Governance and Authority in China:
All in the Family
I recently attended a Visiting Scholar Lunchtime Talk held by the Center for China Studies at Berkeley’s Institute of East Asian Studies. (Go here for a listing of events; I really recommend them and what’s more, they’re free!)
The lecture was titled “Corporate Governance in China: An Investigation of the Interdependent Model” and was delivered by Prof. Liu Pingqing of the Department of Business Administration at the Beijing Institute of Technology. Professor Liu had taken case studies of over one hundred State-Owned Enterprises (SOEs) and over one thousand Private Enterprises (PEs) whose owners are from Mainland China.
He mapped out the specific nature of the interdependence between local, mid-level and federal government and the SOEs and PEs — the kind of resource support (or lack thereof) the different businesses receive, negotiation of legislative or policy enforcement issues, and so on. All in all, it was fairly dry stuff (in my opinion, anyway).
I perked up, however, when he began to talk about management structures. Firstly, he noted that, in a major change from the danwei or communal enterprises of the 1960s, most of the major SOE and PE players were being operated by one person and his or her ‘family’ — both in the literal sense, through nepotism, and figuratively, as through a large social network. Establishing a Board of Directors requires special permission from the government, and has only been granted to a handful of companies since the start of economic reforms.
By tracking the career paths of some of the leading SOE and PE ‘owners’, Liu finds that many of these elite businessmen bounce back and forth between positions of leadership in the private, state-owned AND governmental sectors. According to Liu’s research, it is not uncommon for these key influencers to hold official Party and SOE or PE posts at the same time. This trend puts economic innovation and power into the hands of a relative few; it also creates a huge potential for corruption.
My first instinct is to wonder, why these people? What about their personality makes them special and deserving? However, if we look at this phenomenon’s ideological foundation in Legalism, we wouldn’t ask that question. In the Legalist model for governance, less emphasis is given to the personal merits of the executive in power, but to the position he or she holds; therein lies the authority. Reverence is gained not through charisma and self-promotion, but by keeping a low profile and following the letter of the law. By deemphasizing personality, strengthening the influence of the job title itself and keeping those job titles spread thick among fewer people, the state asserts its authority and is better able to negotiate and appraise changes in economic policies.
This stands in almost total contrast with our interest in executives and officials as ‘personalities’. See the NYTimes Op-Ed piece on personality traits of CEOs, and countless other books (How to Win Friends and Influence People, Think and Grow Rich, How to Think Like a CEO, the list goes on…). Further evidence that formulas for success must be taken in context with one’s environment, and the best corporate and government officials will play the game differently depending on the playground.
As for China’s governance structures, future reforms are increasingly hard to predict. Professor Liu pointed to Taiwan as an economy that accepts certain aspects of the U.S. model but remains ‘consistent with its Asian heritage’, straddling both as it were. But the value of this trajectory towards the U.S. economic model is becoming obscured.
“China views the U.S. as its teacher on the economy,” he said. “What happens now, when the teacher himself is struggling?”