Ten years ago, I wrote about the possible
consequences of China's one child policy
(published in Asia Times Online, Financial Times,
and Singapore Times). All of it seems to have held
the test of times - and recent evidence
strengthens the points raised then:
What
can be the point of reference to predict
consequences of China's current childbearing
pattern, adjusted over the last decades to one-kid
or you're-out-of-your-apartment policy? To make
any reliable analyses, one needs at least two
points, so as to draw a straight line as a first
approximation.
Fortunately for observers,
though unfortunately for those who had to adjust
to such social engineering, there is not much new
under the sun. There has been a government in the
past who passed
similar regulations. The
year was 1726. The place, Austria.
The
Viennese court, under anti-Semitic pressures,
fearing a large increase in Jewish population - a
fear that by itself suggests that the Jewish birth
rate at the time was relatively high - introduced
a regulation. Only the eldest son of a Jewish
family could marry. The younger boys could not.
This regulation introduced into the
Austrian empire, including Bohemia, Moravia, parts
of what became later Germany, and Alsace, led to
the instant migration of young Jewish generation
to Eastern Europe, to Poland, to Rumania. Whereas
within the Austrian Empire the Jewish birth rates
dropped, in Eastern Europe they did not.
How did Jewish parents, who stayed, adapt
to the regulation? As one would expect: they had
fewer children, invested more in their education
and health, and probably spoiled them much more
than would have been otherwise the case.
One can speculate that this regulation was
the origins of the myth of the neurotic Jewish
mothers, and the by now tradition of driving
Jewish kids to excellence - true, occasionally, to
neurotic excellence", and in "neurotic endeavors".
No surprise that since I wrote these paragraphs,
the Chinese term adopted to describe the behavior
of kids in the 100 million one-child families is
that of "little emperors".
Will the
Chinese mothers and kids react in a similar
fashion? At least this point of reference suggests
a positive answer. Thus one unintended consequence
of the one-child regulation will be prosperity
driven by kids who will grow up to be very
ambitious entrepreneurs - though loners. And since
loners do not create companies, the drive may
likely be channeled to intellectual endeavors,
rather than business ones.
Indeed, recent
research by Lisa Cameron at Monash University
suggests that the only kids in China are less
likely to become business entrepreneurs, and tend
not to trust outsiders.
What else can one
say by drawing this parallel between the present
and distant history?
Because of a wide
range of other regulations and expecting less than
equality before the courts at the time, European
Jews have traded 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.
If there is validity in this
parallel, China should prosper, though we do not
know how long it would take. Recall Shakespeare's
Shylock. Below its dramatic surface, that play is
about trust versus contracts. Members of a society
who know that they must rely on contracts (Jews,
surrounded by a hostile Europe), find themselves
in opposition with Christians, who think that
contractual agreements must have an escape clause
by just saying: "trust me".
Shakespeare
captured the transition from customs, enforced by
family, tribe and religion to one where lawyers
and formal dispute resolution mechanism would have
the last word. Only at that time, to him it seemed
that customs should have the upper hand, and guide
the courts too. He did not anticipate the
necessary adaptation to a world of growing and
more mobile population, where "trust" becomes an
expensive capital to create and sustain.
Societies that do not succeed creating
institutions to substitute lost "trust" with
enforceable contractual agreements, will fall
behind. And the slower these institutions are
being created, the slower will society prosper.
I do not want to venture into making a
prediction about the shape and form of the
intellectual, neurotic prosperity so many single
kids - the "little emperors" of anxious Chinese
mothers - would bring about.
But let there
be no doubt. A country filled with 1 million
variations on Freud, combined with 100,000
variations on Woody Allen and Marx, and 700
million falling between the cracks during the
transition from paternalist China to a variation
on 18th/19th century lacking-safety-nets-type
society, brings about a very neurotic prosperity.
When millions people, who have nothing to
loose, bet on crazy ideas, expect much volatility.
It may be interesting to watch, and - no doubt -
some will make fortunes from this volatility. Just
remember the Chinese curse: "You should live
during interesting times."
One thing the
US could do in order not to contribute to this
volatility, is let the Chinese keep their currency
stable, and pegged to the US dollar. Monetary
mismanagement combined with hundreds of millions
of people who would have nothing to loose, and a
few neurotic millions can be a lethal combination.
Reuven Brenner lectures at
McGill's Faculty of Management. The article draws
on his Force of Finance (2002), and his
early History - the Human Gamble (1983).
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