Varieties of Capitalism in China

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Table of Contents

Introduction
Industrial Relations
Education and Creation of Workforce
Relations with Employees
Inter-Company Relations
Conclusion
References

Introduction

The VOC approach does not end at just grouping nations but also delves into the details that make up the countrys economy. For instance, VOC takes an interest in the countrys preoccupation, nationalism, dependency on capitalism, reliance on rational choice, and firm centricity (Hall and Soskice, 2001). Currently, known LMEs are countries such as the United States, the United Kingdom, Ireland, Australia, Canada, and New Zealand (Hall and Soskice, 2001). On the other hand, CMEs include countries such as Japan, Austria, Sweden, and Germany. Hybrid economies have Middle Eastern countries such as the United Arab Emirates and Saudi Arabia (Thelen, 2012). In China, VOC is a tricky approach to utilize to evaluate the countrys economy. The countrys economy cannot be confidently classified as either LME or CME considering her path and position versus conventional attributes in VOC. This paper gives an in-depth evaluation that explains why the VOC approach cannot be used to confidently examine and categorize China as either an LME, CME, or mixed economy.

Industrial Relations

Industrial relation is a crucial economic dimension that was considered an independent field of study as early as the beginning of the twentieth century. The field deals with the relationship between the labor market and investors within a country and the dynamics that govern them. These dynamics include labor laws, work environment, the existence of trade unions, and economic opportunities (Hall and Soskice, 2001). Using Hall and Soskices VOC approach, a low unionization rate would indicate a liberal market economy, while a high unionization rate would indicate a coordinated market economy. China has the All-China Federation of Trade Unions (ACFTU), an organization that unionizes over three hundred Chinese workers. The ACFTU is tasked with taking care of workers interests and needs (Shen, 2006). At the same time, there is the All-China Federation of Industry and Commerce (ACFIC), a non-governmental department of commerce that influences industrial relations.

The existing ACFTU rarely promotes the interest of Chinese workers despite being the largest union in the entire world. For instance, when workers strike with reasonable demands, the ACFTU occasionally sides with the management in a resounding manner (Chang, and Cooke, 2015). The situation is complicated. Cookes industrial relations survey indicated that the Chinese were convinced that ACFIC and ACFTU were designed to serve the states interest (Cooke, 2004). This was achievable through the states top-down approach to control employees. With the labor market finding itself with such state-controlled associations, private firms within the nation have found it difficult to operate. For instance, there are compelling laws that encourage ordinary workers to join state-controlled unions instead of private organizations (Cooke, 2004). In other words, the labor market is controlled by the government, and it influences huge segments of many economic sectors.

To add salt to injury, attempts by private businesses to show visible representation have always been suppressed (Cooke, 2004). These practices leave workers unprotected, hence making the labor force unreliable. Also, the future of privatized labor market is unpredictable, thus remains unclear. Since labor is one of the essential production resources, the existing gap in Chinas labor market is a big blow to private businesses and their future. In as much as legal adjustments have been made to Chinas labor laws over the years, the outlook of the sector remains divergent in actual practice.

Chinas attributes regarding industrial relations are inconsistent with VOCs parameters and cannot be compared to industrial relations of western nations. For instance, western countries have unions created for the workers and represent the interest of workers. On the other side, China has unions made up of workers, but they are influenced by their interests (Chang, and Cooke, 2015). Such a framework is not accounted for in the VOC analytical approach. Also, Chinas industrial relations may look like a coordinated market economy (CME) from the outside, but actual practice suggests a liberal market economy (LME). Therefore, it is impossible to use the VOC approach to classify the country as either an LME or a CME.

Education and Creation of Workforce

According to VOC, education and creating a workforce in coordinated market economies (CME) are concentrated on vocational pieces of training that generate firm-specific skills. In liberal market economies (LME), education and creating a workforce are designed to avail skilled people who can work in different firms and industries in a general sense (Wailes, Bamber & Lansbury, 2011). Also, training firm-specific workers encourage long-term employment tenures that define CMEs. On the other hand, the inadequacy of firm-specific skills enables short-term assignments that define LMEs. These parameters can evaluate any countrys education and workforce using the VOC approach. In China, however, VOC can examine the primary foundation of education and the creation of force (Wailes, Bamber & Lansbury, 2011). Despite having a literacy rate of 93.8 percent, the United Nations Development Programs showed that Chinese students register very low enrollment to tertiary institutions. The UNDP also reported that China is a low scorer regarding the education attainment index with 85 percent, despite undertaking significant improvements in recent years (Wailes, Bamber & Lansbury, 2011). The current Chinese rating is just behind Lebanons and is an indicator of a weak and ineffective education system.

In a VOC context, Chinas educational system tasked with producing a pool of skilled workers does not meet its objectives. Research shows that many employers often report skills mismatch from the available employee for the past decade, thus insinuating a shortage of usable skills in the market (Gallagher, 2011). In other words, the supply of technical skills does not meet the countrys demand. For instance, the countrys need to supply ratio for senior engineers and senior technicians averaged 2.30 and 2.25, respectively, for the last ten years (Gallagher, 2011). On the contrary, data shows that the existing deficit is not produced by a lack of professionals but by a lack of fit and qualified personnel. Out of every 5 million students that graduate each year, 1.5 million are unfit to practice their profession (Gallagher, 2011). For example, research conducted by McKinsey in 2005 found that only one-tenth of Chinas 1.6 million engineers were fit to compete on international levels (Gallagher, 2011). Using a VOC approach, it is evident that Chinas educational system focuses on general skills and not vocational training. From this perspective, the country can be classified as an LME. However, the attributes that follow are not consistent with the conventional characteristics of an LME. There is a gap between creating a workforce and the current demand for skills.

At the same time, the system is transitioning from an LME to a CME regarding education and creating a workforce. The transition makes it impossible to examine China using Hall and Soskices VOC approach. For the last three decades, research shows that enrollments in vocational schools more than doubled from the original 3 million students per year (Cooke, 2008). However, the number of schools has also decreased significantly, posing uncertainty to the inadequate supply of labor compared to the countrys demand. In a nutshell, in as much as China has a vast need for a skilled workforce, their process of creating the force cannot be termed as efficient and or effective (Cook, 2008). Also, there is a mix of concurrent systems used to generate the workforce. These attributes make it impossible to examine and accurately categorize Chinas economy using VOCs technique regarding education and creating a force.

Relations with Employees

Labor and employment are a crucial dimension in Hall and Soskices VOC approach. In liberal market economies (LME), market conditions influence the work environment and salaries and wages. There is no room for bargaining between employers and employees to create a work environment. In coordinated market economies (CME), there is room for negotiation between employers and employees to create a conducive work environment and wages and salaries (Hall and Soskice, 2001). Bargaining is usually done through organizations that aggregate the interest of employees and those of the employers. Every employee wishes to have a reliable employer, and it is also every employers wish to have a dependable employee. Formally, employers and or management often have the freedom to hire and fire in liberal market economies (LMEs). In coordinated market economies (CMEs), employers and management do not have the freedom to hire and fire because employees are highly protected against dismissal.

In China, employers are aligned toward a typical CME. Since the beginning of the twenty-first century, the countrys conventional employment space has been under a tripartite framework. Employees in the country had a collective bargaining umbrella covering thirty-four percent of workers (Cooke, 2008). This means that almost a third of all formally registered workers were protected from random dismissals and or retrenchments. This protection was achieved through the aggregation of nearly half of registered Chinese workers in trade unions, organizations, and local associations (Pringle, Brown & Kai, 2017). Chinas employee fraternity matches the attributes of a CME as per the VOC approach. However, the employer/management does not match the expected criterion. For instance, the government makes up a considerable segment of employers.

Most big firms in China are owned by the government, which in many cases, has forcefully seized and rebranded private businesses by use of state machinery. The managerial style that follows such happenings is not in line with conventional CMEs, making it impossible to use VOC to evaluate China in this regard. For instance, it is not uncommon for Chinese government officials to have a personal stake in private and public businesses (Thelen, 2012). This relationship with employees has drawn a discriminative line in the labor market, weakening dynamics that govern suitable employment. In such a case, employee retention, promotions, and retirement benefits hang in the balance. These factors nock China off-balance as a typical CME, making the countrys employment inconsistent with the VOC approach.

Inter-Company Relations

Inter-company relation is another parameter used to examine economies using the VOC approach. In LMEs, diffusion of technology is achieved through the movement of employees through different companies. This mode of operation calls for the existence of a fluid labor market and temporary employment tenures (Cooney, 2007). On the contrary, organizations within CMEs depend on direct connections to diffuse skills and technology. Inter-company relations create room for joint ventures between local and international firms. In China, government legislation largely influences the relationship that exists between firms in the same economic sectors. The government encourages market access for both local and international companies to exchange technology and techniques. At the start of the 21^st century, China joined the World Trade Organization (WTO) and subsequently encouraged wholly foreign-owned enterprises (Pringle, Brown & Kai, 2017). Many joint ventures turned into wholly foreign-owned enterprises to freely acquire technological techniques from other firms. Also, poaching of intellectual property by employees who move to different companies became common. These happenings have not translated into technological diffusion like in a typical CME. This inconsistency limits the usage of VOC to evaluate Chinas economy.

Besides, Chinas banking sector is dominated by four big state-owned banks. Private banking institutions cannot come up and grow. Simultaneously, the relationship between these four banks and all other small banks is flawed, marred with shallow competition and weak connection channels. In context, China singlehandedly controls the financial system, one of the essential segments of the economy (Pringle, Brown & Kai, 2017). Unlike in Western Europe, private banking institutions are left out where the government even supports private sectors. Chinas inter-company relationship is a mix of attributes from LMEs and CMEs and could be a mixed economy by some scholars. Regardless, it is impossible to use the VOC approach to evaluate the country since it would require constant revision and revisitation of its dynamics.

Conclusion

Hall and Soskices VOC approach is a straightforward evaluation model that can categorize economies as either liberal market economies (LMEs) or coordinated market economies (CMEs). Analyzing Chinas market economy is an impossible venture using the VOC for several reasons. The country has a mixture of characteristics throughout the stipulated parameters used to categorize market economies. Some of Chinas economic sectors match the criteria for classifying an LME, while they also fit the requirement for CMEs. For example, unlike Russia, China embraced a capitalistic economy but retained communist party leadership (Ellem, 2021).

At the same time, the country has economic attributes that are not in line with VOCs definition of a CME or LME. It is, therefore, impossible to use VOC to examine and categorize Chinas market economy as either an LME or CME. Since China is the worlds second-largest economy, this paper aids in furthering research regarding the countrys economic outlook in the future; research can be done to establish the possibility of having other models for classifying market economies and the primary arguments that will define ideal economies. For instance, the economist can consider factors such as socio-political influence on the economy and adjust the definition of ideal LMEs or CMEs. The majority of firms in China are private, but state-owned institutions primarily control the economy. Chinas economic growth rate has always been commendable with such an outward outlook. The country has taken significant strides in economic progress for the last seven decades and calls for more profound economic research regarding VOC.

References

Chang, K., & Cooke, F. L. (2015). Legislating the right to strike in China: Historical development and prospects. Journal of Industrial Relations, 57(3), 440-455.

Cooke, F. L. (2004). HRM, work, and employment in China. Routledge.

Cooke, F. L. (2008). The changing dynamics of employment relations in China: An evaluation of the rising level of labor disputes. Journal of Industrial Relations, 50(1), 111-138.

Cooney, S. (2007). Chinas labor law, compliance, and flaws in implementing institutions. Journal of industrial relations, 49(5), 673-686.

Ellem, B. (2021). Is there a Chinese variety of capitalism? The University of Sydney Business School.

Gallagher, M. E. (2011). Contagious Capitalism: Globalization and the politics of labor in China. Princeton University Press.

Hall, P. A., & Soskice, D. (Eds.). (2001). Varieties of capitalism: The institutional foundations of comparative advantage. OUP Oxford.

Pringle, T., Brown, W., & Kai, C. (2017). Going to market: comparing labor relations reform in China, Russia, and Vietnam.

Shen, J. (2006). An analysis of changing industrial relations in China. International Journal of Comparative Labour Law and Industrial Relations, 22(3).

Thelen, K. (2012). Varieties of Capitalism: Trajectories of liberalization and the new politics of social solidarity. Annual Review of Political Science, 15, 137-159.

Wailes, N., Bamber, G. J., & Lansbury, R. D. (2011). International and comparative employment relations: An introduction. In International and Comparative Employment Relations: Globalisation and Change (pp. 1-35). Allen & Unwin.

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