The legendary centenarian economist and Nobel Laureate Ronald Coase has, with Ning Wang, written a remarkably engaging and informative account of China's recent transition from being a political economy under Mao Zedong dominated by top-down state planning, towards the current state-of-affairs where markets, prices and private enterprise play a much greater role in economic allocation; a transition, according to the authors, from a socialist to a capitalist economy. This transition has been accompanied, as most global citizens are aware, by heroic rates of economic growth which have transformed China from an internationally isolated agrarian economy to become the second-largest global producer, the workshop of the world, in little more than a generation. Indeed, the speed of this transformation, as the book makes clear, has far exceeded even the most optimistic predictions of China's leaders and China watchers, allowing more people to climb out of poverty than at any other time in human history.

Coase and Wang tell a tale based on detailed research into the machinations of China's post-Mao leaders, explaining the ways in which institutional transformation was achieved not so much by bold policies from the centre but by what the authors call “marginal revolutions.” These were decisive changes, often the result of pressure from below and the push and pull of forces at local and provincial levels, the most significant being decollectivization in the countryside and the implementation of the household responsibility system, rural industrialization through the township and village enterprises, the rise of the “individual economy” (geti jingji) based on private entrepreneurship in certain geographical locations in China and the creation of the Special Economic Zones. The authors explain, in Douglass North's evocative words on the book's jacket cover, the “fumbling efforts of a society to evolve.” Indeed, it provides an extraordinary insight into the process of institutional change brought about, not by abstract economic forces, but by real men and women in different structural and geographical locations, experimentally and pragmatically, making mistakes, learning lessons, taking initiatives, “crossing the river by feeling the stones” (mo zhe shitou guo he) and, as the authors emphasize, “seeking truth from facts” in the manner of China's ancient traditions. The book tells a powerful story of how institutional change has taken place in China in the last 30-odd years and is a valuable contribution to the literature.

Coase and Wang are not content merely to tell a good story, however. They have a second objective: to assert the benefits of free, competitive, private market forces and to use China's story as illustration of the superiority of a capitalist society over a socialist one. The homilies on the benefits of markets and the frequent favourable allusions to Friedman, Hayek, Popper and Cheung are perhaps to be expected from a co-authorship identified with the Chicago School, but the authors are sophisticated observers of events and are by no means crude proponents of “textbook economics.” Their unwillingness to discuss the meaning of capitalism and its application to present-day China except in a short note to the preface, however, leads to ambiguities. As the authors recognize, clearly all “capitalisms” are not the same and the Beijing version, with public ownership dominant across all key industrial sectors and the state highly influential in most if not all critical economic decision-making, is a long way from the conventional prescriptions of the Washington Consensus. Would the performance of the Chinese economy have been even more heroic had the government been less active, as the editorial line of the book might suggest, or is the strong state part of the explanation for China's economic successes? And should the state take a less or more active role in the leadership and regulation of the economy in the future? After all, the authors recognize that there are still very great problems in China, not the least of which includes an unhealthily unequal distribution of income which is unlikely to be resolved by the government taking a more laissez-faire approach. The authors recognize as much by providing an extended discussion on the legacy of the great man himself, Adam Smith (even Marx accepted Smith's genius for his role in the development of the labour theory of value), and on whether more should be made of his concerns for social justice in The Theory of Moral Sentiments as opposed to The Wealth of Nations' “invisible hand” of the market, with all that implies for self-interestedness. Apparently, Premier Wen Jiabao thinks so: hence, perhaps, the current Chinese government's concerns to create a “harmonious society” rather than to prioritize economic growth.

Surprisingly, given Coase's seminal contribution to the subject 50-odd years ago, there is very little discussion on property rights. The authors assert as fact that “private ownership facilitates the efficient allocation of resources and thus improves productivity” (p. 137) but their attempts to reconcile the astonishing success of the township and village enterprises in the 1980s and 1990s – run for the most part in forms of collective ownership for the local, public good, rather than for private profit – with this assertion is unconvincing. Even in today's China there is no market for land as is conventionally understood in the West and, as the authors recognize, China's farmers own only the use value of land, not its exchange value. The Chinese government has yet to deal with the land question.

Despite the ambiguities identified above, Coase and Ning have written a very readable book which, I have no doubt, will stimulate a great deal of fruitful debate over the nature, past experience and future direction of China's political economy.