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«Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann-Wolfgang Goethe-Universität Frankfurt am ...»

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This theoretical approach towards institutional change, especially the case of drift, is similar to Veblen‘s notion of evolutionary change. In general, American Institutionalism argues ―what survives organizationally may not be most efficient or effective, but it survives anyway because it has come to be instilled with value in that specific institutional context‖.1594 As has been shown with the example of China, institutions are not consciously adapted because they are most efficient, rather because they also have a political dimension.1595 It has also been made clear that explaining Chinese economic development is impossible without taking cultural and historical issues, as well as the embeddedness of individuals within the institutional structure into account, since individuals define themselves in relation to others. The holistic perspective of American Institutionalism offered a critical insight into the dynamics of social change and human behavior within China. Its narrative approach enables the description of an economy that is still in flux without claiming to be applicable on a general level. Within this structure the Chinese type of capitalist economy was analyzed and defined as a distinct form of economic system. Thus, the definition of a Chinese type of Capitalism can in this sense be interpreted as a pattern model but also as a real-type, following the terminology of the economic style approach.

It has been shown that even without employing the VoC-approach it is still possible to construct a distinct Chinese variety of Capitalism that accounts for its transformational nature. It also overcame Weber‘s notion that Capitalism shapes a uniform institutional framework. I will come back to that below, but it has to be emphasized that an alternate embodiment of Capitalism in different regions with diverse cultures and history can exist.

―However, as already Durkheim knew, and clearly Weber knew as well, an order of this Kiong and Kee, 1998, p. 87.

Amable, 2003, p. 9.

kind is inevitably unstable, since interests can easily and unpredictably change at any time, especially in rapidly fluctuating self-regulating market‖.1596 It is important to keep in mind that institutions ―are staffed, rather than being merely a collective representation‖ and consequently the behavior of institutional authorities in enforcing regulations varies. In different Chinese localities different party officials with differing value systems are in power, who hence produce differing results in terms of institutional settings by bending formal, central laws. However, institutions and rituals will be particularly tenacious when they are endowed with value and deeply entrenched in the social structure, such as in the case of Guanxi.1597

9.2. The Chinese notion of development: future and perspectives

“The difference between Chinese and westerners is not that one is relational and the other rational. Both are rational and relational. The difference is that western rationality is more based on universalistic principles and individual rights (jurisdiction) the Chinese rationality is based on particularistic principles and obligations and patron-clientelism (the opposite of clearly defined individual rights).1598 9.2.1. The role of family and networks Mainstream discourse, and particularly NIE, treats liberal, contractual institutions that present strong protection of private property rights and business freedom as the best option for economic development. The arguments of these approaches are backed by econometric studies which, however, fail to measure institutional quality, and ignore the limitations of cross-section regressions for highly heterogeneous samples.1599 The mainstream argues ―that economic development requires a rapid, radical, extensive (and even exhaustive) replacement of the current institutions, habits, and routines of the former centrally planned economies by an entirely new set of institutions and mentalities".1600 By contrast, in the Chinese case of transformation, the process of development during the 1980s has been associated with the term ‗songbang‘, which means ‗to untie‘. The radical process of decollectivization has been conceived as an untying of the peasants from former constraints, allowing them to work as individual laborers.1601 Streeck, 2010a, p. 26.

Stinchcombe, 1997, p. 9f.

Peng, 2003p. 3.

Chang, 2010, p. 22.

Stark, 1992, p. 21.

Yan, 2010, p. 495.

It can thus be argued that a complex socio-economic system cannot be planned on a drawing board, and institutional frameworks cannot be replaced by newer, ‗better‘ ones.

Hence, the notion of some sort of ―cookbook capitalism‖ does not exist.1602 China‘s central government probably intuitively, but in any case pragmatically, objected to the ‗conventional wisdom‘ of how to develop a country correctly. By ‗crossing the river by feeling the stones‘ and by taking into account ideological issues, it gradually transformed not only China‘s economy but – intentionally or not – also the attitude of its population towards Capitalism. It can also be argued that the government merely revived an already existing ‗capitalist spirit‘ that, however, incorporated the idiosyncratic elements of the traditional Chinese culture mixed with remnants of the planned economy.

Employing Guanxi for the purpose of transforming the existing economy and designing a successful capitalist system was however not a deliberate decision of the central government. It was rather a local or grassroots development that gradually changed the economy and the legislative environment in favor of private sector activities. The concept of ‗red hat‘ enterprises would not have been possible without the help of Guanxi. Guanxi as an institution adapted to the new circumstances rather than being actively transformed. One of its main features was and still is that ―Chinese people continue to treat each other differently depending on family background, place of origin, shared experiences, educational affiliation, and other dimensions, with the nature of these affiliations determining the treatment received‖.1603 This is often attributed to the prevalence of Confucian values.

However, Guanxi networks are different to those in Western societies, which are rather one-dimensional in the sense that they concentrate on one particular sphere and one type of connection - for example business contacts in the case of corporate networks. This implies a separation of business and private domains, and thus a separate set of behavior in each sphere. By contrast, Guanxi networks are multiplex constructs, since they include social relationships of different character and thus merge different spheres of life. The Chinese tolerance of ambiguity and a high level of pragmatism imply that one particular person can play a different role in different situations. Guanxi networks are also more reliant on generalized reciprocity instead of a balanced reciprocity, because it is never balanced but always entails the expectation that a favor given now will be repaid at an unknown time in the future.

Phrase coined by David Stark in Stark, 1995.

McNally, 2010, p. 6.

All kinds of networks are long-term constructs with trust as an important component, but they differ in the form of trust they incorporate. Typically, Western networks are more based on system than on personal trust, and also more grounded on formal than on informal social capital, which means that associations and political bodies play a bigger role within networks. Thus differences in culture can result in different network structures, as has been shown in chapter 6 with the examples of German, Russian and Italian types of networks. Guanxi networks not only work within the ―small islands of prosperity within the sea of misery‖ as the European (regional and strategic) networks do.1604 Generally, networks function as a safety net in that they provide mutual assistance and support; in the Chinese case it is also a survival kit for hardship, since they provide support in case of bankruptcy by postponing or even preventing them. The reciprocal mechanism of Guanxi networks is aimed towards the other, not the self, which implies that empathy and knowledge for the needs of the other are necessary. Guanxi always consists of unequal exchange, which presumes that anything reciprocated has to be of great value to the receiver, and has to be of greater value than that received, so as to ensure the gratitude and further indebtedness of the recipient. This makes Guanxi networks a dynamic and lasting instrument. Guanxi is necessarily highly individual, not a public good, and cannot be accumulated by collectives, such as firms, as is social capital according to Coleman. This is a leading difference with the concept of social capital.

However, Guanxi is still often compared to the concept of social capital. Guanxi includes mutual obligations, indebtedness in a reciprocal relation. It is more than being social embedded, since it is a system of gifts and favors that do not need to be reciprocated at a particular time. It probably is most similar to Bourdieu‘s concept of social capital because it needs continuous efforts to be maintained. It is however not oriented towards immediate utility in the present or future. It further differs from Putnam‘s definition, who claims that social capital is manifested in civil engagement and membership in clubs, parties or other associations and thus is rather formal in nature. Guanxi in contrast consists purely of informal relations. Guanxi differs most starkly from the more economic interpretations of social capital by Coleman, Burt and Dasgupta. However, Guanxi is a form of social capital in the sense that is a moral resource and a sum of social relations and informal rules that facilitate co-operation within society. Guanxi is also not equal to what Granovetter terms ‗strong ties‘. Although Rénqíng is an important component, ‗loose affiliations‘ can also Piore and Sabel, 1984, p. 6.

share an identity and belong to the ‗inner circle‘ of Guanxi, since a high frequency of interaction or spatial or emotional closeness are not necessarily obligatory.

The typical argument of NIE that a network is an organizational unit that is as another way of reducing transaction costs and enhancing efficiency, also traces cultural differences back to the Western rationality argument, which in the end leads to the all-encompassing criterion of efficiency as the sole objective of a rational enterprise. This argues again follows Weber. History is deterministic, so that rational Capitalism in the Western sense is the epiphany of modernity, which denies a possible difference between cultures. Western discourse has great difficulty in considering social systems as open or emotional and in this sense ‗irrational‘, which includes the absence of clear-cut boundaries between society, politics and the economy.1605 In contrast, the flexible production of Chinese networks is based on trust, and is determined by its institutional environment.1606 9.2.2. The private sector and the state German entrepreneurs of the 19th century were in Weber‘s view „men who had grown up in the hard school of life, calculating and daring at the same time, above all temperate and reliable, shrewd and completely devoted to their business with strictly bourgeois opinions and principles‖, leaving behind traditional lifestyle and principles.1607 Weber considered entrepreneurs were essential for the development of Capitalism. A bourgeois was also a political man, feeling a responsibility for society, using his power to build up a legal and political environment helpful for a capitalist economy.

The typical entrepreneur portrayed like that retreated to relative insignificance with the upcoming bureaucratization and rationalization process. Personal connections were largely replaced by contractual relations that were regarded as more efficient. This trend was reversed with a changing global economy that put corporations under world-wide competition and the pressure of flexible production. Small firms complemented large corporations, serving as subcontractors, and in selected areas formed even very successful local industrial districts. Traditions from the preindustrial past helped these entrepreneurs to face global business. Especially the industrial districts of the Third Italy are clusters of small-scale businesses connected over networks.1608 Networks however differ considerably in their significance for economic activity, and in the degree of state intervention, but in general Herrmann-Pillath, 2000, p. 114f.

Herrmann-Pillath, 2000, p. 116f.

Weber, 1976 [1930], p. 69.

Redding and Witt, 2007, p. 211, 216.

the global economic system experienced an increasing importance of so-called flexible production and hence small firms, often organized in cluster or networks. Although Chinese networks differ from networks found elsewhere in the world, there is of course also some common ground. Although particularly in these Italian districts links between entrepreneurs are often based on informal agreements, these are only isolated phenomena. The density of relations within this milieu results in economies of scale that are similar to that of a larger corporation, but with the advantage that firms remain much more flexible.

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