ABSTRACT

This book is the result of 30 years of scholarly effort in understanding the Chinese economy. Throughout this long period, observers trained as economists often expressed the expectation that China will eventually fail to achieve her goals of rapid modernization and economic prosperity unless she adopts the institutions of what is commonly called ‘Western modernity’. Whereas other social sciences have been discussing the relevance of this benchmark for many years, economics remains stubbornly attached to the belief that it is possible to define a set of institutions that are most advanced in terms of performance, and hence represent ‘modernity’. Take, for example, the fast and strong impact of the so-called ‘legal origin’ theory of economic institutions, which even presented the most explicit claim that common law institutions perform better than civil law institutions in shaping financial markets and corporate governance. In contrast, Chinese institutions always appeared as deviant, so ultimately they must fail. After arriving at the position of the second largest economy in the world, the most recent version of this attitude is the writing on the wall invoking the threat of the ‘middle-income trap’. However, none of these doomsday scenarios ever materialized, which had included the fragmentation of China following the USSR example in the early 1990s. I think that this will remain true, although no one can claim to be able to predict history, even in the medium term. The pessimistic stance towards China is mostly based on the analysis of Chinese institutions, combining with theoretical analysis and empirical information about the past performance of advanced industrialized countries. This reference has been shifting in recent years. Whereas the 1980s and 1990s were shaped by concepts of the ‘Washington Consensus’ enshrining the so-called ‘neoliberal’ turn in thinking about economic policy, in the 2000s a more pragmatic approach held sway, in particular following the financial crisis of 2008. Now, what in the past appeared to be heterodox measures of the Chinese approach, such as industrial policy and capital account controls, is becoming part of a pragmatic mainstream. The Chinese experience certainly contributed to this shift. However, following Dani Rodrik’s famous dictum of ‘one economics, many recipes’,

this shift still remains within the confines of standard economic theory. This is salient in one of the most comprehensive ‘indigenous’ attempts at distilling general conclusions for economic theory from the Chinese experience, namely Justin Lin’s ‘new structural economics’, which is a merging of neoclassical theories of comparative advantage with a descriptive account of developmental stages in the context of globalization. Thus, the core question in analysing China’s economy is the role of institutions, and structural or macroeconomic characteristics come second. In this area we observe a very lively debate between different schools of thought in economics, with some explicitly defining an alternative vision to whatever might be regarded as mainstream in economics today. Yet, today, institutions are also the focus of core research interests of the mainstream, and this is often driven by the normative concern for identifying the sources of the ‘wealth of nations’, the ingredients of the ‘European miracle’, and the causes of ‘why nations fail’. One conspicuous observation about this literature is the neglect or very superficial treatment of China, both past and present. Most of these accounts retell the familiar Whiggish story about institutional progress towards what is basically the Anglo-Saxon model of capitalism, and they argue in stark dualisms, such as ‘autocracy’ versus ‘democracy’, or ‘limited access orders’ versus ‘open access orders’, and so forth. These dualisms appear to be substitutes for the earlier dualism of ‘market economy’ versus ‘planned economy’, which is, of course, also the stage on which the Chinese ‘transition’ is seen to be unfolding. This is a highly significant observation because to a certain extent the debate about current Chinese developments matches the literature on China’s economic and social history. The latter is often also caught in the dualism between China and ‘the West’, since a major and still unresolved question is why China failed to give birth to an industrial revolution in spite of having been far more advanced than Europe in the Middle Ages. Many explanations blame institutions and therefore contribute to the mainstream opinion that Western-style institutions are a necessary factor in achieving sustainable growth of per-capita incomes. Thus, current predictions of the eventual failure of Chinese reforms would converge with those analytical approaches to Chinese economic history: China’s failure in the past predicts China’s failure in the future unless Western modernity is adopted. This belief is certainly undergirded by the observation that almost all intellectual and political leaders of China in the twentieth century also upheld this view, with the slight variation that Marxism had been introduced to China as the most advanced Western theory, thus apparently allowing even for overtaking the West in terms of modernization. Modernization was also the clarion call for Chinese reforms after 1978. Against this backdrop, the paradox of combining a socialist system with a capitalist economy is partly resolved by recognizing that upholding socialism as the ideological beacon may still be seen as a reference to the

more fundamental claim on becoming a vanguard of modernity. The relationship between the Chinese present and China’s past, however, remains an unresolved issue in this view. Interpreting recent Chinese history as a story about failed modernization is by no means settled truth. In the past two decades, revisionist historical research has emerged that matches with critical views on the mainstream accounts of Western history. This not only touches upon empirical issues of historical accuracy but also relates to foundational issues in the theory of institutions. The revisionist literature on China basically asserts that Chinese institutions were defining a ‘Smithian’ economy, thus securing and maintaining the efficient functioning of markets. This view is based on the recognition of certain facts, such as the pivotal role of contracts in arranging economic transactions since the Song dynasty, and on acknowledging functional equivalences such as the correspondence between the European notion of the ‘corporation’ with traditional social entities such as lineage trusts. This literature implies that the institutions of markets may be necessary but by no means sufficient conditions for modern economic growth and capitalism. In the Chinese case, some contributions would even make the stronger point that the efficient functioning of markets impeded the emergence of capitalist technology and corresponding social formations. Against this backdrop there are two major alternative explanations of the Chinese failure to modernize. The first points towards ecological and geophysical conditions for the costeffectiveness of new technologies harnessing new sources of energy; the second emphasizes the weakness of government in fulfilling the role as a provider of infrastructure, both material and institutional. The second explanation apparently leads back to the institutional analysis, albeit with an important shift of perspective. Taking liberal or even libertarian concepts of the market economy as a benchmark, the Chinese empire after the Ming dynasty was an institutional regime that factually left much more freedom for a market-based self-organization of society than most European countries on the eve of industrialization. This is most saliently manifested in the very low tax burden per capita which was partly the result of intentional political decisions of the Qing emperors. In comparison, England had emerged as a highly centralized state capable of imposing very high tax burdens on society. The Whiggish interpretation of this is that increasing political participation in England and emerging legal constraints upon abuse of governmental power led towards stabilizing this institutional regime because of higher legitimacy and acceptance on the part of those social groups which were actually pushing industrialization forward. However, in these arguments the historical record about the performance of other catching-up economies is presented in a seriously distorted fashion. For example, Germany relied on a model of authoritarian market liberalization that contradicts such generalizations of Whiggish history. Therefore, taking both records together, we may

conclude that modern capitalism is not necessarily based on constrained government in a general sense, but, in the opposite extreme, on certain formations of strong institutions of government and markets that may be even historically unique in every country case. Obviously, this argument is highly relevant for China today. The current leadership is pursuing a policy that simultaneously enhances the scope of markets and further strengthens the government, especially in the sense of the central government. China, like Prussia in the nineteenth century, represents the case of authoritarian liberalization, which may sound like an oxymoron to many liberal economists. This position would partly revive similar debates about developmental authoritarianism or even dictatorship in the context of the earlier ‘East Asian miracles’. However, a closer look at this would lead analysis astray, at least as an explanation of the Chinese performance thus far. One of the central arguments in this book is that market transition in China is concomitant to the effort of concluding the unfinished process of state building in China following the collapse of the Empire. More succinctly and provocatively, I claim that markets (and capitalism) after 1978 evolved in the niches created by the ongoing transformation of an empire into a modern state. State building is mainly taking place in two arenas. The first is the dynamics of the relationship between the central government and the local states of China, a fact which is recognized in recent characterizations of the Chinese political economy as ‘regionally decentralized authoritarianism’. The second is the institutional and cultural dualism between the rural and urban areas and its impact upon administrative and bureaucratic integration of the Chinese state. This thesis of the primacy of state building for market transition in China may appear less surprising if one considers the fact that Maoism left a legacy of institutional disruption and chaos in the trajectory of state building which had been launched in Republican China, leading towards the verge of dissolving the Chinese nation under the tensions of civil war and Japanese aggression. If we look at these historical changes in more detail, we cannot avoid the issue of the role of culture in understanding China. The question of how culture and institutions interplay in China’s development is the central topic of this book. Since Max Weber, many explanations of the Chinese failure to modernize refer to culture, and in this respect also emphasize the relationship between culture and the nature of the Chinese Imperial state. Thus, I believe that investigating the issue of state building leads us to explore culture in its relationship to economics. This question has been the beacon towards which my own research on China has been directed in the past three decades. Culture receives much attention in current mainstream economics, after it had been neglected for many years. Many economists seem to agree today that culture is an essential mediating factor between

institutions and economic performance, and a major factor channelling institutional change in a certain direction. This view would correspond to the aforementioned approaches to Chinese history. But there is a fundamental methodological difficulty in these arguments. When economists refer to culture, they largely treat it as an exogenous determinant of economic processes, typically in terms of positing a causal pattern between past variables and current observations, such as historical facts about migration and current values held by a population. This view is very different from modern approaches in anthropology that treat culture as a creative activity. In fact, the economic approach violates fundamental tenets of methodological individualism, whereas the anthropological view sees an active role for individuals, though not necessarily conceived along the lines of rational choice models. The picture of culture that emerges here is a far cry from the view that culture is a legacy of the past which people cannot discharge easily. On the contrary, all cultural activity is innovation, resulting into cultural syntheses, creolism, as well as the revival of tradition. What is a legacy of the past, in this view, is the whole range of symbols, ideas, values, norms or institutions that make up a semiotic repertoire which is handled by cultural activity in the present. Evidently, this may also create continuities between past and present, but these are endogenous to the process of cultural change driven by creative action. Reviving tradition always means creating a new tradition. This is the perspective on culture that I adopt in this book. If we look at the uses of culture in studies of the Chinese economy, we often meet sweeping simplifications, the most influential one being the notion of ‘Confucian capitalism’ that was created in dealing with the phenomenal success of Overseas Chinese business in the rise of the Asia Pacific as an economic region. The image of Confucianism as the defining feature of Chinese culture is widespread in economics and management studies, even in terms of introducing a specific set of so-called Confucian values in universal sets of values, or in denoting the entire East Asian region as ‘Confucian’. I present a very different approach in this book. If one treats culture as an activity, the culture of the contemporary Chinese economy would emerge as a bricolage of many different elements, traditions, Maoist legacies, imported ideas and norms, and so forth, without any pre-fixed borderline between the ‘cultural’ and the ‘non-cultural’. Chinese culture today is a complex synthesis of which Confucianism may be a part, but probably not a defining one. Again, we recognize similarities between China’s past and present. If Confucianism is seen as an important element in traditional Chinese culture, then it is only in the sense of one element in an array of many others, often even staying in tension. But, after all, this kind of definitional openness would render the term ‘culture’ almost without precise meaning and reference, so I will offer another radical methodological proposition; namely that culture is always a construct of the observer, and by no means an ‘objective’ fact of social

life. In other words, if culture is a creative activity of the subjects which are the object of inquiry, the observer is also creating culture when she presents her research results. Thus, a book about economic culture like this one is also a cultural activity, even in the sense of co-creating Chinese culture. This is a conceptual conundrum that has been well known to anthropologists for a long time, but that has almost never been recognized in economics. I claim that we need to deploy an economic approach which starts out from this fundamental insight. Thus, this book is not only a contribution to the study of China, but also a contribution to economic methodology. There is one intellectual precursor in economics, which is the German language literature on ‘Wirtschaftsstile’ (economic styles) which emerged out of the methodological debates about Weber’s distinction between real types and ideal types, and his view that economic analysis would only obtain empirical meaning once it is embedded in cultural analysis (‘Kulturwissenschaft’). An economic style is akin to a style in the history of arts. There are certain features of artworks which make them similar, and which are recognized by contemporaries as defining characteristics of this group of artefacts. The art historian, however, may also be able to recognize larger patterns through time ex post, and therefore may be able to detect some boundaries and distinctions of which contemporaries were not fully aware. But this does not imply that the perspective of the art historian turns into an ‘objective’ view. After all, what matters for the dynamics of the history of styles is what contemporaries perceive, what they receive, and what they create out of that. Philosophically, the concept of style is an instance of what Wittgenstein has called ‘family resemblances’ among games, in this sense ‘forms of life’. Thus, detecting and describing family resemblances diachronically and synchronically is the major task of the researcher on economic styles. ‘Diachronically’ means pinpointing family resemblances between past and present; ‘synchronically’ means doing the same for a wide range of contemporary case studies with thick descriptions, across industries, sectors or regions. Indeed, this is what contemporary Chinese studies have accomplished in past decades, namely accumulating an extremely rich collection of detailed case studies on social, political and economic change. It is important to emphasize that applying the ‘economic style’ concept results in an entirely different approach to the taxonomy of economic systems than the prevailing one. The established approach classifies economic systems according to fundamental properties of mechanisms of allocation (plan versus market) or ownership (private versus public) or finance (banking vs. capital market based) and so on. These properties are seen as being amenable to ‘objective’ analysis, including also propositions about the causal relationship between those features and economic performance. In contrast, the concept of economic style follows the principles of biological taxonomy. In other words, categories such as ‘species’

are certain emerging units in a historical trajectory of evolving forms, which are defined according to certain shared characteristics, and which are located in particular geographical areas. In a similar vein, an economic style is a unit that is defined as belonging to a certain economy at a certain place and in a certain period, which relates historically to certain precursors, and which also stays in relationship with other economies from which it differs. Further, this unit is itself defined in fractal terms. This means that if we talk of ‘the economy’, this is in fact a complex system of interacting smaller units such as regional economies, industries or even households. These units, amenable to case studies, also manifest family resemblances in their evolution through time, which in the aggregate define the economic style. If we take these two aspects together, we realize that the concept of style has the same properties as the concept of culture. An economic style is a complex set of properties which stay in a certain systematic relationship with each other and which connect with other properties through time and space. Thus, for example, we cannot simply say that there is an ‘economic system of China’ today which may relate to an economic system of China in earlier times, but we have to ask whether there are certain properties of economic interactions and structures in China today which tie up with other properties in the past, and which manifest peculiar interactions with properties of other economic systems. For example, we might ask how intellectual property rights in China today relate to similar concepts in the past and to similar constructs in the USA. We may further ask how they relate to similar concepts such as land-use rights in China and so forth. Once we have collected a sufficiently large number of observations of this kind, we are able to construct a coherent and distinctive concept of ‘style’. If this idea emerged in German-speaking economics, it is no wonder that it has been revived in the work of a German-speaking economist. Indeed, the economic system in Germany today is characterized as the ‘Social Market Economy’. This term was originally introduced as a peculiar ‘economic style’ by the German economist Alfred Müller-Armack. Clearly, Germany is classified as a ‘capitalist’ or ‘market economy’, but this does not echo the distinct features that become visible when considering the tensions between different member countries of the European Union over issues of economic policy, or between the USA and Germany as a member of the EU when negotiating trade agreements. The social market economy is an economic style in combining a number of very distinct features of economic organization into one coherent whole, as diverse as the social security system, the system of savings banks or the role of family business. This characterization can by no means be established as an objective fact, since it is the object of continuous debates and reflections in Germany about what are the constitutive elements of this model. However, at the same time the majority of participants in this debate agree that the social market economy is a defining feature of the German

economy after the Second World War, and, historians would add, probably since the time of Bismarck’s social reforms, in incipient form. As this observation on Germany shows, the essential step in constructing an economic style is to identify a concept that may be used as a unifying idea in order to systematize the observations. In the German case, this is the notion of ‘social’. Clearly, this is almost meaningless if considered in isolation, but it becomes an extremely powerful idea in the ongoing process of constructing the economic style, both on the part of the participant actors and the scientific observer. In this book, I propose that the notion of ‘ritual’ plays a similar role in the Chinese case. ‘Ritual’, ‘li’ (礼), has been the central term in defining social order in Chinese civilization since its emergence. Twentieth-century modernization was also defined as a radical attempt at overcoming this social order, hence also transforming and even abolishing ritual. Yet, I claim that China’s economic style is the ‘ritual economy’. Tellingly, this term has been coined by anthropologists working on China, but it is still rarely used, and is confined to much more narrow meanings. In one of the seminal contributions by Mayfair Yang, the important point is made that ritual is a defining feature of rural society, but that this rural society is also a driver of the ongoing changes in the modern Chinese economy. This would suggest that transformations of ritual also impact upon economic modernization. I generalize on these ideas in trying to show that ritual is also essential in the ‘modern’ part of the trajectory, because, to begin with, modernization itself is interpreted in the same way as a ritual. In the indigenous Chinese discourse, ritual does not show up explicitly as a term designating current views on the foundations of social order, yet the notion of ‘harmony’ is intrinsically linked to ritual as a means of establishing harmony (even to the extent that the Confucian ‘he wei gui’ expression is used). In the current political discourse, the Western notion of a modern social order is apparently applied in emphasizing the ‘law’ as the alternative principle. Yet reference to ritual is often made when Chinese scholars discuss indigenous perspectives on social relations and values, especially, again, when referring to rural society. That being said, I use the term ‘ritual’ in a deliberately ambiguous way. I treat it both as a generic theoretical term and as a term specific to China studies. I argue that this ambiguity renders the term especially powerful in analysing the Chinese economic style. Regarding the generic use, I follow the seminal contribution by Michael Chwe who introduced ‘ritual’ as a term into the game theoretic analysis of social interaction. Here, ritual encompasses all social actions that create common knowledge. Common knowledge is a central notion in game theory that catches reflexive knowledge; in other words, what people know that other people know that they know, and so forth. In this sense, common knowledge is evidently also part and parcel of what we normally refer to as ‘culture’, especially in the sense of shared features that go without saying, and are the preconditions for

successful interaction. We may also say that ritual includes features that people know how to enact, but not necessarily knowing that they enact them (‘knowing how’, but not ‘knowing that’). In other words, common knowledge engendered by ritual includes a fair amount of tacit knowledge. What the notion of ritual adds to the game theoretic uses of the term ‘common knowledge’ is that ritual is externalized behaviour involving artefacts, and not just a state of mind as is normally assumed in game theory. This renders common knowledge partly observable, although we clearly need to distinguish between ritual as such and the states of knowledge that ritual instigates. Since we cannot directly access those states of mind, however, observing ritual is a major point of access for understanding culture, and requires interpretive approaches. This is certainly all too familiar to the anthropologist but has rarely been included in economic analysis. Considering this general notion of ritual, we now notice an important observation about ritual in Chinese society. Ritual is a central category in Chinese tradition. Many scholars have approached ritual as the essential difference between traditional Chinese culture and ‘Western’ culture in terms of the dichotomy between ritual and law. Interestingly, a related dichotomy also holds in Chinese tradition, namely the distinction between Confucian ritual and legalist law; and, most ominously, in current debates about law in contemporary China, Western ‘rule of law’ is often compared to Chinese ‘rule by law’, which certainly has a distinctly legalist flavour in the midst of what is often seen as a revival of Confucianism, both at grassroots level and in relation to political leadership. Thus, the question arises whether the role of law in contemporary China is shaped by its interaction with ritual, as in Imperial times. This book presents the hypothesis that ‘ritual’ can serve as a unifying idea for constructing the economic style of China, both in the generic sense and the culturally specific use of the term. As I outlined previously, this is not a hypothesis based on empirically tested theory, but a cultural construction by myself as the author of this book. Methodologically, ‘ritual’ serves as an intermediate theoretical term that is not universal, but only applies for a certain slice of time and space. However, I think that there are certain generic theoretical arguments as to why this hypothesis could be powerful in empirical work. One alternative generic approach to the issues at hand is distinguishing between formal and informal institutions and arguing that these two can stay in a diverse relationship with each other. Interestingly, this almost matches with the treatment of ritual vs. law by the foremost Chinese anthropologist of the twentieth century, Fei Xiaotong. In a nutshell, Fei argued that rituals are the informal institutions of traditional rural society, and that the modernization of China requires the transition to formal institutions enshrined by written law, which is the institutional framework of large-scale urban societies. However, this opposition suffers from overlooking the fact that ritual in

traditional China was partly a formal institution, that shaping ritual intentionally was the central element in the Confucian way of governing China, and that ritual also held sway in the large cities of Imperial China. For example, traditional lineage organization in the rural areas was certainly a formal institution, and the Imperial state invested huge effort in shaping local practices even by means of the law. Therefore, if we connect these observations with the notion of state building, we cannot simply say that modernization is tantamount to the transition from informal to formal institutions, or from ritual to law. Vice versa, this opens up horizons in order to ponder the relevance of ritual today, based on the generic term of ritual expounded in the context of game theory. If we move back and forth between this China-specific view on ritual and the generic view, we realize that the blind spot in Western thought has a deeper meaning. In my own philosophical work while writing on China, I became aware of the crucial moment in intellectual history when ritual was blanked out and law became the dominant idea in the context of economics and related political philosophy. Tellingly, this directly relates to modern Chinese history. This historical crossroads was the separation of the Marxist line of thinking from the liberal one in the midnineteenth century, and the resulting oblivion of Hegel in Western liberal economic and political thought. For sure, Hegel was the intellectual founder of central liberal notions on civil society and the rule of law. This thinking was grounded in the analytical distinction between law as a formal institution and the ‘ethical life’ (‘Sittlichkeit’) in which the law must be embedded. Hegel saw ethical life as an expression of lifeworlds of concrete societies in historical contexts, thus eschewing any kind of abstract legal universalism along Kantian lines. Evidently, the Hegelian view comes close to the Chinese dichotomy of ritual and law, with ritual basically seen as a system of ethics that defines Chinese civilization. So, I think that pondering the Chinese case also makes us aware of the neglect of ethics in modern economic thinking about institutions. By implication, I argue elsewhere that Hegelian philosophy can offer a systematic conceptual framework for approaching the relationship between ritual and law both generically and in the case of China, but I largely refrain from these philosophical considerations in this book. Suffice it to say that the separation of law and ritual and the ensuing neglect of the latter is a Western cultural stance that emerged rather late in modern intellectual history. After all, the founder of modern economics, Adam Smith, was a moral philosopher who also saw a close relation between law as an institution and morality in concrete human societies. As I have already pointed out, the intriguing fact about my ‘ritual economy’ notion is certainly that in contemporary China few people would use the term ‘ritual’ in order to describe their society, although in certain contexts related terms may show up, such as in describing local social interactions according to certain norms of proper behaviour (ritual

as politeness and decency). My use of the term is mainly based on the analysis of a large number of empirical observations about institutions and practices, and I posit that the term ‘ritual’ makes sense of them, in the first place, and add the point that in the light of this interpretation, family resemblances with Imperial China are straightforward to establish. For instance, empirically, ritual refers to the role of status distinctions in governing social interactions, or to the emphasis on expressive behaviour manifest in certain routines as opposed to content. Status distinctions pervade the entire Chinese economy, such as between rural and urban society, between private and state-owned businesses, or between cadres and farmers. Status is expressed in a habitus of modernity, such as modern patterns of consumption activities. All these observations can be arranged into a coherent view once we start out from the notion of ritual. This is the task that I accomplish in this book. My use of the term ‘ritual’ also allows for connecting the China studies meaning with the generic meaning, because, for example, perceived status differences may be seen as being constitutive of common knowledge that constitutes frames for inter actions, thus influencing certain economic processes, such as patterns of finance in rural private business. If I apply ‘ritual’ as a unifying idea that refers to an indigenous notion of describing social order and interactions, a supporting argument is to recognize that there are other concepts specific to China studies that relate to this term and prove to be especially useful in establishing family resemblances between past and present. These are not necessarily indigenous terms, but have been developed in China studies to catch certain aspects in the descriptions of China which apparently do not lend themselves easily to direct equivalences with ‘Western’ institutions and practices. These concepts include, for example, ‘orthopraxy’, ‘culturalism’, the ‘local state’ or ‘guanxi’. My argument will organize these concepts in the larger semantic field of ritual in order to achieve coherence and consistency. If we then reflect upon the relationship between ritual and modernity again, we realize what results to be the core idea of the book: modernization proper is conceived and socially performed as a ritual in China. Modernization does not overcome ritual, but is embedded in creative cultural constructions that are strongly shaped by ritual, and which in turn transform ritual. These cultural constructions result in what I define as the distinctively Chinese economic style. Let me now summarize the chapters included in this book. Chapter 1 develops the theoretical framework of analysing the relationship between culture and economy. I relate the notion of ‘culture’ with the creative activity of individuals in fixing and expressing their shared identities in interactions. The fundamental methodological challenge to cultural analysis is the ‘mirror of culture’, which means that all conceptualizations of culture take place in a web of mutual interactions among different observers with different roles and standpoints, especially participant and

external observers. Culture is not simply an ‘object’ in this web, but is continuously being created and re-created by those ongoing observations, communications and interactions. Thus, research on culture cannot rely on an ‘objective’ measure of culture, but is mainly a higher level reflection on what happens in the mirror of culture, which, however, is also fed back into these processes. I show how this puts standard economic approaches to culture into perspective, such as the use of value surveys in measuring and objectifying culture. In terms of research methodology, my conclusion is that cultural analysis is proceeding as the triangulation of a variety of different disciplinary approaches, especially combining emic and etic methods into one coherent argument. Emic methods are provided, for example, by sinology as the study of China mediated via explicit consideration of Chinese language materials, written or oral; etic methods are represented by cognitive sciences or social psychology, among other disciplines. In order to coordinate these crossdisciplinary interactions a unifying idea is necessary, which bridges emics and etics. I propose that in the Chinese context this idea is ‘ritual’. The chapter presents a number of more specific analytical tools for cultural analysis, which build on existing approaches in the economic analysis of institutions. If culture is the activity of creating shared identities, we need to dissect this activity into its different aspects and stages. This means making the mechanisms explicit that enable and manifest this activity, which I define as the mechanisms of ‘performativity’, of performing culture. I propose that Aoki’s economic model of institutions is very powerful in this regard, since it allows us to arrange observations on different levels of aggregation to each other, and explicitly includes the role of external artefacts in linking institutions and individual behaviour. Aoki’s model is an equilibrium notion in the sense that an institution is regarded as the manifestation of a flow of interactions that results in their recurrent reproduction, embodied in external and public representations. I present a more detailed interpretation of the model that divides this flow into four stages, which form a closed loop with recurrent feedbacks. I call this the ‘network approach to culture’: actions, individuals, artefacts relate to each other in a causal web. This approach is a disaggregate analysis of social mechanisms which refers to certain objects of interactions with interpretive activities, resulting in certain states, such as social structure and economic outcomes, which feed back on the interactions through framing them. As a result, the notion of ‘path dependencies’ looms large in applying this approach. Path dependencies are essential for understanding the historicity of the processes, which does not simply mean that history impacts upon the present, but that path dependencies create empirical patterns that allow establishing family resemblances between past and present. The network approach to culture is parsimonious in adding further analytical concepts. The most important ones are status or status orders

and social capital. Status is an essential category in the analysis of ritual as understood in generic terms. Status is also a defining feature of individual identity and a criterion for establishing shared identities, and thus is a core category in cultural analysis. Status relates to interactions in establishing certain capabilities for action. The entire set of capabilities for network interactions is social capital. Thus, in this view, ritual may also be approached as a way of contextualizing the generic notion of social capital, which has also emerged as an important analytical category in economics for understanding markets and economic development. Finally, I condense my approach into the suggestion that in the context of the economy the interaction between ritual, institutions and economic processes defines the ‘economic style’. Describing the economic style of China today is the task of the subsequent five chapters, based on the continuous reflection of the generic notion of ritual and its meaning in China studies, which is embedded in the mirror of culture. Chapter 2 establishes the reference point for identifying family resemblances between past and present in outlining a concise analytical view on the ritual economy of Late Imperial China. This means presenting stylized facts, based on a particular vantage point which is itself open to debate. I construct this point by building on Fei Xiaotong’s theory of Western vs. Chinese society, which centres on the notion of ritual and the fundamental distinction between two different modes of network formation and forming groups with shared identities. Taking into consideration the caveats that I have already mentioned, this helps create a coherent idea of the ritual economy in the past. This approach makes use of many insights of recent historical research that have presented the picture of a ‘Smithian’ market-based society in which contracts, property rights and corporate organization were ordered by ritual frameworks that produced functional equivalences to ‘Western’ institutions, such as lineage estates as corporate organizations. At the core of this Smithian economy was the symbiosis of family and market, resulting in a peculiar pattern of economic development which has been labelled ‘commercial capitalism’. In this pattern, economic disincentives worked against the transition to industrialization and more complex capitalist corporate organization. In other words, contrary to many earlier explanations also still prevailing until today, we cannot blame culture and institutions for the lack of transformational potential. On the contrary, the traditional Chinese economy was adaptively efficient. In modifying an important concept introduced by Philip Huang; I refer to this pattern as ‘market involution’. One essential question in understanding the modern Chinese economy is whether and how forces of market involution still work towards the reproduction of forms of commercial capitalism. The symbiosis of family and markets was mediated via the market systems that have been elevated to a paradigmatic model in China studies by Skinner. In these local systems, ritual and markets were mutually

constitutive, such that we can also conceive of markets as being part and parcel of traditional culture. This perspective emerges from the rich recent historical research on the role of contracts and different forms of associational structures, both kin-related and transcending kinship, in organizing markets; on the other hand, markets emerged as the arena in which social and economic forces shaped the patterns of interactions and their embodiment in social artefacts, such as the geographic distribution of settlements or the spatial organization of popular religion. This peculiar cultural pattern may be grasped conceptually by Foucault’s notion of ‘governmentality’. Thus, the market as an organizing principle of local society is embedded in the larger context of Imperial rule, which has been characterized by another term specific to China studies: ‘culturalism’. Culturalism is a particular form of local governance in the larger institutional context of the Empire which actively relies on and shapes ritual. In this form, the duality of local vs. central state was established as a fundamental pattern of the historicity of the Chinese body politic up until recent times. Modifying another central notion in modern China studies introduced by Prasenjit Duara, the modernization effort of the twentieth century focused mainly on transforming this culturalist model of governance into a modern state conceived along the lines of Western national states, albeit resulting in the phenomenon of ‘government involution’. In the traditional ritual economy, ritual was the bedrock of both market organization and Imperial governance of local society. Hence, most modernizers in the twentieth century waged the battle against ritual, thus viewing economic transformation as being part and parcel of cultural transformation. At the same time, cultural transformation was only feasible as being part and parcel of building a modern state, conceived of as a powerful central state, both internally and externally. These interdependencies created patterns of historicity that are defining elements of the modern Chinese economic style. The analysis of Imperial governance provides the backdrop of Chapter 3, which starts with exploring the meaning of the concept of modernization for the evolution of economic institutions in China after 1949. More specifically, I introduce the term ‘modernism’ as a core aspect of ritual in modern China. In the context of the economy, modernism has undergirded a particular growth model that centres on the institutional differentiation between different sectors of the economy, especially rural and urban. I show that this growth model has been a constant since 1949, bridging the apparent transition to reforms in 1978, and is only subject to transformative policies at present, albeit without any substantial changes thus far. In spite of many institutional innovations, the growth model persists and reflects the ritual economy in contemporary China, epitomized in the dualism of the informal and formal economy. Ritual is manifest in cultural conceptions of identity, in particular the qualities of modernity that different groups in society have achieved. In this context, economic

growth is not only material progress but a civilizational transformation which is measured against ritualistic concepts, embodied in consumption norms, architectural design and other artefacts. In this way, the emerging modern consumer society is part and parcel of modernist governmentality, thus also establishing a modernist transformation of the market as an element of ritualistic governance. In this pattern, path dependencies create linkages between past and present, even in contexts such as the massive changes in demography resulting from modernist population policy, which create complex causal interactions among government interventions, social values and resulting behavioural patterns, as reflected in data such as the distorted sex ratio at birth. Aggregate macroeconomic features of the economy such as the extremely high savings rates are shaped by these path dependencies, reflecting, for instance, the norms governing the marriage market in both rural and urban contexts which causally connect status consumption and savings behaviour. In rural society, path dependencies loom especially large. For understanding economic processes, the legacy of cellularization resulting from Maoist collectivization is highly significant. Especially in South China, radical collectivist policies actually reinforced traditional identities rooted in extended kinship, and group identities have been accentuated by political struggle. This has resulted in patterns of landownership even persisting in modernized urban settlements where kinship groups and village communities control land-use rights and struggle with modernist urban bureaucracies. Although this is a regionally circumscribed path dependency, we can observe interactions between traditional ritual and economic behaviour in many forms across China, epitomized, for instance, in the role of religious activities in creating social capital, as reflected in differential local performances in the production of public goods such as infrastructure or social services. These developments in rural society have to be seen against the backdrop of one fundamental ritual feature of modernism, namely the institutionalized dualism between rural and urban society enforced by the hukou system. Today, in spite of a gradual relaxation of hukou controls and a massive influx of migrants into the cities over more than two decades, this formal institution has translated into a differential distribution of social capital across the Chinese population, defining a status order that is also embodied in other institutions such as the educational system, or material structures such as suburban settlements. Another important interaction between formal institutions and ritual may be observed in the ownership regime. This is an example of modernist forms of ritual which are genuine novelties in the ritual economy. The status order of ownership reflects the administrative hierarchy of government, beginning with the dualism between rural and urban forms of ownership, and continuing with differential status of owners also in the

urban domain. It is a determinant of one of the most conspicuous features of economic growth in China, ‘localism’, as manifest in diverse and even divergent regional patterns of economic development. Therefore, in Chapter 4 I turn to the analysis of government and its role and manifestations of economic policy in the ritual economy. The pivotal concept in this context is the distinction between the central and the local state, which is empirically most salient in analysing fiscal administration: I suggest that the formal structures of fiscal power are core economic manifestations of governmentality; hence mainly expressions of deeper causal mechanisms in institutional change. One of the glaring family resemblances between past and present is the major role of informal institutions in funding government services at the local level, in particular in rural society. The slow advance of formal fiscal administration beyond the county level is a major indicator of state building in terms of the growing scope of bureaucracy and law, understood along Weberian lines. State building continues to struggle with the forces of government involution, manifest in the intrusion of market-type relations into the public domain, such as education or healthcare, resulting in an astonishinly large variance of local patterns of governance, reaching from ‘hollowing out’ of the public domain to the resilience of collectivist organizations. Status distinctions between the rural and the urban, enshrined in both habitus and formal institutions, are driving a major phenomenon in the recent pattern of growth, namely the transformation of rural land into urban areas, which directly feeds into the financing of the local state. Thus, in China’s ritual economy the local state stays at the centre of the pattern of localism in economic development, expressed in different types of local states, predatory, developmental, entrepreneurial, and other variants. Local states compete for economic resources and developmental opportunities; hence market competition and government competition are closely intertwined phenomena. Initially, the resulting dynamics triggered the rapid erosion of central fiscal power, thus exposing the forces of government involution; accordingly, the ensuing pattern of reforms, such as the privatization of rural industries and the restructuring of the stateowned sector, has been mainly driven by the reinstatement of central fiscal power, as implemented via tax reforms and related institutional changes. This reveals the pivotal role of the political status order in determining the dynamics of the ritual economy. However, localism is balanced by the role of the Communist Party as a tightly integrated national institution. In order to understand its role, ritual is, again, essential. We can interpret the CCP as an institutionally embodied status order that encompasses all societal domains, and makes status commensurable across those domains. One particularly significant status distinction separates the local state at the county level from the upper level governments. The ritual function of the CCP is essentially

expressed in the distinction between the functions of leadership and administration or implementation. Following the precepts of modernism, the CCP claims the leadership function in all social domains, representing the modernist avant-garde, which is personified in the position of the Party secretary, on all levels of government or organizations in general. This is institutionally embodied in the practices and symbols of the pervasive nomenclature system, which makes status commensurable. This phenomenon also frames developments such as the emergence and growth of civil society. As is well recognized in the economic literature on China, the competition for rank in the CCP is a driving force of economic growth via the mediation of the formal cadre evaluation system. Up until today, success in terms of fostering local development is a major criterion for promotions on every level of the nomenclature hierarchy. In this particular sense, growth has a ritual meaning, which is also manifest in how statistics and data are handled as public representations of economic performance. There are broader aspects of ritual which are often perceived as ideology but are reaching beyond, since many elements of modern knowledge about technologies of governing are part and parcel of CCP work today. This is reflected in the educational process that accompanies careers as Communist cadres and that is managed in the system of party schools. If we look at the consequences of these phenomena for economic policy in the narrower sense, the central fact is experimentalism. There is a distinct Chinese policy process that allows for large local variations and systematically creates recurrent interactions among local experiments and central policy design and legislation. Therefore, planning has also assumed a particular shape in China, akin to an educational (jiaohua) process managed and supervised by central-level agencies, and mainly implemented via the cadre evaluation system. This process is imbued with modernist aspirations which drive industrial policies, and which define and enforce status orders of industrial sectors, types of companies and qualities of economic actions. As a result, the conventional institutional distinction between plan and market evaporates in the Chinese setting, since markets are embedded in the modernist ritual order, and patterns of status differences pervade the allocation of resources such as financial means to particular economic agents. I argue that modernist ritual is the institutional framework for territorial competition among different government entities, in particular the local states, leading towards the distinct form of ‘competitive industrial policy’ by the central government. One conceptual approach to this peculiar form of interaction between state and market is ‘state corporatism’, though modified by the pivotal role of the duality between local states and central government. In Chapter 5, I take a closer look at markets in terms of a web of social interactions. Here, the notions of networks and social capital are of particular significance, seen against the backdrop of the concept of ‘market

governmentality’ that has emerged from the previous chapters. The chapter starts out from analysing the ‘Chineseness’ of networks in terms of guanxi, relating this to insights from psychology and cognitive sciences, triangulating them with indigenous conceptualizations and Fei Xiaotong’s theory. I highlight the field dependence of network boundaries, the instrumentalism of emotional commitments, and long-term reciprocity as stabilizer. This analysis relates to one foundational issue in understanding Chinese culture, namely the issue of ‘individualism’ vs. ‘collectivism’. In the course of the chapter I argue that Chinese networks build on a strong foundation of individualism embedded in active social relations, hence relational collectivism, and structured by status orders, hence vertical orientation, thus basically confirming Fei Xiaotong’s theory about Chinese vs. Western society. Accordingly, guanxi needs to be interpreted as an element in the larger canvas of ritual in Chinese society. In the context of markets in relation to government and formal institutions, most economists point towards trust in institutions as a major determinant of market efficiency, which can be disturbed by high levels of corruption that result from deviant informal networks, thus creating the moral ambiguity of guanxi. China appears to be a special case, as high levels of corruption are not reflected in low levels of general trust, as indicated by the data in the most recent 2014 World Value Survey. I explain this phenomenon in terms of the particular properties of guanxi networks, in the context of changing institutional conditions in different phases of market transition. Both corruption and guanxi in general are therefore expressions of ritual in the economic context. Ritualized corruption is based on long-term reciprocity of exchange of favours, which strengthens mutual bonding and therefore does not erode trust in those local contexts. Multipolar guanxi networks create flexibility and even possibilities for efficient solutions. Further, levels of confidence in society are also deeply shaped by the patterns of governmentality, especially relative to the dualism of local vs. central state. Thus, while corruption may be largely seen as a local though widespread phenomenon, central power can maintain legitimacy if it assumes the role of moral leadership. The chapter continues with looking in some more detail into the value basis of market behaviour, such as attitudes towards inequality and opportunity. I try to pull all the strands of the argument together in analysing the general phenomenon of the performativity of markets in the Chinese context. In other words, I look at markets as patterns or institutional equilibria in the Aoki sense that reflect the complex interaction between determinants such as entrepreneurship, government intervention and regulation, or social networks. This works together with the modernist notion of ‘market instrumentality’, hence approaching markets as a social technology to achieve growth and modernization. Market instrumentality is deeply shaped by prevailing forms of governmentality, thus resulting in distinct forms of market dynamics, such as modularization as conjunctions

of firms and markets, tying rural families into supplier structures designed by lead companies, or the Shanzhai pattern of informal exploitation of technological knowledge (implying rampant violations of intellectual property rights) in flexible and nimble networks of family firms. Similarly, the status order of ownership is a major determinant of financial structures in the economy, thus explaining financial repression of the private sector as a manifestation of the ritual economy. Market performativity is partly a reflection of corporate organization. Therefore, Chapter 6 looks at the role of firms in the ritual economy. I present the general argument that in Chinese ritual, ‘corporations’ are weak in terms of autonomous sites of agency, and that therefore firms are ‘enterprises’ that manifest the underlying networks of entrepreneurial activity. The Chinese enterprise is a network organization of which corporations are external and even ephemeral expressions. This establishes an important family resemblance between past and present, since the absence of modern corporations was a conspicuous feature of the Chinese economy until 1949, which was actually maintained by enforcing socialist institutions until 1978. Today, the ritual economy of Chinese firms is a continuum of variants between the poles of private business and stateowned companies, with a significant share of hybrid forms. Hybrid forms have played an important role in past decades, such as the Township and Village enterprises that were directly embedded in the local state. Today, the two poles are also a reflection of the dualism of local and central state, with the central state claiming control of the state-owned sector as a modernist avant-garde, and the local state evolving into the domain of the market and private business, with a variety of regional patterns reflecting localism. Thus, the spectrum of companies in China and their ownership regimes is a manifestation of the ritual economy. In more detail, the Chinese enterprise as a network organization is embedded in the broader pattern of commercial capitalism in which markets, networks and firms are arranged in a mutual relationship. Over past decades, this has coincided with the expansion of global supply chains, where the network principle is also pursued as a modern management approach, thus exploiting convergences between modern management and the ritual economy. Thus, Chinese family business remains an important determinant of Chinese competitiveness in attracting investors. Global supply chains and commercial capitalism of the ritual economy are two sides of the same coin. With reference to this pattern, deviant forms in terms of formal institutions are therefore also manifestations of the ritual economy, such as the Shanzhai production systems in South China. Therefore, Chinese family business deserves further scrutiny. This is a central element of the influential conceptual model of ‘Confucian capitalism’ that has been created in the context of Overseas Chinese business. Independent from its validity, in Mainland China today this model is under severe pressure given the demographic constraints resulting from

the one-child policy. On the other hand, the family is also a general model for designing enterprise organization independent from kinship, as reflected in paternalistic management approaches. In this model of management, authoritarian leadership, care and informal organization work together. I argue that these aspects were also a defining feature of Communist enterprise organization along the lines of the ‘danwei’ model. Thus, we may regard both to be expressions of the ritual economy, with many functional equivalences to modern aspects of management, such as skill development and education. There are many examples of modern Chinese companies which therefore draw upon the paternalistic model in designing even innovative approaches to corporate organization and management. The major difference between private business and the state-owned sector resides in the underlying network structures. State-owned companies are the essential element of state capitalism as a modernist insertion into commercial capitalism. I define ‘state capitalism’ as being shaped by a stakeholder structure which mainly involves representatives of government-related organizations, behind which the CCP provides the encompassing network structure with its inherent status order. This stakeholder structure is also the framework in which ongoing reforms are implemented that aim at a hybrid ownership regime. Broadening the stakeholder structure is a major aspect of political change in China, in the sense of including a budding civil society in ritualistic governance schemes, such as in labour-management relations and wage-bargaining processes or in consumer protection and environmental concerns. The chapter concludes with an analysis of corporate culture in general. Corporate culture is understood as a framework for the explicit design of firm identities, and is an influential topic in China today. I concentrate on the role of traditional ideas in shaping entrepreneurial approaches to corporate culture, which may be distinguished from direct references to socialist ideology or the import of managerial models and practices from abroad. One important observation is that there is a tension between humanistic and legalist management methods, and that the choice between the two is driven by status distinctions. In particular, legalist management methods, largely characterized as ‘militaristic’, are often applied in units that employ huge numbers of migrant workers. One neglected issue in understanding corporate culture in China is the role of Daoism, which is an important background to popular religion and practices. Interestingly, Daoist notions inspire the adoption of management approaches that combine organization and market also internally, thus undergirding the resilience of modular network organization as an organizational principle of commercial capitalism. In this respect, China’s ritual economy is turning towards creating management innovations that may contribute to the evolution of global standards, since these forms of organization appear to converge with new models emerging in the context of the digital economy.