Reviews two books on economic reform in China. \u27Rural China Takes Off: Institutional Foundations of Economic Reform,\u27 by Jean C. Oi; \u27China\u27s Industrial Technology: Market Reform and Organizational Change,\u27 by Shulin Gu

Prime, Penelope B.

English

ScholarWorks @ Georgia State University

Georgia State UniversityScholarWorks @ Georgia State UniversityInternational Business Faculty Publications Institute of International Business2002Rural China Takes Off: Institutional Foundationsof Economic Reform, by Jean C. Oi, and China’sIndustrial Technology: Market Reform andOrganizational Change, by Shulin Gu,Penelope B. PrimeGeorgia State University, pprime@gsu.eduFollow this and additional works at: http://scholarworks.gsu.edu/intlbus_facpubPart of the International Business CommonsThis Review is brought to you for free and open access by the Institute of International Business at ScholarWorks @ Georgia State University. It hasbeen accepted for inclusion in International Business Faculty Publications by an authorized administrator of ScholarWorks @ Georgia State University.For more information, please contact scholarworks@gsu.edu.Recommended CitationPenelope B. Prime , "Jean C. Oi, Rural China Takes Off: Institutional Foundations of Economic Reform; and Shulin Gu. China'sIndustrial Technology: Market Reform and Organizational Change," Economic Development and Cultural Change 50, no. 4 ( July2002): 1039-1040. DOI: 10.1086/342514.Reviews 1039Jean C. Oi. Rural China Takes Off: Institutional Foundations of EconomicReform. Berkeley, Calif.: University of California Press, 1999. Pp. xv253.$45.00 (cloth).Shulin Gu. China’s Industrial Technology: Market Reform andOrganizational Change. London: Routledge in association with the UnitedNations University Press, 1999. Pp. xxx410. $110.00 (cloth).Penelope B. PrimeKennesaw State UniversityLooking at two very different aspects of economic reform in China, theseauthors nonetheless develop a similar theme—that government has played anactive, positive role in China’s economic transition from a planned to a market-oriented system. Oi focuses on the role of local government in developingrural industry, while Gu analyzes the central government’s success in trans-forming research institutes to promote technological change. Both studies arewell organized, clearly written, and based on extensive interviews in China.The Oi study analyzes in detail the changing incentives and constraints,combined with available resources, that shaped the actions of local governmentofficials at county, township, and village levels. One result was the growthof rural industry, which, in the author’s view, has been the pillar of China’sdevelopment success since reforms began in the late 1970s. Oi readily admitsthat there was no single pattern of policy implementation for all local areasand the responses were different at the various administrative levels. However,she argues that there were major institutional changes that stimulated localofficials to focus on developing the economies within their jurisdictions.The process can be summarized—and greatly simplified—in the follow-ing way. Decollectivization of agriculture in the early 1980s revealed sub-stantial surplus labor, thereby creating a need for many more jobs in ruralareas. It was the responsibility of local government officials to solve theemployment problem. In addition, throughout the 1980s and 1990s, changesin the public finance system allowed local governments to keep more revenue,rather than hand it over to the central government, if their locality couldincrease the tax revenues generated from legitimate enterprises. These changescreated both incentives and resources to establish and promote enterprises innonagricultural production.Because of political taboos and savings constraints, private enterprise didnot play a major role in local development in the early years of reform. Inthe 1990s, however, localities began to support the private sector in wayssimilar to the collective sector in the 1980s. Oi suggests that this was motivatedby a need to increase the industrial base of local economies, implying thatcollective enterprises faced constraints on growth and profitability that largeprivate firms could perhaps overcome. Nonetheless, Oi argues that there con-1040 Economic Development and Cultural Changetinues to be a close relationship between government and private firms so thatprivate entrepreneurs have not become an independent economic class. Oifurther suggests that this means that the Chinese economy is not evolvinginto a free market system but, rather, “local state corporatism.”While Oi focuses on local processes, Gu sees central government policiesas critical in the transformation of ineffectual research and development (R& D) institutions that existed under planning into new and reformed insti-tutions that became increasingly dynamic. Gu explicitly argues that reinventingindustrial technology R & D institutions is essential to market reforms inChina and that it could not be done without the government. She also describesa process whereby government officials have been able to learn and adapt asconditions changed and, thus, continually improve policy. The Torch program,for example, encouraged institutions to create new enterprises to commer-cialize technology. Gu argues that the program was created in response to thespontaneous development of spin-offs that were developing already to sanctionthis process and give it direction.Combining document research, statistical summaries, and numerous casestudies, Gu does an excellent job of building her thesis. Her book has threeparts. Part 1 explains the reform process of China’s science and technologysystem over the past 20 years. Part 2 analyzes the development of technologyenterprises, which are totally new, nonstate institutions within China. Part 3analyzes how the old, state-run institutions have been reformed, noting boththe successes and continued problem areas. In all three aspects, China’s gov-ernment played a pivotal role in shaping, pushing, and altering policies toimprove the usefulness and adaptation of innovations created within researchinstitutions.Both of these studies are extremely rich in detail, which allows ampleexplanation of the complex processes they are trying to uncover. Despite thissuccess, it is still perplexing how government interference in markets so oftenleads to inefficiency and mistakes, but apparently China’s case is different.Under what circumstances can public firms play the same role as private firms,as Oi claims (p. 10), or can government lower the costs and risks of transition,as Gu claims (p. 124)? Or, do we have an argument here for a governmentrole in transition, only to exit once the transition is complete? If so, what willcause the government to exit? And if the government continues to influencethe economy to the degrees described in these two studies, would we thenexpect failure for all the normal reasons? Both of these authors probablywould say that China has had a unique experience to date, which helps explainChina’s relative success in comparison with the former Soviet Union andothers, but that the final outcome is still far from certain.Copyright of Economic Development & Cultural Change is the property of University of Chicago Press and itscontent may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder'sexpress written permission. However, users may print, download, or email articles for individual use.

Rural China Takes Off: Institutional Foundations of Economic Reform, by Jean C. Oi, and China’s Industrial Technology: Market Reform and Organizational Change, by Shulin Gu,

Georgia State University

Georgia State University
ScholarWorks @ Georgia State University
International Business Faculty Publications Institute of International Business
2002
Rural China Takes Off: Institutional Foundations
of Economic Reform, by Jean C. Oi, and China’s
Industrial Technology: Market Reform and
Organizational Change, by Shulin Gu,
Penelope B. Prime
Georgia State University, pprime@gsu.edu
Follow this and additional works at: http://scholarworks.gsu.edu/intlbus_facpub
Part of the International Business Commons
This Review is brought to you for free and open access by the Institute of International Business at ScholarWorks @ Georgia State University. It has
been accepted for inclusion in International Business Faculty Publications by an authorized administrator of ScholarWorks @ Georgia State University.
For more information, please contact scholarworks@gsu.edu.
Recommended Citation
Penelope B. Prime , "Jean C. Oi, Rural China Takes Off: Institutional Foundations of Economic Reform; and Shulin Gu. China's
Industrial Technology: Market Reform and Organizational Change," Economic Development and Cultural Change 50, no. 4 ( July
2002): 1039-1040. DOI: 10.1086/342514.
Reviews 1039
Jean C. Oi. Rural China Takes Off: Institutional Foundations of Economic
Reform. Berkeley, Calif.: University of California Press, 1999. Pp. xv253.
$45.00 (cloth).
Shulin Gu. China’s Industrial Technology: Market Reform and
Organizational Change. London: Routledge in association with the United
Nations University Press, 1999. Pp. xxx410. $110.00 (cloth).
Penelope B. Prime
Kennesaw State University
Looking at two very different aspects of economic reform in China, these
authors nonetheless develop a similar theme—that government has played an
active, positive role in China’s economic transition from a planned to a market-
oriented system. Oi focuses on the role of local government in developing
rural industry, while Gu analyzes the central government’s success in trans-
forming research institutes to promote technological change. Both studies are
well organized, clearly written, and based on extensive interviews in China.
The Oi study analyzes in detail the changing incentives and constraints,
combined with available resources, that shaped the actions of local government
officials at county, township, and village levels. One result was the growth
of rural industry, which, in the author’s view, has been the pillar of China’s
development success since reforms began in the late 1970s. Oi readily admits
that there was no single pattern of policy implementation for all local areas
and the responses were different at the various administrative levels. However,
she argues that there were major institutional changes that stimulated local
officials to focus on developing the economies within their jurisdictions.
The process can be summarized—and greatly simplified—in the follow-
ing way. Decollectivization of agriculture in the early 1980s revealed sub-
stantial surplus labor, thereby creating a need for many more jobs in rural
areas. It was the responsibility of local government officials to solve the
employment problem. In addition, throughout the 1980s and 1990s, changes
in the public finance system allowed local governments to keep more revenue,
rather than hand it over to the central government, if their locality could
increase the tax revenues generated from legitimate enterprises. These changes
created both incentives and resources to establish and promote enterprises in
nonagricultural production.
Because of political taboos and savings constraints, private enterprise did
not play a major role in local development in the early years of reform. In
the 1990s, however, localities began to support the private sector in ways
similar to the collective sector in the 1980s. Oi suggests that this was motivated
by a need to increase the industrial base of local economies, implying that
collective enterprises faced constraints on growth and profitability that large
private firms could perhaps overcome. Nonetheless, Oi argues that there con-
1040 Economic Development and Cultural Change
tinues to be a close relationship between government and private firms so that
private entrepreneurs have not become an independent economic class. Oi
further suggests that this means that the Chinese economy is not evolving
into a free market system but, rather, “local state corporatism.”
While Oi focuses on local processes, Gu sees central government policies
as critical in the transformation of ineffectual research and development (R
& D) institutions that existed under planning into new and reformed insti-
tutions that became increasingly dynamic. Gu explicitly argues that reinventing
industrial technology R & D institutions is essential to market reforms in
China and that it could not be done without the government. She also describes
a process whereby government officials have been able to learn and adapt as
conditions changed and, thus, continually improve policy. The Torch program,
for example, encouraged institutions to create new enterprises to commer-
cialize technology. Gu argues that the program was created in response to the
spontaneous development of spin-offs that were developing already to sanction
this process and give it direction.
Combining document research, statistical summaries, and numerous case
studies, Gu does an excellent job of building her thesis. Her book has three
parts. Part 1 explains the reform process of China’s science and technology
system over the past 20 years. Part 2 analyzes the development of technology
enterprises, which are totally new, nonstate institutions within China. Part 3
analyzes how the old, state-run institutions have been reformed, noting both
the successes and continued problem areas. In all three aspects, China’s gov-
ernment played a pivotal role in shaping, pushing, and altering policies to
improve the usefulness and adaptation of innovations created within research
institutions.
Both of these studies are extremely rich in detail, which allows ample
explanation of the complex processes they are trying to uncover. Despite this
success, it is still perplexing how government interference in markets so often
leads to inefficiency and mistakes, but apparently China’s case is different.
Under what circumstances can public firms play the same role as private firms,
as Oi claims (p. 10), or can government lower the costs and risks of transition,
as Gu claims (p. 124)? Or, do we have an argument here for a government
role in transition, only to exit once the transition is complete? If so, what will
cause the government to exit? And if the government continues to influence
the economy to the degrees described in these two studies, would we then
expect failure for all the normal reasons? Both of these authors probably
would say that China has had a unique experience to date, which helps explain
China’s relative success in comparison with the former Soviet Union and
others, but that the final outcome is still far from certain.

Copyright of Economic Development & Cultural Change is the property of University of Chicago Press and its
content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's
express written permission. However, users may print, download, or email articles for individual use.


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Rural China Takes Off: Institutional Foundations of Economic Reform, by Jean C. Oi, and China’s Industrial Technology: Market Reform and Organizational Change, by Shulin Gu,

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