The lender continued to make a big disturbance, so we suggested two ways to him. One was litigation, and the other was a petition to the service center. The party secretary informed two courts and requested them to resolve the dispute quickly If he made a big disturbance, they would help him to solve the problem immediately.
After all, they have to maintain social stability The operation of the service center does not follow legal logic. In this case, Guo continued to petition the service center, the district government, and the municipal government. Thus, officials felt high political risk intensity and the possible great loss of political credits. In this context, the local government had no choice but to intervene and quickly solve this loan dispute.
This paper takes a loan dispute at the Wenzhou Private Lending Service Center as an example to discuss the issue of government intervention in market governance, that is, why would a local government that claims to be a rule maker or market regulator intervene deeply in the transaction disputes between market players? Based on the institutional analysis in the fields of sociology and economics, this article examines the governance activities of local the government in a broader institutional environment and constructs a theoretical framework of risk transformation.
When there is potential risk transformation, the greater the potential political risks perceived by the government, the more likely it is for the government to intervene in transaction disputes. When the intensity of political risk grew too high, the government chose to intervene in the dispute. This article provides a new focus and an analytical approach for studying the role of local government in market transformation, including three aspects.
First, the local government plays different roles in the market. The local government may participate in economic activities with other market players, playing the role of benefit-sharing, but it may also be brought into transaction disputes, playing the role of risk-sharing. Moreover, there are subtle correlations between the two roles.
That is, the pre-intervention of the local government in market activities in the early stage is often an important reason that the government is brought into transaction disputes in the later period. Second, there is a bilateral definition of the market role of the local government. The market role of the local government is not only defined by governmental behavior but also shaped by the interaction between market players and the government. Whether the local government intervenes in transaction disputes or shares economic risk is closely related to the risk transformation behavior of market players, which is dynamic and situational.
Third, we need to consider multi-faceted institutional logic when we come to define the market role of the local government Friedland and Alford ; Zhou and Ai, Multi-faceted institutional logic includes not only the top-down fiscal or administrative incentives but also the bottom-up social norms or cultural constraints. The different combinations of these types of institutional logic have different influences on risk transformation, shaping the market role of the local government.
It is worth pointing out that this study does not intend to replace existing research, but supplements the existing analysis of the Chinese government-market relations with a perspective of risk transformation. The framework is mainly embodied in three aspects. First, the market is a social construction of inherent risk-sharing rules. The risk-sharing rules include both the rules about assuming risks oneself based on legal principles and the rules based on social norms or cultural perceptions Scott The actual rules depend on the relationship and the interactions between the government, business, and the populace.
Second, the government is embedded in the market. It is an important part of the market and a potential risk-sharing party that is always present. Nevertheless, always being present does not mean that the government will always share the economic risks of market players. Whether the government intervenes in transaction disputes and shares economic risk is affected by many factors. Among them, the transformation from economic risk into political risk is an important one.
For future research, this article suggests that the market governance process of the local government is a gray area in the existing research, and it is a black box that needs to be opened. From the perspective of risk transformation, we can study the shift of government-market boundary and the formation and evolution of economic risk-sharing rules. Regarding the analytical approach, this article argues that it is necessary to observe the market governance of the local government in the institutional environment.
It is necessary to differentiate the different governance activities of the government in the market by using an inherently consistent analytical framework; it is necessary to study the formation and evolution of market transaction rules such as risk-sharing rules in the relationship between the institutional environment and governance structures.
In this way, we can incorporate the macro-institutional environment, the governance structure, and the micro-interaction rules to provide an analytical framework for studying the formation of the order in a rapidly changing society. This definition emphasizes the objectivity, loss, and uncertainty of risk.
The factors leading to economic risk can be divided into at least two categories: one consists of the environmental factors outside the transaction subject, such as macro-economic fluctuation and the other consists of the behavioral factors of the transaction subject, such as defaulting, fraud, and other opportunistic behaviors.
For example, political risk may arise from the direct conflict between certain administrative work of the government and the interests of the general public, or it may be generated from administrative leaks when the government provides certain public services, or it may originate from extreme acts by individual citizens.
There are many ways to transform economic risk into political risk. For example, economic risk can be directly transformed into political risk, or it can be transformed into social risk first, and then transformed into political risk. This paper only discusses the situation where economic risk is transformed directly into political risk. At the same time, this paper regards risk transformation as the core component and internal mechanism of government intervention, focusing on analyzing its structural roots rather than its specific processes.
The institutional environment refers to holistic factors such as the law system, the polity system Williamson , and the concept system Meyer and Rowan, ; Zhou, The governance structure refers to the organization or institutional arrangement mode adopted by the government to govern market transactions.
Transaction characteristics include transaction size and potential losses. Individual attributes include preferences, emotional control, and habits. Relevance reflects the extent to which the government intervenes in the market prior to the emergence of a transaction dispute, rather than the extent to which the government intervenes after a transaction dispute. When a government takes the initiative to intervene in a market, it will form a variety of possible relationship attributes with market subjects, such as competition, cooperation, guarantees, or control, resulting in different relationship strengths.
The question of what relevance the government chooses is beyond the scope of this paper. The aim of this paper is to take the degree of government pre-intervention in the market as an independent variable and discuss the different effects of different levels of intervention on the risk transformation of disputes. The concept of normative legitimacy and cognitive legitimacy derive from the classification of the organizational legitimacy of Suchman Suchman Suchman distinguished organizational legitimacy into the three categories of pragmatic legitimacy, moral legitimacy, and cognitive legitimacy.
The ideal classification of withdrawal, neutralization, and intervention is inspired by the research of Hirschman They have analyzed its core characteristics, institutional causes, and social consequences, etc. Yang Government intervention, however, differs from a government backstop.
Intervention is the precondition of a backstop, but it does not necessarily lead to a backstop. There are a variety of options for government to intervene in a dispute, while a backstop is only an extreme response. Due to limited space, this paper does not conduct an in-depth analysis of this issue. In , civil financial crisis broke out in Wenzhou and some other places.
Lenders and borrowers inform the agency about their own lending and loan demands, and the agency matches lenders and borrowers whose conditions are suitable for each other. When both sides reach a consensus on the amount, term, interest rate, guarantee, etc.
Both lenders and borrowers legally, voluntarily and directly contact each other The service center is not liable for bad debts. According to academic practice, the names of the persons and intermediary agencies involved in this case have been given pseudonyms. Before borrowing money from Guo, Peng had already used real estate mortgage loans. His first mortgage was from a bank with a real estate evaluation price of 5.
The bank loaned 3. This time, Peng again used his real estate for a second mortgage. Thus, the real estate value needed to be evaluated again. The real estate evaluation company gave a market valuation of 6. In order to facilitate the transaction, the Tengfei Company negotiated with Peng and Guo to increase the evaluation to 7.
In Wenzhou, the local financial authority and the financial office are actually the same group of staff members. Binmore, Ken. Google Scholar. Cai, Yongshun. British Journal of Political Science — Article Google Scholar.
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Command economy advantages include low levels of inequality and unemployment, and the common good replacing profit as the primary incentive of production.
Command economy disadvantages include lack of competition and lack of efficiency. Government intervention can increase economic efficiency when market failures or externalities exist. Economics cannot quantitatively value social goals, although it can often offer suggestions for how to achieve those goals in the least costly way. For example, government tariffs to protect domestic industry spark off a trade war, where the economy contracts.
Lack of incentives. Most people agree that governments should provide a military for the protection of its citizens, and this can be seen as a type of intervention. Growing a large and impressive military not only increases a country's security, but may also be a source of pride.
Intervening in a way that promotes national unity and pride can be an extremely valuable goal for government officials. Boundless Economics. Introducing Supply and Demand. Government Intervention and Disequilibrium. Concept Version 5. Governments intervene in markets when they inefficiently allocate resources. Learning Objective Identify reasons why the government might choose to intervene in markets.
Key Points The government tries to combat market inequities through regulation, taxation, and subsidies. Maximizing social welfare is one of the most common and best understood reasons for government intervention.
The American Railway Union supported the workers and announced that after negotiations failed, no trains that had Pullman cars would be operated. President Grover Cleveland became involved in the dispute when routes beyond Chicago were disrupted. He deployed military soldiers to force the protesters to return to work, claiming that because the U.
More than 30 people died in the violence between those on strike and the military, garnering sympathy from the public for the labor activists. When former president Franklin D. Roosevelt replaced his predecessor Herbert Hoover in , the Great Depression had taken a firm, relentless grip on the nation. In his inaugural address, Roosevelt famously said, "So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror, which paralyzes needed efforts to convert retreat into advance.
The president unveiled his New Deal plan, which involved creating government programs that put people to work in a variety of fields, such as building large-scale infrastructure. The New Deal was credited with reinvigorating the economy and was widely popular, and Roosevelt was re-elected for another term.
After contract negotiations between United Steel Workers and steel producers deteriorated in , former President Harry Truman seized control of the steel industry in an effort to avoid a strike while the Korean War continued.
The move was highly controversial. The U. Supreme Court found Truman's initiative to be unconstitutional; the steel industry was again a private one, and steelworkers promptly went on strike for 53 days.
An editorial in Life magazine from April stated that Truman "showed outrageous partiality in a serious industrial dispute, and he gave his own constitutional powers a dangerous and quite unnecessary stretching. Between , former president Richard Nixon imposed the New Economic Policy, which, for a day period, would freeze wages and prices in an effort to combat inflation. Although it looked like the move had a stabilizing effect, inflation again became a threat once the controls were relaxed.
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