China scholars have not reached a consensus as to why China has evolved from a centrally planned socialist system to one that is not democratic but yet is essentially pro-capitalist. The country's trajectory defies modernization theory's expectation that economic development generates inescapable pressures for democratization. However, since 2001 China's Communist Party has openly courted entrepreneurs, and the constitution was amended in 2004 to clarify the right to private property. Kellee Tsai offers a distinctive explanation of this duality that deepens our understanding of the dynamics of China's political economy, as well as the sources of institutional change more generally. The book's methodological sophistication, which draws on formal surveys and hundreds of interviews, sets the bar high for other political economy scholars.

Tsai's first task is to demonstrate that China's private entrepreneurs have not coalesced into a class that aims to assertively defend its common interests and seek democratic change. She argues that because entrepreneurs come from such varied backgrounds—from farmers to former state-owned enterprise managers—they do not see themselves as a cohesive group, have low levels of trust toward other businesspeople they do not personally know, have contrasting policy concerns, and engage officialdom differently. She found that only a tiny percentage of entrepreneurs had both the capacity and desire to confront the government, and most often this took the form of pursuing minor goals that benefited the individual company. In addition, entrepreneurs oppose China's democratization because of the potential instability that would ensue from giving China's poorly educated farmers and workers the right to vote. Although the finding is inconsistent with modernization theory and could imply that Chinese entrepreneurs are unique, she demonstrates that such a posture has been common in countries around the globe throughout the twentieth century.

The book's most novel contribution is its treatment of the Chinese state's gradual embrace of entrepreneurs. Tsai challenges the view that stresses the role of China's political elites in pushing reforms to legalize private companies and protect private property (Bruce Dickson, Red Capitalists in China, 2003). Rather than claim that entrepreneurs lobbied for these changes or that leaders were impelled by a crisis or foreign pressure, she argues that national leaders felt compelled to act in the face of long-term informal practices of entrepreneurs condoned by local officials.

Since at least the 1980s, entrepreneurs have responded to a discriminatory environment through a variety of tactics, including registering their private firms as more ideologically permissible collectives, raising credit from illegal curb markets, and joining local branches of the Communist Party. Because these strategies became “routinized adaptations to the constraints and opportunities of various formal institutions” (p. 15), Tsai terms them “adaptive informal institutions.” Different tactics emerged across China depending on local conditions. Although not all such behaviors have been endorsed nationally, their widespread practice created a context in which they were likely to be formally accepted. The author shows how such endogenous institutional change applies to other spheres of China's political economy (such as the move to household farming), as well as to economic policies in other postsocialist countries, the European Union, and the United States.

Although the volume constitutes a major empirical and theoretical contribution, some elements of the argument are not adequately defended, detracting from the broader message. Tsai shows that China's entrepreneurs are not proto-democrats in order to challenge the perspective that democratization will be the inevitable product of modernization. Yet she acknowledges that economic development can generate political change led not by entrepreneurs but by labor or nongovernmental organizations, giving this portion of her argument a strawman flavor. She also recognizes that entrepreneurs in Brazil, South Korea, and elsewhere shifted their allegiance in favor of democracy when they became less dependent on the state and less convinced that it could maintain stability. Chinese entrepreneurs' views could change. Moreover, even though her informants said that China was not ready for political change, those she surveyed consistently ranked democracy as a better political system than any form of autocracy.

Tsai's claim that China's entrepreneurs are distinctively divided and lack sufficient coherence to constitute a class could also be better defended. Although a motley group, it is unclear if they are more varied and fragmented than entrepreneurs elsewhere. Conversely, her data show that despite hailing from different backgrounds, a large majority of China's entrepreneurs adopt the same “loyal acceptant” posture toward the state, developing good ties with officials and resolving problems informally. And despite small statistically significant differences, entrepreneurs of all sorts have similar levels of political awareness and trust of others, similarly rank how important local versus national policy issues are to them, and with similar frequency contact legislators, write letters to officials, and vote in local elections. Comparative data on other postsocialist and even advanced capitalist countries would have been helpful for judging whether one should be struck by the wide differences or surprising similarities.

Tsai also understates the significance of lobbying by businesspeople in China. Although my own research (The Business of Lobbying in China, 2005) shows that lobbying is dominated by larger companies and often does not occur via associations, lobbying shapes a wide range of national economic regulations and policies, particularly for specific industries. If the unit of analysis is economic policies and not enterprises, lobbying is commonplace. Moreover, lobbying is not limited to private companies but also involves state-owned and foreign-invested firms; and when their interests overlap, they lobby on the same side of issues. Including other types of companies in her surveys and interviews would have revealed if being private or simply in business has a stronger effect on their views and behavior. Tsai's focus on private entrepreneurs captures only some aspects of their lives, rather than revealing how business writ large engages China's political system.

Finally, Tsai shows that adaptive informal institutions are more than just momentary coping tactics, but the argument about their transforming effect on formal institutions would be stronger if one could show that their prevalence in and of itself persuaded central elites to endorse them. Tsai stresses that observers can never be sure when national leaders will endorse informal practices because there are too many intervening variables to consider, but rather than stop there, this should be seen as an opportunity for future scholars to build on her work and delve more deeply into the national policy debate to clarify the causal linkages and conditions.

Capitalism Without Democracy deserves a wide readership. It not only provides a new perspective on China's political economy and institutions but also clarifies a research agenda for others to take up.