Taïeb Hafsi, HEC MontréalTaïeb Hafsi, HEC Montréal

China: Thoughts About a Born Again CivilizationChina: Thoughts About a Born Again Civilization

Presentation at the CÉRIUM’s Summer SchoolPresentation at the CÉRIUM’s Summer SchoolChina RisenChina Risen

How it changes and change usHow it changes and change us

A PRIMER

1. Capital: Beijing2. Area: 9.6 million km2 3. Population: 1.3 billion (2000)4. 56 ethnic groups (Han: 91.6%; Muslims:

21 million)5. Communist party: 6.5 million members6. 1840: China accounted for 1/3 of World

GDP; 2003: it was only 5% !

A PRIMER

7. 4 cities directly controlled by Central government: Beijing, Shanghai, Tianjin and Chongqin

8. 23 provinces (Incl. Taiwan); 5 autonomous regions (incl. Tibet); 2 special administrative regions (HK and Macao)

9. 26 are larger than France; 16 are larger than Quebec

A PRIMER

10. The 5th largest economy in the World (2005) GDP: US $ 2300 Billion (+9.9%) FDI: US $ 60.3 B RESERVES: US $ 800 + International Trade (2005): US $ 1422.1 B (+23.2%)

US deficit with China: US $ 201 B Over 250 M. people have been pulled out of poverty Middle class is developing fast and is expected to reach

500 million people by 2020

HISTORICAL FACTS

A remarkable history: over 4000 years old 16 dynasties: Qin, Han, Dang, Song, Yuang, Ming and

Qing More than 250 emperors

Yin Zheng: first to centralize feudal monarchy and unite China in 221 BC

Kublai Khan: unified China and Mongolia in 1276 AD Yong Zheng: officially integrated Tibet into China in 1727 AD

China first republic in 1911 by Sun Yat-Sen Popular republic in 1949

1976: Death of Mao, Zhou and Zhu 1979: Deng Xiaoping starts the economic reforms Transitions from a centrally planned economy to a Planned

Socialistic Market Economy, and then to the Socialistic Market Economy with Chinese Characteristics

SOCIAL HISTORY

Pictographic and hieroglyphic characters Confucean philosophy Taoism, Buddhism, Islam and Christianity 54 different languages (28 written) and over 2000 local

dialects Qing (1644-1911): three official languages (Mandchu, Mandarin

and Mongolian) Korean, Mongolian, Arabic and Tibetan official in some

provinces or regions Hierarchical society, based on strong family values and

norms Importance of Guanxi, dining and gift-giving

MORE PRECISELY

POPULATION 1953: 600 MILLION 2000: 1.3 BILLION

ACTIVE POPULATION 1953: 200 MILLION 1978: 400 MILLION 2001: 744 MILLION (A: 365; I: 165; S: 202)

MORE PRECISELY

GDP:2001: $ 1159M; 2004: $1600M State firms: 42% Foreign subs: 29% Others: 29% Coastal provinces: 64% of GDP, 82% of FDI

and 91% of exports in 2001 GDP per capita: 900 et ppp: 4500 in 2001; 1200

and 6000 in 2004 FDI: 1991-2005: $ 460 B of which 75% ASIA

MORE PRECISELY

EXPORTS: 6% OF WORLD TOTAL (2005) 8% ELECTRICITY/ELECTRONICS 25% TEXTILES 11% WOOD 3% FOOD PRODUCTS 3% CHEMICALS 52% ASIA 22% USA 18% EUROPE

CHINA

THOUGHTS ABOUT A BORN AGAIN CIVILIZATION

BYTAÏEB HAFSI

PROGRAM

1. CHINA’s HISTORY and CHARACTER2. THE MAO PERIOD3. THE MORE RECENT

TRANSFORMATION4. THE CASE OF THE ELECTRICITY

INDUSTRY

CHINA IS A CIVILIZATION

More than a country, China is a civilization A strong culture Deeply rooted traditions Highly institutionalized social behaviour

This is said to be the civilization that has lasted longer

A UNIQUE CIVILIZATION

Even the pharaos cannot rival the wealth and decorum of the Chinese emperors

The size of this civilization has given the empire a scope unrivaled before. This may be also explained by its longevity

Quality of life, prosperity and technological development were considerable when the West was just starting

A UNIQUE CIVILIZATION

IT IS HIGHLY DIFFERENTIATED Each region is different

Geographically In terms of population Socially Economically Culturally

But the civilization held a coherent global character, probably because of agriculture

A CIVILIZATION BUILT WITH PAIN AND BLOOD

All the history of China is dominated by considerable violence

Periods of violence were separated by periods of munificent prosperity

But… almost a miracleChina remained generally unitedEven if during some periods, as in Italy, it

was split between rival independent kingdoms

DOMINANT CHARACTERISTICS

UNCEASING STRUGGLES HAVE GENERATED THE FOLLOWING PATTERNS: THE CENTRAL ROLE PLAYED BY EMPERORS THE POWER OF CENTRAL GOVERNMENT THE RELENTLESS DESTRUCTION OF ANY

RESISTANCE TO THE CENTER DOCILE POPULATION AND LITTLE INTEREST IN

CENTRAL POWER

HOWEVER… LEADERS’ MORAL BEHAVIOUR WAS A KEY TO STABILITY

DOMINANT CHARACTERISTICS

EMPEROR WAS A SEMI-GOD AS LONG AS HE WAS SEEN AS BEHAVING FOR THE GOOD OF THE PEOPLE

WHERE HE WAS NOT, IT WAS LEGITIMATE TO REMOVE HIM

WHICH WAS OFTEN THE REASON FOR CONTENTION BY BARONS AND GENERALS

THE IMPORTANCE OF LEGITIMACY

TO ACT IN CHINA, YOU NEED LEGITIMACY WHEN LEGITIMATE, EVERYTHING IS

POSSIBLE, PROBABLY BECAUSE OF THE NUMBERS EFFECT

THIS MAY EXPLAIN THE EMPIRE TRADITIONAL STRENGTH

THE TEST OF LEGITIMACY IS PRAGMATIC AND CONTINUAL: THE COLLECTIVE WELL-BEING OF THE POPULATION

THE INSTRUMENTS OF POWER

BESIDES LEGITIMACY WHICH COULD EXPLAIN EVEN THE MORE EXTREME DECISIONS

THE EMPEROR’s POWER WAS SOON COMPLEMENTED AND SUPPORTED THROUGH AN APPARATUS FOR MANAGING THE CIVILIZATION WHICH INCLUDED: THE BUREAUCRACY RULES, LAWS AND PROCEDURES CONFUCEAN VALUES AND SOCIAL CONTROL

SOCIAL CONTROL

TO AVOID AN ENDLESS WAR AROUND LAND OWNERSHIP EACH HAD TO RESPECT SOMEONE ELSE’s

LAND EACH HAD TO REMAIN ASSOCIATED AND

ATTACHED TO THE LAND OF BIRTH NOBODY CAN MOVE FROM ONE PLACE TO

ANOTHER WITHOUT PERMIT FROM THE LOCAL ADMINISTRATION

THE POPULATION ITSELF DID THE POLICING

CHINESE CHARACTER

THE CHINESE CIVILIZATION WAS THEREFORE ONE IN WHICH: EMPEROR IS IMPORTANT LAW IS IMPORTANT BUREAUCRACY IS IMPORTANT LOCAL LIFE IS IMPORTANT DOMINANT VALUES ARE PRAGMATISM AND

GROUP BEHAVIOUR

IT WAS AMERICA BEFORE AMERICA WAS BORN !

AS A RESULT

A PROSPEROUS CIVILIZATIONTECHNOLOGICALLY ADVANCEDSOCIALLY STABLEADMINISTRATIVELY BALANCEDINDUSTRIOUSNOT INTERESTED IN OTHER

COUNTRIES EXCEPT WHERE THREATENING

BIASED AGAINST CHANGE

MORE RECENTLY

DOMINATED BY: CONSIDERABLE WEAKENING OF THE

EMPOROR’S POWERS AND ITS PROGRESSIVE DISAPPEARANCE

EMERGING WESTERN DOMINATION JAPANESE COLONIZATION RISE TO POWER AND DOMINATION BY THE

COMMUNISTS

MAOISM

CREATING A COUNTRY

THE COMMUNISTS

SUCCEEDED IN WINNING AGAINST THE NATIONALISTS allied to the USA, BECAUSE OF: THEIR VALUES CORRUPTION IN THE GUO-MIN-TANG AN INSPIRED LEADERSHIP THE VIOLENCE OF JAPANESE

COLONIZATION, WHICH HAS CRYSTALLIZED THE IDEA OF CHINESE CIVILIZATION AND FACILITATED MOBILIZATION AROUND IT

COMMUNISM

WITH A STRONG AND WELL TRAINED PARTY, PRESENT EVERYWHERE IN THE LAND THE COMMUNISTS HAVE BEEN TEMPTED BY A

UNIFIED AND CENTRALIZED MANAGEMENT OF CHINA

NEW EMPEROR, MAO INSPIRED BY MARXISM PROVIDED THE IDEALS REQUIRED LAUNCHED PHARAONIC PROJECTS, SOME OF

WHICH WERE CATASTROPHIC E.G.: THE GREAT LEAP FORWARD E.G.: THE CULTURAL REVOLUTION

BUT REVEALED CHINA TO ITSELF, THUS CREATING THE IDEA OF A NATION

COMMUNISM

BUT TOTAL CONTROL BY THE COMMUNISTS WAS AT THE OPPOSITE OF CHINESE SOCIAL EXPERIENCE

THE COMMUNIST PERIOD WAS ONE OF THE ONLY ONES WHERE CHINA HAS BEEN CENTRALIZED

CHINESE USED TO TAKE CARE OF THEMSELVES HAVE BEEN TAKEN CARE OF BY THE PARTY AND THE STATE

THEY HAVE BEEN FASCINATED BY MAO AND AS USUAL HAVE NOT RESISTED

THE COMMUNIST FAILURE

AS IN ANY COMPLEX ORGANIZATION THAT GETS CENTRALIZED

AT THE BEGINNING RESULTS WERE ENCOURAGING

THEN STARTED A LONG AND FAST SLIDE WHICH STOPPED ONLY WITH MOA’s DEATH

RETURN TO TRADITIONS

DENG XIAOPING, MAO’s COMPANION, WAS A PRAGMATIC MAN

IT WAS CLEAR THAT THE CENTRALIZED SYSTEM DID NOT WORK

BUT INSTEAD OF GOING TO EXTREMES AS WAS DONE IN RUSSIA

HE DECIDED TO GO BACK TO TRADITIONS

RETURNING TO TRADITIONS

MEANT: THE CENTER IS IMPORTANT AND SHOULD BE

PROTECTED BY ANY MEANS IT IS THE MASTER OF THE GAME BUT… LOCALLY EVERYONE CAN DO WHATEVER IS

POSSIBLE TO SURVIVE END OF SOVIET PLANNING END OF COLLECTIVISM DOGMA AUTORIZE DEVELOP INITIATIVES, BOTH PRIVATE AND

PUBLIC EMPHASIZE STABILITY AND CONTINUITY: EG:

SOCIALIST MARKET !

THE AGRICULTURE AS A CATALYST

THE INITIATION WAS ATTEMPTED IN AGRICULTURE WHERE THE STAKES WERE HIGHEST

THE PROPERTY SYSTEM WAS RENOVATED GIVING PEASANTS ENOUGH SPACE TO TAKE INITIATIVES: POSSIBLE PROPERTY OF THE LAND USUS AND FRUCTUS GARANTEED CHOICE OF CULTURE CONTRÔLED BUT

LIBERALIZED LIBERLIZATION OF DISTRIBUTION AND SALES

THE FOLLOWING STEPS

1. SPECTACULAR RESULTS AUTORIZED TO PRODUCE AND SELL

FREELY A PART OF THEIR CROP, PEASANTS HAVE COME UP WITH A REMARKABLE PERFORMANCE PUSHING DEFINITELY AWAY THE SPECTER OF FAMINE

2. REINSTATEMENT OF COMMUNISTS WHO HAVE TAKEN AGAIN THE INITIATIVE AND REEXAMINED THEIR SOCIAL THEORIES

THE FOLLOWING STEPS

3. TO FACE THE NEW PROBLEMS OF AGRICULTURE, CREATION OF VILLAGE AND COUNTRY ENTERPRISES WITH: EVEN MORE IMPRESSIVE RESULTS DEVELOPMENT OF A DYNAMIC AGRIBUSINESS

4. EXPANDING THE REFORM TO THE PUBLIC FINANCIAL SYSTEM AND TO SOEs

5. CONTROLLED LIBERALIZATION AT THE REGIONAL AND CITY LEVELS

6. PROGRESSIVE LIBERALIZATION OF THE ADMINISTRATIVE CONTROLS, ESPECIALLY THOSE AFFECTING INTERNAL MIGRATION

TODAY’S PROBLEMS

1. DIFFICULTIES WITH THE FINANCIAL SYSTEM REFORM

2. DIFFICULTIES WITH THE SOEs’ REFORM 3. IMPORTANT PROBLEMS OF JOBLESSNESS

AND ABSENCE OF A SOCIAL NET SYSTEM 4. GRAVE SOCIAL-MEDICAL PROBLEMS 5. IMPORTANT LOCAL CONFLICTS AROUND

LAND 6. CORRUPTION

PROBLEMS FOR THE WEST

1. SOME CHINESE INDUSTRIES ARE EXCEPTIONALLY PRODUCTIVE (E.G., CONSTRUCTION, MANUFACTURING)

2. THE CHINESE ECONOMY CAN BECOME TOO POWERFUL (PCs, AUTOMOBILES, STEEL)

3. THE EFFECT ON WESTERN ECONOMY TRADITIONAL INDUSTRIES IS DEVASTATING (TEXTILE-CLOTHING)

4. MULTINATIONALS ARE TOO DEPENDENT ON CHINA AND STRONGLY ATTRACTED TO IT !

QUESTIONS ?

FIRST ROUND OF DISCUSSION

INSTITUTIONAL CHANGE

THE CASE OF THE ELECTRICITY INDUSTRY IN CHINA FROM 1980 TO 2004

THE TRANSFORMATION

1980: ONE ORGANIZATION (THE STATE) OLD AND RUNDOWN SYSTEM INSUFFICIENT SUPPLIES GOVERNMENT UNABLE TO INVEST MORE POLLUTION

2004: AN ORGANIZATIONAL FIELD WITH MORE THAN 4000 FIRMS MODERN SYSTEM SURPLUS OF ENERGY MOST INVESTMENT MADE BY FOREIGNERS SOPHISTICATED INSTITUTIONAL FRAMEWORK

THE RESEARCH QUESTION

CHINA IS A COUNTRY WITH VALUES/IDEOLOGY THAT HAVE TRADITIONALLY BEEN OPPOSED TO MARKET AND FREE ENTREPRISE

STATE STRUCTURE AND SYSTEMS HAVE BEEN PARTICULARLY RIGID BECAUSE OF VALUES AND BECAUSE OF HISTORY,

ALL OF WHICH SUGGEST A STRONG RESISTANCE TO CHANGE

HOW TO EXPLAIN SUCH A TRANSFORMATION ?

THE INSTITUTIONAL PERSPECTIVE

Selznick and the importance of valuesThe problem of values: invisible and taken

for grantedScott and the new institutionalism: values

are internal but also externalExternal values are the result of rules and

regulations, norms and cognitives orientations, all of them are also mostly invisible and taken for granted

INSTITUTIONS

In institutionalists’ definitions, institutions are ideas, values, cognitive orientations which have an influence on the behaviour of organizations. Three levels of institutions are considered: 1. Regulations at the most practical level 2. norms, mostly professional, but also social

and societal 3. values and culture at the most abstract level

THEORETICAL QUESTIONS

HOW DO INFLUENCES OF GENERALLY NOT VISIBLE FACTORS INTERACT WITH THOSE OF MORE VISIBLE FACTORS TO EXPLAIN BEHAVIOUR ?

HOW DO ACTORS BECOME AWARE OF THESE INVISIBLE FACTORS AND HOW DO THEY CHANGE THEM ?

THEORETICAL ISSUES

USUALLY INSTITUTIONALIST THEORIES ARE DETERMINISTIC AND ANTI-CHANGE !

MORE RECENTLY, IT HAS BEEN SUGGESTED THAT THE ANTI-CHANGE INTERPRETATION OF INSTITUTIONS SHOULD BE REVERSED

INSTITUTIONAL THEORIES CAN HELP UNDERSTAND RESISTANCE TO CHANGE AND THUS HELP ACHIEVE CHANGE !

RELEVANCE OF INSTITUTIONAL THEORIES

PARTICULARLY RELEVANT FOR THE UNDERSTANDING OF COMPLEX SYSTEMS

ALSO WHEN ONE STUDIES AN ORGANIZATIONAL FIELD (AN INDUSTRY, A REGION, A NATION)

ALSO WHEN HISTORY IS IMPORTANT FOR THE UNDERSTANDING OF ORGANIZATIONAL DYNAMICS

E.G.: Leblibici et al (1991); Dacin (1997); Holm (1995); Hoffman (1999)

The Chinese Electricity Industry

An ideal setting for such a researchThe cultural setting is rich and is normally

opposed to changeThe size and importance of the industry

are such that one would expect bureaucracy and resistance to change

THE FINDINGS IN A NUTSHELL

The transformation process follows a cycle pattern The various levels, national, provincial, local and firm,

complement each other and take the lead at different phases

The central government play the leading role in the cultural-cognitive change

The provincial and local levels play a central role in the change of industry norms and regulations, and contribute to integrating the whole process

The firm level play the leading role in the development of professional and managerial normes, rules and procedures

METHODOLOGY

Burger and Luckman (1967) and Schutz (1967) The constructs used by the social scientists are, so to

speak, constructs of the second degree, namely constructs of constructs made by actors on the social scene, whose behavior the scientist observes and tries to explain in accordance with the procedural rule of his science

Need for a phenomenological approach to discover how « subjective meanings become objective facticities »

Historical and clinical study, sometimes adhoc and opportunistic

CHINA

ONE OF THE OLDEST AND MOST DURABLE HUMAN CIVILIZATION

THE IMPERIAL SYSTEM BASED ON: THE EMPEROR, A DEMI-GOD, MANDATED BY

HEAVEN THE BUREAUCRACY, WITH A SOPHISTICATED

SYSTEM CONFUCIANISM

CIVIL WAR AT THE BEGINNING OF THE 20TH CENTURY

VICTORY OF MAO AND HIS FOLLOWERS

CHINA

THE MAOIST SYSTEM WAS VERY POWERFUL AND, FOR A FIRST TIME, CENTRALIZED CHINA

AS A RESULT THERE WERE REMARKABLE ACHIEVEMENTS AND SOME CATASTROPHES THE GREAT LEAP FORWARD THE CULTURAL REVOLUTION

CHINA

SEVERE SOCIAL CONTROL EVERYONE BELONGS TO A DANWEI THE DANWEI PROVIDED JOBS, SHELTER,

EDUCATION AND TRAINING, FOOD RATIONS, CLOTHING AND FURNITURES

DANWEIs HAD NOT DIRECT CONNECTIONS

THE CENTRALITY OF THE LAW: CHINA HAS BEEN A COUNTRY OF LAW AND RIGHTS FOR A VERY LONG TIME

POST-MAO REFORMS

DENG REALIZED THE DIFFICULTY OF MANAGING CHINA CENTRALLY

HE INDUCED THE CENTRAL GOVERNMENT TO FOCUS ON CRITICAL ISSUES AND LEAVE SPACE FOR LOCAL ECONOMIC CHANGE AND EXPERIMENTATION, AS WAS DONE IN EARLIER PERIODS !

E.G.1: Countryside and agriculture then village and county enterprises

E.G. 2: Trade and investment systems

THE ELECTRICITY INDUSTRY

FROM THE EARLY 1980s THE ECONOMY GREW AT AROUND A 10% PER YEAR PACE

THE ELECTRICAL ENERGY COULD NOT FOLLOW AND HAD TO BE REVAMPED

THE TRANSFORMATION OF THE ELECTRICITY SYSTEM FOLLOWS THAT OF CHINA AS A WHOLE AND GOES THROUGH SIMILAR DIFFICULTIES

Transformation of the electricity industry

Three phases: 1980-86: Central government «composer and

conductor», and the units as players. The key goal was ensuring supply

1987-1996: Central government as a manager of context, with rare direct interventions. Firms had to solve their own problems and could enjoy a lot of autonomy

1996-2004: Greater role for firms. Central government focused on policies and legal framework.

Goal: ensuring fair competition and the competitiveness of firms

EXPLAINING THE TRANSFORMATION

It is the transformation of China as a whole that showed the way

Institutions in China are strong and deep-rooted: Law and order are important A local perspective is essential The Bureaucracy is legitimate

The passage to a market economy was possible because it was already in the make up of the Chinese

Mao was a brief abberration

EXPLAINING THE TRANSFORMATION

The process was simple and slow Avoid chaos (a lesson from history) Experiment first Generalize slowly, stimulating rather than

mandating

Changes that are aimed at more profound institutions take more time !

THE TOP-DOWN PROCESS

Phase 1: most of the change was societal in nature. More than 6 years were needed to find a way to go around traditional institutions

Party norms favored stability, hierarchy, conflict avoidance, and the primacy of effectiveness over efficiency. They were hard to discredit. There was a need to separate the political from the economic and justify the separation

The cultural-cognitive transformation has been mostly incremental and had to take into account that the provinces had differing interests

Decisions were mostly symbolic or exceptional (e.g. Huaneng)

THE BOTTOM-UP PROCESS

Phase 2: Emphasis on normes and regulations

Reduce the Central bureaucracy and decentralize to provinces and cities

Introduction of fundamental lawsBUT LOCAL INITIATIVE (e.g., Listing of

Huaneng on the NYSE)Spectacular performance

BALANCING THE WHOLE

Phase 3: adjustments and emergence of new problems

EnvironmentCompetitionIntegrationGovernanceEmphasis on professional and managerial

norms

THEORY

THREE INTERRELATED CYCLES THE NATIONAL LEVEL CYCLE

First give all the attention to the cultural-cognitive aspects: the market and the private could be acceptable

Normes and regulations about financial, production and marketing aspects

Regulation about environment and competition

THEORY

Cycle at the local level Reconcile tradition with market and private in specific

situations Norms and regulations about production, HRM and

Marketing Rules an procedures for environmental protection

and competitive behaviour Cycle at the firms level

Managing people’s values Coordination among firms; management norms Coordination and innovation; professional norms and

ethical behaviour

THEORY

THE INTERACTIONS AMONG CYCLES ARE RELATED TO THE SPECIALIZATION OF ROLES Phase 1: Central government and Party

emphasize cognitive aspects (values, beliefs) Phase 2: Local governments emphasize

general norms for industries and firms Phase 3: firms and managers emphasize

managerial and professional norms for firms and managers

CONCLUSION

IN A COMPLEX SYSTEM: There is a specialization of roles At the central level concern is with the system

as a whole At the firm level, concern is with regulation, and

with adapting practices to the competitive situation

At the local governments’ level, concern is normative, and with reconciling the other two levels through mediation both physical and temporal

CONCLUSION

THE SUCCESS OF THIS CHINESE TRANSFORMATION COMES FROM A DELICATE RECONCILIATION OF INSTITUTIONAL TRADITIONS AND ECONOMIC DEVELOPMENT NEEDS

WILL THE CHINESE BE ABLE TO MAINTAIN SUCH A DELICATE BALANCE ?