People, Inc.? Law, Economic Enterprise, and the Development of Inequality in China

This Article tells the story of two Chinas and of different forms of public enterprise associated with each: state-owned enterprises (SOEs) in urban China and township-and-village enterprises (TVEs) in rural China. Historically SOEs have constituted the dominant form of socialist enterprise in China. However, China’s unprecedented economic growth began with the rise of rural industry in the 1980s, and the bulk of rural growth was generated by a new type of entity known as TVEs. While legal scholars have mostly ignored TVEs, economists have devoted a great deal of theoretical attention to them: How were TVEs able to succeed in the absence of legally protected property rights, in defiance of standard economic theory? Remarkably, they operated without a formal legal basis. This Article argues that long before the enactment of the PRC’s first Company Law in 1993, in TVEs local government law performed the core functions of corporation law—a phenomenon this Article characterizes as “Village, Inc.” It was this law of local governance, and the formal and informal institutions supporting it, that propelled China’s phenomenal growth for nearly two decades while helping close the historic welfare gap between city and country. The Article next compares TVEs’ record of success with that of SOEs. The Company Law promulgated in 1993 marked a reorientation from rural reforms to restructuring urban SOEs. Despite its apparent novelty, in many respects the Company Law simply codified institutional arrangements pioneered by TVEs. Even after SOEs were “corporatized” in order to attract outside capital, the state remained a controlling shareholder—a configuration this Article describes as “People, Inc.” However, despite the benefit of a formally promulgated corporate statute, as a group corporatized SOEs have not been able to replicate TVEs’ extraordinary success. Beyond the Company Law’s formal structures, there has been no informal “local law” of SOEs to regulate them, equivalent to the relatively egalitarian village institutions that governed the operation of TVEs. Significantly, however, the corporatization of SOEs has not only restructured the state’s relationship to capital. The final part of the Article considers how it has also fundamentally altered the relationship between capital and labor. The enactment of the Company Law was accompanied by the promulgation of a new Labor Law in 1994, mandating that all employees be provided with employment contracts. Since then, the revolutionary political subject of Maoism—“the people”—has been atomized into independent economic subjects responsible for their own welfare outside of work. This, in turn, has resulted in tectonic shifts in the boundaries among the state, the market, and the family. Moreover, with the contractualization of all labor, even urban workers no longer enjoy a guaranteed share of the benefits of economic development. Today, an earlier state-enforced inequality between city and country is increasingly overwhelmed by a society-wide gulf between the rich and the poor, without a necessary geographical correlate.