Entrepreneurship in the Context of

Western vs. East Asian Economic Models

Peter W. Heller

Recent developments in the global economy, notably the

accelerating trade war between the US and China and the impact
of the Covid-19 pandemia, have fuelled the debate which model of
economic development, the Western or the East Asian one, is more
competitive in a long term perspective. The intention of this paper is
a brief investigation, based on historical and empirical research, into
the role of entrepreneurship as a major factor of competitiveness
and key driver of economic development in both models.
International reports based on data of the Global Entrepreneurship
Monitor and the World Economic Forum’s Global Competitiveness
Index come to diverging conclusions which model might prevail.
The paper outlines why the entrepreneurial dynamics in East
Asia, particularly in China and Vietnam cannot be adequately
captured by standards and rating systems based on the theoretical
framework of liberal capitalism, as the historical, cultural and social
factors of the East Asian model lie beyond its reach. However, the
Western narrative envisages a determined course of history that
economic progress will inevitably drag China and Vietnam on a
trajectory towards the Western model. There is sound evidence that
this will not happen.

Keywords: Entrepreneurship, Economic Models, East Asia

JEL Classification: P51

Peter W. Heller, Executive Director, Canopus Foundation, Günterstalstr. 9A, D

– 79102 Freiburg, Germany. (Email): [email protected], (Tel): +49 761
2020172.
I gratefully thank Prof. Vladimir Popov for his valuable comments on my draft
paper, and the DOC Research Institute, Berlin for the meticulous editing of the
manuscript, as well as one anonymous referee for useful comments.

[Seoul Journal of Economics 2020, Vol. 33, No. 4]

DOI: 10.22904/sje.2020.33.4.003
540 SEOUL JOURNAL OF ECONOMICS

I. Introduction

Recent developments in the global economy, notably the accelerating

trade war between the US and China and the impact of the Covid-19
pandemic, have fuelled the debate as to which model of economic
development, Western or East Asian, is more competitive in a long-term
view.
Current research by Milanovic (Milanovic 2019), Stiglitz (Stiglitz 2019)
and Popov (Popov 2020) has addressed that issue predominantly from
different macroeconomic perspectives. This paper pursues a distinctly
“Schumpeterian” approach, its intention is a brief investigation into
the role of entrepreneurship as a major factor of competitiveness and
key driver of economic development in both economic models. The
continuous structural change induced by entrepreneurial creative
destruction is actually widely acknowledged as a crucial factor of
economic progress.
To this end, recent quantitative research by two global institutions
and networks, the Global Entrepreneurship Monitor initiative and
the World Economic Forum, is interpreted to illuminate the impact
of entrepreneurship on Western and East Asian economies, among
the latter particularly China and Vietnam. The data analysis is set in
a historical context to examine whether the performance of Western
economies and East Asian economies confirm the superiority of either
the freedom and democracy paradigm of liberal capitalism or the
entrepreneurial state paradigm of political capitalism.
The brief empirical and historical examination gives evidence that
entrepreneurship in China has developed in an entirely different way
compared to Western economies. Official hostility towards private
entrepreneurship fostered collective forms of decentralised production.
Institutional ambiguities like insecure property rights, endemic
corruption and the precedence of government interests over economic
development led to an almost independent Chinese political strategy
to promote entrepreneurship and competitiveness. Its efforts to create
a model of non-exclusive capitalism provide, for all its shortcomings,
options for the poor to get a fair share of economic progress. Recently
the Chinese philosopher Zhao Tingyang has elaborated that policy
approach in a recourse to the old concept of tianxia (all-under-heaven).
Zhao claims that in an inclusive economy ruled by tianxia principles,
Pareto-optimal resource allocation would be replaced by a Confucian
 Entrepreneurship and Economic Development 541

optimum transforming competitive hostility into cooperative hospitality.

The European tradition of the welfare state which contains elements
of inclusive capitalism, in particular advanced civil and social security
mechanisms, could be appropriately connected to the concept of tianxia.
A better apprehension of the Chinese tianxia principles of economic
development may call into question the Western narrative which
envisages a determined course of history: that economic progress will
inevitably drag China and Vietnam on a trajectory towards the Western
liberal market model. As I argue in my paper, there is sound evidence
that this will not happen. Instead the West versus East Asia debate
would gain valuable insights if it includes the concept of the European
welfare state and abandons the idea of a monolithic West.

II. The
‌ Nexus of Entrepreneurship and Economic
Development

The word “entrepreneur” emerged quite late in the history of economic

literature; it was introduced by the Irish-French economist Richard
Cantillon in his Essay sur la Nature du Commerce en Géneral, published
posthumously in 1755. Cantillon’s concept of the entrepreneur tells of
a risk-bearer and discoverer of market opportunities. Its focus on risk-
taking and alertness sets it apart from the idea of the entrepreneur as
the organiser of factors of production, which dominated the classical
economic thinking of Adam Smith, Jean-Baptiste Say, Karl Marx, and
later the neoclassical school of Walras et al. until the end of the 19th
century. The classical entrepreneur is not a capitalist, not a landlord,
not an employer or manager, although these distinct roles of agency in
a market economy often merge in one person.
He/she “must be a decision-maker… It is his function and this
function alone that deserves the title of “entrepreneurship”” (Blaug 2000
p. 76). The almost automatic process of investment and production at
the core of classical and neoclassical economic models blended well into
the general equilibrium theory of Walras, which has no need of a theory
of entrepreneurship. Its static equilibrium, conceived in resonance to
Newtonian mechanics, does not leave any room for dynamic change in
economic development. The world of discoverers, explorers, overseas
trade, and other risky ventures driven by entrepreneurs avant la lettre
did not play a systemic role in classical economics; the entrepreneur
remained “a shadowy entity without clearly defined form and function”
542 SEOUL JOURNAL OF ECONOMICS

(Baumol 1968, p. 64).

However, the significant advancements of the second industrial
revolution in the early 20th century provided new evidence that
economic development was powerfully driven by other forces than the
conventional allocation and coordination of production factors in a
static framework.
Josef Schumpeter conceived an entirely different perspective on
economic development. He perceived economic growth, progress, and
development as the result of entrepreneurial innovation, which does
exactly what neoclassical economists abhor: the creative destruction
of static economic equilibria by introducing new combinations of
production factors, including technical innovations, thus shaping
economic development in a state of permanent disequilibrium:

“This concept covers the following five cases: (1) The introduction of
a new good … (2) The introduction of a new method of production …
which need by no means be founded upon a discovery scientifically
new … (3) The opening of a new market … (4) The conquest of a new
source of supply of raw materials … (5) The carrying out of the new
organisation of any industry, like the creation of a monopoly position
… or the breaking up of a monopoly position” (Schumpeter 1934 p.
66).

Triggered by innovation and entrepreneurial leadership, creative

destruction does not happen exclusively in market economies.
Schumpeter ascertained that it has its place under vastly different
historic conditions and diverse social and political contexts, and can,
as an almost omnipresent phenomenon, thrive as well in a socialist
economy, or a primitive horde (Schumpeter 1926 p. 111).
The idea of a continuous structural change caused by entrepreneurship,
which drives economic development, had a tremendous impact on
economic thinking, ranging from growth theory to enquiries into
the dynamics of innovative firms, to economic history examining
the relationship between institutional change and economic and
technological progress (North and Thomas 1973).
The third industrial revolution, spreading internet-based commerce
and communication globally, raised a new awareness about the
importance of science-driven entrepreneurship, as technology-driven
companies such as Apple, Alphabet, and Microsoft have become global
 Entrepreneurship and Economic Development 543

market leaders, and about the need to create an enabling ecosystem

conducive to commercial success on a previously unprecedented scale.
Douglass North, a co-founder of the New Institutional Economics
school in the US, illuminated the fundamental importance of
institutions for economic development. Although his enquiries into
economic history are firmly rooted in the neoclassical tradition and a
firm belief in the superiority of Western liberal market economies (North
and Thomas 1973)1, he acknowledged that the neoclassic credo “just
get the prices right” had failed to capture the dynamics of economic
development. He discovered the crucial importance of the institutional
framework of an economy in shaping and protecting property rights
– through the credible commitments of governments – to provide
entrepreneurs with incentives to set up new business activities. North‘s
analysis gave Schumpeter’s entrepreneur-centred theory of economic
development a firm grounding in economic history, readily adopted
by the World Bank which, after 1980, started to globally convey the
message: institutions matter.

III. Global
‌ Empirical Research on Entrepreneurship and
Competitiveness

Empirical research on the impact of entrepreneurship on economic

development is based on the work of Schumpeter and his followers
as its primary theoretical source. Over the last 20 years, the Global
Entrepreneurship Monitor (GEM) initiative has compiled the most
comprehensive international database on entrepreneurship2. More
than 150,000 adults from 50 economies participated in interviews for

1
I use the term Western liberal market economies in the sense of Milanovic’s
definition of liberal meritocratic capitalism „as the system where most
production is carried out with privately owned means of production, capital hires
legally free labor, and coordination is decentralized. In addition, to add Joseph
Schumpeter’s requirement, most investment decisions are made by private
companies or individual entrepreneurs“. (Milanovic 2019: 12)
2
Permission to use figures from the GEM 2019/2020 Global Report, which
appear here, has been granted by the copyright holders. The GEM is an
international consortium and this report was produced from data collected in,
and received from, 54 economies in 2019. My thanks go to the authors, national
teams, researchers, funding bodies and other contributors who have made this
possible.
544 SEOUL JOURNAL OF ECONOMICS

Source: G
‌ EM (2020 p. 31)

F igure 1
In my country, it is easy to start a business (% adults)

its 2019-2020 report. Even broader in scope (141 economies examined)

and focusing on economic development from a wider perspective is the
World Economic Forum’s Global Competitiveness Index 4.0 (GCI). In
its 2019 report, the authors use the metaphor of creative destruction
to describe the challenge of mitigating the adverse social effects of fast
technological advancements: “In the Schumpeterian process of “creative
destruction”, creativity must be encouraged, and the destruction must
be managed” (GCI 2019 p. 7).
The Global Entrepreneurship Index (GEI), a research programme
based on data from GEM and GCI, introduces the concept of the
entrepreneurial ecosystem3 with a reference to the same tradition: “Ever
since the time of Schumpeter the concepts of entrepreneurship and
innovation have been intertwined with economic development” (GEI
2019 p. 2).

3
An entrepreneurial ecosystem is defined as a „set of interconnected
entrepreneurial actors (both potential and existing), entrepreneurial
organisations, institutions and entrepreneurial processes which formally and
informally coalesce to connect, mediate and govern the performance within the
local entrepreneurial environment“ (Mason and Brown 2014: 5)
 Entrepreneurship and Economic Development 545

What does the quantitative research of GEM and GEI tell us about
the entrepreneurial element in the competitiveness of the Western
versus the East Asian economic model?4 It comes as no surprise that
the Western economies rank at the top of the list:
Adults who aspire to start a business see the entrepreneurial
ecosystem in countries like the UK, US, Poland, Sweden, or Canada as
significantly more supportive than in any country in the MENA region
or Latin America. In Asia, only India finds a place in the top ranks, in
sharp contrast with China, Taiwan, and especially Japan at the low end
of the spectrum. The individual perceptions of opportunities in national
business start-up culture differ widely from country to country; in
Europe, Western countries score higher than Eastern countries – with
the exceptions of Poland and Slovenia. In Asia, the Indian subcontinent
scores higher than East Asian countries.
The correlation of the social and cultural incentives for starting a
business with income per capita is apparently weak: low-income India
scores higher than high-income Sweden; low-income Puerto Rico and
high-income Japan are at the bottom of the ranking list.

“It may be that some high-income economies have policies and

conditions that foster entrepreneurship, while others do not, even if
the general business environment is highly advanced. On the other
hand, in some low-income economies, there may be few constraints
on business activity, while other economies have uncertain operating
environments” (GEM 2020 p. 30).

In the application of North’s theory, the presence or absence of a

credible commitment by governments to protect property rights and
sanction breaches of contractual obligations is an essential element of
the dynamics of a national business culture and thus the potential for
economic progress.
Do people see themselves as potential entrepreneurs, do they think
they have the necessary skills, knowledge, and experience at their
disposal to successfully start an enterprise? The GEM survey gives

4
An introduction into the methodology of GEM, GEI, and GCI would be
beyond the scope of this paper. Data on the entrepreneurial ecosystems are
sorted into groups (pillars) of indicators; in the case of the GEI, these are
(entrepreneurial) attitudes, abilities, and aspirations.
546 SEOUL JOURNAL OF ECONOMICS

Source: G
‌ EM (2020 p. 32)

F igure 2
You have the knowledge, skills, and experience to start a new business (%
adults)

evidence of a vast difference between perceptions of the external

ecosystem (Fig. 1) and self-perceptions (Fig. 2).
Contrary to participant views of the entrepreneurial ecosystem,
China is classified – in terms of self-perception – higher than the US; in
Europe and North America, Norway drops from second place down to
the bottom. Participants in other countries perform more consistently
on both questions, e.g., the Russian Federation and Japan keep their
place at the lower end.
The GCI 2019 report from the World Economic Forum draws a
different picture. It applies a wider set of indicators to its ranking
process for competitiveness, in which entrepreneurship is only a part,
a subset of the analysis. The computation of the GCI Index is based on
successive aggregations of scores, from the disaggregated level of the
103 single indicators to the overall GCI score as the highest level. The
indicators are aggregated in twelve pillars and the pillars are organised
in four overarching components: enabling environment; human capital;
markets; and the innovation ecosystem. The GCI methodology blends
objective indicators based on macroeconomic data with subjective
indicators derived from the annual WEF Executive Opinion Survey, The
Voice of the Business Community (GCI 2019 p. 633).
 Entrepreneurship and Economic Development 547

Environmental sustainability, social cohesion, and inequality issues

are examined with regard to their impact on national competitiveness,
aspects which play a marginal role in the GEM and GEI surveys. The
importance of an intact social fabric, including the health sector and
care economy, is more broadly reflected in the ranking system. The GCI
report puts the East Asian economies at the top of its ranking list: “Led
by Singapore, the East Asia and Pacific region is the most competitive in
the world, followed by Europe and North America… Among the BRICS,
China is by far the best performer, ahead of the Russian Federation“ (GCI
2019 p. IX).
The WEF’s more comprehensive approach to competitiveness evokes
the narrative of a close race between the Western and the East Asian
economic models. Inflexible institutions, deficits in infrastructure,
and weaker skills and entrepreneurial ecosystems in the East are
compensated for by its superior product and labour market capacities
and financial support systems which provide competitive advantages in
international markets.
The GEM, GEI, and GCI reports assess and rate national economies
with a heavy Western bias. The GEM/GEI approach examines the
entrepreneurial ecosystem exclusively from the perspective of individual
perceptions: “The GEM approach looks … at individuals, assessing
attitudes and perceptions towards entrepreneurship … This allows
for a unique profile of entrepreneurship in society” (GEM 2020 p.
23). However, in East Asia, particularly China and Vietnam that
approach does not capture the cultural, social, or economic role of
collective forms of entrepreneurship in an adequate way. A prominent
example is the town-and-village enterprises (TVE) in China, which
emerged after 1978 in the wake of Deng Xiaoping’s economic reforms.
His Four Modernisations programme was extended to households to
provide rural areas with urgently needed goods and services. Although
subordinated to the town and village governments and owned and
operated by a collective of peasants, in practice those TVEs act in the
market as private companies: “TVEs can be regarded as the beginning
of contemporary Chinese entrepreneurship” (Li 2013 p. 20). We shall
return later to the evolution of the entrepreneurial culture in China,
which followed quite a different trajectory to its counterpart in the West,
particularly in countries where a socialist revolution had taken place.
The GCI 2019 report, firmly anchored in the Western liberal tradition,
celebrates high-powered competitiveness as the only solution to
548 SEOUL JOURNAL OF ECONOMICS

reconcile fast economic development, environmental degradation, and

rising inequality: “The perceived trade-offs between economic, social
and environmental factors may emerge from a short-term and narrow
view of growth but can be mitigated by adopting a holistic and longer-
term approach to growth”. (GCI 2019 p. 6).
But the acceleration of climate change and global loss of biodiversity
do not provide any evidence that higher competitiveness provides a
convincing recipe to solve the dilemma of divergent policy imperatives
(Ibid, pp. 25-28). On a parallel track, differences in competitiveness
have had no coherent impact on the gap between rich and poor, which
has grown dramatically since 2000 in the majority of OECD countries
(Ibid, pp. 31-32). The GCI report 2019 tries to save its line of argument
by constantly flipping from its empirical assessments, based on its
comprehensive database, to normative prescriptions for what national
economies ought to do in search of holistic solutions, always under the
following pretence: “The GCI shows that the combination of growth,
equality and sustainability is indeed achievable – and must be the
urgent work of policy-makers around the world over the next decade”
(Ibid, p. 8).
The magic wand which dissolves all contradictions and oxymora in
this complex game is total factor productivity (TFP), “… the “unexplained”
part of GDP growth, which encompasses all non-physical inputs, such
as technological progress, human capital, and institutional and cultural
factors“ (Ibid, p. 26). TFP is at the core of the GCI ranking system, and
the entrepreneurial ecosystem is a key element of TFP. Despite the
significant differences in methodology, the GEM, GEI, and GCI reports
converge in giving entrepreneurship and competition a major role in
the economic development of nations and regions. They mirror the firm
belief in Western liberal economics, prominently elaborated by North,
that the rule of law and the security of property rights, guaranteed by
the credible commitment of governments, are unrivalled in reducing
uncertainty for entrepreneurs and risk for private investors.
Do they adequately capture the rise of the successful economies in
East Asia? That remains questionable indeed, as in that region other
cultural, social, and economic forces seem to be at work that do not
easily fit into the Western freedom and democracy paradigm.
Scepticism about the systemic superiority of the Western economic
model has been voiced – after Marx and Engels – by economists from
the German Historical School, whose writings influenced Schumpeter,
 Entrepreneurship and Economic Development 549

the very economist whose theory has been widely embraced by liberal
economists and policymakers since the 1980s. Gustav Schmoller, one
of the most influential scholars of the Historical School, illuminated the
ambiguity of entrepreneurship as “both a productive and destructive
force of economic development” (Ebner 2005 p. 262). Higher productivity
and fast product creation stand against growing inequality, exploitation
of workers, and a general social disintegration, manifest in business
elites‘ lack of responsibility for the common good (Schmoller 1875 pp.
131-132).
In his major early work, the Theory of Economic Development,
Schumpeter himself argues that entrepreneurial creative destruction is
not exclusively linked to liberal market economies. He is deeply sceptical
about the future of capitalist economies, for which he predicted a
gradual transition from a dynamic and innovative entrepreneurial
state to a rentier state, mired in trustification and stagnation and
also that organisational change brings forth the formation of larger
corporations and powerful bureaucratic routines and pushes individual
entrepreneurial leadership to the side-lines of advanced market
economies.
Schumpeter assumes that socialist countries find their own
opportunities to reinvent themselves as entrepreneurial states that put
the entrepreneurial function, the discovery of new combinations, in
the hands of government agencies (Ebner 2009, pp. 371-373). In his
later work, Schumpeter confirms and extends the essential role of the
entrepreneurial state for economic development, in particular its options
for a creative adaptation of private-sector innovations in technology,
business administration, and finance. He suggests that non-Western
economic models, based on histories of socialist revolutions, are not
at a systemic disadvantage in being able to generate rapid economic
growth: “Every social environment has its own ways of filling the
entrepreneurial function” (Schumpeter 1949, p. 255).
Mariana Mazzucato provides ample evidence that technological
breakthroughs are due to public and state-funded investments in
innovation and technology and that the private sector only finds the
courage to invest after an entrepreneurial state has made the high-risk
investments (Mazzucato 2013). Joseph Stiglitz confirms that argument:
“For many of the billions in the developing world and emerging markets,
China, using its distinctive “socialist market economy with Chinese
characteristics”, has provided a dynamic alternative vision to that of
550 SEOUL JOURNAL OF ECONOMICS

America” (Stiglitz 2019 p. 28).

IV. Entrepreneurship in East Asia

Town-and-village enterprises (TVE) in China have already been briefly

introduced as the forerunners of modern Chinese entrepreneurship. In
light of North‘s theory, the specific institutional settings of TVEs differ
significantly from those in Western economies, where private property
rights are firmly guarded by law: “Under the TVE system, formal
ownership is vested in local towns and villages, but the enterprise is
run as if privately owned …, [a regulation which is] not easy to reconcile
with North’s narrow concept of property” (Faundez 2016, p. 383).
According to Huang, in 1985, “… of the 12 million businesses
classified as TVEs, 10 million were completely and manifestly private”
(Huang 2008, p. XIV). Yet the TVE sector was severely hit by the
economic reforms in the mid-1990s; the official hostility towards
private entrepreneurship forced them to restructure substantially
and many went out of business. With increased market integration
and competition and the government’s preference for foreign-owned
enterprises, TVEs lost their competitive position.
Another dynamic East Asian economy, Vietnam, developed a similar
transitional structure of business ownership before its private sector
covered the majority of its national economy. However, both countries
chose different paths to transform their economies: “While Chinese
reforms are normally treated as a classical example of gradualism,
Vietnamese reformers introduced Polish style shock therapy treatment
(instant deregulation of most prices and introduction of convertibility
of the dong) … and still managed to avoid a reduction of output” (Popov
2014, pp. 96-97).
The socialist revolutions in China and Vietnam wiped out feudal
rule and foreign domination and pushed both countries on to the
development path of export-oriented market economies in the late
1970s. Even in Singapore and Malaysia, where no socialist revolutions
occurred, a political infrastructure emerged with a closer resemblance
to China and Vietnam than to the American and European economic
model.
 Entrepreneurship and Economic Development 551

Milanovic calls the East Asian economic model political capitalism,5 as

opposed to the liberal meritocratic capitalism in the West. It bears three
distinct characteristics: (i) an efficient bureaucracy; (ii) the de facto
absence of the rule of law; and (iii) the autonomy of the state:

“… bureaucracy has as its main duty to realize high economic growth

and implement policies that allow this goal to be achieved. Growth is
needed for the legitimization of its rule. The bureaucracy needs to be
technocratic and the selection of its members merit-based if it is to be
successful, especially since the rule of law is absent“ (Milanovic 2019,
p. 91).

Deng Xiaoping, the eminent architect of the model of political

capitalism, rigorously pursued an approach in which “capitalists‘
interests were never allowed to reign supreme, and the state retains
significant autonomy to follow national-interest policies and, if needed,
to rein in the private sector“ (Ibid, pp. 92-93).
When Deng Xiaoping started his economic reform programme,
“The Four Modernizations”, in 1978, the percentage of urban workers
employed by state-owned enterprises (SOE) was around 80% of the total
workforce and the industrial output produced by SOEs close to 100%.
Until 2016 the SOEs share of the total workforce had fallen to less than
20%.
Milanovic argues that the three characteristics of political capitalism
inevitably lead it into two contradictions: “… [First,] a technocratic elite
is educated to follow the rules and to operate within the confines of a
rational system. But arbitrariness in the application of the rules directly
undermines these principles. The second contradiction is that between
(i) inequality-increasing corruption, which is endemic in such systems
because the discretionary power granted to bureaucracy is also used by
its various members to obtain financial gain, the higher their position,
the greater its use; and (ii) the need, for reasons of legitimacy, to keep
inequality in check” (Milanovic 2019, pp. 93-94).
Thus political capitalism is constantly moving along an unstable
equilibrium, confronted with different but equally powerful challenges

5
He borrows the term ‘political capitalism’ from Max Weber, who defines it
as the use of opportunities for predatory profit from political organisations or
persons connected to politics (Weber 1978, pp. 164-165).
552 SEOUL JOURNAL OF ECONOMICS

to those of its liberal Western counterpart.

How does Schumpeterian entrepreneurship, i.e., creative destruction,
thrive in an economic model with substantial institutional ambiguities
like insecure property rights, endemic corruption, or an unconditional
precedence of national political interests over economic development?
After the launch of Deng’s Four Modernizations programme
and China’s entry into the WTO in 2001, “a kind of fuzzy property
rights arrangement” (Li 2013, p. 26) persisted, most entrepreneurial
ventures still emerged under the umbrella of TVEs – the so-called
red hat strategy – which made it easier to conceal private ownership
and provided basic legitimacy for commercial business development.
In the new millennium, political capitalism in China and Vietnam
– after both countries had observed the earlier economic rise of the
East Asian “Tiger” states – gradually upgraded its support policies for
technological innovation and its market implementation by private
enterprises. In 2015, China’s State Council launched a comprehensive
entrepreneurship and innovation strategy (Opinions on Several Policy
Measures to Promote Mass Entrepreneurship); in 2019, the government
issued guidelines for better protection of intellectual property rights.
Parallel to those policies to secure a safer institutional space for
property rights, a business angel market emerged in China, which for
the first time enabled start-up entrepreneurs to get access to early-stage
venture capital. “[T]he Chinese market of business angel investments
today plays an increasingly noticeable role.” (Reshetnikova 2018: 513)
Easy access to venture capital and private equity is widely considered
a crucial prerequisite for a dynamic entrepreneurial ecosystem. Step
by step, the East Asian economies have implemented efficient support
mechanisms in the development of their domestic financial markets,
particularly their private equity and venture capital segments. Today,
the gap between Western and East Asian entrepreneurs‘ access to
capital is but a gradual one.
The impact of corruption on the entrepreneurial ecosystem and
economic competitiveness has been controversially disputed since the
1960s. Leff, Huntington, and Leys claim that corruption can foster the
realisation of major infrastructure projects and drive an ambitious
economic growth policy, as it greases the wheels in the complex public-
private economic engine (Tomaszewski 2018, p. 252). The speed of the
engine depends both on the innovative capacities of the entrepreneurial
ecosystem and the responsiveness of government institutions
 Entrepreneurship and Economic Development 553

whose collaboration in the planning and execution of the projects is

indispensable.
In contrast, North and Baumol, in their historical research on the
allocation of entrepreneurship (Baumol 1990), highlight the detrimental
effect of corruption on economic growth – sand in the wheels – caused
by the distorted policies of bribed government institutions, which lead
to higher transaction costs and uncertainty for enterprises and to lower
investment in the private sector (Tomaszewski 2018, p. 253).
In the case of China, competing local governments have developed a
complex system of special deals to build and promote local enterprises
as champions for rapid economic growth in their region (Bai, Hsieh,
and Song 2019, pp. 2-6). Those special deals are an essential part of
inter-local and inter-regional competition; first and foremost, they
drive innovation and creative destruction. Milanovic argues that a
certain level of corruption is an inevitable side effect of globalisation
and inextricably linked to the free movement of capital and labour, and
therefore a ‘normal‘ element of both economic models:
“Corruption … is spurred by the ideology of money-making, which
is the ideology that underlies capitalist globalization, and it is made
possible thanks to the mobility of capital. But in addition, both political
capitalism and the trend toward plutocratic rule in liberal capitalism‚
normalize it” (Milanovic 2019, p. 131).
Indeed, the abundant legal lobbying activities of corporations in
Western countries have similar systemic potential to distort public
economic policy and generate even higher levels of inequality than
illegal corruption does in political capitalism.
After 2010, China’s leadership acknowledged the risks of rampant
domestic corruption spinning out of control. In 2012, the National
Congress of the Communist Party launched a sweeping nationwide
campaign to reign in bribery and the abuse of political power. More than
100,000 citizens were indicted between 2012 and 2015; the relentless
anti-corruption policy of the Chinese government became a hallmark of
Xi Jinping’s presidency (Economist 2015). Economists are still debating
whether that campaign and subsequent anti-corruption initiatives have
had a tangible impact on the slowdown of China’s economic growth
since 2012.
As previously outlined, the World Economic Forum’s 2019 GCI report
appreciates these efforts over recent years and celebrates China as the
competitiveness champion among the BRIC economies. There is strong
554 SEOUL JOURNAL OF ECONOMICS

evidence that up to now, China’s version of political capitalism has

managed to keep its systemic contradictions at bay and to generate
impressive economic growth in comparison with other transitional
economies, prudently replicated by Vietnam in its wake: “…for the
first time in history successful economic development on a major scale
is based on an indigenous, not Western-type economic model“ (Popov
2020, p. 28; original author’s emphasis). Milanovic concludes that we
are presently witnessing an open contest of competitiveness between
liberal and political capitalism: “which one does it better is an empirical
question“ (Milanovic 2019, p. 119).
But is it an empirical question? I doubt it. More research based on
statistical data can probably provide further insights into the difference
between the two models but it will fail to illuminate the otherness of the
East Asian, particularly the Chinese economic model with regard to the
Western model. That otherness in its history, traditions, values, and
its social and economic interactions, lies beyond the reach of economic
science.

V. The Entrepreneurial Self, Tianxia, and the Welfare State

Wester n l i ber a l ca pi ta l ism ha s embr a ced t he concept of

entrepreneurship as a key factor of competitiveness and driver of
economic growth. It partly reinvented itself by focusing on start-up
business cultures working on creative destruction as an escape route
from trustification and stagnation. Its growing popularity has pervaded
all subsystems of the economy: young enterprises compete for a
champion or even unicorn market position (a valuation of over $1 bn.);
venture capital and private equity companies compete to discover the
next big thing to make their investors rich; and employees transform
themselves into intrapreneurs competing with their teammates in
delivering the best performance to increase the company’s share value
and stakeholder value.
That pervasiveness of competitive thinking and behaviour manifests
itself in the massive media appeals for empowerment, total quality
management, and disruptive innovation, the growing pressure of self-
optimisation that locks citizens firmly in a Hobbesian world dominated
by friend-foe relations, and creates an inherently violent society
constantly at war with itself and others, homo homini lupus. That
mindset, the entrepreneurial self (Bröckling, 2016), has taken hold
 Entrepreneurship and Economic Development 555

wherever the debordering of markets in the process of globalisation

linked more countries and communities to the Western model and
subordinated them under Western hegemony. In Schumpeter’s words,
the entrepreneurial self has “the dream and the will to found a private
kingdom, … the will to conquer: the impulse to fight, to prove oneself
superior to others” (Schumpeter 1934, p. 93).
The philosopher Zhao Tingyang perceives other forces at work in
China, past and present. He has developed an authentic, indigenous
Chinese theory of (political and economic) world order based on the
concept of tianxia, “all-under-heaven”, which was conceived about 3,000
years ago in the Zhou dynasty (Zhao 2020, pp. 50-59). Tianxia has
three meanings: (i) the earth or all lands under the sky; (ii) a common
choice made by all peoples in the world, or a universal agreement in
the “hearts” of all people; and (iii) a political system for the world with a
global institution to ensure universal order.
With the concept of tianxia, therefore, the world is understood as
consisting of the physical world (land), the psychological world (the
general sentiment of peoples), and the institutional world (a global
institution) (Zhang 2010). Tianxia regards the world as the highest
political unit, while the Western liberal model puts the nation-state
at the centre of its political and economic analysis, even in its global
perspectives on international trade or the clash of civilizations.
An essential element of tianxia is its principle of non-exclusion, which
leaves no space for anything or anyone being shut out or ostracised. It
“defines the concept of “the political” as the art of co-existing through
transforming hostility into hospitality” (Zhao 2018). That relational
ethical approach, traced back by Zhao to Confucius, gives the Chinese
model of economic development a fundamentally different grounding
compared with the Western model (Ahlstrom and Wang, 2010, pp.
406-412). It provides a social guarantee for the poor to participate in
economic development and keeps inequality at acceptable levels. Zhao
emphasises the inclusive character of such economic development,
which he calls a Confucian optimum, in marked contrast to Pareto-
optimal resource allocations in liberal economic theory (Zhao 2018).
In an economy ruled by tianxia principles, the entrepreneurial self,
its radical individualism and its restless propensity to self-optimisation,
competition, and exclusion would not dominate society. The common
good has a superior position in national policy where it holds sway
over individual interests. The Western liberal narrative envisages
556 SEOUL JOURNAL OF ECONOMICS

a determined course of history in which economic development

will inevitably drag any national economy on to the path to liberal
capitalism. But China’s economic development and vision for a future
world order seems to deviate entirely from that assumed determined
outcome, as it is based on non-Western values: “China is, in many
ways, the “absolute other” to our understanding of international order”
(Godehardt 2016, p. 11).
The Western liberal approach to inclusive capitalism is the theory of
the welfare state, which has been developed by mainstream economics
in the tradition of Hobbes, Locke, Smith, and Mill. John Rawls built
upon the work of these predecessors and conceived an internationally
acclaimed theory of the national welfare state but he categorically
excluded the application of his principles of distributive justice,
which set limits to inequality, to the international order. There is no
conceptual barrier for inequalities between rich and poor national
economies in Rawls’ theory, and any resistance of the Global South
against the unjustified gap between poor countries and the affluence of
Western countries could be a subject of interventions. Zhao recognises
the legitimation of a modern North-South imperialism as the necessary
consequence of that ideology (Zhao 2020, pp. 193-194).
However, there is another European tradition of the welfare
state besides that of Western liberalism, which may find a more
appropriate way to connect to the Chinese economic model based
on tianxia. Leibniz, Rousseau, and Kant have conceived elements
of an inclusive and hospitable political and economic world order
which comes, at least partly, close to tianxia. Zhao explicitly refers to
Leibniz’s divine principle of a possibility of coexistence for all living
beings, and to Kant’s reflections on the conditions of the possibility
of eternal peace (Zhao 2020, pp. 21, 189-192). Cornerstones of
inclusive capitalism were introduced in most EU member states
by social democratic parties when they came to power: advanced
civil and social security mechanisms – notably healthcare –
and more equitable tax and transfer regimes. In these national
economies, the public sector generally holds a share of GDP over
40%. Contrary to Rawls’ theory, there are no conceptual barriers to
a global application of the continental European model of welfare.
 Entrepreneurship and Economic Development 557

VI. Conclusion

In conclusion, it would be worthwhile to juxtapose tianxia and the

continental European model to explore their similarities and differences
as a subject of future research. The West versus East Asia debate
would gain new valuable insights if it abandons the idea of a monolithic
West.

(Received 25 September 2020; Revised 15 October 2020; Accepted 15

October 2020)

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