Lineage Networks and Chinese Rural Entrepreneurship

Since Max Weber, it has been a long-held debate about whether lineage networks promote or hinder the development of modern private enterprises. We argue that lineage networks, functioning as community-level social capital, can either facilitate or impede the development of private economy, depending on formal institutions they embedded in. When the private property and market exchange are not effectively protected by formal institutions, the dualism ethics entailed in lineage networks facilitate the growth of private enterprises by reducing transaction costs and protecting the property rights of private entrepreneurs. When private property and market exchange are legally protected, the dualism ethics of lineage networks contract the universal ethics required by market exchange. Lineage networks cannot escape the problems of free-riding and exclusion of others. In this context, lineage networks hinder the growth of private enterprises. The privatization and marketization of the Chinese economy provides a great opportunity to examine this argument. Using the village-level data from 2005 Chinese General Social Survey when Chinese formal property law was effective, we find that the strength of lineage networks – measured as the proportion of largest surname group, lineage temple, and genealogy books – are negatively associated with the number of rural private enterprises at village level. This finding is in sharp contrast with the protective effect of lineage networks on rural private enterprises found in rural China in the 1990s, a period where private property was not legally protected. Taken together, these results support that the role of lineage networks on private entrepreneurship depends on their interactions with formal institutions, clarifying the institutional basis for the Weber thesis.