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Article Excerpt
SINCE THE CHINESE COMMUNIST GOVERNMENT allowed the establishment of small private businesses (getihu) in 1978, the number of private businesses in the country has grown exponentially. This unprecedented rapid growth of private businesses has become the central machine that sustains the economic reform of China in recent decades. In 2000 there were 1.7 million private business establishments. Altogether, they hired more than 24 million employees and accounted for half of China's economic activity (Gregory and Tenev 2001).This trend of growth has shown no sign of slowing down. On the contrary, it continues to grow at a rapid pace.
The discussion of entrepreneurial activities in the transitional economy so far has been guided by two major perspectives. The "market transition theory" suggests that the development of market institutions leads to the growing importance of human capital in entrepreneurial activities, while the "power conversion theory" argues that businesses of party cadre benefit from the power associated with their political affiliation (for details, see the Symposium on Market Transition in the American Journal of Sociology published in 1996; Walder, 2002; Gerber, 2002). These studies have provided rich information about how institutional changes in the transitional economy shape entrepreneurial activities; for example, Wank (1999) explored how the close linkages between government and business require entrepreneurs to maintain close contact with the government. These studies have, however, been limited to discussing how individual entrepreneurs purposefully and actively interact with the institutions of society. In particular, there have been few studies that explore how individual entrepreneurs use their networks to obtain resources from different institutions.
Such an analysis is important for two reasons. First, this kind of analysis brings out the significance of actors in the study of transitional economy. The analysis treats individuals as agents with a set of purposive actions, rather than as individual behaviours reflecting larger social configurations (Coleman, 1988). The approach fully acknowledges the intentional calculation of individuals as they are facing the complexity of a changing environment and the importance of situating individual behaviours in context. The study brings individual actors back to the centre stage of transitional economy analysis. Second, this approach directly addresses the relative importance of various institutions in the transitional economy. Economic activities of entrepreneurs include a variety of efforts to obtain resources from different institutions. This approach not only informs us about the operation of the transitional market, but also provides information on the "hierarchy" of institutions in the transitional economy.
In this study, we address these issues by focussing on one specific entrepreneurial activity, namely, obtaining business resources. Obtaining resources is critical to all businesses because virtually no business can survive without securing the necessary resources. Studying this process provides a crucial lens to gauge the operation of private businesses in the transitional economy. In addition, it is an ideal opportunity to learn where entrepreneurs obtain a variety of information and resources.
To address the topic, we employ a unique data set about entrepreneurial activities collected in China. To understand how individual entrepreneurs obtain resources for their businesses, we focus on how they utilize the social networks embedded in various institutions to achieve their objectives. The focus helps to understand how individual actions contribute to the structural outcomes.
The rest of the paper is organized as follows: We first review theoretical issues related to the changes in work organization and political institutions as well as the functions of social networks in transitional China. We have attempted to integrate existing major studies on these topics in relation to resource mobilization by entrepreneurs in a transitional economy. In the second section, we briefly report the data, the construction of variables, and the methods used in the analysis. The third section reports the results.
Literature Review
To understand entrepreneurial activities in the Chinese transitional economy, we need to understand the broader context of the social transformation that has taken place. The social transformation in China is unique because it is state-initiated, top-down and gradual. These factors reduce the severity of rapid social change, smooth the turbulence of social restructuring and take into consideration different institutional legacies (Walder, 1996). They also create a unique environment for entrepreneurs.
First, private entrepreneurs face the transitional market, situated in an uncertain and risky institutional environment (Zhou, Li, Zhao and Cai, 2003). The uncertainty is largely related to extensive government intervention in the social transformation, so that market elements intertwine with political elements. Compounding the complicated situation, private businesses have grown so fast in the last few decades that their services and industries have often gone beyond the boundaries ser by state regulations and have entered uncharted waters (Gregory and Tenev, 2001). Entrepreneurs are thus constantly working in an uncertain and ambiguous institutional environment.
Second, private entrepreneurs persistently face considerable competition from other sectors and are under tremendous resource constraints. Naughton notes that since the development of the market, there has been "a prolonged period without well-developed markets for factors of production or assets" (1995: 266). Private enterprise has to compete with state-owned enterprises (SOEs), still heavily favoured and subsidized in terms of gaining market access or finance (e.g., government contracts, bank loans, stock market listings, etc.). In addition to the competition with other forms of enterprise, private enterprises have been facing various constraints, including access to land and labour. Sometimes, they are even confined to specific industries and not allowed to explore others, such as high-tech industries, including biotechnology, medicine, and chemistry (Lau, Ngo and Chow, 1998). These latter restrictions were only lifted in 1994.
Finally, private entrepreneurs lack legitimacy. Like the "liability of newness" (Stinchcombe, 1965), private enterprises suffer from the "liability of privateness." With low levels of managerial and technological sophistication as well as humble social backgrounds among the early entrepreneurs, private enterprise had an image of undesirable quality and questionable practices, though this is now gradually changing. To make things even worse, established SOEs or collective-owned enterprises (COEs) tend to do business among themselves due to state regulations. Private entrepreneurs lack the legitimacy to strike business deals with these already established business networks.
Given that the institutional context within which private entrepreneurs make economic decisions is uncertain and that these entrepreneurs have limited resources and lack legitimacy, our study explores how private entrepreneurs find ways through their networks to access and mobilize resources for their businesses in a volatile economic environment.
Social Networks
Numerous studies on the Chinese transitional economy have been devoted to understanding the importance and role of social networks in economic activities; however, the empirical findings have not produced consensus. On the one hand, early studies on the transitional economy conducted by Nee suggested the growing importance of human capital in income attainment (Nee, 1992; 1996; Nee and Matthews, 1996). Similar studies based on more recent data confirm the patterns (Cao, 2001). These findings imply the less important roles of other factors, such as social networks. In the context of private businesses, the argument is echoed by Guthrie's assertion (1999: Chap. 8) that the role of guanxi (social networks) is diminishing and is being replaced by market coordination.
On the other hand, some researchers see the continued significance of social networks for resource allocation. Lin (1999), Bian (1994; 1997), and Bian and Logan (1996) documented in a number of studies the importance of social networks in job search. Wank's study (1999) shows the symbiotic network relationship between government and private businesses. Wellman and his colleagues argue that people rely on social network more in the transitional economy than in the past because they have to deal with rapidly changing institutions and personal economic insecurities (Wellman, Chen and Weizhen, 2002: 222).
To explain these seemingly different results, we suggest that they are partly due to the neglect of the complex relationship between institutional contexts and social networks. As Fligstein (2002) argued, the understanding of network functions has to be put into the context of the embedded institutions. Similarly, Granovetter's recent paper (2002) echoed the assertion that networks should be considered within a larger social environment. After all, network members who provide resources do not draw their resources from just anywhere; they do so from social networks that are embedded in specific institutions. To put networks in a specific institutional context is important because the relative roles and significance of institutions have been constantly changing in China since the market reform began in the end of 1970s. Therefore, while networks can be useful in some institutions under certain circumstances, they may not be useful in others.
Another complication in understanding the relationship between institutional contexts and social networks is that is it not only the specific institutions where members are affiliated that affect how many resources can be obtained, but also the position of the network member in the institution. Lin (1982; 1999; 2001) argued that resources are attached to social positions; there is a hierarchical structure whereby some positions are able to obtain more resources than others. In most cases, positions closer to the decision-making process where rules and regulations are determined can more easily obtain resources. These positions are usually at the top of the hierarchical structure of various institutions.
Not all network members at the top of the hierarchical structures are instrumental in obtaining resources, however. The help of obtaining resources among different network members depends on the nature and the strength of their ties with the entrepreneurs (Hwang, 1987). Given that members in most networks represent different types of social relations and strength of ties, entrepreneurs will obtain different and specialized support from different network members (Wellman and Wortley, 1990). Later studies extended the understanding that specific ties, such as those to neighbour-hoods (Oh, 2003) or churches (Wuthnow, 2002), not only provide specialized support, but can also affect specific behavioural decisions.
To fully appreciate how entrepreneurs mobilize their diverse network ties in specific institutions to obtain resources, we discuss three major institutions in which network members are affiliated and from which resources can be drawn: work organization, political organization, and occupational structure. In addition, we highlight various positions in these institutions and discuss how they are related to resources obtained. Throughout the discussion, we situate social networks in the larger institutional context and consider positions within the institutions to provide a picture of how entrepreneurs utilize network members in different institutions to obtain different resources. We argue that entrepreneurs obtain resources from different institutions according to the positions of network members in the institution and their relations with the entrepreneurs. We then further discuss the special roles of various network members in obtaining different resources for entrepreneurs.
Work Organization
Work organization, (1) or Danwei, has significantly affected daily lives in Chinese state socialism. Work units, set up by the party-state, used to have the monopoly on redistributing goods and services. Outside the work unit system, decent jobs and social security nets rarely existed, even after a long period...
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