Capitalism from Below explains how entrepreneurs, operating in collaborative networks, guided by the reputations and informal sanctions that constitute governance in such networks, were responsible for the economic miracle that is contemporary China. Combining history, industry analysis, community analysis, and hundreds of interviews, the book is a story—rich and remarkable, yet readable—about productive economic institutions emerging as a by-product of individuals granted a little bit of wiggle room to pursue their interests. This one will be a point of reference for a long time.
— RONALD S. BURT, University of Chicago Booth School of Business
Refuting the conventional wisdom that state-centered institutions are necessary for economic performance and growth, Nee and Opper demonstrate how norms and networks promote economic development in the absence of good government policies. Their approach illuminates the phenomenal transformation of the Chinese economy and promises to explain other cases standard institutional theory cannot.
— MARGARET LEVI, University of Washington and University of Sydney
A splendid book, brimming with ideas and full of important insights. This is a massive undertaking, superbly done, combining theory, empirical data on business formation, comparative regional analysis, and insight into profound issues about the governance of the private economy. This will clearly be a major book, one that should be welcomed across disciplines.
— WALTER W. POWELL, Stanford University
Nee and Opper claim, “the emergence and robust growth of a private enterprise economy in China was neither envisioned nor anticipated by its political elite.” This bold assertion is substantiated by the findings from a meticulous study of more than 700 manufacturing firms in the Yangzi region that set up shop following the modest economic reforms of 1978. These companies decoupled from the traditional socialist system and, through informal lending, were able to finance small manufacturing outfits supported by their own networks of suppliers and distributors. While Nee and Opper do not ignore the role communist party leaders played in initiating the shift to a market economy, they ultimately credit entrepreneurs motivated by profit with China’s success. “Informal economic arrangements enabling, motivating, and guiding start-up firms provided the institutional foundations of China’s emergent capitalist economic order,” they write. (read more)
— Book of the week, The Financialist
This thoughtful and thorough book recounts the tale of how this Deng revolution happened. It is based on extensive fieldwork in the Yangzi delta, which along with the hinterland of Hong Kong has been at the epicentre of the earthquake of private sector development that has totally transformed the Chinese economy. (read more)
— Nitin Desai, Chairman of the Board of Governors, Institute of Economic Growth, Delhi
In contrast to the conventional wisdom of many economists that government-run institutions are essential for economic performance and growth, Nee (Cornell Univ.) and Opper (Lund Univ., Sweden) explain how China’s private entrepreneurs created institutional innovations that promote economic growth and development despite the lack of appropriate government policies. This well-researched, well-written volume will be a point of reference for many years to come. Combining economic theory, history, empirical data on enterprise formation (studying more than 700 manufacturing firms), and more than 100 interviews, the authors explain why China’s economic reforms were more effective in promoting market-driven structural change and economic growth than the economic refoms recommended for and implemented in eastern Europe and Russia by the IMF and World Bank. The authors splendidly answer challenging, complex questions regarding the emergence and rapid growth of China’s private enterprise economy — e.g., why did a dynamic private enterprice economy and institutions of capitalism, initially so disadvantaged, not only survive but thrive in China’s transition to a market economy? Two appendixes provide the complete survey of the manufacturing firms and a list of the interviewees. This outstanding contribution should attract broad scholarly attention and stir meaningful discussion as well as controversy.
Summing Up: Essential. Students at all levels, faculty, researchers, professionals, general readers.
— R.M. Ramazoni, Saint Michael’s College, Choice
Nee and Opper come at the question of business-government relations in China from a different angle… Their main point is that the Chinese market economy was created not from above, by the state, but from below, by entrepreneurs. The state came in later, to legitimize and regulate the institutions that the economic actors created. This is not a new idea, but Nee and Opper’s extensive interviews with entrepreneurs in the Yangtze Delta region give a detailed picture of how it happened. Nee and Opper find that political connections were valuable to entrepreneurs when the state began privatizing its assets and that well-connected individuals have been better able to acquire land-use rights and credit from state banks. But they argue that success in the private sector is “increasingly independent of the direct involvement of politicians.” Rather, it comes from building a reputation for trustworthiness among networks of business peers. As a society, the Chinese are still working out the norms they will use to distinguish acceptable from outrageous behavior by government officials. But (ﾅ) runaway corruption may not be the Achilles’ heel that the regime seems to fear and that its critics hope for. (read more)
— Andrew Nathan, Foreign Affairs
Throughout his career, Victor Nee has been a leader in the analysis of China’s economic reforms, and for the last decade his work with Sonja Opper has fed into this agenda. Capitalism from Below is a fabulous capstone to this body of work. It sets a standard for research in this field and will be essential reading for scholars of China’s reforms for a generation to come. (…)
Nee and Opper have produced what might be considered a magnum opus, a bookend to this debate. But it is also much more than the previous papers that have defined Nee’s market transition theory. Nee and Opper have written a book that is empirically rich but, more importantly, is also theoretically deep. As with much writing on China these days, the book begins with the puzzle of why China’s transition to a market economy has been so successful. But the deeper question is much more fundamental: where do economic institutions come from; how do they arise in such an institutional void as characterized the Chinese market economy in the early transition years? This is a strong orientation and it places the book squarely in the wheelhouse of sociological inquiry. (…)
Empirically, the book is based on a survey of 711 entrepreneurial firms in the Yangtze delta. The survey is carefully done and even includes a foray into experimental research design (rare in organizational survey research) in the survey’s second wave. This original survey is complemented by in-depth interviews with 111 entrepreneurs, government bureaucrats and scholars in the area, and also two waves of the World Bank’s Investment Climate Survey. This is organizational field research at its best, and nobody can question the empirical work that has gone on here. (…)
— Doug Guthrie, George Washington University, The China Quarterly, 212, December 2012, pp. 1123–1154
This book succeeds not only in contributing to long-standing theoretical debates but also in being accessible to individuals who are unfamiliar with either the details of China’s economic transformation or economic sociology. The latter is due to a well-organized first few chapters of the book that clearly serve an audience beyond only those who have followed Nee’s and Opper’s previous work. The former is successful in large part because of the excellent data that provides both great breadth and depth of information. Over seven hundred in-depth surveys of top leaders of firms in China’s Yangzi river delta in 2006 and again in 2009, combined with detailed interviews, provide a richness of facts and context that many scholars can only dream about. The region chosen is particularly relevant as the cradle of domestic private firms, contrasted with the heavy penetration of foreign and overseas Chinese-funded private firms in the southern Pearl River Delta. Additionally, the developmental trajectory, including the degree of openness to private firms, varies over the seven research sites, which broadens the perspectives and outcomes in the stories that the authors tell. (…)
This book is obviously very valuable to China scholars and economic sociologists, but it is also useful to anyone who is interested in collective action and institutional change. Towards this end, the authors use Chinese privatization as a vibrant case study for understanding how individuals—even otherwise marginalized individuals—can create significant social change. This is a significant addition to political economy work that often focuses on political elites. Furthermore, the authors demonstrate how trust and norms of reciprocity can play a primary role in a healthy and productive society across large areas, beyond the capacity of personal relationships, and even without formal institutions to support and defend against predation. This paints a picture of what a harmonious society is capable of, which makes me optimistic for China and for the future, whether you believe that capitalism is inevitable or not.
— Andrew Duncan, University of California, Irvine, in Social Forces, May 2013, pp.
Capitalism from Below is a stunning book. Much of what we have learned about business in China, especially from business-school cases, is based on the experience of state-owned and state-controlled enterprises, among which are the oldest and largest businesses in China. The private sector has been less accessible partly because non-state firms are smaller and more evanescent than state enterprises, and partly because entrepreneurs have had to operate at the margins of society, often out of sight and rarely willing to disclose the full extent of their assets or anything else significant about their businesses. To be sure, the Chinese constitution has protected domestic private property since 2007. Still, the super-wealthy whose names appear in the annual Hurun “rich list” remain far more likely to be investigated or arrested than entrepreneurs whose wealth Hurun has been unable to discover.(…)
Much to its credit, Capitalism from Below asks the big question: how does one account for the emergence of a thriving private economy in a communist state that until 35 years ago vigorously suppressed capitalism? Nee and Opper’s answer is that private enterprise arose more due to a shift in social norms, what they call endogenous institutional change, rather than shifts in state policies and formal property rights. Norms supportive of private enterprise emerged from a virtuous cycle running from nascent market opportunities to entrepreneurial action to mutual monitoring and norm enforcement to the piling in of “swarms of followers,” who press for reform of formal institutions consistent with norms already in place. The process is at once spontaneous and self-reinforcing. Capitalism happens, and once it happens (at least in the Yangtze Delta) the opportunities are so compelling that it cannot be suppressed. The government, at best, plays catch-up, adjusting its own norms, strictures, and structures to fit the new reality, e.g., honoring CEOs and star athletes like basketball player Yao Ming as “model workers” and electing wealthy entrepreneurs to the Chinese Communist Party Central Committee. (…)
Overall, Capitalism from Below is a terrific and important book. Given the speed and often unpredictable course of change in China, however, it should be read as an interim report rather than as the last word on the condition of Chinese private enterprise. And it should be read by people interested in business in China rather than solely by sociologists. It would be best if Nee and Opper could re-interview the firms and entrepreneurs surveyed in 2006 and 2009, if they can find them. While a third wave of data might not alter the core of the bottom-up argument, it would almost certainly yield valuable insights about survival strategies in what has been a difficult period for private Chinese enterprises.
— Marshall Meyer, Wharton School (University of Pennsylvania), in Administrative Science Quarterly, 58, June 2013, pp. 300-303.
Victor Nee and Sonja Opper’s Capitalism From Below: Markets and Institutional Change in China excels in every way in which the book by Coase and Wang does not. Like Coase and Wang, Nee and Opper downplay the role of the state in explaining China’s economic transition, arguing that the emergence and growth of the private economy was neither envisioned nor anticipated by China’s political élite. They focus on the informal norms and social networks of enterprises and individuals, whose actions underpinned bottom-up capitalist institutional change and enabled enterprises and individuals to thrive in an emerging market economy, despite the lack of formal rules safeguarding their property rights and the initial disadvantages of having to function outside the state-owned enterprise system.
The book is beautifully structured and written, making it far easier to summarize than Coase and Wang’s. Chapter 2 presents a simple, clear conceptual framework for an “endogenous multi-level causal model of institutional change”, on which the rest of the book builds. Chapter 3 introduces the seven surveyed cities that are the focus of the book’s empirical analysis, and presents the survey methodology (with the full set of survey questions provided in an appendix). Chapter 4 focuses on the various institutional innovations and forms of cooperation used by credit-constrained peasants-turned-entrepreneurs to start up and expand production. Chapters 5, 6 and 7 build on this idea by examining how these entrepreneurs minimize the costs of operating outside the state system, relying on various organizational strategies, marketing networks and industrial clusters, and labor standards and norms. Chapter 8 examines the capacity of the private sector to innovate, expand and move up the value-added production chain, followed by a brief consideration of the role of political connections in Chapter 9, and conclusions in Chapter 10. Throughout the book, theory is combined seamlessly with anecdotal evidence and survey-based analysis, all placed in historical context to present an extremely cohesive, readable and convincing account of the re-emergence of entrepreneurialism in China during the last three decades.
— Jane Golley, Australian National University, in The China Journal, 70, July 2013, pp. 188-193.
This book is the culmination of many years of work by two prominent scholars, Victor Nee and Sonja Opper, from the interdisciplinary research program of New Institutionalism. It is a superb book about the emergence of capitalism in China for everyone interested in China’s remarkable economic transformation during the last 30 years. The book is full of real life examples and most readers will find the book both interesting and easily accessible.
Starting in the early 1980s, the private economy has gradually become an important part of China’s economic and social transition. The advent of private enterprises facilitated the establishment of the market economy, which in turn made possible China’s economic miracle over the past 30 years. What is the driving force of China’s private economy? Many authors have claimed that China’s transformation from a socialist economy to a capitalist economy was initiated by the central government. Politicians are the central arbiters of institutional changes. Nee and Opper, however, show in their book that private entrepreneurs began building new capitalistic institutions, while the central government formalized institutional innovations once they were proven successful. Therefore, markets and institutional changes in China have developed from bottom-up entrepreneurial actions. (…)
The punch line is that China’s economic miracle was not made by the Chinese state as many scholars claimed. The state merely adapted to changes that began with sub-elites. It shows that capitalism in China emerged from below through the spontaneous action of private actors adapting to their economic environment. This actually calls for the explicit recognition of emergent and recombinant social norms and networks as a source of endogenous institutional change. (…)
— Dong Xuebing (Zhejiang University) and Zhu Hui (Zhejiang Gongshang University), in The Social Science Journal, 50, June 2013, 257-259.
Nee and Opper’s book suggests that the institutions for free enterprise can develop without governmental rules in place. Their research shows that the entire supply chain—the labor, input, and productmarkets, as well as, innovations and start-up capital—developed from the bottom up. All of the interactions in these markets were enforced through social norms such as approval in the form of reputation and status, and punishment through bilateral sanctions and accurate negative gossip. As these institutions developed, the private sector grew.
This process occurred through endogenous institutions and is important because it shows that private enterprise can exist without formal governmental institutions. The implication is that, generally, governmental institutions follow rather than lead economic growth. This book will be useful to entrepreneurship scholars in general, and those studying institutional entrepreneurship and Chinese entrepreneurship in particular. The theoretical discussion is clear, informative, and interesting. It is supported with both qualitative and
— Stephan F. Gohmann, University of Louisville, in Public Choice, 156, September 2013, pp 753-755.
Nee and Opper’s data are particularly rich. They base their description of the emergence, growth, and operation of the private sector on a sophisticated survey methodology that yielded information on more than 700 private businesses in seven cities in the Jiangnan region, including Wenzhou, Hangzhou, Shanghai, and Nanjing. The authors draw on this data to provide not only statistical support for their assertions about the private sector but also lively and often fascinating firsthand accounts of the challenges faced by would-be entrepreneurs: how they dealt with adversity, how they overcame obstacles, and how they interacted with other private businesses, state-owned firms, the state, and their own employees. The authors are thus able to answer a number of key questions about the private sector. For example, they reveal that, in general, private firms try to avoid interaction with the state sector; that in many cases firms spawn new firms as employees learn business skills and opt to set up their own companies; that when this occurs, existing firms often nurture and encourage spun-off firms, even though they are potential competitors; and that firms engaged in similar lines of production often co-locate because this allows them to realize efficiencies in both subcontracting and down- stream processing and production. (…)
Nee and Opper’s conclusions (…) suggest that the private sector has the upper hand, thus ensuring that China will continue to push toward a more fully marketized economy. The contrast between Huang and the authors of ‘Capitalism from Below’ thus forms the basis for a new round in the ongoing debate over the political economy of reform.
— Andrew Wedeman, Georgia State University, in Perspectives on Politics, 11, 275-276.