State Capacity Theory in China
Source
- Book: Whither China? Intellectual Politics in Contemporary China. By Xudong Zhang (Editor). Duke University Press, 2001
* Article / Book Chapter: The Making of the Post-Tiananmen Intellectual Field: A Critical Overview. Xudong Zhang.
Text
Excerpted from Xudong Zhang:
"Since the late 1980s, as the pressure to decentralize, marketize, and privatize increases, neoliberal economics have gained influence in policymaking communities and among independent-minded economists. After 1992, the neoliberal approach became the prevailing mode in economic thinking and virtually the official economics of a socialist state. A critical and constructive discourse then emerged in the early 1990s. The “state capacity” theory, formulated by Wang Shaoguang, then a political scientist at Yale University, and his collaborator, Hu Angang, argued for the imperative of a strong central government to regulate the market and curb its tendency toward regional protectionism and fragmentation and toward monopoly and unequal competition. More importantly, Wang and Hu’s argument maintained, a capable state should maintain a credible national defense, a socially just distribution of wealth, and the nation’s moral and political unity. The central argument of the “state capacity” thesis is deceptively technical; it hinges on the state’s need to retain a “powerful capacity in extracting tax” in order to fulfill its vital and indispensable role in fostering a meaningful, creative national life.
Wang and Hu’s argument can be regarded as one of the first systematic considerations of the state-market interrelationship in the Chinese context and one of the early responses to the economic collapse, political failure, and social tragedy of those transitional societies in Eastern Europe, especially the former Soviet Union and former Yugoslavia. The imperative of taxation in this thesis was made in response to the ruinous consequences of neoliberal orthodoxy in places like Russia and with reference to the relatively primitive mechanisms of the Chinese socialist state to secure tax revenues in an emergent market environment. Their argument is not against the market. Rather, the “state capacity” theory they propose consistently stresses the imperative to explore the means to an economically successful, socially just, and politically stable transition into the “socialist market economy.” Wang and Hu hold that the market economy which China strives to build must be based on a modern institution of enterprise, finance, and taxation, not on petty agrarian production; that the Chinese market must be a unified domestic market free of local and regional division and protectionism; that this market must operate on the principle of equal competition guaranteed by tax policies and government services; and that such a modern, equal, and unified market must be regulated and protected by a legal structure based on social contract. Wang and Hu further argue that this unified domestic market must be open to the outside world and that it should allow the free flow of commodities, capital, technology, information, and personnel.
The socioeconomic and political framework proposed by this “state capacity” thesis left room for various kinds of social and intellectual currents that surged into prominence in the late 1990s. Endorsing market reform and advocating the eventual compatibility of Chinese domestic and global markets, the “state capacity” thesis endorsed the main thrust of the Reform but with an emphasis on state capacity to maintain a unified domestic market and to mediate between the domestic and international markets. Its difference from the economic nationalist view, which surfaced during the debate over the WTO, can be found in its political commitment to building a socialist welfare state and a “socialist market economy” at the same time that it seeks to lead a socialist government in national economic and political life. Its comparative frame of reference—namely, the radical privatization and disappearance of central authority from socioeconomic life in Russia—determines its position against the neoliberal doctrine, while most Chinese intellectuals were ready to embrace the Chinese market revolution in 1992 as a sign of Deng Xiaoping’s commitment to continued Reform.
Despite its policy-oriented approach, the “state capacity” theory is one of the first attempts to voice an intellectual concern with the political reforms of the Chinese state.
Based on its empirical judgment that the Chinese transition into a market economy “will have to be under the direction of the central government,” the Wang-Hu theory lays out the necessary conditions for the success of such a transition:
(1) the function of central power must be transformed and reconfigured to give rise to a new, efficient macro-administrative framework;
(2) the government must eradicate systematic corruption, which inevitably leads to massive social instability and places a socially just economic reform out of the question; and
(3) the government must allow free debate between different opinions and make the policy-making processes more democratic.
The “state capacity” theory stands against developmentalist ideology by stressing the social-political imperative as well as the economic rationality for a socially just distribution of wealth—wealth guaranteed by a strong but democratically operated state. This is the core content of a “politico-economy of unequal development” that addresses the inevitable income disparity and regional unevenness of market reform. Wang Shaoguang is also among the first to call for the construction of a comprehensive social security system as the Chinese economy increasingly becomes market-driven.
Today the Chinese intellectual-ideological battle line still centers on these issues, and the theoretical requirements laid out by these authors are far from being met by Chinese economic and political reality. In the face of the intensified neoliberal assault on the legitimacy of the welfare state, Wang Shaoguang responded with a review article on Stephen Holmes and Cass Sunstein’s The Cost of Rights. In the book, the authors argue—and Wang fully agrees—that all rights, including “negative rights,” depend on the state and its taxation; that all rights are public goods whose protection requires the government to make socially responsible and morally satisfying choices; and that, in view of the sorry reality in “free” Russia, “statelessness spells rightlessness.” Wang points out that Chinese “liberals” would be considered right-wingers and libertarians in the Western social-political spectrum; and liberal economists like Holmes and Sunstein would be “sharing the same trench with the Chinese ‘New Left.’”