Red Capitalists in China: Will Entrepreneurs Change the Party?

IMGXYZ289IMGZYXOn March 5, 2003, Bruce Dickson, Associate Professor at George Washington University, delivered a presentation "Red Capitalists in China: Will Entrepreneurs Change the Party?" at a lunch forum hosted by Carnegie's China program. Minxin Pei, Senior Associate and Co-Director of the China program, moderated the event.

Dickson opened by noting the conventional wisdom to which his book responds: it is commonly believed that privatization and economic modernization lead, if not directly then at least indirectly, to democratization. China, however, illustrates the limits of such wisdom.

In recognizing the potential threat posed to the state by private entrepreneurs, the Chinese Communist Party (CCP) has developed a two-pronged strategy to confront the economic and social changes underway in China. First, a variety of recently created business associations-most have party or state officials as leaders- provide an institutional link between private entrepreneurs and the party/state. Second, a growing number of private entrepreneurs are becoming party members; these Dickson labels as "red capitalists." Co-opting of private entrepreneurs into the CCP had been occurring on a fairly large scale even before the ban on capitalists was lifted in November 2002.

According to Dickson, "red capitalists" symbolize the competing and seemingly contradictory nature of contemporary China. A dynamic, if not very well regulated, market economy exists alongside Leninist political institutions. Yet relations between private entrepreneurs and the state are more co-operative than antagonistic. As the primary beneficiaries of economic reform within China, private entrepreneurs have little reason to challenge the state or make new demands on the policy agenda.

Business Associations

When China abandoned its Maoist policies in favor of economic modernization, numerous civic organizations were formed to fill the vacuum left by the retreating state. Dickson described this strategy as implicitly corporatist in nature; social organizations channel viewpoints between members and the party/state rather than serve as autonomous interest groups. This contrasts markedly with conventional expectations of civil society. Observers of China's social organizations should be careful to distinguish between organizations designed for political purposes, and those designed for economic pursuits consistent with the regime's own goals.

China's business associations fall into the latter category. Throughout the reform era, several catch-all business associations have been active. In order to assess the effectiveness of the roles played by these associations, Dickson conducted a survey project of large scale enterprises (each had sales revenue of over 1 million renminbi) from eight counties in four different provinces. To provide a contrast, four of the counties surveyed were relatively developed and privatized while the other four were relatively backward. Interviews with local government officials and private entrepreneurs were conducted in each county. Taken together, the survey drew on interviews with approximately 600 private entrepreneurs and 200 local officials.

Business associations must first represent the interests of its members. Dickson's survey found that the majority of members believe that their business associations do share their personal views, and that business associations have been helpful in solving their economic problems, i.e. issues of marketing and supply. If these findings accurately reflect the effectiveness of associations in this role, the associations' ability to deliver the goods should enhance the identification of members with their associations.

Business associations also represent the views of the government, thereby providing a means for the state to control entrepreneurs. Dickson's survey found that a slight majority of private entrepreneurs believe that associations do represent the views of the government. Dickson noted that the level of development is a significant factor in determining the views of private entrepreneurs towards the government, but in a surprising way. Over 70 percent of those in the wealthier and more developed counties believed that associations represented the government as opposed to only 40 percent of their counterparts in less developed counties. With respect to officials, the level of development is not a significant factor as roughly 60 percent of officials on all counties agreed that associations represented the views of the government.

Even more important, Dickson's survey measured whether capitalists believe business associations can influence policy making, or at least, the implementation of policy at the local level. On this crucial issue, business persons and officials held diametrically opposed viewpoints. Over two-thirds of private entrepreneurs believed that they could influence policy, while three-fourths of officials believe that private entrepreneurs cannot. This disparity suggests a potential area of future conflict.

The difference played by the level of development in the perceptions of private entrepreneurs helps to explain the lack of conflict between business associations and government. Dickson's survey found that the convergence of views between private entrepreneurs and government officials is more pronounced in areas of high economic development. Thus, where development is lower, private entrepreneurs are more optimistic in their ability to influence policymaking than in higher developed areas. Clearly this study challenges the expectation that growing economic development and privatization lead to a wider gap between private entrepreneurs and the state.

Dickson's data demonstrates that businessmen view their associations as effective in representing views, solving problems and even influencing the implementation of policy. If these associations come to serve the interests of the members as much as or more than the state, they could in the future provide the foundation for a civil society. However, Dickson pointed out a more cautionary note as analysis reveals that high levels of development have so far led to a convergence of views between entrepreneurs and the government. This suggests that entrepreneurs would be less likely to challenge the state and promote political change than people are often willing to believe.

Red Capitalists

In addition to the link between capitalists and the state vis-à-vis business associations, entrepreneurs also become active in politics as individual actors. Joining the CCP is the simplest way of doing this. Dickson noted that estimates generally hold that 20-30 percent of entrepreneurs are party members. According to his study, the vast majority (two-thirds) of red capitalists were party members before going into business, while only one-third had been co-opted as a consequence of doing business. Because Dickson's survey focused on wealthy, large-scale enterprises, the number of red capitalists-40 percent-was even higher than general estimates. Dickson pointed out the clear relationship that exists between sales volume, number of workers and the likelihood of party membership. In addition to the 40 percent of red capitalists, Dickson's survey also revealed that another 25 percent of capitalists want to join the Party. Considering that only 5 percent of the general population belong to the CCP, that two-thirds of China's capitalist elite either belong, or want to belong to, the party is astounding. However, Dickson observed that the party sends a mixed message. While the ban on capitalists into the party was lifted, the party is cautious in their welcome. At the last party congress, only one entrepreneur was added to the Central Committee. The entrepreneur was added as an alternate, and was near the bottom of the list in number of votes received by delegates.

Dickson characterized the recruitment of capitalists as top-down. His study found that the party had recruited workers of private enterprises in only one-fourth of the enterprises surveyed. Moreover, a party organization existed within less than 20 percent of the enterprises surveyed. This targeting of members among the managers and owners in a top-down fashion contrasts greatly with the state sector, where the party is ubiquitous.

Entrepreneurs are also taking on political roles in congresses and village elections. Membership in a congress such as the Local People's Congresses (LPC), or the National People's Congress (NPC), is a badge of honor. Even more important are the capitalists running in village elections. Dickson's study found that entrepreneurs had run for either village chief or village council in 20 out of the 25 townships surveyed. The vast majority (over 70 percent) of those who had run for village office were red capitalists. Interestingly, the number of entrepreneurs co-opted into the party far outweighed those running who were party members before going into business. This highlights one of the CCP's key goals of keeping all political participation within the party itself. Dickson further noted that those who are not party members before winning office, often become party members after; to be outside the party denotes less, rather than more, influence.

Conclusion

Dickson concluded his presentation with two observations. First, China's private entrepreneurs and business associations may constitute a nascent civil society, but presently they are playing an unconventional role. Rather than use their power to wield influence over the state, red capitalists seek to become more closely integrated with the system as it already exists. Second, Dickson's study supports the findings of others that entrepreneurs are not very supportive of democratic reform for fear of potential instability. So while China's entrepreneurs may be kingpins in the future-depending on their continued integration into the state or shift to political activism-as of now, they seem more interested in good governance than democracy.

Comments by Minxin Pei

In follow-up remarks to Dickson's presentation, Pei emphasized the significance of Dickson's contribution to the study of democracy. Most scholars believe that the process through which economic development and political opening connect is the emergence of independent centers of power. However, Pei noted that Dickson's work demonstrates that rapid economic growth and the emergence of the private business and organizations do not necessarily lead to the creation of independent centers of power.

Pei offered an explanation for Dickson's findings. First, the CCP's creativity and tenacity in adapting to China's fast changing environment is often underestimated. While many predicted the collapse of the CCP after 1989, the party has instead utilized a variety of methods-infiltration, co-optation, coercion, and adaptation-to maintain its hold on power. The high percentage of red capitalists reveals the real process currently underway in China: the transformation of the CCP from a mass based party to an elite based party. Second, the peculiar nature of China's political economy allows the CCP to adapt in ways that frustrate Western observers. China has a quintessentially mixed economy. Because the state dominates the allocation of scarce resources, particularly financial, it has enormous resources available with which to buy off opposition and to co-opt potential allies. As long as state assets can be distributed, or redistributed, among elites, these social groups will remain satisfied. Still, while their contribution to the democratization of China seems unlikely at present, Pei cautioned against writing economic elites off permanently. Political allegiances are always contingent and when the redistribution process dries up, business interests may collide with the CCP with greater frequency and intensity.

Question and Answer

One participant asked for an estimate of the absolute numbers of private entrepreneurs in China. Dickson estimated that China has 2.5 million private entrepreneurs, although any such estimates are only rough given China's specialized and unclear distinctions between private entrepreneurs and non-state enterprises.

Another participant asked for a prediction as to when, and over what issues, the interests of the private sector and the public sector might diverge. Pei speculated that confrontation will arise not between the two sectors per se, but rather between competing alliances comprised of both party officials and private sector members. Many patronage machines now intersect the private and public sectors, and internal fights over many small issues are likely to loosen up these alliances from within. Dickson pointed to disagreement over the management of rising instability as a potential area for conflict. Historically, the CCP has greatly debated whether to accommodate or crack down on protests and turmoil. Given the difference his study uncovered as to the views of officials and private entrepreneurs-officials favor growth at the expense of instability while entrepreneurs favor the reverse-the insertion of entrepreneurs into this internal Party debate could be a point of great contention.

Dickson was asked whether the incorporation of red capitalists into the CCP will lead to more corruption and in turn, accelerate the problem of internal control. Dickson acknowledged that the issue of corruption is not included in his book. However, he did note that while some entrepreneurs have turned away from the party because of corruption, other private entrepreneurs are clearly involved in the corruption, as the large part of corruption comes from wealth generated in the private sector. Because of the sensitivity of the subject, Dickson did not include questions of corruption in his study and cannot determine whether closer integration is simply symptomatic of the relationship, or whether it is causing greater amounts of corruption.

In the last question, Dickson was asked to comment on the motivation of the CCP to welcome capitalists into the party. The audience member noted that economic development provides one answer, but wondered whether the CCP may also intend to use the legitimization of business as an exist strategy for senior party members. Dickson responded that the notion of red capitalists was likely an unanticipated and gradual consequence of a CCP commitment to economic modernization. With so much of the growth being created outside the state sector in the early 1990s, it became inevitable that local officials would develop better links with the private entrepreneurs within their communities.

Local officials have a vested interest in promoting the interests of red capitalists as their careers are linked to economic growth. Dickson agreed with the participant that the CCP might possibly have been motivated by a need for an exit strategy for senior party members. The Guomindang used a similar strategy in Taiwan. However, Dickson noted that it is unclear whether this is in fact being pursued in China. Presently, small one-office types of operations that would benefit from such a strategy are not resulting from privatization. Instead, SOEs are privatizing at a fraction of their value, to the great benefit of existing managers. Privatization of this type does not appear to be bringing new people into jobs that buy off the compliance of senior party members.