How China’s Small Businesses Can Expand and Exchange Outside of Law
In my previous article, we saw one of the consequences of human population regulation, drawing parallel between present-day China and 18th century Austria. European Jews faced and adapted to another consequence: A wide range of other regulations and expecting less than equality before the courts at the time lead to trading among themselves. When they wanted to settle disputes, they turned to religious authorities, rather than the courts. Traces of these arrangements survive to this day in the still very much Jewish diamond trade.
Exchange is still based on complex rules that go back 1,000 years. Contracts are still based on a code of honor that traces its roots to the Old Testament, the Talmud, and the teachings of the Maimonides. Contracts of millions of dollars are concluded by only a handshake and the Hebrew statement Mazal ubracha, (“Luck and Blessing”) rather than a written contract approved by lawyers.
How does this evidence bear on China? Neither Chinese law, nor Chinese courts are today reliable institutions. There is no great commercial legal tradition in China. And such tradition can neither be imposed, nor created quickly. So how will the Chinese expand their family businesses?
Whereas in Europe, large families succeeded in pooling together their resources and expanding family businesses backed by legal institutions – and that’s how Western European corporations developed before having access to developed financial markets – this arrangement cannot be done in China for the simple reason that the one-child policy kept families small. There are no brothers, sisters, and for the coming generations no first cousins.
How then will the small family businesses that reach their limits and would like to grow, expand? Since it will take long before China will have developed sophisticated financial markets (which do need solid legal backing), the expansion will have to take place through voluntary associations between “trusted” families – or, perhaps, the only institution which had some layers of accountability, and the ability to enforce “arrangements” – the Communist Party, the “big family.” (And let us not forget that urban citizens, more likely linked to the Partym have been those deciding to have one kid).
Thus, a variation of what happened among Jews within the larger European community, or happened elsewhere in the world among tribes which, for one reason or another were discriminated against (such as the Chinese in Thailand), and where the countries had no reliable legal framework is now taking place in China, adapted to the political institutions the country had.
What shape and form these voluntary organizations will eventually take, I do not know. But people are ingenious in the ways they can adapt – even if the adaptation has long-term neurotic consequences, which are not anticipated, and whose origin will be long forgotten when they surface.
A version of this article originally appeared on Asia Times Online.