ABSTRACT

China's spectacular economic growth in the past three decades provides a prime example of gains that took place without effective property rights institutions and under a weak rule of law.Unlike the former Soviet economy in its golden era, China's growth was driven, in large part, by the expansion of the non-state sector.In fact, up until the mid-1990s China's political and legal systems officially dis-criminated against the non-state sector.So why and how did China's non-state sector in certain regions show such persistent dynamism, even though the party remained dom-inant in every aspect of economic life and had the power to expropriate or extract at will at some time？

We argue that even where no institutionalized credible property rights （PR）protection was provided, local elite cleavages afforded credible protection of private economic activities in certain localities, especially at a time when na-tional level political authorities and policy demands were unclear to local political actors.It is the very nature of au-thoritarianism that links elite cleavage to the commitment problem in authoritarian politics, where new distribution of power can undermine all previous promises and thus creates a very uncertain political environment for political elites.To secure their political survival, elites can seek protections from their patrons at higher authorities or elicit support from their subordinates or grass-roots constituents in the society, or both, depending on their particular positions in the political hierarchy.By grassroots constituencies, we do not mean“the people”necessarily, although that could be the case.Instead, that can include community level political or commercial elites, who may further mobilize individual members of a community.In the context of China, this includes township or urban district level officials or merchants.

In this vein, political elites differ from each other in terms of their political re-source endowments and thus tend to employ distinct strategies for political surviv-al.While some enjoy close ties with patrons and thus can rely on established pa-tron-client networks to advance their careers, others may have loose relationships with the power holders at higher levels.Without political support from the above, the latter group of elites is marginalized and more vulnerable to attack in political systems.To ensure political survival, they are more likely to seek support from e-conomic and social groups in the society and in the meantime make concessions to these groups.Therefore, it is elite cleavage that provides fertile soil for the forma-tion of alliances between politically marginalized elites and social and economic groups.

In order to consolidate grassroots support, the county or township elites must make political or economic concessions to their grassroots supporters.A primary concession may be the commitment against expropriation or extraction.As long as their marginalized power status persisted, the commitment these elites made to their allies remained credible.The political economy implication of this reasoning is clear：when a subset of elite suffered from insecurity due to marginalized power status, they provided the public good of localized property rights protection, which we refer to the geographical boundary of PR security, in order to consolidate grass-roots support.The implication is clear：politically marginalized elites are motiva-ted to make concessions to grassroots constituents and protect their economic inter-ests and that localities governed by political marginalized elites tend to have better economic performance in the long run.

This book investigates a natural experiment in China's Zhejiang province in order to identify the mechanism through which power status of political elites deter-mined their motivations, and their capacity as well, to protect local economic in-terests.By analyzing the post-1949 power structure in Zhejiang, we find that local elites at the periphery of power were forced to provide quasi-public goods like PR protection to win over grassroots support to secure their political survival, while their counterparts with close ties with the provincial patrons had no such incentive to foster local business interests.The most surprising finding is that it is the break-out of the Cultural Revolution that brought about the urgent need as well as oppor-tunities for the marginalized elites to openly organize their grassroots constituents, which in turn led to the flourishing local non-state sector development and laid the seed for the private sector development in the reform era.

To be more concrete, as the result of communist revolution before 1949，all Zhejiang's counties were divided into two categories in 1949：guerrilla counties and non-guerrilla counties.In guerrilla counties, local cadres were marginalized by the newly established provincial power structure and faced huge political insecu-rity, while their counterparts in non-guerrilla counties could rely on the patron-cli-ent network that was built by the provincial leadership for promotion.The local ca-dres in guerrilla counties were forced to cultivate popular support from below in or-der to guarantee their political survival, i.e.，they looked after local economic in-terests by supporting local private sector development in exchange for the grassroots'support.This mutual protection between local elites and potential private entrepreneurs explains why, relative to the non-guerrilla counties, the private sec-tor of guerrilla counties was effectively protected after 1949 and therefore better de-veloped in the long run.

Although the localized property right protection under the CCP's command structure, giving rise to a flowering of local economic initiatives and an era of strong growth among some coastal counties, the model has its boundary conditionsbeyond local elite's control.For one thing, the effects of localized property right protection is contingent on the situation of national politics, like the Cultural Revo-lution and policies adopted by central government since the 1980s, which created space for local elites to maneuver under various circumstances.Besides, the sym-biotic relationship between local elites and businessmen is best viewed as a spatial-ly limited solution to the problem of PR insecurity.For one thing, when firms grow bigger in scale and look for investment opportunities in other counties or even other provinces, they encounter PR insecurity problem shaped by local political environ-ment very different from their hometown.This again suggests that localized PR protection cannot be the perfect substitute for national PR protection in the long run.More importantly, because in our model it is those who are politically margin-alized in the power hierarchy tend to provide PR protection to grassroots forces, this bodes ill for those who expect the interactions between elites and social forces to affect policymaking in high politics.As mentioned above, as an alliance be-tween the weak in local society, it is always liable to the changes in high-level pol-itics, rather than the other way around, and lacks necessary strength and re-sources to articulate their interests in institutionalized manners.As Chinese author-ity always likes to emphasize their role in managing this country by saying that the economic reform cannot succeed without the appropriate design at the top, China's economic prospects in the long run are more determined by the decision making of central government at Beijing than by those made in affluent provinces like Zhe-jiang and Jiangsu.

The theoretical framework developed in this book does not just aim to explain the political driving force behind China's economic growth.But also, it helps un-derstand the political economy in authoritarian politics.As we argue in the book, it is the informal politics that determines the de fact power status of political elites in the power hierarchy and further the political foundations for their political survival.Political elite, based on their power status, will then decide on how to make moves to appease their patrons or supporters who are vital for their political career.Surely in the future we can apply the model to analyze policy choices, resource distribu-tion, cadre promotion, and network building, etc.，in China in particular, and in other countries like China in general.