Taïeb Hafsi, HEC Montréal Taïeb Hafsi, HEC Montréal China: Thoughts About a Born Again Civilization China: Thoughts About a Born Again Civilization Presentation at the CÉRIUM’s Summer School Presentation at the CÉRIUM’s Summer School China Risen China Risen How it changes and change us How it changes and change us
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Taïeb Hafsi, HEC Montréal China: Thoughts About a Born Again Civilization Presentation at the CÉRIUM’s Summer School China Risen How it changes and change.
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China: Thoughts About a Born Again CivilizationChina: Thoughts About a Born Again Civilization
Presentation at the CÉRIUM’s Summer SchoolPresentation at the CÉRIUM’s Summer SchoolChina RisenChina Risen
How it changes and change usHow it changes and change us
A PRIMER
1. Capital: Beijing2. Area: 9.6 million km2 3. Population: 1.3 billion (2000)4. 56 ethnic groups (Han: 91.6%; Muslims:
21 million)5. Communist party: 6.5 million members6. 1840: China accounted for 1/3 of World
GDP; 2003: it was only 5% !
A PRIMER
7. 4 cities directly controlled by Central government: Beijing, Shanghai, Tianjin and Chongqin
8. 23 provinces (Incl. Taiwan); 5 autonomous regions (incl. Tibet); 2 special administrative regions (HK and Macao)
9. 26 are larger than France; 16 are larger than Quebec
A PRIMER
10. The 5th largest economy in the World (2005) GDP: US $ 2300 Billion (+9.9%) FDI: US $ 60.3 B RESERVES: US $ 800 + International Trade (2005): US $ 1422.1 B (+23.2%)
US deficit with China: US $ 201 B Over 250 M. people have been pulled out of poverty Middle class is developing fast and is expected to reach
500 million people by 2020
HISTORICAL FACTS
A remarkable history: over 4000 years old 16 dynasties: Qin, Han, Dang, Song, Yuang, Ming and
Qing More than 250 emperors
Yin Zheng: first to centralize feudal monarchy and unite China in 221 BC
Kublai Khan: unified China and Mongolia in 1276 AD Yong Zheng: officially integrated Tibet into China in 1727 AD
China first republic in 1911 by Sun Yat-Sen Popular republic in 1949
1976: Death of Mao, Zhou and Zhu 1979: Deng Xiaoping starts the economic reforms Transitions from a centrally planned economy to a Planned
Socialistic Market Economy, and then to the Socialistic Market Economy with Chinese Characteristics
SOCIAL HISTORY
Pictographic and hieroglyphic characters Confucean philosophy Taoism, Buddhism, Islam and Christianity 54 different languages (28 written) and over 2000 local
dialects Qing (1644-1911): three official languages (Mandchu, Mandarin
and Mongolian) Korean, Mongolian, Arabic and Tibetan official in some
provinces or regions Hierarchical society, based on strong family values and
norms Importance of Guanxi, dining and gift-giving
MORE PRECISELY
POPULATION 1953: 600 MILLION 2000: 1.3 BILLION
ACTIVE POPULATION 1953: 200 MILLION 1978: 400 MILLION 2001: 744 MILLION (A: 365; I: 165; S: 202)
MORE PRECISELY
GDP:2001: $ 1159M; 2004: $1600M State firms: 42% Foreign subs: 29% Others: 29% Coastal provinces: 64% of GDP, 82% of FDI
and 91% of exports in 2001 GDP per capita: 900 et ppp: 4500 in 2001; 1200
and 6000 in 2004 FDI: 1991-2005: $ 460 B of which 75% ASIA
MORE PRECISELY
EXPORTS: 6% OF WORLD TOTAL (2005) 8% ELECTRICITY/ELECTRONICS 25% TEXTILES 11% WOOD 3% FOOD PRODUCTS 3% CHEMICALS 52% ASIA 22% USA 18% EUROPE
CHINA
THOUGHTS ABOUT A BORN AGAIN CIVILIZATION
BYTAÏEB HAFSI
PROGRAM
1. CHINA’s HISTORY and CHARACTER2. THE MAO PERIOD3. THE MORE RECENT
TRANSFORMATION4. THE CASE OF THE ELECTRICITY
INDUSTRY
CHINA IS A CIVILIZATION
More than a country, China is a civilization A strong culture Deeply rooted traditions Highly institutionalized social behaviour
This is said to be the civilization that has lasted longer
A UNIQUE CIVILIZATION
Even the pharaos cannot rival the wealth and decorum of the Chinese emperors
The size of this civilization has given the empire a scope unrivaled before. This may be also explained by its longevity
Quality of life, prosperity and technological development were considerable when the West was just starting
A UNIQUE CIVILIZATION
IT IS HIGHLY DIFFERENTIATED Each region is different
Geographically In terms of population Socially Economically Culturally
But the civilization held a coherent global character, probably because of agriculture
A CIVILIZATION BUILT WITH PAIN AND BLOOD
All the history of China is dominated by considerable violence
Periods of violence were separated by periods of munificent prosperity
But… almost a miracleChina remained generally unitedEven if during some periods, as in Italy, it
was split between rival independent kingdoms
DOMINANT CHARACTERISTICS
UNCEASING STRUGGLES HAVE GENERATED THE FOLLOWING PATTERNS: THE CENTRAL ROLE PLAYED BY EMPERORS THE POWER OF CENTRAL GOVERNMENT THE RELENTLESS DESTRUCTION OF ANY
RESISTANCE TO THE CENTER DOCILE POPULATION AND LITTLE INTEREST IN
CENTRAL POWER
HOWEVER… LEADERS’ MORAL BEHAVIOUR WAS A KEY TO STABILITY
DOMINANT CHARACTERISTICS
EMPEROR WAS A SEMI-GOD AS LONG AS HE WAS SEEN AS BEHAVING FOR THE GOOD OF THE PEOPLE
WHERE HE WAS NOT, IT WAS LEGITIMATE TO REMOVE HIM
WHICH WAS OFTEN THE REASON FOR CONTENTION BY BARONS AND GENERALS
THE IMPORTANCE OF LEGITIMACY
TO ACT IN CHINA, YOU NEED LEGITIMACY WHEN LEGITIMATE, EVERYTHING IS
POSSIBLE, PROBABLY BECAUSE OF THE NUMBERS EFFECT
THIS MAY EXPLAIN THE EMPIRE TRADITIONAL STRENGTH
THE TEST OF LEGITIMACY IS PRAGMATIC AND CONTINUAL: THE COLLECTIVE WELL-BEING OF THE POPULATION
THE INSTRUMENTS OF POWER
BESIDES LEGITIMACY WHICH COULD EXPLAIN EVEN THE MORE EXTREME DECISIONS
THE EMPEROR’s POWER WAS SOON COMPLEMENTED AND SUPPORTED THROUGH AN APPARATUS FOR MANAGING THE CIVILIZATION WHICH INCLUDED: THE BUREAUCRACY RULES, LAWS AND PROCEDURES CONFUCEAN VALUES AND SOCIAL CONTROL
SOCIAL CONTROL
TO AVOID AN ENDLESS WAR AROUND LAND OWNERSHIP EACH HAD TO RESPECT SOMEONE ELSE’s
LAND EACH HAD TO REMAIN ASSOCIATED AND
ATTACHED TO THE LAND OF BIRTH NOBODY CAN MOVE FROM ONE PLACE TO
ANOTHER WITHOUT PERMIT FROM THE LOCAL ADMINISTRATION
THE POPULATION ITSELF DID THE POLICING
CHINESE CHARACTER
THE CHINESE CIVILIZATION WAS THEREFORE ONE IN WHICH: EMPEROR IS IMPORTANT LAW IS IMPORTANT BUREAUCRACY IS IMPORTANT LOCAL LIFE IS IMPORTANT DOMINANT VALUES ARE PRAGMATISM AND
GROUP BEHAVIOUR
IT WAS AMERICA BEFORE AMERICA WAS BORN !
AS A RESULT
A PROSPEROUS CIVILIZATIONTECHNOLOGICALLY ADVANCEDSOCIALLY STABLEADMINISTRATIVELY BALANCEDINDUSTRIOUSNOT INTERESTED IN OTHER
COUNTRIES EXCEPT WHERE THREATENING
BIASED AGAINST CHANGE
MORE RECENTLY
DOMINATED BY: CONSIDERABLE WEAKENING OF THE
EMPOROR’S POWERS AND ITS PROGRESSIVE DISAPPEARANCE
EMERGING WESTERN DOMINATION JAPANESE COLONIZATION RISE TO POWER AND DOMINATION BY THE
COMMUNISTS
MAOISM
CREATING A COUNTRY
THE COMMUNISTS
SUCCEEDED IN WINNING AGAINST THE NATIONALISTS allied to the USA, BECAUSE OF: THEIR VALUES CORRUPTION IN THE GUO-MIN-TANG AN INSPIRED LEADERSHIP THE VIOLENCE OF JAPANESE
COLONIZATION, WHICH HAS CRYSTALLIZED THE IDEA OF CHINESE CIVILIZATION AND FACILITATED MOBILIZATION AROUND IT
COMMUNISM
WITH A STRONG AND WELL TRAINED PARTY, PRESENT EVERYWHERE IN THE LAND THE COMMUNISTS HAVE BEEN TEMPTED BY A
UNIFIED AND CENTRALIZED MANAGEMENT OF CHINA
NEW EMPEROR, MAO INSPIRED BY MARXISM PROVIDED THE IDEALS REQUIRED LAUNCHED PHARAONIC PROJECTS, SOME OF
WHICH WERE CATASTROPHIC E.G.: THE GREAT LEAP FORWARD E.G.: THE CULTURAL REVOLUTION
BUT REVEALED CHINA TO ITSELF, THUS CREATING THE IDEA OF A NATION
COMMUNISM
BUT TOTAL CONTROL BY THE COMMUNISTS WAS AT THE OPPOSITE OF CHINESE SOCIAL EXPERIENCE
THE COMMUNIST PERIOD WAS ONE OF THE ONLY ONES WHERE CHINA HAS BEEN CENTRALIZED
CHINESE USED TO TAKE CARE OF THEMSELVES HAVE BEEN TAKEN CARE OF BY THE PARTY AND THE STATE
THEY HAVE BEEN FASCINATED BY MAO AND AS USUAL HAVE NOT RESISTED
THE COMMUNIST FAILURE
AS IN ANY COMPLEX ORGANIZATION THAT GETS CENTRALIZED
AT THE BEGINNING RESULTS WERE ENCOURAGING
THEN STARTED A LONG AND FAST SLIDE WHICH STOPPED ONLY WITH MOA’s DEATH
RETURN TO TRADITIONS
DENG XIAOPING, MAO’s COMPANION, WAS A PRAGMATIC MAN
IT WAS CLEAR THAT THE CENTRALIZED SYSTEM DID NOT WORK
BUT INSTEAD OF GOING TO EXTREMES AS WAS DONE IN RUSSIA
HE DECIDED TO GO BACK TO TRADITIONS
RETURNING TO TRADITIONS
MEANT: THE CENTER IS IMPORTANT AND SHOULD BE
PROTECTED BY ANY MEANS IT IS THE MASTER OF THE GAME BUT… LOCALLY EVERYONE CAN DO WHATEVER IS
POSSIBLE TO SURVIVE END OF SOVIET PLANNING END OF COLLECTIVISM DOGMA AUTORIZE DEVELOP INITIATIVES, BOTH PRIVATE AND
PUBLIC EMPHASIZE STABILITY AND CONTINUITY: EG:
SOCIALIST MARKET !
THE AGRICULTURE AS A CATALYST
THE INITIATION WAS ATTEMPTED IN AGRICULTURE WHERE THE STAKES WERE HIGHEST
THE PROPERTY SYSTEM WAS RENOVATED GIVING PEASANTS ENOUGH SPACE TO TAKE INITIATIVES: POSSIBLE PROPERTY OF THE LAND USUS AND FRUCTUS GARANTEED CHOICE OF CULTURE CONTRÔLED BUT
LIBERALIZED LIBERLIZATION OF DISTRIBUTION AND SALES
THE FOLLOWING STEPS
1. SPECTACULAR RESULTS AUTORIZED TO PRODUCE AND SELL
FREELY A PART OF THEIR CROP, PEASANTS HAVE COME UP WITH A REMARKABLE PERFORMANCE PUSHING DEFINITELY AWAY THE SPECTER OF FAMINE
2. REINSTATEMENT OF COMMUNISTS WHO HAVE TAKEN AGAIN THE INITIATIVE AND REEXAMINED THEIR SOCIAL THEORIES
THE FOLLOWING STEPS
3. TO FACE THE NEW PROBLEMS OF AGRICULTURE, CREATION OF VILLAGE AND COUNTRY ENTERPRISES WITH: EVEN MORE IMPRESSIVE RESULTS DEVELOPMENT OF A DYNAMIC AGRIBUSINESS
4. EXPANDING THE REFORM TO THE PUBLIC FINANCIAL SYSTEM AND TO SOEs
5. CONTROLLED LIBERALIZATION AT THE REGIONAL AND CITY LEVELS
6. PROGRESSIVE LIBERALIZATION OF THE ADMINISTRATIVE CONTROLS, ESPECIALLY THOSE AFFECTING INTERNAL MIGRATION
TODAY’S PROBLEMS
1. DIFFICULTIES WITH THE FINANCIAL SYSTEM REFORM
2. DIFFICULTIES WITH THE SOEs’ REFORM 3. IMPORTANT PROBLEMS OF JOBLESSNESS
AND ABSENCE OF A SOCIAL NET SYSTEM 4. GRAVE SOCIAL-MEDICAL PROBLEMS 5. IMPORTANT LOCAL CONFLICTS AROUND
LAND 6. CORRUPTION
PROBLEMS FOR THE WEST
1. SOME CHINESE INDUSTRIES ARE EXCEPTIONALLY PRODUCTIVE (E.G., CONSTRUCTION, MANUFACTURING)
2. THE CHINESE ECONOMY CAN BECOME TOO POWERFUL (PCs, AUTOMOBILES, STEEL)
3. THE EFFECT ON WESTERN ECONOMY TRADITIONAL INDUSTRIES IS DEVASTATING (TEXTILE-CLOTHING)
4. MULTINATIONALS ARE TOO DEPENDENT ON CHINA AND STRONGLY ATTRACTED TO IT !
QUESTIONS ?
FIRST ROUND OF DISCUSSION
INSTITUTIONAL CHANGE
THE CASE OF THE ELECTRICITY INDUSTRY IN CHINA FROM 1980 TO 2004
THE TRANSFORMATION
1980: ONE ORGANIZATION (THE STATE) OLD AND RUNDOWN SYSTEM INSUFFICIENT SUPPLIES GOVERNMENT UNABLE TO INVEST MORE POLLUTION
2004: AN ORGANIZATIONAL FIELD WITH MORE THAN 4000 FIRMS MODERN SYSTEM SURPLUS OF ENERGY MOST INVESTMENT MADE BY FOREIGNERS SOPHISTICATED INSTITUTIONAL FRAMEWORK
THE RESEARCH QUESTION
CHINA IS A COUNTRY WITH VALUES/IDEOLOGY THAT HAVE TRADITIONALLY BEEN OPPOSED TO MARKET AND FREE ENTREPRISE
STATE STRUCTURE AND SYSTEMS HAVE BEEN PARTICULARLY RIGID BECAUSE OF VALUES AND BECAUSE OF HISTORY,
ALL OF WHICH SUGGEST A STRONG RESISTANCE TO CHANGE
HOW TO EXPLAIN SUCH A TRANSFORMATION ?
THE INSTITUTIONAL PERSPECTIVE
Selznick and the importance of valuesThe problem of values: invisible and taken
for grantedScott and the new institutionalism: values
are internal but also externalExternal values are the result of rules and
regulations, norms and cognitives orientations, all of them are also mostly invisible and taken for granted
INSTITUTIONS
In institutionalists’ definitions, institutions are ideas, values, cognitive orientations which have an influence on the behaviour of organizations. Three levels of institutions are considered: 1. Regulations at the most practical level 2. norms, mostly professional, but also social
and societal 3. values and culture at the most abstract level
THEORETICAL QUESTIONS
HOW DO INFLUENCES OF GENERALLY NOT VISIBLE FACTORS INTERACT WITH THOSE OF MORE VISIBLE FACTORS TO EXPLAIN BEHAVIOUR ?
HOW DO ACTORS BECOME AWARE OF THESE INVISIBLE FACTORS AND HOW DO THEY CHANGE THEM ?
THEORETICAL ISSUES
USUALLY INSTITUTIONALIST THEORIES ARE DETERMINISTIC AND ANTI-CHANGE !
MORE RECENTLY, IT HAS BEEN SUGGESTED THAT THE ANTI-CHANGE INTERPRETATION OF INSTITUTIONS SHOULD BE REVERSED
INSTITUTIONAL THEORIES CAN HELP UNDERSTAND RESISTANCE TO CHANGE AND THUS HELP ACHIEVE CHANGE !
RELEVANCE OF INSTITUTIONAL THEORIES
PARTICULARLY RELEVANT FOR THE UNDERSTANDING OF COMPLEX SYSTEMS
ALSO WHEN ONE STUDIES AN ORGANIZATIONAL FIELD (AN INDUSTRY, A REGION, A NATION)
ALSO WHEN HISTORY IS IMPORTANT FOR THE UNDERSTANDING OF ORGANIZATIONAL DYNAMICS
E.G.: Leblibici et al (1991); Dacin (1997); Holm (1995); Hoffman (1999)
The Chinese Electricity Industry
An ideal setting for such a researchThe cultural setting is rich and is normally
opposed to changeThe size and importance of the industry
are such that one would expect bureaucracy and resistance to change
THE FINDINGS IN A NUTSHELL
The transformation process follows a cycle pattern The various levels, national, provincial, local and firm,
complement each other and take the lead at different phases
The central government play the leading role in the cultural-cognitive change
The provincial and local levels play a central role in the change of industry norms and regulations, and contribute to integrating the whole process
The firm level play the leading role in the development of professional and managerial normes, rules and procedures
METHODOLOGY
Burger and Luckman (1967) and Schutz (1967) The constructs used by the social scientists are, so to
speak, constructs of the second degree, namely constructs of constructs made by actors on the social scene, whose behavior the scientist observes and tries to explain in accordance with the procedural rule of his science
Need for a phenomenological approach to discover how « subjective meanings become objective facticities »
Historical and clinical study, sometimes adhoc and opportunistic
CHINA
ONE OF THE OLDEST AND MOST DURABLE HUMAN CIVILIZATION
THE IMPERIAL SYSTEM BASED ON: THE EMPEROR, A DEMI-GOD, MANDATED BY
HEAVEN THE BUREAUCRACY, WITH A SOPHISTICATED
SYSTEM CONFUCIANISM
CIVIL WAR AT THE BEGINNING OF THE 20TH CENTURY
VICTORY OF MAO AND HIS FOLLOWERS
CHINA
THE MAOIST SYSTEM WAS VERY POWERFUL AND, FOR A FIRST TIME, CENTRALIZED CHINA
AS A RESULT THERE WERE REMARKABLE ACHIEVEMENTS AND SOME CATASTROPHES THE GREAT LEAP FORWARD THE CULTURAL REVOLUTION
CHINA
SEVERE SOCIAL CONTROL EVERYONE BELONGS TO A DANWEI THE DANWEI PROVIDED JOBS, SHELTER,
EDUCATION AND TRAINING, FOOD RATIONS, CLOTHING AND FURNITURES
DANWEIs HAD NOT DIRECT CONNECTIONS
THE CENTRALITY OF THE LAW: CHINA HAS BEEN A COUNTRY OF LAW AND RIGHTS FOR A VERY LONG TIME
POST-MAO REFORMS
DENG REALIZED THE DIFFICULTY OF MANAGING CHINA CENTRALLY
HE INDUCED THE CENTRAL GOVERNMENT TO FOCUS ON CRITICAL ISSUES AND LEAVE SPACE FOR LOCAL ECONOMIC CHANGE AND EXPERIMENTATION, AS WAS DONE IN EARLIER PERIODS !
E.G.1: Countryside and agriculture then village and county enterprises
E.G. 2: Trade and investment systems
THE ELECTRICITY INDUSTRY
FROM THE EARLY 1980s THE ECONOMY GREW AT AROUND A 10% PER YEAR PACE
THE ELECTRICAL ENERGY COULD NOT FOLLOW AND HAD TO BE REVAMPED
THE TRANSFORMATION OF THE ELECTRICITY SYSTEM FOLLOWS THAT OF CHINA AS A WHOLE AND GOES THROUGH SIMILAR DIFFICULTIES
Transformation of the electricity industry
Three phases: 1980-86: Central government «composer and
conductor», and the units as players. The key goal was ensuring supply
1987-1996: Central government as a manager of context, with rare direct interventions. Firms had to solve their own problems and could enjoy a lot of autonomy
1996-2004: Greater role for firms. Central government focused on policies and legal framework.
Goal: ensuring fair competition and the competitiveness of firms
EXPLAINING THE TRANSFORMATION
It is the transformation of China as a whole that showed the way
Institutions in China are strong and deep-rooted: Law and order are important A local perspective is essential The Bureaucracy is legitimate
The passage to a market economy was possible because it was already in the make up of the Chinese
Mao was a brief abberration
EXPLAINING THE TRANSFORMATION
The process was simple and slow Avoid chaos (a lesson from history) Experiment first Generalize slowly, stimulating rather than
mandating
Changes that are aimed at more profound institutions take more time !
THE TOP-DOWN PROCESS
Phase 1: most of the change was societal in nature. More than 6 years were needed to find a way to go around traditional institutions
Party norms favored stability, hierarchy, conflict avoidance, and the primacy of effectiveness over efficiency. They were hard to discredit. There was a need to separate the political from the economic and justify the separation
The cultural-cognitive transformation has been mostly incremental and had to take into account that the provinces had differing interests
Decisions were mostly symbolic or exceptional (e.g. Huaneng)
THE BOTTOM-UP PROCESS
Phase 2: Emphasis on normes and regulations
Reduce the Central bureaucracy and decentralize to provinces and cities
Introduction of fundamental lawsBUT LOCAL INITIATIVE (e.g., Listing of
Huaneng on the NYSE)Spectacular performance
BALANCING THE WHOLE
Phase 3: adjustments and emergence of new problems
EnvironmentCompetitionIntegrationGovernanceEmphasis on professional and managerial
norms
THEORY
THREE INTERRELATED CYCLES THE NATIONAL LEVEL CYCLE
First give all the attention to the cultural-cognitive aspects: the market and the private could be acceptable
Normes and regulations about financial, production and marketing aspects
Regulation about environment and competition
THEORY
Cycle at the local level Reconcile tradition with market and private in specific
situations Norms and regulations about production, HRM and
Marketing Rules an procedures for environmental protection
and competitive behaviour Cycle at the firms level
Managing people’s values Coordination among firms; management norms Coordination and innovation; professional norms and
ethical behaviour
THEORY
THE INTERACTIONS AMONG CYCLES ARE RELATED TO THE SPECIALIZATION OF ROLES Phase 1: Central government and Party
emphasize cognitive aspects (values, beliefs) Phase 2: Local governments emphasize
general norms for industries and firms Phase 3: firms and managers emphasize
managerial and professional norms for firms and managers
CONCLUSION
IN A COMPLEX SYSTEM: There is a specialization of roles At the central level concern is with the system
as a whole At the firm level, concern is with regulation, and
with adapting practices to the competitive situation
At the local governments’ level, concern is normative, and with reconciling the other two levels through mediation both physical and temporal
CONCLUSION
THE SUCCESS OF THIS CHINESE TRANSFORMATION COMES FROM A DELICATE RECONCILIATION OF INSTITUTIONAL TRADITIONS AND ECONOMIC DEVELOPMENT NEEDS
WILL THE CHINESE BE ABLE TO MAINTAIN SUCH A DELICATE BALANCE ?