Boat traffic jams the Grand Canal in Hangzhou, People’s Republic of China. Hangzhou has been a hub of China’s economy for 2200 years.
Credit: James L. Stanfield/Getty Images

“There has probably been the most rapid reduction of absolute poverty as a result of economic growth sustained in the past quarter of a century that the world has ever seen.”—Victor Nee

as Confucius a capitalist? Victor Nee says “no”—the sage lived too early for that—but his research shows that most people in China today are enthusiasts for the free market. Nee, who is Goldwin Smith Professor of Sociology and director of the Center for the Study of Economy and Society (CSES) at Cornell University, received a $2 million Templeton grant to finance his research program, “The Entrepreneurial Spirit and the Birth of China’s Free Enterprise Economy.”
This collaborative effort involves researchers at Cornell, Stanford and various Chinese universities, notably Beijing, Zhejiang and the Shanghai Academy of Social Sciences. It is the largest and most comprehensive study ever undertaken of China’s transition to a private enterprise-driven market economy. Originally a three-year project, due to the massive data it has generated, it is now scheduled for completion in 2009.
His team has surveyed 900 firms in seven cities in the Yangzi Delta, the powerhouse of the enterprise economy. The field research has centered on the 2,200-year-old city of Hangzhou, which is no stranger to commerce. Marco Polo, in the 13th century, when it was the largest city in the world, wrote of it, “The number and wealth of the merchants, and the amount of goods that passed through their hands, was so enormous that no man could form a just estimate thereof.”
Victor Nee’s father was a hospital administrator in China who had done graduate studies at the University of Chicago. In 1949, when Victor was four, they moved to southern California. Totally assimilated, he first returned to China in 1972. “To me it was a new country.” He went to the town where his father had been born, met his cousins and “this gave me a much more direct and family-based relationship with the country I had left.”
Family remains a pivotal institution in China. The serious point behind the question about Confucius was Nee’s search for a cultural ethos driving the entrepreneurial spirit, “the functional equivalent to the Protestant ethic.” He searched in vain, but says, “Insofar as the family has been a core institution in Chinese civilization and culture, that might be… a cultural basis of Chinese entrepreneurship.”
Nee interests himself in the human aspects of China’s capitalist revolution. Initially, more than 100 entrepreneurs were interviewed. Questionnaires based on this data were then used by specially-trained researchers to interview the remaining entrepreneurs at their premises, face-to-face, recording and photographing them. Phil Keefer, a senior economist at the World Bank, has said the program’s quality control checks were “remarkable, surpassing those used by the World Bank.” Nee describes his interviewees as “the salt of the earth.” One of them told him how, as boys, he and his high school friends would sit under the tree in their village and talk about the great entrepreneurs. That youth went to the city, traded as a peddler, saved money and started a small factory packaging food.
The humble efforts of such individuals have produced spectacular results. Nee estimates there are now around four million firms in China with more than seven employees, about 18 million limited liability firms and seven million stockholding share firms, amounting to 30 million private firms in all. Some 150 million people in China regard themselves as entrepreneurs. Private firms are now the main source of new employment, supplying more than 100 million jobs, with another seven million added each year.
Is the new wealth eradicating poverty or provoking social tensions? China boasted 18 billionaires in 2006, by 2007 there were more than 100—the second largest number after the U.S. Yet many people in rural areas live on one dollar a day. Nevertheless, Nee is emphatic that this is genuine progress. “There has probably been the most rapid reduction of absolute poverty as a result of economic growth sustained in the past quarter of a century that the world has ever seen.”
Two significant preliminary findings have already emerged. “We can document that the Chinese economy completed its transition to a market economy around 2001-2002.” Historians will appropriate that “watershed” date. “The other finding is the discovery of how broadly based this entrepreneurial spirit is—not within the elite so much, but in the common man and woman.”
The program has already held a Conference on Chinese Capitalism at Cornell, in April 2007. The final stages of the program will be a second comprehensive survey in the fall of 2008, to be completed in early 2009. After analysis of the overall data, the program will conclude with discussion of its findings at a major international conference in Shanghai, involving Chinese scholars and officials and interested parties from around the world.