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Allies of the State: China's Private Entrepreneurs and Democratic Change Review"Allies of the State" summarizes the researchers efforts to understand the potential for political change in China. On the one hand, this is about the most useless and arrogant academic research book I've seen in quite a while. Anyone with some knowledge of China knows that the CCP is dead set against opposing parties and democracy, and would surmise that successful businessmen would not be interested in change - given its 30+ years of 9.5%/year GDP growth, key role in appointing/removing large SOE managers, having recently welcomed entrepreneurs into the CCP, and the ability of the government to make life very difficult for anyone in opposition. Personally, I'm surprised that the two researchers weren't jailed, or at least expelled, for their controversial and threatening inquiry.
On the other hand, "Allies of the State" is well written, and contains a clear overview of some of the economic policy changes made as China moved from Mao to 'Socialism with Chinese characteristics' and became the economic wonder of the 21st Century. From the early 1990s, the number of private enterprises in China increased by 35%/year, and now total over 5 million. By 2007 the private sector contributed 66% of GDP and 71% of tax revenues. Between 2002-06, the private sector created 44 million new jobs, while employment among SOEs fell 11 million. Private property is now protected by law, and the CCP began recruiting entrepreneurs in 2001. After the 1989 Tienanmen Square tragedy, planners and ideologues blamed economic reforms for creating instability. Deng's 1992 southern China tour was required to restart the reforms.
In the original reform phase, 1978-89, the size of private firms was limited to 7 persons, excluding the owner and his family. It was thought this would prevent their competing with SOEs. The limit came from Marx' comment that having over 8 workers was exploitative. (Later this limit was limited in China.) The private sector was also seen as a way to provide jobs for those whose family backgrounds and political problems prevented their employment in the state sector. Evading the limit became wide-spread via claiming to be a TVE. In some communities, over 90% of TVEs were such 'red-hat' enterprises. Fears that SEZs risked China's autonomy and the survival of communism surfaced in the 1989 protests over corruption, inflation, and the failure to implement promised governing reforms, and the fact that these protests (most notably Tienanmen) were supported by capitalists such as Wan Runnan, founder of a successful electronic firm. (Their efforts included motorcycle-provided assistance.)
The years 1989-92 then brought retrenchment and repression. Skeptics advocated rolling back many reforms. Deng traveled to South China in the spring of 1992 and lauded their achievements and encouraged local leaders to be even bolder. At first, only local media provided coverage. Eventually national media reports of Deng's comments shifted the balance of power in favor of reform.
In 1992-2001 came rapid expansion of China's private sector - 90,000 in 1989, 400,000 in 1994, and 1.5 million in 1999, while capital/firm multiplied 7X. About 70% of SOEs were partially or totally privatized by 2001. In 1997, the CCP accepted the private sector as important, and by 2000 declared it would be officially supported. In 2002, policy turned to the present-day focus on building neglected areas (central and western China) and groups (rural residents). Private property rights were established. About 30% of SOEs were converted to private sector ownership, mostly through sales to insiders - often 'red hats' and/or CCP members. State employees were encouraged to participate. Only 22% of those sold were through public bidding - this encouraged corruption and kickbacks to local officials. (Major Soviet-style fraud was precluded by the state retaining ownership of SOEs in key industries - eg. autos, power, communications, transportation, steel, etc.
The authors state that 38% of entrepreneurs became CCP members, vs. only 6% of the general population - however, this seems doubtful unless they were restricting their analysis to only the largest and most successful entrepreneurs. Their surveys found that most entrepreneurs prefer stability and status quo to avoid jeopardizing their own personal economic and social advancement. As Homer Simpson would say, "Duh!"
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