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Speaker: Lizhi Liu, Georgetown University

A central question in political economy asks: how do developing states build market-supporting institutions (e.g., secure property rights, contract enforcement, and the rule of law)? Too often, political obstacles prevent developing states from adopting strong formal institutions. I propose that China has devised a novel solution to this political problem: institutional outsourcing. I argue that, with weak rule of law, the state has outsourced part of its institutional functions to key private actors, which I call, private regulatory intermediaries (PRIs). Using as the context China’s e-commerce market, where 514 million active users generate more than 70 million transactions per day, I show that online trading platforms (e.g., Alibaba’s Taobao.com and Tmall.com) have begun to serve as PRIs. More specifically, platforms privately supply market-supporting institutions to enforce contracts, prevent fraud, and settle disputes. Not only do platforms enforce rules, they also assist the state in creating and reforming formal institutions through institutional experiments. I demonstrate that institutional outsourcing is a more politically viable solution to market failure and governance deficit than the direct reforming of formal institutions. I further argue that institutional outsourcing, as an alternative route to institutional development, is potentially generalizable to other developing countries. This talk is an overview of my research on China’s e-commerce market. In the talk, I will discuss how and why China’s e-commerce boom is not merely a technology shock. Rather, the rise of China’s e-commerce market has brought profound economic and institutional changes in China.