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«Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann-Wolfgang Goethe-Universität Frankfurt am ...»

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Additionally, the Chinese way of doing business only with people they are somehow connected to, is considered as weakness by researchers. Thus, the skill to establish Guanxi networks, and more importantly, the time and effort required to set up such systems, distract from business, and furthermore promote corruption. Moreover, it is difficult for newly established firms to get into business because of their lack of Guanxi. Particularly in the modernization theory of the 1950s and 1960 the personalistic culture is regarded as the cause of China's failure to develop Capitalistic structures. The tone for this kind of explanation is set by Marion Levy already in 1949. She describes how the institution of family accounted for the failure of Qing China to modernize.911 In the heyday of modernization theory many works separated societies into 'traditional' or 'modern', assuming they are converging in the long-run to a state of industrialization and thus developing into a modern, capitalistic [Western] economy. The viewpoint of that time is skeptical towards China‘s chances for industrializing and developing a rational Capitalism.912 The reason for this is the ‗accepted wisdom‘ that Chinese family firms represent an 'outmoded organization form', not able to transform in a way needed for a rational capitalistic economy with mass production. The ―family loyalty and obligations t[ake] precedence over other loyalties and obligations. Thus, the extended family tends to dilute individual incentives to work, save, and invest‖.913 This leads to the conclusion that economic progress (of the West) would have been impossible without the loss of significance of traditional family structures. Considered how import family ties are for China, the reason for its underdevelopment seems Whyte, 1995, p. 1001.

See Levy, 1949.

For example Kerr, 1960.

Quoted in Wong, 1988, p. 134.

obvious. ―The fetters of kinship ties and overriding obligation to family and clan‖914 are interpreted as ―incompatible with rational economic performance‖.915 The clan had filled the institutional gap in Chinese social and political structure because it fulfilled duties like for example acting as juridical authority, lending money and protecting its members.916 The extended family acted therefore as a corporate body threatening the new Communist regime. For those reasons, the Communists tried to weaken and even destroy traditional family structures with political actions in order to win back control over the areas the clan had under its direction. A family law was enacted that outlawed polygamy and supported the rights of women. The latter was an important tool to support industrialization. Until that point, female labor power had been unutilized. After the enactment however, it served as an inexpensive production factor.917 The CCP also replaced the traditional image of women with that of the ‗iron girls‘. In propaganda media they were depicted as heroic comrades, equal to their male peers, the rhetoric denying the notion of hierarchy and gender. These ‗daughters of the revolution‘ were expected to participate in production. However, the revolutionary rhetoric differed significantly from women‘s realities.918 In the traditional society most peasants owned land and were self-sufficient. As a consequence of the collectivism of agriculture after 1949 and the introduction of communes instead of clans, the peasant household was deprived of its economic base. Former family production was converted collective production. The peasants became hired farm workers with only little opportunity for economic diversification within the family.919 The Communists wanted to undermine the authority and the central role of the family, inherited from traditional society. Traditional Confucian values of a harmonious society prevailed even in the time of Communism which became obvious when conflicts between the loyalty to family and to political authorities arose. These values required a son‘s loyalty to his family to stand above all other authorities. Disagreement was forbidden, because all relationships should be peaceful with each other, which in practice was not often fulfilled.

For this reason, the family should be subordinated to the state.920 The Communist Party also taught children to obey the party, not the family. Probably the heaviest impact on traFeuerwerker, 1958, cited in Zurndorfer, 2004, p. 5.

Zurndorfer, 2004, p. 5.

Goode, 1970, p. 297f.

Goode, 1970, p. 302f.

Croll, 1995, p. 71ff., 108, Honig, 2000.

Huang, 1992, p. 35.

Fukuyama, 1995, p. 83f. For a short summary of the Chinese economic reforms, see above.

ditional society, based on Confucian culture that deemed it very important to have as many sons as possible, was the enactment of the one-child-policy.

However, the CCP never succeeded to fully suppress Confucian values because they did not take the tenaciousness of these values into account, which against their expectations even after the Cultural Revolution did not weaken but prevailed. Economic circumstances seemed to have little impact on family structures. Additionally, for a family to change several generations are needed. Even considered that socialism endured a couple of decades, many people were still alive that were socialized in pre-communist times.921 5.3.2. Chinese family structures since 1978: motor of economic development?

The other side of the coin turns many negatives of the research mentioned before into something positive, reversing Max Weber‘s assessment. This is mainly due to a changed institutional environment which is prior to 1949 supporting the more impedimental features. The pre-revolutionary institutions change in a way so to support the features that foster economic success in the competitive capitalistic environment of a market economy.

Global capitalism with its features of flexible, transnational production favored small business production over larger corporations and thus, subcontracting.922 The ―predatory and irrational policies of political authorities and other external constraint [are] removed‖923 and now ―Chinese familism will fuel the motor of development‖.924 Thus, when China slowly opened up after the economic reforms of 1978, the family proved to be the foundation from which the success of the Chinese economy can be explained.925 Peasant families were allowed to lease land or invest in private firms. This development was not derogated even with the limitations of birth control policies still in place. The collective times seemed to have built-up urge for more autonomy which then erupted in massive entrepreneurial endeavors, especially in rural areas. Entrepreneurial instincts were preserved and could flourish with the institutions provided by economic reforms.926 As a result, the Chinese family was changed but remained the most important social institution during the 20th century, even after several decades of Communism. The rural family reconstituted, still serving as shelter against social insecurities, now in times of gloWhyte, 1995, p. 1007.

Dirlik, 1997, p. 310.

Whyte, 1995, p. 1003.

Wong, 1988, p. 146.

Fukuyama, 1995, p. 88ff.

Whyte, 1995, p. 1015.

balization and Capitalism. On the contrary, all the political and social commotion seemed to only have fortified the trust in the family as the only institution that is able to provide stability. After 1949, people had to get used to the ideology of the CCP and adapt to the new working conditions in collectives – and they learned to live with the risk of friendship and turned their personal relations into ones of comradeship. Even this did not destroy family ties, although it definitely changed them and at the same time reinforced the belief that strangers cannot be trusted.927 In a way, Deng Xiaoping‘s reforms meant nothing else than a recourse to traditional social relations.928 The Chinese family proved to be a remarkably adaptive social organism, able to respond to a complex set of circumstances, like the latest government actions. The Chinese family adapted and modernized without changing its fundamental principle as most important institution in the life of most Chinese. It is no contradiction that ―young women from rural areas may use their work in towns or cities to gain freedom from parental supervision and meet eligible marriage partners on their own, while at the same time they may send home part of their earnings with the understanding that their parents will provide them with a substantial dowry when they marry. Rural entrepreneurs may study how to use the latest technology to make their family-run factories successful, while spending some of their new wealth on ancestor-worship rituals, in the hope that the spirits will help if modern technology fails them‖.929 This only emphasizes the longevity of Chinese family structures. Contributing to this is also the improvement of medicine resulting in extended life expectancy in rural areas. This makes it more likely than ever to have three generations living under the same roof.930 Parish and Whyte suggest that ―socialism or not, demographically the Chinese rural family has many resemblances with its counterparts in the past‖.931 But still, even today Chinese tend to mistrust non-related strangers and thus employ mainly family members. The problem of unqualified successors is often solved in sending sons to good universities, preferably in the US or Europe. Another possibility is to strategically arrange for a marriage of one's daughter to a suitable son-in-law. Thus, nepotism still exists and families play a big role, but in the circumstances of today's economy it became Vogel, 1965, p. 50.

Fukuyama, 1995, p. 84 122f.

Whyte, 1992, p. 321.

Huang, 1992, p. 35.

Parish and Whyte, 1981, p. 135.

not an obstacle but an advantage, not to be institutionalized and hence not be able to grow as company over a certain size.932 Nevertheless, it is a more complex picture that needs to be drawn. There is not ‗one‘ type of Chinese family and not ‗one‘ category of Chinese family firm, such as the selfemployed firm or the township and village enterprises (TVE).933 Firms will succeed or fail depending on their leadership and decision-making structure, which can vary enormously, and even more so on externalities. However, in contrast to state-owned enterprises, controls are always more latent which makes it necessary to rely mainly on personal relationships. Only somebody with whom one a long-standing relationship is established can be trusted.934 Particularly family ties are evaluated as creating strong loyalties which lead to economic success and motivation of the single family member. Mutual trust and obligation are the essential elements of familiarity and thus are also prerequisites for Guanxixue. Inside the family relationships based on a shared identity can be found, so although those binding ties are not limited to Guanxi, they serve as foundation for potential Guanxi practice.935 Sometimes, families are forced to send their children away to work in a non-family environment. Working as migrant workers not only means to be among total strangers, it also requires them to work even harder to be able to send some money home to support their family. Additionally, they learn as much as possible so they might be able to set up their own business in the future.936 As Chinese people do not like to be employed by strangers, they work longer than necessary until they are able to open up their own enterprise or return to their families.937 Additionally, instead of creating laziness because young Chinese can be sure to get a (leading) position within the family business, they study hard for the sake of the family.

Not only do they seek to get a good education, but once they start working they also work hard and long hours for less money than non-family members. Even if more money is offered elsewhere, they tend to stay in the family business, thus providing continuity. Using family members for manager positions within the firm also provides the advantage of creating a ‗natural authority‘. Those features formerly interpreted as negative are now seen as positive. The same is true for the ―many mouths‖. Instead of them ‗eating away‘ the Fukuyama, 1995, p. 76.

Baek, 2000, p. 64. For a detailed analysis of different categories of Chinese enterprises, please refer to chapter 7.1.3.

Dirlik, 1997, p. 310.

Yang, 1994, p. 111.

Whyte, 1995, p. 1004f.

Fukuyama, 1995, p. 72ff.

surplus, the ―obligation to provide for not only the entire family and multiple heirs but also for a lineage estate and generations to come provides a powerful incentive for the firm head‖. On the same time the very same characteristic leads to a rapid reduction of fertility rates.938 Business careers get increasingly attractive compared with the traditional high-status careers of bureaucratic official or landlords. When a firm is passed to the next generation, instead of buying land or investing in official positions, this creates a new ‗tradition‘ of family businesses. Even in the third generation many Chinese family enterprises have not established an institutionalized firm. The patriarch of the first generation often does not implement modern management structures but decides on the basis of personal relationships to his employees. The second generation, mostly the sons, is seen as possibility to diversify the decision-making when the firm prospers and grows, with the effect that the head of family has not all power. At the same time, there is no loss of profit to outsiders because there is no need to employ external managers.939 Rather, they entrust their sons with a subsidiary unit, for which they have the sole responsibility, including the reinvestment of profits. This creates another incentive to work hard to make one‘s own unit as successful as possible within the family firm. When the patriarch dies, the firm is divided between the sons in equal parts - thus preventing a company to grow over a certain size as already mentioned above, but also giving each son the possibility of owning its own business. This ―package of individual incentives and group insurance against failure […] encourages the emergence of highly motivated, risk-taking entrepreneurs.‖940 On the other hand, family firms are not required to give positions to all family members. Relatives and even sons who do not show sufficient talent are driven out of the family business.

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