Introduction

The role that big businesses perform in the national economy has triggered numerous theoretical interests, which can be broadly categorised into two schools. The mainstream school prefers small and medium-sized enterprises (SMEs) to big businesses because the former in a perfect competition is believed to bring about allocative efficiency, whereas the latter is believed to be more often than not associated with monopoly or oligopoly, and to deviate from allocative efficiency. Big businesses in the form of monopolistic and oligopolistic firms are believed to hinder free competition. According to Marshallians, big businesses will lose their dominant positions in the long run (Marshall, 1920: 315-6).

In contrast, the non-mainstream approach argues that big businesses (often monopoly or oligopoly) could benefit the economy in the long run. The Schumpeterian theorem demonstrates through a process of creative destruction, monopolies or oligopolies are more conducive to growth than perfect competition (Schumpeter, 1976). Scherer (1996) points out that monopolistic or oligopolistic competition exists in a wide array of industries in the United States. Whether or not oligopolies and monopolies cause lower welfare depends on individual industries. Nolan et al. (2002) demonstrate that in the era of the global big business revolution, the number of players in industry after industry has fallen dramatically and global competition among oligopolistic firms has been vastly intensifying. In terms of a giant firm's limit, Edith Penrose (1995) suggests that a firm's size has no theoretical limits because a firm can always expand with the aid of managerial resources and research capabilities.

The articles in this book were written over a period of more than a decade and a half. They cover a variety of topics relating to China's deepening integration with the global system of political economy. None of the articles has been altered in the light of subsequent events.

Chapter 1 was written in the months immediately following the June 4th events. It was presented at seminars and lectures in numerous locations. Extracts from it were published in various places. The response to the ideas expressed in the article was almost uniformly hostile. Most people in the West believed then that the Chinese Communist Party could not last long, perhaps only a few months. Nor did they believe that it deserved to last long or that it could preside over a successful market economy. They considered that the Soviet Union's path of comprehensive political transformation and high-speed economic liberalisation was the correct path of system reform in communist countries. In fact, the Chinese Communist Party has survived and prospered. The collapse of the Soviet political and economic system destroyed the credibility of large-scale high-speed political and economic reform in China. It paved the way for cautious, experimental economic reform within the framework of stable communist party rule. The most dynamic part of the global market economy is now presided over by the 60 million members of the Chinese Communist Party.

Introduction

Between them, China and the Muslim world contain over 2.5 billion people, over two-fifths of the world's population. China's population is around 1.3 billion. They mostly live in a single country. China's rise is a central fact of political economy in the twenty-first century. At the start of the twenty-first century there were 1.3 billion Muslims in the world, roughly the same number as Chinese people. Unlike the Chinese, the Muslims are spread much more evenly across the world's territory. There are around 900 million in fifty-seven independent Muslim states and 400 million in over 100 communities in the rest of the world (Ahmad, 2003: 190).

Although they are dispersed across many countries, they have common beliefs that give them a united voice on some key issues.

Contrasting Views on Globalisation and Industrial Structure

The nature and determinants of industrial structure are among the most important issues in economics. In the history of economics, there have been radically contrasting views on the basic determinants of industrial structure. For most of the twentieth century, industrial structure was heavily influenced by state industrial policy. Since the 1980s, the end of communist central planning and of inward-looking development strategies in poor countries, together with widespread privatisation and liberalisation, ushered in the epoch of ‘globalisation’. This provides an opportunity to test the validity of the competing views of the determinants of industrial structure under free market conditions.

There is a substantial empirical literature analysing the nature and determinants of industrial structure prior to the epoch of modern ‘globalisation’. However, there is still a dearth of empirical analysis of the nature and causes of the trends in industrial structure in the epoch of globalisation, and of the implications of these trends for both theory and policy. The assembly and interpretation of evidence on this issue is critical for understanding the current epoch.

Mainstream View

Introduction

The killing of hundreds, perhaps even thousands, of civilians by armed forces in Peking on June 4th 1989 is to be deeply deplored. Such violence is a sign of political failure. However, after the initial emotional shock, one has to attempt to analyse the event coolly to understand why it happened, to consider its significance and anticipate its impact on the future course of China's political economy. The broad thesis of this chapter is that, awful as this event was, it should not have surprised anyone familiar with the political economy of developing countries, especially those observers with more than a superficial knowledge of China. The recent history of virtually all developing countries contains examples of violence by the state against its own citizens. Not even the advanced capitalist countries have been immune in recent times from such actions, albeit on a smaller scale than in China (Kent State and ‘Bloody Sunday’ spring readily to mind). Not only do China's leaders have to deal with the conflicts characteristic of developing countries in general, but also they are presiding over the turbulent process of de-Stalinisation of their entire system of political economy. Such a process is difficult enough in the relatively advanced, urbanised societies of Eastern Europe. In a backward, hugely populous country with vast regional differences, such as China, the process is incomparably more difficult. The realities of China before June 4th were far removed from the fantasy image created by the Western media and observed through the darkest of glasses by Western tourists insulated in almost every way from the true condition of the Chinese people.

Introduction

In December 1997, shortly after the onset of the Asian Financial Crisis (AFC), the Chinese Central government sent Wang Qishan, then president of the China Construction Bank, to become a member of the Guangdong provincial party committee. One month later, he was appointed executive vice-governor of the province. The Guangdong provincial party committee subsequently set up the ‘Five-member team to deal with financial crisis’. Its main task was to deal with the intensifying payment crisis in Guangdong. Two of the flagship companies of Guangdong, Guangdong International Trust and Investment Corporation (GITIC) and Guangdong Enterprises (GDE), were insolvent and unable to survive. After intense debate, the Guangdong government decided to bankrupt GITIC and restructure GDE. These events caused an outcry in the international press. International creditors had wished to believe that regardless of the fate of the enterprises, the Chinese government would pay in full the international debts as it had normally done in the past.

In October 2000, after intense debate and tough negotiation, GITIC repaid US$ 85 million at the third creditors' meeting. In December 2001, the International Financial Review awarded GDE the title of ‘Asia's best debt restructuring project’. Subsequently, a much less-publicised event was the fact that by borrowing RMB 45 billion from the central government, the Guangdong provincial government had been able to restructure and close more than 800 local small and medium non-bank financial institutions.

Introduction

Since ancient times, the pursuit of profit by capitalists has stimulated human creativity in ways that have produced immense benefits. As capitalism has broadened its scope in the epoch of globalisation, these benefits have increased enormously. Human beings have been liberated to a far greater degree than hitherto from the tyranny of nature, from control by others over their lives, from poverty, and from war.

However, capitalist freedom is a two-edged sword. In the epoch of globalisation, its contradictions have intensified. Inequality has increased in both rich and poor countries. The threat to the natural environment has deepened. Capitalist globalisation has produced a high degree of instability in global finance. Its surging contradictions may even result in the obliteration of the human species through nuclear war. Capitalist globalisation has created uniquely intense threats to the very existence of the human species at the same time that it has liberated humanity more than ever before from fundamental constraints.

Since the late 1970s, under the leadership of the Chinese Communist Party, China's policy of reform and opening up has led to it becoming ever more deeply integrated with the capitalist global economy. This has enabled it to benefit from the ‘advantages of the latecomer’ and to the release of its latent productive forces based on a long history of capitalist development (Xu Dixin and Wu Chengming, 2000). It has produced remarkable economic growth and transformation of Chinese people's standard of living.

Introduction: Humanity at the Crossroads

Since ancient times the exercise of individual freedoms has been inseparable from the expansion of the market, driven by the search for profit. This force, namely capitalism, has stimulated human creativity and aggression in ways that have produced immense benefits. As capitalism has broadened its scope in the epoch of globalisation, so these benefits have become even greater. Human beings have been liberated to an even greater degree than hitherto from the tyranny of nature, from control by others over their lives, from poverty, and from war. The advances achieved by the globalisation of capitalism have appeared all the more striking, when set against the failure of non-capitalist systems of economic organisation.

However, capitalist freedom is a two-edged sword. In an epoch of capitalist globalisation, its contradictions have intensified. They comprehensively threaten the natural environment. They have intensified global inequality within both rich and poor countries, and between the internationalised global power elite and the mass of citizens rooted within their respective nations.

What is ‘Globalisation’?

The recent explosive changes in the world business system constitute a surge forward of capitalism to a global scale. However, despite the dramatic advance of capitalism, it constitutes only the most recent stage in an evolving process that has been under way since human beings' early history. For several thousand years, human history has been organised to an ever-increasing extent around the division of labour, the extension of the scope of the market, and the pursuit of profit. This force has been the central factor in technical progress. Until the early modern period, the main consequence of technical progress was to enable population growth and output more or less to keep pace with each other, advancing together in a complex symbiotic relationship. However, around 200 years ago, a new relationship between population and per capita output emerged. Population growth and per capita output and income began an unprecedented, simultaneous acceleration.

Pre-Modern Capitalism

Capitalism, in the sense of production for profit for the market, is an ancient phenomenon.