Introduction

The enterprise is the party with the strongest Productive Forces within the Grand Tripartite—Family-Household Rights, Enterprise Rights, and Government Power. The evolution of enterprise institutions is key to understanding the historical transformation of the capitalist market economy and the logic of reform in contemporary China. This article traces the evolution of enterprise institutions from early capitalism to the modern corporation and then to the AI era. It focuses on the two core concepts of the socialization of capital and mixed ownership and, on this basis, discusses the restructuring of the relations between Enterprise Rights, Family-Household Rights, and Government Power.

I. The Basic Function and Property-Rights Foundation of the Enterprise

The basic function of the enterprise is to organize and optimize the allocation of factors of production—labour, capital, land, technology, and information—with the objective of maximizing profit, and thereby to produce and provide goods and services that meet social demand.

Entrepreneurs and their management teams are the organizers of the allocation of factors of production and the leaders of Productive Forces. In this sense, entrepreneurial ability is itself the most important factor of production.

Commodity exchange presupposes that property rights and products belong to different owners: there can be no purchase or sale of commodities where the owner is the same. Clearly defined property rights are therefore the micro-foundation of the market economy. Property rights comprise four entitlements: ownership rights, rights of use, rights of control, and rights to income. These four entitlements can be separated and recombined among different parties, producing diverse property-rights structures.

II. Three Historical Stages of Enterprise Institutions

Stage One: Sole Proprietorships and Partnerships

The typical enterprise forms of early capitalism were sole proprietorships and partnerships. Their defining feature was the unity of ownership and management: the capitalist was both owner and manager, directly possessing and controlling all the means of production.

At this stage, the opposition between capital and labour was at its starkest. Capitalists who possessed the means of production were the agents who exploited workers; workers who did not possess the means of production could survive only by selling their labour-power. Marx’s critique of capitalism was directed primarily at the relations of production at this stage.

Stage Two: Joint-Stock Companies and the Socialization of Capital

In the late nineteenth and early twentieth centuries, the joint-stock company became the dominant enterprise form. The core change was the separation of ownership and management: shareholders—the owners of capital—no longer managed enterprises directly but, through boards of directors, entrusted management teams with day-to-day operations.

The socialization of capital is the defining feature of this stage. Assets in their various forms are monetized, divided into equal shares, and issued to the public, making any individual—including workers and farmers—eligible to buy shares and become a participant in and investor of capital. In theory, this blurred the clear boundary between capitalists and the proletariat described by Marx.

Under modern enterprise institutions, enterprises possess rights of control and use over such factors of production as labour, capital, land, technology, and information. Ownership rights and rights to income from those factors, however, are dispersed among different individuals, organizations, institutions, funds, conglomerates, and other shareholders or investors. Apart from workers, owners of factors such as capital and land do not necessarily work within the enterprise; as investors or shareholders, however, they objectively promote technological progress and the development of Productive Forces in enterprises.

Stage Three: Modern Public Companies and Institutional Investors

The mainstream enterprise form today is the public company listed on a stock exchange. Its features include:

  • a highly dispersed shareholding structure, encompassing individual investors, institutional investors, sovereign wealth funds, pension funds, and others;
  • enterprise operations led by a professional managerial class—the CEO and the management team;
  • disclosure obligations and corporate-governance mechanisms that constrain managerial behaviour; and
  • capital capable of moving across national borders, forming a globalized capital market.

At this stage, workers can indirectly hold corporate shares through pension funds, mutual funds, and trade-union pension funds, thereby sharing in part of the returns to capital. A substantial portion of these pension assets is invested in the stock market, causing the interests of workers and capitalists to converge on certain issues. Yet such indirect shareholding does not amount to gaining control over enterprises: rights to income, voting rights, management rights, and effective control remain clearly separated. This is the institutional contradiction of a socialization of capital that has already occurred but remains far from complete.

III. Property-Rights Reform in China: From Public Ownership to Mixed Ownership

Historical Background to the Reform

In 1956, China completed the socialist transformation of the ownership of the means of production, establishing public ownership as its sole form—ownership by the whole people and collective ownership. This system provided the capacity to mobilize resources for industrialization, but it also produced egalitarian distribution and insufficient incentives.

One important reason for the failure of incentives in the planned economy lay in a profound internal contradiction: the socialist transformation of ownership of the means of production could abolish private ownership of the means of production, but could not abolish the natural private ownership by individuals of labour-power as embodied human capital.

Because labour-power as embodied human capital exists by nature within the life of the individual, everyone retains self-interested motives even in an economy under public ownership. Seeking an equal return at the lowest cost in labour is a rational expression of human nature and does not disappear with institutional change. Under an egalitarian system of distribution, this “reverse maximization” produced a form of collective irrationality resembling a prisoner’s dilemma. The economy was ultimately deprived of sufficient dynamism and fell into “common poverty”.

Property-Rights Reform in Three Major Areas

Rural property-rights reform: Beginning with the household contract responsibility system, ownership of land was separated from rights of use. Ownership remained with the state and collectives, while rights of use were assigned to farmers organized by household. The principle that “once the state’s share has been delivered and the collective’s share retained, everything else belongs to the household” greatly increased farmers’ incentives to produce. It released hundreds of millions of members of the surplus rural labour force and gave rise to a vast migrant-worker population, which became a principal force in China’s industrialization, urbanization, and even globalization.

Property-rights reform of state-owned enterprises: With joint-stock ownership and the socialization of capital at its core, the reform promoted the transformation of state-owned enterprises towards modern corporate institutions. As the mainstay of China’s national economy, state-owned enterprises play an irreplaceable leading role. Reform has made substantial progress, but problems such as information asymmetry in multi-tier principal–agent relationships, the absence of effective shareholder representation, and insider control have yet to be fundamentally resolved; further reform is required.

Labour and personnel-system reform: By dismantling the “iron rice bowl” and egalitarian “big-pot” distribution, the reform freed workers from the “work-unit system of labour attachment” (danwei) and established private ownership of labour-power as embodied human capital. The allocation of university graduates shifted from state assignment to resource allocation through the market, improving the efficiency with which human resources were allocated. The greatest significance of this reform was its institutional recognition and establishment of “private ownership of human capital”.

Mixed Ownership: Transcending the Binary Opposition between Private and Public Ownership

The practice of property-rights reform in China demonstrates that the state-owned sector and the market economy are not mutually incompatible. Unswervingly consolidating and developing the public sector and unswervingly encouraging, supporting, and guiding the development of the non-public sector is precisely one of the advantages of China’s system.

The property-rights foundation of the market economy therefore consists of more than private property rights alone. Public ownership of non-human factors of production is likewise an inseparable component of the property-rights foundation of the market economy.

Mixed ownership refers to an institutional arrangement in which multiple forms of property rights—including state ownership, collective ownership, private ownership, and shareholding by the investing public—coexist and are integrated within the same enterprise or economic system. By diversifying equity ownership, mixed ownership coordinates and balances different stakeholders. It is an important institutional innovation in China’s economic reform.

IV. The Unfinished Project of the Socialization of Capital and the New Challenges of the AI Era

The Internal Contradiction of the Socialization of Capital

Although the socialization of capital theoretically enables everyone to become a participant in capital, in practice the degree of capital concentration has not diminished and has instead intensified in certain fields. Participation in the stock market is not equally accessible to all. Inequalities in information, funds, and professional expertise allow the rich to benefit far more from capital appreciation than ordinary workers.

This incompleteness of the socialization of capital is an important cause of increasing polarization between rich and poor. Piketty’s research shows that, since the 1970s, the rate of return on capital, r, has remained higher over the long run than the rate of economic growth, g, in major developed countries (r > g), causing wealth to become continually concentrated among owners of capital.

The AI Era: The Threat of a Reversal in the Socialization of Capital

In the AI era, the tendency towards capital concentration faces an even more severe challenge. Digital capital—composed of algorithms, data, and computing power—has nearly unlimited economies of scale and marginal costs approaching zero, naturally generating winner-takes-all monopoly structures.

A small number of super-enterprises commanding core AI technologies, computing infrastructure, and platform ecosystems are accumulating capital and power at a historically unprecedented rate. Different types must be distinguished: Nvidia primarily embodies an advantage in computing infrastructure; Microsoft, Google, and Meta embody advantages in platforms and cloud infrastructure; and OpenAI and Anthropic embody advantages in frontier models and technological trajectories. Together they point to a single tendency: capital is shifting from “socialization” towards “algorithmic elite capture”.

Without institutional intervention, the configuration of the Grand Tripartite in the AI era will change in the following ways:

  • Family-Household Rights: the market bargaining power of large amounts of standardized labour and some cognitive labour will be markedly depressed, weakening the basis of families’ position in the labour-market game;
  • Enterprise Rights: these will become highly concentrated in a small number of algorithmic giants, while the space for small and medium-sized enterprises to survive will contract sharply; and
  • Government Power: the tax base will be eroded, as enterprise profits are concentrated among a small number of multinational giants that are difficult to tax effectively, while governments will simultaneously face challenges from algorithmic power.

This is a fundamental institutional struggle over “who will appropriate the AI dividend”. It is also the central issue of the third article in the applied-research series, Distribution According to Need: Restructuring the Mechanism of Wealth Distribution in the AI Era.

V. Redefining Capital and Transforming the Role of the Entrepreneur

The Essence of Capital

Capital is value that produces surplus value and performs the functions of creating and accumulating wealth. In form, capital may be objectified as factors of production, personified as the capitalist, and monetized as financial capital. In terms of ownership, it may be held by natural persons, corporate legal persons, institutional legal persons, or the state.

The essence of capital is the human consciousness and mode of thought that, grounded in human desire, pursue wealth and efficiency. This consciousness and mode of thought exist in everyone, though with varying intensity. Precisely because capital coexists with human nature and wealth, any pursuit of common prosperity must rely on capital. Otherwise, only the “common” remains, while “prosperity” is lost.

A Feasible Path: The Democratization of Capital

Abolishing capital is not the correct path. The correct path is to separate and recombine the various entitlements of capital:

  • on the one hand, to transform capitalists into entrepreneurs—that is, organizers of factors of production and Productive Forces—whose core value lies in entrepreneurial ability rather than in the ownership of capital itself; and
  • on the other hand, to enable workers to become “capitalists” in an entirely new sense—that is, holders of equity in capital—and to allow more ordinary people to share in the gains from capital appreciation through institutional arrangements such as employee share-ownership plans, pension-fund investment in stock markets, and sovereign wealth funds.

Reform in this area still has a long way to go in China, but its broad direction should not be mistaken.

Theoretical Comparison and Open Questions

The core contradiction of early capitalism criticized by Marx centred on the opposition between owners of capital and proletarians. The development of modern joint-stock ownership, pension funds, mutual funds, and institutional investors has dispersed capital ownership socially in form, but control and excess returns remain highly concentrated.

Berle and Means’s analysis of the separation of ownership and control helps explain modern corporate governance. Piketty’s research on r > g reveals how returns to capital remaining higher than economic growth over the long run may cause wealth to reconcentrate. This framework examines these two lines of analysis within the structure of the Grand Tripartite: if the socialization of capital is not further institutionalized, it may be reversed by algorithmic capital in the AI era.

Open questions:

  1. How can the socialization of capital avoid weakening entrepreneurs’ incentives to innovate?
  2. Which is more appropriate for sharing the AI dividend: employee share ownership, pension-fund share ownership, sovereign wealth funds, or state equity ownership?
  3. If state equity participation or stringent regulation is imposed on core AI enterprises, how can governments avoid picking winners and rent-seeking?

Notes

  1. Coase, R.H. (1937). The Nature of the Firm. Economica, 4(16), 386–405.
  2. Berle, A.A. & Means, G.C. (1932). The Modern Corporation and Private Property.
  3. Chandler, A.D. (1977). The Visible Hand: The Managerial Revolution in American Business. Harvard University Press.
  4. Piketty, T. (2014). Capital in the Twenty-First Century. Belknap Press of Harvard University Press.
  5. Jensen, M.C. & Meckling, W.H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305–360.
  6. Stanford Institute for Human-Centered Artificial Intelligence. The 2025 AI Index Report.
  7. World Economic Forum. The Future of Jobs Report 2025.
  8. Party History Research Centre of the CPC Central Committee. History of the Communist Party of China, Vol. II (1949–1978). CPC History Press, 2011.
  9. Opinions of the State Council on the Development of a Mixed-Ownership Economy by State-Owned Enterprises. September 2015.

Translator’s note: The English renderings of the Chinese bibliographic entries in Notes 8 and 9 have not been independently verified as official English titles.