Capitalism -- driven by small businesses that overcame heavy government control of the economy -- has emerged as the fastest growing sector of China's manufacturing economy. Victor Nee, the Frank and Rosa Rhodes Professor and director of the Center for the Study of Economy and Society, tells how entrepreneurs in industrial clusters "decoupled" from the restrictions of the state economy to build the private enterprise economy in his book, "Capitalism From Below: Markets and Institutional Change in China" (Harvard University Press).
Nee and co-author Sonja Opper of Sweden's Lund University clarify how manufacturers succeeded by working in entrepreneurial networks and by building good reputations and following ethical business practices. Based on a random sample of 700 manufacturing firms, they detail the bottom-up evolution of economic institutions enabling competition and cooperation. They show how in close-knit networks private-sector industrialists rely on norms to guide business conduct and enforce trust.
When the government took notice of entrepreneurial successes, it "began to put in place the legal and regulatory structures to legitimize private enterprise as an organizational form and model of economic development," but took 20 years enact laws to aid and protect private businesses that account for 70 percent of gross domestic product in the world's second largest economy.
The 436-page book starts with discussions on the origins of economic institutions, institutional change and bottom-up capitalism, then goes on to focus on entrepreneurs and institutional innovation, organizational change, industrial clusters, labor markets, innovation and the political economy of capitalism.