Major Policy Tools
cluster-led development was well under way). Private start-ups, which first produced for the domestic market and then for export, provided the foundation for Zhejiang’s growth. This combination of circumstances paved the way for public-private partnerships. Political leaders were eager to promote growth. Encouraging small private start-ups, though politically risky at the onset of the reform period, offered the only hope for rapid development in Zhejiang. The absence of large external investments from either the state or foreign sources meant that growth could be based only on locally available resources. In Zhejiang, initial efforts often took the form of handicraft work or production in individual households using simple machines. These household units, tiny and lacking access to external finance, found it difficult “to manufacture finished products completely and independently—each … needed labor division and cooperation with others” (Wang 2008, 10). Facing financial constraints, entrepreneurs were ingenious in figuring out ways to circumvent them. In the absence of legal protections for private assets and contract enforcement, households naturally “sought to establish cooperation and minimize trading uncertainties by relying on family relationships and friends … at the pioneering stage of private sector development” (Wang 2008, 10). This cooperative approach to manufacturing in Zhejiang caught on rapidly in a region with poor agricultural prospects and long-standing traditions of handicraft production and petty commerce (Bramall 1989). Eager to escape two decades of persistent hunger, villagers grasped opportunities to cooperate with entrepreneurial relatives and neighbors and rushed to imitate successful operators. As these activities multiplied and expanded, the map of Zhejiang was soon populated by a diverse array of light manufacturing clusters; table 3.5 provides a partial list. The role of the central government. The strong commitment of the cen-
tral government to a market economy was critical to the formation of the first generation of private firms in China, while the fiscal reforms beginning in 1994 created strong incentives for local governments to foster clusters. In the transition from a plan system to a market economy, local entrepreneurship can be too risky if it does not have organizational legitimacy. To invest, entrepreneurs needed some assurance that the central
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