Why Competition Can Poisonous to the Authoritarian Model

I would like to begin by briefly fleshing out what I take to be the central components of the ‘fragmentation argument’, and then proceed to argue that a far-sided application of Gallagher’s argument is compatible with the Lipset thesis.

This article is primarily intended to preserve the Lipset thesis, which holds that there is a causal flow from economic reform and liberalization to democratization, by explaining how the Chinese model falls outside the parameters of this thesis. Gallagher’s explanation begins by pointing out that the thrust of the reforms under Deng in the mid 70s were designed to bring in more FDI. The success of these reforms throughout the 80s and early 90s caused competition on three levels: 1) SOEs competed between each other for foreign investment and against foreign-financed firms 2) regions competed with each other in an effort to attract more FDI and 3) workers competed against each other for jobs. According to Gallagher, all of this competition dissolves the chance of there being a unified opposition movement since each group is too preoccupied with getting a bigger piece of the investment pie, so to speak.

Not surprisingly, the political reforms that have been achieved have largely been motivated by a desire to put in place those conditions necessary to attract more investment such as clear property rights and a strong legal and judicial system. A major challenge to the Chinese project of political reform is that democratization, per se, does not necessarily attract more investment. In fact, businesses are more concerned with institutional stability and consistency, a characteristic that provides them with the ability to appropriately adjust their expectations of future conditions. Democratization, on the other hand, is a messy process that typically requires a good deal of time before accomplishing any semblance of stability. Seen in this light, it appears as though the Chinese incentive structure for political reform is too weak and is dominated by the short-term gains from maintaining the status quo. However, I believe that the Lipset thesis is ultimately more robust and that the Chinese focus on FDI need not mark the end of opportunities to reform.

What serves as the most promising sign of Chinese political reform is the most discouraging result of its recent economic growth. Although foreign investment has done wonders to China’s per capita GDP, its effect on median income has been nearly negligible. Competing against fellow country men is all well and good when it’s a matter of who is going to win more than the other; however, when one group begins to consistently win at the expense of the others, the character of interest group politics changes to one of hostility and perceived oppression. In conclusion, the gains from FDI certainly ushered in a new era of competition in China that did away with the socialist model; but the skewed distribution of the gains might well serve as the impetus for political change.