understanding china's transition to capitalism: the contributions of victor nee and andrew...

Sociological Forum, Vol. 15, No. 4, 2000

Understanding China’s Transition to Capitalism:The Contributions of Victor Nee andAndrew Walder

Doug Guthrie1

INTRODUCTION

Over the last 2 decades, the field of sociological research on the trans-formation of Chinese society has changed dramatically. Where past scholar-ship in the sociology of China was epitomized by the China-watcher areaspecialist, the field today is more disciplinarily bounded and less tied toarea studies, more theoretical and less concerned with the microlevel detailsand thick description of life in China.2 These changes have had positiveconsequences for scholarship on Chinese society, and in this review essayI consider the work of two scholars who have played central roles in thistransformation. Victor Nee and Andrew Walder have cast long shadowsover the field of the sociology of China.3 They have, for better or for worse,shaped the field in the image of their own ideas. I choose to focus this

1Department of Sociology, New York University, 269 Mercer St., 4th Floor, New York, NewYork 10003; e-mail: [email protected].

2Research on China was by necessity less systematic and more impressionistic, in part becauseof access: before the economic reforms and the normalization of U.S.–China relations, bothof which came about in 1979, scholars of China simply could not get access to or clearancefor systematic research in China.

3That I choose in this review to reflect on the influence of these two scholars is not to discountthe outstanding and pathbreaking work of scholars who came before them—scholars likeWilliam Parish and Martin Whyte (Whyte and Parish 1984), whose books on urban and rurallife in contemporary China brought a new kind of rigor to the study of Chinese society, orEzra Vogel (1989), whose books have consistently been ahead of their time in exploringslices of Asian society and life, or Nan Lin (Lin and Xie, 1988) who organized the firstsystematic survey research in China.

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review on the work of Nee and Walder for a few reasons. First and foremost,there is the issue of sheer impact: Nee and Walder’s citation counts in thesocial sciences are significantly larger than all other sociologists of China,and they are several orders of magnitude larger than most.4 Through theirwork, these two scholars have set the main agendas for the discussions thatoccur among sociologists in the field of research on China, and accordingly,they are cited far more than anyone else in this field of research. Second,inasmuch as survey research (and more generally systematic research) isfundamental to sociology, both of these scholars were among the firstto conduct systematic survey research on important aspects of Chinesesociety—Nee in 1985 in rural Fujian Province and Walder in 1986 in thecity of Tianjin. Both of these surveys helped to show that large samplesystematic survey research could indeed be done in China, an important stepforward. Third, both of these scholars have taken on a more disciplinary—asopposed to area studies—focus than their predecessors in the sociology ofChina. From Walder’s book and his research on the institutions that definedChina’s planned economy to Nee’s now famous (and widely tested) MarketTransition Theory, these two scholars have consistently asked big theoreti-cal questions with ties to the central theories of the discipline. They havepublished their research primarily in the mainstream journals of the field,and have thus become central players not only in the sociology of Chinabut also in sociology as a whole. Whereas area studies in the past occupieda marginal position in American sociology, Victor Nee and Andrew Walderhave played central roles in bringing the sociology of China into the main-stream.

CHINA’S TRANSITION FROM PLAN TO MARKET

In China, the transition from plan to market has been gradual, though,over time, no less dramatic than the events in Eastern Europe and theformer Soviet Union. Having embarked on the transition from socialismto capitalism in 1979, the Chinese government spent a decade slowly whit-tling away the institutions that defined the planned economy. The process

4According to the Institute for Scientific Information’s citation databases, the following groupcomprises the top five most-cited sociologists of China (in descending order): Andrew Walder,Victor Nee, Martin Whyte, Thomas Gold, William Parish. To delimit the category of ‘‘sociolo-gist of China,’’ I defined this group such that a scholar had to have published multiple articleson China, with at least one appearing in one of the following journals: American SociologicalReview, American Journal of Sociology, China Quarterly. Defining the group this way, asopposed to, say, by whether an individual had written a book on China, eliminates scholarssuch as Craig Calhoun, who is more widely cited than all on this list, but primarily for hiswork outside of China. Citation counts are based on averages over the last 3 years.

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began with a gradual introduction of economic autonomy to enterprisemanagers and local officials in industrial areas and decollectivization in thecountryside. As of the early 1980’s, individuals increasingly had the freedomto pursue their fortunes in the newly emerging markets of the Chineseeconomy, and many individuals chose to do so. Enterprise autonomy formanagers and officials meant that the Party and industrial bureaus wereno longer standing over the shoulders of economic actors in the industrialeconomy. Thus, the gradual reforms hit squarely at the heart of the centralinstitutions around which Communist China was organized.

But vestiges of the old system remained and these legacies wouldpotentially play fundamental roles in shaping the transition from one systemto the other. For example, while organizations were now increasingly freeto operate on their own economically, they were still embedded in thehierarchy of the former command economy, and it would be important toknow whether a factory’s position within this hierarchy would affect itspath through the transition. Similarly, basic institutions, such as the Partyand institutions of education, all of which took on particular forms withparticular consequences in the old system, still remained. It would be criticalto know how individuals connected to these institutions fared in the transi-tion from socialism to capitalism. It is in this context, facing these and manymore unanswered questions, that Victor Nee and Andrew Walder rose toprominence as scholars of China.

STRONG THEORY AND ENGAGING THE BROADER SOCIALSCIENCES: THE WORK OF VICTOR NEE

In 1989, Victor Nee published an article in the American SociologicalReview, which marked the inauguration of Market Transition Theory (here-after MTT) and set in motion a debate that would continue for more thana decade. The timing of this article’s publication was significant for a numberof reasons. First, in the case of China, in 1989 the country had undergonea decade of reform and it was thus a good time to step back and assessthe impact of the economic reforms there. Second, 1989 was the year thatmuch of the world woke up to the changes that were occurring in communistcountries across the globe. Although the events of 1989 eventually turnedsour in China—allowing the world to see very clearly just how far thepolitical reforms in this country had to go—for 6 weeks, the world’s atten-tion was on Beijing, and we watched in anticipation as issues of democracyand the social impact of economic reforms were debated openly there.Third, Nee’s article was one of the first articles examining the economic

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reforms in China to be published in the flagship journal of the discipline.5

Since that date, many articles have been published in the American Socio-logical Review and the American Journal of Sociology on the economicreforms in China engaging—either directly or peripherally—the issues andhypotheses raised by MTT.

Simply put, Nee’s original thesis in MTT was that the shift from planto market changes the stratification order of society, essentially erodingthe relative power of the administrative elite. According to Nee (1989a,p. 663), ‘‘The transition from redistributive to market coordination shiftssources of power and privilege to favor direct producers (i.e., entrepreneurs)relative to redistributors (i.e., cadres).’’ From this general thesis, Nee wenton to identify three processes by which the mechanisms of stratificationmight change with the emergence of markets in transforming socialist econ-omies—the market power thesis, the market incentive thesis, and the mar-ket opportunity thesis—and from these he derived 10 specific testablehypotheses. These hypotheses included predictions about the advantagesof entrepreneurs (‘‘direct producers’’), the disadvantages of cadres (‘‘redis-tributors’’), returns to human capital/education, and returns to social andgeographical location. Essentially, all of these hypotheses began with theview that markets favor human capital (over political capital) and directproduction (over redistribution). And, given that China’s economic reformsinvolve the transition from planned to market economy, we should empiri-cally observe advantages accruing to those predicted to have advantagesin the emerging market economy. Nee then went on to test these hypotheseswith data from a survey project he organized in Fujian Province in 1985.

Market Transition Theory, in its original incarnation, was both boldand elegant. The theory staked a clear and unequivocal position on therole of markets and individual-level incentives (i.e., the pursuit of profits)in societal transformations and, implicitly, on the trajectory of China’seconomic reforms: Markets would ultimately diminish the power of thestate, and individual freedom in market exchange was the key to changein China. His position, as he stated it later, was that ‘‘the pursuit of powerand plenty by economic actors in society’’ (Nee, 1996: 945) is one of themajor forces driving the economic reforms in China forward. Over thecourse of the reforms, Chinese society would converge with other advanced

5Although the American Sociological Review is the official journal of the American SociologicalAssociation, many sociologists also view the American Journal of Sociology with equal prestige(see, e.g., Phelan, 1995; Clemens et al., 1995). In this context, Nee was not the first sociologistto analyze China’s economic reforms in a major sociological journal. That distinction goesto Nan Lin and Wen Xie, who published ‘‘Occupational Prestige in Urban China’’ in theAmerican Journal of Sociology in 1988. Of course there have been other scholars who havewritten on China in the mainstream journals, such as Xiaotong Fei (1946), but I am speakingspecifically here about the era of economic reforms in China, i.e., post 1978.


capitalist nations of the West, where human capital, governmental position,and geography all seemed to work in a straightforward fashion vis-a-vismarkets.6 In addition, there is an implicit view that markets (and thus thedegree of marketization in China) could be measured by individual leveleconomic indicators, such as household income, and returns to education.These positions were, in general, interesting and provocative ones to take,and they distinguished Nee’s MTT as a set of testable hypotheses about howChina’s economic reforms would proceed. However, the clearest prediction,and thus the one that has generated the most debate, is that cadre advan-tages will decline to the extent that markets replace redistributive hierar-chies.

Nee’s thesis would become the most hotly contested theory in the fieldof sociological research on China and on transforming socialist economiesmore generally.7 Perhaps anticipating the swirl of debate over MTT’s origi-nal hypotheses that would emerge in the mid-1990’s, as early as 1991, Neewas already refining some of the issues at stake in MTT. In 1991 Neepublished a second article in the American Sociological Review amendingthe central tenets of the theory; the article marked positive and negativesteps for MTT. On the positive side, this article provided a sophisticatedanalysis of the fates of cadres and entrepreneurs in reform-era China byexpanding the analysis beyond simple indicators, such as household income.Statisticians and stratification theorists have long known that income datatend to cluster in socially and institutionally defined ways, such that issueslike avoiding poverty or being in the top quintile of earners are oftenmuch more revealing than basic income data [also problematic are theassumptions of linearity and normal distribution implicit in the OrdinaryLeast Squares regression analysis of Nee (1989a)]. In his 1991 article, Neecaptured the effects of the refined analysis elegantly and thus tested thelimits of his theory. The analysis showed that, while cadres themselves were

6In response to Parish and Michelson (1996), Nee rejects the notion that MTT is a theorythat implies convergence with advanced capitalist countries in the West (Nee and Cao, 1999).However, Nee’s tendency to talk about markets and market mechanisms in the abstractplaces him much more in the convergence camp than in the path dependence line of argument.The main point here is that identifying institutions and figuring out how specifically theyinfluence the course and trajectory of the reforms is a project that Nee does not pursue inhis work. The idea that ‘‘markets’’ and ‘‘market mechanisms’’ will favor human capital (aresult that has been reproduced in many advanced capitalist countries of the West) and thatChina will predictably move in this direction as well is about a close as you can get to theconvergence thesis without stating it as such.

7In the top disciplinary journals, no less than 14 articles (not including the six responses tothe Market transition debate published in the American Journal of Sociology in 1996) havebeen written in direct dialog with MTT (see Nee, 1991 Peng, 1992; Rona-Tas, 1994; Domanskiand Heyns, 1995; Parish et al., 1995; Bian and Logan, 1996; Nee, 1996; Xie and Hannum,1996; Gerber and Hout, 1998; Brainerd, 1998; Szelenyi, 1998; Nee and Cao, 1999; Zhou, 2000;Gerber, 2000). See Cao and Nee (2000) for a review systematic discussion of these studies.

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not more likely to avoid poverty or find themselves in truly advantagedpositions, entrepreneurs and ‘‘former team cadres’’ were significantly differ-ent from the rest of the population on these outcomes. The latter outcomeis significant for the theory, because it means that former cadres are ableto position themselves to gain advantages in the reform era, a position thatseems to contradict MTT in its original form.

Nee addressed this divergence of the theory and the empirical findingswith the partial reform thesis: ‘‘officials . . . retain their power and privilegeunder partial reform to the extent that markets remain bounded by redis-tributive hierarchies’’ (Nee 1991: 280 n16). In a much later summary article,Cao and Nee (2000) work very hard to ‘‘incorporate’’ many of the findingsof other theories. Of some findings that appear to contradict the theory,they argue that they have been ‘‘incorporated into the market transitionframework’’ (Cao and Nee, 2000: 1179); of others they have conceded theirpossible significance but question their ‘‘overall importance’’ (Cao and Nee,2000: 1180). Other scholars have criticized the partial reform thesis onexactly this point: ‘‘The unfortunate implications of this new position forthe testing of ‘market transition theory’ . . . [are that] the theory now hasno empirical implications until an undefined point in the transition. If theadvantages of cadres or former cadres are declining, this supports thetheory; if they do not, this simply means that ‘redistributive power’ has notyet disappeared’’ (Walder, 1996: 1067; see also Zhou, 2000b). ‘‘Partialreform’’ and lacking in ‘‘overall importance’’ are far too nebulous of con-cepts to suffice as arguments for why former cadres do maintain advantagesin the reform era and why this is not in conflict with the predictions ofMTT. Thus, while the 1991 article marked an important and necessary shiftin reconsidering some of the central predictions of MTT, it was a weakmove for a strong theory. One of the hallmarks of a strong theory has tobe that the predictions are falsifiable, allowing us to distinguish when thetheory is right and when it is wrong, when it applies and when it does not.In this case, findings that do not support the original predictions of MTTare explained away as being a product of partial reform or lacking inoverall importance.

Over the next decade, a number of important articles emerged takingon MTT directly, and they were followed by a number of compellingresponses from Nee.8 In an analysis of the economic reforms in Hungary,Rona-Tas (1994) put forth a theory to counter MTT called the powerconversion thesis, essentially arguing that those with political power inprereform socialist societies, will be in the best position to gain advantagesin periods of economic reform. Following from this theory is a set of

8I do not discuss all of the studies here. For a complete review see Cao and Nee (2000).


hypotheses about cadre advantage that basically oppose the hypothesesemerging from MTT. Rona-Tas found support for his theory in an analysisof Hungarian survey data collected in 1989 and 1991.9 Bian and Logan(1996) offer a very compelling analysis that questions the applicability ofMTT in urban China.10 Several other important studies have tested andrefuted the claims of MTT on various grounds including the way thatinequality is measured and (Xie and Hannum, 1996), the ways that politicalcapital and marketization are defined (Parish and Michelson, 1996), and theextent to which the theory applies to other transforming socialist economies(Gerber and Hout, 1998).

However, while the main debate over MTT has been over the extentto which its predictions are empirically true for transforming socialisteconomies, I think this debate (including Nee’s responses to his critics)has largely missed the main strengths and weaknesses of the originaltheory. First of all, MTT, in its original formulation was a strong theorybecause it took a specific position on the course of transitions fromplanned to market economies; it began with clear statements about thestratification order within these respective systems and made clear,testable (and thus verifiable and refutable) predictions about the transition

9Nee has pointed out that, while Rona-Tas claims to be testing MTT directly, he is actuallyexamining the situation of former cadres not current government officials (Nee 1996: 915,n3). There is some ambiguity about how much Rona-Tas’s and Nee’s studies are in conflict,in part because of the lack of fit between Rona-Tas’s and Nee’s definitions of what constitutesa cadre elite and in part because MTT has provided a bit of a moving target on this issue.In 1989, Nee seemed to be predicting that political capital in general (current and formercadres) would decline relative to the economic capital exercised by the ‘‘direct producers’’(i.e., entrepreneurs): ‘‘I expect that changes in the underlying processes of socioeconomicattainment will reduce the value of political capital in a more generic sense. Not only arethe direct controllers of the redistributive mechanism likely to experience relative loss, butthe value of their political capital accumulated through prior experience as a cadre is likely todiminish as well . . . I can indirectly test this hypothesis by examining the returns on formercadre status’’ (Nee, 1989a: 671, emphasis added). While the effects of current cadre statuswere negative, predictions about former cadre status were not borne out in the statisticalmodels tested in the 1989 article, and by 1991, Nee had fully shifted his position on formercadres, as the analysis presented then showed that former team cadres were more likely tobe in the top quintile of earners and they were also likely to avoid poverty (bottom quintile).

10Three striking findings emerge from Bian and Logan’s study. First, they find that individualsin jobs with ‘‘high redistributive power’’ have significantly higher incomes across the firstdecade of reform (there are no apparent advantages for jobs with ‘‘high market connected-ness’’). Second, they find that jobs in the state sector yield higher salaries in the reform era.Third, communist party members did better than nonparty members in the first decade ofreform. The first two findings are compelling, because they operationalize the arguments ofMTT by examining the effect of markets in a specific institutional context (derived fromWalder—see below). The third finding apparently cuts directly against the predictions ofMTT, though based on Nee’s later distinctions about partial reform (1991) and the viewthat MTT is specifically about the positional power of current government officials (1996),he may play down the extent to which Bian and Logan’s findings disprove the theory.

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between these systems. The current debate misses the strengths of thisoriginal position because we are mired in the details of what wouldconstitute evidence of declining returns to political capital and whatwould constitute evidence of ‘‘partial’’ reform. The theory, at this point,has become so broad that it has lost the specific statements that madeit a bold and elegant theory in the first place. As Zhou (2000b: 1193–94),who has written eloquently on the state of this debate, summarizes theissues: ‘‘When a theoretical debate generates more controversies thanintellectual growth, it often signals that the conceptual issues and theoreti-cal logics are poorly defined and they are not widely shared amongscholars. . . . Large-scale institutional changes involve multiple causalmechanisms, which require close observations and careful detective workto identify, understand, and untangle the actual process of change. . . .The bottom line is that, without careful and systematic examinations ofthese processes, we cannot even begin to describe these phenomena accu-rately, let alone develop sound theoretical explanations about their rolesin institutional changes.’’ Second, and perhaps more importantly, the theoryis extremely vague on what markets and the processes of marketizationare (Walder, 1996). At various times the theory gives agency to ‘‘markets,’’‘‘market mechanisms,’’ and ‘‘market institutions’’ without ever specifyingwhat these abstract concepts are or how we would recognize them. In thissense, I would have liked to see the debate over the transition from planto market move in a direction of more institutional specificity. It couldhave just as well been the case that the MTT would have moved beyondits focus on the returns to political capital to generating an understandingabout the impact of specific institutional reforms or a greater understandingof what markets are and how we should go about measuring them(Walder 1996).11

11One final, though perhaps more mundane, weakness in this debate that is worth mentioning:it is extremely odd in this debate that power and privilege are measured in income whenwe have long known that individuals are often compensated in a variety of ways in socialistand transforming socialist societies, be they nonwage benefits, access to opportunities, power.A striking example (albeit an anecdotal one) of the problems with assessing cadre powerin terms of income in the reform era came very clear to me in the course of my field researchin China in 1995 (see Guthrie, 1999): as I sat with the general manager of a state-ownedfactory in the foods sector, he spoke of his views of equality, bragging about the fact thathe was paid the same wage that a factory floor employee was paid. As the interview ended,the GM asked if I needed a ride back to the city center; apparently he was going that wayin his ‘‘company’’ car, which happened to be a luxury Mercedes. This did not seem to strikehim as ironic, despite the content of our earlier conversation. The point here is that thisindividual, who was a cadre (previously employed at the bureau of ‘‘light’’ industrial products[qing gongye ju]), would have showed up as having no particular returns to political capitalin a typical MTT study, which focused on income. Yet, in a number of ways, this individualwas clearly reaping the rewards of the reform era. No study that I know of in MTT hasattempted to empirically address this issue.


Selling Sociology Outside of the Discipline: Nee Steps Up to the Plate

Overall, MTT has been a very positive debate within the discipline, ifonly because it has placed transition economies, such as China’s, at centerstage; and it is certainly the work for which Nee has gained the mostrecognition. However, it is Nee’s other work on China—work that hasbeen more substantively driven and less locked into the defense of a specifictheoretical position—that I believe has been the most powerful andthe most interesting.12 For example, Nee’s (1992) paper ‘‘OrganizationalDynamics of Market Transition: Hybrid Forms, Property Rights, and MixedEconomy in China,’’ which appeared in the Administrative Science Quar-terly, exhibits a level of institutional specificity that gives it a much morepowerful analytical edge than anything in the MTT debate. In this paper,Nee analyzes the implications of multiple property forms, where propertyrights are often poorly specified; of the advantages of private firms withinthis context; of an emerging market economy in which institutional uncer-tainty is the norm; of the role of transaction costs in this world of murkyinstitutions. In this paper, Nee essentially explicates a path dependenceapproach to the reforms, where the institutional structure of state-economyrelations in China define the country’s path through the economic reformsand the organizational forms that are emerging there. ‘‘Rather than conceiv-ing of market transitions as a linear progression to capitalism, we mayanalyze the departures from state socialism as likely to produce hybridmarket economies that reflect the persistence of the institutional centricityof their parent organizational form. The deep structures of the reformregime are likely to reproduce important features of the state socialistredistributive economy’’ (Nee, 1992: 22). Making very clear that he sees‘‘strong government involvement’’ (p. 25) as a central feature of China’semerging market economy, as well as of its path through the transition,Nee then goes on to analyze the extent to which high transaction costs area central feature of the type of market economy that is emerging in China.Further, new institutional economics (a la Williamson) is not the onlyapproach to specifying institutional mechanisms we see here: discussing theextent to which the private economy has forced the ‘‘mixed economy’’ tocompete in the market [an issue that Naughton (1995) also viewed as avery important feature of China’s reform path], Nee argues that economicpractices diffuse across firms in the marketplace, as collective and mixed

12While this work of Nee’s is less well-known than MTT within sociology, it is indeed well-known outside the field of sociology. It is also interesting to note regarding Nee, that hehas also been successful with a full other line of research that is completely unrelated toeconomic development in China. This is his work with Jimy Sanders on immigrant entrepre-neurship in American cities (e.g., Sanders and Nee, 1987).

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economy firms mimic the practices of private firms in the marketplace (ala DiMaggio and Powell, 1983). Not the types of arguments that sociologistsof China typically associate with Victor Nee and MTT, but we should notehere that Nee was well ahead of the curve in analyzing Chinese societyfrom the theoretical perspectives of the new institutionalism(s).

In another series of papers that appeared in core economics journals,we see a similar agenda—the strong sociological arguments made on theeconomists’ own turf, emphasizing the importance of institutions, norms,networks and the state in the process of economic reform in China. In onepaper (Nee, 1998), which appeared in the American Economic Review,Nee argues that the new institutional economic literature has failed tounderstand the ways that formal (contracts, property rights, laws, etc.) andinformal (norms, networks) constraints combine to shape the performanceof organizations and economies more generally. This paper [the ideas ofwhich are examined at greater length in Nee and Ingram (1998)] is asuccinct, powerful analysis of the intersection of organizations and theformal rules that define them with social networks and the norms that guidethem. And, here again, we find references not only to the new institutionaleconomics but also to sociology’s version of the new institutionalism:‘‘When the formal rules are at variance with the preferences and interestsof subgroups in an organization, a decoupling of the informal norms andpractical activities, on the one hand, and the formal rules, on the otherhand, will occur. As John Meyer and Brian Rowan (1977) observe, decou-pling ‘enables organizations to maintain standardized, legitimating, formalstructures, while their activities vary in response to practical considerations.’. . . Independent of this ceremonial formal structure, informal norms ariseto guide the day-to-day business of the organization’’ (Nee, 1998a: 88).Again, not the type of argument typically associated with Nee and MTT,but there it is, and he is making the economists listen to these argumentsin their own forum. In another article, which appeared recently in theJournal of Institutional and Theoretical Economics, ‘‘The Role of the Statein Making a Market Economy,’’ Nee (2000) instructs economists about therole of the state, making arguments that fit well with recent theoreticaltreatises in Economic Sociology, such as Neil Fligstein’s (1996) ‘‘Marketsas Politics’’ model. It is more than interesting that the scholar who sitsopposite the ‘‘state-centered’’ theorists in sociological debates is the sameperson forcing the field of economics to acknowledge the importance ofthe state in the construction of markets and the role of networks andinformal norms in the organization of economies.13

13Nee has taken this line in a number of other papers, which are much closer to institutionalismand the core of economic sociology. I have chosen here to focus on those which are publishedin economics journals, however, there are many more. See, for example, Nee and Su (1990,1996, 1998) and Nee (1989b).


A final body of Nee’s work on the new institutionalism can be foundin The New Institutionalism in Sociology, which he coedited with MaryBrinton. Bringing together an impressive set of scholars from the fields ofsociology and economics, including such scholars as Douglass North andRobert Frank, this volume actually accomplishes what many in economicsociology often hope for but fail to achieve: it is truly an interdisciplinaryconversation between sociologists and economists on the organization ofeconomies and societies. This volume is, to my mind, simply the best editedvolume on the social and economic study of institutions, with the possibleexception of Powell and DiMaggio’s (1991) edited volume on The NewInstitutionalism in Organizational Sociology.14 For readers who grow queasyat rational choice assumptions (and I am one of them), Nee makes acompelling case for an alliance between economics and sociology, in effectexhorting sociology to step up to the plate and participate in this debaterather than hiding behind the walls of our own discipline. As Nee (1998b:2) puts it, ‘‘Far from being threatened by the paradigm shift taking placein economics, sociology has much to gain from the new interest in producinga theory of institutions and institutional change. Sociology also has muchto lose by not participating in this cross-disciplinary paradigm.’’ And lestwe see Nee as operating from the one-dimensional perspective of rationalchoice assumptions, for which his critics have criticized him, we need onlyto look to what he says to the economists about institutions: ‘‘Institutionaldesign requires a combination of poetry and science. The cold rationalistview based on the extension of standard economic theory to analyze theworking of institutions is effective so far as the formal organizational rulesare concerned. However, in the domain of informal norms and networksof ongoing social relationships, a poet’s insight into the human conditionmay prove to be as useful in institutional design as science’’ (Nee, 1998b:88). This volume, and Nee’s work in this area more generally, may play acentral role in the interdisciplinary conversation that is so needed.

BALANCING SUBSTANCE AND THEORY: THEINSTITUTIONAL ANALYSIS OF ANDREW WALDER

If Nee’s influence on the study of China is eclectic, Walder’s influencemight be described as more focused. Throughout his career, Walder hasbeen exceptional at identifying institutions that shape Chinese society infundamental ways and revealing how these institutions are linked to social

14This is not to set up a comparison between these two volumes—each has strengths in differentareas. Rather, it is to say that the quality of the Brinton and Nee volume is, in my view,equal to that of the Powell and DiMaggio, which has, in effect, become canon in economicand organizational sociology.

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processes and social change. His work has also always extended beyondthese institutions to develop larger theoretical arguments that extend toanalyses of socialist and transforming socialist societies. To begin a discus-sion of Walder’s work, we must go back to his original work on the plannedeconomy, which became widely known through his book Communist Neo-Traditionalism: Work and Authority in Chinese Industry (1986). This bookis remarkable in its analytical marksmanship for understanding the funda-mental institutions around which communist societies were organized, andin many ways it still stands as perhaps the most important book writtenon the institutional structure of prereform Communist China. This workbegins with an analysis of the work unit, the basic system that organizedChinese society (especially urban industrial China) for 30 years of Commu-nist Party rule before the economic reforms began. When the Communistscame to power, one of first things they did was eliminate private ownershipof economic organizations and establish the work unit system, the socialsecurity (and monitoring) system through which Chinese society was orga-nized. This system stood at the center of Walder’s analysis.

Two obvious aspects of the work unit system were the establishmentof a social security system and the establishment of a system of directmonitoring of individuals in urban industrial China. However, a much moresubtle aspect of the work unit system was the institutionalization of patron-client relations between managers and workers and the extent to whichthis pattern of authority became the primary way that state power andpersonal power were exercised in Communist China. In short, this studywas fundamentally about the structure of power in China’s planned econ-omy, and it explicated the basic institution through which power was orga-nized. In a shortage economy, incentives work much differently than theydo in an open market, as income is essentially set in what Walder callsa ‘‘frozen wage structure.’’ Managers and workers engage in a complexbargaining dance, which pits the incentives available in a planned econ-omy—nonwage benefits, political favoritism, political and social capital—doled out by managers and team leaders against the cooperation of workerswithin the established economic system. This ‘‘organized dependence’’ andthe ‘‘clientilistic’’ relations this system bore were fundamental to the organi-zation of power relations in the planned economy and understanding theseaspects of workplace authority was fundamental to understanding exactlywhat the work unit was in Communist China. In a sense, Walder embarkedon a study of one of the most important institutions in Chinese society andchartered an analytical course that was completely original.

While his analysis of workplace authority in Communist China wasfundamentally about China’s prereform era, Walder (1994a, 1995c) laterextended this institutional argument to a brilliant analysis of the breakdown


of authority relations in transforming socialist societies. In many ways,academics along with the rest of the world were caught off guard by thedramatic events of 1989. In the late 1980’s and early 1990’s, a debateemerged among China scholars over whether a nascent civil society wasemerging in China (see, e.g., Strand, 1990; Rowe, 1993; Madsen 1993; Saich1994; White et al., 1996). Proponents of the civil society view essentiallyargued that, indeed, a civil society was percolating beneath the surface inChina’s gradually transforming economy and society. In a post hoc way,the events of 1989 were then taken as evidence that civil society was aliveand thriving in China. Recognizing the analytical weakness of this debate,Walder shed much light on the transformation of Chinese society—andthereby helped explain the factors that led to the eruption of 1989—withan analysis focused not on whether civil society existed in China in the mid1980’s but on the causal processes that had allowed this transformation totake place. As Walder (1994: 298, emphasis in original) put it, ‘‘[A] theoryof political order is a necessary starting point for any theory of change.There must have been institutional mechanisms that served to maintainorder in the old regime in spite of longstanding and obvious economicproblems and political liabilities; and these institutions must have beeneroded in ways we do no yet understand. The current emphasis upon thetriumph of ‘society’ over ‘the state’ tends to obscure the logically priorquestion of how such a triumph, if it is that, could occur . . . [W]hat changedin these regimes in the last decade was not their economic difficulties,widespread cynicism, or corruption, but that the institutional mechanismsthat served to promote order in the past—despite these longstanding prob-lems—lost their capacity to do so.’’

The analysis goes on to specify the mechanisms that were crucial formaintaining order in communist societies as (1) hierarchically organizedand grassroots mobility of the Communist Party and (2) the organizeddependence of individuals within social institutions, particularly work-places. With the beginning of the economic reforms in China, both of theseinstitutional bases of power began to erode. Walder has aptly termed theseeroding mechanisms ‘‘the quiet revolution from within’’ (Walder, 1995c).Thus, through this line of research, Walder presented an institutional pictureof the forces shaping power relations in Chinese society in the prereform andpostreform eras, contributing in fundamental ways to our understanding ofsocial structure and social change in China and other transforming social-ist societies.

A second line of institutional analysis conducted by Walder examinesthe structure of the former command economy and its impact on organiza-tional budgetary processes in the prereform industrial economy (Walder,1992). As revolutionary as was Walder’s earlier work on the institutional

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pattern of authority relations in the Chinese economy, this second line ofresearch was, in my view, equally if not more important. Through earlierwork [carried out by Walder (1986), Whyte and Parish (1984), Szelenyi(1978, 1983), and others], it was well-understood that, despite a rhetoricof equality under state socialism, various political and social advantagesplayed into the distribution of resources under this system. Among thoseinterested in the uneven distribution of resources in these societies, virtuallyeveryone conceived of this resource distribution at the individual level,arguing that Cadres (‘‘redistributors’’ in the language of Market TransitionTheory) took advantage of their positions to reward themselves with theperquisites of the command economy. Until Walder wrote about the issuein 1992, no one had even considered the fundamental role that work organi-zations and the administrative hierarchies in which they are embeddedplayed in the distribution of resources. In other words, Walder took aprocess that was fundamentally viewed as an individual-level process andconducted an organizational and institutional analysis on the issue. Thiswas a brilliant step forward because it linked the distribution of re-sources—at both individual and organizational levels—to the budgetaryprocesses of the planned economy in state socialism.

The basic argument of Walder’s analysis is the following: Workplaceorganizations in planned economies are stratified according to their accessto state resources. Those closer to the central government are, for a varietyof reasons, better able to extract resources from the state. Thus, variationin organizational resources is a reflection of variation in organizationalabilities to extract resources from the state, and, by extension, variation inthe extent to which organizations can secure resources for their employees.As Walder (1992: 528–29) explained it, ‘‘China’s national budget is a nestedhierarchy of independent budgets—each government unit exercises prop-erty rights over firms under their financial jurisdiction . . . This bureaucraticeconomy, far from being a monolith, is composed of thousands of govern-ment jurisdictions of varying sizes, each of which seeks to expand its reve-nues by capturing investment, subsidies, and grants . . . The ability oforganizations to win privileged treatment in these budgetary and fiscalprocesses has direct consequences for its employees.’’ This argument wasdemonstrated empirically in an extremely innovative fashion: based on anindividual-level survey, Walder weighted the cases such that the workplacedata gathered from individual respondents were analogous to a representa-tive sample of organizations.15 He then operationalized a variable to approx-

15For methodological discussions of this approach to organizational analysis, see Marsden(1994) and Kalleberg et al. (1996).


imate the effect of this ‘‘nested hierarchy.’’ As it turns out, controlling forseveral other factors, this variable had the strongest independent effect onthe organizational decision to offer a variety of nonwage benefits to itsemployees. As his empirical results show that organizations closer to thecentral government were, in fact, more likely to offer extensive nonwagebenefit packages to their employees, Walder concluded that these organiza-tions had greater access to excess resources (and are therefore more fa-vored) in the planned economy. Thus, Walder’s analysis of the distributionof resources under state socialism told us something fundamental aboutthe institutional structure of China’s planned economy, a feat that no oneconducting research on stratification under state socialism had accom-plished.

Four innovative steps taken by Walder in this analysis reorientedthinking on the study of China’s planned economy (and its transition tocapitalism). First, understanding the importance of hidden budgetary pro-cesses in command economies was a necessary step forward specificallyin research on stratification but more generally for our understanding ofcommand economy (and its transformation in the era of economic reform),yet no one, with the exception of Christine Wong (1986) and David Granick(1990), was analyzing the fundamental institutions of this system in China.Second, adopting a strategy for how to analyze organizational position inthe command economy was also a fundamental step forward. Identifyinginstitutions is often the easy part; operationalizing variables and showingempirical effects that reflect the theoretical (or stated) workings of theseinstitutions is a much more difficult task. Walder’s study not only presentedan empirical way of operationalizing the institutional structure of China’scommand economy, but it yielded strong empirical results in support ofthis analytical approach. Further, the operationalization of this variablewould prove decisive when Walder extended analysis to the reform era.Third, in this analysis, Walder stepped beyond a narrow focus on economicindicators focusing instead on the distribution of resources in terms ofnonwage benefits. We have long known that nonwage benefits were animportant part of remuneration in socialist societies, but strangely fewhave incorporated these important perquisites into research as dependentvariables. Finally, implicitly in this work (and this point becomes moreexplicit in the continuation of this line of inquiry as it applies to the reformera) Walder has given us an empirically grounded conception of a multiorga-nizational state. The notion that there is some basic structure that is ‘‘thestate’’ becomes so one-dimensional analytically that it is impossible to seethe forces at work here in any detail. In other words, to talk simply of thestate as if it were one coherent political entity is to ignore the extent to

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which states can often be decentralized sets of organizations that pursuetheir own interests (Fligstein, 1990). Walder has shown us empirically ex-actly how this is so in Chinese society.

As in his earlier research on institutionalized power relations in thework unit, which he later extended to an analysis of China’s reform era,Walder also extended his analysis of the fiscal structure of the commandeconomy to an analysis of the economic transition. This study, was, likehis earlier work, an incisive analysis of the critical institutions of China’sindustrial reform. Walder sought to answer a question that has long puzzledscholars and observers of China’s economic reforms: given the longstandingassumption of the need for privatization in order to spur on ‘‘efficient’’economic development among state-owned organizations, how do we ex-plain the dramatic double-digit growth of China’s industrial economy (par-ticularly in rural areas), an event that occurred without privatization? Thebasic debate in economics, to that point, had taken one of two approachesto the question, one arguing over the extent to which Chinese firms hadactually become more productive, the other arguing over the extent towhich Chinese firms had silently become private.16 Again beginning withthe fundamental institutions that define the context in which China’s re-forms are occurring—first and foremost, the institutional hierarchy of theformer command economy, second the issue of property rights—Waldercut to the heart of this puzzle by clarifying a couple of key issues that shapethe trajectory of China’s reforms. Walder argued that what varies in China’sera of economic reform is not the extent of privatization that has occurredin Chinese firms (or the distinction between ‘‘state’’ versus ‘‘collective’’ownership), but rather, the variation is in the extent to which the rights ofrevenue extraction had been pushed down the ladder of the former com-mand economy. The further down the ladder of the former commandeconomy we travel (i.e., the further from the central government a firmlies), the more revenue extraction and firm management have been left tolocal governmental jurisdictions. Thus property rights (defined here asthe ability to extract revenue) are ‘‘attenuated’’ at lower levels of thegovernmental hierarchy. As a result, local officials have had much greatercapacity and much greater incentive to push the factories in their jurisdic-tions toward aggressive reform in last two decades. Thus, local officialshave, over time, come to run their jurisdictions much like they wouldrun an industrial firm—local officials as industrial managers, governmentaljurisdictions as industrial firms. This perspective was not only incisive and

16On the latter issue, a flashpoint of this debate was over whether collective enterprises, whichare the predominant organizational type in the productive rural area, are in fact, a type ofhybrid or even semi-private organizational form.


creative in its analysis, but it also left in its wake a number of hypothesesabout how the institution of the former command economy is shapingChina’s economic reforms in fundamental ways.17

A third line of research to which Walder (1995b; Walder et al., 2000)has contributed has to do with the institutions that define the advantagesof elites in China’s transition from socialism to a market economic system.This line of research has been the area in which Walder’s work has beenmost closely tied to established debates within the field of Sociology (andChina studies) on career mobility (e.g., Moore, 1944; Inkeles, 1950; Oksen-berg, 1968; Shirk, 1982; Lin and Xie, 1988; Lin and Bian, 1991; Bian, 1994;Zhou et al., 1996, 1997; Gerber, 2000) and is therefore, on some level, theleast path-breaking. Nevertheless, true to form, Walder’s work in this areahas revealed important things about fundamental institutions in Chinesesociety—the Party and higher education—and has done so in innovativeways. Based on a 1986 urban household survey in Tianjin, Walder (1995b)engaged the debate over social stratification and mobility in socialist andtransforming socialist societies, arguing that, in the case of China, therewere two paths to elite status within the Communist Party order: oneemphasizing educational credentials and one emphasizing a combinationof Party and educational credentials.18 The former led to high prestigeprofessional positions, while the latter led to administrative posts withinthe government. This study thus tied to fundamental questions within thefield of sociology about credentialing and social stratification, linking theseissues to the fundamental institutions governing occupational mobility inChinese society. The study was also important for its innovative researchdesign; similar to earlier studies (e.g., Walder, 1992) in which Walder lookedbeyond standard economic indicators (i.e., income), in this study he alsoanalyzed dependent variables that demarcate power that is not necessarilyreflected in income, namely the number of subordinates an individual has

17Walder has also extended this analysis to a general inquiry into institutional transformationof property rights in reform era China. Note that Walder’s first essays (1986a, 1992a, 1992b)that dealt with the issue of fiscal reform and the institutional hierarchy of the former commandeconomy were explicitly grounded in a discussion of property rights, conceived of in theseearly articles as the ability to extract revenues. In an essay that serves as the introductionto a volume on the transformation of property rights in reform-era China (Oi and Walder,1999), Walder and Oi (1999) shed light on the institutional arrangements that comprise thecomplicated notion of property rights in China today. Borrowing from Demsetz (1988),Walder and Oi argue that the institution of property should be conceived of as a ‘‘bundleof rights,’’ where questions of managerial control, the ability to extract revenue, and theability to transfer ownership must all be addressed in a full understanding of property rights.The central point here is that, while firms in China may call themselves state-owned orprivate, the reality of these organizations’ property rights depends upon the multifacetedissues within this ‘‘bundle’’ of rights. The institutional analysis presented in this volume bringsmuch clarity to the discussion of the transformation of property rights in the Chinese economy.

18The survey employed for this study was the same one employed in Walder (1992).

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control over and the size of housing space an individual is allotted. Basedon a new, nationally representative life-history survey conducted in 1996,Walder and colleagues found that his earlier model held but that the pat-terns changed in significant ways when viewed over time. Essentially, thismore recent study finds that, when time periods are disaggregated, collegeeducation did not become a criterion for administrative positions until thepost-Mao period. As Walder (2000: 206–07) puts it, ‘‘Party membershiphas never been a criterion for the attainment of professional positions, anda college education did not become a criterion for administrative positionsuntil the post-Mao period (for those who had not already followed theprofessional path).’’ In other words, the earlier finding of the requirementof both college education and Party membership only became a fact in thepost-Mao period.

CONTRIBUTIONS TO METHODOLOGY AND THEORY:LESSONS LEARNED FROM NEE AND WALDER

Victor Nee and Andrew Walder have played fundamental roles inshaping our understanding of China and transforming socialist societiesmore generally. Methodologically, both scholars have had a significantimpact on the systematic research of Chinese society. Both scholars werepart of an early group of social scientists to be conducting systematicresearch in China. In the years before the opening of China, the data uponwhich we were forced to rely were highly impressionistic and often drawnfrom Hong Kong emigres, who were, by definition, a self-selected groupand no longer lived in or experienced directly the country about whichthey were being interviewed. In this context, it was an absolutely crucialstep forward in understanding Chinese soceity that social scientists enteredthe field and conducted large-scale systematic surveys of the changes takingplace in China, as Nee did in 1985 in rural Fujian Province and as Walderdid in the City of Tianjin in 1986.19

Theoretically, however, they have shaped knowledge of the economicreforms in China in very different ways. From a theoretical perspective,the impact of Nee’s work should be viewed on two levels. First, in obviousways he has shaped sociological research on the study of economic transitionin China. Market Transition Theory has set the terms of a major debate

19The sample for Walder’s Tianjin survey was originally drawn in 1983 and the first surveyconducted in 1985 by a team of scholars led by Nan Lin (see Lin and Xie, 1988; Lin andBian, 1991). A team of scholars led by Walder and Peter Blau conducted the second surveyon this sample of respondents in 1986. Both scholars have been involved in subsequentlarge-scale, national survey research projects.


within the field of sociology. While some (including myself) would like tosee the discussion move beyond the long-running controversies regardingthe effects of political capital, there is no question that this theory hasserved as a major contribution to the field of China research and to thediscipline more broadly. But Nee’s corpus of work must be viewed as somuch more than the transition debate in sociology. Nee is one of only ahandful of sociologists who have published articles in lead journals frommultiple core disciplines—in this case the American Sociological Reviewand the American Economic Review—and this says a great deal for hisability to speak across disciplines. Where many of the interactions amongour disciplines have been reduced to shouting matches, Nee is actuallyhaving a conversation. If economists start taking notions like informalnorms, the importance of the state, and concepts like institutional isomor-phism seriously it is, in part, because the work of scholars like VictorNee. And while his writing within sociological venues often seems moreeconomistic than sociological, the opposite is true for his writing in eco-nomic venues. Interestingly, it is in the venues outside of sociology thatNee has done some of his most exciting work on the institutional changesin China’s transition economy.

Walder’s work has, in certain respects, been more consistent in its goaland message. He has written broadly about the specific substantive issuesdefining economic and social life in socialist and transforming socialisteconomies. But the analyses always begin and end with an understandingof the fundamental institutions that shape the lives of individuals andorganizations in these societies. Perhaps the greatest lesson that can betaken from Walder’s work, however, lies in his ability to marry deep substan-tive understanding with incisive theoretical analysis. In general, each ofthe institutional projects Walder has taken on aspires to combine a richsubstantive understanding of the specific institution in question with ananalysis at a theoretical level of the operation and function of criticalinstitutions organizing socialist societies. In other words, if we abstract awayfrom the substance of each of his lines of research, we find at their corefundamental theoretical ideas about what certain institutions tell us aboutthe organization of power relations in socialist and transforming socialistsocieties, about the path dependent nature of transitions from plan tomarket, and of the institutions that shape patterns of stratification in Chi-nese society. Thus, while his work is deeply theoretical, the theory doesnot obscure substance and detailed description—one always comes awayfrom his studies with a clear understanding of some fundamental aspect ofChinese society. This is a difficult balance to strike, and it is one that Walderstrikes consistently well.

Perhaps the greatest contribution of all, however, comes with the fact

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that these two scholars have played a central role in bringing the study ofChina into the mainstream of the discipline. With the restructuring of areastudies and the strengthening of the core disciplines over the last twodecades, sociology could have easily turned inward, focusing purely on thestudy of American society and social structure. This has not happened—ifanything, the discipline has become much more international over the lasttwo decades—and it is largely because of the methodologically rigorousand theoretically deep work of scholars like Victor Nee and AndrewWalder. For their work in this area, we own them a great debt.

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