Throughout his career, Victor Nee has been a leader in the analysis of China's economic reforms, and for the last decade his work with Sonja Opper has fed into this agenda. Capitalism from Below is a fabulous capstone to this body of work. It sets a standard for research in this field and will be essential reading for scholars of China's reforms for a generation to come.

In 1989, Victor Nee published “A theory of market transition: from redistribution to market in state socialism” in American Sociological Review. Only a decade into China's economic reforms, this study captured something of the country's transformation that would set off a firestorm of debate about how we should understand the transition from plan to market in the world's most populous nation. The study was controversial because of some claims that Nee made: that power was shifting from the political elite to market actors, or, to use the language of the debate, from hierarchy to market. Over the years, different studies produced many different results, fuelling a healthy debate that really began with Nee's early stake in the sand. Through it all, Nee and his co-authors maintained a faith in the power of unfettered markets, which sometimes made him sound to some a lot more like Jeffrey Sachs than might be expected from a sociologist. As a sidebar, it should be noted that Victor Nee has always been somewhat of a provocateur – to the sociologists he presents an economically oriented view of the world, extoling the power of markets, the invisible hand, and, yes, even some rational choice theory. Yet, to economists (and he is one of only a handful of sociologists who has published in the American Economic Review), he sounds a lot more like a sociologist, writing about new institutionalism (à la Meyer and Rowan) and the complex interplay between markets and social systems.

It is in this context that Nee and Opper have produced what might be considered a magnum opus, a bookend to this debate. But it is also much more than the previous papers that have defined Nee's market transition theory. Nee and Opper have written a book that is empirically rich but, more importantly, is also theoretically deep. As with much writing on China these days, the book begins with the puzzle of why China's transition to a market economy has been so successful. But the deeper question is much more fundamental: where do economic institutions come from; how do they arise in such an institutional void as characterized the Chinese market economy in the early transition years? This is a strong orientation and it places the book squarely in the wheelhouse of sociological inquiry. Unlike the economic orientation of Nee's earlier work, which seemed to assume the magic of the invisible hand and freedom, this book actually directs its attention to the mechanisms that construct these institutions. And, as the book's title telegraphs, Nee and Opper see these institutions as coming primarily from society – “from below” – as opposed to coming from the heavy hand of the state. It is social networks and social norms – in essence from the fabric of social structure and social life – that build market institutions. “Network ties and bottom-up institutional arrangements” (p. 259), according to Nee and Opper, were a necessary precursor to the state action that eventually legitimized the market economy.

Empirically, the book is based on a survey of 711 entrepreneurial firms in the Yangtze delta. The survey is carefully done and even includes a foray into experimental research design (rare in organizational survey research) in the survey's second wave. This original survey is complemented by in-depth interviews with 111 entrepreneurs, government bureaucrats and scholars in the area, and also two waves of the World Bank's Investment Climate Survey. This is organizational field research at its best, and nobody can question the empirical work that has gone on here.

As impressed as I am with the work, I am not sure I completely agree with the theoretical leap that emerges from the findings. The argument here is that economic incentives lead to entrepreneurial innovation, and these emergent institutions spread across the social system in a social movement-like fashion. Eventually, politicians “respond to bottom-up innovations by changing formal rules to accommodate and regulate emerging economic realities” (p. 21). But this view seems to miss the extent to which encouraging experimentation with economic institutions at local levels has long been a specific strategy of the state. Many of the economic institutions in China that are in place today – from labour laws and employment contracts to financial institutions to distribution systems – resulted from the state setting in motion a process of experimentation at local levels. The brilliance of China's reforms is the dynamic interplay between the state and the innovation at local levels (which come from both local governments and the entrepreneurial class that Nee and Opper are studying). To make a claim that one side has primacy over the other simply seems strange. Further, it should be noted that the region where they gathered their data is China's hotbed of entrepreneurship, so the deck is probably a little bit stacked in favour of their theoretical point of view.

Nevertheless, these quibbles do not diminish the immense amount of work and forceful arguments that have been marshalled in this excellent book.