B. Dickson, Is market economy bringing democracy to China?

The Chinese Communist Party has defied predictions of its imminent demise. From the start of the reform era, observers have anticipated the collapse of communism in China as a result of growing economic prosperity and the inherent contradictions between a market economy and a Leninist political system…

The emergence of private entrepreneurs in China represents a glaring anomaly in China’s still nominally communist political system, which was initially created to eliminate capitalism but now embraces it. Rather than being threatened by the reemergence of capitalists in China, the CCP has been able to adapt its Leninist institutions enough to accommodate them. It has given ever-greater rhetorical and political support to the private sector, repeatedly revising the party constitution to reflect its evolving practices. This is not an arms-length relationship: the party has integrated itself into the private sector with party branches and officially sponsored business associations, encouraged its members, including party and government officials, to “plunge into the sea” of the private sector, and recruited growing numbers of successful entrepreneurs into the party. These red capitalists represent the integration of wealth and power that is at the heart of crony communism in China. This integration is also a key element of the so-called “Beijing consensus”: the ability to achieve economic growth without accompanying political reform. Red capitalists own the largest firms and are more likely to participate in China’s formal political institutions. As such, they are more inclined to support the status quo in which they have prospered than seek fundamental political reform. Indeed, red capitalists are part of the status quo, not challengers on the outside looking in. Most red capitalists were already in the CCP before joining the private sector, giving them an even stronger stake in the current political system…

Given that the political support of capitalists is contingent on their degree of state dependence and fears that mobilizing workers and farmers into the political system would harm their material interests, several scenarios could lead China’s capitalists to support democratization. The most obvious is a sudden decline in the pro-business policies of the party. If the party reduced the level of protection from foreign competition, enforced safety and environmental regulations that are already on the books, or adopted less repressive labor policies that resulted in increased wages, capitalists’ support for the regime would likely decline… Similarly, capitalists’ support for the CCP would also decline if the pro-growth policies of the reform era were curtailed in favor of more populist policies that address the social welfare needs of the vast majority of the population, who have not prospered as much as economic elites.

If new sources of investment became available that were not controlled by the state, this would also make the private sector less dependent on the state. For instance, the CCP requires public and private firms to obtain permission to list their shares on domestic and foreign stock exchanges, and some of the requirements for listing, such as the amount of fixed assets, clearly favor the largest firms, which are also the most politically connected and often still in the public sector. If private firms could become listed without requiring official permission or if bank loans were given on the basis of credit-worthiness instead of political calculations, dependence on the state would also decline.

The opportunity to be competitive and profitable without political protection would also reduce the tolerance for the endemic corruption that has characterized the reform era. Although many local governments actively support developmental policies, many others are more predatory in nature. If predatory demands were to outweigh the commitment to economic development and the accumulation of private wealth, China’s capitalists might seek alternatives for investing both their political support and their economic capital. In other countries, dissatisfaction with corruption has contributed to a shift in capitalists’ political loyalties away from the incumbent regime in favor of democracy…

Capitalists’ support for democracy might also increase if they were less worried that participation by a broader range of social groups in a democratic polity would harm their material interests. If poverty was significantly alleviated and the growing income gap narrowed, democratization might not introduce new commitments to social welfare spending that would reduce economic growth. However, because the overall level of development in China remains relatively low and the causes of poverty and inequality are as much structural as political, the fears that democratization would entail the mobilization of China’s have-nots against the interests of China’s capitalists are not likely to diminish anytime soon. As China’s middle class expands, it is likely to seek greater protection of its property rights and predictability in governance, which would make it a natural ally of China’s capitalists. As capitalists realize that their material needs do not require them to seek political favors from communist officials, they may come to favor the greater transparency and accountability that democratization entails.

The subgroup of capitalists who are not in the CCP and do not want to be, may be a potential threat to the CCP in this regard. These capitalists are less satisfied with the extent of local political reforms and are more pessimistic about the business environment they face than are red capitalists. Most of this subgroup are apolitical and prefer to limit their activities to the economic sphere. However, a portion of them are alienated from the CCP, seeing it as a corrupt and repressive party. They are least likely to have party organizations in their firms and least willing to have party members among their workforce.

Because they have not been co-opted into the crony communist system, they may become a source of political pressure outside the party. But although they have the motive to press for change, they have limited opportunities to do so: their numbers are small, they are less likely to be members of business associations (including self-organized associations), and have lower perceived economic and social status. As a result, they face more severe collective-action problems. Nevertheless, the CCP will need to monitor this group if its strategy of embracing the private sector is to succeed.

In the short run, and for the foreseeable future, crony communism in China seems more likely to lead to a perpetuation of authoritarian rule, growing inequality, and the further integration of wealth and power…

Resentment against official corruption exacerbated by the cozy relations between the state and business, environmental degradation caused by rapid and unregulated growth, and rising economic, social, and political inequality have triggered protests throughout China, and as these problems fester and grow, they are likely to lead to even more protests in the future…

The CCP’s record of sustained growth may also present a challenge of a different kind in the long run. As Bruce Gilley has pointed out, rapid growth can itself de-legitimate an authoritarian regime as citizens come to expect more from their government than material benefits.

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