Francis Fukuyama. 1995 "Social Capital and the Global Economy."

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Francis Fukuyama conductors tbat are directly competitive with large North American and European industries. Those sectors are not, bowever, a natural strengtb of most Cbinese societies, wbicb do better in sectors wbere flexibility rather than scale is important. Tbere are in fact two rival economic cultures arising in Asia, one Japanese and tbe otber Cbinese. Eacb of these cultures is unified in a lit- .lapan and Korea, with ^^^ ^^"^^ ^y \^^g^ network organizations based, cbaracteristically, on generalized social their large eorporations., j-i-us^ \^ ^\^^ Japanese case and on family and di reedy eompete with kinsbip in tbe Cbinese. Tbese networks obvi- Tvy . * . ously interact witb each Other at many points. North Ameriea. u .. \.u • • . i • • A- J but their mternal wiring diagrams proceed along very distinct paths. Tbe difficulties experienced by Cbinese societies in establisbing large, private, professionally managed corporations are hkely to have long-run economic consequences. In sharp contrast to the first half of the twentieth century, wben most people believed industrial modernity required gigantic enterprises, tbe fasbion today bas swung in tbe opposite direction, toward tbe belief tbat small is beautiful. Tbe latter view, bowever, drawn largely from the fast-changing computer industry, may well be overdrawn: tbe future may belong to neitber large nor small companies per se, but ratber to tbose societies tbat can innovate and create tbe appropriate organizations to meet tbe needs of 21st century businesses. Japan, Germany, and tbe United States all bave vigorous small companies in addition to tbeir giant corporations. Tbey are more likely to adapt to new organizational requirements tban a society like Cbina, in which kinship ties and a deficit of trust continue to act as a constraint. Unforeseen technological developments may restore tbe prestige of large enterprises, wbich would create special problems for Cbina, Moreover, many countries believe tbat the acquisition of industries in certain key strategic sectors is a good thing in itself, either because tbey believe tbat tbey know better than the market where the best long-run returns will be or else because tbey are seeking noneconomic ends like international prestige or national security. France and Korea are prime examples, and Cbina is likely to follow suit. Tbe lack of a spontaneous tendency toward large organizations [98] FOREIGN A¥YA\R% Volume74No.s
Social Capital and the Global Economy may create particular pitfalls for Cbina because of tbe problematic cbaracter of tbe Cbinese state. The Chinese economy is currently bifurcated into an old, inefficient, and decUning state sector (that boasts, among otber things, tbe world's least efficient automobile manufacturing operation) and a new market sector composed mostly of small family businesses or joint ventures with foreign partners. What does not exist in China today is a modern, efficient, private large-company sector. Chinas astounding rate of aggregate growth in recent years (some 13 percent per year in 1992 and 1993) bas been fueled largely by the capitalist small business sector and by foreign investment. Tbese rates of growtb bave been made possible by tbe introduction of market incentives into a bugely inefficient command economy. At the moment, China is too poor to worry about tbe sectoral distribution of its industries; everyone is grateful enough that they are growing at such a rapid rate. There are many basic problems tbat have yet to be worked out, such as the establisbment of a stable system of property rigbts and commercial law. But Cbina will face major problems if it catcbes up to tbe current per capita income of Taiwan or Hong Kong in tbe next generation or two. Cbina watcbers are familiar witb a litany of potential problems tbat may brake tbe country's future growtb, sueb as inflationary pressures, absent infrastructure, and bottlenecks from too-rapid development; vast disparities in per capita income between the coastal provinces and the hinterland; and a large number of environmental time bombs that will explode in another generation or two. In addition to facing tbese problems, bowever, Cbina will need to develop large, modern, professionally managed corporations. Wbile Taiwan or Singapore might be willing to leave certain bigb-prestige forms of manufacturing to otbers wbile tbey grow faster along more marketdirected lines, the same is unlikely to be true for mainland China. China as a great power is not going to want to be left out of tbe bigb end of industrial modernity. China's very size dictates tbat it eventually develop a balanced economy, including both capital- and laborintensive sectors; it cannot expect to reacb a bigh level of overall development as a niche player like the small states of East Asia. Tbe shift from family business to modern corporations is going to be more problematic for tbe PRC than it was for Japan or the United FOREIGN AY V AIR?, September/October lggs [99]
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Francis Fukuyama. 1995 "Social Capital and the Global Economy."

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