Capitalism from Below

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Capitalism from Below by Victor Nee and Sonja Opper. Harvard University Press, 2012, 431 pp.

A prevailing narrative explaining the rise of China’s market economy and subsequent prosperity is that government reforms under Deng Xiaoping set the conditions that allowed private enterprise to flourish. In Capitalism from Below, Victor Nee and Sonja Opper challenge the notion that top-down reforms caused China’s economic prosperity. Nee is the Frank and Rosa Rhodes Professor at Cornell University, and Opper is the Gad Rausing Professor of International Economics at Lund University. Using expansive analysis of Chinese corporations and interviews with Chinese entrepreneurs, they argue that “the rise of capitalist economic institutions rests on bottom up entrepreneurial action” (p. 8). In their account, it was the Chinese people exercising their agency outside government-established institutions that caused the government to respond with economic reforms to recognize and legitimize the growing market economy in China.

The authors’ agenda does more than explain how China reduced its national poverty level from 81.6 to 10.4 percent in record time (p. 3). The hallmark of their work, like most works in social science, is to offer a conceptual framework that not only provides insight into the China situation, but could have broader application in developing countries around the world. Their theory rests on the “endogenous emergence of the institutions of entrepreneurial capitalism and proffer[s] a multilevel causal model of institutional change” (p. 10). In essence, the authors are not only taking on the history of market reform in China, but also taking a larger stab at the notion that politicians and government play the determining role in the emergence of capitalism. Much like Max Weber, they find the impetus for capitalism and a market economy in individuals and their efforts to construct a profitable environment for self-prosperity.

Given the vastness of China, Nee and Opper validate their theory and assertions through a micro-study of the Yangzi delta region. They chose this region because of the high density of private firm development, claiming it was a “natural choice for studying the foundations and mechanisms of the endogenous rise of private enterprise capitalism in China” (p. 47). Within this region, Nee and Opper applied a mixed methods research strategy to gather and analyze data with respect to their model. They conducted a quantitative analysis of surveys of more than 700 private Chinese firms. The purpose of this analysis was to “tease out in different contextual settings the actual micro-level mechanisms enabling and guiding China’s transformation institutional change toward a capitalist firm economy” (p. 68). For the qualitative element in their research, Nee and Opper used field experiments and interviews with senior managers of the firms as well as anecdotal evidence to build a statistical case intertwined with personal accounts of how capitalism rose from below in China.

What emerges from the authors’ research clearly challenges the idea that reforms from above helped set China on a prosperous path to world-power status. Unemployed workers and Chinese families started small businesses in rural localities throughout the region in an effort to generate income. These small startup companies worked outside the normal state-run institutions in many respects. First, they typically found their capital and funding through nontraditional sources such as other family members. Second, they used different supply chains and distribution channels that operated outside the existing state structure. In one account, Nee and Opper recount how one entrepreneur rode the Chinese rails delivering his product to market. In addition to analysis of supply chains and capital, the authors’ provide in-depth looks at innovation, labor markets, and organizational change. While this diligent work supports their claim that capitalism started from the “bottom” in China, how was it that the government there eventually had to come to grips with the rising tide of prosperity?

According to the authors, these marginal economic actors operating in peripheral locations throughout the region gave rise to a social movement (p. 259). Initially, these firms and businesses did not challenge state businesses; however, their growth and markets eventually expanded to challenge the “hegemony of government-owned firms in the manufacturing economy” (p. 228). At that point, the authors claim, capitalism in China had reached a tipping point. The government could not do away with these businesses, because their taxes and profits were fueling China’s prosperity. Therefore, the central and local governments “began to put in place legal and regulatory structures to legitimize private enterprise as an organizational form and model of economic development” (p. 261). According to their model and narrative, Nee and Opper conclude that “bottom-up institutional change reflected in the rise of informal norms of business practices, followed by changes in the formal rules to secure and consolidate the gains in economic performance already in place, turns the predictions of state-centered theory on their head” (p. 262).

This provocative work deserves consideration for the argument it makes not only regarding China, but the formation of capitalism writ large. Using extensive research, Nee and Opper challenge the common historical narrative that government reforms from the top ushered in a new era of Chinese prosperity. In their view, China reduced its poverty and grew its market economy by the actions of individuals exercising their agency and innovation until the government had to find regulatory ways to legitimize the growing social movement that was capitalism. At the same time, they challenge the notion that capitalism is a government-centered and driven formulation. Relying instead on individual innovation and determination, Nee and Opper show how capitalism can, and did, start “from below.”

Col Mel Deaile, PhD

"The views expressed are those of the author(s) and do not reflect the official policy or position of the US government or the Department of Defense."