The role of the state in making a market economy

This paper highlights the crucial role of the state in establishing a marke t economy, through an analysis of the early stages of market-oriented refor ms in China. China followed an evolutionary approach to economic reform tha t has relied on the preexisting state to oversee the construction of a mark et economy. Trial-and-error problem solving in the formative stages of mark et transition led the central state inexorably to oversee institutional cha nges to establish a modern legal-rational bureaucracy. Although the state r emains structurally vulnerable to rent seeking, it gained the organizationa l capacity to institute and enforce rules critical to the emergence of a hy brid market economy.