Can We Understand Asian Values?
I was once told that I could not understand Asian values because I am a Westerner. Believing that I can understand anything I want to, if the time is long enough (say, ten thousand years), I took up the challenge. Start with economic values.
Consider the Overseas Chinese, found in Malaysia, Singapore, and other Southeast Asian countries. Why do they dominate the economies wherever they are, and why have they been so successful? A popular answer is loyalty in the Confucian tradition. They have a network of relatives, friends, and acquaintances who trust each other completely, do not betray each other, and do not compete with each other. It is also suggested that Chinese who go abroad are the more entrepreneurial type. All this may be true. But a different story comes out of research by two professors of the Chinese University of Hong Kong and an economist from the World Bank.
"For many huaqiao [Overseas Chinese], they found, the answer lay in 'pyramids,' ... layers upon layers of subsidiaries, as well as cross-holdings and informal links with yet more companies. Almost always, the pyramids included at least one bank with a licence to take deposits, and several publicly listed subsidiaries that could issue shares in the open market. The purpose of these pyramids was to draw outside capital into the family group while retaining control over the use of this capital within the family..."
"To see how this works, picture a pyramid at the top of which sits a private holding company owned by the patriarch and his family. [This holding company] owns 51% of subsidiary A, which owns 51% of subsidiary B, which owns 51% of subsidiary C, which owns 30% of company D. Separately, the family also has another (wholly-owned) vehicle, F, which owns 21% of D. In terms of voting rights, the patriarch and his family therefore control 51% of company D. At the same time, the family can claim only 25% of company D's profits (51% times 51% times 51% times 30%, plus 21% through company F) (The Economist, 4/14/01).
Through this arrangement, the family has greater control over the operations of the pyramid than it has investment in them. It arranges to transfer assets from (say) Company D to Company A at a price lower than market, or from any company to any other at values higher than market. Through these sales, the profits (in the form of assets valued at more than market) become moved up the chain to the patriarch and his family, while the subsidiary companies are squeezed. So their dividends are flimsy. Both the patriarch and minority stockholders lose through the scanty dividends, but the patriarch alone gains more than he loses in dividends, because the profits have really been passed upward to him through the trumped-up sales. The minority holders are unfairly squeezed.
Because the pyramids are so complex, it may take years (or decades) for the minority holders to discover what has happened to them. Meanwhile, the patriarch may have liquidated some companies and started new ones, whose reputation will not be sullied for years to come. Asian values? Judge for yourself.
Let us turn to the Mainland Chinese. Once the People's Republic had won the revolution in 1949, they declared all previous laws of China null. They would start over again. As a result, they had no legal concept of "companies" nor of "property." Ideas of "assets" and "liabilities" and "equity" had no legal standing. Bankruptcy, contract, law, fiduciary, conflict of interest, and principal and agent were not part of the vocabulary. Instead, small businesses were declared to be national property (usually under the same management, now reporting to the government), and industry was run primarily in state-owned enterprises (SOEs). Farms were collectivized into communes.
In the Great Leap Forward of 1960, Mao ordered farm families to eat in common dining halls, and women and children to plant and harvest crops. He also ordered small steel mills to be built on the communes throughout the country, and men to work them. As a result, crops died on the vine, coal and iron were hauled uneconomically across the country (steel would have been more efficiently produced in Manchuria), and hundreds of thousands of Chinese died of starvation, partly because of a drought, but more importantly because of gross bureaucratic inefficiencies.
Outrage throughout China was so great that Mao's position was threatened. To preserve it, he organized the Great Cultural Revolution (1966), in which students and other young admirers were organized into the Red Guards. The Red Guards trashed universities, burned libraries, and forced intellectuals into the country to learn the true meaning of Chinese communism on the farms. Thus Mao re-established power until his death in 1976. Those students are now known in China as "the lost generation."
Since Mao's death the Chinese economy has grown enormously, mostly through the introduction of private enterprise, but also because the communes have been dismantled and private farmers now grow most of the crops. (But they have their problems too; see TQE #1). Most of this growth results from starting at a low base, but much of it represents inflated statistics. Each producer (farm and industry) reports what it thinks Beijing wants to hear, and the totals become "prodigious economic growth."
The present government has laid off workers of inefficient SOEs massively, but the growing private sector cannot absorb them all. Again a quote from The Economist (5 April 2001):
Asian values? In fact, the Chinese both Overseas and Mainland lack most of the institutions that grew up gradually, over centuries, in Japan and the West. For the legal system, let me quote from a 1992 book of mine (Centuries of Economic Endeavor, pp. 172-3):
It is in the context of these principles that the Chinese government wishes to enter the economic world of the West, to accept investment from foreign companies, and to modernize its legal, corporate, and trading systems. Western businesses are perplexed as they encounter these systems. In the West and Japan, the laws of corporations, contract, debt settlement, transparency (e.g., through the Securities and Exchange Commission), conflict of interest, principal and agent, fiduciary, banking, investing, and other means of doing business evolved over centuries, through negotiations among producers, traders, farmers, financiers, and governments. For the most part, they were not imposed from on top. As all this happened, state power was diffused into the democracies we have today. In 2001, the Chinese government is attempting to impose from on top a Western set of economic institutions, while at the same time trying to preserve state power.
Do Quakers understand Asian values? Do I? Despite all my travels abroad, in which I have learned other cultures, I am still a Westerner, and I see Asian values through a Western prism. Please let me know how you see them. If you have had different experience in Asia, please share it.
Sincerely your Friend,
Joan and I just came back from three weeks in China, our first trip there. Five days on the Yangtze, some in Beijing, Xian and Shanghai. Also just read your China piece [TQE #9]. It seems a bit overweighted towards Chinese overseas, a special group, rather than the Chinese mainland. It is a remarkable country, and its history certainly strange to us. A professor Dali Yang from U of Chicago was with us; we came away with a strange sense that this country of 1.2 billion could be moved this way and that by a strong central leader, something that we do not understand.
Jack, you must have spent every day since we were last together in DC, many decades ago, studying, traveling and introspecting. The spirituality of your efforts (a West Coast word, now even part of the Jewish movement) come through more explicitly than in the days of thee and thine that we appreciated in your family.
Don Green, Jewish, San Francisco (CA).
I enjoy reading your essays, but I was taken aback by this one [TQE #9]. I gather your answer to the title question is "no", you cannot "understand" (i.e. condone) those values, as illustrated by the portrayal of Chinese business methods. According to this essay these Chinese business practices are apparently engineered in bath-houses, of all places. My wife Annette is a Quaker from Devonshire Meeting, Sydney Australia, currently doing a research project on bath-houses in Hangzhou, China. If you have any data (or even any sourced anecdotes) about bath-houses, whether or not they support the views in the letter, would you be able to pass them along? In return I am sure that Annette would be happy to pass on what she knows about bath-houses.
David Brett, Sydney, Australia. [10 Nov 2006]
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