A History of Wealth and Poverty: Why a Few Nations are Rich and Many Poor, by John P. Powelson.


China: Institutions and Reform


Now that we have seen what aspects of China's historical development hindered the power-diffusion process, we will examine the roles of law, money and banking, and the labor system as representative institutions. We then will summarize the failure of power diffusion in China and look for signs of hope that it may eventually occur.


Law more than any other institution of economic growth characterizes the vast divide between rulers and people in China. The present section begins with a list of observations on the nature of Chinese law, followed by a short subsection for each observation.

  • The main purpose of Chinese law is to preserve state power, not the rights of the individual.
  • Traditional Chinese law sees little or no distinction between criminal and civil. It is more concerned with penalties than with righting civil wrongs. Thus rules and judgments regarding trade, sales, and production were not part of the legal system before Western ways were copied after 1912.
  • Merchants and landowners have made contracts throughout Chinese history. With the rulers considering commercial matters too far beneath them to interfere, these contracts have been expanded — through a free market in institutions — into informal rules of commerce composed, written, and enforced by guilds and trading organizations. They resulted in a paralegal system, sufficiently complex and sophisticated to permit high levels of economic interaction.
  • Inequality and hierarchy have been legalized, with different rules applying to persons of different rank. This discrimination still applies today.
  • For much of Chinese history, only government officials were allowed to know the official law. If commoners knew the law, it was believed that they would become litigious and defy authority. This concept changed with the Ming dynasty, but the present rulers still do not go out of their way to see that their laws are widely understood.
  • Although the Chinese early adopted the principle that the ruler must obey the law, nevertheless law in China is so centered around the ruler — much more so than in northwestern Europe or Japan — that he can change it at will or set it aside momentarily. Therefore, his obedience to law becomes meaningless.
  • Codes and statutes were highly developed in early centuries. Their principal purpose was to inform provincial magistrates on the content of the criminal statutes they were expected to enforce. Common law, or the use of precedents, has been rare.
  • A class of professional lawyers emerged but slowly and with great difficulty. Although professionalization of the law has advanced in the twentieth century, it is limited by the government's arbitrary actions and evasions.
  • Unlike northwestern Europe and Japan, the basic nature of Chinese law has not changed much over the centuries. Principles from the Shang dynasty (1766 to about 1122 BCE) still govern the legal actions of the People's Republic.

All nine of these points reinforce the proposition that little of the power-diffusion process has been at work in China over the centuries. Appendix 12.1 lists historical references to China's legal system, particularly regarding state power and criminal versus civil law.

State Power

 [T]he emperor — the only authority which can be formally considered as the source of legality, if indeed legality may be said to exist. [I]t has never been possible to speak, in China, of the law in the sense in which that term has been applied in the Western juridical tradition, to actual positive laws. [1]

Dividing the world's legal models into three types — ethical, religious, and realistic — Yan Meng characterizes the Chinese as ethical: rule by Li, legal thought, and rule by Fa, law. These were later joined, to become rule by Li-Fa, virtue with law. [2]

Confucius (551-479 BCE) described the Chinese system as "ethical" because, as an intellectual seeking government position, he needed to please his masters. [3] His system validated the cruel, hierarchical, stifling code of behavior already adopted by the warlords of his era. Fifteen centuries after Confucius, Chu Hsi also wrote that "law (li) was the guide and rule for man, an ethical norm, preferred and good." [4]

Although the emperor's authority had already been deemed absolute for one thousand years, its formalization is associated with the Legalist School attributable to Shang Yang (about 390 to 338 BCE), who became an advisor to Duke Hsiao of Qin. He persuaded the Duke "to institute a series of wide-ranging reforms to promote state control, centralization of power, and economic and military expansion." [5] When Qin had conquered its rivals in 220 BCE and founded the first unified Chinese empire, it adopted these laws. Vandermeersch refers to Legalism as "pseudo-law, which had nothing to do with the idea of right, [but which] was formulated purely and simply as an instrument of government . . . rule imposed upon its subjects by the state administration." [6]

One characteristic of state control has been that the same officials arrest, seek evidence, prosecute, determine guilt or innocence, and pass sentence. [7] In principle, this was not always so. For example, "Sung legal institutions are noteworthy for the relatively thorough appellate reviews they provided and for the effort, reflected in this organization, to insure a separation of judicial from police functions." [8] But the ease with which alleged traitors and revolutionaries have received "summary justice" belies the continuation of these Sung practices.

Henderson contrasts the Ming Chinese with Japanese judges of the Tokugawa era. Ming judges were bound "to protect the absolute authority of the emperor to legislate and to ultimately decide all major cases on appeal. In contrast, the Tokugawa legal system (bakuhan) was the epitome of delegated judicial decision making: the 'judge' in each tiny domain was the court of first and last instances for most cases . . ." [9]

But during the Qing dynasty in China (1644-1911):

Forced to kneel abjectly before the Emperor's high bench, flanked by guards wielding bamboo staves, whips, and other instruments, precluded from presenting his own witnesses, and denied the services of a professional advocate, the accused had no meaningful opportunity to defend himself.

This Ch'ing procedure reflected the view that law and legal institutions serve principally as instruments for maintaining the power of the state rather than enhancing the sense of security of its citizens. [10]

This purpose of law has continued right into the late twentieth century. During the Cultural Revolution of 1968 "enemies" of the state were quickly exiled to the country. After the Tiananmen Square massacre of 1989, "enemies" were imprisoned or executed.

Through judicial decisions and reviews, law in the West has evolved along with changing mores. In China, by contrast, mores are expected to conform to the law. "Rectification denotes the coordination of the reality of the social situation with the definition of that situation in law or other codes." [11] More recent rectification campaigns, to bring public morality into line with state decisions, were carried out in 1957 [12] and 1984. [13]

Criminal versus Civil Law

Law for the Chinese people is not an autonomous body of rational rules and precedent which is applied uniformly to all classes in society; it is merely a tool to bring the recalcitrant members of society who are not open to moral suasion into line with established mores. Thus from earliest times law was deemed to be primarily criminal and administrative in character. [14]

Formal Chinese law has excluded private trade, possibly for the reasons that Yan Meng mentions. Other reasons might be: First, the communication gap between the imperial bureaucracy and merchants was so great that disputes among the latter would neither be brought to exalted places nor even understood there. Second, the bureaucracy already exercised the only authority it needed, to milk society economically and keep it peaceful politically. Its means were licenses, taxes, usury, prices, bailments, weights and measures, and monopolies in mining and grain deliveries and storage. [15] Other disputes, for example over contract performance among private traders, may have been deemed inconsequential.

The exclusion of private trade from formal law led to certain anomalies. In the Sung dynasty, a civil case might last indefinitely because lower courts did not have the authority to resolve it, yet appeal to the imperial court was forbidden because it might not be important enough. [16]


Another anomaly was contracts. The intractability of hierarchical relationships made vertical contracts (those between social classes) difficult. Yet contract existed from early days. By studying bronze inscriptions Creel discovered contracts as far back as the beginnings of the Zhou dynasty in 1028 BCE: "as early as 3,000 years ago Chinese were making contracts, litigating disputes, and enlisting others as advocates of their causes." [17] Creel reports that "this very early concern with private contracts is quite surprising as compared with later practice." [18] But the cases he reports concern only disputes among royal officials over sales and among gentry over land.

Some vertical contracts may have existed during the Early Han dynasty: "All 'gentry' families owned substantial estates in the provinces which they leased to tenants on a kind of contract basis." [19] Rents were about half the produce. However, it is not clear that these were true contracts, in which tenants bargained over their political or personal status vis-à-vis lords, as they did in European and Japanese feudalisms. Given the high rents, it may be doubted that they acted from any strength at all.

By the Ming dynasty (1368-1644), the land contract became more like the European of a few centuries earlier and the Japanese of the same period. [20] But there is no indication of tenant associations or bargaining in the European or Japanese modes. The only redress for breach of contract could be to walk away from it, to "escape," if one could. The dynastic convulsions and peasant rebellions were so severe that contract could hardly have been the governing force in the tenant-landlord relationship.

Although no commercial law was adjudicated in ordinary courts, toward the end of the nineteenth century merchant guilds on Taiwan employed "contract forms and substantive contract rules which incorporated mechanisms of self-enforcement and self-execution directly into the contracts themselves" [21] for members of the same guild. These contracts, studied by Brockman, contained well-defined terms, agreed informally within the guilds. Because they had no judicial system to interpret and enforce them, "the parties were careful to specify their reciprocal rights and obligations in the contracts themselves" and to generate "out of trade practices and usages a number of well-defined rules which provided for a determination and allocation of the rights and obligations of the parties on the occurrence of certain contingencies." Thus these contracts expanded into a sort of commercial law, privately administered. Before the twentieth century, however, neither imperial nor provincial nor other courts would resolve disputes between members of different guilds, and — possibly because of continued warfare, state interference, or other unsettled conditions — the guilds and other merchant associations did not negotiate the rules across trades. [22]

In sum, even before the nineteenth century the Chinese possessed rudimentary types of negotiation and commercial contracts. Their formation, arranged by the participating parties, resembles a free market for institutions. However, they did not progress into impartial, enforceable law as a power in itself. Nor did the Chinese afford legal protection and equality among groups of different political or social status. Rather, "the enforcement of these contracts depended on the types of informal community pressures and social controls that have been shown to operate in cohesive communities in the absence of a formalized legal system." [23]

The adoption of modern legal practices during the Republic did little to change this situation, since the new lawyers were ill trained and lacking in practice. With the advent of the People's Republic in 1949, any commercial law that had been negotiated by businesspeople through their guilds became emasculated as state law came to dominate all society, including the economy.

Hierarchy and Inequality

Probably the most conspicuous single Confucian influence on imperial Chinese law is the principle of legalized inequality. Prior to the revolution of 1911, Chinese law endlessly differentiated its treatment according to individual rank, relationship, and specific circumstance. [24]

[O]nly an educated person, . . . a member of the gentry, could claim that his action should be judged by the decisions of Confucius. [25]

Even today, in the People's Republic, persons of different statuses continue to be judged differently. Children of political opponents are stigmatized legally and judged harshly. The big question is not the existence of legalized inequality, which is common to all early societies, but why it did not diminish in China over the centuries, as it did in northwestern Europe and Japan.

Ignorance of the Law

In the sixth century BCE, "Tzu-ch'an, prime minister of the state of Cheng, was strongly criticized for publicly promulgating its penal code. The critic contended that after learning the exact content of the penal law (hsing) the people would never again be bound by the principles of correct social behavior (li) but would have constant recourse to litigation." [26]

This principle may have operated continuously for over a millennium. It appears again in the Sung dynasty (960-1279), when copies of laws were intended only to guide government officials. [27] Private individuals were forbidden to print or copy them. [28]

There is no way to analyze why this restriction continued as long as it did or why the first Ming emperor reversed it in the fourteenth century. It became one more way in which communication and cooperation on economic matters were restricted. Even today, questioning of the law by ordinary persons is not provided for in any courts.

Emperor-Centered Law

For ten centuries from approximately 1000 BCE, "the emperor was bound by the law code; he could not change it nor abolish it." [29] Confucius wrote that the emperor and all nobility should in their lives exemplify virtue before their people. [30]

Throughout imperial China, however, the question of the emperor's obeying the law hardly arose. The emperor was both the source and interpreter of law, and his actions would determine what the law was. Each time a new dynasty was established, the first emperor would justify the overthrow of the old by its illegal or unjust behavior. The first Qing emperor, for example, declared that he was defending the pure principles of the Ming dynasty against their abuse by the latest emperors.

In the same vein, after the death of Mao Zedong in 1976, certain high officials, including the Gang of Four, advocates of Mao — one was his wife — were charged with violating the law and the principles of the revolution. (There are many cases, in the less developed zones, when a change of president will bring violent or serious action against the preceding incumbent.) Often the law is distorted for political ends; this is the diametric opposite of equality before the law whatever the rank of the person.

Codes and Statutes

Law codes existed continuously during the Spring and Autumn period (722 to 481 BCE), with new ones frequently compiled on the basis of old. [31] Statutes came even earlier; the Zhou (1122 to 221 BCE) adopted some of those of its predecessor dynasty, the Shang (1766 to about 1122 BCE). At least until the Qin dynasty (221-206 BCE) every aspect of daily life had its rules, imposed by land statutes, storehouse statutes, working statutes, and others. [32]

Every dynasty drew up its own code, usually an adaptation of that of the preceding dynasty. The Qin code was copied by the Han and was revised by every Han emperor. [33] The Tang code, covering every aspect of private and public life, is the most complete feudal legal document extant. [34] Inherited by the Sung, it was "a comprehensive legal system that furnished a model not only for subsequent Chinese dynasties but also for the early rulers of Korea, Vietnam, and Japan." [35]

Attempting to combine Chinese codes with their own traditional laws, [36] the Mongols drew up the Great Yasa code in 1206. The Ming codes of 1397 and 1585 honored imperial statute as "sacred and immutable." [37] The statutes of the Qing code of 1646 were virtually identical to those of the first Ming code. "It was preeminently an instrument for state building and the preservation of the social order, being essentially a compendium of rules, directed to district magistrates and their superiors, for the punishment of persons who hindered the operation of government." [38]


Creel has found some evidence that in the Spring and Autumn period (722-481 BCE) contestants in legal cases were represented by advocates. [39] But this is a far cry from evidence of a legal profession.

During the Sung period, there emerged "for the first time theoretical discussion and legal rules concerning the interrogation of defendants, the right to appeal, the training of judges, the evaluation of testimony." [40] Those participating in these discussions might be labeled proto-lawyers. This was approximately the same period in which legal scholars were emerging in Europe.

Eberhard suggests that "if these rules were really applied in practical life, the judicial system of China can only be called very progressive and modern, if compared with Europe at the same time." [41] But he has missed a major point: that the Chinese system was handed down by an elite class, while the European — even if more rudimentary — was founded on a depth of discussion and negotiation among scholars turning professional.

"[T]here were no advocates or lawyers permitted in Sung courts. There were, however, others who became involved in the administration of justice. These were classified into three categories according to social rank: officials, clerks, and commoners." [42] But all these individuals, as Miyazaki goes on to explain, were officials of the bureaucracy. When the reformer Wang An-shih promoted judicial knowledge and examinations (about 1070 CE), these too were for officials only. Private scholars or professional advocates did not exist. "The judicial process was an important responsibility of a highly articulated centralized bureaucracy that was staffed by officials generally selected on the basis of merit demonstrated in passing examinations that tested knowledge of the Confucian classics and literary skill." [43] Indeed, "in the hope of restraining an increasingly litigious populace, the general use of advocates was prohibited." [44]

Before 1912, the only group that might be called legal scholars were those who prepared private interpretations and compilations. For a people that produced significant historians of dynasties, however, it might seem odd that few private compilations of the legal statutes of those dynasties were written. Instead, there are "no more than occasional compilations, often prepared by scholars acting in a private and unofficial capacity, and they are invariably incomplete." [45] The most famous among these is Shen's private commentary, written about 1715. This and others like it were intended to help the Qing local magistrates, who had to interpret tersely written imperial laws without much help from the bureaucracy. But Chang Chen, who studied 9,000 entries from contemporary judgments, found no more than twenty-one references to Shen's commentary. [46] By 1822, provincial officials were told not to rely on it.

An embryonic legal profession did emerge after the Republic of 1912. At that time "a professional lawyer class was allowed to develop as part of the paraphernalia of modernization. [But by] 1922 China was . . . overrun by ill-trained, self-aggrandizing practitioners. . . ." [47] Even today, despite greater education possibilities both at home and abroad, and despite the existence of lawyers, China does not possess a modern legal profession.

Slow-Changing Law

In 1911, the new Republican government promulgated criminal and civil codes, the former taken largely from the Qing code and the latter written by a Japanese scholar. In 1931, the Legislative Yuan of the Nationalist government wrote a new constitution, together with civil and commercial codes, to modernize Chinese laws. Laws on contracts, sales, leaseholds, negotiable instruments, bills of exchange, agencies, bailments, and partnerships and corporations were copied from those of other countries. Ownership of property was defined and protected. [48]

In 1949, the Central Committee of the Communist Party declared the constitution and all the laws and statutes of the Nationalist government (Guomindang) void. The People's Republic started its laws from a clean slate. [49] Local laws were abolished, and all new laws were those of the centralized state. From 1949 through 1952, 376 legal documents were issued by the Central People's Government Council, the Central People's Government Administration Council, and various ministries and commissions. New constitutions were written in 1954, 1975, and 1978. All together, these transformed the economic and political organizations, captured ownership of property for the state, and defined the economic relationships of all persons. [50]

Despite this "clean sweep," observers from outside China, and more recently from inside as well, have commented on the consistency from ancient to modern legal practice, for example, "the persistence of China's a-juridical system in the political practice of the People's Republic [in that all organs of government are] subordinated to the leadership of the Party." [51] Other ancient principles, still practiced, include shaming criminals through public viewing and placards, self-criticism, and punishments lasting for three generations. [52]

In sum, modern organizations were decreed by both the Nationalist government and the People's Republic. But new behavior was not negotiated from new balances of power. Hence the old institutions governed much the same kinds of action as before. Except for extra-legal commercial "law" negotiated and enforced by guilds, law has in all centuries been for the benefit of the ruling powers, who were the ones to create it. At no point in Chinese history has official law been made by those who are subject to it.

In 1993, the head of the pro-democracy party in Hong Kong tried to file a case against an official of Beijing's preparatory working group for the takeover of Hong Kong. The case was turned down by eighteen leading law firms, which did not want to offend a defendant with the proper connections. This condition bodes no good for the enforcement of "property rights, contracts, and free speech" in a Hong Kong absorbed by the Chinese. [53]

Money and Banking

As in Japan and Europe, the history of money and banking in China has been a struggle for control between private entrepreneurs and the state. As in Japan and Europe, in most eras there has been a mixture of responsibilities and power between these two sectors. But in China, the state competed more successfully against private interests than did its counterpart in Europe or Japan. Therefore "the financial administration in China [has] from ancient times been an essential aspect of the machinery and of the functions of the central power." [54] The state today is able to use — and abuse — the monetary system in ways that could not be employed in northwestern Europe and Japan.

Although private coins circulated in the early years, they were prohibited in 186 BCE and again in 112 BCE. Thereafter with only a few exceptions, coinage was a monopoly of the state, to the extent that this could be enforced. [55] Exports of coins were frequently prohibited, although they might occur clandestinely.

Private money did have an early beginning. In the third to sixth centuries CE, merchants deposited both goods and money in Buddhist monasteries. [56] In the eighth century there were "shops dealing with gold, silver, and commodity vouchers issued by the government against monopoly goods like salt and tea. Part of the business of these shops was to issue promissory notes and to remit money to distant places. They accepted deposits, but it is not clear whether they made loans." [57]

Beginning in the ninth century, merchants began to use drafts. In response to the high cost and danger of transporting coins, in the tenth century these drafts were circulating as prototypes of paper money, and a private banking system began to link wholesale trade. [58] Paper money was first issued by merchants in Sichuan in 1024. [59]

Only in the eleventh century did China begin to follow a significantly different path from northwestern Europe and Japan. The Sung emperors captured the monetary system. Paper money was made a state monopoly. [60] Both in response to burgeoning international trade (or as a stimulus to it) and to its own explosive budget (mainly military), the Sung minted more coins than any other dynasty.61 "The state budget increased from 22,200,000 [pieces of money] in 1000 to 158,800,000 in 1021." [62] State-issued paper money proliferated; the government would redeem it only at a discount of 3 percent, which also added to the treasury. Private paper issues, known as hui-tzu, circulated but were forbidden and taken over by the Southern Sung dynasty, which issued money as an imperial monopoly. [63]

Imperial extravagance during the Mongol (Yüan) dynasty provoked the export of metallic money. When not enough was left inside the country, the government printed large quantities of paper currency. These quickly depreciated, and confidence of the public was lost. Soon the government would no longer accept its own money at face value. [64] To bolster it, in 1262 it forbade the use of copper, gold, and silver as media of exchange, making its paper currency the sole legal tender. [65] (This was the money known to Marco Polo.) Since the prohibition had to be repeated, probably it was not very effective.

Under the Ming dynasty, paper currency continued to be issued but was declared inconvertible. Finally worthless, it was abandoned in 1450. [66] Silver in bars and ingots had increasingly circulated since Sung times, and Chinese also used gold in trading with Japan. [67] But copper cash was now restored as the basic money. Thus the Chinese state dominated money issues, using them for its own purposes, mainly for war and court extravagances, while inhibiting, though not completely preventing, private merchants from issuing currencies useful to their trades.

Approximately 1700, notes issued by local banks began to supplement metallic currency, [68] and the Qing government did not stop them. "From the eighteenth century on, native banks organized by Shansi bankers began to establish a network covering the major cities of the empire." [69] These were supplemented by private notes in the nineteenth century, issued not only by banks but by other businesses. [70] The reserves behind them were limited because both government itself and top-ranking officials hoarded much gold and silver, thus keeping this money out of productive circulation. [71] There was no direct link between public reserves and private money, as had developed in Europe and Japan.

As foreign traders arrived more frequently in China in the nineteenth century, they complained about the chaotic nature of the currency: small and counterfeit coins, many with lower than stated metallic content; debased official coins; and many notes by issuers of unknown credit rating, whose exchange rates were unclear. [72] In the mid-nineteenth century the government again issued paper currency, this time to finance the war against the Taiping. Not being convertible, these notes rapidly lost value. [73]

Foreign banks began to fill the gap, beginning in 1865 with the Hong Kong and Shanghai Banking Corporation, a British concern. Foreign silver currency circulated, mainly the Indian rupee before 1893 and the Mexican peso before 1903. The Chinese silver dollar circulated thereafter. [74] The Imperial (later Commercial) Bank of China became the first modern Chinese bank, founded in 1897. [75] True to historic tradition, however, Chinese banks of the early twentieth century financed mainly the government; hence they congregated in the capital, Peking. [76] Foreign trade was mainly financed by foreign banks.

In 1935, a new monetary system was put into place, with the currency of three government banks — the Central Bank, the Bank of China, and the Bank of Communications — becoming legal tender and the Central Bank controlling monetary policy. [77]

The close relationship between banking and government has been continued in the People's Republic. A new State Bank, also known as the People's Bank, was formed in 1948. Private banks were nationalized in 1952 and placed under its purview. [78] During the Mao period, banks were no more than government agencies for transmitting funds to and from government and among entities fulfilling plans of the central government, communes, or village or production brigades.

With post-Mao liberalism, some reforms were undertaken in the late 1970s. These included:

(1) transforming banks into profit-oriented business enterprises whose employees are eligible to earn bonuses; (2) allowing lower-level bank branches to make some reallocations among different categories of loans, as long as they meet aggregate targets; and (3) letting banks that attract more deposits than planned or speed up the turnover of their loans use the proceeds to make additional loans of their choice. . . . The most important measures have been the decentralization of the credit management system and the establishment of domestic trust and investment organizations. [79]

These reforms merit four comments. First and foremost, they are changes in organizations, not institutions. While shifting a few formalities and channels, participants behave in the new organizations much as they did in the previous ones. Second, the reforms are modest, revealing more about the remaining central control than about what has been liberalized. Third, they were passed "down" by central authorities. They did not arise from banking officials protesting, with some clout, to the government concerning their needs. Fourth, the banks have no more power than before, no position from which they can defend their gains if the government should try to take them away again. Thus, "bank branches in practice still may not be independent from local government authorities and finance bureaus. In particular, some branch banks may still be forced to continue providing credit to inefficient enterprises that should be closed down." [80] In addition, "involuntary loans [were] exacted by the central government from the provinces starting in 1981 as well as to a lesser extent [by] the sales of treasury bonds." [81]

Unchecked power over the monetary system led, in the 1980s, to artificially low interest rates and excessive credit extension to state enterprises, which in turn led to an inflation in the neighborhood of 20 to 30 percent. [82] In an address before a conference of economists in Shanghai in 1988, Milton Friedman argued for a rapid end to the inflation as a condition for effectively operating a market economy. [83] Given the power configuration, however, the government could not have adopted a Western banking system in the 1980s or 1990s even if its top officials had all wanted to. It could not have stopped the rampant inflation without denying credit to hundreds, possibly thousands, of inefficient factories dotting the countryside. Massive bankruptcies and unemployment would have followed. In addition, local party bosses, who had been subsidized for decades, could not suddenly be cut off unless they had lost their political following in other ways first. Either of these events would have triggered at least a local rebellion.84 The idea that simple changes in monetary and fiscal policy will contain an inflation is Western. It does not reflect reality in China.

The Labor System

In one sense, China has always had a free market in labor. In another sense, it never has. In the first sense, for more than two thousand years, labor has normally been compensated in cash, and workers have been officially free to move. [85] In the second sense, under the empire, the state always had the right to corvée labor; until the sixteenth century, craftsmen were virtual serfs; slavery existed until the twentieth century; wages in kind or food and lodging have been common. Under the People's Republic, labor mobility has been restricted, with workers assigned to tasks and wages determined by committees assessing work done or political points earned ("Redness") rather than by negotiation. Although Deng liberalism brought improvements in 1977 and thereafter, the greatest labor freedom has come — at all ages — from circumventing government restrictions.

In the period BCE and the early centuries CE, laborers of lower rank were subject to many kinds of corvée, required by local officials, landowners, or the imperial government. Sometimes a specific amount was required per year, at other times the demands were ad hoc. Holders of higher rank were exempt. In the Shang dynasty (1766 to about 1122 BCE), "there were no free men: nobody was free, but the higher a person was in the social scheme, the more freedom he had." [86] In the Qin government (221-206 BCE), the labor force contained "two distinct groups of people: statute labourers on the one hand and hard-labour convicts on the other. . . . Statute labour was performed by all men between the ages of fifteen and sixty; no service was imposed on the higher aristocratic ranks." [87]

As in Africa, slavery was often the product of war, and some wars were waged specifically to seize slaves. Much of the raiding back and forth with the Hsiung-nu tribes to the north occurred for this reason, on both sides. [88] Although slavery "faded out slowly over the centuries," nevertheless "some of the larger ethnic groups living in areas where they were still the majority, remained under restrictions into the twentieth century." [89]

The Mongols used Chinese slave labor to build their palaces. [90] In the early fifteenth century dikes on the Han and Yangtze rivers were rehabilitated with conscript labor. [91] The Ming (1358-1644) and Qing (1644-1912) required artisans to be listed in "yellow registers" from which corvée labor was drawn for imperial factories. They also sent slaves from the imperial court. [92] Under the Qing, "enslavement by the state was inflicted as an aggravated form of punishment for heinous offenses. In exceptionally serious cases, it was imposed not only on the offender but also on his relatives." [93] These practices do not differ greatly from slavery elsewhere in the world during those centuries.

But in China, labor restrictions continue, today. To curb urban sprawl, the Government of the People's Republic in the early 1960s required that persons might move into any city only with government permission. This was "the most rigid urban policy in the world. . . . At Wuhan Iron and Steel Company . . . boys inherit jobs from their fathers; fathers retire in favor of their sons." [94]

Confronted with new information that unemployment was approximately 20 percent of the nonagricultural labor force, the government in 1979 began urging local authorities to establish "collective" (as opposed to state-owned) enterprises, into which hundreds of thousands of workers were placed. [95] Possibly these enterprises, so hastily formed, may have been among those which ten years later required inflation-fueling subsidies.

When the government revealed in 1980 that 196,000 scientists and technicians were unemployed, more than the number graduated by the universities in a year, state enterprises were pressed to hire them. But the People's Daily reported that hirings were slow. [96] In 1980, a bureaucrat in Changchun, where automobiles are produced, observed to a foreign reporter: "We have to take on inefficient, untrained young workers, whom we could do better without, just to give them jobs." [97] But Eyster, an international business consultant, reported in 1984 that "it is gradually becoming possible, albeit not yet common in China, to change jobs if dissatisfied. Thus, party control over job assignments is weakening . . ." [98] In 1987, Gargan wrote of "an inability to efficiently absorb people highly trained in Western management and technological specialties. Biologists and economists, chemical engineers and physicists, all with foreign degrees, are relegated to jobs that have little, if any, relation to their education." [99]

In the wake of the Tiananmen Square massacre of 1989, the government announced that to rekindle Communist values, "most college graduates will have to work for a year or two in villages or factories before being permitted to enter graduate school." [100]

All these illustrate a continued deep state intervention in labor assignments and little faith in the free market as allocator of workers among potential employments.

Failure of the Power-Diffusion Process

In sum, the People's Republic brought no essential change in the power structure, only in the personalities who hold power, the titles they wear, and the organizations through which they wield it. The same lack of communication holds between rulers and ruled as has held for centuries.

Deng Xiaoping's liberalization policies began only after Mao Zedong's death in 1976 and only after the consolidation of Deng's power. The commune was dismantled, and farmers were allowed to grow what they wished and sell it in the free market. Grain output jumped from 305 million tons in 1978 to 407 million tons in 1984. [101] But even these policies came as central directives. No farmers' lobby had pressured for them. Rather, Deng and his companions in power had decided — from on top — that increased agricultural output was essential to China's economic health and to their own continued power, and that liberalization was the way to bring it about.

The increase in agricultural output tapered off in 1984-87, possibly because the government did not invest sufficiently in the farms. [102] It dropped to around 3 percent per year in the early 1990s. The government has complained that farmers are not producing enough grain. But the officials might have foreseen this result when they liberated prices for products other than grain and allowed farmers to choose their own crops outside a certain grain quota. Naturally, they shifted away from controlled grain into liberated crops.

Furthermore, although the government has allowed certain private trading, it has kept major industries and communications under its control.

This decision led to an exhortation by Friedman: "The way to expedite the transition in China is to proceed with privatization as rapidly and on as wide a scale as possible." [103] If agriculture is free and industry is not, Friedman noted, the farmers cannot buy the quantity and quality of industrial goods they need. Cheung is even more emphatic: "It is time for China to consider the creation of private property by mandate." [104] A far cry from the timely negotiation of institutions through the power-diffusion process!

As the present "dynasty" (that is, the Republic, whether Nationalist or People's) approaches the end of its first century, it has been rent several times, just as seriously as were the dynasties of imperial China: first by the north-south civil war, next by the battles of Sun Yat-sen and Chang Kai-shek versus the warlords, next by the Nationalist-Communist civil war, next by the Japanese invasion and occupation, next by the Taiwan-mainland dichotomy, next by the Great Leap Forward, next by the Cultural Revolution, next by the succession struggle after Mao, and now by the massacre of Tiananmen Square and the struggle for power between Deng liberals and the hardliners, which continues into the 1990s.

In not understanding that the very structure of society is mandated from on top, just as it was during three thousand years of the empire, many foreign observers today are making the same mistakes as did the British, French, and Russians during the nineteenth century. Some believe that if, by central mandate, Chinese organizations were suddenly patterned after Western ones, and if the Chinese followed monetary, fiscal, and trade policies like those of Western nations, they would behave as Westerners or Japanese do. The efforts of U.S. lawmakers to persuade their own government to put sanctions on the Chinese if they do not liberalize their polity fails to take account of the inability of any Chinese government to do so in a lasting way, quite apart from its unwillingness. By suggesting that liberalism be mandated, foreign observers encourage not liberalism, but mandate.

A list of decisions taken by the central government either to strengthen its own power or to manage the economy and society in ways its leaders thought best, without much discussion by individuals or groups affected, appears in Appendix 12.2. [105] References to inefficiencies in the Chinese economy are listed in Appendix 12.3. [106] References to liberalization by government mandate are found in Appendix 12.4, while reports of reversals of liberalization are in Appendix 12.5.

What Hope for China?

Nevertheless, signs can be detected that the free market is arising from below. As individuals have undertaken new businesses without the blessing of the authorities, and private enterprises have proved themselves more efficient than those of the state, power becomes decentralized willy-nilly. The state is simply unable to control the countryside, nor can Beijing mandate events in the south.

Some futurists are now predicting that China will become the great power of the twenty-first century. Gross domestic product has increased in the neighborhood of 12 percent per year in recent years [107] and industrial growth sometimes over 20 percent. [108] Industry is growing "miraculously" in the south — the real growth in Guangdong was 12½ percent from 1979 to 1992, [109] and the economic border between Hong Kong and China has been all but erased, even before the colony reverts to China in 1997. A CIA report in 1993 found that the Chinese economy rivaled that of Japan and was growing at 13 percent a year. [110] "Factories keep careful track of costs, pay their employees by the piece rate and use complex systems of incentives to increase production." [111] Even in agriculture some experimental reforms are being done privately. [112]

New economic arrangements are being worked out. For example, "collectively owned enterprises sometimes blur the distinction between state and private sectors because they sometimes are run partly by village or township governments. In any case, they tend to operate on market principles and are much more entrepreneurial than Government-run enterprises." [113]

These new arrangements would not be possible if they were not organized by groups — corporations, farmers, village authorities, or other — who work out the local conditions. (Not enough study has been done to identify them.) At some point these groups will have to negotiate with higher authorities over money and finance, property rights, and legal guarantees. It will take years of study by social scientists to determine what groups are involved, how they are negotiating, and what arrangements are made.

Paul Kennedy cautions against excessive optimism, since population growth may offset the economic advances, and if it does not the advances will engender intolerable environmental problems. [114] My own cautious optimism comes not from ignoring these problems nor from extrapolating the extraordinary gains of the early 1990s but from the possibility that lower-level interest groups may be forming and that Chinese society may soon reach the crisis where the elites must negotiate with them or not survive.

Most who agree with Kennedy's warnings would deem population and environment to be challenges to the central government. But I would argue that these afflictions will be alleviated only by inter-actions of the newly-forming groups, with the government as arbiter but not as power. Such is the history of Japan and the Western world. Nor need they be solved in the immediate future; Japan and Europe took centuries. While the cautious optimism of many observers depends on the government's success in managing the society, my optimism depends on its failure.


  1. Vandermeersch 1985:3.
  2. Yan Meng 1988:1:1.
  3. Confucius has not always been popular with the rulers, however. The first Emperor, Shih Huang Ti (ruled 221-206), ordered his books to be burned. In the twentieth century, Mao Zedong, who likened himself to Shih Huang Ti, was equally unappreciative of Confucius.
  4. Jacobs 1958:162.
  5. Li 1977:xiii.
  6. Vandermeersch 1985:14.
  7. Or so Brockman (1980:84) described the legal duties of the local magistrate in Taiwan, at the end of the nineteenth century.
  8. Miyazaki 1980:72.
  9. Henderson 1980:281.
  10. Cohen 1980:7.
  11. Jacobs 1958:97.
  12. Fairbank, Reischauer and Craig 1978:918.
  13. Wren, Christopher, "China Purging Radicals and Incompetents from Party Ranks," New York Times, 7/8/84.
  14. Yan Meng 1988:2:4.
  15. Brockman 1980:85.
  16. Miyazaki 1980:66.
  17. Cohen 1980:9.
  18. Creel 1980:34.
  19. Eberhard 1977:69.
  20. Eberhard 1977:258-59.
  21. Cohen 1980:14.
  22. Brockman 1980:83.
  23. Brockman 1980:82.
  24. Bodde 1980:137.
  25. Eberhard 1977:78.
  26. Miyazaki 1980:59. One senses a bit of the same in American society today, in which litigiousness — or trigger-like resort to the courts — is criticized as being more prevalent, yet less ethical, than friendly compromise. For example, see Geyelin, Milo, "More Judges Punish Frivolous Litigants," Wall Street Journal, 7/20/90.
  27. Cohen 1980:12.
  28. Miyazaki 1980:58.
  29. Eberhard 1977:80.
  30. Cohen 1980:10; Creel 1980:38.
  31. Creel 1980:34.
  32. Yan Meng 1988:1:2.
  33. Eberhard 1977:78.
  34. Yan Meng 1988:1:8.
  35. Cohen 1980:11.
  36. Yan Meng 1988:1:8.
  37. Chen 1980:170.
  38. Cohen 1980:13.
  39. Creel 1980:41.
  40. Eberhard 1977:222.
  41. Eberhard 1977:222.
  42. Miyazaki 1980:69.
  43. Cohen 1980:11.
  44. Cohen 1980:12.
  45. Vandermeersch 1985:6.
  46. Chen 1980:171.
  47. Cohen 1980:6.
  48. Wang 1934:6.
  49. Wu 1986:2.
  50. Wu 1986:7-8.
  51. Vandermeersch 1985:24.
  52. Yan Meng 1988:2:10.
  53. Crovitz, L. Gordon, "Hong Kong Lawyers: Profiles in Kowtowing," Wall Street Journal, 8/4/93.
  54. Bastid 1985:51.
  55. Yang 1952:16, 37-38; Hulsewe 1985:228.
  56. Eberhard 1977:136.
  57. Yang 1952:7.
  58. Yang 1952:2; Eberhard 1977:197.
  59. Lewis 1988:108.
  60. Yang 1952:9.
  61. Yang 1952:38.
  62. Eberhard 1977:213.
  63. Yang 1952:55.
  64. Eberhard 1977:242.
  65. Yang 1952:2, 63. By exception, at the end of the thirteenth century the government rewarded two ex-pirate generals for transporting grain through dangerous seas by allowing them to print notes. This privilege was revoked in 1303 (Yang 1952:66).
  66. Fairbank, Reischauer and Craig 1978:187.
  67. Takekoshi 1930:2:405.
  68. Yang 1952:2.
  69. Yang 1952:7.
  70. Yang 1952:69.
  71. Yang 1952:4-5.
  72. Brockman 1980:109.
  73. Yang 1952:68.
  74. Lin 1936:5.
  75. Yang 1952:85.
  76. Yang 1952:90.
  77. Lin 1936:78.
  78. Hsiao 1971:17.
  79. Byrd 1983:125-28.
  80. Byrd 1983:124.
  81. Byrd 1983:126-27.
  82. Dorn 1989:564. But Chinese economists have told me that these official estimates are probably too low: some guessed as high as 50 percent or 60 percent, including prices in the black market.
  83. Gang 1988:32.
  84. These points were made to me by a Chinese professor of economics at a reception following the Friedman talk at Fudan University, Shanghai. When I asked him why he did not mention them in the question period, he replied that he would not dispute such a well-known economist as Friedman.
  85. Yang 1982:3.
  86. Eberhard 1977:20.
  87. Hulsewe 1985:226.
  88. Eberhard 1977:73-74.
  89. Eberhard 1977:207.
  90. Eberhard 1977:240.
  91. Will 1985:309.
  92. Santangelo 1985:273, 279.
  93. Meijer 1980:328.
  94. Kronholz, June, "In China, Rigid Rules Curb the Urban Sprawl Afflicting Third World," Wall Street Journal, 6/14/83.
  95. Wang, John, "China's Jobless Youth: A Mounting Problem," New York Times, 9/30/79.
  96. Butterfield, Fox, "Skilled Manpower Wasted, China Says," New York Times, 12/14/80.
  97. Oakes, John B., "China's People Problem," New York Times, 8/29/90.
  98. Eyster, Patricia, Letter to the Editor, New York Times, 11/11/84.
  99. Gargan, Edward A., "For Chinese, A Mismatch of Job Skills," New York Times, 12/12/87.
  100. Kristof, Nicholas D., "China is Planning 2 Years of Labor for Its Graduates," New York Times, 8/13/89.
  101. Butterfield, New York Times, 11/15/87, quoting Nicholas Lardy.
  102. Butterfield, Fox, "Mao and Deng: Competition for History's Judgment," quoting Nicholas Lardy, New York Times, 11/15/87.
  103. Friedman 1989:573.
  104. Cheung 1989:595.
  105. Many more examples have appeared in recent newspapers, but space does not permit them all to be cited.
  106. Once again, many more examples than those listed have appeared in recent newspapers.
  107. Predicting a "bust," however, The Economist (5/29/93) finds the very fact of such unsustainable increases to be an ill portent.
  108. WuDunn, Sheryl, in New York Times, 5/19/93.
  109. Kennedy 1993:185.
  110. Weiner, Tim, "C.I.A. Says Chinese Economy Rivals Japan's," New York Times, 8/1/93.
  111. WuDunn, Sheryl, "Village in China finds Road Paved with Gold," report on the village of Daqiuzhuang, New York Times, 1/10/92.
  112. Sutherland, Daniel, "How China's Economy Left its Comrade Behind," Washington Post Weekly, 9/2/91.
  113. "China's Divided Economy," New York Times, 12/18/91.
  114. Kennedy 1993: chapter 9.

Copyright © 1994 by the University of Michigan. First published in the USA by the University of Michigan Press, 1994.

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