Cultural and business traditions

Harrison (2013, 83—5) uses a neo-Weberian analysis to argue Confucian-based Chinese and East Asian cultures score well on those dimensions of what he terms ‘cultural capital', and that this leads to economic growth.

The West, especially the United States, is typified by an individualistic culture, and neoclassical economics takes the precept that society is composed of atomistic individuals who, in seeking only their own rational self-interests, end up serving those of society. Yet it is rather strange that neoclassical economics has evolved in this manner, given that Adam Smith in his Theory of Moral Sentiments never envisioned an atomistic individual abstracted from society.

If we think of rational self-interest as purposefully driven by cultural constraints, we can see why the Chinese version of capitalism is different. There are four fundamental strands of thought that make the Chinese who they are: the legalist, Confucian, Taoist and, in mainland China, Maoist traditions. Achievement is seen in the context of societal need as opposed to individual desire. Nowhere is this more evident than in attitudes towards parenting. Westerners believe that Chinese ‘authoritarian parenting' stifles the independence of the child, while Chinese parents are disapproving towards Western ‘permissive parenting' with its negative effect on the harmonious relationship between parent and child (Chao, 1996).

The European passion for individual liberty derives from the Enlightenment. American exceptionalism is a product of the Protestant work ethic, the American Revolution and the drive to conquer the ‘wild west'. Chinese exceptionalism begins with the Yellow River. Confucius (founder of Confucianism) and Lao Tzu (the founder of Taoism) grew up on the river as near contemporaries, but their geographic distance brought about different solutions to the problem of flooding. Confucians seek to ‘control the dragon' of the Yellow River through a levee and dam system, while Taoists prefer a more laissez-faire approach of simply not building on flood plains (Guo, 2010).

Coupled with these traditions are legalism and Maoism. The legalist philosophy is a rule of equality under a stable (though often harsh) legal system. Individuals have no rights under legalist doctrine for the law exists as a mechanism for ensuring social control (He, 2011). Emperors were obliged only to uphold equitable treatment under the law so as to ensure com­pliance with it.

Maoism, the political philosophy of Mao Zedong, holds the agrarian peasant class as the standard-bearers for a new China. The Agrarian Reform Law of 1950 reformed China's semi- feudalistic land tenancy regime by nationalising agricultural land and collectivising it into communes comprised of a few hundred households. Private industry was nationalized and progressive five-year plans were introduced to create a ‘Great Leap Forward'. However, China was not ready for everyone to live in a communal fashion. The process destroyed the work ethic, thus ensuring no needs were met in what ordinary Chinese labelled the ‘Great Leap Backward' (He, 2001, 57—9). Shortly after admitting the programme had been a failure, market liberalisation began under Deng Xiaoping and Liu Shaoqi, but increased social inequal­ity scuttled this project. The resulting about-face led to Deng and Liu's removal as part of the Great Proletariat Cultural Revolution, a rebellion against traditional Confucian values as part of a rejection of ‘the Four Olds: old thought, old culture, old tradition, and old custom' (Zhang and Schwartz, 1997, 197).

As the health of Mao and Zhou deteriorated, the battle for China's soul emerged between the Gang of Four (Mao's widow Jiang Qing, Wang Hongwen, Yao Wenyuan and Zhang Chunqiao), who favoured a return to mass revolutionary movements, Hua Guofeng, who wanted a Soviet-style planning system, and Deng Xiaoping, who embraced market reforms. When Zhou died in January 1976, Deng lost his principal backer and the Gang of Four sought to discredit him. Mao's death, a mere eight months later, stopped Deng's persecution. He was again brought back into the leadership by the newly installed premier, Hua Guofang. Deng worked behind the scenes to consolidate power but did so with finesse. Even after engineering the removal of Premier Hua, Deng did not purge him from the party apparatus.

China turned towards economic reform once again and Confucianism and Taoism were again allowed to blossom. Maoism remains an important strand of thought within the Communist party and the public at large, especially in the minds of those who see corruption as endemic to the economic reform process.

Confucianism teaches of a reciprocal duty between subject and ruler, between friends, and between family members, as well as conveying the desire for stability. This reciprocity is epitomized by guanxi or, to the Western mind, ‘connections'. Guanxi is more properly thought of as a network of individuals with whom each has an affinity to whom reciprocal duties are owed (renqmg, literally meaning ‘a favour') and for whom failure to exercise these duties leads to a loss of social status, known as mianzi or ‘face' (de Mente, 2009).

Chinese are reticent to voice displeasure openly with authority so as to avoid trouble, a lesson they learned during the Cultural Revolution, when those who openly criticised the regime were attacked. Still, foreigners who think Chinese are pushovers are forgetting the use of mei yu ban fa, which means ‘there is no way' as a tactical strategy to prevent things by arguing that others will not allow it, bu zhidao, literally, ‘I don't know' and kaolu kaolu, which means ‘I'll look into it'. These phrases mean the same thing: it isn't going to happen, and are often used to dismiss those who lack good guanxi. Essentially, Chinese value relationships more than the rule of reason (Macleod, 1988, 162—5). They embrace a dualism that baffles the Western mind, as exemplified in the yin yang. Night cannot exist without day, male without female or, taking an economic example, maximisation of profit for business cannot exist without maximisation of utility for the consumer. These dualities are interrelated principles rather than contradictions, leading to an emphasis on situational ethics, whereby one always keeps one's options open.

The ceremonial-instrumental tension of the Veblenian dichotomy is found throughout China, which relies more on cash than credit, the Chinese viewing debt as something inher­ently negative in keeping with Confucian tradition to eliminate debts with each new year. This self-reliance on internal financing and desire for familial control was noted by Chen, Kiani and Madjd-Sadjadi (2007, 79—80) in a study of 300 publicly traded Taiwanese companies: ‘Firms in Taiwan mostly... avoided usage of borrowed funds for firm growth. This is crucial in understanding why Taiwan did not suffer much when compared to the other economies in the region in the 1997 Asian Financial crises.' Following up on that study, Kiani, Chen and Madjd-Sadjadi (2012, 1299) noted ‘long-run solvency was negatively related to firm growth', suggesting long-term strategies emphasising sustainability and balance, key Taoist and Confucian elements.

China is no monolith. There are critical regional differences. There is greater emphasis on legalism and Confucian values in the north than in the south, which incorporates Taoism: the Cantonese are fond of saying, ‘The mountains are high and the emperor is far away'. Similarly, Singapore's regime is more legalist than Hong Kong's or Taiwan's. These tendencies mean that policies that work in one region may not work in another. Indeed, differences within a culture outweigh differences between cultures. However, if one is to speak meaningfully of culture, one must examine it through a long lens and generalise, even while warning against turning generalisations into stereotypes (Sun, 2010).

As we turn to the history of Chinese economic thought, we should look at how Chinese culture interfaces with the main challenges of achieving an equitable society as well as a sustainable one. All East Asian countries have very high levels of savings, which have translated into low interest rates. Yet Taiwan,Japan and South Korea all have a more equitable distribution of wealth using the Gini Coefficient than China, which is nominally still Communist, and all of the above referenced countries, along with Hong Kong and Singapore, have a lower ratio of wealth held by the top 20 per cent of society as measured against the wealth held by the bottom 20 per cent of society (World Bank, 2013).