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.
Reuven Brenner holds the Repap Chair at McGill’s Desautels Faculty of Management, serves on the Board of the McGill Pension Fund and is member of its investment committee.
He worked with Bank of America, Knowledge Universe, EEN, Bell Canada, Repap Enterprises and with investors in Canada, Mexico, the US and Europe. He has been involved in the private equity markets as partner in Match Strategic Partners, has been investing in start-ups across Canada, as part of an “angel group,” and also created his own start-up, “e-mortal.com.” He has also been serving on boards of companies and institutions.
He was expert witness in cases covering anti-trust, bankruptcy and financial matters. In other spheres, Quebec’s government asked him in 1995 to be member of a commission whose mandate was to examine all aspects of Quebec’s possible separation. He was also asked to testify before US Congressional Commissions and Canada’s Senate’s Banking and Finance Committee, and worked with Poland’s central bank during the recent crisis.
His recent books are A World of Chance (2008) and Force of Finance (2002). His regular columns appeared in Forbes, The Wall Street Journal, Asia Times and other financial press around of the world. Forbes’ journalists put two of his earlier books in their all time recommended list, and Forbes Global dedicated a cover story, titled “Leapfrogging,” to his works and endeavors. Brenner also received the Killam Award (1992), the Royal Society elected him as “Fellow”(1999), and he received a Fulbright Fellowship Grant (1976).
Brenner was born in Rumania and immigrated to Israel in 1962. He served in the Israeli army between 1966-69, during the Six-Day War, and again during the 1973 Yom Kippur War. The Fulbright fellowship brought him in 1977 to Chicago, after completing his PhD at the Hebrew University and working at the Bank of Israel, where he received the First Prize from Israeli banks (for work with Saul Bronfeld, designing indexed securities). He lives in Canada since 1980. He is fluent in English, French, Hebrew and Hungarian.
Trending Now on Affluent Christian Investor
Sorry. No data so far.
The Affluent Mix
Biden Oblivious To Illegal Immigration Issues... August 2, 2021 | Frank Vernuccio

Rob Arnott On Bubbles, Inflation, And Once-In-A-Generation Investment Opportunit... August 2, 2021 | Jerry Bowyer

The Federal Reserve’s Massive Theft Of Stability... August 2, 2021 | Jim Huntzinger

What To Do About This Difficult Market? August 2, 2021 | David Bahnsen

Letter On The Politicization Of Corporations... July 26, 2021 | Jerry Bowyer

Peak Of The Fake Bull Market July 26, 2021 | Michael Pento

Woodrow Wilson’s Administrative State vs. Gold... July 26, 2021 | Jim Huntzinger

Dividends, Energy, And Crypto July 26, 2021 | David Bahnsen

Whose Side Are You On? July 26, 2021 | Frank Vernuccio

Media, Left Ignore These Dangers July 19, 2021 | Frank Vernuccio

Mark Skousen On FreedomFest And How To Measure The Whole Economy... July 19, 2021 | Jerry Bowyer

Quantifying The Quantitative, Or Making Easy The Easing... July 19, 2021 | David Bahnsen

The Gold Standard Means A Rising Standard Of Living... July 19, 2021 | Jim Huntzinger

Book Review: Brian Domitrovic Reveals The Monetary Genius Of Arthur Laffer... July 19, 2021 | John Tamny

Steve Forbes: Time To Worry About Inflation, Not Hyperinflation... July 12, 2021 | Jerry Bowyer

UFOs Rescue Biden July 12, 2021 | Frank Vernuccio

Read This Classical Economist’s 200 Year Old Warning About Paper Money... July 12, 2021 | Jim Huntzinger

How Central Banks Murdered The Markets July 12, 2021 | Michael Pento

Everything There Is To Know About The Stock Market... July 12, 2021 | David Bahnsen

AT&T CEO: We’re Ill Equipped For Politics, And We’re Spending A Lot Of ... July 6, 2021 | Jerry Bowyer

Internet Bias Distorts National Conversation... July 6, 2021 | Frank Vernuccio

The Halfway Point Of 2021 July 6, 2021 | David Bahnsen

Join the conversation!
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse.