The second example studied by this paper is the innovative, very new form of ownership developed by the Chinese for businesses. This is, generally, local government ownership of business. Specifically, the Township-Village Enterprises are studied. Despite their nonstandard form, these types of enterprises were China's main growth engine until the mid-90s. One advantage of this form is that it facilitated improvements in efficiency in an environment where private property rights were insecure. Another advantage compared to the standard private property form, noted in my previous Parts on this paper, is that those in power benefited more from this type of business. This includes both the local governments that owned the businesses and the national government that shared in the profits.

The third example studied by this paper is the way "fiscal federalism" was made productive. The financial arrangement between the central and local government helped turn the local government into a champion of local businesses. essentially, the central government started letting to local governments directly share in the profits of the businesses in their areas. Local governments responded to incentives by helping productive non-state Enterprises and reforming unproductive state owned enterprises. Apparently, working through local governments to achieve reform was the key. Presumably, this helped break down the apparently insoluble problem of increasing efficiency on a nationwide basis. Although the groups involved (local governments) were much larger than businesses, they were much smaller and more directly connected to the situation in the central government, hence the improvement.



"How Reform Worked in China,"by Yingyi Qian, William Davidson Working Paper Number 473, June 2002,
http://ksghome.harvard.edu/~drodrik/Growth... hit September 4, 2007