Humanidad

Understanding Economic Development in Modern China: The Interplay among the State, the Market, and the Social Sector
C. H. Tzeng
I explore the interplay of the state, the market, and the social sector in the growth of indigenous firms in the economic development process. From the 1960s to the early 1990s, scholars debated the roles of the state and the market in economic development. By thelate 1990s, the social sector entered the debate more seriously. However, a tendency remains to argue that either the state, or the market, or the social sector is the key to economic development, rather than all three working in concert. Furthermore, scholars tend to focus on the macroeconomic output (for example, the Gross National Product) rather than on the microeconomic level (such as the growthof indigenous firms). I focus on the level of analysis of the firm and ask three research questions: what is the interplay of the three sectors in economic development? Under what conditions do the three sectors work together to grow firms? What is the division of labor among the three sectors?

The Beginning of Economic Development Economic development is a young research area. In 1981, AlbertHirschman said it was “born about a generation ago.”1 Heinz Arndt dated the discipline of economic development back only to the end of World War II. The term “economic development” to refer to a process that societies undergo was hardly used before World War II.2 After World War II, the number of newly independent countries multiplied. As historian Eric Hobsbawm recorded, “the number ofinternationally recognized independent states in Asia quintupled”; in Africa,

1 Albert O. Hirschman, Essays in Trespassing: Economics to Politics and Beyond (New York, 1981), 372. 2 Heinz W. Arndt, Economic Development: The History of an Idea (Chicago, 1987), 1.

C. H. Tzeng is in the Faculty of Management at McGill University; email: chenghua.tzeng@mail.mcgill.ca.
© Business History Conference,2006. All rights reserved. URL: http://www.thebhc.org/publications/BEHonline/2005/tzeng.pdf.

C. H. Tzeng // Understanding Economic Development in Modern China

2

“where there had been one in 1939, there were now about fifty”; and in Latin America “another dozen” new countries suddenly appeared.3 Although they came from different historical, cultural, and political traditions, newly foundedcountries in Asia, Africa, and Latin America had one common economic feature: poverty. Worse, the gap in per capita GNP between them and the developed countries was widening. In 1970, the developed countries averaged 14.5 times the Gross National Product (GNP) of the Third World. In 1990, the factor rose to 24. Those newly founded poor countries were “grouped . . . as the Third World” in order tocontrast with the First World.4 Alleviating the poverty in the Third World was the goal of economic development theory. As Hirschman stated, “Development economics started out as the spearhead of an effort that was to bring all-round emancipation from backwardness.”5 Taking Shape After World War II, economic development theory took shape in the crossfire between the Left and the Right. The Marxistsand Smithians formerly had academic battles over the First World, and now they found new arenas in the Third World. Though there is an old saying that all roads lead to Rome, scholars of economic development did not agree that all roads lead to wealth. Some insisted on the road on the right, others, the road on the left. As usual, the Right emphasized the magic of the market, whereas the Leftemphasized the importance of the state. Over the past decades, sometimes the Right won the argument; at other times, it was the Left. The dominant theories of economic development from the 1960s to the early 1990s are listed in Table 1. 1 Dominant Theories of Economic Development, 1960s–1990s
TABLE

Years 1960s 1970s 1980s Early 1990s

The Left Dependency theory Developmental state

The Right...