EH409 - Chinese Economic History: Culture,

Institutions and Economic Growth

Institutions
Institutions

• Institutions, as conceptualized by North (1990), serve as essential

tools to reduce uncertainties stemming from human interactions
by providing structured constraints.
• North's argument emphasizes that different economies adopt
institutions that either foster growth and development or
contribute to stagnation.
Types of Institutions

• Formal institutions include the written constitution, laws,

policies, rights and regulations enforced by official authorities.
• Informal institutions, in contrast, are the less tangible, typically
unwritten norms, customs, and traditions that significantly
influence thought patterns and behavior (Leftwich & Sen, 2010;
Berman, 2013).
Research Questions

• How Do Institutions Shape Societal Development and

Cooperation?
• What Are the Long-Term Consequences of Autocratic Rule on
Social Capital and Political Behavior?
• Why Did Collectivization Result in the Great Famine in China?
Sustaining Cooperation

• Throughout history, various social organizations have evolved in

response to the challenge of cooperation.
• They have done so by incorporating different combinations of
external enforcement institutions (both formal and informal) and
intrinsic motivation.
 Bifurcation in Societal Organizations

• Distinguishing between the Chinese and European models of societal

organization, each epitomizing distinct social structures: the clan and the
city.
• In China, the clan, rooted in kinship ties and hierarchical organization,
holds moral bonds and reputation in high regard as key factors sustaining
cooperation.
• Conversely, Medieval Europe relied on city-based cooperation, spanning
across kinship lines, with a more significant role played by formal
enforcement mechanisms.
Clan

City
Clan vs. City: Cooperation

• Exploring the contrasting dynamics of cooperation between clans and cities.

• Clan: A closely-knit kinship-based community where members identify with and
remain loyal to one another. Cooperation within the clan is primarily sustained
through moral obligations and reputational incentives that discourage cheating
and free riding.
• City: Comprising members from diverse lineages, formal enforcement
mechanisms play a more prominent role in maintaining cooperation. Moral
obligations within the city have a broader scope but a weaker intensity.
Initial Conditions

• Delving into the initial conditions that set the stage for divergent societal
trajectories.
• In China, the ascendancy of the Han dynasty introduced Confucianism,
emphasizing moral obligations among kin as the foundation for social order.
In contrast, the previous Qin dynasty had endorsed Legalism, emphasizing
legal obligations.
• In Europe, the predominance of nuclear families by the ninth century
resulted in legal codes that detached rights from kinship. Large kinship
groups were mainly relegated to Europe's social and geographical
peripheries, such as Scotland.
Subsequent Evolution

• Tracing the trajectories of clans in China and city-based cooperation in Europe

during subsequent historical periods.

• Clans persisted as “the predominant form of kinship organizations in late imperial

China,” offering their members education, religious services, poverty relief, and
other local public goods. Cooperation relied on intrinsic motivation and reputation,
supplemented by formal intra-clan mechanisms for dispute resolution.

• Europe witnessed a shift toward city-based cooperation, marked by formal legal

enforcement supporting intra-city and inter-lineage cooperation. The prevalence of
contracts that could not be legally enforced underscores the role of moral
commitment in fulfilling contractual obligations.
China and Europe Today

• Examining the contemporary legacy of historical institutions and

cultures in China and Europe.
• Kinship groups continue to be a significant conduit for economic
exchange in China, with business relations remaining personal
and built on networking, or guanxi, signifying social connections
and obligations.
Autocratic Rule in China

• Autocratic rule can be highly resilient, notably in China (Nathan,

2003).
• Examine the impact of the autocratic rule on civil society. Provide
evidence that illiberal institutions can undermine social capital.
• Social capital: beliefs, attitudes, norms and perceptions that support
cooperation.

• Uncover novel mechanisms through which political repression

facilitates autocratic rule in the long run through its effect on social
capital.
The Qing Empire

• The Qing (1644-1912) ruled a large and powerful empire.

• The Ming-Qing transition (1644-1662): the invasion of China by the
Manchus.
• The initial transition involved massacres and a high degree of tension
between Manchu and Han.
• Manchu rulers were relatively successful in governing this vast empire
during the High Qing period (1662-1795).
The Literary Inquisition

• Literary inquisitions were “legal punishment for criminal acts

committed through speech and written words”.
• A long tradition of esoteric writing in Chinese history.
• Meant that all kinds of speech and writings were potential vehicles for subversive
thoughts.
• From diaries, memorials, clan rules, genealogies, inscriptions, epitaphs,
dictionaries to many others.
• The “range of accusations that could lead to a literary inquisition was virtually
unlimited” (Wang, 2002, 634).
Idiosyncratic Variation

• Ambiguity of the Chinese language and bureaucratic

idiosyncrasies.
• Similar cases could have very different outcomes.
• An incident being dropped at a different stage of the bureaucratic
process could delay a prefecture’s initial exposure to literary
inquisitions by decades.
• This gave rise to an idiosyncratic component in the location and
timing of literary inquisition cases.
Difference-in-Differences on a Matched Sample

• An average prefecture affected by literary inquisitions had a very different

profile.
• Potential violation of assumptions of a difference-in-differences design.

• Combine matching and difference-in-differences estimation to minimize

bias.
• Matched sample of 109 prefectures.
• Balanceness on other pretreatment variables.
• Matched samples are used both in the historical panel and in modern-era
cross sections.
Initial Evidence
The Effects On Reputable Individuals

• According to a Korean visitor to China in 1780:

• “Even about the most commonplace affairs, they burn the records of their conversations
without leaving a scrap of paper” (Kuhn, 2002)
• Dai Mingshi studied the history of the loyalist Southern Ming dynasties.
• “But after his death that personal realm of scholarly curiosity was off-limits for officials who
had elected to serve the Qing dynasty” (Wakeman, 1998, 78)
• Joel Mokyr:
• “What little there was of a stirring of intellectual progress before 1644 could not survive what
de Bary has called the ‘Manchu suppression”’ (Mokyr, 2016, 322)
• Key Finding: literary inquisitions led to a decline in the number of individuals
becoming reputable.
The Literary Inquisition and Local Charities
The Literary Inquisition and Local Charities
Discussion Of The Historical Panel

• Prior to the Qing period, it was already understood that the state was autocratic.
• The Literary Inquisition signaled a further change in the relationship between
intellectuals and the state.
• Literary inquisitions generated “a hydra of suspicion and denunciations” (Brook,
2005, 178).
• Intellectuals became more careful in their behavior and curtailed social
interactions.
• Local charities are used as a summary measure of social capital; more than one
mechanism could be responsible for a continuing decline in charity formation.
• Social capital appears to be easy to destroy, but hard to build.
• The deterioration of social capital, a slow and cumulative process.
Additional Findings

• A long-term change in social capital in 20th-century cross sections.

• Less informal public goods provision.
• Less political participation.
• Demonstrate a potential vicious cycle: autocratic repression undermines
social capital −→ less favourable conditions for democracy −→ lasting
autocratic rule.
• No evidence that autocracy has generated greater support for autocracy.
China’s Authoritarian Resilience

• Stability of imperial autocracy in China attributed to the fact that “the

Chinese emperors were able to inhibit the formation of autonomous
social groups outside the control of the state” (Fu 1994, 141).
• But the apparent resilience of autocratic institutions in China may not
reflect the popularity of autocracy but rather, a general apathy towards
politics.
• Autocracies can provide order and public goods when social capital is
low.
• Hence autocratic rule introduces a self-reinforcing cycle that favors its
own survival and persistence by reducing social capital.
Collectivization and the Great Famine

• Analyzing the Causes of China’s Agricultural Crisis (1959-1961)

Hypotheses for the Agricultural Crisis

1. Three successive years of bad weather.

2. Bad policies and bad management in the collectives.
3. Incentive problems due to the unwieldy size of
collectives.
A New Hypothesis

• New Perspective: Deprivation of the Right to Withdraw (Fall 1958)

Led to the Great Famine
• Understanding the Collapse of Agricultural Production
• The success of an agricultural collective hinges on a self-enforcing
agreement, where each member commits to self-discipline.
• However, this agreement is not sustainable in a one-time game.
The Role of Self-Enforcing Agreements

• Importance of Self-Enforcing Agreements in Agricultural Collectives

• Self-enforcing agreements establish a foundation of trust and
cooperation among collective members.
• They encourage members to fulfill their responsibilities without constant
supervision.
• Why a Self-Enforcing Agreement Is Not Sustainable in a One-Time Game
• In a one-time game, there is no expectation of future interactions,
reducing the incentives for members to adhere to the agreement.
Traditional Farming Practices

• Independent Family Farms: The Traditional Rural Institution in Pre-

1949 China
• Independent family farms were the predominant form of agricultural
organization.
• Supervising agricultural production at the individual farm level was a
manageable task.
• Challenges in Supervision and Collective Self-Discipline
• In collectives, effective supervision of individual members became more
challenging.
• The success of agricultural collectives depended on a tacit agreement of
self-discipline among members.
Impact of Deprivation of the Right to Withdraw

• How the Deprivation of Withdrawal Rights Altered the Collective Dynamics

• The deprivation of the right to withdraw from a collective fundamentally
changed the nature of the collective.
• Members who could once exit the collective were now bound to it.
• Turning a Repeated Game into a One-Shot Game
• In a repeated game, participants anticipate future interactions, fostering
cooperation.
• Depriving members of the right to withdraw transformed the collective dynamic
into a one-shot game, where short-term gains took precedence over long-term
sustainability.
Agricultural Output
Additional Readings

• Avner Greif (1989). “Reputation and Coalitions in Medieval

Trade: Evidence on the Maghribi Traders.”
• Examining Economic Institutions in Eleventh-Century Trade
• Addressing Complex Trade with Asymmetric Information and Limited
Legal Enforceability
• Highlighting the Role of Reputation and Coalitions in Facilitating Trade
Additional Readings

• Taisu Zhang (2017). The Laws and Economics of

Confucianism: Kinship and Property in Preindustrial China
and England.
• Integration of cultural, legal, and institutional dynamics
• Neo-Confucian social hierarchies in China, emphasizing age and
seniority
• Early modern England's 'individualist' society, where landed wealth
determined status
• Impact on property institutions and agricultural practices
Additional Readings

• Elinor Ostrom (1990). Governing the commons: The evolution of

institutions for collective action.
• Utilizing Empirical Data to Investigate Common-Pool Resource Problem
Solving
• Exploring Three Common Models for Governing Resources and Their
Limitations
• Introducing Alternative Theoretical and Empirical Approaches
• Using Institutional Analysis to Evaluate Successful and Unsuccessful
Commons Governance
Additional Readings

• Besley, Timothy, and Torsten Persson. "Pillars of prosperity." In

Pillars of Prosperity. Princeton University Press, 2011.
• Understanding Development Clusters: Effective State Institutions,
Political Stability, and High Per-Capita Incomes
• The Role of Cohesive Political Institutions in Promoting Common
Interests and Public Goods Provision
• The Avoidance of Repressive Government and Civil Conflict as Key
Factors
Additional Readings

• Melissa Dell (2010). “The persistent effects of Peru’s mining

mita.”
• Exploring the Long-Term Impacts of the Mita System in Peru and Bolivia
(1573-1812)
• Comparing Mita and Non-Mita Districts Near the Border
• Household Consumption Disparities: 32% Lower in Mita Districts
• Uncovering the Historical Significance of Forced Mining Labor in the Region
Additional Readings
• Xin Meng, Nancy Qian, and Pierre Yared. 2015. “The institutional
causes of China’s Great Famine, 1959–1961.”
• Investigates the factors behind the devastating Great Famine, resulting in the
deaths of millions in rural areas.
• Highlights the importance of rural food inequality in generating severe famine
conditions, with significant regional disparities.
• Emphasizes the impact of an inflexible government procurement policy,
contributing significantly to famine mortality, especially in more productive
regions.