Why Chinas Economic Reforms Differ: The M-Form Hierarchy and Entry/Expansion of the Non-State Sector

China's thirteen years of reforms (1979-1991) have achieved an average GNP annual growth rate of 8.6%. What makes China's reforms from those of Eastern Europe and the Soviet Union is the sustained entry and expansion of the non-state sector. We argue that the organization structure of the economy matters. Unlike their unitary hierarchical structure based on the functional or specialization principles (the U-form), China's hierarchical economy has been the multi-layer-multi-regional one mainly based on territorial principle (the deep M-form, or briefly, the M-form). Reforms have further decentralized the M-form economy along regional lines, which provided flexibility and opportunities for carrying out regional experiments, for the rise of non-state enterprises, and for the emergence of markets. This is why China's non-state sector share of industrial output increased from 22% in 1978 to 47% in 1991 and its private sector's share from zero to about 10%, both being achieved without mass privatization and changes in the political system.

Limiting Government Predation through Anonymous Banking: A Theory and Evidence from China

No abstract.

Coordinating Changes in M-form and U-form Organizations

We introduce a method of modelling coordination inside an organization as a process of "attribute matching." Using this method, we compare organizational forms (U-form and M-form) in coordinating changes. In our model, organizational forms affect the information structure of an organization and thus the way to coordinate changes. Compared to the U-form, the M-form organization achieves better coordination but suffers from higher costs due to a lack of scale economies or a lack of what we call "attribute compatibility." The M-form has a distinctive advantage in carrying out experimentation which gives the organization more flexibility leading to more innovation and reform. We apply our theory to business firms, transition economies, and the organization of government (especially federalism). In the case of transition economies, our theory relates the initial conditions of organizational differences with reform strategies, especially the "big-bang" approach in Eastern Europe and the "experimental" approach in China.http://deepblue.lib.umich.edu/bitstream/2027.42/39668/3/wp284.pd

Incentives

We model organization as the command-and-communication network of managers erected on top of technology (which is modeled as a collection of plants). In our framework, the role of a manager is to deal with shocks that affect the plants that he oversees directly or indirectly. Organizational form is then an instrument for (a) economizing on managerial costs, and (b) providing managerial incentives. We show that two particular organizational forms, the M-form (multi-divisional form) and the U-form (unitary form), are the optimal structures when shocks are sufficiently "big". We argue however that, under certain empirical assumptions, the M-form is likely to be strictly preferable once incentives are taken into account. We conclude by showing that the empirical hypotheses on which this comparison rests are satisfied for Chinese data.

How Reform Worked in China

China's reform worked and produced one of the most impressive growth in the largest developing and transition economy in the world in the past twenty-two years. That China has managed to grow so rapidly despite the absence of many conventional institutions such as rule of law and secure private property rights is puzzling. To understand how reform works in a developing and transition economy that has great growth potential, it is not enough to study the conventional "best-practice institutions" as a desirable goal. One should also study how feasible, imperfect institutions have evolved to complement the initial conditions and to function as stepping stones in the transition toward the goal. Underlying China's reform is a serial of institutional changes concerning the market, firms, and the government in the novel form of "transitional institutions." These institutions succeed when they achieve two objectives at the same time: to improve economic efficiency by unleashing the standard forces of incentives and competition on the one hand, and to make the reform a win-win game and thus interest compatible for those in power on the other.China, institution, reform, transition

Coordinating tasks in M-form and U-form organisations

We model the coordination of specialised tasks inside an organisation as "attribute matching". Using this method, we compare the performance of organisational forms (M-form and U-form) in implementing changes such as innovation and reform. In our framework, organisational forms affect the information structure of an organisation and thus the way to coordinate changes. Compared to the U-form, the M-form organisation achieves better coordination but suffers from fewer economies of scale. The distinctive advantage of the M-form is flexibility of experimentation, which allows the organisation to introduce more innovation and reform. The theory is illustrated by the organisational differences between China and the former Soviet Union and sheds light on their different reform strategies, particularly with regard to the prevalence of the experimental approach in China

Coordinating Changes in M-form and U-form Organizations

We introduce a method of modelling coordination inside an organization as a process of "attribute matching." Using this method, we compare organizational forms (U-form and M-form) in coordinating changes. In our model, organizational forms affect the information structure of an organization and thus the way to coordinate changes. Compared to the U-form, the M-form organization achieves better coordination but suffers from higher costs due to a lack of scale economies or a lack of what we call "attribute compatibility." The M-form has a distinctive advantage in carrying out experimentation which gives the organization more flexibility leading to more innovation and reform. We apply our theory to business firms, transition economies, and the organization of government (especially federalism). In the case of transition economies, our theory relates the initial conditions of organizational differences with reform strategies, especially the "big-bang" approach in Eastern Europe and the "experimental" approach in China.organization, M-form, U-form, innovation, transition, organization of government, experimentation

Coordinating Tasks in M-Form and U-Form Organisations

We model the coordination of specialised tasks inside an organisation as "attribute matching". Using this method, we compare the performance of organisational forms (M-form and U-form) in implementing changes such as innovation and reform. In our framework, organisational forms affect the information structure of an organisation and thus the way to coordinate changes. Compared to the U-form, the M-form organisation achieves better coordination but suffers from fewer economies of scale. The distinctive advantage of the M-form is flexibility of experimentation, which allows the organisation to introduce more innovation and reform. The theory is illustrated by the organisational differences between China and the former Soviet Union and sheds light on their different reform strategies, particularly with regard to the prevalence of the experimental approach in China.Coordination, task, organisation, reform, innovation, China, Russia.

Entrepreneurship in China and Russia Compared

We compare results from a pilot study on entrepreneurship in China and Russia. Compared to non-entrepreneurs, Russian and Chinese entrepreneurs have more entrepreneurs in their family and among childhood friends, value work more relative to leisure and have higher wealth ambitions. Russian entrepreneurs have a better educational background and their parents were more likely to have been members of the communist party but Chinese entrepreneurs are more risk-taking and greedy and have more entrepreneurs among their childhood friends.

What Makes a Successful Entrepreneur? Evidence from Brazil

We report the results of a new survey on entrepreneurship in Brazil. In September 2006, we interviewed 400 entrepreneurs and 550 non-entrepreneurs of the same age, gender, education and location in 7 Brazilian cities. The data are used to test three competing hypotheses on entrepreneurship: the role of economic and legal institutions (security of property rights; access to credit); the role of sociological characteristics (family background, social networks); and the role of individual features (attitude towards risk, I.Q., self-confidence) in becoming an entrepreneur. In line with our previous research in China and Russia, we find that sociological characteristics have the strongest influence on becoming an entrepreneur. In contrast, success as an entrepreneur is primarily determined by the individual’s smartness and higher education in the family. Entrepreneurs are not more self-confident than non-entrepreneurs; and overconfidence is bad for business success.