world economy inthis period has been East Asia, and the success-ful cases either are mainly Chinese (Taiwan,Hong Kong, Singapore, and now China),or share with China a strong tradition of

Confucian values ( Japan, South Korea,Vietnam). These successes do not, of course,explain why it was England and not China thatdeveloped modern capitalism first. However,they do very much undermine the case thatChina’s second failure at development was dueto cultural deficiencies.

Indeed, the predictable result of East Asiandevelopment successes has been the appear-ance of a new genre of revisionist accountsin which the cultural advantages shared byChinese societies help to explain their recentdevelopmental success (see, for example,Arkush 1984, Gates 1996, Harrell 1985,Redding 1990, Wong 1998). In some instances,the same set of traditional institutional ar-rangements and values that were previouslydescribed as an obstacle to development havebeen reinterpreted as an engine of development(see Whyte 1996 on Chinese family patterns).One recent study of the strong market andbusiness orientations present in ordinaryChinese villages over the centuries makes thefollowing claim: “The argument is a statisticalone. Take two populations of children withsimilar distributions of intelligence and accessto schooling. One population is reared inChinese villages; the other, in some othercultural venue (medieval Europe, contempo-rary Bihar or Bangladesh) at a similar levelof economic development. The hypothesis isthat, upon maturity, the former populationwill display a stronger array of market skillsand accomplishments than the latter” (Rawski2007, p. 103). (For recent discussions of therole of culture in economic development, seeClark 2007, Harrison & Huntington 2000.)

In short, both the record of East Asianeconomic trends since 1950 and these revi-sionist analyses provide grounds to discountthe claim that China’s spotty economic de-velopment record prior to 1978 can be at-tributed to the ways in which China’s tradi-tional culture lacked or contradicted elementsnecessary for modern economic development.Other explanations, such as a weak and inef-fective state combined with military conflictprior to 1949 and misguided state policies in the

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1949–1978 period seem more plausible as ob-stacles to China’s economic success prior to1978.1

HOW TO CARRY OUT MARKETREFORMS OF A SOCIALISTECONOMY

The second paradox under scrutiny here is thatChina’s approach to reforming its centrallyplanned economy after 1978 contradicts theadvice of most economic experts about howthis should be done. In oversimplified form,this has been posed as a debate between a bigbang approach (also called shock therapy) todismantling a centrally planned economy and amore gradualist or step-by-step approach, withEastern Europe pursuing the former approachwhile China stuck to the latter. The big bang ap-proach entails dismantling all elements of cen-trally planned socialist institutions as quicklyas possible and replacing them with the institu-tions of a capitalist economy through privatiza-tion of property and enterprises, freeing pricesand allowing them to be set by market forces,establishing stock markets, reducing or elimi-nating monopolies and subsidies and fosteringmarket competition, opening the economy tothe outside world, making the national currencyconvertible, and so forth. The gradualist ap-proach entails adopting some market-orientedreforms while maintaining intact much of thesocialist planned economy for an extended pe-riod of time. For example, in the Chinese caseagriculture was subjected to market reforms

1It should be noted that China’s second failure was only rel-ative, not absolute. During the few relatively peaceful pe-riods in the first half of the twentieth century, Republi-can China registered important progress in industrialization,transportation, and popular consumption (see Rawski 1989),and by most economic development indicators the People’sRepublic of China was considerably more developed in 1978than it had been in 1949 (see, for example, Howe 1978;Naughton 1991, 2007), with a growth rate of roughly 4%per year between 1957 and 1978 (Perkins 2004). In terms ofthe latter period, as in other centrally planned economies, thisprogress was reflected much more in industrial production,transportation, and access to education than in consumptionof food and consumer goods.

before urban state industry was, but even inagriculture land was not (and still has not been)privatized, even as family farming and privateenterprise activity were allowed for the firsttime since the creation of Chinese socialismin 1955. Early on, Chinese enterprises wereopened up to some kinds of foreign invest-ments (and in certain locales) but not to others,China’s newly created stock markets remainstate dominated and heavily regulated affairs,and China’s currency is still managed ratherthan freely traded in global currency markets.

Why did most experts advocate the big bangapproach? The most articulate critic of gradu-alism was Hungarian economist Janos Kornai(see Kornai 1990, 1992), although his think-ing was widely echoed by economists in theWorld Bank and in Western academic institu-tions, some of whom played key roles as ad-visors to East European governments launch-ing postsocialist transitions after 1989. Therewere two main problems with a gradualist ap-proach, according to Kornai and others. First,the continued operation of a substantial portionof the economy under the centrally planned sys-tem would sustain the irrationalities and inef-ficiencies of that system while sending out thewrong signals to influence decision making inthe new market-oriented and privatized sectorsof the economy. In other words, the primaryefficiency gains expected in a market systemwould be undermined insofar as a significantplanned economy sector continued to operate.The second major problem was that the pro-longed coexistence of both planned and marketsectors of the national economy would open upexcessive corruption opportunities, as power-ful individuals in the planned economy coulduse their control over fixed-price resources inthat sector and over opportunities in the marketsector to engage in rent seeking and profiteer-ing. So Kornai and others argued it would bebetter to make a full transition to a market sys-tem as rapidly as possible so that the efficiencybenefits of such a system could be fully real-ized (see also Murphy et al. 1992, Sachs & Woo1994; for a contrary view, however, see Stiglitz1994).

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Why did China not follow expert advice andpursue a big bang approach? First there wassimply the question of timing. China launchedits market reform program in 1978, before mar-ket reforms were even on the agenda in theSoviet Union and Eastern Europe.2 Becausenobody at the time saw the possibility for cen-trally planned socialist economies to be trans-formed into market economies, an orthodoxyabout how to engineer such a transformationhad not yet emerged.

However, perhaps the major reason Chinadefied the experts is that a big bang com-prehensive approach to market transformationwas not feasible politically in China in 1978.Any attempt then to comprehensively replacecentrally planned socialism with market insti-tutions would have generated enormous resis-tance within the Chinese party and state bu-reaucracy that would have had to implementsuch changes, resistance based upon decadesof indoctrination in, and dedication to, estab-lishing socialism. After all, economic reformsin Eastern Europe followed in the wake of thecollapse of Communist Party rule, whereas inChina economic reforms were launched in thehope of staving off such a collapse. But howto carry out the market transformation of aplanned economy in a socialist society still ruledby a Communist Party was a tricky proposition.Only a partial and gradual approach to marketreforms was feasible, an approach premised ona strategy of demonstrating the superior perfor-mance of those sectors freed from the plannedsystem and thereby generating increased sup-port for widening the scope of market

2To be sure, some parts of Eastern Europe, and particularlyHungary, had begun modest experiments with allowing mar-ket activity to supplement the socialist planned economy asearly as the late 1960s. However, none of these efforts aimedat the eventual dismantling of the centrally planned social-ist system the way the Chinese reforms after 1978 did (seeSzelenyi 1988). It is unclear, though, whether Deng Xiaop-ing initially envisioned market reforms going as far as theyeventually did under his leadership. The nature of the mar-ket institutions China was trying to develop was also not clearinitially, and the leadership was definitely not trying to copyWestern market institutions wholesale.

distribution.3 Even then (and still today) thesechanges had to be ideologically justified interms of fig-leaf formulas such as socialist mar-ket economy.

Even if a comprehensive approach to markettransformation was never in the cards in China,larger questions remain: Why did China’s strat-egy of partial and gradual reforms work so welldespite the warnings of economic experts, andwhy in contrast was the big bang approach somuch less successful when it was tried in Russiaand Eastern Europe? No attempt is made hereto answer this second question beyond sayingthat advocates of the big bang approach did notrecognize sufficiently the virtually insurmount-able obstacles to creating the full panoply ofmarket institutions quickly and the potentiallydisastrous consequences that would ensue dur-ing the chaos created by attempting to do so(seen most glaringly in the way Russian privati-zation of state industrial assets created new cap-italist oligarchs).4 Political problems also con-tributed to the chaos: The collapse of rule bycommunist parties and of state authority gener-ally and the relative weakness of new, multipartypolitical institutions made it difficult to imple-ment and enforce market transition programs,whether big bang or otherwise.

China’s economic success by following agradualist approach was based upon severalelements. First, the top Chinese leadershipdemonstrated a firm commitment throughoutto proceed forward step by step with marketreforms and not to permit significant reversalsback toward central planning, even whenfaced with serious economic problems and

3China also had virtually no foreign indebtedness at the be-ginning of the process of market reforms, a circumstance thatperhaps made it easier for Chinese economic decision mak-ers to ignore advice from foreign experts when they felt it didnot fit their circumstances and needs.4Since the mid-1990s, most of the countries in the formerSoviet bloc have recovered from the big bang–induced eco-nomic depression and have started to grow again. However,in the first decade of the new millennium, some had still notregained the economic levels that existed prior to market re-forms (see Lin 2007, Popov 2007).

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grumbling by some leftist officials and intellec-tuals about the abandonment of socialism (as inthe wake of 1989). This steady determinationto push ahead and, as Deng Xiaoping put it, tocross the “river” of market reforms by steppingfrom stone to stone (despite not having figuredout how to complete the journey) signaled tosociety and to the bureaucratic agents respon-sible for implementing policy changes thateveryone’s future depended on making thenewly freed market-oriented institutions workand on benefiting from them rather than, say,smothering them at birth. Obviously the factthat, unlike in Eastern Europe, CommunistParty rule and state authority did not collapsein China gave credence to these new policydirections.

China also benefited from its particularstrategy of implementing partial market re-forms. China primarily followed an approachthat one scholar (Naughton 1995; see alsoNaughton 2008a) has called “growing out ofthe plan.” In essence, this involved initially pre-serving most elements of the planned economywith relatively little change while allowing andactively encouraging the growth of previouslyprohibited forms of market-based economicactivity, such as family farming, private enter-prises, private marketing activity, and foreign-owned and joint venture firms. These new eco-nomic undertakings had to operate and try tosucceed in a competitive market environment,and as they did so they relatively quickly beganto attract labor power, diligent work efforts, andentrepreneurial energy that had been stifled un-der the rigid form of socialism that character-ized the late-Mao era.5

5As a result of the Cultural Revolution launched in 1966,Mao and his radical colleagues imposed a more restrictiveform of socialism than existed in the Soviet Union or EasternEurope. For example, members of the urban work forceworked for fixed wages that did not change for many years,with no bonuses or other material incentives allowed. In ru-ral people’s communes, villagers were expected to focus oncollectivized labor in the fields and were generally prohib-ited from engaging in family businesses, making handicraftsfor sale, or marketing produce in the cities, and they wereeven discouraged from selling produce from their privateplots in nearby rural markets. One might consider the en-

Initially, these market activities were mainlycentered in rural areas and in the SpecialEconomic Zones that China created to attractforeign investment after 1979, sequestered eco-nomic sectors where they could develop to aconsiderable degree independently of the thenstill dominant and mainly urban planned econ-omy. Arguably, the nature of the Chinese econ-omy at the time made it easier to introducereforms partially there. A country that wasstill roughly 80% rural made it possible to ex-periment with market reforms in agriculture,whereas the economies of the Soviet Union andEastern Europe were dominated much more bythe inefficient and mainly urban firms of theplanned economy, where introducing marketdistribution was more difficult (Woo 1999).6 Asthese market-oriented sectors of China’s econ-omy began to show their potential to raise out-put and incomes (e.g., with rural incomes grow-ing at an unprecedented rate during the first halfof the 1980s, lifting millions of farmers out ofpoverty, and with large infusions of foreign in-vestment arriving to fund nonstate firms as wellas joint ventures) they served both as a pow-erful demonstration of the potential of widelyshared gains from market-oriented economicentities and as a growing source of competitionthat highly inefficient state-owned enterpriseswould eventually have to face.

Market incentives did not remain confinedto the nonstate sector, and here the dual pric-ing system approved by Chinese authorities by1985 is important (Byrd 1987, Wu & Zhao1987). As an increasing number of goods andservices became subject to market prices, even

trepreneurial energy and hard work visible after market re-forms were introduced not simply as a manifestation of thecenturies-old market and business orientations referred to inthe earlier quotation from Rawski, but also as akin to a com-pressed spring that has finally been released and allowed tobound skyward.6The nature of farming in China also made it easier for a re-version to family farming to succeed. Most farming in Chinawas intensive general field cultivation using simple tools,rather than specialized and mechanized extensive farming. Itwas much more difficult for a full-time milkmaid or tractordriver in a Russian collective farm to contemplate embarkingon family farming than for a Chinese commune member.

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state enterprises could use slack resources toproduce for the market once they had mettheir planned production targets. The fact thatmarket prices were almost always considerablyhigher than planned prices for the same com-modities provided strong incentives for statefirms to reorient an increasing share of theiractivity toward the market. China’s dual pricestructure thus made it possible to avoid the dan-ger of responding to the wrong signals, whichwas discussed by advocates of the big bang ap-proach, and it also provided increasing pressureon state firms to reorient their priorities fromplan to market.

The Chinese reforms also benefited from arecognition that there was a mismatch betweenthe nature of economic institutions insidethe plan and China’s economic endowments.Despite the fact that China’s primary economicresource was inexpensive but disciplined labor,the socialist economy had followed the Sovietpath of emphasizing capital-intensive heavyindustrial firms, an approach Lin (2007) refersto as “comparative advantage–defying.” Byallowing new economic activity to spring upoutside of the plan, primarily in labor-intensiveconsumer-goods enterprises and services,China was switching to what Lin terms a“comparative advantage–following” approachto development that contained much morepotential for fostering growth.

This strategy of market reforms promotedmainly by growing out of the plan turned outto have another very important consequencethat contributed to the success of the Chineseapproach. In theory, a comprehensively market-reformed system might have worked better thanChina’s combination of planned and marketeconomies of the 1980s and early 1990s. How-ever, as already noted, the process of tryingto get to that goal in Russia and Eastern Eu-rope produced massive disruption and signifi-cant loss of income and benefits for much ofthe population in the interim. As a result, pop-ular resentments about the consequences ofdismantling socialist institutions were gener-ated (see Kluegel et al. 1995, Mason & Kluegel2000). In contrast, China’s dual track strategy

of allowing market institutions to develop whiletemporarily maintaining the planned economyled to something approximating “reform with-out losers” initially (Lau et al. 2000). In otherwords, those who participated in the newly re-leased market sectors generally gained in theprocess, while those remaining dependent onthe planned economy were to a considerable ex-tent protected from major losses, creating whateconomists refer to as a combination of eco-nomic efficiency and Pareto-improving distri-bution. China avoided throwing large numbersof people out of work and into poverty duringthe initial transition, and popular resentmentsabout the market transition have been substan-tially lower than in Eastern Europe (Han &Whyte 2009, Whyte 2010).

To be sure, China has not by any meansavoided some of the problems that advocatesof the big bang approach pointed out, and offi-cial corruption facilitated by China’s dual-trackapproach to reform has been an endemic prob-lem (see Lu 2000, Manion 2004, Yang 2004).However, given the rampant corruption in Rus-sia and some other parts of Eastern Europe(Goldman 2003), it is not clear that the big bangapproach is to be preferred even on that score.

Since about 1994, China has entered a newphase in market reforms, with the state vig-orously requiring state-owned enterprises toimplement market reforms if they are to sur-vive (see Naughton 2008a). Large numbers ofemployees of the formerly planned sectors ofthe economy have lost their jobs and bene-fits since that time, so that the phrase “reformwithout losers” no longer applies. However, bythat point the market-oriented sectors of theeconomy were not only sufficiently establishedbut increasingly dominant, so that China’s fu-ture economic success came to depend on theability of all enterprises, whatever their originalinstitutional form, to operate successfully in acompetitive, market-oriented, and global envi-ronment. Since about 2000, market exchangesand prices have organized most of the Chineseeconomy, a situation symbolized by China’s ac-cession to the World Trade Organization in2001.

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To sum up, China did not have either the de-sire or the realistic option of pursuing a com-prehensive, big bang approach to market re-forms starting in 1978. The particular strategyadopted of introducing market reforms partiallyand gradually, while not devoid of predictedproblems such as corruption, turned out to havea number of benefits not recognized initially byWestern economic experts, whereas compre-hensive reforms turned out to be much moredifficult to carry out than such experts realized(see also McMillan & Naughton 1992, Rawski1999). In retrospect, China appears fortunatenot to have listened to experts telling them thattheir gradual market reform strategy would fail.(For recent analyses on the advantages of grad-ual reforms, see Kolodko 2000, Popov 2007.)

THE STATE, POLITICALCHANGE, AND ECONOMICDEVELOPMENT

There are multiple paradoxes that involve therelationship between political institutions andeconomic development in China, only a fewof which can be considered here. The mostwidely discussed question is whether economicdevelopment inevitably promotes the democra-tization of authoritarian systems (Acemoglu &Robinson 2006, Lipset 1994, Przeworski et al.2000, Wejnert 2005), and if so whether this ishappening in China. Although the past politicaltransitions in Taiwan and South Korea are oftencited in support of the growth-democratizationcausal link in East Asia, there is little sign of thishappening yet in China. The Chinese Com-munist Party (CCP) remains firmly in controland prohibits any potential opposition voicesfrom finding political space, and China’s newprivate business tycoons seem quite content tosupport Party rule, rather than pressing for po-litical change (Dickson 1997, 2003, 2008). Ifthe effort to succeed in today’s global mar-ketplace promotes and requires a dual transi-tion to market distribution and democratization(Centeno 1994), then China again is defying ex-pectations. However, the focus here is on thereverse side of this causal relationship: To what

extent have China’s political institutions andthe role of the state been major contributorsto China’s recent economic success versus im-portant impediments?

In regard to this question, the existing litera-ture on economic development throws up mul-tiple warning flags about the potential dangersof a major state role in guiding economic de-velopment. There is the danger of a predatorystate or a state that creates a kleptocracy, as inGoldman’s (2003) phrase, the “piratization” ofRussia (see also Ding 2000 on illegal asset strip-ping of state firms in China). There is the dan-ger that even a well-intentioned developmentalstate will be ill equipped to make good decisionsin a rapidly changing and complex global econ-omy. The result may be bad decisions, wastedresources, and disappointing growth or evena national disaster, as in China’s Great LeapForward campaign of 1958–1960, which led tomore than 30 million excess deaths and a se-vere economic depression (Yang 1996; on thegeneral phenomenon, see Scott 1998). There isalso the danger of the close relations betweengovernment and business evolving into cronycapitalism, with financial resources squanderedon misguided business ventures of the well con-nected, while promising small and new venturesof those without state patronage are starved forfinancing. Some analysts assert that crony capi-talism was a primary cause of the Asian financialcrisis of 1997 and suggest that the developmen-tal states of Asia are particularly prone to thisdisease (see Kang 2002, Lim 1998). At the levelof the enterprise, the particular problem gener-ated by state encouragement and patronage isa tendency toward “soft budget constraints” (aphrase coined by Kornai 1980, 1992) that allowinefficient firms to survive rather than face thehard budget constraints of unprotected compe-tition in the marketplace.

Even those not persuaded that the multipleperils of state guidance of the economy makea minimalist role of the state necessary recog-nize the difficulty of determining what makesfor a positive versus a negative government role.For example, Evans (1995) recommends a rela-tionship of “embedded autonomy” between the

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state and business elites, but discusses how diffi-cult it is to find and maintain the desired balanceimplied by this formula. The difficulties be-came even more apparent in 1997 when SouthKorea, heretofore lauded as a success story forstriking the right balance, was badly affectedby the Asian financial crisis and was described bycritics as a clear case of the dangers of cronycapitalism (e.g., Kang 2002).

In any case, one would have thought thatChina was particularly ill prepared to becomea positive model of a successful developmen-tal state. This was, after all, a society with arecent history of persistent and even monu-mental mismanagement of the economy (seeNaughton 1991). Furthermore, as noted at theoutset of this essay, China had in 1978 a politicalsystem led by lifelong communist apparatchikswho presided over a bureaucracy largely com-posed of poorly educated but politically loyaland obedient officials whose career success didnot depend substantially on economic exper-tise or performance. In other words, this washardly the highly trained technocracy that iswidely given credit for the success of other EastAsian economies (Amsden 1989, Johnson 1982,Wade 1990), not to mention the Weberian ra-tional state that has been conducive to eco-nomic growth more generally around the world(Chibber 2002, Evans & Rauch 1999).

Nonetheless, the introduction of market re-forms and guidance of the economy in Chinasince 1978 have clearly been primarily top-down, state-driven processes.7 How and whyhas the Chinese economy been able to be so suc-cessful despite developing under the very visibleand often heavy hand of the state? Part of theexplanation is that China had models close athand in East Asia of developmental states that

7The primary exception to this generalization is an impor-tant one. The rural reforms that in some sense launched thereform process were initiated by the relatively spontaneousdecollectivization efforts of Chinese farmers in depressed lo-cales, efforts that were only gradually and at first somewhatreluctantly approved by central authorities. Subsequently, thegovernment’s attitude changed, and decollectivization wasmade virtually mandatory throughout rural China (see thediscussion in Yang 1996, Zweig 1997).

successfully guided market-oriented develop-ment, models that could be studied and adaptedto Chinese conditions. The world had changeddrastically since the 1950s, when China hadlooked to the Soviet Union as a model of suc-cessful socialist development and had adaptedSoviet institutions and policies to Chinese con-ditions (and when Japan and the East Asiantigers had not yet begun their dramatic rise).By the 1980s, the planned socialist model wasrecognized as a dead end, but China could turnto East Asian neighbors for models of how toorganize a high-growth, market-oriented econ-omy with a potential for rapidly improving theliving standards of the population. China wastrying to repeat the strategy used earlier by theAsian tigers in following the example of Japan,a process referred to as the “flying geese” ap-proach to development (Sugihara 2003, Vogel1991).

This borrowing is usually thought of pri-marily in terms of China shifting from capital-intensive autarchic development to more labor-intensive production of consumer goods forexport. However, equally important were themajor structural changes in the political andadministrative system. The latter changes be-lie the common perception that China’s strat-egy involved reforming economic institutionswhile leaving its political system unchanged.The overhaul of the political system involveda large number of elements that have had avery substantial cumulative effect, only a fewof which can be discussed here.

One important change was a rapid andthorough transformation in the personnel re-cruitment, promotion, and incentive practicesat all levels of the party and state bureaucracy.The unsuitability of a large portion of the exist-ing bureaucratic personnel to manage firms andgovernments and promote market-orienteddevelopment was recognized, and a dramaticshifting of gears occurred as younger and bet-ter educated people were recruited to replacepoorly educated but politically loyal officialsat all levels (see Eldersveld & Shen 2001, Li &White 1990). The People’s Republic of Chinaimplemented, for the first time, a mandatory

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retirement system for officials, clearing the wayfor younger officials to rise (Manion 1993). TheChinese state was rapidly transformed froma “virtuocracy” (Shirk 1984) to a meritocracy,with even the top party leadership now com-posed mainly of college educated technocrats,particularly alumni of China’s prestigiousTsinghua engineering university (Li 1994).China also repudiated the late Mao–era pro-hibition on material incentives and adopted aquantitative system for assessing and rewardinglocal officials, using economic developmentsuccess as the primary indicator for determin-ing compensation. Those leaders of localitiesor enterprises that performed well economi-cally were given sizeable monetary rewards inrecognition of this success (Naughton 2008b,Oi 1992).

Another important component of thereforms of the state administrative system wasthe combination of administrative decentral-ization and altered financial regulations thatfundamentally changed the nature of the state’sadministration of the economy. Large numbersof formerly centrally administered state enter-prises were transferred to provincial and lowerlevels of administration (building on decen-tralization waves of the Mao era), and, startingin 1980, subordinate governments enteredcontractual agreements with higher levels spec-ifying the amount of revenue the lower level hadto turn over to the next higher level. Remainingand additional budgeted revenue and any newextrabudgetary funds generated by the lowerlevels did not have to be remitted to higher lev-els as had been the case before, but could be usedlocally to stimulate economic development,supply public goods, and for other purposes.Similar arrangements were adopted for pro-duction enterprises in their relations with theirsupervising levels of government, and in addi-tion enterprise responsibilities for pensions andother welfare benefits for their employees andretirees began to be taken over by pooled fundssupervised by local governments in a movedesigned to allow enterprises to concentrate ontheir core economic activities. Although thesearrangements were not enshrined in any formal

changes in constitutional arrangements, theyquickly acquired a durability that reassuredlower levels of government and the enterprisesthey supervised that they were safe fromdemands from higher levels for increases infinancial “contributions” (see Montinola et al.1996, Naughton 2008b, Oi 1992). Montinolaand colleagues (1996) characterize the alteredadministrative system as “market-preservingfederalism,” although “market-preserving de-centralization” might be more accurate, giventhe absence of any formal federal structure ofthe Chinese political system.

As a consequence of these changes, localgovernments and enterprises were providedwith a relatively secure set of administrativeand fiscal arrangements that enabled them toconcentrate on pursuing new market oppor-tunities and developing their economies withassurance that, if they were successful, mostof the increased revenue generated could beused locally to generate more of the same,not to mention financial rewards for those incharge. Firms and local governments also knewthat if they lost money they would no longerbe bailed out by higher levels, thus forcingthem to face market competition in a structureimposing relatively hard budget constraints.Localities and enterprises that were relativelyslow to pursue new market opportunities couldreadily observe how they were falling behindthe prosperity of their neighbors, and theresulting envy stimulated increased efforts tocopy the successful market-oriented policiesand institutions of front-runners (Vogel 1989).The combination of financial rewards for localofficials for success in economic developmentand increased public revenues generated bylocal firms provided powerful incentives forquickly adopting practices suited to operatingin the new market environment (Walder 1995).The hectic market competition among localfirms and governments unleashed by thesechanges was a fundamental source of China’snew economic dynamism.

A particularly dramatic manifestation ofthe impact of the changed administrativesystem involves the growth and changing

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organizational forms of China’s township andvillage enterprises (TVEs). In the late Mao era,rural industry was burdened by restrictionsand generally allowed to produce only tools,cement, and other products to serve the needsof the local community, and as a consequencethere were relatively few workers employed inrural factories nationwide prior to 1978 (seePerkins 1977). The combination of alteredadministrative and financial systems with newmarket opportunities—to produce goods forthe long-deprived domestic market, to exportproducts to overseas markets, to attract invest-ment funds from Hong Kong and other outsidesources, etc.—stimulated local governmentsto scout out new opportunities and establishlocal factories to meet those opportunities.The local factories were major contributorsto growing out of the plan (Naughton 1995),and initially they were mostly run and financedby local governments, an arrangement thatone researcher terms “local state corporatism”(Oi 1992, 1995). The dramatic rise of TVEsresulted in the employment of over 100 millionworkers by the early 1990s and a situation inwhich close to 30% of China’s total industrialoutput was produced by this sector (Naughton2007). The dynamic growth and increasingnational importance of the TVE sector in the1980s and 1990s belie the expectation thatgovernment-run firms are unlikely to producerobust economic development.

However, as the competitive field of TVEproduction became more crowded, and as somelocal assessments of market opportunities failedto pan out, a rising portion of TVEs beganto suffer financial losses, losses for which theirsupervising local governments were responsi-ble. Those governments recognized the risks towhich they had exposed themselves in their rushto benefit from market reforms, and relativelyquickly they adapted to the situation by push-ing privatization of TVEs, as well as by clos-ing unsuccessful firms that no private managerwould agree to take on (Oi 1999, Ruf 1999).By the mid-1990s the great bulk of TVEs hadbeen transformed into private enterprises, withtheir owners responsible for profits and losses,

but with local governments still benefiting inthe former instance from receiving their agreedshare of firm profits.8

There is not space here to discuss manyother aspects of the state’s role in guidingChina’s economy. However, one point shouldbe stressed in relation to the previous literatureand the example of other East Asian economies.China has placed less emphasis than other EastAsian developmental states on the central gov-ernment’s role in formulating industrial policy,picking winners in emerging new technologies,or protecting favored enterprises, in the mannerof MITI in Japan ( Johnson 1982) and state sup-port for chaebol in South Korea (Amsden 1989,Lie 1998). Rather, as noted earlier, much of theinitial economic growth occurred via the ef-forts of private, TVE, foreign, and other firmsto grow out of the plan. The role of the statein pursuing this strategy was mainly to removeregulatory obstacles and establish institutionsto provide positive market incentives and fostercompetition to facilitate the growth and successof these new firms (Naughton 1995). So, for ex-ample, a tremendous effort over the years hasbeen devoted by the state to attracting foreigndirect investment—through establishing Spe-cial Economic Zones with reduced taxes andother inducements, through rapidly developinglegislation governing and protecting foreign in-vestment and repatriation of profits overseas onattractive terms, and in general through tryingto enhance the business climate and overcomebarriers to further development of markets. (Onindustrial policy in East Asia in general, see alsoAmsden 2008, Amsden & Chu 2003, Noland &Pack 2003).

China’s difference from earlier East Asiantigers in this respect is only relative, given

8Since the mid-1990s, the TVE sector has not been growingas rapidly as before. In recent years, employment has leveledoff at around 140 million workers in this sector (Naughton2007), and TVEs now play a less prominent role in China’seconomic growth. One additional reason for TVE privati-zation was the 1994 fiscal reforms that allowed the centralgovernment to recapture a larger share of locally generatedrevenues, thus making TVEs less attractive cash cows for lo-cal governments.

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that the central government has clearly favoredand promoted some industries and technolo-gies (e.g., military-related industries, automo-biles). And where there has been direct statesupport of specific economic sectors and ac-tivities, endemic problems are visible, such asresidual crony capitalism tendencies for moststate bank loans to continue to be channeledto large state enterprises and used to supportinvestments of often questionable value andprofitability. [See the critique in Lardy (1998),Nee & Opper (2007), Wu (2006); however,several researchers, including Guthrie (1998,1999) and Keister (2002), contend that thesetendencies are declining over time].

In sum, the Chinese party/state has been inthe driver’s seat in directing the developmentprocess in China. However, the approach takenby Deng Xiaoping and subsequent reformershas been to use the power of the state primarilyto promote markets, foster competition, andstimulate market-oriented incentives, ratherthan to try to pick winners and favor investmentin those firms with the closest ties to the state.To promote market-oriented development,fundamental changes have occurred in howthe Chinese state is organized and operates,although pressures for democratization havebeen strongly and so far successfully resisted.Although there have also been recurringproblems with corruption, crony capitalism,and other predicted costs of heavy state in-volvement, on balance the Chinese experiencesince 1978 is mostly an example of a verysuccessful developmental state.

GETTING THE INSTITUTIONSRIGHT?

The fourth and final paradox to be discussedhere is the widespread belief that a key, or per-haps even the key, to successful economic de-velopment is “getting the institutions right”(see Rodrik 2007, chapter 6). There is a richliterature devoted to this topic, ranging fromAdam Smith and others down to Ronald Coase(1988, 1992), Douglass North (1990, 1995;North & Thomas 1973), and many others in

recent times. Why does this literature say it isimportant to get the institutions right in orderto promote economic development? Althoughmuch could be said in answer to this question,the bottom line is generally the argument thathaving the wrong institutions will not provideoptimal incentives to individuals, firms, finan-cial institutions, and even nations, and as a resulteconomic growth will not be stimulated or willbe anemic at best. Certainly there is much to besaid for this argument, and China’s experiencein the era of planned socialism provides copiousexamples of the economic damage and wastecaused by bad institutions and the poor incen-tives they provided (see again Naughton 1991).

However, there is continuing debate aboutwhat the right institutions are. One influen-tial listing (Williamson 1990) was termed the“Washington consensus” because it reflectedthe neoliberal economic thinking prevalent inthe World Bank and the United States gov-ernment at the time. The consensus consistedof a list of ten recommended economic poli-cies/institutions: fiscal discipline, progrowthexpenditure priorities, tax reform, liberaliz-ing interest rates, a competitive exchange rate,trade liberalization, liberalization toward in-ward foreign direct investment, privatization,deregulation, and private property rights.

However, recent assessments (Rodrik 2008,Stiglitz 2008) argue that the countries thatwent furthest in implementing Washingtonconsensus reforms, primarily countries in LatinAmerica, had worse economic records afterthese reforms than prior to them and alsoworse records than countries that did not fol-low the Washington consensus approach. Thisoutcome throws into serious question the ideathat such a one-size-fits-all set of institutionalarrangements can lead to growth in every coun-try, not to mention the notion that neoliberalapproaches to economic management are nowuniversally triumphant (Fukuyama 1992).9

9For a discussion of the Washington consensus list, seeWilliamson 1990, 2008. For a more general discussion andcritique of the Washington consensus, see Serra & Stiglitz2008. In his retrospective essay on the term he coined,

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Despite such doubts, there is much moreagreement on the importance of secure privateproperty rights as a vital prerequisite for eco-nomic development. As summarized recentlyby Acemoglu et al. (2005, p. 395; see alsode Soto 2000), good economic institutions aredefined “as those that provide security of prop-erty rights and relatively equal access to eco-nomic resources to a broad cross-section ofsociety.” However, the problem when this ideais applied to the Chinese economy since 1978is obvious. China has certainly been ardent inpursuing some items on the Washington con-sensus list, such as a progrowth investmentpolicy and liberalization toward inward foreigndirect investment. However, in other respects,and particularly in regard to the key issue of pri-vate property rights, the Chinese have persistedin getting the institutions wrong, and yet theeconomy has continued to boom. How can thissuccess be explained?

Before attempting to address this question, abrief discussion of the nature of property rightsin China today is in order (for fuller discussion,see Oi & Walder 1999). There are multipleother domains in which China also departsfrom lists of the right institutions to promotedevelopment (such as by state managementof currency exchange rates), but given the keyplace in orthodox economic thought of privateproperty rights, we set those other domainsaside here. The situation of property rightsdiffers in rural versus urban China. In thecountryside, decollectivization of agriculturein the early 1980s restored family farming, butfamilies did not receive private property rightsto the land they cultivated, which remains thecollective property of the villages in whichthey live. Instead the land was divided up andleased out to local families, with leases since1994 extended to 30 years. The national policy

Williamson (2008) contends that Stiglitz and others misinter-preted his list as neoliberal market fundamentalism and thatLatin American countries that performed poorly had actuallyfailed to adopt key provisions in his list. He also acknowledgesthat his list omitted other important elements that can fosterdevelopment, such as a priority on social equity.

is that the leased plots should not be readjustedduring the lifetime of the contract, with leasesinheritable by subsequent generations. Onemight see the government’s rural land policyas attempting to promote something close tosecure private property rights, but withouttaking the final step of providing full legal titlein perpetuity. However, the complication inreality is that in many villages in China localleaders and farmers defy central policy by peri-odically reallocating village land—particularlyto compensate for changes in family size andlabor power attributable to births, deaths,marriages, and out-migration, but also to serveother goals, such as sanctioning compliancewith other policies, such as family planning (seeBrandt et al. 2002, Prosterman 2001). So, infact, in many villages Chinese farmers have noguarantee that they will continue to be farmingnext year all the plots they farm today, althoughexisting research suggests that a majority offarmers favor rather than oppose these periodicreallocations (see Kung & Liu 1997).

However, there is another growing threat tothe land rights of China’s farmers that is muchmore contentious. Rural officials in increasingnumbers of villages are entering into businessdeals with outside developers to lease out vil-lage land for use in constructing housing es-tates, shopping malls, or factories, with farm-ers launching protests when they feel they havenot been properly consulted and compensatedin these deals (O’Brien & Li 2006).

In sum, China’s agricultural land has stillnot been fully privatized even 30 years afterthe launching of market reforms.10 Full pri-vate ownership is, however, present in otherspheres in the rural economy, including housingand family-run and privatized TVE businesses,

10In October 2008, an important meeting of the CCP tookplace devoted to rural land tenure issues. At that meeting,land use contracts were extended beyond 30 years (perhapseven indefinitely) and markets for the sale and exchange ofsuch rights were authorized, although still without providingChina’s farmers with full legal title to the land they till. Itremains to be seen whether the conclusion offered here willcontinue to be the case, or whether further steps toward pri-vatization of agricultural land will be taken and implemented.

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although with the usual caveat about the rela-tive weakness of Chinese courts and other legalinstitutions in providing protection to propertyowners.

In the cities, the situation is more compli-cated. Land remains state property, but againavailable for long-term lease for housing, busi-ness, and other purposes. China’s dual track ap-proach to reform initially rejected privatizationof state-owned economic enterprises that werethe legacy of the era of planned socialism, un-like the strategy in the former Soviet Unionand Eastern Europe. However, private enter-prises could be established from the 1980s on-ward, and foreign enterprises were welcomedinto China and able to operate not only asjoint ventures, but also as majority foreign-owned firms, in some cases even with 100%equity stakes. However, initially in the 1980sthere were sharp limits on how many employ-ees could be hired by a domestic private firm,and legislation to fully proclaim the rights toprivate property in such businesses was notadopted in China until 2007. Despite these re-strictions and uncertainties, China’s private andforeign-owned sectors of the economy grewrapidly over the years, while the share of out-put and employment associated with state firmsdeclined.11

As a result of the more extensive set of re-forms launched in 1994, China’s state-ownedenterprises eventually began to experience atleast quasi privatization, but this process stillleaves the state in a dominant position in mostinstances. In some cases, faltering state-ownedenterprises were merged or sold to private in-dividuals or companies or even closed down,rather than being continually propped up withbank loans. Stock markets were established inShanghai and Shenzhen starting in 1990, en-abling individuals, other firms, or in some cases

11The numbers of workers and employees in state firmsdeclined from a peak of around 110 million in themid-1990s to only a little over 60 million in 2007 (ac-cording to China’s online national statistics, available athttp://chinadataonline.org.ezp-prod1.hul.harvard.edu/member/macroy/macroytshow.asp?code=A0202).

even foreign individuals and firms to buy sharesand establish a substantial ownership stake inmany Chinese state companies. However, gen-erally only certain types of shares are freelytraded, while others, generally a majority stake,remain in the hands of the state. So in ur-ban state enterprises as well as in agriculturalland, full privatization and the establishmentof secure private property rights are still beingresisted and restricted.

So if in regard to the issue of private propertyrights China has persisted in getting the institu-tions wrong, why is economic growth in Chinashowing so few signs of the economic harmthat the experts say this should cause? Severalcircumstances may help explain this paradox.First, although there have been and remain re-strictions on the realms to which private prop-erty rights apply, in general the state has movedconsistently in the direction of further expan-sion of private enterprise and ownership, ratherthan backtracking and launching renationaliza-tion of private assets as might have been feared.In fact, as noted earlier, in the case of agricul-tural land the state has tried to foster changesin the direction of firmer property rights andhas been thwarted. So in some ways the recordof state actions in China after 1978 displays acommitment to markets and proper incentivesthat would presumably please Adam Smith, de-spite the fact that these are the acts of lifelongcommunist bureaucrats. The Chinese case indi-cates that viewing economic guidance as beingprovided by markets versus by governments canbe highly misleading, given that a developmen-tal state can play a key role in fostering marketdistribution and competition.

A second consideration is that fairly quicklythe prospects of dramatic profits and personalenrichment through private business and thelure of profits to be made by foreign firms inthe vast China market reassured potential en-trepreneurs and investors that they could re-coup their investments in only a few years.This was in contrast with the decades of stag-nant incomes of the Mao period. Thus, indi-viduals and foreign firms found the risks oflong-term threats to their property stake worth

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taking. A final consideration concerns relativeexpectations. If you have been living in a strictsocialist economy in which you have no pro-ductive property from which you can profit atall, even the fuzzy, imperfect, and perhaps tem-porary property claims established as a result ofthe reforms may provide all the incentive youneed to use that property for personal gain in ahighly energetic fashion (Oi 1992; see also thediscussion of Chinese “fuzzy property rights”in Ho 2001, Sanders & Chen 2005).

These considerations suggest that the atten-tion focused on secure private property rightsby most institutionalist theorists of develop-ment is misplaced. Having secure rights in myproperty may do little to foster developmentif there is no structure of opportunities andincentives in the larger society to induce meto use my property in an increasingly produc-tive way, or if a few established economic ac-tors monopolize available opportunities. Onthe other hand, a sufficiently conducive struc-ture of opportunities and incentives throughoutsociety and intense competition to gain accessto such opportunities may induce me to workharder, innovate, take risks, and be more en-trepreneurial in general, even if I have someuncertainty about how secure my private prop-erty rights are. Walder & Oi (1999) refer tothis situation as the “utility of suboptimal so-lutions.” (Huang 2008 refers to this syndromeof improved but still insecure property rightsas “directional liberalism.”) If this reasoning isaccepted, then private property rights are notso important per se, but only as one institu-tionalized option (although a common and of-ten very powerful one) for fostering positivedevelopment incentives and opportunities forindividuals, families, and firms. In short, eventhough China has not provided secure privateproperty rights, the overall improvements incompetition, opportunities, and incentives thatare intended to foster hard work, entrepreneur-ship, and innovation are sufficiently strong thatthey provide economic dynamism in China thatsecure private property rights alone could notprovide (see a similar conclusion in Rodrik2007).

CONCLUSIONS

In this review, I have considered four paradoxesthat lead one to expect that China after 1978could not be very successful at economic de-velopment. In each case, I have tried to explainhow and why China’s economic performancecontradicts these expectations. Explaining whyChina did not fail at development after 1978 isnot the same as explaining why she succeeded,although parts of the story are embedded in pre-vious sections of this review. Although debunk-ing four kinds of conventional wisdom aboutdevelopment is the main purpose of this article,in closing I briefly sketch, but do not elaboratehere, some of the additional contributing fac-tors to China’s success. (These points are drawnfrom a related paper, Whyte 2007, in which theyare developed and discussed at greater length).

China’s traditional cultural legacy providedfertile ground for recent economic develop-ment and market competition in a number ofrespects:

1. centuries of familiarity with a social orderwith great inequality but few barriers tosocial mobility, and with high actual geo-graphic and social mobility rates;

2. strong family traditions of emphasizingeducation (but primarily for sons) and thepursuit of economic betterment for thefamily;

3. centuries of familiarity with marketing,private business activity, forming partner-ships, commercial contracts, and otherpractices of a modern market economy;

4. the availability of many more natural re-sources than are possessed by other EastAsian states (although not enough to en-courage reliance on raw material exportsas a growth strategy);

5. a large population size that could providethe basis for robust domestic market de-mand once disposable incomes increased,thus making reliance on production forexport less central to economic growthover time.

Despite monumental errors, China’s yearsunder centrally planned socialism provided

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some positive foundations for subsequent eco-nomic growth as well, including the following:

1. political stability and a strong state thatcould be converted into a successful de-velopmental state, although only afterconsiderable retooling;

2. the absence of entrenched economicelites who could use their wealth tocapture most benefits of growth or toblock or distort economic developmentinitiatives;

3. an impressive increase in heavy industrial,transportation, and other economic in-frastructure as well as in the number ofChinese trained to work with modern in-dustrial machinery;

4. major improvements in the human cap-ital of the Chinese population in termsof educational attainment (including astrong emphasis on technical, scientific,and engineering fields in line with theSoviet model) and in the health and lifespans of the population, making Chineseworkers and specialists attractive in theeyes of potential foreign and domesticemployers;

5. substantial improvement in the humancapital and economic contributions ofwomen (again in line with the Sovietmodel);

6. exposure of most of the population, in-cluding rural residents, to the routinesand discipline of bureaucratic work orga-nizations;

7. a demographic dividend produced byrapid state-induced fertility decline start-ing in 1970, prior to the one-child pol-icy,12 sharply increasing the size of the la-bor force relative to the total population;

12Contrary to popular belief, most of China’s fertility de-cline preceded the launching of the one-child policy in 1979.About 80% of China’s fertility decline (from a total fertilityrate of 5.8 in 1970 to only about 1.6 today)occurred as a resultof the already highly coercive family planning policy of the1970s, which was launched with Mao Zedong’s approval (seeWang & Mason 2005, Greenhalgh & Winckler 2005). Theone-child policy was launched partly to keep fertility ratesfrom rising again, but also to try to drive fertility rates belowreplacement level in order to pursue an extraordinary goal of

8. the absence of substantial foreign debts,providing China with much more flexi-bility in designing economic policies thanmost developing countries have;

9. finally, the fact that socialism lasted onlya generation (1955–1978), unlike in theSoviet Union, so that memories and ex-periences of operating in a market societywere still present in the population andcould be revived.

At the same time, the legacy of economicmismanagement, distortions, and the rigidity ofthe Chinese socialist system left major problemsthat had to be overcome after 1978. However,several of these had the potential to provide pos-itive contributions to China’s subsequent devel-opment in a reaction formation fashion:

1. having a large portion of the population,particularly the roughly 80% still resid-ing in rural areas, who had been con-signed to almost feudal subjugation in theplanned economy and who were thus ea-ger to take advantage of any new marketopportunities;

2. an extraordinary accumulation of con-sumer frustrations, typical of but perhapseven more extreme than in other plannedeconomies, producing strong domesticdemand for goods and services that so-cialism had not provided, thus helping tocreate strong market incentives for TVEsand other new but initially not very effi-cient market-oriented businesses;

3. a substantial discrediting of the symbols,slogans, and institutions of socialism pro-duced by the chaos of the Cultural Revo-lution (1966–1976), making it easier forChinese at all levels to embrace previ-ously denounced market practices andsymbols.

Then, in terms of the post-1978 changes andstrategy, in addition to the thorough overhaul-ing of the state administrative system and thefundamental reorientation from a Soviet-style

eventually reducing China’s population below its 1979 level(Greenhalgh 1995).

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planned economy to a version of an East Asianexport-oriented economy, as discussed earlierin this review, there were a number of othercircumstances that worked in China’s favor,including the following:

1. fortuitous timing that allowed China tofill the gap in the global manufacturingsupply chain that opened because of risinglabor costs in Japan and in the East Asiantigers, enabling China to become the nextflying goose to line up to fill the shelves ofWal-Mart and other consumer emporiain the West;

2. the similarly fortuitous timing of a ColdWar–induced change in American for-eign policy, from isolating to embracingChina as a counterweight to the SovietUnion, thus opening up the United Statesto Chinese products and students whileproviding technology, teachers, and otherinputs to help fuel China’s development;

3. the availability of a substantial Chinesediaspora of wealthy capitalists in HongKong, Taiwan, and overseas who weremotivated to invest in China for emo-tional as well as economic reasons and toshare their expertise in penetrating for-eign markets.

This list is selective rather than exhaus-tive, but it is intended to convey the complex-ity of the contingencies and factors that havecontributed to China’s extraordinary economicboom over the past three decades. China’s eco-nomic success was unanticipated, and it de-pended on a large number of factors, changes,and contingencies. Some of those, such as thedemographic dividend and China’s low laborcosts, are now becoming less operative, withVietnam and other even poorer countries onlytoo willing to take business away from China.At the same time, a variety of other factors couldarise to threaten China’s economic progress,such as a weakening of economic demand inthe West, environmental crises or political in-stability in China, and mismanagement of theremaining state sectors of the economy. The

onset of the global financial meltdown late in2008 posed a severe test of the ability of China’sleaders to sustain the extraordinary growthrecord of the past three decades. One has onlyto look at Japan since 1990 to see how an EastAsian economic miracle can cease to be verymiraculous. Although China’s leaders will doeverything they can to try to keep their econ-omy growing rapidly enough to generate robustincreases in employment and living standards,not to mention continued popular acceptanceof CCP rule, it is by no means obvious thatChina’s extraordinary boom for the last threedecades can be sustained in the future.

In terms of generalizations for economicdevelopment prospects elsewhere, the implica-tions of China’s economic boom are mixed. Theclear evidence that China provides that thereis no single development strategy or set of in-stitutions that have to be adopted everywhereto foster development should be encouraging.Rather than copy the “best practice” used else-where, it would be more productive to conducta realistic analysis of the current resources andcapabilities in any particular poor country andstudy how these relate to the prevailing con-straints and opportunities in the global econ-omy. Such an analysis will determine how toovercome the primary obstacles to growth inthat country and how to take maximum advan-tage of current opportunities (see Hausmannet al. 2008, Lin 2007). But this conclusion alsomeans that it will not be very productive tostudy the Chinese model in order to figure outhow to replicate China’s success in country X.The factors that have made China so unexpect-edly successful at economic development since1978 are multiple and complex, and many ofthem turn on deep-rooted historical character-istics or fortuitous timing that cannot readily beduplicated. This conclusion may be more dis-couraging for other developing societies. Theycan take heart from the fact that it is still pos-sible for a poor country to change its economicfate and dramatically improve its economic per-formance, but each must find its own path to doso, rather than simply copy China.

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DISCLOSURE STATEMENT

The author is not aware of any affiliations, memberships, funding, or financial holdings that mightbe perceived as affecting the objectivity of this review.

ACKNOWLEDGMENTS

I appreciate comments received on this and a related paper from Gary Jefferson, Nicholas Lardy,Jean Oi, Dwight Perkins, Thomas Rawski, Dani Rodrik, Ezra Vogel, and Andrew Walder, noneof whom is responsible for any remaining shortcomings.

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Annual Reviewof Sociology

Volume 35, 2009Contents

FrontispieceHerbert J. Gans � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � xiv

Prefatory Chapters

Working in Six Research Areas: A Multi-Field Sociological CareerHerbert J. Gans � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1

Theory and Methods

Ethnicity, Race, and NationalismRogers Brubaker � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �21

Interdisciplinarity: A Critical AssessmentJerry A. Jacobs and Scott Frickel � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �43

Nonparametric Methods for Modeling Nonlinearityin Regression AnalysisRobert Andersen � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �67

Gender Ideology: Components, Predictors, and ConsequencesShannon N. Davis and Theodore N. Greenstein � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �87

Genetics and Social InquiryJeremy Freese and Sara Shostak � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 107

Social Processes

Race Mixture: Boundary Crossing in Comparative PerspectiveEdward E. Telles and Christina A. Sue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 129

The Sociology of Emotional LaborAmy S. Wharton � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 147

Societal Responses toTerrorist AttacksSeymour Spilerman and Guy Stecklov � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 167

Intergenerational Family Relations in Adulthood: Patterns, Variations,and Implications in the Contemporary United StatesTeresa Toguchi Swartz � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 191

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Institutions and Culture

Sociology of Sex WorkRonald Weitzer � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 213

The Sociology of War and the MilitaryMeyer Kestnbaum � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 235

Socioeconomic Attainments of Asian AmericansArthur Sakamoto, Kimberly A. Goyette, and ChangHwan Kim � � � � � � � � � � � � � � � � � � � � � � � � � 255

Men, Masculinity, and Manhood ActsDouglas Schrock and Michael Schwalbe � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 277

Formal Organizations

American Trade Unions and Data Limitations: A New Agendafor Labor StudiesCaleb Southworth and Judith Stepan-Norris � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 297

Outsourcing and the Changing Nature of WorkAlison Davis-Blake and Joseph P. Broschak � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 321

Taming Prometheus: Talk About Safety and CultureSusan S. Silbey � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 341

Political and Economic Sociology

Paradoxes of China’s Economic BoomMartin King Whyte � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 371

Political Sociology and Social MovementsAndrew G. Walder � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 393

Differentiation and Stratification

New Directions in Life Course ResearchKarl Ulrich Mayer � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 413

Is America Fragmenting?Claude S. Fischer and Greggor Mattson � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 435

Switching Social Contexts: The Effects of Housing Mobility andSchool Choice Programs on Youth OutcomesStefanie DeLuca and Elizabeth Dayton � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 457

Income Inequality and Social DysfunctionRichard G. Wilkinson and Kate E. Pickett � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 493

Educational Assortative Marriage in Comparative PerspectiveHans-Peter Blossfeld � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 513

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Individual and Society

Nonhumans in Social InteractionKaren A. Cerulo � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 531

Demography

Social Class Differentials in Health and Mortality: Patterns andExplanations in Comparative PerspectiveIrma T. Elo � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 553

Policy

The Impacts of Wal-Mart: The Rise and Consequences of the World’sDominant RetailerGary Gereffi and Michelle Christian � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 573

Indexes

Cumulative Index of Contributing Authors, Volumes 26–35 � � � � � � � � � � � � � � � � � � � � � � � � � � � 593

Cumulative Index of Chapter Titles, Volumes 26–35 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 597

Errata

An online log of corrections to Annual Review of Sociology articles may be found athttp://soc.annualreviews.org/errata.shtml

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