Given the common image of multinational corporations seeking weak institutional environments to capitalize on cheap labor, why would joint venture relationships with Western multinationals have a more positive impact in the Chinese case? The answer has to do with the complex reasons for foreign investment there. Corporations are rarely the leading advocates of civil liberties and labor reform, but many foreign investors in China are more interested in long-term investments that position them to capture market share than they are in cheap labor. They generally seek Chinese partners that are predictable, stable, and knowledgeable about Western-style business practices and negotiations. Chinese factories desperately want to land these partnerships and position themselves as suitable investment partners by adopting a number of the practices that Western partners will recognize as stable and reform-minded. Among the basic reforms they adopt to show their fitness for “linking up” with the international community are labor reforms. Thus, the signaling of a commitment to stable Western-style business practices through commitments to labor reform has led to fundamental changes in Chinese workplace labor relations. Foreign investors and Chinese firms are not interested in human rights per se, but the negotiations in the marketplace lead to transformed workplaces, which affect millions of Chinese citizens on a daily basis.

However, changes at the firm level are not meaningful if they lack the legal infrastructure upon which a legal-rational system of labor is built. The construction of a legal system is a process that takes time; it requires the training of lawyers and judges, and the emergence of a culture in which individuals who are part of the legal system come to process claims. This process of change is difficult to assess because it relies on soft variables about the reform process, such as, for example, how judges think about suits and whether a legal-rational culture is emerging. But we can look at some aspects of fundamental shifts in society. All of these changes, in turn, rest upon a legal-rational system that is slowly but surely emerging in China.

Finally, beyond the legal and institutional changes that have begun to transform Chinese society fundamentally, workers are no longer tied to workplaces in the way that they once were. In the pre-reform system, there was very little mobility of labor, because workers were generally bound to their “work units” for life. The system created a great deal of stability for workers, but it also became one of the primary means through which citizens were controlled. Individuals were members of their work units, which they were dependent on for a variety of fundamental goods and services.

This manufactured dependence was one of the basic ways that the Party exercised control over the population. Writing about the social uprisings that occurred in 1989, Walder points out that the erosion of this system is what allowed citizens to protest with impunity on a scale never before observed in communist China: “[W]hat changed in these regimes in the last decade was not their economic difficulties, widespread cynicism, or corruption, but that the institutional mechanisms that served to promote order in the past—despite these longstanding problems—lost their capacity to do so.” It is precisely because labor markets have opened up that workers are no longer absolutely dependent upon the government for job placements; they now have much more leverage to assert the importance of their own rights in the workplace. And while the private sector was nonexistent when the economic reforms began, the country has seen this sector, which includes both private enterprises and household businesses, grow to more than 30 million individuals. With the growth of the private sector, there is much greater movement and autonomy among laborers in the economy. This change has afforded workers alternative paths to status attainment, paths that were once solely controlled by the government.

Quiet Revolution

Much like the advocates of rapid economic reform, those demanding immediate political and social reform often take for granted the learning that must occur in the face of new institutions. The assumption most often seems to be that, given certain institutional arrangements, individuals will naturally know how to carry out the practices of capitalism. Yet these assumptions reflect a neoclassical view of human nature in which rational man will thrive in his natural environment—free markets. Completely absent from this view are the roles of history, culture, and pre-existing institutions; it is a vision that is far too simplistic to comprehend the challenge of making rational economic and legal systems work in the absence of stable institutions and a history to which they can be linked. The transition from a command economy to a market economy can be a wrenching experience, not only at the institutional level but also at the level of individual practice. Individuals must learn the rules of the market and new institutions must be in place long enough to gain stability and legitimacy.

The PRC government’s methodical experimentation with different institutional forms and the Party’s gradual relinquishing of control over the economy has brought about a “quiet revolution.” It is impossible to create a history of a legal-rational economic system in a dramatic moment of institutional change. The architects of China’s transition to capitalism have had success in reforming the economy because they have recognized that the transition to a radically different type of economic system must occur gradually, allowing for the maximum possible institutional stability as economic actors slowly learn the rules of capitalism. Capitalism has indeed arrived in China, and it has done so via gradual institutional reform under the communist mantle.