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The Primary Capital Accumulation in Contemporary China
- by HE Qing-lian

Introduction: Political Economy in the Transition Period

The problem of political economy in the transition period is to study the whole process of the allocation of resources during the social transition period in China and all the factors that determine and affect the allocation of resources. It reveals the essence of the changes in the relationship between person and material during the process of social change. A major aspect of it is the problem how to clear up the heritage left over from the planned economy.

The logical result of "bad money driving out good money" is: as long as bad money and good money are equivalent, and the existing system can not punish the bad money holders, people will not respect and abide by the law, but imitate those who speculate or trick as well as those who embezzle or take bribes (p.32).

Seeking the political foundation of economic policy-making (34)

James M. Buchanan, an American economist, created public choice theory, which categorizes governments into three models: philanthropical dictatorship, "giants" with independent interest, and Western democratic government (p.35).

How to look at the relationship between economic development and social cost (37)

From the perspective of social progress, the design of any system must have some elasticity, that is, it must have some "loophole" to be taken advantage of, otherwise the society will lose vigor; however, too much elasticity will cause the failure of the system itself and the society will have to bear the cost. This is the relationship between economic development and social cost (p.39). Gunnar Karl Myrdal, a Sweden economist, thinks that it is wrong to regard inequality as a precondition for the Southeast Asian countries to achieve economic development (p.40).

Ethical exploration of the problem of inequality in the allocation of resources (41)

This exploration of the question whether the wealth generated from unequal possession and allocation of resources is legal or accords with principle of fairness and justice can at least in a sense clarify and correct the values of the policy makers (p.42).

Part I: Process of Voluntary Privatization in China

The 6 chapters in Part I mainly discuss how those in charge of the sectors and enterprises that hold the power of resource allocation use the seriously deformed "hand" of power to "create" the modern myth of the primary capital accumulation in contemporary China. All the economic problems in contemporary China are deeply rooted in non-economic sphere. When the regime softens, the observance of law and of regulations by the government officials at all levels falls into a state of at-will and laxation. The extensive permeation of the large-scale embezzlement and corruption activities from the power level to the lower level caused violent changes in economic ethics in contemporary China. The enhancement of the significance of money has reached the stage where any moral standard can be ignored. Economic credit is seriously abnormal and the market is no longer effective. Due to the lack of ethical rules in market, the economy of our country has fallen into a state of over-speculation (p.46).

Chapter I: Socialist Free Lunch: Stock System Transformation

The sorrow of the "zou-zhe"[report to the emperor] school economists: "oranges mutate when planted north of Huai River" (51)

This section mainly discusses the discrepancies between the realities and the initial expectations by the government and "zou-zhe" school economists who pushed stock system transformation. They expected to strengthen the supervision of management and to forced the enterprises to generate a self-developing and self-restraining mechanism through the method that the employees hold stocks, so as to eliminate all the maladies of state-owned enterprises. However, the enterprises mainly considered the fund-raising function of the stock system. Many transformed "stock companies" are in fact only "turn-sign" companies, and the operational mechanism never changed.

Socialist free lunch: stock system transformation (55)

This section, through a lot of cases, focuses on the analysis of the essence of the "stock system transformation" movement. Through the efforts of various interest groups, the "stock system transformation" aimed at changing the operational mechanism of the enterprises finally evolved into a large scale rent-seeking activity that re-allocated social resources, with the "insiders" as the subject, the state-owned assets as the loot, power as the means of participation. Therefore the "stock system transformation" was changed to a "free lunch" of the socialist public ownership.

Considerations left over from "oranges mutate when planted north of Huai River" (61)

This section analyses that the major in-depth reason for the ineffectualness of "stock system", the "trump card" of enterprise transformation, is the lack of social environment compatible with "stock system", especially of the legal environment on which the survival and development of stock economy rely. As a result, "stock system transformation" became the game in the rent-seeking activities of various interest groups, and the stock market becomes the breeding ground of over-speculation. The lessons of this transformation are: with the gradual growth of market economy, power must be detached from the economic sphere as soon as possible so that government is changed from the subject to the arbitrator of economic life; in the system arrangement, administrative power should be restricted and be insulated from economic activities.

Chapter II: "Enclosure Movement in 1990s"

The unfolding of "enclosure movement" in China (74)

This section analyses the policy background of the unfolding of the "enclosure movement" from 1987 to 1992 (criticized by the government as the "development zone craze"). At the first stage non-market method was adopted: administrative designation and allocation. At the second stage non-market (administrative designation and allocation) and market (compensated transfer of land) methods were combined, but the first method prevailed. This defect in the means of designation and allocation turned the real estate market in China into a field with the most savage rent-seeking activities.

Power permeates "enclosure movement"(76)

This section mainly analyses the serious situation in some representative areas such as Guangdong, Hainan, Beihai (in Guangxi), Beijing, Shanghai, etc., that under the effects of the seriously deformed hand of power the total supply of land became out of control and the means of land supply became dislocated.

Feast for persons of power and influence -- partition of the income from state-owned land (79)

This section shows through many cases the fact that under the joint effects of power sectors relevant to land at all levels, income from state-owned land drains heavily into the individual pockets. It also analyses the serious consequences of the "enclosure craze" for Chinese economy. First, the government only earned very little from sales of land, while most earnings are drained in the form of all kinds of "gray channels". Therefore persons in power sectors benefit, income distribution was deformed with the most political meaning, and China lost an important opportunity to accumulate construction investment. Second, it analyses the reasons for the sky-rocketing prices of commodity houses in the real estate market of China, and the big impact of the state of serious imbalance of supply and demand on the government's housing policy.

The position of "enclosure movement" in the history of primary capital accumulation in contemporary China (92)

During the "company craze" power became marketable, and those who hold power took part in economic activities and got very rich by the foul means of taking advantage of double-track price system. From then on, distribution rules have been seriously deformed, been twisted into distribution based on opportunities, according to personal favor connections and speculations. These seriously twisted distribution rules took open effect in the later "stock system transformation craze" and "enclosure movement craze" (p.93).

The impact of the rent-seeking activities during "enclosure" on economic reform (93)

Under the condition of very lax and arbitrary social discipline, this series of reforms at the edge of "ownership" were taken advantage of by those "insiders" who hold economic, social and political powers to carry out rent-seeking activities and to obtain private gains. The facts are clear: in the loopholes of the transition from the old to the new system, a great deal of opportunities were used at will by persons of power and influence. They and some non-powerful or non-influential persons used each other to partition social resources. The results of the collaboration of official circles with the industrial and commercial entrepreneurs are that power institutions at all levels from the top to the bottom fell into an increasingly serious corruption. More discouragingly, none of the measures of macro-regulation such as "overhauling financial order" that aimed at elimination of corruption failed to provide more stimuli and more opportunities for corruption (p.94).

Chapter III: The Bottleneck of Economic Reform: Reform of State-owned Enterprises

The course of the reform of state-owned enterprises (104)

This section sketched out the "gradualist" path and all kinds of "prescriptions" in our country's handling of the heritage of planned economy system, state-owned enterprises. Since the 3rd plenum of the 14th CPC Central Committee proposed the establishment of modern enterprise system in which ownership is separated from property rights of the legal person, the state-owned enterprises have "felt the stones to wade across the river", and have carried out all kinds of reforms. Now the reform of state-owned enterprises is in an awkward predicament: they want to have a free hand in the reform but haven抰 found any "breakthrough".

The inevitable problem of ownership (107)

The ownership problem is the basic problem that can not be evaded after all. The environment for the survival of state-owned enterprises is the high monopoly of all kinds of resources by the government, thus the ownership of the state-owned enterprises by all the people becomes a paradox: on the property rights relationship, the nominal property rights owners don抰 even know clearly how much assets they have, much less how to control and sell all the rights. The results of "false ownership" are: the state-owned property rights become privatized while the state-owned property liabilities become public; state-owned property becomes the rent-seeking target of "insiders".

The incompatibility of the operational mechanism of state-owned enterprises with the rules of market economy (113)

The problem of state-owned enterprises are mainly caused by the serious confusion of functions of economic system and of political system. As a result the game rules of state-owned enterprises are incompatible with the rules of market economy. First, the restraints on the management of state-owned enterprises do not come from the market, but from the government departments directly in charge. Thus the managers of state-owned enterprises devote their major efforts to the management of "leaders" instead of to the management of the enterprises, which brought about the low efficiency of enterprises and widespread corruption phenomena. Second, the state-owned enterprises lack the concept of capital operation. In this regard, the present relationship between them and the banks violates the rules of the game in market economy, and also plants deep-rooted causes of ruin for the financial system.

P.115-116: data illustrating that most corruption phenomena are connected with state-owned enterprises. Reference in p.136.

Several relevant problems to the reform of state-owned enterprises (121)

This section discusses how enterprises can repay the historical debt to employees. Now people place hopes on the reform of social security system, but they overlook one point. The success of social security reform depends not only on how many people join, but also on the amount of social security accumulation. It also illustrates several specific reasons for the success of the "Shenzhen model" of social security and points out that under the condition of older age structure of population, of low efficiency of enterprises, and of increasing unemployment, placing hopes of unburdening enterprises entirely on the reform of social security system would actually be "faraway water that can抰 quench near thirst".

Attachment: "the drain of state-owned assets" (125)

This section illustrates how seriously the phenomena of the drain of state-owned assets has worsened and mainly through what channels. These cases show that the reform of the property rights system of state-owned enterprises is very urgent.

P.127: various channels through which leaders of enterprises drain state-owned enterprises of their assets.

Chapter IV: The Sources of Rent-seeking Activities

Social sources of rent-seeking activities (142)

During the transition period, China is still at the stage of imitative market economy, and the function of allocating resources by the market has not been established yet. Since the government holds a decisive position in the allocation of resources, it has become the target of the rent-seeking activities of the interest groups. The present rent-seeking activities focus on several "points": the points of concentration of power, the points of overlap in system transition, the points of weakness of supervision system, the points of backwardness in law and policy, and the crucial points of demand for talents, property, and material.

Connection web -- the nerve net of rent-seeking activities (144)

At present in China, a resource allocation system different from both planned system and regulated market assumes the function of allocating resources. The rent-seeking activities are mainly carried out through an informal social connection web. Since this informal social connection web can affect the flow of many resources and influence their directions, it has become a resource that has the function of allocating resources, and has been relied on by the rent-seekers to escape legal punishment.

The cultural inheritance relationship between the historical "culture of embezzlement and malfeasance" and the present rent-seeking activities (148)

Retrospection of history would show that interest exchange was vested with a "moral" meaning in ancient China. The corruption phenomena at present are only a kind of continuation of the old Chinese culture of embezzlement and malfeasance. Just because of this cultural background, the emergence of large scale of corruption phenomena didn抰 encounter cultural resistance. What is more, several years ago there was an opinion that economic development and social equality and justice are at conflict and that the relationship between these two is "fish and bear's palm": you can抰 get both of them. It also holds that "corruption" is conducive to eliminating resistance in the system that is unfavorable to the reform. This opinion undoubtedly speaks in defense of the growth of corruption phenomena.

P.149: comparison of the degree of corruption in China with that in other countries.

The social cost of rent-seeking activities (151)

The flooding of corruption costs the society tremendously. This "cost" first is reflected in the corrosion of government functions and in the huge waste of social resources. The trade of power for money further stimulates the deformed development of the official selfish departmentalism in the new social conditions. Power's monopoly of social production elements is more harmful to the development of market economy, especially to income distribution, than economic monopoly under market economy system is. This system creates a lot of official merchants, official reseller, and "brokers" who rely on the power class. There are persons in the governments at all levels who don抰 abide by government regulations and commands, and who don抰 scruple to sacrifice the interests of the state and of the people for their private interests. Secondly this "cost" is reflected in the ideological sphere. Under the shroud of the huge "connection web" created along with political and economic power, the activities of taking advantage of power for the gain of personal interests have become the social trend. People adopt surprising acquiescence and tolerance toward the "gray activities" or even "black activities" to increase individual income. The corruption of the morality of the whole society is unprecedented.

P.152: data on the influence of economic crimes by Party and government officials on the Gini coefficient of the distribution of income in China. Reference is in p.160.

Chapter V: The Contemporary Primary Capital Accumulation

Who benefited the most? (166)

In this contest of wealth accumulation, the beneficiaries are mainly of these kinds: first are the administrators of social resources. These people hold the power of examination and approval of the planned materials and the rights of use of funds. Second, the persons in charge of some state-owned enterprises. These people are "insiders" and it is especially easy for them to turn state-owned assets into their own through all kinds paths. Third, the brokers who can translate such powers into money. Fourth, the people in charge of some China-funded institutions in foreign countries, Hong Kong, and Macao. Besides these four kinds of people who have got rich through various rent-seeking activities, there are some fortunate people who "get on the bus" during the reform.

P.169: the richest 7% of Chinese families includes leaders of some enterprises and institutions, persons in charge of some stock enterprises, some contract leaseholders, and a few who use power for private gains. (Also in p.174)

P.171: from January to September 1995, over 80 cadres of China-funded foreign institutions became "missing" due to involvement in suspicions of economic problems or embezzlement. In the first half of 1996, the Commission Against Corruption of Hong Kong received 77 cases of cross-border embezzlement involving Mainland China, an increase of 40% over the same period the previous year.

P.171-172: data of cross-national comparison of capital drain and increase in foreign debts.

P.177-178: data on drain of Chinese capital.

The completion, characters, and the inevitability of the process of primary capital accumulation (174)

The primary capital accumulation in China started in 1980's with the introduction of contract responsibility system in enterprises. From then on, China has opened the sluice gate of state-owned assets and begun the process of drain of state-owned assets and of the expansion of individual capital. The sign of the completion of primary accumulation is the concentration of wealth in the hands of few people. Essentially this is the process that the people in power in the two large political and economic organizations in contemporary Chinese society and their parasites partition the state-owned assets through rent-seeking activities such as trading of power for money. The target of primary accumulation is state-owned resources and state-owned assets, which are the accumulation of blood and sweat of the whole people for over 40 years. The means of plunder is power. It is inevitable because during the period of social transition, there are many loopholes in the system and thus whoever controls the resources or the power of resource allocation will be able to translate power into "capital" in the market and occupy a favorable position in the process of re-distribution of social wealth.

The profound influence of the completion of primary accumulation on Chinese society (181)

First, the formation of large amount of private capital is conducive to changing social power structure; social power will be no longer a mixture of political, economic, and military power, etc.. As long as there exists economic power outside of political power, it would be possible that these two kinds of power control, check, and supervise each other. In any case this power structure is more conducive to social progress and the liberation of human nature than the structure of power monopoly is. However, if government power can not be separated from economic sphere as soon as possible, if the weak regime behavior model of trading power for money among social members can not be changed, the various interest groups will inevitably use the various resources that they monopolize to obtain illegal gains through all kinds of rent-seeking activities. These rent-seeking activities will inevitably cause the regimes in these developing countries to further weaken. At a certain stage in the development of this vicious circle, the government will be powerless to deal with the linkup between these two huge pitfalls. Under these conditions, only "money-power politics" will emerge. Second, the circle of government officials will be split up because of interests. The promotion of interests of those who benefit from embezzlement and corruption is linked with social disorder, while the interests of some officials in non-material sectors are linked with social stability. The efforts to stabilize the society will impel some reform measures to rectify social political morality to come up. Anti-corruption must be turned into a bloodless revolution, otherwise it would be unimaginable that this situation of reckless promotion of individual interests by corrupt officials would prosper the country.

P.184: data on numbers of cases of embezzlement and bribery filed and investigated by procuratorates in 1993, 1994, January to August 1995, also by official rank and sectors.

Chapter VI: Market Games in Lack of Ethical Norms
- also on the violent changes of economic ethics in contemporary China

The asynchronous changes in politics, economy, and ethics (195)

The most conspicuous character of the reform is the extreme asynchronism of the changes in political system, economic system, and economic ethics. The overall character is: the changes in political system are seriously backward and the changes in economic system are relatively fast, while the changes in economic ethics are surprisingly fast. The socialist economic ethics of sacrifice crumbled during the over ten years and was replaced by the criteria of value judgement entirely based on practical gains, which caused the situation of serious social chaos and disorder.

The damaged moral order of the market (197)

The moral order of market economy is mainly composed of occupational morality and economic credit, the first level of economic ethics, which form people's behavioral norms. They are the base of operation of market economy and guarantee the order of market. In the 1980's and 1990's in China, occupational moral crises occur in all walks of life. Many people obtain wealth not through fulfilling their occupational duties, but through power of office and violation of the basic moral standard of their occupation. At the same time occurred the phenomena of seriously abnormal economic credit. The most outstanding signs are: first, economic contracts become ineffective, which causes serious block of economic credit. Secondly, fake and inferior commodities flood the market and the market has become ineffective. These conditions have caused the national economy to fall into over-speculation.

P.199: results of a survey on the most hated occupational crooked styles of work. Reference is in p.233.

P.201: results of surveys from 1993 to 1995 on public resentment of social morality. Reference is in p.233.

P.203: data on cases of fake and inferior commodities and state cadres involved. Reference is in p.233.

P.205: statistics by the Ministry of Public Security on economic losses of fraud.

P.209: survey report of commercial ethics of Chinese entrepreneurs.

Deformation of distribution rules caused by unequal opportunity (211)

Fairness and efficiency is a major problem that has haunted economists. In such a short time as over ten years, China has been changed from a country prevalent with equalitarianism to a country with too big gap between the rich and the poor. The major reason why this has occurred is that we have chosen a development strategy of "efficiency has priority" and "development before distribution", and an ultimate aim of maximizing profit through the incentive structure of wide income gap. Reforms in non-economic sphere never started. Therefore power is marketed. The result is that power interferes in the allocation of resources and that social members, according to their respective position in government and enterprises, the two big organizations, join a big competition of accumulating wealth with extremely unequal starting points. The practical result of this competition is the loss of fairness and the failure to obtain efficiency.

P.213: Gini coefficient of China in 1978 and in 1994. Reference is in p.236.

P.216: sums of consumption at public expense in 1980, 1990, and 1993.

Seeking wealth -- positive examination of the abnormal economic ethics (217)

Besides fairness and efficiency, the system of economic ethics also includes people's attitudes toward wealth. People's attitudes toward wealth can usually be measured from three major aspects: means to seek wealth, use of wealth, and state's administration of wealth. This section illustrates that the Chinese people's concepts of "public" and "private" have been seriously deformed and how "private desires" govern people's behavior in an extreme form. In China, the activities of seeking money have never formed such a rampant and blustering money tide that engulfs all the people. Also the enhancement of the significance of money has never reached such a stage where any moral standard can be ignored.

The perplexity of wealth (223)

In human world, all the wealth will finally fall between ideology and material and be controlled by human ideas. This section mainly examine how the social class of upstarts use wealth, how the state manages wealth, and the moral perplexity of the Chinese in face of money. The traditional Chinese culture has a whole set of philosophy on educating the people how to deal with poverty, but now is profoundly straitened in face of wealth. These straitened circumstances make researchers feel it necessary to re-examine the whole process of the change in Chinese economic ethics, because economic development must have a spirit of the humanities as its pillar and motive force. Failing this support of the spirit of the humanities, the desire to seek wealth finally will inevitably be reduce to the impulse of pure material desire. This will cause the growth of animalism in men, the vanishing of human nature, the chaos of social order and the waste of wealth.

P.226: data on the ratio of money obtained through economic crimes to their formation of savings. Reference is in p.238.

Part II: Crisis and Choice

The first part of this book shows from a vertical perspective the process of voluntary privatization in China. The second part dissects, from a horizontal perspective of the transverse section of the society, all kinds of harmful social reactions caused by the marketing of power and shows the various disadvantageous factors that restrict social development in China in a long period in the future. For example, too big gap between the rich and the poor causes widespread intensification of social resentment. Too much employment pressure and repeated waves of crimes. The deformation of social control mechanism caused by the process of de-organization (revival of patriarchal clan organizations and rise of local evil forces) in basic level rural organizations. Local evil forces "combined by officials and black society" have established exploitive control of the people in a few small towns and rural areas.

The emergence of the above problems has both been effected by political economy and been influenced by cultural factors. The social pressure that these problems pose on China is more long-term than short-term. Their influence on the realities of the Chinese society shows that money-power politics, the collaboration of officials and the black society, refugees and vagrants will be the ultimate sources of Chinese social crises in the future.

The second part shows that China is now wavering at the crossroads. One is the road of civil society toward rule by law, and the other is the road of "Italy model" (or the money-power politics model in Korea) characterized by "collaboration of black society and power". The policies of the Chinese government and the re-selection of development strategy will be the decisive factor of which road China will take in the future.

Chapter VII: The Formation and Widening of Poor-rich Gap

The present living condition of the poor urban population (244)

This section concretely analyzes the major categories, present living conditions of the poor urban population, and how they have fallen into the bottom level of the society step by step.

Extremely insufficient poverty relief (247)

This section briefly discusses the defects of the present social relief mechanism, the progress in the reform of social security system, and the provision of the lowest life ensurance lines in some provincial capitals.

The problem of inequality in distribution (252)

Beginning with the effect of illegal income on the Gini coefficient in China, this section explains that the situation of too wide gap between the poor and the rich is largely the result of power's interference in market and distribution mechanism is twisted into a distribution based on power, personal favor (in fact money) relationship and speculation.

P.252-253: data on the overall effects of illegal income on the disparity of income distribution in China. Data on the overall effects of illegal income on the disparity of urban income distribution in China.

The pyramid structure in income distribution (255)

In China, income from capital (non-labor income) far exceeds income from salary (labor income). At the top of the pyramid, 10% of the richest population account for almost half of the personal savings in China.

The sense of relative deprivation of the public (256)

Citing the change in Gini coefficient in recent years, this section talks about the fact that in such a short time as over ten years, China has completed the historical process from equalitarianism to too wide gap between the rich and the poor. Through the results from surveys, this section shows that the reason for the public resentment of too wide income gap is actually the resentment against getting rich through improper means, not the resentment simply against division between the rich and the poor in the equalitarian era.

P.257: data on the change in Gini coefficient from 1978 to 1994.

P.259: results of a survey on the perception of getting rich through improper means.

The effects of income concentration on social development (260)

The serious concentration of income strongly (materially and psychologically) blocks public participation in development, harms the public willingness and ability to work hard, and promotes the irresponsible tendency of the citizens. The government must have a fair regulation on the ratio by which capital element and labor element enter distribution, so as to prevent the improper income of a few people from becoming too high, and prevent the continuous expansion of polarization.

Poverty - a world trouble (261)

The problem of poverty becomes increasingly serious. It is mainly the result of unreasonable political order. Its main sign is the gradual widening of the gap between the rich and the poor.

Chapter VIII: Population, Employment and Crime

The urbanization of the rural area under the dichotomous economic structure (272)

Besides the "dichotomous economic structure" of too wide disparity between the urban and rural economies, China has to maintain the "dichotomized" households register administration system that divides the urban and rural areas, due to some objective factors such as the limited capacities of urban expansion and infrastructure. The path of urbanization in the Chinese rural area has many characteristics different from that in average developing countries, because of the restraint of the "dichotomized social structure".

The large scale shift of rural labor force -- waves of laborers (277)

This section makes a historical review of the waves of laborers that have lasted over ten years and especially points out that under the condition of unlimited supply of labor force, the basic difficult problem of the Chinese society is how to digest the astronomical figures of rural surplus labor force.

Employment and crime (284)

Two big outstanding problem facing China now are employment and crime, and there exist countless links between population, employment and crime. A great number of rural surplus labor force flow into the cities and become the fringe people of the cities, thus many social fringe groups emerge. The vagrants that steadily flow into the cities become the organizational basis of black societies. Waves of crime intensify social tensions. It is not a coincidence that "Du Run-qiong incident" happened in Guangdong province, the province with the most migrant population. This incident is a tocsin of the population problem in China.

P.287: the 100-day cracking down on crimes in from May 1996.

Population problem: ancient altar (295)

If most farmers don抰 change the backward reproduction habit of bearing many and raising many, the development and stability of the Chinese society, and the accumulation of civilization and progress will always be the sacrifice on the ancient altar of the population problem. Compared with any other crises, the population problem is a kind of internally created crisis. In the formula of population and environment, we can not expect to be extricated from this crisis only through technical progress. For China, the whole problem at present and in the future is not only the survival of the nation, but also to avoid surviving under the valueless condition.

Chapter IX: The Multi-polarization of Social Control and the Rise of Local Evil Forces

The process of "de-organization" in basic level social organizations in rural areas (308)

Since the reform was launched, the previous basic level organizations in Chinese rural areas are in a state of disintegration and the "process of de-organization" has begun. Because of the differences in historical and cultural accumulation of the rural areas in all parts of the country, the results of "deorganization" are very different. In the "low industrialization and low collectivization" areas such as Central China and Anhui, Guangxi, patriarchal clan organizations flourish. In "high industrialization and low collectivization" areas such as the Southeast coastal areas, industrialized market model was formed, and both associational organizations and patriarchal clan organizations have developed, but the social function of patriarchal clan organizations is not so great as in Central areas. The southern Jiangsu and Beijing-Tianjin areas are of the high industrialization and high collectivization type, and industrialized organization models were formed, with a combination of economic and administrative organizations.

The revival of rural patriarchal clan organizations in contemporary China (311)

In the past superficial transformation and control of the society depend too much on the means of charisma and movements. The elimination of patriarchal clan organizations was limited only to their entities, while their social breeding ground was not touched, and the cultural values of the masses of peasants were not changed. As the intermediate organizations in rural communities are in a state of blank, the obligations and convenience of blood relationship caused the farmers to shift the trust initially put in administrative leaders to capable persons of the same clan and the same surname. This is the source of why patriarchal clan organizations have risen in rural areas and have become the controlling force of basic level communities in the past over ten years. The revival of patriarchal clan organizations in a sense re-created the environment of the clan's control of individuals in traditional society, which means the modern "individual-state" model where individuals are responsible to the state has been reduced to the traditional "individual-clan-society" model. Members of the society regard the interests of the clan, not justice and common sense, as the prior factor in determining individual attitude and behavior, which has potential danger for the state. The state will have multiple difficulties in mobilizing the society to realize social goals that are not consistent with the interests of the clans.

The deformation of the mechanism of social control: the rise of local evil forces (321)

This section cites many facts to talk about some local evil forces formed in Chinese villages since 1980's and shows that some formal organizations of social control have been to large extent reduced to a selfish exploitive control of the people by a few people and their interest groups. It points out that the rise of local evil forces and the exploitive control formed by the "collaboration of the black (local evil forces) and the white (basic level rural organizations)" are important factors that block the process toward rule of law in Chinese society. If these evil forces are allowed to run their course, China would be unable to transform to "civil society" in modern sense.

Chinese villages and the problem of Chinese farmers (327)

This section analyses why the symbols of the local "social forces" are always some persons in the rural areas who are full of evil social habits and full of rogue proletarian consciousness, and the historical and practical reasons for the production of local evil forces. It points out that the difference between urban and rural areas is the difference between the most modern part and the most traditional part of a society. The essential definition of backwardness is the quality of human beings. The so-called "urbanization" is not only the accumulation of a series of indexes, but also a revolution that eliminate the barrier between urban and rural areas in the sense of cultural values.

P.330: proportion of incumbent being re-elected in village elections in Lihua county, Jilin province.

Chapter X: Rise of Black Economy and Black Societies

Definition of "underground economy" (340)

In countries with different political systems, underground economy has different forms of existence. This section mainly discusses the black economic activities that have the state-owned resources and state-owned economy as the targets of plunder and some such activities that are extremely harmful to the society, not including the economy outside of the statistics and unreported economy.

Analysis of black economic activities (341)

This section analyses the major sectors that produce black income, the holding forms of black wealth, and several usual methods to turn black wealth into legal income.

P.343: in 1996 the state judiciary agencies published that many new types of economic crimes in hot economic sectors such as finance, securities, real estate, contracts of construction projects. Numbers of such cases. Reference is in p.365.

The carrier of black economic activities: black society organizations (345)

The black society organizations in China now have several organization types, such as those that operate in an enterprise manner, and those that use force as capital. These black society organizations mainly engage in such illegal activities as drug traffic, smuggling, selling humans, making and smuggling of counterfeit notes, and controlling brothels. Their existence in large amount is directly linked with the rise in crime rates in China. In some areas the existence of black societies have constituted a threat to the local people's life.

The serious consequences of the flooding of black markets (360)

The flooding of black markets is an outrageous contempt of the dignity of the government and sanctity of the law. It seriously distorts national statistics, upsets the distribution of labor force and material resources, greatly mocks the distribution rule based on productivity, and makes people think that the alternative distribution rule based on speculation or opportunity is more profitable. As a result people's morality is twisted and social mentality is poisoned. What is more alarming, at present in China, this black economic activities have close relations with a few corrupt persons in the government. This kind of facts of "collaboration of officials and black societies" shows that there exist two possible paths at present in China, one is toward modern civil society ruled by law, and the other is "Italy model".

Conclusions: The Archimedean Purchase to Judge Social Systems

The defects of the "efficiency first" economic growth strategy (371)

The ethical support of the economic growth strategy with "efficiency first" as the value orientation and policy goal is this opinion: production is prior to distribution and development and fairness can not be obtained at the same time. Social fairness must be sacrificed in order to develop economy. The practice of this strategy has caused harmful political reactions in all walks of life in the society. The social corruption that achieves mutual gains through violation of the legal system and the social morality will inevitably end the reform prematurely. So China must abandon the strategy of economic growth that aims at the priority of efficiency without development and must re-select a development strategy with social content.

What kind of development strategy should we choose (374)

To overcome the defects of traditional strategies of economic growth, scholars in developed countries have proposed a new concept of development and argue that development should be based on such conditions as nationality, history, environment, and resources. Specifically speaking, development is the sum of various factors such as economic growth, political democracy, rise of levels of science and technology, changes in cultural values, transformation of the society, natural harmony and ecological balance. This development strategy centered on human should be China's policy choice in the next stage.

Re-introducing human concerns into economics (376)

Fairness and efficiency are a basic proposition with ultimate significance in human culture. Its significance is as an ideal, deep rooted in social system and people's hearts, which has become the goal sought by generations after generations of the humanity. The researches by many Chinese economists were evaluated as "neither scientific predictions of the Chinese economic development nor practical afterwards analysis of social economic phenomena", and became a "skill to butcher dragons" that seriously loses contact with Chinese realities. The reason for that is the lack of the spirit of human concerns. They "only see the material, not the persons" in the analysis of practical economic problems, only pay attention to the formation of mathematical models and have fallen into the methodological pitfall of mathematical ideas. What the Chinese economists should strive to do is the introduction of human concerns into economics and restore the original meaning of economics: economics is a science of the culture, not of the nature; it belongs to the social sphere, not the technical sphere.

Declaring war on the political cancer: marketing of power (379)

Deep retrospection of all the difficult questions in the reform will reveal that the biggest resistance factor for the reform is the marketing of power. It is just the marketing of power that has caused widespread unfair social distribution, social corruption, and high inflation rate, and has impeded the deepening of the reform.

The path of corruption points to: money-power politics with non-legal power (383)

Some people think that corruption is conducive to social transition and assert that the interest groups that have gained through corruption will strive to establish a social order ruled by law. They totally ignore that the "old system", i.e. extreme left dictatorship, that corruption will disintegrate is not the major social problem during transition period. Now that new laws and regulations keep coming up, what corruption will disintegrate are these now legal constraints. The ultimate results of rampant corruption will only be "collaboration of black societies and officials" which has shown some initial omen (in some areas it has formed real social order). The "social transition" that corruption pushes will never be oriented to the "civil society ruled by law" that intellectual formulate every day on paper. It will only be highly corrupted money-power politics or the "Italy model" society jointly governed by the government and the black society.

Human quality is determined by the quality of humanities education (388)

The significance of the humanities is by no means only at the moral and spiritual level. The reason why many economic problems in the transition period are hard to solve is the failure to combine the moral evaluation of the humanities and the rational judgement of the social sciences. We must get rid of the concept of the "only" human nature in classical economics and inspire the altruistic and self-transcending aspect in human nature through education of the meanings of the humanities.

Development is the development centered on human (392)

Facts show that economic development without the spirit of the humanities makes people unconstrained by such spirit of self-control, reason, fairness, and fraternity in the competition for interests. There is only stark shameless pursuit of money. Even if such "development" temporarily achieves efficiency, it is at most an incomplete development. From the perspective of dynamic operation, although the theory of fairness and efficiency manifests itself as a problem of temporal order, which principle is the precondition and basis of the solution of the later principle is one of the major value judgement in economic development. In the design of systems, the new system must embody the idea of social justice and equality. If a state can not seek fairness and justice for its citizens, it will never achieve real development. So social fairness and justice are both the Archimedean purchase in our evaluation of the reform and the starting point in our evaluation of the achievements in modernization.