Home Political science Dancing with the devil : the political economy of privatization in China
The central government played a key role in setting off the massive wave of privatization in the late 1990s. What led to the tipping point in 1997 was the growing inability and failure of public enterprises to cope with the impact of persistent demographic pressures and the deepening of their financial problems that plagued the fiscal capacity of the state. These challenges were the results of the actions and interactions of political and economic actors in response to the evolving institutional and policy environment during the first two decades of reform, as discussed in the preceding chapters. As a bitter pill taken for regime survival, therefore, the drastic decision at the Fifteenth Party Congress was driven by cumulative endogenous forces. In contrast to exogenous shocks in many processes of institutional change (North 1990), the triggers to the pivotal event in this context were also highly path-dependent despite the coincidental outbreak of the Asian financial crisis.
The trajectory of privatization subsequent to the reset point of departure in 1997 nevertheless deviated from CCP leaders’ initial plan of ownership restructuring. In no way did they foresee the tempo and extent of decline in public ownership in the decade to follow. Yet they had to reckon and come to terms with the new realities, however grudgingly, due to the seriousness of the problems and the exhaustion of viable alternatives, especially in regard to the issue of employment. The substantial softening of the Party’s stance on private ownership has also sharply reduced the risk and difficulty of justifying the adoption of measures of ownership restructuring beyond centrally prescribed or preferred solutions (e.g., mergers).
As a vital group of change agents, local officials have contributed significantly to the precipitousness and deepening of privatization from the late 1990s onward. To explain the causal mechanisms of their behavior, it is important to consider the strategic reactions of local officials to the new opportunities and interests prompted by the pivotal event in 1997 and the coevolving structural conditions that reshaped the incentives and constraints they faced. It is equally important, though, to take account of the lasting impact from the consequences of local officials’ past pursuit of self-interest, as well as the long-standing characteristics of the political and economic system. The foregoing discussions of the accelerating effects from the bandwagon responses of local governments, the shift of policy focus from industrial development to urbanization, the role of insider control in the aftermath of the Fifteenth Party Congress, and the landscape of the postprivatization public sector all show that the ramifications of the pivotal event played out through mechanisms related to both pre- and postevent conditions. In so doing, they also illustrate the relevance of both the contingency view and the lasting-impact view of path dependence, outlined in the introductory chapter, for understanding endogenously induced institutional change. I shall further reflect on the pertinent theoretical implications in the conclusion.
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