Local Institutions and Historical Contingency: Divergent Paths in Local Economic

This article examines the paths of local economic transition over the past thirty years in Wenzhou and Wuxi of China from an institutional perspective. Chongqing will serve as a minor case in comparison. It argues that local institutions matter in explaining divergent paths of development in the era of market transition. Specifically, the passive nature of the local state complemented with the bridging character of the local business associations and the more independent entrepreneurship of local firms in Wenzhou have contributed to a local transition from a semiliberal capitalism throughout 1980s to a market economy coordinated by locally weak but semiautonomous business associations since the second half of 1990s. By contrast, a strong and omnipresent local state together with impotent business associations and dependent entrepreneurship of the local firms in Wuxi have shaped a path of transition from local state corporatism to a mixed-market economy coordinated by the local state at the turn of the century. On the other hand, with a dominant local state intervention and the weakened business associations and entrepreneurship, Chongqing transformed from a typical path of planned economy toward a road of strong state capitalism. This article further traces the historical origins of different local institutions in Wenzhou and Wuxi, arguing that a historical contingency of self-liberation in Wenzhou at a critical juncture of the 1949 socialist revolution explains an inactive local state with a more lenient attitude toward the local private peasant sidelines, in contrast to the liberation by Mao’s regular Army from north in Wuxi and Chongqing, which disrupted the local status quo and switched the loyalty of local power hierarchy to socialist transition in Mao’s era. Thus the initial genesis of institutional arrangements as a result of punctuated equilibrium in localities shapes the way in which local institutions evolve for decades to come.