Participator Autocracy: Private Entrepreneurs, Legislatures, and Property Protection in China

CSCC Post-doctoral Fellow Yue Hou began her job talk on participatory autocracy with a thought-provoking question: would you pay 300,000 dollars for a seat in a rubber stamp legislature that doesn’t have any effect on policy and the law? The answer might be obvious, but the evidence shows otherwise; Dr. Hou presented multiple cases in China where entrepreneurs had entered these legislatures of their own accord. Their efforts do not make sense because their objective doesn’t seem to have any real power, but Dr. Hou presented an alternative explanation; these entrepreneurs were instead entering legislatures to protect themselves against government expropriation.
Dr. Hou went on to provide a brief overview of the Chinese economy and the private sector. In 2013, 74% of China’s GDP growth came from the private sector, even though China has an extremely adverse business environment. Additionally, 51% of China’s entrepreneurs reported that they had faced government expropriation in the past. What this means at the local level is that their property is forcefully confiscated or devalued by the government and selective ad hoc inspections from multiples bureaus are staged, which leads to further costs in the form of bribes and fees to these local officials to recoup their losses.

The other piece of Dr. Hou’s paradox rests with the Chinese Legislature. The People’s Congress, China’s national legislature, operates on both the national and the county level. On paper, its legislators have power, but in reality this is not the case. The main occupations for the members of the local legislatures are in the government and as entrepreneurs i.e. in the public and private sectors. Furthermore, the current scholarship on the participation of citizens in the legislatures of authoritarian institutions indicates that these citizens join legislatures primarily to collect rents, but Ms. Hou challenges that with her argument that they wish to protect themselves against government expropriation instead.
Delving into her argument a little deeper, Dr. Hou presented a picture where the local actors in this interaction, entrepreneurs and bureaucrats, have clear motives for their respective actions: entrepreneurs seek to avoid government expropriation and to protect their property while bureaucrats seek to collect rents by exploiting weak agents in the private sector. Additionally, they’re both operating in a limited information environment; entrepreneurs have no idea when they might be targeted for expropriation, and bureaucrats have limited ways of determining whether an entrepreneur is ripe for exploitation i.e. they don’t know if they will face repercussions from their superiors if they target a particular entrepreneur because they don’t know if he has political connections. An assumption that Dr. Hou made at this link in the chain of her argument was that any and all political connections that entrepreneurs had was enough for them to avoid being expropriated. In this system of interactions, signaling is extremely important, and the entry of entrepreneurs into the local legislatures was such a signal; to bureaucrats, it is more likely that these entrepreneurs are politically connected than not. Thus, these entrepreneurs avoid expropriation at the local level.

Dr. Hou’s research fell mostly in line with her argument. According to qualitative data that she had gathered over the course of her fieldwork in China, she showed that entrepreneur-legislators do pay less in expropriation; on average their companies pay 2.28% of their revenue to local governments. There was also a significant difference between the legislators and the non-legislators among entrepreneurs; according to Dr. Hou, an entrepreneur-legislator would save 24.1% of their income on extractive payments to local bureaucrats versus entrepreneurs who were not legislators as well. A slight divergence in Dr. Hou’s hypothesis and her data lay with her analysis of the purported motives of these entrepreneurs who become legislators. 56% of them claimed it was for property protection, while 77% of them claimed it was for political development and 87% of them stated they wished to have political connections. This data conflicted with Dr. Hou’s hypothesis that entrepreneurs would place property protection before political development and fostering connections, but this turned out not to be the case. However, she stated that these entrepreneurs might not actually be admitting to property protection for fear of some sort of political retaliation from the state.
Another metric by which Dr. Hou gauged the differential treatment of entrepreneur-legislators by the bureaucracy was through government responsiveness. For this, she used a national field experiment involving emailing several local officials across the country asking for information, using specific entrepreneurial questions. In one version, she claimed ties to an official in the People’s Congress, and in another version, she simply claimed that she had received a referral from someone in the Party. It was the first version that received a high positive response from the bureaucrats who were messaged, indicating that being a local legislator has ancillary benefits as well. The second version did not receive a significant positive response.

Dr. Hou ended her talk by presenting the implications of her findings. Now that her link between entrepreneur-legislators and property protection had been established, she highlighted the fact that individuals could use the structure of the authoritarian institution to further their own interests. How this relationship would be influenced by China’s economic growth and the evolution of the local political system remains yet to be seen. The questions that followed were mostly targeted at the assumptions of Dr. Hou’s argument, including the assumed fear that bureaucrats had for entrepreneur-legislators and the seemingly implicit distinction Dr. Hou had made between rents and protections at the outset of her argument.

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