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Q&A; -- KELLEE S. TSAI

The Baltimore Sun

According to conventional wisdom, China is marching down a road that will eventually lead to democracy. The first steps are the economic ones that China is taking, opening up a centralized economy to market forces, letting free enterprise reign. Economic growth is expected to lead to popular pressure to change a totalitarian regime into a democratic one, complete with respect for human rights.

"The idea is that as per capita GDP increases, that will basically bring about all types of structural changes - increasing education, urbanization, industrialization - which will create structural conditions more favorable to a transition to democracy," she says.

The problem, Tsai says, is that this theory came out of the experience of only two countries - the United States and Britain - and has not really played out in many other places.

"But it remains very entrenched in official discourse," she says. "Within the Capital Beltway, it is very alive and well."

Tsai decided to take a closer look at what was going on in China's burgeoning entrepreneurial class, to see if the country was following the path laid out by the modernization theory. The result is her new book, Capitalism without Democracy: The Private Sector in Contemporary China, published by Cornell University Press.

The basis of her research was an extensive survey of those driving China's move to private enterprise, looking for signs of a concurrent move toward democracy including political activity and grievances against the current communist regime.

"I supplemented that with field work in 10 Chinese provinces, interviewing over 300 entrepreneurs, from peddlers on the streets to CEOs who are on the Forbes list of the wealthiest in the world," Tsai said. "I also interviewed a lot of government officials and bureaucrats." What did your research show about whether China is traveling this road to democracy?

In the logic of the modernization theory, the first step is the formation of a capitalist class. But in order to have class formation, you need people who identify with a certain class, like the working class in Britain or the middle class in America.

That is completely absent in China. There has been private sector development since the late '70s, but the people who would constitute what looks like a capitalist class actually have very little in common with each other.

Though they all seem to be engaging in similar types of economic activities, they get there in different ways, whether it is former farmers turned peddlers or moonlighting teachers finding other work, or high-ranking party members running factories or intellectuals engaged in entrepreneurship, you have very diverse backgrounds in China's private sector. Most do not even identify themselves as capitalists.

When they encounter problems running their businesses, they draw on very different social networks and resources to resolve them. Their coping strategies have varying levels of effectiveness.

This lack of cohesion impedes the formation of a capitalist class that could push for political reform. Wouldn't the fact that China was once supposedly a classless society mean there is a certain cohesion to its population, even as free enterprise takes hold?

People have a tendency to assume a homogeneity in China since it seems to be so highly centralized. We have a tendency to anthropomorphize China, to say that China wants this or China believes that. But what Beijing says is China is not necessarily the case on the ground.

China is a huge country with significant local variations. There is no single model of China's political economy. Indeed, there have been many divergent trajectories in China as it has developed its private sector.

In some cases, local authorities looked the other way as farmers dismantled their communal farms. These new private businesses were left on their own, financed by informal means, which was the subject of my first book, Back-Alley Banking: Private Entrepreneurs in China, published in 2002.

Then there are localities that during the Mao era got the preponderance of state capital investments. Now they are cursed in the reform era, sort of a Rust Belt phenomenon. They are burdened with tens of thousands of employees, many reaching retirement age, many already retired and on pension. The local government in those sectors would very much like to promote the private sector and attract foreign investment, but its hands are strapped because of the many people who depended on the old government structures. It has to keep them off the streets.

Then there are the special economic zones that attracted foreign investment early on. One might think that they are doing really well because there is, say, a large Nike factory there. But it is actually the foreign investors who are doing well, not the domestic indigenous private sector. What you find there are local private entities falsely registering as foreign investors to get the same economic benefits, tax breaks and loans and such.

Then there is the huge number of people - from 100 [million] to 300 million - who are still very much impoverished. They are in areas that did not receive significant capital investment in the Mao era and do not have enough arable land for self-sufficiency. Such localities are too remote and lack infrastructure to attract foreign investment to take advantage of their huge pool of cheap labor. These areas just don't have much of an economy at all.

The point is that there are multiple worlds in the Chinese economy. And that is why it is wrong to look at the aggregate statistics, like a rising GDP, and say that means the country is ready for democracy. Has China made any moves down the road to democracy?

Certainly significant institutional changes have occurred in the last 25 years, reforms such as making private enterprise legal. That was a dramatic 180-degree turn. In 2001, capitalists were welcomed into the Communist Party, a dramatic change in the most important political institution in China. And now, the state constitution protects private property rights, again a dramatic change.

That raises the question this book explores: How in the world could there been such dramatic developments in the absence of regime breakdown or foreign intervention? The answer is that these changes have been going on all along at the local level, where government officials and private enterprise collaborated in coming up with very creative ways to get around restrictions that allowed the private sector to flourish. Some of these adaptive informal practices were then selectively incorporated by the national party leadership, helping to secure its hold on power.

It is conceivable that these developments could lead to a more liberal political environment, but that is very unlikely, first, because the largest capitalist needs are being met under the current structure, and, second, because if there were to be pressure for political liberalization, it would come from the segment of China's private sector that used to be state-owned enterprises. And these are the very people who have the greatest sense of entitlement that depends on the state providing such things as health care and social security. They have great expectations of the party state. And other capitalists have found ways to get around restrictions so they are not motivated to put pressure on the state.

I am not saying that China will never become a liberal democracy, or that there are no people in China who want that, but that it will be very difficult because the Chinese Communist Party continues to monopolize politics. And right now the party is saying that China will never imitate a Western-style liberal democracy, that it will develop a "socialist democracy with Chinese characteristics," just as it says China has "market socialism with Chinese characteristics." What should the United States do, if anything, to prod China toward becoming a democracy?

Not by tying trade to human rights. I don't think we will ever do that again. It has not proven to be effective. The most powerful way that the U.S. can encourage any authoritarian regime to aspire for democracy is to serve as a positive role model in both its domestic and foreign policies.

michael.hill@baltsun.com

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