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American Economic Review: Papers & Proceedings 100 (May 2010): 135–140

http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.2.135

Development, Culture, and Institutions †

Cultural and Institutional Bifurcation:


China and Europe Compared
By Avner Greif and Guido Tabellini*

How to sustain cooperation is a key challenge although weaker, also matter and extend beyond
for any society. Different social organizations one’s kin.
have evolved in the course of history to cope with The analysis exposes the impact of different
this challenge by relying on different combina- initial moral systems and kinship organizations
tions of external (formal and informal) enforce- on China’s and Europe’s distinct cultural and
ment institutions and intrinsic motivation. Some institutional trajectories during the last millen-
societies rely more on informal enforcement nium. These initial conditions influenced sub-
and moral obligations within their constituting sequent evolution through complementarities
groups. Others rely more on formal enforcement between moral systems and institutions. The
and general moral obligations towards society at implied social relations, moral obligations, and
large. How do culture and institutions interact enforcement capacity further influenced the
in generating different evolutionary trajectories interactions with other external organizations
of societal organizations? Do contemporary atti- (such as other cities or clans, or higher state
tudes, institutions, and behavior reflect distinct authority), which further reinforced the distinct
pre-modern trajectories? trajectories.
This paper addresses these questions by This paper’s historical and comparative insti-
examining the bifurcation in the societal orga- tutional analysis is based on the model in Avner
nizations of pre-modern China and Europe. Greif and Guido Tabellini (2010). It combines
It focuses on their distinct epitomizing social the analysis of generalized and limited moral-
structures, the clan and the city, that sustain ity (Tabellini 2008) with the analysis of the
cooperation through different mixes of enforce- evolution of institutional complexes composed
ment and intrinsic motivation. The Chinese of complementary institutional and cultural ele-
clan is a kinship-based hierarchical organiza- ments (Greif 2006b, ch. 7). A comparable anal-
tion in which strong moral ties and reputation ysis of the impact of initial beliefs and social
among clan members are particularly important structures is provided by Greif (1994, 2006b,
in sustaining cooperation. In Medieval Europe, ch 9).
by contrast, the main example of a coopera- Section I presents a conceptual framework to
tive organization is the city. Here cooperation explain why these two civilizations took differ-
is across kinship lines and external enforcement ent paths. Section II presents supporting histori-
plays a bigger role. But morality and reputation, cal evidence consistent with this explanation.
Section III presents evidence on the persistent
impact of these distinct societal organizations.

Discussants: Carol Shiue, University of Colorado; I.  How to Support Cooperation: Clan versus City
Roland Benabou, Princeton University; Murat Iyigun,
University of Colorado. This section presents a conceptual framework
* Greif: Stanford University, Department of Economics, to examine the evolution of distinct ways to
Stanford, CA 94305 (e-mail: Avner@stanford.edu); sustain cooperation. It focuses on interactions
Tabellini: Universita’ L. Bocconi. Via Sarfatti, 25. 20136
Milano, Italy (e-mail: Guido.Tabellini@unibocconi.it). We
among individuals and, consistent with the his-
thank CIFAR and the ERC for financial support, and Debin torical evidence, on clans and cities as means to
Ma and Carol Shiue for comments. achieve cooperation. To facilitate the ­discussion,
135
136 AEA PAPERS AND PROCEEDINGS MAY 2010

we ignore other actors such as the state and reli- c­ ooperation with non-kin and if they respect
gious authorities to which we return in the his- the formal institutions that regulate their social
torical discussion. interactions.
The clan (lineage) is a kinship-based commu- Although multiple equilibria are possible,
nity its members identify with and are loyal to. clans are more likely to emerge in a society
Cooperation within the clan is sustained mainly dominated by clan loyalty, because they are
by moral obligations and reputational incen- more efficient and thus more attractive. Clan
tives that discourage cheating and free riding. loyalty would not support cooperation among
Enforcement through formal institutions plays a the heterogeneous community in the city. By
small role. By contrast, the city is composed of contrast, a city is more likely to emerge as the
members of many lineages, and formal enforce- main social organization in a society where
ment is more important in sustaining coopera- moral obligations have wider scope than just
tion. Morality also plays a role; however, moral clan affiliation. In other words, the diffusion of
obligations within the city have a wider scope specific values in the society explains the emer-
but a weaker intensity. They have wider scope in gence of one organizational form over another.
that they apply to everyone and not just towards The second part of the answer concerns cul-
friends or relatives, and they have weaker inten- tural transmission. A society in which coopera-
sity in motivating less cooperation compared tion occurs within the clan is likely to foster
to moral obligations within clans. Hence, at clan loyalty, in both scope and intensity. By
least some external enforcement is needed to contrast, cooperation within a large and het-
sustain cooperation. In terms of economic effi- erogeneous population and formal institutions
ciency, these two social arrangements have clear foster generalized morality and respect for the
tradeoffs. The clan economizes on enforce- procedures and formal institutions that regulate
ment costs, whereas the city can exploit econ- social interactions in the city. In other words,
omies of scale because it sustains cooperation values evolve to reflect the prevailing social
among a larger and more heterogeneous set of arrangements. The emergence of one moral
individuals. system or another is explained by the dis-
How could such different arrangements have tinct initial distribution of individuals across
evolved? There are two parts to the answer. One organizations.
part views the evolution of the clan and the city Combining these two parts yields the possi-
as the result of optimal decisions by individuals bility of cultural and institutional bifurcations.
with a given morality (i.e., preferences). Suppose Clearly, whether a bifurcation emerges or per-
individuals can choose where to interact with sists can also depend on other variables, such
others, either within their clan or within the city. as the type of public good to be provided (how
Interacting can either refer to bilateral exchange rapidly its economies of scale decrease), or the
or to public good provision. Individuals with extent of gains from trading with a larger com-
a strong clan identity are more attracted to the munity. Yet, two otherwise identical societies
clan because they draw a stronger psychological that differ only in the initial distributions of val-
reward from intra-clan cooperation. The attrac- ues and social heterogeneity can evolve along
tiveness of the clan versus city, however, also different self-reinforcing trajectories of both
depends on their sizes because of economies or cultural traits and organizational forms.
diseconomies of scale. A smaller organization
is less attractive because economies of scale II.  History
are not fully exploited. But an excessively large
organization suffers from congestion externali- The collapse of the Chinese Han dynasty and
ties or diseconomies of scale in the enforcement the Roman Empire (after 220 CE) were turning
of cooperation. points in the cultural and institutional evolution
The preference composition within the orga- of China and Europe respectively. The politi-
nization also matters. A clan is more efficient, cal and religious processes that followed led to
and hence more attractive, as the fraction of distinct initial conditions when these societies
its members with a strong sense of clan iden- eventually recovered. The evidence indicates
tity increases. Similarly, the city is more effi- subsequent bifurcation consistent with our con-
cient and attractive if more of its citizens value ceptual framework.
VOL. 100 NO. 2 Cultural and Institutional Bifurcation: China and Europe Compared 137

A. Initial Conditions kinship groups, such as adoption, polygamy,


concubinage, marriages among distant kin, and
Large kinship groups were common in most marriages without the woman’s consent. By the
early societies. Yet, on the eve of the urban ninth century the nuclear family predominated.
expansion in China and Europe circa 1000 CE, Legal codes, for example, no longer linked rights
large kinship organizations were common in the and kinship. Large kinship groups remained
former but not the latter. This distinction can be only on Europe’s social and geographical mar-
taken as an initial condition because it reflects gins (e.g., Scotland).
political and religious process exogenous to the Summarizing, in China circa 1000, large kin-
dynamics we examine. ship organizations prevailed and obligations to
In China, the Han dynasty came to power kin were stressed, while in Europe such organi-
while advocating Confucianism as an alterna- zations were rare, and generalized morality was
tive to the Legalism of the previous Qin dynasty. stressed. These differences were due to political
Confucianism considers moral obligations and religious processes.
among kin as the basis for social order, while
Legalism emphasizes legal obligations. After B. Subsequent Evolution
the collapse of the Han dynasty and the division
of China to rival states, Buddhism gained popu- Subsequent cultural and institutional evolu-
larity. It undermined large kinship organizations tion reflects these different initial conditions, in
by emphasizing the individual, monastic life accordance with the ideas of the previous sec-
and the religious community. Not surprisingly, tion. The length of this paper restricts elaborat-
Buddhism was particularly promoted by the ing on this evidence, and we thus focus on the
many non-ethnic Chinese rulers of the various period of urbanization and growth that occurred
states that emerged in China. in both China and Europe between the eleventh
The ethnically Chinese Tang dynasty and the mid-fourteenth centuries.
(618–907) that reunified China initially also Clans remained “the predominant form of
promoted Buddhism. Eventually, however, it kinship organizations in late imperial China”
turned against it and, among other measures, (Ebrey, P. Buckley and James L. Watson 1986).
destroyed thousands of Buddhist monasteries Clans provided their members with education,
and temples in 845. Confucian scholars had also religious services, relief from poverty, and other
responded by formulating the so called Neo- local public goods. Cooperation was sustained
Confucianism that was more appealing to the by intrinsic motivation and reputation supple-
masses, while Buddhism was similarly reformu- mented by formal, intra-clan mechanisms for
lated to be more consistent with Confucian prin- dispute resolution. The objective was not to
ciples regarding kinship. Kinship structures thus enforce an abstract moral law but to arbitrate a
survived and “the clan as a Chinese institution compromise.
in the pre-modern period … prevailed some 800 If clans did economize on enforcement cost,
years, beginning with the Sung dynasty [960– the state should have created complementary
1279]” (John C. Fei and Ts’ui-Jung Liu 1982, institutions to pursue its objectives. Indeed, clans
393). Detailed information on the share of the were responsible for tax collection, the conduct
population with lineage affiliation is not avail- of their members, and the training of candidates
able, but it was highest in the south and lowest for the civil service exams. Because it benefited
in the north. from the clan, the state reinforced intra-clan
In Europe, the Germanic invasion of the cohesion by rules, such as linking land-purchase
Roman Empire initially reinforced tribalism. rights to local clans’ membership, and by pro-
In the early (post-Roman) German legal codes moting Neo-Confucianism in which “the family
an individual had rights only by affiliation was given a metaphysical foundation, and filial
with a large kinship group. As is well known, piety was promoted” (T. Ruskola 2000, 1622).
tribal tendencies were gradually undone by the Intra-clan enforcement reduced the need for
Church which, in addition to generalized moral- formal enforcement institutions. Moreover,
ity, advanced a marriage dogma that undermined a legal system would have undermined the
large kinship organizations (cf. Greif 2006a). clans, an outcome opposed by the elders who
The Church discouraged practices that sustain ­controlled the clans and by the state that used
138 AEA PAPERS AND PROCEEDINGS MAY 2010

them. Indeed, clan rules regularly discouraged Guild-like organizations (huiguan) extended
litigation and favored arbitration provided by the reach of the rural clans into the city, and in
the clan (Hui-Chen Wang Liu 1959). Similarly, order to be a member it was necessary to belong
the Chinese state encouraged intra-clan dispute to a particular place of origin (Christine Moll-
resolution and did not articulate a commercial Murata 2008).
code until the late nineteenth century. There was In Europe, in contrast, generalized moral-
no separate legal branch in the Chinese admin- ity and the absence of kin groups by the tenth
istration, and administrators were penalized for century led to a distinct trajectory of societal
a wrong verdict. Civil adjudication was aimed at organization (Greif 2005, 2006a). Europe, at the
finding a compromise, with the notable excep- time, was under attack, and both the Church and
tion of enforcing legal rights over taxable land. states were weak. Individuals created cities with
Clan loyalty and the absence of formal, the support of the Church and secular rulers.
impartial enforcement limited inter-clan cooper- Residents organized themselves across kinship
ation. Indeed, although “friendship is one of the lines based on their interests, and economies
five ethical relationships [in Confucianism] and of scale motivated immigrants who integrated
should not be disregarded, yet [clan rules often with the existing population. Cities were there-
state that] one must be very careful about it” (Liu fore motivated to foster the Christian dogma of
1959, 148). About 95 percent of clan rules call moral obligations toward non-kin. Cooperation
for care in selecting friends, while only 8 per- among relatively large populations enabled most
cent call for “helping a friend in trouble” (ibid). cities in Western Europe to gain self-governance
Institutions governing trade reflect the resulting by 1350.
limited inter-clan interactions. The “dominant Formal, legal enforcement supported intra-
form” of organizing long-distance trade was city, inter-lineage cooperation. The evidence
clan and regional merchant groups (Debin Ma reflects transitions from “handshakes” to con-
2004, 267) that relied on moral obligations and tracts, and from electing voluntary judges rely-
reputation among specific individuals related by ing on customary law to professional judges’
kinship or place of residence. relying on a formal legal code. There was a
There were, obviously, cities in China. Yet, large investment in legal infrastructure, and the
intra-clan loyalty and interactions limited number of legal professionals such as judges,
urbanization, city size, and self-governance. attorneys, scribes, and notaries increased.
Considering large cities, China’s urbanization Organizations (such as guilds) that provided
rate remained between three and four percent club-goods also fostered cooperation among
from the eleventh to the nineteenth century, while non-kin by the threat of exclusion. Enforcement
the initially lower urbanization rate in Europe costs were nevertheless high, and both the crime
rose to about ten percent. Including small cites, rate and “policemen” per capita were higher in
urbanization rates were comparable, but China’s large pre-modern European cities than in con-
small cities were venues for cooperation among temporary ones. The role of moral commitment
members of local clans rather then their melt- to fulfilling contractual obligations, however, is
ing pot. While the European cities gained self- suggested by widespread use of contracts that
governance, this did not happen in China until could not be legally enforced, such as contracts
the modern period. to create self-governed cities and to defraud
The lack of self-governed cities in China another by no more than a given amount.
was not simply due to the power of the state, Intra-city cooperation enabled cities to pro-
but also due to pervasive kinship structure that vide local public goods. European rulers found
facilitated state control over cities. Immigrants it cost effective to harness cities’ administrative
to cities remained affiliated with their rural kin- capacity in reasserting their power (Greif 2005).
ship groups. As late as the seventeenth century, Cities collected taxes, provided navies, fought in
“the majority of a city’s population consisted of wars, and administered justice on behalf of the
so-called sojourners, people who had come from state. Self-governed cities thereby restricted the
elsewhere and were considered (and thought of power of monarchs to an extent beyond clans’
themselves as) only temporary residents … sus- capacity. Intra-city formal enforcement sup-
picions were always rife that sojourners could ported intercity impersonal exchange through
not be trusted” (John Friedmann 2007, 274). the Community Responsibility System, under
VOL. 100 NO. 2 Cultural and Institutional Bifurcation: China and Europe Compared 139

which all members of a city were liable for a c­ ontractual obligations. For example, a 1994–5
default by any one of them on an intercity con- survey of Chinese businessmen in Thailand and
tractual obligation (Greif 2006b). Impersonal Hong Kong finds that “Westerners are consid-
exchange, in turn, reinforced generalized ered [by the Chinese] to be attractive partners
morality. for … their respect for the law and keeping of
promises. Trustworthiness is a frequently men-
III.  China and Europe—Contemporary tioned trading attribute of non-Asians” (T.R.
Distinctions Pyatt and S.G. Redding 2000, 59). Indeed, the
Hong Kong Chinese businessmen consider the
In subsequent centuries significant institu- Thai Chinese no more trustworthy and more
tional and cultural changes took place in both opportunistic than Westerners.
Europe and China. In particular, the rise of the The preliminary research discussed in this
West engendered a major backlash (including paper highlights that pre-modern China and
the Communist Revolution) against Chinese tra- Europe were evolving along distinct trajecto-
ditions. Yet, although institutions were changed, ries. One implication is the need to study their
cultural traits persisted, and economic arrange- potentially distinct capacities in bringing about
ments continue to reflect different traditions. the modern economy and adjusting to it. More
Even today, kinship groups remain a more generally, the paper highlights that indigenous
important conduit for economic exchange in institutions and culture interrelate to constitute a
China. Chinese family firms are common, coherent whole. The implied complementarities
and in China “you trust your family abso- contribute to institutional persistence and can
lutely, your friends and acquaintances to the hinder inter-society institutional transfer.
degree that mutual dependence has been estab-
lished.  … With everybody else you make no
assumptions about their good will” (Gordon S. References
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