Following the passing of Steve Jobs, the Chinese media has frequently raised one question: When will China have its own Steve Jobs? Even the Reference News, a daily newspaper known for its seriousness, had a headline on its front page, reading ‘China Calls for Innovative Talents Like Jobs.’
In China there are four traditional barriers to the growth of private businesses.
The first barrier is the division between state capital and private capital, with the former monopolizing the upstream resource and energy industries and the latter controlling the consumption sector at the middle and lower reaches. This has created an unprecedented disconnect between various sectors of the economy.
Fernand Braudel, a French historian of the Annales School, was an expert on capitalism. He has classified markets into two categories, the low-end market consisting of bazaars, stores and pedlars, and the high-end market made up of the resource industry, exchanges and trade fairs. Based on a study of economic growth of various countries, he came to the conclusion that ‘China boasts the most perfect economic entities at the lower end of the market ladder, where it is almost possible for one to figure out the volume of a market simply by referring to its geographic location.’ At the high-end of the market, however, China has always exercised strict government control, totally banning free trade. ‘In China, businesses and bankers are allowed to invest in the public utilities sector under legal protection and with government encouragement. Political rating is given overwhelming priority. Whenever capitalism gets a chance and develop to some extent, totalitarianism will come up and force its retreat to the starting point,’ as Braudel has believed.
The business world that Steve Jobs knew is of stark contrast to the Chinese market.
The second barrier is the absence of a contractual link between the government and the private sector, which has denied a guarantee to the accumulation of private capital.
Individually speaking, all Chinese business people strive for larger profits through a variety of investments. They are also as hardworking and frugal as advocated by Max Weber in his Protestant Ethic, and take wealth accumulation as their goal in life. In this sense, they are no less outstanding than Jobs. When it comes to the relationship between the market and the power over its rule, however, the underlying difficulty for the market economy to develop in China prominently reveals itself. The right over properties and their inviolability, as prescribed in law, is a code governing the relationship between the ordinary people only. It never has anything to do with the relationship between the citizens and its ruler who enjoys limitless power and influence over the former’s personal and property rights.
The third barrier is the tyranny of crony capital, the prevalence of rent seeking, and the feverish aggregation of wealth around power, resource and land. Instead of accumulating and multiplying in the production sector, social capital has come to been distributed and redistributed at the circulation link, totally eroding the soil for the growth of technical revolution.
Upon introduction of the state monopoly system, the Chinese government had to install a system for state-owned enterprises. Due to factors such as ambiguity of property rights and fuzziness of authorization, however, a crony economy has developed. Those in positions of power are acquiring resources in the name of the state, dividing up wealth in the name of market operation, and vying with each other to seek personal gains.
At the same time, private businessmen have managed, through rent seeking, to earn incredible profits, giving rise to a possible clash between the government and the private sector. Ever since the Song Dynasty, the mostwealthy businessmen in China have always been the so-called ‘red-tops.’ All of them have earned their fortunes through government authorized monopolies. This is a deeply rooted business model and the chances of a change are slim. These businessmen are anything but enthusiasts for technical advancement or R&D investment.
Policy-backed rent-seeking is extremely disgraceful and hardly possible in Western business culture. Here in China, however, it has been the prevailing practice.
The last barrier is the anxiety constantly haunting private business businesses struggling under the dual pressure of state-owned and crony capital. The greatest fears of these businesses stem from the flow of industrial capital from production to consumption, and the loss of the innovative engine driving economic growth.
Long long ago in 200 B.C., Si Maqian, a great Chinese historian, developed a theory on wealth accumulation in the industrial and business sectors. First, industrialists earn more than farmers but less than businessmen; and second, the best way to secure wealth is to turn earnings into real estate investments. It is true that over the 2,000 years since then, Chinese businessmen have accumulated astonishing amounts of wealth through development of family-based businesses or promotion of business alliance. Nevertheless, they haven’t enjoyed independence in terms of economic interests or political status. Neither have they got any legal protection of their property rights from infringement by the ruling class. When people say it is impossible for a Chinese family to remain rich for more than three generations, they do not merely mean that Chinese businessmen are not intelligent enough to keep accumulating wealth for any longer than three generations. They imply that wealth accumulation depends on the relations between its owners and those in power, which are inevitably fragile and asymmetrical. As a result, the sustainable accumulation of wealth and its safety is not under the total control of the wealth owners. When it comes to wealth inheritance, the ability to maintain the government-business relationship will be far more important than the ability to expand businesses or to aggregate capital.
These four traditional barriers to private-sector growth are the basic features of China’s present-day business world. They also may lend an answer as to why a Chinese Steve Jobs has yet to emerge. Unless thebusiness environment is changed, it will be useless for us to search for talents like Steve Jobs in China, regardless of how loud or hysterical our voice may be.
Wu Xiaobo is a columnist long dedicated to the research of Chinese companies.
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