By Professor Ting Xu, Essex Law School

Having laid out the horizontal dimensions of diversity in property in Part 1, I here offer a critique of the assumption in mainstream economics that all kinds of property institutions need to be or will be transformed into private property to promote economic development. I also reflect on my previous work that applies and develops Darwinian mechanisms of variation, inheritance, and selection—which have been extensively discussed in evolutionary biology and evolutionary economics—to study property regime transformation in China.

While working on our co-authored paper, Professor Erik Reinert introduced me to two very important books and encouraged me to think about the relevance of the work of Darwin and Veblen to study property regime transformation in China: Full House: The Spread of Excellence from Plato to Darwin by Stephen Jay Gould (1941-2002), Harvard biologist and historian of science; Thorstein Veblen: Economics for an Age of Crises edited by Erik himself and Francesca Viano. Erik also introduced me to the work of evolutionary economists including Professor Richard Nelson of Columbia University.

In On the Origin of Species (1859), Darwin specified three mechanisms of evolutionary change—variation, inheritance, and selection. It should be noted that Darwin never liked the word evolution due to ‘his denial of progress as a predictable outcome’ (Gould 1996/2011:137). Gould (1996/2011: 41) argued that ‘Darwin’s revolution should be epitomized as the substitution of variation for essence as the central category of natural reality.’ He further argued:

…in Plato’s world, variation is accidental, while essences record a higher reality; in Darwin’s reversal, we value variation as a defining (and concrete earthly) reality, while averages (our closest operational approach to “essences”) become mental abstractions.

In Thorstein Veblen: The Father of Evolutionary and Institutional Economics,  Hodgson (2012: 287) argued that Veblen had contributed to evolutionary and institutional economics by bringing ‘Darwinian ideas into the economic arena’.

Veblen’s (1899/2007: 126-127) definition of institution is dynamic:

Institutions are, in substance, prevalent habits of thought with respect to particular relations and particular functions of the individual and of the community […] The situation of today shapes the institutions of tomorrow through a selective, coercive process, by acting upon men’s habitual view of things, and so altering or fortifying a point of view or a mental attitude handed down from the past. […] The evolution of society is substantially a process of mental adaptation on the part of individuals under the stress of circumstances which will no longer tolerate habits of thought formed under and conforming to a different set of circumstances in the past.

Changing socio-economic contexts may shift and reframe ‘perceptions and dispositions within individuals’ and give rise to new ‘habits of thought and behaviour’ (Hodgson 2012: 287) and thus new forms of institution. Veblen (1899/2007) termed this phenomenon ‘selection’ as ‘selective adaptation’. Although Veblen ‘did not make the context, criteria or mechanisms of selection entirely clear’, he ‘generally saw institutions as units of selection in a process of economic evolution’ (Hodgson 2012: 291).

In terms of ‘co-evolution’, it is the ‘signature term’ of Richard Nelson. His 1982 book with Sidney Winter An Evolutionary Theory of Economic Change represented the start of the neo-Schumpeterian wave. Most evolutionary economists use the term ‘co-evolution’. Further, the Darwinian mechanisms have been extensively discussed by biologists, institutional and evolutionary economists, for example Parker 1980 (discussing creation, selection and variation) and Luksha 2008 (discussing variation, selection, and niche construction).

Bringing Darwinian ideas and Veblenian institutions to the analysis of property regime transformation, I completed a working paper in 2015 and argued that the works of Darwin and Veblen also contribute to studies of property. The (Darwinian) transformation of property can be elucidated not only by drawing analogies to the Darwinian mechanisms of variation, inheritance, and selection, but also by broadening the scope of the Darwinian framework, from the biological world to human interactions in society.

There are key mechanisms for understanding and analysing the co-evolution of diversity in property and economic development:

1. Variation: the existence of diversity in property in accordance with dynamic socio-economic conditions.
2. Inheritance: the persistence and continuity of the old property regime despite legal and political changes.
3. Selection: the formation of new forms of property more adapted to socio-economic contexts.

Institutions are created or modified to selectively adapt to the changes in socio-economic contexts. But institutions which enable economic development are often brought about by emulation and innovation beyond adaptation. I will leave the discussion of emulation to my next blog posts and focus on innovation here.

To further illustrate the importance of innovation for economic development, we need to bring in Schumpeterian institutions, which are concerned with the importance of innovation in generating new knowledge and modes of production, which helps move the economic activities to the next ‘stage’ or ‘paradigm’ (Reinert 2000: 11). The relevant discussion of Schumpeterian institutions can be found in my previous blog post on ‘Institutions, Economic Development, and China’s Development Policy for Escaping Poverty’.

When we bring in Schumpeterian institutions to Darwinian mechanisms and Veblenian institutions discussed above, the third mechanism can be developed as selection: the formation of new forms of property more adapted to socio-economic contexts; for economic development, selection need to be prompted by emulation and innovation.

All three mechanisms can be found in China’s long-term property (in rural land) regime transformation (see Part 1).

Variation (diversity) existed in all four periods. The introduction of collective ownership to rural China (1956-1978) by political forces did result in the decrease of diversity in property, therefore reducing the degree of resilience of the property regime in instances of natural disasters and economic and political crises.

The attempt to eliminate diversity in property, however, only lasted for a relatively short span of time, as the political programmes could not change the mode of agricultural production, which still relied on household-based productions. Fundamental aspects of the old property regime persisted and continued, despite alterations, if the economic conditions have not been fundamentally changed (inheritance).

The household responsibility system—a development-promoting institution—was introduced in the late 1970s. This rural land management system was adapted to household-based agricultural productions (selection). Once farmers had discharged their duty to meet the grain quota imposed by the state, they could retain their additional production—the grain produced over and above the required quota.

Further, beyond being a property institution formed through selection adaptation, the household responsibility system was also an innovative property institution in the period between the late 1970s and 1980s, which gave incentives to individual farmers and their households to engage in farming within collective ownership of rural land (innovation).

In the 1990s techno-economic development in agricultural production, however, began to require a new mode of production for promoting cooperation and consolidated/industrialised farming. The household responsibility system, which was once an innovative initiative that promoted economic development, had come to function as a roadblock to further development. New development-promoting property institutions were created in the 1990s and further developed to promote the new mode of production, initiating a process of ‘creative destruction’.

In my 2017 paper, I further clarified three interrelated terms: property regime transformation; innovative property transformation; and property evolution.

Property regime transformation in the broad sense does not indicate either a clear trend or a foreseeable outcome; it need not be progressive. By contrast, innovative property transformation with reference to Schumpeterian institutions conveys a positive connotation of enabling economic development and structural change, which may not be a smooth process. Property evolution in the broad sense conveys a positive connotation (it may even contain a teleological element), but not necessarily the identical form of connotation found in innovative property transformation.

In conclusion, the transformation of property is neither a spontaneous process nor a process solely prompted by external factors; it does not move towards a predictable outcome. Diversity in property and economic development co-evolve. We need to examine changing contexts, in particular techno-economic change over time rather than a linear, normative series of changes such as from communal property to private property, as the inevitable result of property regime transformation.

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This article first appeared on Developing Economics and is reproduced on the ELR Blog with permission and thanks. You can read the original post here.

By Professor Ting Xu, Essex Law School

This blog post builds on the ‘Institutions, Economic Development, and China’s Development Policy for Escaping Poverty’ piece and comprises two parts dealing with the key concepts (Part 1) and mechanisms (Part 2) for evaluating the co-evolution of diversity in property and economic development. I argue that diversity in property plays a key role in economic development and that there are two dimensions that are important for examining the co-evolution of diversity in property and economic development—horizontal (Part 1) and vertical (Part 2).

In this post, I offer a critique of the assumption in mainstream economics that private property is the only kind of property institutions that can stimulate and preserve economic development (I am, of course, not the first to offer critiques of this assumption; for existing studies, see e.g., Kennedy 2011). I focus on the meaning of ‘diversity in property’, which concerns the horizontal level analysis.

Introducing the concept of ‘diversity’

‘Diversity’ means ‘many different types of things or people being included in something.’ Professor Erik Reinert introduced me to the concept of ‘diversity’ and encouraged me to examine the nature and significance of diversity in institutions such as property and the co-evolution of diversity in institutions and economic development. I started my research in this area by co-authoring a working paper on ‘Declining Diversity and Declining Societies: China, the West, and the Future of the Global Economy’ with Erik in 2013.  

In our co-authored paper, Erik and I examined diversity not only as part of nature’s strategy for the survival of species from natural shocks but also as a strategy consciously employed in human societies for the same reason. We argued that diversity constitutes a key element in economic development. Starting in the 1400s, Europe—and later the West in general—experienced an explosion of intellectual creativity and economic development, due to increasing diversity in polities, policies, cultures and ideas. Simultaneously, China started a process of de-diversification in that period and fell behind. We were worried about the lack of concern for diversity in today’s mainstream economics and development policies.

Due to diminishing diversity in mainstream economics and development policies, economists and policy makers tend to see ‘all economic activities as either being qualitatively all alike or all different’ (Reinert 2000: 180) and changes to be predicted or prescribed. When this pattern of thinking is transferred to evaluate the nature of property and the process of property regime transformation, the importance of ‘strong and clear’ property rights is emphasised as if they were a panacea that can create and preserve a well-functioning market. Further, to promote economic growth, other kinds of property institutions need to be transformed into private property as ‘good institutions’ understood by the World Bank (discussed in my 2017 paper). Diversity in property is eliminated.

Diversity in property

When examining the nature and significance of diversity in property, I see diversity in property as a ‘development-promoting’ institution, in contrast to what is considered ‘good institutions’ by the World Bank, which tends to focus more on eliminating corruption and securing private property. To understand the nature and significance of diversity in property, we need to clarify some basic concepts.

First, property refers to both a resource over which an individual, a community or the state has overall control and the way a resource is managed and regulated by an individual, a community or the state. Property is more concerned with how a resource is used, managed, or governed rather than how it is owned. Communal property, for example, means ‘a resource over which a community and its members together have overall control and the way a resource is managed and regulated by a community for its collective purposes’. The term ‘property’ is more helpful than ‘ownership’ especially in the Chinese context where ownership is defined by the owner’s identity (which gives little information on how the resource is used and governed) and closely associated with ideology.

Second, the concept of private property is both ambiguous and broad: individual and corporate ownership are ‘private’, while ‘government ownership of resources such as office buildings [is also] essentially private’, as Davies (2007: 63-64) argued.  When referring to a resource controlled by a human person, it is better to use the term ‘individual property’ rather than ‘private property’.

Third, within communal property, individual property rights/interests may co-exist with communal property rights/interests. Here I use ‘individual property rights’ rather than ‘private property rights’ which may be held by either a human being or an artificial legal entity. The ‘household responsibility system’ introduced in China in the late 1970s is a classic example. The collective issues contracts to the household, which has responsibility for the management of farming an area of land called ‘responsibility land’. Farmers have an individual property right/interest in rural land to possess and use it for farming purposes.

The ‘responsibility land’ is subject to the farmer’s individual property interests and various layers of communal property interests including the household’s interest and the collective’s interest. Although diversity in property is not unique to China, the household responsibility system is an innovative development-promoting institution introduced in China in the late 1970s, while the ideological function of collective ownership of rural land is preserved but less constrained for individual and communal property rights performing their economic functions.  

Diversity in property in China

Diversity in property has a much broader scope than that of diversity in ownership. The latter exists in China’s ‘socialist market economy’ with a mix of state ownership, collective ownership, and individual ownership. Diversity in property differs from the evolution of diverse forms of property, for example, from communal property to individual property or from informal property to formal property. These are different forms of property existing at different times.

To use my previous work as an example, my book The Revival of Private Property and Its Limits in Post-Mao China discussed the re-emergence and recognition of private property rights in the context of China’s social and political transformation and economic development since 1978. Illustrative cases include the revival of private property rights in the reform of State-owned enterprises (SOEs) and development of township and village enterprises (TVEs). The focus was on diverse forms of property.

After my 2014 book, I moved my research area from examining diverse forms of property at different times to diversity in property. Two research projects facilitated this new area of research. I was awarded two research projects on diversity in 2014: declining diversity and the global economy funded by the European Commission, Joint Research Centre (completed in 2015); ‘Diversifying Ownership of Land?: Communal Property in the UK and China’ funded by the British Academy International Mobility and Partnership Scheme 2014-17 (completed in 2017).

The meaning of diversity in property (in rural land) in the Chinese context is elaborated in the following table, focussing on four key periods of property regime transformation. The collectivisation period (1956-1978) is not included, as diversity in property was virtually eliminated in this period. Diversity in property includes two levels:

1. the coexistence of different types of property;
2. within communal property, the coexistence of individual and communal property interests.

Table 1 below demonstrates that diversity existed in most parts of China’s long-term property regime transformation except the collectivisation period.

Diversity in property, offering a better reflection of China’s socio-economic realities than diversity in ownership, plays at least three important functions in reshaping development policies:

1. it shifts the focus away from ideological debate on public versus private dichotomy;
2. it directs the focus to thinking about how a resource can be better governed;
3. it directs policies to match context.

In Part 2 of this post, I explore the vertical dimension of the co-evolution of diversity in property and economic development by focussing on some key mechanisms informed by evolutionary economics.

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This article first appeared on Developing Economics and is reproduced on the ELR Blog with permission and thanks. You can read the original post here.