coase in beijing

Xi Jinping, the darling of Davos, extolled the virtues of liberalization, openness and free trade, it seemed that, whatever was happening in the West, at least the Chinese version of neo-liberalism was safe. Instead, the past two years have delivered what appear to be blatant departures from the playbook: the steady rise of dirigisme, and a leader (for life?) who has in recent months called for a strengthening of the state-owned enterprises (soes) and a recommitment to the Chinese Communist Party’s version of Marxist-Leninism. Actually existing neo-liberals in China have fared poorly as well. The leadership’s 2012 attacks on neo-liberal positions, along with other subversive currents—universal values, constitutional democracy, et al—cheered at the time by many on the left, have sharpened. The editors of Yanhuang chunqiu, the primary organ for pro-reform, pro-market, liberal intellectuals, founded in 1991, announced in 2016 that their journal would close, due to excessive government interference (publication continued under a different editorial staff). Neo-liberalism’s most prominent think-tank in China, the Unirule Institute, had to suspend its popular websites and blogs in 2017. Economist Mao Yushi, Unirule’s founding director and China’s most celebrated neo-liberal, has been forbidden to publish, and in the summer of 2018, the Institute’s Beijing headquarters were shut down, doors and windows barred.

The past year has also witnessed stepped-up surveillance of the universities, where liberal and neo-liberal ideas have long had far greater purchase than most in the West realize, with monitoring of syllabuses and class content, and with the threat of reports on faculty misconduct by the volunteer security-service informants in nearly every student body. Wang Hui and a number of other leftists once saw in the Xi regime portents of the rise of ‘the people’, marking a turn away from the neo-liberalism that had appeared entrenched since the mid-90s. This is a harder position to maintain today, given recent attacks on the left—the closing of websites, the arrest of feminist and worker activists, and even the threatened closure of the Beijing University Marxist Society—as well as Xi’s retreat, in the face of economic headwinds, from earlier promises of steadily stronger welfare protection. Still, though criticized for crudeness and over-reach, Xi has been fairly successful in promoting neo-authoritarianism at home, tightening the screws on left and right alike, while trying to present himself on the global stage as protector of free trade and a harmonious international economic order. No wonder that feminist cultural critic Dai Jinhua has described the current political-cultural landscape as being ‘without coordinates’.footnote1

A landscape without coordinates, though, may be one in which neo-liberalism thrives. Its core political-economic doctrine—the market as information processor and revealer of truth; competition as guarantor of optimum performance; state intervention to maintain appropriate forms of competition; a generalization of entrepreneurial values at the institutional and individual levels; and explicit or implicit anti-egalitarianism—has taken root worldwide in a variety of political contexts. Indeed, ‘normative neo-liberalism’—the actualization of neo-liberal values in state policy—has arguably required Third Way or Democratic Party governance, rather than overtly market-fundamentalist parties, to thrive.footnote2 Neo-liberal economists and ideologues have not necessarily needed positions of political power in order for neo-liberalism to serve as a pole of attraction; few if any of China’s key economic policy makers are overtly hostile to it. This intervention will argue that China’s post-reform trajectory is indeed legible through a neo-liberal optic, but it is a limit case as well.

Clearly, state intervention in the economy persists in China, and its recent trajectory would appear to contradict the predictions of economists across the spectrum—from neo-liberals to industrial-policy specialists to straightforward Keynesians—of a gradually lessening role for soes, or at least a greater rationalization of their access to credit. Yet neo-liberalism as a doctrine has undergone numerous historical mutations—the anti-monopoly orthodoxy of the Ordo-liberals giving way to the monopoly-tolerant orthodoxy of the Chicago School, for example—coterminous with alterations in the fundamental but surprisingly fungible concept of competition. In a period like the present, with the ‘Ordo-globalist’ regime that Quinn Slobodian describes entering a period of (temporary?) eclipse, we might expect a proliferation of national variants of the neo-liberal dominant.footnote3 And of all the thinkers in the neo-liberal pantheon, perhaps the most open to multiple, variant versions of neo-liberal governance was Ronald Coase.

A singular approach

Coase did not, to my knowledge, ever identify himself as a neo-liberal, and in general avoided doctrinal orthodoxy and socio-philosophical speculation. A great admirer of Hayek and a respected member of the Mont Pèlerin Society, in the latter half of his life he became the mainstay of the law and economics orientation at the University of Chicago, teaching in the law school. His lucid and relentlessly systematic empiricism—deployed with an unassuming modesty, in contrast to many of his colleagues at Chicago—helped several of his articles to become field-defining; he was awarded the Nobel Prize for economic science in 1991. From a modest background, Coase was born in 1910 in Willesden, north London, the son of a Post Office telegraph clerk, and described himself as a socialist in his youth. He studied at the London School of Economics under Lionel Robbins, Hayek and, most influentially, the South African economist Arnold Plant, and taught there until the 1950s, his research focusing on the economics of public utilities—broadcasting and the postal services, as well as water, electricity and gas.footnote4

Coase’s seminal study, ‘The Nature of the Firm’, mentioned in his Nobel citation and published when he was only twenty-six, was the upshot of a year spent touring factories and businesses in the us in 1931–32, with the aim of exploring the different ways in which industries were organized. Instead, Coase questioned why the coordination provided by the firm’s management was needed at all, if competition, acting through the price system, was supposed to supply all the coordination necessary.footnote5 The opening lines of the article could almost come from Marx: ‘Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected.’footnote6 Coase would remain unsurpassed among neo-liberals as a ruthless interrogator of foundations. To the question, ‘Why do firms exist?’, he replied that it was due to the ‘transaction costs’ of using the price mechanism: a firm would conduct functions in-house if this lowered the cost of obtaining the labour or services through market exchange. The concept of transaction costs opened up new fields of inquiry and shaped the New Institutional Economics, so called to distinguish it from the early 20th-century Veblen variety.

After a wartime stint at the Central Statistical Office in London, which only confirmed his scepticism about nationalized industry, Coase moved to the us in the 1950s, teaching first at Buffalo and then at the University of Virginia. In 1964 he settled at Chicago, assuming the editorship of the Journal of Law and Economics.footnote7 By then the triumph of the second article mentioned in his Nobel citation, ‘The Problem of Social Cost’ (1961), had enshrined his reputation. Arguing, like a lawyer, from actual cases, Coase provided a rebuttal of the prevailing view, formulated in Arthur Pigou’s Economics of Welfare (1920), that government action was required to restrain businesses whose actions created ‘negative externalities’, with harmful effects on others. Coase claimed instead that negotiations between the two parties would lead to a settlement maximizing wealth, irrespective of the rights involved. ‘The Problem of Social Cost’ became one of the most cited articles in the discipline of economics, opening the way for us neo-liberalism’s radical anti-regulatory agenda and ‘out-Chicagoing Chicago’.footnote8

It is thus no surprise to find in Coase, anti-dogmatist and lifelong opponent of ‘blackboard economics’, one of Chinese capitalism’s strongest defenders. Though he himself never went to China, his work became known there in the mid-80s and his influence has remained strong ever since.footnote9 He was the guiding intellectual force behind the development of the Chinese version of Institutional Economics—thought by its practitioners to have particular relevance to prc conditions, due to the wide variety of ‘institutions’ directly involved with the economy—and nearly all Chinese institutional economists would consider themselves Coasian. (Coase himself rejected the term ‘Coasian economics’, preferring that it be called ‘correct economics’.) Over the 1990s and into this century, when he himself had turned ninety, Coase hosted a series of prominent Chinese economists in Chicago on research visits, as post-docs and as conference participants, and he maintained close relations with those on the neo-liberal spectrum. Steven Cheung (known in standard Chinese as Zhang Wuchang), University of Chicago post-doctoral research scholar, later at the University of Hong Kong, was particularly close to Coase, and became one of the most widely read and most influential economists in China. Cheung’s 1982 pamphlet, Will China Go Capitalist?, published by the London-based neo-liberal Institute for Economic Affairs, suggested a tentative yes, provided that China established a regime of property rights.

Thirty years later, Coase’s How China Became Capitalist, co-authored with his research assistant Ning Wang, answered Cheung’s question with a resounding affirmative.footnote10 It is an accounting of China’s capitalist transformation within the parameters of Coase’s neo-liberal political-economic rationality and a Hayekian episteme. A Chinese translation with the title, Biange Zhongguo: Shichang jingjide Zhongguozhi lu [China in Transformation: The Chinese Road to a Market Economy] was published in 2013. ‘Capitalism’, throughout the Chinese version, was translated as shichang jingji, or ‘market economy’, while ‘socialism’, when used in a pejorative sense, was translated as jihua jingji, or ‘planned economy’; the few references in the original to the 1989 Tiananmen movement were eliminated. Otherwise the translation was accurate and thorough. China in Transformation was very successful in China, possibly because readers could find in its narrative of capitalist development both admiration for Chinese particularism and hope for continued future prosperity, with none of the typical warnings that a bright economic future would depend on adopting Western political norms. There was little of the social, nothing of class, and very little of the subjective in the book; its focus was largely on macroeconomic and industrial policy, framed by the familiar neo-liberal critique of planning or ‘guiding ideas’. It did, however, render the course of reform wholly legible within a neo-liberal optic, claiming China for neo-liberalism in a Chinese way, by ‘seeking truth from facts’. Through Coase and Wang’s eyes, we may see indications that neo-liberalism has indeed sunken deep its roots in China.

Tigers and stones

Two Chinese proverbs dominate the homiletic register of reform discourse: ‘crossing the river by feeling the stones’ (mozhe shitou guo he) and ‘when riding the tiger it’s hard to get off’ (qi hu nan xia). ‘Riding the tiger’, used primarily outside official discourse, suggests a lack of total control: the tiger of capitalism will go where it chooses.footnote11 ‘Feeling the stones’, quoted often by early reformers including Deng Xiaoping and the ‘conservative’ Chen Yun, is a ‘folk simile’ known as xiehouyu in Chinese: a two-part vehicle-tenor proverb whose second part is unstated, though understood. The standard association with ‘crossing the river’ is ‘steady and stable’ (wenwendangdang), emphasizing the stability of the stone on which one rests, rather than, as some later usages would have it, the uncertain location of the stone to come.

Coase and Wang write in their preface that ‘the series of events that led China to become capitalist was not programmed and the final result was entirely unexpected’, making Chinese capitalism a pertinent illustration of ‘what Hayek has called “the unintended consequences of human action”’.footnote12 Readers of Hayek will know, of course, that the intended consequences of human action—planning—are to be avoided, since no human intelligence could equal the superior calculation of the market. There is thus in Coase and Wang’s version of the turn to capitalism no Chinese civilizational essence—as in Robert Bellah or Ambrose King’s claim for affinities between Confucianism and a Tawneyan Protestantism—awaiting the dissolution of socialist shackles in order to re-emerge. Nor is it a Western imposition, or a surrender to a superior economic order. In their telling, the course of reform in China is a recapitulation of the neo-liberal episteme: its unexpectedness and unprogrammed character were its guarantees, and the flexibility and adaptability of the leadership, rather than its direction, were decisive.

How China Became Capitalist views the reform process largely ‘from a Hayekian perspective, which stresses the growth of knowledge as the ultimate force driving economic change’, meaning, of course, the knowledge that results from market competition.footnote13 Coase and Wang’s narrative differs from mainstream accounts only in emphasis, as we will see below. On a question that divides some scholars—whether and to what extent the course of reform was directed by the state or primarily emerged ‘from below’—they see truth in both positions. There is little effort, as one would expect, to link Chinese developments with mutations in global capitalism or its regional dynamics. Structural conditions that facilitated competition and experimentation, the knowledge thereby produced, and the gradual expansion of market logic and market price, were the key determinants.

In their view, a structural precondition for the reforms was Mao-era decentralization, first aired in Mao’s 1956 speech ‘On The Ten Major Relationships’, a text published only during the reform period in an effort to buttress reformers’ claims for a Maoist pedigree. Decentralization was made policy in 1957 and implemented in 1958, putting significant powers over economic planning and administration in the hands of local and provincial authorities. This decentralization, which continued into the 1960s, had fiscal and military rationales, but these were not important. Given the dominance of political mobilization during the pre-1978 period, which was itself tied to Mao’s charisma, Mao was able to influence local authorities directly, without needing the mediation of the Beijing bureaucracy, thus preserving an important space for central authority within a decentered structure.

One negative consequence of the famine that ended the Great Leap Forward—when local officials’ zeal to meet Mao’s directives led to information distortions, with tragic results—was that decentralization was discredited, and centralized planning regained authority. Coase and Wang conclude:

A point stressed by Hayek, the far-reaching implications of which have yet to be fully recognized, is that the most critical advantage of a market lies less in its allocative efficiency, and more in its free flow of information. But the flow of information would not make much sense, indeed it would seem wasteful, if the problem that it helps to solve is not recognized. A market economy assumes two deep epistemic commitments: acknowledgement of ignorance and tolerance of uncertainty. It was hard for a defiant Mao and a triumphant Chinese Communist Party to accept either, even in the aftermath of the Great Leap Forward.footnote14

The right kind of decentralization would thus allow focused application of local knowledge, experimentation and an inter-regional competition that would generate more information. Ideology and politics stymied this capacity in the Mao years, but an organizational orientation toward decentralization was established, and this was able to function closer to Hayekian norms in years to follow.

Knowledge and profit

The journal Lilun Dongtai [Theoretical Trends], founded by Hu Yaobang in June 1977, was intended, claim Coase and Wang, to ‘solicit articles to question and criticize the ossified socialist doctrines and Mao’s radical policies, which still had a firm grip on the minds of the people’.footnote15 Debate and discussion—what Coase had called in an earlier article ‘the market in ideas’—are seen as generative of knowledge in their model, and throughout the book they regard the presence of market-sceptical ‘conservatives’ not as threats or obstructions but as potential contributors to the accumulation of knowledge. ‘Practice is the Only Criterion for Testing Truth’ appeared in the journal in 1978, and it was widely understood as the definitive attack on Mao’s ideological authority, overturning the ‘Two Whatevers’—‘We will resolutely uphold whatever policy decisions Chairman Mao made, and unswervingly follow whatever instructions Chairman Mao gave’—that dominated the immediate post-Mao period.

The first five-year plan after Mao’s death, emphasizing capital-intensive heavy industry at a time of capital shortage, registered significant increases in grain and steel production. Proto-market innovations such as monetary incentives, piece rates and the beginnings of enterprise reform appeared under the aegis of ‘socialist modernization’, a term which had replaced class struggle and other more explicitly political determinants. Coase and Wang make much of the Third Plenum Communiqué of 1978, which neither mentioned the market nor provided a clear policy direction, but which nevertheless seemed in accordance with a Hayekian epistemological trend:

It was actually quite fortunate that the Communiqué did not prescribe any specific measures, with the exception of agriculture. Given how poorly informed the Chinese leaders were at the time, any prescriptions would probably have done more harm than good. But now the Chinese government was committed to a pragmatic approach, willing to subject everything to the test of practice, and eager to try anything that facilitated ‘the growth of productive forces’. China may have been poorly equipped for a market revolution, but it was certainly mentally prepared.footnote16

As reform built up steam in 1978 and 1979, a key factor for Coase and Wang, and one they find relatively neglected in other accounts, is enterprise reform. Consisting largely of horizontal consolidation, greater enterprise autonomy and managerial responsibility, enterprise reform had been advocated in the 1950s by Sun Yefang and Gu Zhun, mainstream economists in the early prc, later disgraced as rightists but rehabilitated after Mao’s death. Enterprise reform as then conceived was well within the purview of socialist economics. Coase and Wang want to demonstrate, though, that Chinese reformers soon learned that without price reform, and the information delivered to firms through the operation of prices, enterprise reform would likely fail, as it did in the early 1980s—at which point many voices arose, foremost among them the pro-market though ‘conservative’ economist Xue Muqiao, arguing for deepened price reform. The emphasis Coase and Wang place on these early failures reflects a conviction that enterprise reform, once embraced as a concept, must eventually result in price reform and an increased role for the market.

The more significant early reforms in leading to the market economy were, in their estimation, the ‘four marginal revolutions’: small private businesses in the cities, household farming, the Township-Village Enterprises (tves), and the Special Economic Zones (sezs). Coase and Wang’s version of these developments is similar to other mainstream narratives. Teiwes and Sun, among others, have recently made a convincing case for the top-down nature of agricultural de-collectivization, and its roots in fiscal crisis.footnote17 Although Coase and Wang claim agricultural de-collectivization as a bottom-up process, they are throughout the book supportive of state-directed reforms as long as they are pro-market, so the new interpretation would leave the centre of their analysis intact. The real fruits of the marginal revolutions, in their view, were growth in knowledge, growth in organizational diversity, a far greater role for competition and a rise in general economic consciousness. Yuan Geng, the entrepreneur who in 1979 set up the Shekou Industrial Park, later incorporated into the Shenzhen sez, chose as a motto for his enterprise ‘Time is money, efficiency is life’ (shijian jiushi jinqian, xiaolü jiushi shengming). For the Chinese, ‘time is money’ is associated with Shenzhen, not Benjamin Franklin, and this unfortunate bit of common sense did indeed begin at the margins.

The 1980s—the ‘bird in the cage’ phase, with macro-economic policy subject to state planning and the bird of the economy free within those bounds—saw political challenges to further marketization in 1982 and 1983. Challenges, for Coase and Wang, increase aggregate knowledge, so this was on the whole a salutary development. The 1980s also saw the rapid growth of economics as discipline and discourse. Economic policy makers were deeply engaged with Western and Eastern European economists, all pro-market thinkers of one stripe or another. A development that hastened the path to price reform, the ‘dual track’ pricing system—set prices within state quotas and market prices for production outside the quotas—was influenced by economics graduate student Zhang Weiying, who would later become one of China’s most prominent neo-liberals. Price reform was badly timed, however, creating the volatility, inflation and austerity policies that contributed to social unrest all over the country in the second half of the 1980s, culminating in the Tiananmen massacre. Despite the decade’s grim end, Coase and Wang find much to like about the politics of those years, especially the renewed participation of intellectuals in public life, universities and think-tanks, and the rebuilding of the legal system. They refer to the latter achievement not as the rule of law but as rule by law, ‘an attempt to structure and regulate the hierarchy of power relations within the maze of Chinese politics’.footnote18

Cognitive shifts

The 1980s was also a decade of ‘new ideas’. Although mainstream economics focuses on competing interests rather than competing ideas, Coase and Wang write that clashes of ideas ‘have not received their due attention’ in the field. Ideas, embodied in institutions, become the basis for identity: ‘a profound cognitive change takes place at the individual and societal level when an institution that was adopted for its expected pragmatic function assumes a status role, coming to define our individual and collective identity.’ The prc, they note approvingly, always took ideas seriously, and the power of the idea of ‘socialism’ was a strong inhibition on the development of a market economy. But socialism, under the influence of post-1978 pragmatism, ‘had been restored to what political ideologies should always be: a working tool rather than a non-negotiable goal.’ Socialism could now be subjected to empirical testing and judged according to its performance.footnote19 The market economy was also an idea that needed promotion. Efforts to construct homo economicus in the 1980s and 90s commonly used the language of revolution, exhorting those apprehensive about the market to ‘liberate the mind’.footnote20 ‘Ideas’, though, have a particular status in Coase and Wang’s world. A chief benefit of the ‘pragmatic turn’ for Coase and Wang, in a process that Wang Hui has described as ‘depoliticization’, was its deliverance of ideas to the judgement of the market, which was also a process whereby market values—competition, efficiency, etc—would become the leading ideas, and sources of new identity.footnote21

The post-Tiananmen retrenchment gave temporary strength to anti-market elements in the leadership, but after Deng Xiaoping’s 1992 Southern Tour, the ‘capitalism with Chinese characteristics’ with which we are all now familiar quickly emerged, and became fully consolidated by the time of China’s 2001 wto accession. Coase and Wang credit ideological, policy and micro-environmental structural factors. Ideologically, Deng Xiaoping’s re-definition of Marxist orthodoxy—the development of the productive forces was the essence of socialism; any policy that served the development of productive forces was de facto in accordance with socialism—removed any political or ideological barriers to market development. At the Fourteenth Party Congress in 1992, the development of the market economy was recognized as the ultimate goal of reform, and every Party Congress since then has affirmed the centrality of the market. Serious concern with ideological content at the ccp leadership level was over. Truth would henceforward be measurable, in gdp growth rates, income and poverty statistics, inflation statistics, price, numbers of patents, et cetera. Succeeding leaders would propose ideological programmes of invariant vapidity: ‘the three represents’, the ‘socialist harmonious society’ and the ‘Chinese dream’. As for communism, in 1978, Vice Premier Wang Zhen had visited the uk and, impressed by its prosperity and wage levels, is quoted as saying that ‘Britain would simply be our model of a communist society if it were ruled by a communist party.’footnote22

Price reform emerged gradually but decisively: by 1995, 78 per cent of goods and services were traded at market prices, and the black market was mostly a thing of the past. The tax reforms of 1994, which simplified and regularized taxes and eliminated the practice of individual-firm negotiated tax rates, provided an impetus for the further dismantling of the managerial contract system, which had contributed to the soes’ isolation from market forces. The elimination of the product tax weakened incentives for local governments to take intra-provincial protectionist measures, thus strengthening the national market, and adding another arena of competition. Tax reform, Coase and Wang argue,

turned out to have far-reaching effects, transforming regional economic dynamics from chaotic fiefdoms into a sustainable and efficient competition. Now, local governments competed against each other to attract investment by improving their infrastructure and business environment. Regional competition has been primarily responsible for China’s remarkable economic dynamics since the mid-1990s.footnote23

Finally, enterprise reform for soes was pursued in earnest through privatization, the use of ipos to fund soes and uniform assets supervision. The ‘iron rice bowl’ tying employees and employers together was broken through unemployment insurance and the privatization of housing. Unlike many critics of ccp economic policy, Coase and Wang were not focused on the existence of the soes. If they had undergone enterprise reform—if they operated competitively and efficiently—their ownership was not much of a concern.

Coase and Wang follow Steven Cheung in emphasizing the importance of competition between counties (xian) as a primary driver of market reform. They return to Coase’s seminal article, ‘The Nature of the Firm’, to posit the necessity of open markets—both product and factor markets—for a properly performing firm. Although the development of a functioning factor market lagged in the transition from a planned to a market economy, they argue that this was overcome by competition between counties in attracting firms to their newly constructed industrial parks:

The transformation of factors into goods and services takes place within a structure of production in which factors are organized and coordinated by various arrangements, including the impersonal pricing mechanism, contracts and non-contractual personal relations. In this vast and still poorly understood arena, organization is critical. Organization was considered by Alfred Marshall to be a ‘distinct agent of production’. But underdeveloped economies are characteristically defined by a want of organization. Indeed, organization is often in shorter supply than capital investment. In China, this vacuum was filled up by local governments, which still have enormous power to mobilize resources.footnote24

Coase and Wang answer critics who would point to the resulting overcapacity, low physical-capital utilization rates, duplicate investment and impaired comparative advantage by drawing attention to the development of human capital and the spread of manufacturing and organizational technology that arose from inter-regional competition. Competition, they remind us, doesn’t only take place over investment, but over ideas for economic development. Failure, being localized, is rarely disruptive. And since local officials’ promotions are based on economic performance, there are more incentives to administer jurisdictions along enterprise lines.

Market in ideas

Premier Wen Jiabao was an admiring reader of Adam Smith, both The Wealth of Nations and The Theory of Moral Sentiments, and Coase and Wang appreciate the attention paid to the latter book in China. Without an idea like Smithian justice, they suggest—equal application of and equal protection under law—the inequality natural to and unavoidable in a capitalist economy would come at too great a cost. They would probably view Xi Jinping’s ongoing crackdown on corruption in this Smithian light. How China Became Capitalist concludes with an extended critique of the absence of a market in ideas, which appears in its entirety in the Chinese translation. Their critique of China’s controls on free speech points to the familiar bad consequences: lack of innovation and creativity, inability of Chinese manufacturers to establish globally recognized ‘brands’, insufficient development of human potential, et cetera. But it is clear throughout that the testing ground for ‘ideas’ is and must be the market:

Moreover, the market for ideas drives the market for goods and services in a fundamental way. As the market for goods operates under the assumption of consumer sovereignty, it is the market for ideas that directly shapes consumer wants, crucially determines what kind of consumers (as well as entrepreneurs, politicians and lawyers) we find in the economy, their characters and values, and thus ultimately decides what the market for goods is and how effectively it works.footnote25

In a 1974 article, Coase had argued against the distinction between ideas and goods, and questioned why laissez-faire was deemed necessary in the realm of ideas while regulation was acceptable in the market for goods. From the vantage point of the market, in Coase’s view, there is not much difference between ‘ideas’ and ‘goods’.footnote26

‘Ideas’ shaping consumer values, contra Coase’s worry above, are not in short supply in China. What kind of pluralism, then, do Coase and Wang really want? They expressly do not link the market in ideas to a particular political form such as multi-party democracy. Neo-liberals have rarely been concerned with the rights of expression of social movements, labour unions, parties or other political collectivities. A 2013 Harvard study of social-media censorship in China made clear that the targets were not anti-government or anti-party sentiments, but those forms of speech that could lead to collective action, hardly a concern for Coase and Wang.footnote27 In their telling, something akin to the market in ideas existed in the 1980s and the early 90s, with beneficial consequences. If that experience is a model, then we might conclude that what the market for ideas needs most are more ideas about markets.

The current regime remains committed to its monopoly on the ‘leading ideas’, which seem to be selected for their vacuity. At the popular level, the reigning common sense—that stratum of ideas determining ‘what kind of consumers we find in the economy’—is thoroughly economistic, and this must be counted as one of Chinese neo-liberalism’s significant achievements. As Mirowski has pointed out, one of neo-liberalism’s political modalities has been its ability to present itself as an anti-systemic, liberatory outside force. Markets can always be further opened, rights of ownership further extended, entrepreneurial activity further deregulated. Neo-liberal reason can thus function simultaneously as hegemonic common sense and liberatory outside, and this holds as true in China as elsewhere.

In Wang and Coase’s interpretation of the two-decades-long emergence of capitalism, the knowledge formed through policy-makers’ ignorance and flexibility in conjunction with market competition proved robust enough to consolidate and reproduce the new economy. But the capitalism that emerged in China—organically, in Coase and Wang’s version—took place in the context of a global neo-liberalism with deep disciplinary roots in the fields of economics and law, and a distinctive political-economic rationality. This global context would shape the re-foundation of the discipline of economics in the Chinese academy, in think-tanks and in government policy, as well as the formation of homo economicus at the social and subjective levels.

Departmental politics

As if in response to Coase’s call for a market in ideas, Beijing University scheduled a public debate in November 2016 between Coase disciple Zhang Weiying, former dean of the university’s Guanghua School of Management, and Justin Yifu Lin, former chief economist for the World Bank. Both currently have faculty positions at Beijing University. The Economist announced the event with characteristic hyperbole:

Perhaps the most famous debate in the history of economics was that between John Maynard Keynes and Friedrich Hayek—a clash over the benefits and perils of government intervention that exploded in the 1930s and still reverberates today. It has echoed around Chinese lecture halls in recent months. Justin Lin, a former chief economist of the World Bank, who leans to Keynesian faith in public spending, has squared off against Zhang Weiying, a self-professed Hayekian who doubts bureaucrats can ever beat the free market.footnote28

The event itself was anti-climactic, and more than a few commentators pointed out how much the two overlapped. Lin’s position has always been that industrial policy is necessary for a certain phase of development, until more purely market forces can take over. Their proximity notwithstanding, this debate represents more or less the full spectrum of positions in the economics discipline in China today. University economics departments have similar sub-disciplinary compositions to those elsewhere in the world, and no one would find it odd to see, say, a public-choice economist writing for a state organ such as the People’s Daily. Marxist political economists are mostly confined to departments of Marxism-Leninism, where the focus of political-economic scholarship is historical or theoretical, not policy-oriented. I suspect that there are more Marxists in uk economics departments than in their prc counterparts. How Chinese economics departments became capitalist is an important part of the story.footnote29

In 1980 a group including reform economist Xue Muqiao produced a document for official consumption concretely outlining the direction of reform—enterprise reorganization according to economic efficiency, commodity production, a role for the market along with the plan and further economic decentralization. Vice Chairman Li Xiannian, formerly Chairman Hua Guofeng’s chief economic advisor, responded: ‘I’ve read this twice and I don’t understand it.’footnote30 This anecdote is commonly cited by historians as an indication of the parlous state of economic knowledge and of the discipline of economics, as the reform period began. Pre-Cultural Revolution economics was dominated by parameters set in Soviet economics and theory, the latter mostly around the question of value and to what extent it applied under socialism. Most senior economists of all stripes were persecuted in the Cultural Revolution. The discipline’s reconstruction began, at the outset of the reform period, at great speed and in a distinctive political environment. As Oxford economist Cyril Lin wrote in 1981, ‘whereas in East Europe and the Soviet Union there exists a glut of theory and reform proposals chasing leaderships that are unwilling or unable to initiate fundamental reforms, China, in contrast, has a leadership which is impatient for reforms but which lacks the necessary theory and blueprints.’footnote31

The rise of theory and blueprints was rapid. Economics, and economic discourse in general, came raging back. Reformer Xue Muqiao’s 1979 Research on Questions About China’s Socialist Economy, sold 10 million copies, a record for a social-science publication only exceeded by obligatory sales of the works of Mao and subsequent leaders. The book attacked rigid ‘Stalinist’ planning and blamed leftism for a range of economic problems. It advocated decentralization, flexibility in distribution, a greater role for small individual enterprises and an overall emphasis on ‘forces of production’ over ‘relations of production’.footnote32 The popularity of a book with ‘economics’ in its title is as significant as the book’s content, given that five years earlier, ‘economism’ was still a term of opprobrium. Never again. Shortly after the World Bank approved China’s request to rejoin it in 1980, a team of economists arrived in the country to complete the obligatory World Bank report. Over a thousand pages long, China: Socialist Economic Development was published in 1981. The Chinese translation was made mandatory reading in government units and economics departments, and was sold to the public at large at a subsidized price. The appearance of the report was hugely influential, setting a standard for economic reports from state institutions.

Putting economics in command

Steven Cohn’s Competing Economic Paradigms in China and Julian Gewirtz’s Unlikely Partners (2017) describe in detail how both the discipline of economics and economic policy were refashioned from the late 1970s and through the 80s under the protection of Deng Xiaoping, with the guidance of both younger economists and those market- and reform-minded economic thinkers who had returned to work after being persecuted as rightists in the 50s and during the Cultural Revolution.footnote33 There were nearly continuous state-sponsored visits to Western Europe, the us, Eastern Europe and the developing world. Over the course of the 1980s, scores of students went to the us and the uk for graduate work in economics. The Chinese Academy of Social Sciences, established in 1977 and the de facto reform think-tank, hosted a stream of foreign economists, beginning in 1979 with the influential series of lectures by Oxford economist Włodzimierz Brus, a Polish exile considered the foremost theorist of market socialism. Brus, to a receptive audience, was a hard advocate of enterprise autonomy and of a strong role for market forces within a state-guided economy.

The Ford Foundation and the American Economic Association were key players in the establishment of the discipline. Much of the aea work was headed by Princeton Economics professor Gregory Chow, who had studied under Milton Friedman at Chicago. Friedman himself was invited to China to give a series of lectures in 1980. Although Freedom to Choose had just been published, it is not clear that anyone in China knew of his affiliation with neo-liberalism, a word whose Chinese equivalent was rarely encountered until the 1990s.footnote34 Friedman’s expertise on price, as well as his anti-inflationary fundamentalism, was a key attraction for his Chinese hosts, who struggled with inflation throughout the 1980s. Friedman himself was not initially sanguine about Chinese prospects, although long years of adulation finally tempered his dyspepsia. Price reform was high on the reformers’ agenda, and Czech economist Ota Šik, who had an almost Hayekian conviction about the unsurpassability of price as information mechanism, became an influential favorite. Šik’s emphasis on the ‘socialist market’ and the state’s role as coordinator of the ‘macro-distribution plan’ was crucial in legitimating radical price reform within a system that persisted in calling itself socialist.footnote35 Their insistence on the need for such reform was an important factor in the 1984 victory of the reformers over advocates of central planning, which set in motion the gradual and inexorable disappearance of non-market prices.footnote36

To provide forms of management adequate to the transformed economy, the first mba programmes—one us and one European joint venture—began in 1984. By 2000 there were over sixty, all with Western-derived curricula. Economics and management grew steadily in universities, and over the 1990s the term ‘Western economics’ was replaced by ‘modern economics’, even though most of the university textbooks were translations of us texts. By 2007 there were almost 1 million economics majors in universities, and over 3.5 million in management, representing over a quarter of Chinese university students.footnote37

A defining event in advancing reform-era economic policy, stressed in both Gewirtz and Liu, was the September 1985 World Bank-sponsored conference on the ssBashan, held during a week-long cruise on the Yangzi River through the Three Gorges, later to be flooded by the world’s largest hydroelectric dam. The conference, ordered by Premier Zhao Ziyang and organized by Edwin Lim of the World Bank, Wu Jinglian and other senior Chinese economists, included such non-Chinese participants as James Tobin, Leroy Taylor, Alexander Caincross and János Kornai. Tobin surprised Chinese economists in his acknowledgment of a significant role for macroeconomic management, a term whose Chinese equivalent was invented during the cruise.footnote38 Tobin’s ability to look at a few pages of data and immediately suggest macroeconomic policy correctives gave his Chinese hosts a glimpse of analytical power of a kind they had never seen before, and of an intelligence they hoped to develop in policy circles.footnote39 Kornai’s Economics of Shortage, with its emphasis on the ‘investment hunger’ he claimed was common to all socialist societies, was thought highly relevant to China, and the Bashan cruise was the beginning of his long relationship with China. Kornai softened his anti-communism for his Chinese audience: in contrast to the positions he took in the Eastern European context, Kornai was one of several advocates of gradualism. He was highly persuasive in advocating ‘price responsiveness’ as the measure of an enterprise’s success under macroeconomic management.

Milton Friedman returned to China in 1988, in the company of Steven Cheung for much of the visit, and his stay included a widely publicized audience with Premier Zhao.footnote40 Friedman was uncompromising in his advocacy of a completely unfettered market: a strong pole of attraction for common sense, including at the highest levels. In the economic-policy discussions of 1986–87, some officials called for workers’ self-management as one direction for enterprise reform. Deng Xiaoping’s veto of that suggestion signalled the end of workerist attempts to steer the reform agenda. After the elimination of conservative challenges to that agenda signified by the Fourteenth Party Congress in 1992, no significant barriers remained to the promotion of market values in academic or policy circles. Friedman was invited back in 1993, a significant gesture, given that his 1988 visit had been used to tarnish Zhao Ziyang, who was deposed and placed under house arrest after Tiananmen.

Spreading the word

That year also saw the establishment of the Unirule Institute in Beijing. Its founder, the English businessman Antony Fisher, had been converted to neo-liberalism after reading the Reader’s Digest version of The Road to Serfdom. On Hayek’s advice, Fisher took the think-tank route, founding the Institute of Economic Affairs in 1955, later a hot-house for Thatcherism. The Manhattan Institute followed, and in 1981, warming to his role as ‘the Johnny Appleseed of the free-market movement’, he founded the Atlas Economic Research Institute, later named the Atlas Network, which exists primarily for think-tank proliferation and funding.footnote41 The Unirule Institute was set up in 1993, as the Beijing affiliate of the Atlas Network.footnote42 While not the biggest economic think-tank in China, Unirule was the most ideologically focused, and over its twenty-five-year existence it sponsored conferences, symposia, seminars and other activities that drew participants from all levels of government, the media and the private sector.footnote43 Although it received no funding from the state, Unirule did consulting work and drafted research reports for a number of state agencies. Several of the most prominent economists associated with Unirule are also members of the Chinese Economists 50 Forum, established in 1998 in an effort to gather the country’s most prominent and accomplished economists into one organization. Through the work of Unirule and its most active members, neo-liberal doctrine became part of the discourse in policy discussions at national and local levels. In establishing the criteria by which progress toward property rights, privatization, efficiency and increased competition could be measured, neo-liberal economists shaped policy, even though their specific recommendations often remained beyond the will of the state. The ccp leadership was more comfortable, officially, with economists along the neo-classical spectrum. Neo-liberal economists could, however, always point to the inadequacy of market measures so far undertaken, and thus serve as a goad for further reforms.

From Dale Carnegie to Steven Pinker, books on economics for popular audiences have contributed to the expansion of ‘economic’ epistemologies into nearly all aspects of life. Popularization of wisdom from the new discipline of economics, as reconstituted along market lines, took up that work in China as well. In the late 1980s and after, scores of economic texts from Adam Smith onwards were translated into Chinese. Von Mises and Hayek were hugely popular among general readers. At those bookstores that functioned as agenda-setting scenes for intellectual life—Xianfeng in Nanjing, Jifeng in Shanghai (now closed), Wansheng in Beijing—their work was featured prominently: at Jifeng right at the entrance. An early and comprehensive effort to introduce new economic thinking to a wider Chinese audience was the 14-volume Shichang jingjixue puji congshu [Market Economics Popular Book Series]. This had been initiated by the Chinese Economists Society, founded in 1985 by a group of us-trained Chinese economists working in the us and in China.footnote44 The series, deliberately written with a minimum of mathematical formulae, was aimed specifically at government officials, researchers, enterprise managers, and faculty and students in higher education, and was intended to provide this population with a broad basic knowledge of all areas of economics.

The first book in the series, Mass Market Economics, by Zhang Fan, was an introduction to micro-economics structured around the transition from a planned to a market economy, with comparisons between the two systems, in all cases to the detriment of the former. Volume Two was devoted to macroeconomic theory, and other volumes covered family economics, organizational structure and management, currency, securities markets, international trade and fdi. The Visible Hand: The Role of the Government in Market Economies and another volume devoted to public-choice theory (significantly, the only one concentrating on a particular school of economics) are explicitly ideological, as is the final volume in the series, and its biggest seller, The Economics of Daily Life: Investigations into the us Market. The latter was written by Mao Yushi, founding director of Unirule and China’s most famous neo-liberal, based on his year as a visiting fellow at Harvard. A market-fundamentalist claim for the rationality and practicality of us economic life—topics range from home ownership to garbage collection and supermarkets—it concludes with that scenario beloved by neo-liberals, the prisoner’s dilemma, and admonishes officials that:

exchange has specific norms, based on human rights and market regulations. Respect for regulations cannot depend purely on self-interest. The prisoner’s dilemma makes clear why market regulations are necessary, and why only an uncorrupt and efficient government can lead us toward a standardized market.footnote45

And contrary to the widespread suspicion of market transactions and motivations that characterized the early stage of the transition period, it argued for the morality of a well-run market economy.

Homo economicus sinensis

A growing body of work by Western scholars of neo-liberalism over the last ten years has described its social, political, subjective, epistemic and psychic dimensions. The latest, neo-liberal version of homo economicus is shaped by the extension of the economic and its attendant forms of measurement, evaluation and calculation to all aspects of life: by competition and risk as the primary modalities of existence; by a malleability of the self that comes from its fundamentally entrepreneurial nature; and by a vast reduction of the sphere of politics and political possibility. Epistemologically, it is free of transcendence or truth, the latter only realizable through the impersonal workings of the market. This version of the market requires government intervention and maintenance, but it is a situational and pragmatic version of governmentality, beholden to neither history, nor telos, nor first principles. The institutional supports for the construction of the neo-liberal subject are privatized and family-centred, with a diminution of collective or state-provided welfare guarantees. It is not only a polarized society, but is unapologetically—sadistically, some critics say—divided into winners and losers.footnote46

With minor qualifications, this description applies to twenty-first century China, dating roughly from the 2001 accession to the wto, when the consolidation of capitalism can be considered more or less complete.footnote47 Compared to its evolution in the West, the journey from the pre-reform political-economic order to a twenty-first century neo-liberal homo economicus was of far greater magnitude and speed. A precondition was the weakening of social and collective resources that would impede the consolidation of the isolated and entrepreneurial self and interfere with the operation of the market. This began in the 1970s with the dismantling of a democratic or participatory management culture in factories and workplaces, and the reduction of state or enterprise provision of child and family care, with women workers and retirees thereby required to take on most of the burden of social reproduction.footnote48 Workers’ right to strike was eliminated in 1982. The older industrial working class employed in state-owned enterprises was decimated by lay-offs in the 1990s: by 1997 the elimination of ‘iron rice bowl’ lifetime (and inheritable) employment guarantees was virtually complete. De-collectivization of the rural sector, as even Coase and Wang complain, eliminated valuable organizational knowledge in agriculture. The privatization or closing of the Township Village Enterprises in the mid to late 1990s removed the last vestige of collective or cooperative ownership and management of factories. The new working class, comprising rural-urban migrants from peasant villages and laid-off workers in pre-reform industries, would face the labour market as isolated individuals, without social or organizational guarantees.

The rapid emergence of an ‘ownership society’ also contributed to the formation of the new subjectivity. There had been virtually no private housing in China prior to the late 1980s. The state began to encourage it in 1988, and through legal reform and other means facilitated home ownership through the 1990s. By 1998, when enterprises were forbidden to allocate housing to employees, there were over 24,000 real-estate firms in China, and the home-ownership rate was around 90 per cent, among the highest in the world. Home ownership quickly became a central ideological and cultural value. Men find it difficult to marry without owning somewhere to live, and home purchases remain the investment of choice for those with investment capital. As urban home prices skyrocket under the pressure of an investment economy with too few outlets for capital besides real estate, home ownership becomes another determinant of society’s winners and losers. Only in 2007, though, were property rights given reasonably full legal protection, and ownership remains more restricted than it is in much of the world. No property owner owns the land on which a dwelling is built, for example, and title to real property is for seventy years only. Although many expect the seventy-year title limit to be amended, these restrictions make ownership a political and ideological aspiration, in addition to being a cultural value: the vast majority of home-owners want a deepening and strengthening of property rights, and this of course adds to a politically conservatizing impulse. There is widespread popular opposition to a property tax, for example, due in large part to the perceived incompleteness of ownership.

China’s audit culture, a feature of neo-liberal governmentality described by Davies and others, is pervasive, reaching from audits of Communist Party cadres themselves to all levels of educational institutions. In universities, the audit culture has become more and more demanding and consequential: departmental, divisional and university rankings determine budget allocations and salaries. The Chinese version of the Research Assessment Exercise is purely quantitative, with predictable effects on academic life. Pay-to-publish is pervasive, as is ghost-writing, plagiarism and the filing of a host of useless patents. The social-credit system, scheduled to be implemented by 2020, is probably best understood not as Orwellian surveillance, but as an extension of audit culture into individual economic and contractual life, more to do with the ‘nudge’ economy than with punitive state spying.

The entrepreneurial self and the psycho-economy of human capital formation are deeply embedded in the family, in institutions of audit culture such as schools and workplaces, in everyday consumption and in social media, including networking, dating and electronic gaming. Fazhan, or ‘development’, is commonly used for describing one’s life trajectory. Since the 1990s, chenggongxue, or ‘success-ology’ has been a huge business, flourishing in expensive seminars, online courses and in the host of books that dominate urban and airport bookstores. Chen Anzhi is probably China’s most prominent success-ologist, with book and video sales in the many tens of millions, beginning with his Mai chanpin buru mai ziji [Sell Yourself, Not Products, 2000]. He has written that the experience of seeing success guru Tony Robbins while a student in the us in the 1990s changed his life forever. Success-ology texts, Pun Ngai and Leslie Chang report, are probably the most popular books among women factory workers, many of whom dream of opening small businesses.footnote49

The state also helps commodify the acquisition of human capital. In the late 1990s, it introduced the ‘professional qualification certificate’ (zhengshu) system, which by the 2010s offered certification for over a thousand professions—singer, marketer, psychotherapist and so on. A multi-billion dollar industry exists to prepare candidates for the qualification certificate examinations, mistakenly viewed by many as a sure path to employment in a given profession. Individuals commonly acquire multiple qualification certificates in order to keep options open and maximize employment possibilities. China’s social-media ‘influence economy’, though it operates on Chinese platforms, provides myriad opportunities for self-marketing and self-fashioning. Besides the assiduous cultivation of online personae for social-status signification or dating, there are a host of remunerative online modalities. Gaming, as spectator sport, is quite lucrative. Wanghong, or internet celebrities, are highly paid, and influence marketing is a multi-billion dollar business in China, which has the largest e-commerce market in the world. Many aspire to wanghong status. The blurred division between buyer and seller makes everyone in the ‘like’ economy a real or potential influence marketer.

Contra

As the conventional wisdom has it, the 1980s witnessed the discovery of the self, the emergence of the individual out of late-Cultural Revolution authoritarian conformity. Most leftists in China today who were of age in the 1980s describe themselves as having been ‘liberal’ in those days, when the force of individualism had radical, anti-authoritarian possibilities. They became leftists in the early or mid-1990s, when the shape of the new dispensation grew clearer, when they realized that the individual had been prepared not for liberation, but for consumption and selfishness. For most on the left today, the pre-reform socialist past remains a key resource for resisting wholesale neo-liberalization. Although few leftists are deceived by the declared fealty of the ccp leadership to socialism or Marxism, many nevertheless continue to believe in the Party’s self-correcting capacity, and find spaces of possibility or forums for socialist advocacy in state initiatives. Thus we see leftist advocates for an expanded role for the state-owned enterprises, despite the fact that in structure, function and labour relations they are little different from private firms. There are left defenders of the One Belt, One Road initiative, who see in it echoes of Bandung, rather than a new version of imperialism.

Leftist academic intellectuals mostly support social movements, including those of workers, environmentalists and feminists, although restrictions on what they can publish, and their own desire to remain influential over government politics, inhibit them from offering overt support to movement activists. A particular feature of the social-movement scene in China is the relative absence of a theoretical or critical intellectual component. This closeness to the state has limited the appeal of academic leftism to younger generations. It is in the social movements that politically significant collectivities are formed, and these constitute the most meaningful alternatives to the hegemony of neo-liberal subjectivity. In workplaces, in rural villages, and among those sectors of youth growing discouraged about their prospects and dissatisfied with the kind of jobs, family life and consumption culture on offer, there is both the will and organizational capacity for collective action, albeit not always of long duration. That might change. But such efforts are ongoing largely without the influence of intellectuals.

Although leftist intellectuals are quick to criticize neo-liberals like Mao Yushi or Zhang Weiying, there is on the left very little critical work on neo-liberalism’s penetration into the social fabric via the audit process, success-ology, the social-media economy and the myriad institutions, protocols and habits that constitute everyday neo-liberal culture.footnote50 Many leftist intellectuals are nationalists, and view China’s singular emergence as an economic power beyond us control as a victory for a systemic alternative, or at least for the as-yet-unrealized possibility of one. That systemic alternative might be something like Wang Hui’s ‘anti-modernity modernization’, referring to the long history of China’s revolution, or Gan Yang’s unity of the ‘three traditions’: Confucianism, Maoist revolution and Dengist reformism.footnote51 China’s modernization is thus, necessarily, a distinctive modernization. Neo-liberalism, in this view, is largely a Western import, and can and should be resisted as such.

Like many neo-liberals, Coase didn’t use the word ‘neo-liberalism’. But the capitalism he celebrated in China, organically conforming to neo-liberal logic, was grown in Chinese soil, and it has taken deep roots. We will probably find out before long how well it weathers a serious crisis. In any case, recognizing it for what it is, a home-grown version of a globally dominant political-economic rationality—and Coase is useful here—will be an important part of forming a lasting and meaningful opposition to it.