Cultural Economics [1 ed.] 0367558955, 9780367558956

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Cultural Economics

Culture is a priceless inheritance and source of wellbeing that is of immense value to humankind. Cultural economics set out to examine the nature and social benefits of cultural products and phenomena as they exist in the market. This volume is the masterpiece of Li Yining, one of the best-​known Chinese economists, active in devoting his attention to the role of culture in the economy since the 1950s. Considering the importance of culture in the development of socialism with Chinese characteristics, the author combines cultural history, economic history, and the history of economic thought to produce unique perspectives. This book not only introduces the central concepts of cultural economics and the culture industry, but it proposes several groundbreaking views that greatly influenced the culture policies of China, including cultural adjustment, cultural confidence, and cultural checks and balances. Researchers and students of economics, cultural studies, and Chinese politics, as well as policy makers, will benefit from this volume. Li Yining is Professor of Economics at Peking University. His research involves relating the study of economic history to that of cultural history, and the study of economics to that of culture. His publications include History of the Ancient Greek Economy, History of the Roman-Byzantine Economy, and The Origin of Capitalism: A Comparative Study of Economic History.

China Perspectives

The China Perspectives series focuses on translating and publishing works by leading Chinese scholars, writing about both global topics and China-​related themes. It covers Humanities and Social Sciences, Education, Media and Psychology, as well as many interdisciplinary themes. This is the first time any of these books have been published in English for international readers. The series aims to put forward a Chinese perspective, give insights into cutting-​edge academic thinking in China, and inspire researchers globally. Titles in economics partly include: Trade Openness and China’s Economic Development Miaojie YU Perceiving Truth and Ceasing Doubts What Can We Learn from 40 Years of China’s Reform and Opening-​Up? Cai Fang Demographic Perspective of China’s Economic Development Cai Fang Inflation in China Microfoundations, Macroeconomic Dynamics and Monetary Policy Chengsi Zhang China’s Economic Reform and Development during the 13th Five-​Year Plan Period Lin Gang, Wang Yiming, Ma Xiaohe, and Gao Debu Cultural Economics Li Yining For more information, please visit www.routledge.com/China-Perspectives/book-series/CPH

Cultural Economics Li Yining

This book is published with financial support from China Book International. First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Li Yining Translated by Tong Xiaohua and Shao Yanan The right of Li Yining to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. English Version by permission of The Commercial Press British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-​in-​Publication Data Names: Li, Yining, author. Title: Cultural economics / Yining Li. Other titles: Wen hua jing ji xue. English Description: New York : Routledge, 2020. | Series: China perspectives | Includes index. | Identifiers: LCCN 2020019366 (print) | LCCN 2020019367 (ebook) | ISBN 9780367558956 (hardback) | ISBN 9781003095880 (ebook) Subjects: LCSH: Culture–Economic aspects–China. | Economics–China–Sociological aspects. Classification: LCC HM621 .L513 2020 (print) | LCC HM621 (ebook) | DDC 306.3–dc23 LC record available at https://lccn.loc.gov/2020019366 LC ebook record available at https://lccn.loc.gov/2020019367 ISBN: 978-​0-​367-​55895-​6  (hbk) ISBN: 978-​1-​003-​09588-​0  (ebk) Typeset in Times New Roman by Newgen Publishing UK

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Contents

Introduction  1 Basic concepts of cultural economics 

1 4

2 The cultural industry 

28

3 Cultural enlightenment and cultural innovation 

58

4 Cultural adjustments 

91

5 Cultural inclusion 

119

6 Cultural confidence 

147

7 Cultural checks and balances 

174

8 The highest state of culture and management 

203

9 Cultural and economic sustainable development 

230

10 Cultural heritage and cultural sharing 

261

Postscript 

290

Appendix: bibliography of the works of Li Yining on the relationship between culture and economics  Index 

292 294

Introduction

After graduating from the Department of Economics at Peking University in 1955, I stayed on at the department as an assistant to the professors, specifically as an assistant to Professor Zhou Binglin, who was teaching international economic history at the time, helping him to translate papers in foreign journals of economic history and organize research materials. My research on cultural issues also started at this time. In those years, I  often went to Professor Zhou’s house. He lived in the faculty housing at Yandongyuan in Peking University and, when free, I would tell him about my experiences in data collation. Professor Zhou enjoyed talking. He believed that economic history belonged to the scope of cultural history. For example, we cannot separate the history of Western European manors from the history of culture. From the subinfeudation of land to the formation of manors and the spread of Christianity, as well as serfdom, manors were a cultural phenomenon as an economic unit. Without the study of culture, it is difficult to study deeply the manorial economy during that period. For another example, the later development of trade, formation of markets, rise of cities, creation of guilds in cities, and gathering of businesspeople were all related to the culture of that time. Professor Zhou also mentioned that the Renaissance was more than just a phenomenon of cultural history. The Renaissance reflected the emergence and development of human rights consciousness and set the stage for changes in social systems. These teachings of Professor Zhou expanded my thinking. Since then, I have been combining the history of culture, history of economics, and history of economic thought and recording my experiences. I discuss this in my book, The Origin of Capitalism: A Comparative Study of Economic History, published in the Beijing-​based The Commercial Press in 2003. Here, I  should also mention what Professor Chen Zhenhan taught me. Professor Chen is a well-​known expert in the economic history of China. During my college years, he taught a course on the modern economic history of China. He did not teach it in terms of economic history but focused on the gradual evolution of modern Chinese economic thought. What affected us as students were the following. One was China’s blind arrogance on the eve

2 Introduction of the Opium War. There was the belief that China was a vast land with vast resources and had no need for any other country, and that foreigners could not do without Chinese exports of commodities such as tea, silk, and porcelain. The result was that China closed itself off and did not understand the rapid changes in the world in the early nineteenth century. The second was the impact on China of the Self-​Strengthening Movement in the late part of the century. China finally bought machinery and equipment produced abroad and set up modern factories, and bought cannons, firearms, and warships. However, the First Sino-​Japanese War ended in defeat for China and the country had to cede territory and pay reparations. Why was the movement ineffective? Without systemic changes, what use was it to just buy machines? The third was the Boxer incident at the close of the century. The Boxers killed foreigners and burned churches, resulting in the Eight-​Power Allied Forces incident. What this tells us is that, whether it was the Opium War, the First Sino-​Japanese War, or the Eight-​Power Allied Forces invasion of China—​ and although these events seem political on the surface—​they were actually closely related to the cultural defects of China from the middle of the Qing Dynasty (1644–​1912). We can describe the closed-​door policy and backwardness of China under that autocratic system as “ice a meter deep does not freeze in a day.” Without systemic reform, backwardness inevitably resulted in coming under attack, loss of territory and reparations, and loss of sovereignty, but the country was unable to become strong on its own, because a handful of people with high ideals could not change the decaying system. Whenever Professor Chen talked about the failure of the Opium War and the First Sino-​Japanese War in the classroom or talked about the suppression of the Boxers, it was always inseparable from his views on the modern economic history of China:  We must take the history of culture seriously and not simply study economic history. Without understanding more than a century of cultural history, we cannot understand the historical truths of China’s modern economic history. Professor Zhou Binglin’s views on international economic history and Professor Chen Zhenhan’s views on the modern economic history of China did indeed have a huge impact on me as a fresh graduate and as someone who had compiled materials on economic history. Their views helped me to understand a truth, which is that we cannot just look at economic history from the perspective of economic history. We ought to tightly integrate the study of economic history with the study of cultural history. To be more precise, we should examine the evolution of the economy in the context of cultural history. Their advice has been a life-​long benefit for me. After 2003, I published History of the Ancient Greek Economy, History of the Roman-​Byzantine Economy, The Origin of Capitalism, and Industrialization and Institutional Adjustment (all four economic history books were published by The Commercial Press), which brought together cultural history and economic history for research and analysis. Students who have read the above

Introduction  3 books may have thought: Mr. Li was over 70 years old when he compiled and published these books. He combined the study of cultural history with economic history to compile unique research. Now that we understand the formation process of my academic thoughts, we can say that although cultural history is not my strong point, when all is said and done, it helps us to broaden our horizons and it helps us to look at major issues in economic history more deeply. When I was trying to combine the study of cultural history with economic history, I  also got involved in the field of cultural economics. When giving lectures to undergraduate and graduate students, I give many on cultural economics, especially when teaching EMBA and MBA classes, and I frequently cover topics related to cultural economics, including the regulation of moral power beyond markets and governments, and the definition and interplay of equity and efficiency, the economic man hypothesis, and the social man hypothesis, and the importance of the social harmony dividend. I think that only by clarifying these cultural economic issues can we better clarify certain questions in economic history and better apply the words of Zhou Binglin and Chen Zhenhan in the study of economic history. In early 1990, two young people from a county in Hubei province came to Peking University to find me. They were Huang Deze and Wang Huixin. They said they worked in the field of grassroots culture and were writing a book called Introduction to Cultural Economics, and they wanted me to write a foreword for them. At first, I wanted to decline on the pretext that I did not specialize in cultural economics, but I also thought about how they came from the grassroots, and this made it difficult for me to refuse. I said that I was too busy to read their work carefully, but that I could listen to the main points of the manuscript. They told me the content of the manuscript in detail. Afterward, I promised them that I would write the preface. They thanked me and then left. I felt that what they wrote would be popular and that it would be worth it for me to write the foreword. After the foreword was written, the article “Exploration of Cultural Economics” was published in the fourth issue of the journal Economics and Culture in 1990. In 1996, SDX Joint Publishing Company published my anthology, Economy, Culture, and Development, which included “Exploration of Cultural Economics.” In 2005, Economic Science Press published Collection of Special Works of Li Yining, and also selected “Exploration of Cultural Economics.” This article, so it seems, really was my first representative work on culture and cultural economics. This is also a fate!

1  Basic concepts of cultural economics

1.1  Starting from the special nature of cultural products 1.1.1  Cultural products When studying cultural economics, it is important to understand what a cultural product is. People widely see cultural products as cultural arts. What cultural economics sets out to examine is not the production process of cultural products or arts. For example, a novelist authors a novel. A composer creates a song or an opera. A  painter creates a painting or copies expert painters. Things like the environment, time spent, and labour requirements do not fall within the scope of cultural economics. This field of economics is also not concerned with the evaluation of cultural arts or whether people trade them. What cultural economics sets out to examine is the nature of cultural products introduced to the market. This is something researchers and government departments are concerned about. For example, in launching cultural products, we must consider intellectual-​ property rights violations, such as piracy, impersonation, and plagiarism. This is obviously a legal issue, but we cannot ignore the protection of intellectual​ property rights when studying and researching cultural products. Another example is the excavation of ancient tombs and whether burial goods had been looted and smuggled out of the country. This is also a legal issue, but cultural economics researchers cannot avoid the issue of the protection of cultural relics. However, another key area still is untouched, namely, the social benefits of cultural products. We should analyze the social benefits of cultural products because cultural products differ from other industry products. Industries that produce other products are not without social benefits, of course. Producers and sellers are liable if their products affect customers’ health, safety, or hygiene and must compensate those who suffer losses. They might have to halt the production and sales of the products. This means that the social benefits of cultural products may have a much greater impact than the production of other products. We must consider this issue when discussing the social benefits of cultural products.

Basic concepts of cultural economics  5 We can broadly divide cultural products into two categories. The first is the material. This includes audio-​visual products, artworks, books and periodicals, and handicrafts such as porcelain, pottery, embroidery, and clothing. The other comprises intellectual-​ service products, or services provided by cultural arts departments and organizations like song and dance performances, concerts, plays, storytelling, and crosstalk. A  theatre troupe, artist, or even a temporary performance team may perform them. They may also become a movie or television series. The production of cultural arts has its own characteristics, as reflected in the fact that they tend to be individual and creative and their social impact may spread through performances or in films and television series. This is the hallmark of cultural products. When analysing the special nature of cultural products or when evaluating their social benefits, we have no choice but to include cultural products in a separate category for discussion. However, the particularity of cultural products is not limited to their spread in a material form (such as the publication of books, plays, or audio-​ visual products) or the intellectual-​service products for audiences (such as concerts or dance or drama performances), but rather to the existence of two transaction processes. Below, let us turn to the analysis of the two transaction processes for the supply and demand of cultural products. 1.1.2  Two transaction processes Let us start with a simple transaction process. Imagine a writer or a playwright who has spent years at home authoring a novel or script and who is now ready to hand it over to a publisher. This is when the writer or playwright sends their work to the publisher. At this stage of the process, the work (novel or script manuscript) is still in the initial stage and the editors or directors of the publisher, magazine, or theatre must accept and approve it. Only after this step will they publish or perform it. The other transaction process refers to the transaction that occurs when a publisher or magazine sells the writer’s book or script. From the supply and demand perspective, the publishing house, magazine, or theatre are the suppliers of cultural products. Although the creators are also suppliers, they are just one of the suppliers of these books or plays. The supplier here is different from the first “transaction,” which occurs when a publisher, magazine, or script performer receives the manuscript. In the first process, the author is only a single creator or one of several creators, and the demand side is the publisher, magazine, or theatre, or the investor, or the director who decides whether to accept the manuscript. As for the second “transaction,” the publisher, magazine, or theatre takes care of this process. In this phase, people who buy books or watch performances represent the demand side. They are the demanders of cultural products who spend money on books or admission tickets.

6  Basic concepts of cultural economics We can clearly see that there are undoubtedly two “transactions” in the cultural-​ products market. One is between the creator and the publisher, magazine, or theatre. In this transaction, the creator is the supplier and the publisher, magazine, or theatre is the demander. In the second, the publisher, magazine, or theatre are the supplier and those who buy books or go to theatre are the demanders. Book and magazine retailers can also be demanders. Analysing from the perspective of economics, we can see that cultural products in the previous transaction process are not commodities in the general sense, but commodities in a special sense. This is because the creators supply books or plays, which is different from the trading of raw materials in material production or from the acquisition of raw materials by modern processing enterprises. It is also different from the purchase of goods by processing enterprises for household handicrafts or agricultural and side-​line products. This is because the manuscripts or scripts supplied by the creators are their creations and the crystallization of their work. Publishers, magazines, or theatres must still read and process them. Thus, we cannot consider this as one of the particularities of cultural products. In terms of the provision of labour services, the labour provided by the creators of cultural products is also much more complex than that provided by the units responsible for general labour. Below are three examples. Example 1: I used to see things like sword dancing, juggling, or monkeys in small towns. The artists would travel around and always attracted crowds. After performing for a while, somebody would take a plate and collect money from the audience. This is the simplest transaction for cultural products. The performer is the supplier of a cultural product and the audience is the demander. In this case, the line between supply and demand is clear and the transaction process is clear. Some people in the audience pay for the performance while others slip away without paying. There is no mandatory requirement for how much to pay, nor is there a contractual or credit relationship. After receiving money, the performance starts again. However, it is a different matter altogether if mafia-​like gangs are blackmailing the performers. Example 2: Some people sell paintings in shops, or “galleries.” People who draw portraits sit at the door and wait for customers. People who like their work will ask an artist to do a portrait drawing. The two sides agree on a price, the customer sits in a pose, and the artist draws. When the artist finishes there is an exchange of money and the process is complete. This is also a common but simple supply and demand transaction process for cultural products. Example  3:  In some villages or on city streets there are workshop-​style galleries or workshops that specialize in reproducing famous ancient and modern paintings. I have visited these places. The reproduction program is a flowing operation. They partition famous paintings into sections and divide labour among the painters. Each manages their part and the next painter takes over after the previous one finishes. One by one they complete the “famous paintings” very quickly and then put them up for sale. Since the originals are not available or are often expensive, the reproductions produced by this flowing

Basic concepts of cultural economics  7 operation sell well. Some of the shops have quickly made money. In any case, they have become necessary at tourist spots. The reason is simple. There is a demand for copies of famous paintings (tourists are the main buyers) and they supply the reproduction process, that is, the employed painters and the flowing operation. This example also shows that the simple transaction form for cultural products does not have to have “two ‘transaction’ processes.” Of course, this does not mean that the two transaction processes do not appear everywhere in cultural-​product transactions. 1.1.3  Whether it is one transaction process or two transaction processes, the special nature of cultural products does not go away Now, let us return to the special nature of cultural products. The special nature of cultural products must be part of the discussion on the “two ‘transaction’ ” processes of cultural and related products. In order to make the special nature clearer, we should boil it down to three points: (1) the lag in the social evaluation of cultural products; (2) the criteria for their social evaluation; and (3) whether the social evaluation criteria for cultural products are fixed or variable. If the criteria for social evaluation change, then how does it change? Let us now discuss these three issues separately. 1.1.3.1  The lag in the social evaluation of cultural products If a creator (or several creators) creates a cultural product like a novel, script, or painting, or even an opera, it still belongs to the creator if it is still stored at home or in the office and has not yet been handed over to a publishing house, magazine, or theatre for public release. Thus, there is no social evaluation issue. Even if it is not a cultural product without publication or rehearsal or without public performance if there has been rehearsal. For a manuscript to be a cultural product, a publisher or magazine must first publish it, or if it is a script, there must be performance in front of an audience. It is irrelevant whether the transaction of either manuscript is done in one or two transaction process(es). A single transaction process (i.e. the creator does not authorize a publisher or magazine to print or sell it but rather prints or sells it directly) or two transaction processes (i.e. the creator hands over the manuscript to a publishing house, magazine, or theatre, who then sells or performs it) are just a feature of the transaction of cultural products. There is no social evaluation in this process. However, regardless of whether the transaction of a cultural product is completed in one or two process(es), as a cultural product, social evaluation is inevitable. This is something unique to cultural products. Moreover, it is worth noting that there is often a lag in the social evaluation of cultural products, which reflects their special nature. Lag refers to how we should evaluate cultural products (such as a novel, theatre performance, or figure painting) during the process. We can evaluate

8  Basic concepts of cultural economics some quickly, while others will need more time or more than one evaluation. For example, people will read a novel or see a drama, unless a novel or drama clearly spreads falsehoods, rebellion, obscenity, pornography, murder, or violence, and is harmful or not conducive to social ethics. However, it is difficult for us to judge how certain novels and plays will spread and perform, and audiences and commentators will have different opinions. In this case, periodic social evaluations would be more useful than conducting a scientific and objective evaluation of these novels and scripts. We might need to repeat the evaluation if it involves a person. It is also possible that researchers will have a new evaluation of a person because of new historical materials, or because the political environment has changed, or because of further research, thereby providing readers with a new understanding of a controversial novel or script and thus changing the social evaluation of them. In short, when examining a specific cultural product, we cannot ignore or be indifferent to social commentary. We also cannot comment on the beliefs of readers or audiences. Their comments are without a doubt reasonable, and we cannot simply judge whose voice is more important. However, there are people who tout certain cultural products as “good” while criticizing certain others as bad. We should deeply analyzed this to see if anyone is manipulating “public opinion,” if someone has bribed the commentators, or even if someone has relied on power to create “praise.” In short, it is important to know what is what when it comes to the comments made by commentators. Thus, we should realize that the social evaluation of cultural products is often lagging. 1.1.3.2  What are the criteria for the social evaluation of cultural products? This important task relates to the inner workings of the evaluation of cultural products and it is a problem in and of itself, because the focus of the social evaluation of cultural products is very different. If we do not have a good mastery of the evaluation criteria, then the evaluation will not only be inaccurate, but it might even lead to other problems. For example, it is difficult to evaluate people and events from ancient times. Early political figures, people who changed the world, and pioneers of new territory each had their own environment and their own merits and demerits. Some were condemned or had their possessions confiscated or were even killed. If we modify the content of certain books or dramas to make them less offensive to some people, what affect would this have on readers or audiences? Doing this would be very controversial. To give an example: It is hard to comment on the merits of the lives of some modern politicians because everyone is in a different environment. It is difficult to say if they are patriots or traitors who have humiliated the country. It is also difficult to make judgements based solely on folklore. It might be even more difficult to deal with a novel or script written around modern political figures than

Basic concepts of cultural economics  9 commenting on ancient historical figures, because no one knows the social evaluation criteria well. Cultural products are different from historical books. Historical books must be faithful to the historical narrative of ancient figures or modern political figures. Otherwise, we cannot really call them historical books. However, we must separate cultural products from novels about ancient figures or modern political figures, or scripts that include them. In general, there are three writing methods. First, we should be faithful to history. Second, it is fine to exaggerate or glamorize the non-​primary plot, but we must base the primary plot on history. Third, if the main plot contains untrue things, it will give people an excuse to be disloyal to history. Addressing these three methods, we can describe the result of the first as close to accurate. We call this academic work, but not a novel or historical work. The result of the third method is what we might call “made up.” It is a historical novel in name only. We can consider the result of the second method to be historical, but there is still debate on this issue and endless arguments. As we can see, there are problems in applying social evaluation criteria to cultural products. There are two unresolved issues. First, do social evaluation standards for cultural products stretch from ancient times to the present? Can we use ethical concepts or common principles as the evaluation standards? If standards adopted in ancient times still exist, should we consider them classical? Second, we can apply to cultural products the values that ancient peoples employed to evaluate cultural products, because traditional values such as filial piety are widely recognized and accepted. However, is this really the case? The answer is not necessarily. People pass down the three characters of xiao, ti, and xin and people accept them without a problem. However, what is zhong and for whom? This is the problem. Too many things change across dynasties and we do not know how loyalties will change. This involves overall national interests and the evaluation of the political achievements of the old and the new. As we can see, it is hard to clarify the issue of social evaluation standards in just a few words. 1.1.3.3  Are the social evaluation standards for cultural products static or do they change? If the criteria for the social evaluation of cultural products change, then how do they change? This difficult problem reflects the special nature of cultural products, and it remains a problem. It arises from the different living environment and customs of ancient peoples. They saw their customs and habits as acceptable and regarded them as moral principles to pass down to future generations. However, do ancient peoples and future generations have the same living environment? It is hard to say, as customs and habits gradually change over time.

10  Basic concepts of cultural economics For example, in the nineteenth century, when Charles Darwin studied the living environment and customs of the Indian tribes of Tierra del Fuego in South America, he entered an Indian village and saw that the villagers were all young couples with children. He did not see any old people, so he asked where all the old people in the village had gone. The young people told him that they lived in the mountains. Therefore, Darwin made his way up, where all he saw was old people. Darwin asked them if they had any children, to which they responded that not only did they have children, but also grandchildren! Darwin then asked why they lived in the mountains rather than with their children and grandchildren. They replied that there was little arable land on the island and frequent famines so there would not be enough food if they lived with their children and grandchildren. The old people lived in the mountains to save food. It had become a convention within the local area. It had become customary for the elderly to live in the mountains and die on their own, and there was nothing surprising about it. From this example, we can see that the Indian villagers on Tierra del Fuego did not shy away from the custom of letting the elderly live in the mountains and die on their own. The island’s people established this custom. However, do they still practice it today? No, it has changed over time, but people did practice it when Darwin travelled to Tierra del Fuego. Old customs do and will change. However, when and why are questions for future generations to consider. For the children to survive famine conditions, the villagers established a custom of “abandoning the elderly and protecting the young.” Can we simply blame the Indians on the island of Tierra del Fuego and call the custom a “great evil?” Perhaps in the Indian village of Tierra del Fuego at that time, it was a “great good” for the elderly to live in the mountains so that their children would have food to eat. Perhaps an old Indian man living in the mountains of Tierra del Fuego would say the following: “There was a lack of food when we were young so our grandparents lived in the mountains so that we could survive. Thus, we will live in the mountains when we are old. What is there to be surprised about?” Above are three problems about the social evaluation of cultural products. They might ignite further discussion but, regardless, researchers will continue to explore them. An important insight that we have gained is that we can use ancient social evaluations as reference, but we cannot blindly follow them, nor can we simply replace their evaluation criteria with that of today.

1.2  Social evaluation of the use value of cultural products 1.2.1  Social evaluation of the use value of goods The previous section discussed how we produce cultural products, and how they differ from general commodities. In this section, we will focus on the

Basic concepts of cultural economics  11 social assessment of the use value of cultural products. For the convenience of narration, we will also talk about the use value of general merchandise. When it comes to the use value of goods, there is usually no ethical issue. This is because, since we make them for the market, they must have a use value for people to want them. If there is no use value, no one will buy them, regardless of how low the price. If the demander thinks there is no need for something, he might still buy it to resell it later at a profit, but then the reason for the purchase is to make profit. From this perspective, resale is what motivated the buyer. There is also no ethical issue here, but not all goods are the same. In fact, ethnical issues could arise in four situations. In the first case, let us say a purchaser buys inferior coal for use as fuel, which produces gases that cause air pollution or that affect the respiratory system of nearby residents and even causes serious respiratory problems. As a result, ethical issues in the use of the good have arisen. An investigation of who is responsible for the pollution would make it clear who caused the pollution, who must provide compensation, and who should receive punishment. In the second case, let us say a purchaser buys a toy for a child, but the toy manufacturer, due to a design flaw, crude process, or poor materials, makes a small kid’s bike that breaks or falls apart, causing a child to fall or to injure himself because the brakes fail. As a result, the injured child must go to the hospital for care and treatment. In this case, ethical issues in the use of the good have also arisen. An investigation to determine fault would find that the manufacturer produced a product of inferior quality. In addition to covering the medical expenses for the injured child, the manufacturer would have to stop production and recall the product and, if serious, would have to shut down. In the third case, let us discuss opium and morphine for medicinal purposes. If doctors only prescribe them as painkillers in hospitals, their usage is according to prescription and there is use value for the doctors. However, opium and morphine are also addictive narcotic drugs, so users will want to buy them. Now we have an ethical issue in the use of the good. If there is no strict management system in place for things such as opium and morphine, then it is completely possible for such drugs to poison society and people and become a scourge of society. Therefore, both social and medical institutions must control drugs such as opium and morphine, and why it is important to punish illegal users, producers, and sellers. Moreover, even if medical institutions control the use of opium and morphine, they must use them cautiously and in accordance with laws and regulations. In the fourth case, let us talk about explosives (i.e. dynamite), which are a type of good. It is fine to use explosives for mining, road repairs, or the demolition of old buildings, but we must exercise strict control. An important concern is that if things like explosives, because of lax management, become available on the market for trade, it would be extremely harmful to society and seriously endanger lives and property. Thus, the use value of explosives involves ethical issues. That is to say, the use value of any explosive as a

12  Basic concepts of cultural economics good has two sides. If well regulated and well used, explosives are conducive to the exploitation of minerals, the building of roads, and the demolition of old buildings. However, if the control measures are lax, explosives could lead to the loss of life and property or even considerable damage that affects society’s stability. It is difficult to measure the consequences of lax control of explosives. The above four cases show that even for general goods, the social evaluation of the use value of goods is difficult. This is because it might involve environmental protection, such as the use of inferior fuels that cause environmental hazards. Alternatively, it might involve consumer health and safety issues, such as poor-​quality children toys. It can also be the case that a commodity might harm the health and safety of people and ruin the social atmosphere, such as drugs like opium and morphine flooding the market because of lax management. As another example, a commodity might harm the lives and property of residents and trigger social unrest (such as lax management of explosives, or even explosives falling into the hands of bad people, putting lives at risk). Now, let us turn to the analysis of the use value of cultural products. 1.2.2  The difference between the use value of cultural products and general goods The beginning of this book made clear that cultural products are different from other products. This is because cultural products have their own characteristics, that is, they have special social benefits. Therefore, when evaluating cultural products, we should discuss their use value separately from that of general goods. In order to make the use value of cultural products clearer, let us analyze the difference in the use value between cultural products in the material form and cultural products in the form of intellectual services and those produced in other industries. First, the quality of the goods provided to the market by producers and manufacturers in other industries has a shelf life, with newer and better goods being more popular. Demand for these goods relates to their use value and date of production, because the earlier the date, the more likely their use value has diminished. Cultural products are different. First, buyers might attach higher use value to cultural products produced at an earlier date. People often prefer a novel, painting, or calligraphy produced long ago. They value the work even more if the author of the novel or the creator of the painting or calligraphy has died. Second, cultural products are different from other industry goods because it is difficult to grasp their social evaluation criteria. This book has already discussed this. There is no unified way to do social evaluation of a novel, script, calligraphy, or painting that involves historical figures, including modern political figures. This difficult problem does not exist in other industries.

Basic concepts of cultural economics  13 Third, and more important, is that after cultural products reach the market, novels and scripts have readers, scripts have audiences, songs have appreciators or learners, and painting exhibitions have appreciators and copyists. This raises questions: What is it that a novel, script, concert, or play are promoting? What is the reaction of the audience or readers? What is the impact? There will be many different comments, but some novels, scripts, songs, and performances leave a deep and long-​lasting impression on readers or viewers, while others only leave an impression that is short lived and quickly forgotten. Some are not only impressive, but the characters also have a subtle influence on people, and the figures in a book or drama become role models. It is like this for positive characters as well as for negative ones. How can these consequences be removed at any time? A good character will lead others by example. Of course, there is no objection here, but a bad role model will also influence people. Does this not spark alarm? This shows that cultural products have a powerful influence. Fourth, compared with the use value of goods in other industries, the use value of cultural products has another distinct feature. Goods produced in other industries can meet the needs of certain consumers in terms of use value if there is strict control and a thoughtful and comprehensive program for production and sale approvals. This includes things like shotguns, explosives, cyanide, and narcotics. However, cultural products are different. For example, it is difficult to measure the toxic effect that books, movies, videos, and even children’s books that promote political reactions or have obscenity, pornography, murder, and violence can have on children and adolescents. Although things like shotguns, explosives, cyanide, and narcotics in the hands of lawless people will bring harm to society, if control measures are strict, their use will be in accordance with procedures and regulations, which means we can prevent the dangers stemming from their misuse. Cultural products are different. Among the books, movies, videos, and other cultural products on the market that promote political reactions or contain obscenity, pornography, murder, and violence, it is hard to measure the impact they will have on society from public or private consumption. We can see from this that the problem of harmful content in cultural products is not only about who is using them, but also about how we use them. One could even argue that their use as a cultural product is inherently questionable. We should not have produced them in the first place if they will have a harmful social impact. For the dregs in these cultural products, the problem is not “proper use” but rather is a problem of “strict controls on production and sales.” 1.2.3  How should we evaluate and look at the use value of cultural products? Having clarified the differences between the use value of cultural products and that of products in other industries, we can now further analyze the use

14  Basic concepts of cultural economics value of cultural products. First, we should emphasize that the use value of cultural products should be within the scope of normative economics. We can divide economics research into two categories:  Normative economics and empirical economics. Cultural products fall mostly within the scope of normative economics, while most of the other industries fall within the scope of empirical economics. The study of normative economics evaluates economic activity and its effects. It addresses the questions of “what should be” or “what should not be.” Empirical economics shows how the economy works and why it works the way it does. It studies the question of “what is” or “what is not.” There is a relation between normative and empirical economics, but they are two different research methods. They have their own characteristics and their own application scope, and we cannot just affirm the methods and content of one while negating that of the other without being one-​sided. We can only use this or that method according to the specific subject at hand but, for some things, we can use the two research methods simultaneously, that is, we can use both normative research methods and empirical research methods. Furthermore, the evaluation of economic activities and their effects is the task of normative economics research, or at least mainly the task of normative economics research. Normative economics must judge the right and wrong of an economic activity and its effects and make clear “what is supposed to be” and whether something is “worth it,” as well as “what is not supposed to be” and whether something is “not worth it.” The “ethical principles of economics” refers to the basis for making judgements about economic activities (including economic activities of the state or government, enterprises, and individuals). In society, people always evaluate economic activities from a certain position or interest. Thus, the evaluations of the right and wrong of economic activities will obviously differ. Empirical economics research cannot determine whether an economic activity is good or bad. This depends on normative economies research, because only this research can evaluate the right and wrong of economic activities. Moreover, when the researchers determine that an economic activity is right or wrong, they should never base that determination on personal feelings or wishes. If that were the case, the ethical principle of economics would not be science, but speculation. As a discipline, cultural economics examines the relationship between culture and economy. It includes not only the impact of culture on the economy, but also the influence of the economy on culture, as well as the influence they have on each other and the changes in society that result from their interactions. From this perspective, cultural economics is primarily a discipline that regulates economics, because cultural economics puts emphasis on “what should be done,” “what is worth doing,” “what should not be done,” and “what is not worth doing.” Ignoring the rules on the provision of cultural products would harm society and harm readers and audiences. This would disintegrate the core values of society, which would have a negative impact on its future and even the next generation. Earlier, when we discussed

Basic concepts of cultural economics  15 the necessity and difficulty of the social evaluation of cultural products and, when analysing the use value of cultural products, we discussed the norms and ethical principles of cultural products. In fact, this book has already said that cultural economics is primarily a discipline that focuses on normative research. Like cultural economics, there are the following subjects: 1 Education Economics: In education economics, there are both areas of normative research, namely, “what should be done” and “what is worth doing,” and areas of empirical research, namely, “what is” and “what is not.” In contrast, empirical research is the premise of normative research. 2 Health Economics: This is similar in nature to education economics and cultural economics. Empirical research is, of course, an independent research field, but if we break away from normative research, we will take a wrong path. 3 Environmental Economics: The most important issues in environmental economics are normative research problems. If you do not clarify “what should be done” and “what is worth doing,” the direction and the tasks are unclear and, again, you will take a wrong path. There are other examples not detailed here. In short, since the use value of cultural products is different from that of many other industries, as already pointed out, it is important to reiterate that examining the use value of cultural products from the perspective of normative economics could cause people to think about what is right and wrong in cultural products.

1.3  Economic benefits of cultural products creation 1.3.1 The creators’ costs in cultural products Now we will turn to the other side of the issue, that is, the economic benefits of cultural products creation. We defined cultural products at the beginning of this book, saying a work does not become a cultural product until after it enters the market and someone buys it, or after a public performance or an audience buys tickets to watch and appreciate it. Let us imagine that someone authors a novel or script and then hands it over to a publisher or magazine, but there is no publication and no one buys it, thus it does not become a cultural product. In this case, there is no economic benefit. However, it is another matter if there is social benefit before the publication. For example, some people will see the novel or script manuscript at the author’s home or office before he hands it over to the publisher or magazine. They will agree with the opinions or evaluation in the manuscript or with the author’s appeal, or they will disagree with the way of writing, thinking it is too pessimistic or unreasonable. What is more, when some people read it at the author’s home or office, they will not only applaud the work, but also affirm

16  Basic concepts of cultural economics the author’s political inclinations, thinking that they are not extreme enough. Thus, even if the author has not yet handed it over to a publisher or magazine, we cannot deny that there is social effect (whether positive or negative). This is the difference between the economic and social benefits and effect of cultural products. In other words, we cannot separate the economic benefits of cultural products from their social benefits. The economic benefits relate to the publishers or magazines that publish the cultural products. If we analyze this through the lens of the “two transactions” mentioned earlier, then we can say that the first transaction is a process between the publisher and creator. When the creator gives a manuscript to the publisher for review, there are no economic benefits for them. It is not until the second transaction process, when the publisher accepts the manuscript, that the two sides sign an agreement. It is most common for publishers to pay an advance against royalties at the time of signing. The publisher will print, publish, and then market the work to acquire income and then pay the creator according to the agreement. It is at this point that they have economic benefits. This is also in line with the rules of the cultural product publishing market. Therefore, even before the official launch of a cultural product, that is, before a book seller makes a transaction, the creator will provide the manuscript to the others for reading and appreciation, but this circulation does not produce economic benefits. At most, it can only produce certain social benefits (both positive and negative). The economic benefits of cultural products derive from the publisher turning a manuscript into a book and selling it. The economic benefits go to the creator (who receives remuneration) and the publisher (who receives sale revenue). The creator receives net income after taking into account time, effort, and cost. It is hard to figure out how to include time and energy as a part of the cost. If someone spent “a decade writing a novel,” how do we calculate a decade of time and effort? Moreover, the labour invested by the creators of cultural products (including writers, painters, designers, playwrights, directors, and actors) is undoubtedly complex, which is hard to measure and difficult to compare. Therefore, it is difficult to set an objective standard for investors of such complex labour, and it is difficult to judge the degree and quality of creators’ investments in labour with the amount of income they receive. Is it possible to just use a market-​based approach to determine how much to pay writers, painters, designers, playwrights, directors, and actors? This is another problem. The adoption of a market-​based payment method would lead to chaos in the cultural products market because there is no way to avoid speculation. There would also need to be an auction bidding mechanism to determine who should be a writer, painter, designer, playwright, director, or actor, and how much to pay them. There would be creators who would find the auction competition humiliating and refuse to take part in it.

Basic concepts of cultural economics  17 Can we consider the next best choice? For example, the implementation of a dual-​track payment system, by which I mean compiling a list of publishing house senior editors and the creators, directors, and actors who belong to professional associations, so that we can evaluate cultural qualifications and titles and have different levels, so as to get a regular monthly salary. In addition, depending on the production status of cultural products, they should obtain bonuses or other nominal allowances, thus forming a dual-​track system. This kind of system has been in place in China for a long time, and experienced editors, creators, playwrights, directors, and actors generally accept it. However, there are still some who would think this is unreasonable. For example, there are more restrictions on professional title assessments, titles correlate to less salary, and rewards such as bonuses are lower. Therefore, other units can poach from those who have resigned from their posts (including non–​state-​owned units). However, in any case, the dual-​track system has been in place for many years and still plays a role. Regardless of the form of payment paid by the production units of cultural products, their economic benefits always depend on the cost–​benefit difference. There are three main reasons why it is increasingly costly to support the normal operations of a large-​scale production unit of cultural products: First is the compensation given to staff (including senior-​level staff). Second is office building and equipment depreciation. Whether the investor is a government, enterprise or individual, we must consider depreciation expenses for office space rent and equipment purchases. Third are the daily operating expenses of cultural-goods producers. We aggregate these expenditures, and it is necessary to know if the result is profit or loss when compared with income. How to deal with losses is a major issue for cultural product producers. 1.3.2  Resource allocation efficiency and the resource allocation adjustment of creating producers of cultural products Next, we will turn to the research on human-​resource allocation issues. This is another unavoidable economic benefit in the production and sale of cultural products. In general economics, we divide efficiency into two categories: Productive efficiency and allocative efficiency. We can study the concept of efficiency from two different perspectives. Productive efficiency expresses the production status of production units and refers to the ratio of investment to output of a production unit. We express the means of productive efficiency by how much output (in current or constant prices) we can achieve through investment (in current or constant prices). The assumption is that the percentage increase in investment is less than that in output, which means an increase in productive efficiency. On the contrary, if the percentage increase in investment is greater than that in output, productive efficiency decreases. Therefore, each production unit must always strive to obtain as much output as possible with a certain amount of

18  Basic concepts of cultural economics investment, or must always strive to achieve a certain amount of output with as few investors as possible. Productivity is useful and important to every production unit. The same is true for the production units of cultural products. Whether there is market competition, cultural products creation units always must strive to reduce costs and investments to achieve the same output and the same economic benefits. Why do production units constantly update their technology? They want to increase production efficiency. Why do production units always train their employees? Again, they want to improve production efficiency. The units can only survive, gain a foothold in the market, and win in a competitive market environment if they improve production efficiency. This is the secret of development for every production unit. However, in the 1930s economists discovered a second efficiency concept:  Allocative efficiency. The allocative efficiency of resources expresses resource use and allocation in the economy. It refers to whether the various production units in the economy have fully utilized existing resources, as well as whether resources are idle and, if so, to what extent and how high the idle rate is. The waste or abuse of resources in resource allocation is also a big problem that involves the efficient allocation of resources. For the long-​term development of the social economy, we must limit the quantity of resources under certain conditions, as waste and abuse could form a shortage of resources under certain conditions, thus constraining socio-​economic development. We can express resource allocation efficiency in terms of the amount of output under different resource allocation methods. For example, there are three resource allocation methods: A, B, and C, with a set total amount of resources. If we use A  to allocate resources, then we get N.  If we use B to allocate resources, then we get N+1. By distributing resources with C, we get N+2. By comparing the results, we can clearly see that the total amount of resources is set, and that C is a better method of resource allocation than B and B is better than A. From this, we can see that allocative efficiency and productive efficiency are important, and that we cannot ignore them. The difference between them is that productive efficiency is best for microeconomics, while allocative efficiency is best for macroeconomics. As far as the efficiency of the production units of cultural products is concerned, there are issues, such as how to adjust the resource allocation within production units and how to improve the efficiency of the resource allocation. However, the focus will generally be more on improving productivity. In contrast, allocative efficiency is more valued in macroeconomics. For example, in the field of cultural products creation, the government has invested billions of yuan in capital over the years, establishing billions in fixed assets, but the efficiency of the resource allocation is up for discussion. From the perspective of capital stock adjustment, the assumption in the field of cultural products creation is that it is possible to revitalize and use assets to make the capital stock more efficient. Is it possible to realize greater capital

Basic concepts of cultural economics  19 stock? Is it possible to get greater efficiency in resource allocation? Whether the efficiency of a production unit improves is a difficult problem for the field of microeconomics. Of course, when we say that productive efficiency and allocative efficiency are equal, there is no intention to devalue a certain efficiency concept. In fact, both are important, but their application scopes are different. We use productive efficiency for analysis in microeconomics, while the focus of allocative efficiency is on analysis in macroeconomics. There is room for both, and they can complement and cooperate with each other. 1.3.3  Introduction of the third efficiency concept: X efficiency and the production status of cultural products In the 1960s and 1970s, researchers on efficiency issues, such as American economist Harvey Leibenstein, discovered a problem in the real economy. After a production unit invested a certain amount of resources and reached a certain level of technology, there would be a corresponding quantity of output, but actually, the output would be more or less than the original plan. Usually, it would be less, and rarely would it be more than the original plan. Researchers use this situation to express X efficiency, where X is an unknown number and X efficiency is an unexplained increase or decrease in efficiency. If actual output is greater than the original plan, we call it X efficiency or X positive efficiency. If the actual output is less than the original plan, we call it X negative efficiency or X low efficiency. Since the real economy often encounters situations in which output is less than the original plan, when researchers study the third efficiency, they tend to consider X negative efficiency or X low efficiency as the main problem. So, why do we have X negative efficiency or X low efficiency? Researchers have proposed three important reasons:  The inconsistency between collective goals and personal goals, the disharmony with individuals or between people, and the difficulty for individuals to get rid of their “inert range.” The researchers have discussed and proposed countermeasures. 1.3.3.1  Inconsistent collective goals and personal goals Collective goals refer to the goals of individual enterprises or production units, and personal goals refer to the goals of individual employees in enterprises or production units. If collective goals and individual goals are inconsistent, there will likely be a state of incompatibility and discord between the two parties, which means enterprise or production unit efficiency will drop. For example, workers might like to dance, sing, or draw and they want to apply their interests at work, but the enterprise or production unit just wants them to do their work. This will affect the mood of these workers. How do we solve this problem of inconsistency? There are two ways. First is to “break down goals and seek common ground while reserving

20  Basic concepts of cultural economics differences.” Second is to “satisfy employees’ wishes as much as possible in their spare time.” Breaking down goals and seeking common ground while reserving differences means breaking down collective goals into A, B, C, D … ; breaking down individual employee goals into A, B, C, D … ; seeking common ground while reserving differences means to compare A, B, C, D … with A, B, C, D …, to find the similarities. For example, enterprises want safe production, and employees want safety and security; enterprises want greater profits, and employees want to boost their income; enterprises want to have a good reputation in society, and employees generally want to feel proud of their work. Therefore, there are many employee and enterprise goals that are the same. The solution “seeking common ground” will allow employees to have a good relationship with their enterprise. So, how do we “reserve differences?” There will always be inconsistencies in collective goals and individual employee goals. This requires “reservation,” which means it is necessary to rely on enterprises or production units to conduct ideological work for individual employees, and the employees must do their work assignments. At the same time, it means to try to “satisfy employees’ wishes in their spare time.” For example, workers might like to sing, dance, draw, or do calligraphy. This means that enterprises or production units can hold employee art exhibitions, photography exhibitions, or calligraphy exhibitions, or they can set up after-​work amateur dance teams and singers to meet the personal hobby needs of employees and develop their respective strengths. In this way, there will be gradual coordination between collective goals and those of the employees. 1.3.3.2  Disharmony with individual employees and between employees Within an enterprise or production unit, regardless of the number of employees, there will be discord between them. There are many reasons for disharmony among employees, but problems in work or life are the main reason for this disharmony. What should we do? According to research and analysis on this issue, the best way to deal with such a situation is to take a step back to gain understanding. We need to reduce the contradictions between employees, and we must learn to be tolerant. This is manageable. 1.3.3.3  How to guide employees to get rid of their “inertia range” According to research, people usually have an “inertia range,” or “inertia area,” under certain conditions. Within this range, “inertia” limits people’s efforts, and people are often reluctant to get out of this range. Here are some examples: In the early winter in the North the weather is very cold, and people often do not want to get up on time. As a result, they are late for work or go to work without eating breakfast, which affects efficiency. Or, people might find others

Basic concepts of cultural economics  21 to play cards with in the evening after work. They do not rest or take time to study. This results in reduced efficiency during work hours. These are manifestations of what we call personal inertia. How do we solve such problems? We need to implement the “three principles of management.”1 These three principles refer to the following: First, the mandatory principle. Enterprises or production units must have rules and regulations and must have discipline. They must deal with any employee who violates these rules and regulations or any employee who lacks discipline. In this way, the role of rules and regulations and discipline are clear. Second, the incentive principle. It is not enough to rely solely on the mandatory principle. There must also be incentive to encourage cooperation. There are many ways to motivate, such as bonuses, praise, or recognition for advanced workers. Promotions also motivate employees. If the mandatory principle is to make sure the employees do not cross the line between obedience and disobedience, the incentive principle is to let them know that they will be rewarded if they work hard and make achievements. This is useful for mobilizing the enthusiasm of employees. Third, the adaptation principle. Adaptation means “the body and the object are adapted and integrated.” After the enterprise or production unit becomes part of the lives of their employees, the relationship between employees changes. Enterprises or production units in China regard employees as “owners,” educate them, lead them, look after them, and pay attention to their needs. Employees in turn see their workplace as a home. Their work performance is not for income, but because it is “their own home.” Trade unions realize we abide by discipline because the enterprise or the production unit does not want its employees to cross the line. Mutual adaptation gradually overcomes the “inertia” of employees. Above is the origin and significance of the third efficiency:  X efficiency and X negative efficiency. The existence and function of X efficiency and the reduction and disappearance of X negative efficiency are related to the improvement of interpersonal relationships and increase of the awareness of employees. Therefore, production efficiency, resource allocation efficiency, and X efficiency not only coexist, but also have various fields to which they are applicable. 1.3.3.4  The premium of cultural products When discussing the economic benefits of cultural products creation, it is also necessary to discuss the extra value of cultural products. In the cultural products market, in different circumstances people can sell cultural products at a premium or even at a “high price.” A premium refers to a price that is higher, or even much higher, than the cost price and a high price

1 We will elaborate on this in the second part of Chapter 8 of this book.

22  Basic concepts of cultural economics refers to a price that to most people is surprisingly, or even unimaginably, high. Why is this the case? Books on economics cannot explain this problem. Production costs can only show the lowest selling price after which the producer will lose money. The supplier and the buyer are who negotiate the price for cultural products. This reflects that the market for cultural products is a special market, otherwise why would it not be suitable for general product transactions? Now let us turn to the suppliers in the cultural products market. The main suppliers of cultural products are the creators of past and present cultural works. They may be designers, painters, or novelists. It is they who enter the cultural products market. But there may also be collectors who, while they do not create their own works, buy significant works and then do not put their collections on the market until years later. Furthermore, collections by famous families might have been created years ago and passed down. The current collectors then put the works up for sale in the cultural products market. The demand side of the cultural products market also depends on the collector or the agent of a collector. In the cultural products market, precious famous paintings and famous calligraphy works are transactions between suppliers (collectors and their descendants or agents) and demanders (collectors or their agents). Why is there a high premium or high price? This depends on the quantity of the famous paintings or calligraphy works and on how long is the separation between its creation and today. Price also depends on things such as how many demanders there are (because the supplier is often only one) and whether people have traded it before and, if so, the transaction price at that time. It is the combination of these factors that form the high premium or high price. If it is a famous painting or famous calligraphy work, the buyer will buy it at a high price and will not feel it is a risk. In fact, the buyer will believe that the price will continue to rise and hold on to sell it in the future. The hype and the asking price in the cultural products market are in fact not limited to famous paintings and famous calligraphy works. For example, ancient coins, old stamps, old furniture, and so forth are not cultural products. Famous creators or expert craftsmen do not necessarily produce or preside over the production of such coins, stamps, and furniture. However, speculators in street markets have long speculated on such things, making them an object of hype, and driving up prices. This is all due to demand being greater than supply. If there is no demand, or if there is limited demand, how would it be possible for the supply side to raise the price? There are people who say that the production of cultural products is monopolistic, at least to a certain extent, which makes the cultural products market take on the nature of a local monopoly market. This statement is credible. Whether a product has a monopolistic nature or not depends on two conditions. One is limited supply and high demand. During normal economic operations, the supply of cultural products is fixed because there

Basic concepts of cultural economics  23 are only so many famous creators and the demand for cultural products is much larger than the supply, which means the monopolizing of the cultural products market has increased. Conversely, in times of social unrest or economic downturn, there are fewer customers who have the money to buy famous paintings or calligraphy works. The supply itself might not change, but it might also decrease (because valuable calligraphy and paintings will remain off the market due to fear of a poor market). But, in general, although removing works from the market affects supply, there is no resulting huge effect on the demand, so the trading volume of famous paintings or calligraphy works will decline. Another condition is that there are fewer appraisers of cultural products because they are reluctant to show up in times of social unrest and economic downturn. The lack of dependable appraisers in the cultural products market makes it difficult to close a deal. But even if the cultural products market shows a certain monopoly, the market for expensive paintings and calligraphies is only intermittently affected and will not sink.

1.4  Social benefits of cultural products creation 1.4.1  Judgement and determination of the social benefits of cultural products creation The creation of cultural products has both economic and social benefits. Moreover, economic benefits have positive and negative points, and negative economic points refer to losses. Social benefits also have positive and negative points and negative social benefits can harm society. In a certain sense, the long-​term economic benefits of the production of certain general commodities and of certain industrial commodities should be consistent with their long-​term social benefits. If there are only economic benefits, but social benefits are negative, then the production unit must bear responsibility for the existence of the negative social benefits, which means the economic benefits will not be sustainable in the long run. By the same token, if there are only social benefits but the economic benefits are negative for a long time, then the production unit must bear the responsibility for the economic benefits, which means the social benefits will be difficult to sustain in the long run. Even if the production unit is state-​owned, the long-​term economic benefits would be difficult to maintain. Therefore, enterprises must consider the long-​term economic benefits and the long-​term social benefits unless, that is, the state has special policies for non-​profits that have long-​term social benefits but no economic benefits. The economics community discussed in the early 1980s the issue of the unification of economic benefits and social benefits. One suggestion was taking the realization of social and economic development goals as the criterion. If the production of certain general commodities or certain industrial commodities contributes to the realization of these goals, then the social benefits

24  Basic concepts of cultural economics would be greater. This would make the production of these commodities more economically beneficial. Even if there was a lack of economic benefits for a certain period, it would be acceptable. This point of view tells us a lot. From the perspective of the realization of social and economic development goals, social benefits are more important than economic benefits, that is, the position of social benefits is ahead of economic benefits. The positive coexistence of social and negative economic benefits is acceptable, but units that bring social benefits should receive subsidies. On the other hand, it is unacceptable if the production of the commodities has economic benefits, but the social benefits are negative, because greater economic benefits cannot compensate for the damage done by negative social benefits. Under this circumstance, from the perspective of the realization of social development goals, negative social benefits are “bad” for any industrial commodity. Even if there were positive economic benefits, it would not make up for the losses caused by negative social benefits, so this would still be bad. In the discussion on the unification of the economic and social benefits of commodity production, there is a saying that we should use the “best interests of the workers” as the yardstick. The criterion for this evaluation is that the purpose of socialist production is to meet the needs of the material and cultural life of members of socialist society to the greatest extent possible. To put it simply, the purpose of socialist production is to care for and cultivate members of socialist society. It is “people-​oriented,” which we can see in the care and cultivation of the people. To build a socialist society is to build a socialist modern society with a combination of material and intellectual properties. Doing this is in line with the common aspirations of China’s workers and thus in their best interests. Therefore, we can use the best interests of the workers as a criterion for measuring the good and bad aspects of the economy. Why should enterprises or production units have both economic benefits and social benefits? We need to keep the best interests of workers in mind. We cannot just pay attention to economic benefits and ignore social benefits because, as we have found, when the social benefits of commodities are negative, it is because we have violated the principle of the best interests of the workers. Whether it is from the perspective of “the realization of the goal of social and economic development” or from the perspective of achieving the best interests of the workers, the truth is the same. We must achieve both economic benefits and social benefits. The situation of cultural products is even more prominent than that of other industries. We have examined this already. There are many businesses in other industries that produce products without the need for ethical principles. For example, furniture is furniture and housing is housing. They have quality issues, but not normative ethical issues like cultural products.

Basic concepts of cultural economics  25 1.4.2  The stages of social and economic development and whether there is a need for phased requirements to produce cultural products We can clearly divide social and economic development into distinct stages. Even the period that marks the establishment and development of the socialist system, can be divided into the planned economy stage, the transition from a planned economy to a socialist market economy stage, and the socialist market economy stage. Due to the phased development of society and economy, production units of cultural products will have different forms, and the evaluation criteria for cultural products will be different, too. There will also be no standard for judging the social benefits of cultural products. We cannot avoid this objective reality. However, there are still differences in evaluations and judgements in real life due to the distinct stages of development. Below are examples to illustrate that point. In the early 1960s, when there was a famine in the countryside, government officials wrote that the mode of operation in the rural areas at that time worked well. At least in the villages, people were no longer hungry. However, this “contract system” approach of assigning agricultural production quotas to individual farmers was not in line with the policies of the time. So, before long, I published an article criticizing it. The premise was that with people’s communes in rural areas, why return to this system? Although the critique got it wrong, the famine situation in the 1960s prevented the “contract system” from taking root. Another example was in the late 1960s. To increase income, some farmers raised more chickens and produced more eggs for extra pocket money and to supplement family income. This was normal in the countryside, but at the time, villages criticized these farmers for taking the capitalist road. So, the farmers either slaughtered their own chickens or sold them as a pledge that they would “take the path of socialism with one heart and one mind” and not engage in capitalism. Another example is the Cultural Revolution, before the beginning of the campaign to criticize bourgeois ideology, which set its sights on films like Early Spring February, Stage Sisters, and Enemy at the Gates. Critical articles referred to these films as “poisonous weeds” and considered them to be the product of the revisionist literary line. I cited the above examples because I had experienced them in labour and “re-​education” in rural areas. However, no one at the time dared to express their views publicly. Of course, after the end of the Cultural Revolution, the situation changed. Banned movies were shown again; it was normal for farmers to raise chickens and sell eggs; and the government piloted and promoted the rural contract system (a system of giving responsibility to individuals). Does this mean that the social benefits of cultural products deserve further exploration? Even in a socialist society, there are different evaluation criteria for cultural products under different economic systems. We cannot

26  Basic concepts of cultural economics view cultural products since reform and opening up with the evaluation criteria we used under the planned economy. So, did different economic systems form unified standards for adapting the social benefits of cultural products under the socialist system? I think so. For example, patriotism. Patriotism means that people must be loyal to and love the motherland. Under the socialist planned economy or under the socialist market economy, it was necessary to understand the necessity of patriotism. Changes in the economic system did not deny patriotic beliefs and actions. Here is another example. Under the socialist system, no matter whether it is a planned economy or a socialist market economy, people should be moral and think of integrity as the principle of being human and not think that under certain economic systems it is possible to ignore integrity. Everyone should abide by the principle of good faith. Here is another example. Under the socialist system, people should help and love each other, and help the poor, disabled, old, lonely, and unaccompanied, and orphans. This is a traditional virtue of the Chinese nation. Whether during the period of the planned economy or the socialist market economy, everyone has this duty. It still is necessary to keep the spirit of mutual help and mutual love under the market economy. From this we can see that there are recognized and shared values in socialist society, and we can make value judgements of the social benefits of cultural products. 1.4.3  Can we simply blame the negative social benefits of cultural products for corroding people’s minds? People have raised a problem in the discussion about the social benefits of cultural products, that is, there are many factors that affect people’s minds, such as family education, preschool education, and compulsory education, as well as the influence of cautious or careless friends or the bad habits of society. This may also have a certain relationship with how we view the negative social benefits of cultural products. Therefore, we cannot simply regard the bad practices of a teenager or even an adult as the result of the impact of the negative social benefits of cultural products. For example, in a remote mountain village, most people are illiterate, cannot recognize characters, cannot read, do not listen to radio, and do not watch TV or movies. To what extent can we say that the deterioration of the young people and even adults in this mountain village is the result of the negative social benefits of cultural products? Another example is a family of three brothers in a county town whose parents are working. Although the parenting style is strict, and the three brothers are in school, one of them is bad and has broken the law. The other two are good, study hard, and will go to university. In this case, we can make some comparisons about their friends, reading habits, and entertainment habits, and we can also assume that the

Basic concepts of cultural economics  27 problematic son might like to read bad books, but we cannot conclude that his deterioration is the result of the bad books, because there are too many factors that corrode people’s minds. However, the above two examples do not relate to the social benefits of cultural products, which means that the negative social benefits are harmful to young people and even to adults. Since there are multiple factors that corrode people’s minds, it is too simplistic if we just blame the immorality of teenagers or adults on the consequences of the books they have read. At most, I can only think that reading bad books and watching bad movies may relate to the fall of some teenagers or adults, but only a little bit. It would relate more to the carelessness of friends. Otherwise, why is it that only some people commit crimes after reading the same books or watching the same movies? In any case, the social benefits of cultural products are always a major outcome that is worth noting. Cultural products can produce positive social benefits as well as negative social benefits. The production units of cultural products must have a sense of social responsibility. They cannot just make money from cultural products such as books and videos that are detrimental to the healthy development of young people. This should be a consistent understanding. Parents have responsibilities, teachers have responsibilities, writers have responsibilities, and production units of cultural products also have responsibilities.

2  The cultural industry

The previous chapter explained some of the basic concepts of cultural economics, including “cultural products,” “producers or production units of cultural products,” and the “cultural products market,” but it did not cover the “cultural industry.” I will explain the cultural industry in this chapter.

2.1 What is the “cultural industry?” 2.1.1  Cultural industry business entities The cultural industry is an economic term that appeared quite recently. UNESCO defines cultural industries as a set of activities that produce, distribute, and store cultural goods or services according to industry standards. There are three key things here: The first key thing is to “produce, reproduce, store, and distribute” cultural products and services according to industry standards. “Allocation” obviously includes circulation and sales. The second is to produce “according to industry standards” and, in fact, exclude cultural products that are not. This does not include farmers who engage in cultural products creation and services unless they establish industrial workshops or open cooperative handicraft workshops or factories that meet the requirement of “production according to industry standards.” The third is to include not only the “production, reproduction, storage, and distribution” of cultural products, but “services.” That is to say, the products of “cultural industries” include both tangible cultural products and intangible cultural products, namely services. In 2012, the National Bureau of Statistics published the “Classification of Culture and Related Industries,” which stipulates that “culture and related industries” are a collection of production activities that provide cultural products and culturally related products to the public. This is a classification based on the current production and services of cultural products in China and is relevant to the social circles that believe this classification is in line with national conditions. The National Bureau of Statistics divides culture and related industries into ten categories:

The cultural industry  29 1 2 3 4 5 6 7 8 9 10

Production of cultural products; Broadcasting and film services; Cultural and artistic services; Cultural information-​transmission services; Cultural creativity and design services; Cultural leisure and entertainment services; Production of arts and crafts; Auxiliary production of cultural products; Production of cultural goods; Production of cultural equipment.

Under these 10 categories, there are 50 medium subdivisions and 120 small subdivisions. In general, this classification includes the production of tangible and intangible cultural products. This is beneficial for the future development of cultural industries and their management. We should emphasize that the classification of cultural industries will promote the strategic design of China’s cultural industry and allow it to play a greater role. However, no matter how large the number of businesses in the cultural industry (including large, medium, and small categories), there is a problem that we must solve. We must define business entities in the cultural industry. If they are ambiguous, and the property rights structure is unclear, it becomes impossible to discuss the development, management, and strategic aims of the cultural industry. Business entities in the cultural industry and the producers of cultural products are not a concept because, as Chapter 1 of this book stated repeatedly, the production of cultural products is usually a two-​level or double process. One process is the creator producing a cultural product, such as writing a novel at home, writing a script, writing calligraphy, or an artist doing a painting. They are the creators. They can take their works to business entities in the cultural industry to conduct transactions. The business entities can include publishing houses, magazines, troupes, and theatres. If the negotiations between the creator and the business entity is successful, they will sign a contract and the business entity and the cultural industry take over. At the other level are the suppliers of cultural products, who handle the publishing work or use the scripts to prepare for shows. Thus, there are two “transactions” in the production of cultural products, the first being the creators’ works. Then, the business entity (publisher, magazine, troupe, theatre, etc.) processes the work and brings it to the market, including supplying books to readers and tickets to theatre audiences. This shows the importance of the management entity of the cultural industry, because only in a few cases will a creator take his or her manuscript, calligraphy work, or painting to the market to find buyers (consumers). The production of arts and crafts is also an integral part of the cultural industry. In this field, production units of arts and crafts have different

30  The cultural industry property rights. For example, these units can be private, state-​owned, or cooperative enterprises. However, the manufacturers, artisans, designers, and sales service personnel of the production units can be independent producers, that is, cultural industry business entities. So, there are two “transactions” in this case. One transaction occurs when an independent producer trades with a cultural industry business entity (enterprise), that is, an independent producer accepts an order from a cultural industry management entity (enterprise) and provides the latter with the preliminary processed product and receives payment for the item. After accepting the creation, the cultural industry entity (enterprise) processes it to turn it into a finished work and they sell it. This is the second transaction process. Under this circumstance, cultural industry management entities have clear property rights, there is management, and the business entities in the industry provide good services because they must deal with customers. As mentioned earlier, the production of cultural products has both positive and negative social benefits. Positive social benefits are beneficial to the public and negative social benefits are harmful to the public. Therefore, in addition to the creators, the business entities in the cultural industry must also strictly abide by laws, regulations, and policies and bring good social benefits. Otherwise, production will not be in keeping with the bottom line of cultural industries and cultural enterprises. 2.1.2  The cultural industry and cultural undertakings The cultural industry and cultural undertakings are two different concepts, and we cannot mix them together. The cultural industry is one of various industries in the national economy. It constitutes a business entity in the form of an enterprise. It has investors, and under the premise of clear property rights, it makes up the main entity of the business operation, that is, the enterprise. It employs staff, some of whom are shareholders and some who are just employees. It has cultural products, including tangible and intangible cultural products like cultural services. It has a market where it can sell its own cultural products and services (intellectual and artistic products) and thus earn revenue. If there is profit after taxes, this is its economic benefit. Cultural undertakings and cultural industries often differ in that cultural undertakings sometimes supply cultural products and services (intellectual and artistic products) to readers or audiences, but they are not-​for-​profit, while cultural industries are for-​profit. Of course, whether a cultural industry should become a for-​profit industry has long been controversial. The result of the debate is that in order to mobilize the enthusiasm of production units and creators of cultural products, and for the development of the cultural industry, they should be allowed to make more contributions to the national economy. This means that creators should get paid and business entities in the cultural industry should make profits. The public also accepts this.

The cultural industry  31 Where do cultural undertakings that are not-​for-​profit get their funding? There are three sources of funding. First, the government supplies funding for cultural expenses. Second, social groups use their own funds to organize cultural activities and support the development of cultural undertakings. Third, non-​profit and charitable organizations raise money to fund the cost of cultural undertakings. All three sources of funding are possible. Moreover, the third source of funding, that is, donations from society and from the cultural activities of non-​profit and charitable organizations will increase in number with the development of the social economy. The development of cultural industries and the development of cultural undertakings should be parallel. There should not be a phenomenon of cultural industries developing to the neglect of cultural undertakings or a phenomenon of cultural undertakings developing to the neglect of cultural industries. It is possible to have a division of labour between cultural industries and cultural undertakings. The cultural industry should conduct for-​profit cultural activities, including the supply of cultural products and cultural undertakings and industries should jointly conduct non-​profit cultural activities, including the supply of cultural products, with each playing to its own strengths. Although cultural undertakings are not-​for-​profit, the supply of cultural products and services to society also have positive and negative social benefits. Positive social benefits contribute to cultural construction, but if neglected or mismanaged, it is possible that there will be negative social benefits. Therefore, when cultural undertaking units supply cultural products and services, they should not see themselves as a non-​profit and ignore the existence of cultural products that could lead to negative social benefits. 2.1.3  Can the cultural industry be a neutral industry? In general industry there are indeed neutral industries, that is, industries without ideological tendencies. For example, the brick-​ and-​ tile industry only produces bricks and tiles based on supply and demand. What kind of bricks and tiles do customers want? What kind of bricks are we producing? Regardless of whether these bricks are for the construction of urban houses or rural houses, if the quality is acceptable, then the buyer (the house owner or a construction company) will accept the price. Another example is the down jacket industry, which is to keep people warm. If the quality, styles, and colours are what customers want, then it does not matter what their occupation is and whether their income is high or low or whether they are old or young. All that matters for them is that the quality, styles, and colours are good. Therefore, we can call the general industry a neutral industry because the products themselves have no ideological bias. The cultural industry is different. Regardless of the number of distinct categories, the cultural industry produces and sells cultural products. Since the cultural industry produces and sells cultural products and cultural services, it

32  The cultural industry is difficult to rank it among the neutral industries due to the special nature of cultural products and cultural services. Of course, as mentioned above, we can divide cultural industries into distinct categories, and different industries have different business scopes. Moreover, due to ideological tendencies and the size of their influence, some cultural industries have strong ideological tendencies, and others have weak ideological tendencies. For example, in cultural industries like broadcasting and film services, cultural and artistic services, cultural information transmission services, and cultural creativity and design services, ideological tendencies are obviously strong. If the management of production units and service units in these kinds of cultural industries is too relaxed, readers, audiences, and others who use these cultural services may be harmed. Therefore, we cannot say these cultural industries are neutral industries. Another example is the cultural leisure and entertainment-​services industry, which is also a non-​neutral industry. Although it is focused on supplying cultural and recreational services, it is still possible for them to disseminate information or images that are unsuitable for the growth of adolescents or that harm the general public. Therefore, we cannot call it a neutral industry.1 Cultural industries with weak ideological tendencies—​such as the production of arts and crafts, the auxiliary production of cultural products, and the production of cultural equipment—​may share certain similarities with other industries outside of the cultural industry, but these are cultural industries and do not occupy an important position in the marketplace. Therefore, in general, the classification of cultural industries as non-​neutral is in line with the overall situation of the cultural industry. If we consider that the cultural industry is for-​profit, then the top-​level management of the industry should give more consideration to the social benefits of the cultural industry.

2.2  International trends in the cultural industry and the development strategy we should adopt 2.2.1  The first international trend of the cultural industry: High technology Further discussion on the leisure and entertainment services industry in Western developed countries since the international financial crisis in 2008 is in the second section of Chapter 10 in this book. These countries realize the urgency of technological innovation and are investing more capital in the high-​tech field, with the goal of finding a new path for their sluggish economies through technological innovation. We should not underestimate the

1 We will elaborate on this in the second section of Chapter 10 in this book.

The cultural industry  33 impact of such large-​scale technological innovation activities on the future international economy. Major innovations in the high-​tech sector occur not only in high-​end equipment manufacturing, adjustments of the energy structure, and telecommunications network technology. They also involve the intelligent aspects of people’s lives. The technological progress in the production and life of Western developed countries in the 2010s has exceeded the previous ten years. The changes in the cultural industry are equally astonishing. The trend of digitalization, networking, and smart technology brought about by modern high technology has not only been greatly welcomed by consumers, but also has increased employment in the cultural industry, thereby expanding the scope of the cultural industry and increasing its output value. More importantly, people have a new understanding of the role of the internet. Through the high-​tech development of the cultural industry, people have more information and employment opportunities and even have new employment methods with occupations available online that pay when a task is complete. This has brought about changes in people’s lives, and it is hard to predict what will come next. The rapid development of the cultural industry in Western developed countries is changing leisure and entertainment, the old-​age lifestyle, how we read newspapers and magazines, how we get information and knowledge, and even how we make friends and communicate. The cultural industry has become one of the most fashionable industries in the new era. Moreover, the high-​tech development of the cultural industry is still in an early stage, so many young people who just graduated from college are eager to keep up-​to-​date so they do not fall behind. The cultural industry of today is nothing like that from the 2000s. This has forced young people to seek continuing education and advanced studies, because they feel that industries of all types are constantly making new demands on the quality of their staff. They are not willing to be behind the times, the market, or their peers. This sense of urgency translates into motivation for further learning and is both a welcome phenomenon and an invisible pressure. 2.2.2  The second international trend of the cultural industry: Economies of scale Since the cultural industry is a for-​profit industry, it will inevitably move toward economies of scale. We can already see this in the competition in the international cultural products market. Internationally, the cultural industry can only become a leader if it takes the road of economies of scale and merges with industry businesses or related supporting ones. Scale advantage is a recognized advantage in international market competition. An obvious example is the emergence of large media groups in the international market in recent years. Their distinctive features are the combination

34  The cultural industry of the strengths and advantages of newspaper publishers, the media, and the internet, which has allowed them to gain more market share. In the international market competition of the cultural industry, there is a saying that the world only recognizes “winners” and does not recognize “second best.” The optimal have an advantage in all aspects—​not just that of the market—​and are the future direction. What is second best? The second best enterprises will eventually be squeezed out, buried, and will lose the trust of customers. Therefore, the goal of every enterprise in the cultural industry is to achieve economy of scale. This is a trend of cultural industry entrepreneurs that will not change. Economies of scale, as a goal in the international market competition of the cultural industry, uses continuous technological innovations to combine industry advantages. Among the enterprises of different scales in the cultural industry, we can classify some of them as “small but fine” and others as “small but strong.” The reason they endure and do not collapse is because they have a set of strategies. They have survived by not blindly expanding or gaining undeserved reputation. This shows that in the process of pursuing economies of scale, it is important to remain clear-​headed and try to expand, but it is also important to pay attention to those small but fine and small but strong ones that have a firm foothold and steady performance and experience in the complex international environment and in fierce international competition. 2.2.3  The third international trend of the cultural industry: Structural adjustment and asset restructuring Whether it is to achieve high technology or economies of scale, enterprises in the cultural industry must implement structural adjustments and smooth out these adjustments through asset restructuring. This is not only common in the international cultural industry market, but also the experience of successful enterprises in cultural industries. Considering the discussion on structural adjustment in economics, we can grasp the following three reasons: First, the adjustment of the economic structure is the adjustment of various economic proportional relationships. The most important of these is the proportional relationship between various industries. It is important to know that there are relationships between various industries that use and consume products. These relationships have led to the formation of various sectors of social production and reproduction processes. This is what led to the formation of the industrial chain. If the products of the investors are irreplaceable, the imbalance in the industrial sector will reflect as a break in the industrial chain. Therefore, it is necessary to acquire supplies from abroad to alleviate this problem. If the products of the invested person are replaceable, then whether or not the industrial chain will break depends on the relative price level and supply quantity of the alternative products, but a break in the industrial chain could still occur.

The cultural industry  35 Second, an imbalance of technology investment between industries can cause an uncoordinated ratio between industries. This is because, due to the inconsistent investment structure, there are early investments in industrial technology. Although we would consider the technology advanced at the time of the original investment, the technical equipment becomes old and might not always get updated. Compared to some industries that adopt modern technologies and new equipment at a later time, these industries are lagging and thus there is an inconsistency between industries. In a market-​oriented society, enterprises determine investment. The source of financing is primarily the market. Enterprise investors can update their equipment in time according to the situation and through market financing. This will improve uncoordinated ratio between industries until they disappear. However, under the planned economy, since investment decisions such as updating technology relied on national authorities, the enterprise itself could not update its equipment through market financing and, thus, there is always an uncoordinated ratio between industries. This was the case in China for a long time (including after reform and opening up). We must realize the basic principle that “market regulation plays a decisive role in resource allocation” through deepening reform. This is also an important reason international industries can implement structural adjustments and asset restructuring through the market. Third, it is necessary to analyze the trend of industrial division of labour for the above problems. Economic growth is the result of an increase in investment in economic growth and a general increase in social-​labour productivity. The increase of social-​labour productivity will cause the original industrial structure to become unstable, leading to the continuous recombination of production factors and new development paths for the industrial division of labour. Therefore, the rise of new sectors and the decline of old ones are inevitable. For large international enterprises, a general increase in social-​labour productivity and the decline of old sectors and the rise of new ones is the best time for structural adjustments such as asset restructuring. If market financing channels are smooth, major international companies will always take advantage of this opportunity. In China, however, this was not always the case. China went from a planned economy to a socialist market economy but, even after reform and opening up, the progress of marketization has been slow. It was not until the 18th National Congress of the Communist Party of China (CPC) that we saw an increase in the speed of reform. The resolutions of the third, fourth, and fifth plenary sessions of the 18th Central Committee of the CPC resolved the path of China’s social and economic development, and the new development ideas and concepts are deeply rooted in people’s hearts. The real start of structural adjustments did not accelerate until after the 18th National Congress of the CPC. The long-​term existence of the planned economy and its impact is not conducive to structural adjustment and asset restructuring. It delays the

36  The cultural industry realization of “market regulation playing a decisive role in resource allocation.” There is an old phrase that says we should “cut the wrist like brave warriors.” Why have we not done this? Why are we unable to decide? Instead, we do not close the enterprises that we should close, and we do not fix the weak areas that we should fix. Is the promotion of mixed-​ownership reform in state-​owned enterprises still ideal? The slow pace of reform makes structural adjustments and asset restructuring difficult to achieve. 2.2.4  The fourth international trend of the cultural industry: Monopoly Above we discussed three trends of the current international cultural industry, namely, high technology, economies of scale, and structural adjustment and resource restructuring. There is also a fourth trend: Monopoly. Monopoly is in line with the laws of industry and enterprise competition in Western developed countries. When it comes to for-​profit industries and enterprises, who does not want to be in a monopoly position? None. In other words, all industries and enterprises want to become monopolies. It depends only on who has the most strength, who has the best way, and who has the greatest opportunity. The same applies to cultural industries. In recent years, large and powerful international cultural industries that know what to do and take advantage of opportunities have broken through industry and regional boundaries and even country boundaries. Through mergers and acquisitions, asset restructuring, financing, management model changes, and improved marketing models, they have evolved into a group of multinational enterprises with monopoly power in the world. Their cultural products, such as radio, television, movies, books, newspapers, audio and video products, satellite networks, entertainment projects, sports competitions, and online services are in strong positions. This kind of monopoly does not form quickly, and once it is formed, it is difficult to beat. Therefore, monopoly is a new trend in the international cultural industry, and one which is worth noting. The international cultural industry monopolies have intensified imbalances in the development of cultural industries in various countries, especially in developing countries, which are under even more pressure. The developing countries started late, their cultural industries are weak, and they are constantly losing development prospects. It is exceedingly difficult to compete with the international cultural industry groups of Western developed countries. Due to limited funds, limited talent, and insufficient technology in the cultural industries of developing countries, coupled with low-​income consumers, it is difficult to get rid of the suppression and bullying of Western cultural industries. What countermeasures can developing countries take? There are only two. The first is to strengthen cooperation among cultural industries in developing countries to adapt to competition in the international cultural market. The other is to promote investment in science and technology and upgrade

The cultural industry  37 communication facilities and grow talent in the cultural industry to create a new situation within the country. 2.2.5  China’s development strategy for the cultural industry The cultural industries of Western developed countries have their own national conditions. This is also the basis for their high technology, economies of scale, structural adjustment, asset restructuring, and monopoly. Without the foundation laid over years, the rapid development of the cultural industry over the past two decades would not have been possible, and it is unlikely that its structure would have undergone major adjustments. It is also unlikely that there would be rapid growth in the talent aspect. From here, we can draw the following three beneficial lessons: First, the development of the cultural industry must have a solid economic foundation. Without a solid foundation of manufacturing, how can there be a large supply of high-​tech equipment and spare parts? Without digitalization, networking, and intelligence brought about by high technology, how can the cultural industry grow rapidly on its own strengths? This shows that economic strength is comprehensive. It relies on the progress of the entire economy and on technology to help the cultural industry. The development of the cultural industry also contributes to the progress of other industries. The cultural industry can by no means, via its own inventions, keep up with the rapid development of the cultural products market. This clearly tells us that in order to vigorously develop the cultural industry, we should not only focus on cultural products, but should pay attention to the coordinated development of the entire national economy, to improvements in the people’s purchasing power, and to scientific and technological progress and new industry trends. It is not possible for the cultural industry to be separate from other industries. Second, without a developed market economy, it is impossible to solve the problems of new construction, expansion, asset restructuring, and industry upgrades. Smooth financing channels, capital markets, and talent well versed in financial and capital market businesses are what any enterprise that wants to grow and develop wants (not only the production units of cultural products). In the modern market economy, whether it is structural adjustment, asset restructuring, or the promotion of high technology, we can do nothing without financing and capital markets. This is a condition for China to accelerate the development of its cultural industry. Of course, financing and capital markets are risky. If you do not pay attention to the prevention of risks in this regard, there may be problems. This is a concern for all industries, including the cultural industry. Third, from the rapid development of the international cultural industry in recent years, we can also draw a revelation: A good rule of law environment is necessary. Enterprises in the cultural industry must abide by laws, regulations, and relevant rules when producing and selling cultural products and services

38  The cultural industry and must not distribute content and information that violates relevant rules, otherwise they will be punished. In addition, there are intellectual property laws and regulations to follow, and they must not infringe upon the intellectual property rights of others. If they do not follow laws, or ignore them, or if law enforcement is lax, this will damage the cultural industry and the cultural products market. This would be extremely unfavourable to the development of the cultural industry. We can learn from the development of the international cultural industry, and a good rule of law environment is undoubtedly a necessary condition for promoting the development of the cultural industry. When formulating the development strategy of China’s cultural industry, we must put the improvement of the rule of law environment in a prominent position.

2.3  The role of the cultural industry in economic growth 2.3.1  The cultural industry and new impetus for economic growth After entering the twenty-​first century, the Chinese economy kept up its rapid growth. It is undeniable that China has become an economic power through rapid growth. However, simply pursuing the growth of GDP (gross domestic product) puts economic expansion first, which is not in line with the law of economic development. High-​speed growth has brought us five drawbacks: 1 A lot of resources have been consumed, which is not worth the loss; 2 The ecology has been damaged and restoring it will be no easy task; 3 Overcapacity in some industries has resulted in the suspension of production, slowing economic growth; 4 There are widespread inefficiencies, such as low labour productivity, rising production costs, quality issues, and unsold products; 5 China missed the best opportunity for structural adjustment and technological innovation, which has affected the competitiveness of Chinese products in the world. It is important to note that after the outbreak of the international financial crisis in 2008, there have been economic downturns in both Western and developing countries. Some Western developed countries—​such as the United States, Germany, and Japan—​have focused on industrial restructuring and stepping up technological innovation, because they presume that it will be hard to assume the leading path of the new era if the industrial structure is not adjusted and there is no innovation in science and technology. After 2008, China continued to pursue GPD growth and maintain the traditional expansion of quantity expansion. As a result, China missed the best opportunity for structural adjustment and technological innovation after 2008.

The cultural industry  39 In recent years, under the guidance of a series of resolutions of the 18th National Congress of the CPC, China has mapped out what it should do under the “new normal.” The country will shift the entire national economy from high-​speed growth to medium high-​speed growth and transform the mode of economic development from the vast quantitative expansion of the old way to the new way of innovation, quality, and efficiency. Innovation will become a new impetus for economic growth. In this transformation, it is inevitable that the cultural industry will receive attention. The cultural industry plays a role in nurturing and promoting economic growth in two aspects: First, the development of the cultural industry is closely related to new investments in the national economy to promote industrial upgrading and strengthen infrastructure construction. Here we must pay special attention to the importance of network technologies construction. Although China has made remarkable achievements in network technologies in recent years, the pace of development in developed countries is too fast. International cultural industries—​such as cultural information transmission services, broadcasting and film services, cultural creativity, and design services—​all have investment growth, so in the next phase of investment and innovation-​driven activities, we must place construction of network technologies, network facilities, and cultural equipment in an important position in order to enter the international cultural industry market and create conditions for the expansion of the domestic cultural products market. This is conducive to the development of the cultural industry, but also to bringing China’s cultural industry into the international cultural products market. Second, under the “new normal,” we must pay attention to the increasingly key role of consumption in the development of the national economy. According to the 2015 annual report of the National Bureau of Statistics of China, the output of the tertiary sector had accounted for more than half of the country’s GDP by the end of 2015. This shows that there has been a change in the order of the three sectors. When a country is still in the agricultural social stage, the order of the three sectors is 1-​2-​3 or 1-​3-​2. The agricultural society is the first stage of human social development. Later, the agricultural society transitions to an industrialized society. This is the second stage. The order of the three sectors is 2-​1-​3 or 2-​3-​1. After that, as has been the case in Western countries with more developed economies, countries enter the third stage—​the post-​industrial stage. Currently, the order of the three sectors is 3-​2-​1 or 3-​1-​2. Similarly, the output value of China’s tertiary sector had exceeded 50 per cent of GDP at the end of 2015, which means that China’s economy has begun to move into the post-​industrialization stage. Even though it is just the start, it shows that the trend from industrialization to post-​industrialization is unstoppable. The 3-​2-​1 order is the result of objective economic laws rather than human will. The proportion of the tertiary sector in GDP will continue to increase in

40  The cultural industry the future. From over 50 per cent of GDP to 60 per cent of GDP and then to 70 per cent, it is just a matter of time. In moving to the post-​industrialization stage, we need to pay attention to two things in light of the situation of China’s economic development: First, although China has entered the post-​industrialization stage, industrialization is still in progress, that is, industrialization is incomplete. For a large country like China, a sign of industrialization is that the high-​end equipment-​manufacturing industry ranks in the forefront of the world. China is still far from this mark, so we cannot be satisfied at the fact that the output value of the tertiary sector has exceeded half of GDP. We need to continue to promote industrialization and strive to become a world-​leading country in the high-​end equipment manufacturing industry. This should be our goal. Second, although the post-​industrialization stage has only just begun, we must vigorously promote new forms of consumption in the sustainable development of the tertiary sector. To do so, we must rely on consumption to drive economic growth, broaden the scope of public services, and improve people’s livelihood. The development of the cultural industry can both stimulate economic growth and expand new forms of consumption. The potential in this area is enormous. Insufficient estimates of the role of the cultural industry are likely to inhibit the vitality and motivation of economic growth. 2.3.2  The cultural industry and social purchasing power in rising household income To adapt to the “new normal,” the economic growth rate must change from the previous rapid growth to medium-​to high-​speed growth. According to the international field of economics, a country with an economic growth rate of 6–​7 per cent is in the medium-​to high-​speed growth range. In contrast, an economic growth rate of more than 8 per cent is high-​speed growth, and we consider 4–​5 per cent to be medium-​speed growth. There is no universally accepted standard in this regard, and it is largely, as stated above, acceptable. However, we should realize that a 6–​7 per cent medium-​to high-​speed growth rate is not easy to achieve. This is due to the previous long-​term high-​ speed growth, which has created overcapacity problems in some manufacturing and mining enterprises. Manufacturing products are not selling, while prices have fallen, and the prices of mining products have also fallen due to backlogs. At the same time, production costs, circulation costs, and the tax burden are growing, putting tremendous pressure on both manufacturing and mining enterprises. In this situation, in addition to continuing to promote innovations in technology, management, and marketing, and to alleviate the downward pressure on the economy, we must also promote the rise of household income. A rise in household income not only directly contributes to the promotion of consumption, but also helps to promote investment. This is

The cultural industry  41 beneficial to resolving the downward pressure on the economy. The rise in the level of household income currently depends on four factors: First, most farmers have property rights and property income through rural land rights, which has both increased investment and promoted consumption. Second, the channels for farmers to obtain loans on their property after having secured rural land rights are much wider than in the past. This encourages farmers to start businesses, including the promotion of agricultural industrialization, setting up small and micro-​sized enterprises, and improving soil and water-​conservancy facilities. Third, farmers have increased their income by land transfers, by developing the scale of operations of family farms, or by engaging in industrial and commercial investment and management. Fourth, through the implementation of targeted poverty alleviation measures, poverty alleviation work has been more effective. This has changed the character of mountainous areas and poverty-​ stricken areas and has enabled local low-​income families to increase their purchasing power. From this point of view, under the “new normal,” if policies are in place, the income of households will continue to rise. Moreover, the cultural industry can play its due role in improving household income and improving household buying power. Specifically, this is related to the transmission of information, which allows farmers to obtain the information they need through the internet. During research in Gannan, the local farmers who grew oranges told us that they used to be poor mainly because oranges were difficult to sell. The results were so bad that they could not sell them at a fair price. Compared to the past, the situation has changed dramatically. The farmers post information about ripe oranges for sale on the internet so people will come and buy them, and this has increased their income. The farmers said that the internet has helped them and there are no more leftover oranges. In some county towns, market towns, and rural areas in Hebei, we also found that online shopping has developed rapidly. In the county and market towns, shops go online to purchase goods. In the rural areas, the farmers told us that they can buy things they need, such as fertilizers, pesticides, seeds, and plastic greenhouses through the internet, ensuring quality and cost savings. In this way, the farmers have less to worry about. This kind of deliver-​to-​your-​ doorstep business, which only started in or around 2016, has enabled farmers to focus on production. They welcome the changes in the way they shop. 2.3.3  The cultural industry and social employment growth A term I have heard before is “overseas returned students.” People use it to describe overseas students who, after receiving their degree, return home to work in government agencies, higher education, and enterprises. Since they return to their home country to work, people call them “overseas returned students.” Recently, I have heard a new term, however. The new term is “city returnee.” Who are city returnees? They are the farmers who went to the cities to work or run small workshops and hawk goods. After leaving their coastal

42  The cultural industry towns or towns in the interior, they gained special knowledge, made friends, and saved money. Then they returned to their hometowns to start a business. In Guizhou, we met such city returnees. There were quite a few of them and they understand the market. They have become a new force in the countryside. They have mastered network technologies, and they have good personalities and entrepreneurial enthusiasm. In Jinsha and Luxi counties of Guizhou Province and Qixingguan District of the city of Bijie, we came across a group of young people who had returned to their hometowns to start a business. They were encouraged to return and build a beautiful home. In Luxi County, Guizhou Province, we visited small and micro-​sized enterprises they founded. They did things like make clothing, bake bread, and run bookstores. This wave of city returnee entrepreneurship has drawn increased attention to the construction of Guizhou. The clothes they make are inexpensive and stylish because they had worked in the cities for a long time and are already familiar with the clothing industry. In Qianxi County, the locals told me that in the past the urban and rural residents of Qianxi almost never used to eat bread. Now, they have a shop that bakes bread, which has become a hot commodity. Residents flock to buy fresh bread before it sells out. This shows that city returnees have brought outside food habits back with them. Everything is changing and that change is happening quietly. There are local leaders who worry about the employment issue. They worry about the many city returnees who need work. In fact, there is nothing for them to worry about. The city returnees solve this problem themselves, because they are different from the “working guys” and “working girls” in 2005 or 2014. They had to go through difficulties and hardships to meet the world and gain work skills, and they know how to run a business. This generation of entrepreneurs had experienced the beginning of the market economy. They are not worried, so why should we worry? How many delivery persons and couriers do we need for online shopping for instance? Millions and millions of people in the country are engaged in delivery and express delivery work, but who could have predicted this?2 The cultural industry is developing rapidly. Starting from the megacities and large cities, it has quietly moved to small and medium-​sized cities, market towns, new communities, and rural areas. Industries that had deteriorated are making a comeback. I saw old bookstores and book rental stores in market towns and rural areas newly open and was surprised to learn that business was good. City returnees adapted to the current situation of these communities and rural areas. After rural land rights, that is, when farmers were given property rights and property income, farmers’ demand for cultural products and services surged, and manufacturing “blew up.” We can be confident that

2 We will discuss the issue of migrant workers returning to their hometowns in detail in the third section of Chapter 6 in this book.

The cultural industry  43 the cultural industry will change the employment problem in Chinese society in a big way. Now, we just need to wait for this day to come! 2.3.4  The cultural industry and mutual beneficial interaction with related industries The cultural industry cannot go it alone; that is, it must join hands with related industries and eventually form a mutually beneficial relationship. Below are two examples illustrating the relationship between the cultural industry and related industries. The first relationship in the cultural industry is between the cultural leisure and entertainment services industry and the construction of local tourist infrastructure, such as roads and transportation and accommodation and shopping facilities for tourists. To conduct cultural leisure and entertainment services, the roads and transportation leading to local tourist attractions and the tourist accommodation and shopping facilities must be built and expanded according to the number of tourists visiting. Otherwise, there will be overcrowding, it will be difficult to find accommodation, and it will not be easy to go shopping. Traffic jams and other problems will make tourists complain and make it difficult for the tourism industry to develop smoothly. In the early 1980s, Qingdao experienced such a crowded situation, so travellers would say things like:  “You can enter, but you cannot go out.” “There are restaurants, but no tables and chairs, and you must kneel on the ground to eat corn,” and so on. Experience has taught us that tourism and leisure services have a link to tourism facilities, roads, public transportation, and hotels. Without these public facilities, it is hard to develop cultural leisure and entertainment services. Second, there is a close relationship between the production of cultural equipment and the manufacturing industry. Without a great manufacturing development environment, it is difficult to do better, let alone to assume the leading international position, even if there is strong demand to produce cultural equipment. The high technology and economies of scale of the international cultural industry have achieved results because of a high-​end manufacturing environment that is suitable for the development of the industry. The international cultural industry itself has always been concerned about high-​end manufacturing, especially the growth of high-​end equipment manufacturing and taking international technology to new levels. This is because high-​level technical improvements on the entire equipment manufacturing industry gives the international cultural industry wider space for activities, which corresponds to adjustments in the structure of the international cultural industry, bringing cultural equipment production to a new level and providing enterprises with new vitality and new markets. The international cultural industry has aimed at multiple goals and multiple markets, and its competitiveness has always been based on the combination of horizontal and vertical integration. The

44  The cultural industry strategy of the international cultural industry is consistent, and its strength depends not only on the vitality of the cultural industry itself, but also on the competitiveness of related industries and the control of relevant industries by the international cultural industry. 2.3.5  The development of the cultural industry and the new content of GDP The GDP of a country, as noted multiple times above, is a combination of the output values of the primary, secondary, and tertiary sectors. The order of the three sectors evolved from 1-​2-​3 (or 1-​3-​2) of the agricultural society to 2-​3-​1 (or 2-​1-​3) of the industrialization stage and finally to 3-​2-​1 (or 3-​1-​2) of the post-​industrialization stage. The geographical environment of each country is different; the conditions for industrial and commercial development are different; plus there are differences in resource endowment. Therefore, the order of the three sectors is 1-​2-​3 and 1-​3-​2 for the agricultural society; 2-​3-​1 and 2-​1-​3 for the industrialization stage; and 3-​2-​1 and 3-​1-​2 for the post-​industrial stage. This explains the unique development situation of different countries and explains why it is impossible for countries to be the same. However, the above reflects only differences in the order of the primary, secondary, and tertiary sectors of different countries at distinct stages of development and does not involve the content of each industry. In fact, the difference in the content of each industry is far greater than that of sector order. This is a concern of the economics community. In the agricultural and industrialization stages of society, the content of each industry in different countries all differ according to their geographical environment, industrial and commercial development conditions, and resource endowment. We will not elaborate on this here. Instead, we will only discuss the differences in the content of the three sectors in post-​industrialized countries. The first is the content of the primary industry in the post-​industrialization stage. In countries rich in certain types of minerals, how minerals are mined, that is, whether minerals are excavated manually or semi-​mechanized or whether mechanized and automated mining equipment are used: The difference in labour productivity is obvious. Therefore, there are stark differences in GDP in the same mining industry. Let us return to the output value of agriculture. The level of labour productivity is vastly different from country to country. Automated agriculture provides an abundance of agricultural products with less labour and cannot compare to agricultural production with full manual labour. However, the actual situation in different countries is not often reflected in the output value of the GPD of the primary sector. This tells us that there is still enormous potential to be tapped in agriculture in China. The enthusiasm of mobilizing agricultural producers and agricultural production enterprises is only one way to increase agricultural production. The other way is to accelerate the technological advancement of

The cultural industry  45 mechanization and automation to increase the productivity of agricultural labour. This is the best way to revitalize agriculture. Let us again analyze the content of the output value of the tertiary sector in the industrialization stage. There is no doubt that many industries in the tertiary sector are service industries, and we can divide the service industry into several types of enterprises. Most cultural industries are services, including traditional services and modern services. There is also an enormous difference in labour productivity. It is particularly important for the industries in the modern cultural industry that supply intangible or tangible products to take the road of digitalization, networking, and intelligence brought by modern high technology. They have become the mainstream in the modern cultural services industry and lead the development of its future. This is all added content in GDP that traditional service industries cannot supply. For example, computer entertainment software sales are rising, and the output value of the cultural industry is growing rapidly. This is added content in the output value of the cultural industry. Another example is the rapid development of multimedia publishing, which spreads its product faster than traditional books and periodicals. This is also added content in the output value. In addition, the cultural industry has also quickly gained more staff, and their employment methods have also changed, with staff signing contracts with enterprises in the industry. This is a new type of employment. They do not need an office or a corner in an office and they do not go to an office to work. They can just hand over their plans and designs according to a contractual agreement. They have more breakthroughs and ideas in cultural products, and we count their income as the output value of the tertiary sector. However, does it equal the value of the employee being there in person? This is a hard question for us to answer accurately. The added content in the GDP of the tertiary sector has opened a new way of thinking for people and has brought new prospects.

2.4  The role of the cultural industry in social development 2.4.1  The cultural industry and mass creativity, innovation, and entrepreneurship In contemporary Chinese society, the most popular or most commonly used terms among people are entrepreneurship and innovation. In fact, creativity existed long before innovation and entrepreneurship. Creativity often comes from unremarkable academic exchanges or sparks from just a few young people who share an idea and gather to chat, which can bring opportunities for further research, thinking, and communication. Therefore, people often say that when creativity comes before innovation the result is entrepreneurship. Networking brings unprecedented convenience to creativity, innovation, and entrepreneurship. It connects people who have never met each other and who share the same vision and the same ambitions. Creativity encourages the

46  The cultural industry cooperation of innovators, attracts capital for entrepreneurs, attracts talent, and improves entrepreneurial prospects. We could not have conceived of such fantastic opportunities before networking. In the past, people often said that “failure is the mother of success.” Practice has evaluated this saying and it is good, but it is not enough in the current situation. Networking has made us aware that creativity is what is most important and most critical, and it has helped us understand the important and key role of financing. Creativity is the earliest need. If people explore innovative ideas for the future and then get the financing in place, a new situation will open, and new enterprises will have hope for success. Therefore, in the wave of innovation and entrepreneurship, the two most popular sayings are “creativity is the father of innovation” and “creativity is the mother of entrepreneurship.” The cultural industry has developed rapidly by relying on the internet. This is the biggest change in the cultural industry since the beginning of the twenty-​first century. From the situation of the Chinese cultural market, we can clearly see that the development of China’s cultural industry in the past decade or so has benefited from a group of young people who are creative and ambitious and skilled in network technologies. They not only have a sense of the times, but have creativity, innovation, and entrepreneurial ambition, as well as a high degree of social responsibility. This is commendable and is the hope of China’s cultural industry. They might still be vocational–​technical school students or university or graduate students, or they might be self-​ taught newcomers to the cultural industry team, but their futures are limitless. New cultural ideas give them new energy and new opportunities. In public places in Zhongguancun, Beijing, you will often see young university students, postgraduates, doctoral students, and postdoctoral fellows, as well as researchers from research institutes, exchanging ideas with businesspersons and financiers about innovation and entrepreneurship. When these young innovators in the entrepreneurial market ask entrepreneurs and financiers about funding, they are often told that they need a credit record to show they have integrity. Integrity is key when it comes to social capital. Many successful entrepreneurs and financiers have come from this road. Integrity is the best business card for young people. To cherish your own integrity is the basis for innovation and entrepreneurship. With the wave of innovation and entrepreneurship, and with young people who dare to dare, will the market still stagnate? This is impossible, because newcomers have opened new markets. There are newcomers and no shortage of creativity, innovation, and entrepreneurship. Like other industries, the newcomers in China’s cultural industry have successfully shown that the Chinese cultural industry must be presented with a new look to everyone. 2.4.2  The cultural industry and the new stage of urbanization When discussing the role of the cultural industry in the development of Chinese society, we must mention the urbanization that China has been

The cultural industry  47 stepping up in recent years. China is different from Western European countries, which were among the earliest countries to achieve urbanization. We can trace their time of urbanization back to the thirteenth to fifteenth centuries, when the labour force was moving from rural areas to urban areas (including serfs and freemen) and when the lords, nobles, businessmen, and priests and their families became part of the permanent population of medieval cities in Western Europe. Cities began to exercise autonomy, autonomous citizens struggled with feudal lords, and cities received large financial contributions from lords. After the rise of kings, monarchies had control over the cities, and urbanites paid taxes to the king. In the mid-​eighteenth century, industrialization began to appear in the United Kingdom. After the start of industrialization, factories that used machines were set up in the cities or in the suburbs. The Industrial Revolution began here. Because there was not enough of a simple labour force in the cities, labourers from the rural areas, especially in the mountainous areas, constantly flowed to new factories during the Industrial Revolution. As for skilled workers and supervisors, they were employed by experienced craftsmen in the cities. This led to the simultaneous promotion of urbanization and industrialization, which compromised the urban environment. For example, sewage flowed everywhere, garbage was all over the place, the air was dirty, and noise was constant. The city was no longer suitable for living. In addition, more people from the rural areas started looking for work in the cities. They set up their own shacks and settled in the cities, but their children could not go to school, their medical and health conditions were poor, work was becoming increasingly difficult to find, and the social security was poor. This is what we call “urban disease.” The situation was similar in most cities in Western Europe. After urban disease occurred, there began the emergence of “counter-​ urbanization” or “anti-​urbanization” movements in the United Kingdom and other Western Europe countries. The rich started heading for the suburbs, while those who had left the rural areas stayed in the cities to work. This is what happened in Western countries in the first stages of industrialization. China’s industrialization began after the second half of the nineteenth century. Cities in China have a history of two to three thousand years or more. They have always been political centres. Long ago, people developed businesses and handicrafts in the cities. All earlier wars, including dynasty changing wars and the time when northern minorities attacked southward, ended with victory by the cities. After the wars, the cities were rebuilt and prospered. In the industrialization stage after the second half of the nineteenth century, factories financed by foreign investors and by the government were set up in cities. Later, factories built by private Chinese capital were also set up in cities or near cities due to the convenient transportation. The construction and operation of factories requires labour. The labour force comes from neighbouring rural areas and from the interior. But back then, in China there was no such thing as a migrant worker. They were farmers in the countryside who became workers after they went to the cities to work

48  The cultural industry in factories. The farmers were hired by the factories, brought their families from the countryside, and they became urban residents, meaning they could rent a house in the city and send their children to school there. No one called them migrant workers, “families of migrant workers,” or “children of migrant workers.” This situation changed after the establishment of the People’s Republic of China, especially after the implementation of the urban-rural household registration system in 1958. Although male and female adults from nearby or other rural areas found factory jobs in the cities, they could not obtain urban household status. They were still considered rural households, as were their children, meaning it was extremely difficult for them to integrate as permanent city residents. The urban-rural household registration system did not change after reform and opening up began in the 1980s, which formed the special status of migrant workers. Why do we call them “migrant workers?” Because their status is farmer but their occupation is “worker.” When a city registers its residents, urban residents are separate from migrant workers and their families. Urban residents have urban household status and are urban residents, while migrant workers and their families are “temporary residents,” regardless of how long they have worked and lived in the city. This temporary status shows that they still do not have the identity of urban residents. The urban-rural household registration system that came into existence after the 1980s has made cities disharmonious, because the dual system creates two different identities and provides two different treatments, and more and more farmers are working in cities or looking for work. Many welfare programs for urban residents (such as cheap rental housing, compulsory education for children, and health services) are not available to migrant workers and their families. The urban-rural household registration system has greatly distorted China’s urbanization. In the late 1990s, new situations and unfamiliar problems appeared in the cities, especially in the industrial cities. The situation was like this: Shanghai has always been the centre of Chinese manufacturing. Before the founding of the People’s Republic of China, many manufacturing factories were set up there, so the labour force came from the rural areas of southern and northern Jiangsu. After factories hired them, they became Shanghai residents, and their families settled in Shanghai and the children born to these couples were also considered local Shanghai people. At that time, there was no rural household system and no such thing as not allowing everyone who works in factories in Shanghai to be a resident of Shanghai. After reform and opening up, Shanghai’s manufacturing industry developed greatly. The main employees were farmers from southern Jiangsu and other provinces. They were first-​and second-​generation migrant workers. They became workers, skilled workers—​ the stalwarts of production—​but they and their families were still part of the rural household registration system. They wanted to integrate into Shanghai society. However, they have failed to do so after years of trying because of the urban-rural household registration system.

The cultural industry  49 Since the late 1990s, especially since the beginning of the twenty-​first century, cities in Zhejiang, Jiangsu, and other provinces around Shanghai have been shifting to manufacturing. This made it urgent for them to find technicians, skilled workers, and production stalwarts, and they sent people to Shanghai to find talented workers with the condition that the whole family could become urban residents of a city in the province. This worried Shanghai. Shanghai became worried because the superior performance and high productivity of the city’s manufacturing industry was mainly due to relying on these technicians and capable production stalwarts who had been working in Shanghai’s manufacturing industry for many years. If they moved to Zhejiang and Jiangsu, the advantages of Shanghai’s manufacturing industry would disappear. So, Shanghai began to implement a “point system” to score migrant workers who wanted to work in the city. Shanghai established an appropriate method to score migrant workers (based on things like academic qualifications, experience, expertise, years of work in Shanghai, and whether they have received rewards from the government) and quickly transferred enough qualified migrant workers and their families to the Shanghai household registration system. If they did not have enough points, they would be told to wait for a few years until their points scores were high enough. This ensured that the technicians and production stalwarts needed for Shanghai’s manufacturing industry stayed in Shanghai. The experience of Shanghai is for reference. In megacities, big cities, provincial capital cities, and prefecture-​level industrial cities, we can also implement a “point system” to alleviate shortages of skilled workers. The continued existence of the urban-rural household registration system is hindering the harmonious development of China’s society. In addition to cities adopting a point system, we can adopt a “divisional promotion” approach in the reform of the household registration system in rural areas. In urbanization, people refer to existing urban areas as “old towns.” The newly built high-​tech zones, industrial parks, logistics parks, and small and micro-​sized enterprise start-​up areas are collectively referred to as “new urban areas,” and new rural residential areas that have been expanded and built in the past 10 years are called “new communities.” The urbanization process for “old towns” or “new towns” and new communities are in line with China’s national conditions. There is no doubt about the urbanization scope of old towns and new towns. In fact, people also look at it this way: The question is how to transform new rural residential areas into new communities and how to put new communities into cities and towns. After doing research in Sichuan, Chongqing, Zhejiang, Jiangsu, Guangdong, Hubei, and other provinces and cities, we found that the local governments and rural grassroots organizations have transformed the new rural residential areas into new communities. They did this by first developing supporting industries in villages—​ grain and fruit growing and poultry-​ breeding industries, and the processing of agricultural and animal products by factories—​so the new countryside would have a way of making money,

50  The cultural industry would reach a certain position in the labour force, and have more income. Second, they promoted the green economy and stopped polluting mountains and rivers. Third, they improved public-​service facilities, popularized compulsory education and pre-​school education, and improved health care services to take care of the elderly. Fourth, they gradually expanded social insurance to urban and rural areas until the two systems of social security became integrated. The above four aspects mean that the conditions for restructuring new rural residential areas into new communities are already in place. So-​called new communities are changing the village system to a community system, thus realizing the task of “divisional advancement.” In the long-​term existence of the urban-rural household registration system, migrant workers have brought serious issues. Since rural farmers (both men and women) cannot integrate into cities, if couples go out as migrant workers, they might not necessarily be in the same city, but in two different cities or even two different provinces. Long-​term separation is not only expensive, but also causes family discord. If the husband and wife are both working outside the home, children or the elderly are left unattended at home. This has become a social issue. What is more, because of long-​term separation of husband and wife, there are bad feelings and disputes and even domestic homicides have occurred in some rural areas. This is sad. Therefore, from the perspective of social development, we must try to increase housing for migrant workers (after reform of the urban-rural household registration system, they will not be called migrant workers, but new residents) in the process of urbanization, or at least let them have their own home in the city. After farmers enter the city, they can use their homestead or house to exchange for a house in the city. Some places are already trying this.3 The cultural industry plays a role in alleviating employment pressures and helping entrepreneurs in urbanization. Specifically, we can divide this effect into the following four cases: First, the development of the cultural industry will accelerate information dissemination. Because of lack of information in the past, it used to be difficult for urban residents and new residents of cities looking for work to make a living. Now, thanks to information dissemination services, not only can they find a job that suits them, but they can also save money. In addition to finding a job, the distribution of rental information helps workers find a place that suits them, saving time and effort. Second, the development of the cultural industry can satisfy the needs of old and new urban residents who want to acquire new knowledge and learn about recent technologies. The reason they want these things is first to find higher paying jobs and second to start a business, so that they have good development prospects in the city. Many people realize that their future development depends on improving their knowledge and skills.

3 In the third section of Chapter 4 in this book, there is a further discussion on this issue.

The cultural industry  51 Third, with more satisfactory jobs, especially self-​ employment, family living conditions have improved, so there is a desire for leisure, entertainment, and tourism. In this way, the cultural industry has become an integral part of the habit or normal life of old and new urban residents in the new era. This is a normal phenomenon. The market for cultural goods and services is also broadening. We can already see this new atmosphere in some cities. Fourth, the development of the cultural industry itself has further provided employment opportunities for new residents who have already entered the city or will enter the city. This is a process in which cultural production and services interacts with urban employment to promote mutual benefit. While the cultural industry plays a role in promoting employment, the appearance of the city will continue to change. Not only will the city change, but more small and medium-​sized cities will also undergo change. The development of China’s urbanization has been uneven so far. Population growth and the development of service facilities are faster and better, respectively, in large cities than in small and medium-​sized cities—​especially small cities, which are generally the closest and most promising areas to the countryside. Therefore, it is foreseeable that after rural residents become new citizens and cultural industries develop in small cities, the changes in small cities will accelerate, and this will also increase the role of agricultural industrialization and modernization. China’s future development is on a predictable path. 2.4.3  The cultural industry and social old-​age pension security When discussing the role of the cultural industry in social development, it is necessary to understand demographic changes, especially the general trend of demographic changes. According to statistics, the proportion of China’s aging population in the total population has increased significantly, and the issue of aging has become a hot topic of social concern. We need to explore and study three problems before we can form countermeasures. First, we need to adjust the birth policy, lift the ban on having a second child, and change the population structure through a higher birth rate.4 Second, because people’s health conditions are different, there are elderly who are still healthy when they retire. They may have special knowledge, technological knowledge, and work experience. There is no work to do after retirement, so is this not a social loss? How to properly have them continue to play their role is worthy of attention. Third, since the society is aging, we cannot avoid the issue of pension security or the needs of society for care and investment. The third issue mentioned above is on the issue of old-​age pension security. A new industry in the cultural industry should be old-​age pension social services, which would be a new service industry that responds to the needs of

4 China lifted the ban on having a second child in 2015.

52  The cultural industry society. Old-​age pension social services are in line with the actual needs of an aging population and the increase in the number of elderly people. In the Western developed countries, there are four ways of engaging in this service industry. One is constituted by religious organizations, including public service under the direction of Christian churches; the other is the old-​age services undertaken by government agencies responsible for social security, which is also an organization of public welfare services; the third is a part of the commercial insurance industry, which is a social-​security service formed by insurance companies according to the needs of the elderly or their families, and which has become a part of the commercial services; and the fourth is elderly care services by social groups, including community-​service organizations. Due to the different national conditions of various Western countries, it is difficult to draw an exact judgment as to which service mechanism or service organization plays the main role of old-​age pension security. Combined with the rise of the proportion of China’s elderly population in the country, and considering the situation in the near future, the urbanrural household registration system will transform into a single household registration system. Rural residents will gradually move to cities, towns, and new communities to live and work. Like the elderly care services currently undertaken by the social security institutions under the governments of most developed Western countries (social welfare institutions such as public nursing homes, retirement homes, and welfare homes), social old-​age pension services will increase rapidly and occupy a major position. This is in line with China’s national conditions and is a social welfare measure that we can realize under the socialist system. The social old-​age pension organizations and institutions in new rural residential areas at present will gradually be transformed into public-​welfare services undertaken by the government—​that is, government-​ provided social old-​age pension services, though the combined development of the two will take some time. In addition, commercial or semi-​commercial social old-​age pension services undertaken by insurance companies will continue to grow in both urban and rural areas. The development of such services in cities is more suitable for the needs of the elderly, because the elderly always hope that their children’s families will frequently visit them, hope to be comforted by visits from their grandchildren, and hope to obtain social information outside the nursing home through visits from relatives and friends. There are also urban elderly people who like to stay away from the city and live in nursing homes in rural areas, preferably scenic areas. They think that the air there is fresh and the landscape is beautiful and consider such places good for their health. At the very least, they can see trees and flowers through the windows. As for children and grandchildren, if they have time to visit, similarly, they can enjoy the fun of family. Therefore, they will favour commercial or semi-​commercial elderly facilities even in rural areas. The current situation suggests that the commercial and semi-​commercial elderly facilities of social old-​age pension security institutions may develop at a fast pace.

The cultural industry  53 2.4.4  The cultural industry and the green economy The Chinese government accepted the green economy, or more precisely, the concept of green development, as early as the 1990s. In the view of international environmentalists at the time, China began to change its development methods and shift from green development to sustainable development of the social economy. This was a tremendous change. However, in the 1990s, there were only a small number of environmental science scholars and researchers who called for green development, a number that included political leaders in environmental-​protection departments responsible for environmental governance. However, local political leaders who presided over economic work still put GDP first. All they wanted to do was to increase economic growth and make local construction more prominent, as buildings and downtown squares are the outward expressions of places. The bigger the facades, the better. The higher the building, the better. The same was true for the mainly rural areas, even though a beautiful outward appearance did little to reduce pollution and only drew attention to their forms. In 1991, I was hired as a consultant by the State Council’s Environmental Protection Committee. Later, I was re-​ elected a second time as a member of the China Council for International Cooperation on Environment and Development and served as the head of the Chinese expert working body of the Environmental Economics Group. Therefore, I have a deep understanding of this. By the beginning of the twenty-​first century, there was more domestic attention on environmental pollution, and the government strengthened environmental restoration and governance. Of course, it was a bit late in terms of time, but it is never too late to pay attention to the green economy and attach importance to the sustainability of economic development. There will always be results if there is serious focus on this. After the convening of the 18th National Congress of the CPC, the concept of sustainable development became increasingly popular, and environmental protection and governance work became more intensive and meticulous. This is an important sign that the concept of green development has started to become a development concept of local and regional governments at all levels. The pervasiveness of the concept of green development is on full display in the following two aspects in the formulation of the 13th Five-​Year Plan. On the one hand, declaring war on pollution is also a declaration of war on poverty. The two are inseparable. If we only help the poor and continue destroying the ecology and spreading pollution, local environmental damage will offset the poverty-​alleviation effects. Not only that, but it is even more likely that the areas that focus on poverty alleviation will continue to have problems like water pollution, soil pollution, and air pollution. This will not improve the lives of local farmers, and it will intimidate tourists. If nobody is willing to travel to a certain location, how can the farmers there improve their living standards and income levels?

54  The cultural industry On the other hand, it is necessary to make good progress in poverty-​ alleviation work, including allowing farmers to move out of mountain villages with poor living conditions and encouraging them to move to the plains and live in cities and towns. But there is a condition:  The places where the farmers from poverty-​stricken areas move to must have an environment that is suitable for living and be free of pollution. If newly built factories near county towns, urban areas, or market towns cause pollution, the wastewater, gases, and waste residue will make the farmers reluctant to leave the mountains. Therefore, it will be hard to encourage them to move from mountain villages to cities, because they are not willing to settle down in polluted areas. The idea of moving people from polluted villages to equally polluted cities and towns is unrealistic and infeasible. It is even less workable to move people from mountainous areas with high ground but clean water and fresh air to polluted cities and towns in lower areas. It would only arouse resentment if the government forced them to move to these areas. Therefore, we can expand on the above-​ mentioned discussion on the concepts of green economy and green development. The promotion of the concepts of green economy and green development depends on the efforts of local cities and towns to protect and govern the environment. However, it also depends on residents in all cities and towns to understand that green cities and towns and green countryside are equally important. Without the common concern of urban and rural residents and mutual efforts to jointly plan future endeavours, it will be difficult to implement the concept of green development. This involves a critical issue. The implementation of the green development concept is inseparable from the active participation of the masses. One of the functions of the cultural industry is to increase enthusiasm around ecological protection and environmental governance so as to get urban and rural residents to consciously and actively take part in the construction of a green economy and a green environment. Historically, this is the way in which Western countries introduced and promoted environmental protection measures. Initially, in the United States, for instance, factories emitted gases, wastewater, and waste residue, which caused residents around the factory to become dissatisfied. The residents would protest and hold demonstrations at the factory gate and would even destroy the road leading to the factory. Forbidding vehicles to transport raw materials and products did not help. The factories continued to emit gases, wastewater, and waste residue. After mass protests intensified, members of the United States Congress supported the residents’ resistance and finally passed laws on environmental protection and governance, stipulating the “polluter pays” principle. The next time a factory polluted the environment, it would have to suspend production for rectification. The relevant environmental protection laws passed only after a long-​term struggle by the residents. This fully proves the significance and role of mass participation.

The cultural industry  55 Therefore, through the reports and appeals of the cultural industry and through the protests and boycotts of the masses, environmental governance and recovery and the elimination of pollution sources can become a reality. Mobilizing the masses to take part in the supervision of the environment and report on environmental violations and make suggestions for changes to existing laws are all necessary for the realization of the green development concept. The cultural industry can play a greater role in this regard. 2.4.5  The cultural industry and the emergence of the social-​harmony dividend At the end of this chapter, it is necessary to discuss the cultural industry and the emergence of the social-​harmony dividend. In the study of economic development, we often use the term “dividend.” Dividend refers to income. For example, when developing countries begin to establish industries, they have considerable advantages in terms of production costs because of surplus labour and low wages. We call this a “demographic dividend,” which refers to the benefit that developing countries get from using low-​cost labour and production. However, once the size of the labour force turns from abundance to relative scarcity, the cheap labour advantage will gradually disappear. We call this the disappearance of the “demographic dividend.” Another example is the change in advantages from the perspective of institutional reform. When developing countries are just beginning to industrialize, they often make some institutional or system modifications or concessions to attract foreign investment. For example, the government might provide cheap land to foreign investors so that they get more benefit from their investments. We call this an “institutional dividend” or “system dividend.” However, these policy advantages given to the foreign investors by the developing countries reduce or even disappear over time, because there are fewer and fewer land resources available for development in the country or because the governments of these countries think that the land resources are not as plentiful as they used be to attract foreign investment to build factories, so land prices rise or land policies change as a result, which often leaves the foreign investors complaining about the lack of institutional dividends or system dividends. The above is an example of a demographic dividend changing from abundance to reduction or even disappearing. Similarly, institutional dividends or system dividends diminish or even disappear. It is worth mentioning that the disappearance of the demographic dividend caused by the decline of cheap labour or the decline or even disappearance of institutional dividends or system dividends caused by institutional or system adjustments can re-​emerge. Taking the re-​emergence of the demographic dividend as an example: If you pay close attention to the vocational and technical training of the labour force and you rectify the labour order and labour discipline, there will be a “new demographic dividend” under normal circumstances, because there has been an improvement in the quality of the

56  The cultural industry labourers. In this process, there might be tension in the employment relationship, but after personnel training, those who do pass will gain employment and those who fail will not. This might make some of the workers feel uncomfortable, but if they stick to the vocational and technical training system, this will eliminate the unqualified and the situation will improve. Over time, the workers will adapt to the new requirements and there will be a new demographic dividend. The recovery of the institutional dividend or system dividend is more complicated than that of the demographic dividend, because it is not a simple question of allowing workers to receive vocational or technical training, but rather, whether the government agrees to introduce new institutions and systems to attract foreign investors to continue to invest, or agrees to propose new institutional or system reform measures to mobilize the enthusiasm of private capital to increase investment. In some developing countries—​ due to religious, ethnic, or tribal disputes—​governments often face major policy differences when furthering institutional reforms and system reforms. Therefore, there are often disputes over whether or not to undertake more reforms and, if so, what reforms to adopt. This delays the emergence of the institutional dividend and system dividend and is a common situation in some developing countries. However, in this section of the chapter, we are prepared to propose another concept of “dividend,” the so-​called social-​harmony dividend. What is the social-​harmony dividend? It closely relates with the social system and to social harmony. Social harmony means that people’s incomes will gradually rise, because the government and its subordinate departments care about the people’s livelihood, care about employment, and care about keeping prices stable. In particular, residents are a community and obey the law, neighbours are friendly and harmonious, there is respect for the elderly and love for the young, and people respect and love each other. This reduces social disputes. Even if there is a dispute between people, community mediation, mutual understanding, turning big problems into small ones, and overlooking minor things can help resolve any problem. The result is the formation of social harmony. Therefore, the realization of social harmony produces a new dividend, which we call the social-​harmony dividend. Each country has its own national and cultural traditions. Therefore, countries strive for social harmony that is in line with their own specific conditions, and each country hopes to have a corresponding “social harmony dividend” that will benefit the people. Since ancient times, China has been a country focused on enlightenment, compromise, and unity. Grassroots social organizations have long existed in “township regulations,” on stone tablets, and in the hearts of the people. This is a valuable cultural heritage that to this day plays a role in many villages and communities. Therefore, social harmony in China is completely achievable, and the emergence of the social harmony dividend is a completely predictable result.

The cultural industry  57 A straightforward way to understand the social harmony beliefs left by the ancestors is the following: “Harmony is expensive.” Communities and villages can settle all non-​principled social disputes. Taking a step back to open space is what led to social harmony which, in turn, led to the realization of the social harmony dividend, which still exists today. The role of the cultural industry is to guide people to love each other, respect each other, create social harmony, educate people, inspire them, and influence them. These are intangible things, but they always play a subtle role. We often hear it said that people must have a model, that a good model will lead people to the right path, and a bad model will lead people to the wrong path. This saying accurately reflects the actual social situation. Therefore, in the discussion of the cultural industry in this chapter, it is necessary to elaborate on the emergence of the social harmony dividend.5 In the next chapter, we will discuss another issue: Cultural enlightenment and cultural innovation.

5 We will elaborate on this in the first and third sections of Chapter 8 in this book.

3  Cultural enlightenment and cultural innovation

3.1  The emergence and development of the new culture of China: A review of history 3.1.1  The 100th anniversary of the New Culture Movement September 15, 2015, marked a full 100 years since the New Culture Movement. One hundred years before that date, Peking University students flew the banner of democracy and science. They clustered in Peking University and launched and led the New Culture Movement that swept the country, pulling back the curtain on cultural enlightenment and cultural innovation in China. Thus, on September 15, 2015, on the 100th anniversary of the New Culture Movement, Peking University professors and students along with representatives from other universities in Beijing (Tsinghua University, Renmin University of China, Beijing Normal University, etc.) gathered in Peking University to commemorate the centennial of the New Culture Movement. They gathered to remember both the martyrs and the day with their own eyes to continue to uphold the spirit and tradition of the New Movement and to offer advice and suggestions for the advancement of China’s reform and opening up. Although the New Culture Movement happened a hundred years ago, its achievements will never go away. The cause founded by the New Culture Movement continues today and is deep in people’s hearts. When reading articles about the promotion of the New Culture Movement written by professors Chen Duxiu and Li Dazhao, it is difficult to suppress reverence for them, because it was the shouts of people like them, who in the past have been disregarded, that encouraged more young people to plunge into the ranks of the New Culture Movement, a movement that broke through the old culture, the old ethics, and the old order and opened up a new path for others to follow. We cannot but help acknowledge that these predecessors from a hundred years ago opened and entered on a new path for future generations. Furthermore, it is not easy to get rid of traditional thoughts, because traditional thoughts have had an influence on Chinese society for two or three thousand years, and people have been imprisoned by traditional culture for a

Cultural enlightenment  59 long time. One must have foresight to clear this kind of influence and this kind of imprisonment. Everything is always difficult at the beginning. However, without the loud voice of the New Culture Movement leaders, how could we have found a new way? Therefore, on the 100th anniversary of the New Culture Movement, we must not forget the calls of Chen Duxiu and Li Dazhao. Without their efforts, the New Culture Movement would still have happened eventually, but the history would have been held up for a few years, and the loss would have been immeasurable. 3.1.2  The background of the New Culture Movement Before the Industrial Revolution began in Western countries, and before they realized industrialization, China had been the richest and most prosperous country in the world for a long time and had become the economic centre envied by the rest of the world. This situation did not change until the late eighteenth century. In fact, the international political and economic situation has undergone dramatic changes since the late eighteenth century. At the time of the Qing Dynasty, the Qianlong Emperor was still in power. The emperor as well as the ministers around him did not see that the world situation had begun to change. They were blind with arrogance and they looked down on the messengers sent by the British to seek business. Western countries, represented by the United Kingdom, had embarked on a new development path in science and technology, in shipping, in weapons production, and especially in modern industrial production, but the Qianlong Emperor missed it. Starting at the end of the eighteenth century, China fell behind the West and the gap with the Western countries steadily grew. This resulted in the Opium War of 1840 between China and Britain, which China lost. As a result, it ceded territory to Britain and opened five trade ports to foreign commerce. After the Opium War of 1840, people in the country began to wake up, recognizing that the world situation was different from the past. They put forward the idea of “using foreigners to subdue foreigners” and advocated studying foreign affairs. They introduced cannons and guns and strengthened the army and then the country. However, China’s autocratic governing system and economic system were still insensitive to the changes. From top to bottom, nobody wanted to reform, nor did they dare to reform. The Sino-​ Japanese War of 1894–​ 95 was disastrous for China, whose failure was not due to a weapons or equipment gap, because the weapons and equipment of the two sides were the same overall. It was also not due to a power gap, because China’s output value was much higher than that of Japan, and the number of Chinese troops was much larger than that of Japan (at that time, there were about 1 million soldiers in China and the Japanese army had only about 200,000). Rather, it is thought that China’s failure in the Sino-​Japanese War was due to institutions and systems. China still had a feudal autocratic dynasty system. After the Meiji Restoration in 1868, Japan

60  Cultural enlightenment reformed its own feudal system. This means it could mobilize its people to enlist in the army and navy and to provide military supplies for the front line. After the failure of the Sino-​Japanese War, China clearly understood the necessity of changing its system, which was divided into two factions. One was Sun Yat-​sen’s Xingzhonghui (it later merged with the Huaxing Association led by Huang Xing), which advocated overthrowing the Qing Dynasty and setting up a democratic government. The other faction was the reformist group represented by Kang Youwei and Liang Qichao, which advocated conducting political reform and modernization under the auspices of the enlightened Qing government and conforming to the world trend. The reformists, led by Kang and Liang, were weak, and it was difficult for them to collaborate with Empress Dowager Cixi of the Qing Dynasty. Thus, the “Hundred Days’ Reform” failed. The Qing government also supressed armed uprisings led by Sun Yat-​sen. Soon after, the Boxer Rebellion occurred in northern China and the Boxers, with the support of the Qing government, killed foreign nationals, including missionaries and Chinese Christians, and caused the Eight-​Nation Alliance forces to use the opportunity to capture Beijing. The Eight-​Nation Alliance compelled the Qing government to yield and sign the “Boxer Protocol,” which gave up sovereignty and humiliated the country, greatly increasing China’s suffering. The Qing government, represented by Empress Dowager Cixi, did not feel that it still needed reform. However, this made it difficult for the Qing Dynasty to continue to govern. Therefore, the government implemented a “New Deal” at the beginning of the twentieth century to save the crumbling Qing Dynasty. One of the most important projects was the abolishment of the imperial examinations and the running of schools. The New Deal also included measures, such as trying to set up deliberative bodies in provinces. However, the New Deal did not really solve the institutional problems of feudal autocracy, and the public did not support what were considered deceptive reform measures. In addition, the reforms had started too late. They repeatedly got the timing of the reforms wrong. In the early twentieth century, political and other reforms were the dreams of the Qing government. The people were not optimistic, however. What is more, after the death of the Guangxu Emperor and Empress Dowager Cixi, there were Manchu bannermen who did not want to lose the Qing Dynasty like this, so they formed a royalist faction to try to revive the dynasty. In fact, they knew this would be impossible. In October 1911, the revolutionary group led by Sun Yat-​sen launched the Wuchang Uprising and occupied Wuchang. Immediately afterwards, there were uprisings in provinces across the country, creating an unprecedented revolutionary momentum. The Qing government sent the Beiyang Army to suppress the uprisings, but this force took its orders from Yuan Shikai, who had been forced out of his post. Yuan Shikai saw the situation an opportunity to seize power. The Beiyang Army listened to Yuan Shikai’s secret command and did not move. In the peace negotiations between the North and the South, Yuan Shikai and those close to him took the opportunity to force the

Cultural enlightenment  61 abdication of Emperor Puyi. They agreed to give Puyi preferential treatment, finally unified the North-​South, implemented a republican system, and set up the Republic of China. Yuan Shikai became the president of the new government, and power was monopolized just like before. Sun Yat-​sen led the “Second Revolution,” but it eventually failed because of his lack of military strength. And Yuan Shikai’s authoritarian autocracy soon began. Though Yuan Shikai was in power, his heart was still unwilling. He instructed Yang Du and other distinguished people to form a meeting to advocate the restoration of the monarchy. On December 12, 1915, Yuan Shikai published an open letter to the nation and officially announced that he would change the name of the country from the “Republic of China” to the “Empire of China.” On December 13, Yuan Shikai received the leading civil and military officials in Zhongnanhai and renamed the Presidential Palace, Xinhua Palace, and abolished the Republic year number from 1916, changing it to “Hongxian Year 1.” When the news about what Yuan Shikai did spread, it at once aroused national public anger. On December 22, 1915, military and political authorities in Yunnan held an emergency meeting and sent troops to discuss the matter with Yuan Shikai and to form the National Protection Army. Cai E became commander-​in-​chief and Tang Jiyao was the military governor. Cai E led an army to attack Sichuan and Li Liejun led another army into Guangxi. It was at this time that Yuan Shikai saw a reversal in the situation. On March 20, 1916, he had no choice but to demand the monarchy abdicate. On March 23, he issued an order to abolish the “Hongxian” year numbers. He still used “Republic Year 5,” but all provinces in the country declared independence and forced Yuan Shikai to step down. In was under this situation that on in June 6, 1916, a state of rebellion broke out in the country against Yuan Shikai (including from the Beiyang Army’s garrison area). He was furious that Vice President Li Yuanhong would succeed him as president. Li Yuanhong, who was not a member of the Beiyang Army, did not move the army but appointed Duan Qirui of the army as prime minister. From then on, the Beiyang Army and other factions dominated the era. Although Duan Qirui served as prime minister, he commanded a part of the Beiyang Army and they saw him as the head. Other warlords included Cao Kun, Wu Peifu, and Zhang Zuolin of the Feng faction, and there were also others like Tang Jiyao. In early June 1917, Zhang Xun, a warlord based in Shandong, prepared to restore the Qing Dynasty. In this chaotic moment, the intricately linked Pigtail Army went north on June 7 and led a group of previous dynasty and restoration supporters into Beijing on the 14th. On June 16, Zhang Xun secretly met with abdicated Emperor Puyi and held a “meeting” at the People’s Palace on June 30 to restore the old system and announce martial law in Beijing. On July 1, 1917, Zhang Xun took Emperor Puyi to the throne and released the “imperial edict,” which announced the restoration of the old system, and he hoisted the Dragon Flag, prohibiting the people of Beijing from reconsidering restoration. The city of Beijing was in chaos.

62  Cultural enlightenment It was then that Duan Qirui formed a command post for the “Rebel Suppression Army” at a horse farm near Tianjin, where he served as the commander-​in-​chief and published an open letter to the nation to denounce Zhang Xun. On July 12, the army to suppress the rebels headed straight to Beijing and the Pigtail Army collapsed and surrendered. Zhang Xun fled to the Dutch Embassy, and Pu Yi announced his abdication again. The farce of Zhang Xun’s restoration was over. After Zhang Xun’s restoration incident subsided, Duan Qirui held the most power in the Beiyang government, and he fantasized about unifying the country. On October 6, Duan Qirui ordered the Beiyang Army to take the Southern Army’s important strongholds in Hengshan and Baoqing, Hunan, and occupied the two cities. This incident brought together the troops of the southern provinces to aid Hunan and the Xiang Army. Under the command of Zhao Heng, they counterattacked and captured Changsha. Duan Qirui lost the post of premier, and Feng Guozhang, the acting premier, resigned. In November, Wang Shizhen became premier. After Duan Qirui stepped down, the North and South negotiated and the North–​South War ended. This is an overview of the changes in the domestic political situation before the start of the New Culture Movement.1 3.1.3  The real leader of the New Culture Movement When discussing the start of the New Culture Movement, many people had used Chen Duxiu as a symbol for the creation of Youth Magazine, launched in Shanghai. On September 15, 1915, Chen Duxiu published an article entitled “A Call to Youth” in the inaugural issue, writing that young people should be freed from negative, conservative, retreating, and unenlightened influences, so they can develop a positive, enterprising, practical, and scientific spirit and challenge the corrupt feudal consciousness. In the article, he stated that anything and any concept that is not in line with the present society was pointless: “the legacy of the ancestors, the teachings of the ancient sages, the government’s advocacy, and the advocacy of society are worthless.” On September 1, 1916, Duxiu’s Youth Magazine published its first issue of Volume 2, from which time it was renamed New Youth. Chen Duxiu believed that the change in name better stood for the purpose of the magazine. He wrote:  “New youth are different from the old youth … Be careful not to think that you are qualified for the new youth simply because you are young.” This shows that to be qualified for the “new youth,” people must have new understanding, innovative ideas, and new actions. In New Youth No. 1, Li Dazhao’s article “Youth” was also published, calling on young people to break through the “net of history and destroy

1 Li Yining, “The New Culture Movement and Western Influence,” Guangming Daily, May 4, 2016.

Cultural enlightenment  63 the shackles of stereotypes” and aspire to create a new society and a new country. In New Youth No. 5, Hu Shi published a piece on “A Preliminary Discussion of Literary Reform.” He pointed out that literary improvement should be conducted along the following eight guidelines: 1 2 3 4 5 6 7 8

Write with substance; Do not imitate the ancients; Respect grammar; Do not adopt a sentimental pose; End old clichés; Do not use allusions; Do not use couplets or parallelism; Do not avoid popular expressions or popular forms of characters.

Hu Shi also proposed the use of vernacular Chinese for authentic Chinese literature. When talking about literature, he said true literature should “realize the situation of today’s society.” From this point of view, Hu Shi would have been a good ancestor of vernacular Chinese, but the most important thing about Hu Shi’s article “A Preliminary Discussion of Literary Reform” (published in New Youth) is that he believed literature must reflect the present state of society and that one must have something to say. Chen Duxiu then published the article, “The Theory of Literary Revolution,” in New Youth in February 1917, in which the war on old morality and old culture was clearer. In Chen Duxiu’s view, although the Revolution of 1911 overthrew the Qing Dynasty and established the “Republic of China,” advocating democracy and republicanism, “the questionable aspects remained” because “the ethical and literary arts are deeply rooted in our spiritual world and that comes with blackness and accumulated filth.” To this end, Chen Duxiu claimed that he was “ready to be an enemy of national academic study and hold high the banner of the revolutionary army of literature” and that “the banner should advocate the three major theories of the revolutionary army.” The three major theories are the following: 1 2 3

“Overthrow the ornate, adulating aristocratic literature and build a simple and lyrical national literature”; “Overthrow the old, extravagant classical literature and build a fresh and honest realistic literature”; “Overthrow the circuitous, difficult to understand mountain of literature and build a clear and popular social literature.”

The publication of Chen Duxiu’s “The Theory of Literary Revolution” and Hu Shi’s “A Preliminary Discussion of Literary Reform” had sensationalized domestic cultural circles, and they are two essays of the New Culture Movement.

64  Cultural enlightenment The challenges of the New Culture Movement had aroused national attention. From Beijing and Shanghai to various provincial capitals, countless young people had responded to the call of New Youth magazine and devoted themselves to the slogan of destroying the influence of old culture. On April 21, 1917, the China Finance and Economics Society, founded by Li Dazhao, was set up by the Beijing Military Garrison. This society was committed to vigorously developing the New Culture Movement, and Li Dazhao and others served as founding members. Its purpose was to “study economics and investigate facts in order to benefit China.” On September 15, 1918, New Youth published Lu Xun’s piece “A Madman’s Diary.” This was the first work published by Zhou Shuren under the pen name Lu Xun, as well as Lu Xun’s first vernacular piece. The influence of “A Madman’s Diary” was far-​reaching. It described the mental state and psychological activities of a “persecution” sufferer. Through the mouth of the protagonist “madman,” it accused traditional Chinese society as being an evil society of “human cannibalism” and it made the prediction that the future society would “not be allowed to eat people.” In summary, people took Chen Duxiu’s founding of Youth Magazine in 1915 (renamed New Youth in 1916)  as the origin of the New Culture Movement. There were grounds for this. Chen Duxiu, Hu Shi, Li Dazhao, Lu Xun, and other scholars and well-​known people who published articles in New Youth were regarded as the masters of the New Culture Movement, which was also in line with the actual situation at the time. The democracy and science advocated by Chen Duxiu (formerly known as “Mr. Democracy” and “Mr. Science”) quickly spread, kicking off a revolution of thought and culture and dealing a heavy blow to the traditional ethics and traditional moral principles that had ruled China for more than two thousand years. This inspired the people’s democratic and revolutionary consciousness and laid the ideological foundation for the outbreak of the May 4th Movement and the spread of Marxism in China. 3.1.4  Peking University becomes the centre of the New Culture Movement When discussing the significance and role of the New Culture Movement, it is necessary to point out Cai Yuanpei’s appointment as president of Peking University and the significance and far-​reaching influence of Peking University as the centre of the movement. On January 4, 1917, Cai Yuanpei became president of Peking University. Before he took this post, his friends argued that the university had always been a bureaucratic school and that the bureaucrats saw their positions as a step toward officialdom. (They could then not only become famous but could also make friends with rich and powerful warlords.) Cai Yuanpei’s friends believed that the ambition of Peking University bureaucrats could not be cured or managed, so most of them recommended he not take on the presidency, so as not to harm his reputation. There were also a few friends who thought that

Cultural enlightenment  65 Cai Yuanpei was right to take over as the president, because he could use the opportunity to set up a new school spirit and improve the teaching. Sun Yat-​ sen agreed that Cai Yuanpei take over as president of Peking University. He said: “Where there is a spread of revolutionary ideas, old comrades like Cai Yuanpei should go to Beijing under the glory of the emperors and bureaucrats to preside over national education.” After careful consideration, Cai Yuanpei decided to take on the role of Peking University president. He reformed the school’s leadership style, improved discipline, enriched the academic system, and advocated civilian education. He was also the first to introduce coeducation. He adopted an “accommodate different ideas” policy, introduced new people to the school, and recruited experts. Under President Cai Yuanpei, Peking University had a fresh wind of freedom of thought. He supported the New Culture Movement, advocated vernacular Chinese and a new trend of thought that emphasized democracy and science. During his tenure at Peking University, Cai Yuanpei hired famous people, such as Chen Duxiu, Li Dazhao, Hu Shi, and Lu Xun to teach at the university. New Youth also changed its location from Shanghai to Beijing, and a new cultural camp centred on the editorial department of New Youth formed at Peking University. Under the leadership of Cai Yuanpei, there was further explanation of the meaning of the two flags (of Mr. Democracy and Mr. Science). Regarding democracy, the advocates of the New Culture Movement believed that it had two meanings. The first referred to the spirit of democracy and democratic ideas, including personal liberation, personal independence, and democratic rights and freedom. The second referred to anti-​ feudalism and anti-​ authoritarianism. The belief was that for China to survive in the contemporary world, it had to abandon the despotic and bureaucratic rule of thousands of years and build a free and autonomous national political system. Both meanings coexisted, and there was a relationship between them. The New Culture Movement showed its own ideas in these two areas. Regarding science, the advocates of the New Culture Movement also believed that the term science had two meanings, or that there were two different perspectives to explaining it. One was to oppose feudal superstitions and unscientific old ideas. The other was to learn science and technology from the West. To popularize scientific knowledge, society had to respect science and knowledge and emancipate the mind. The interpretations of democracy and of science showed that the New Culture Movement put cultural enlightenment and innovation in the most prominent positions. Although the young people who had taken part in the movement used vernacular Chinese, the articles were practical and reflective, and the young people were deeply interested in the writing. They took part in cultural enlightenment and cultural innovation under the umbrella of the

66  Cultural enlightenment New Culture Movement for the purpose of social change. This is the true meaning of the New Culture Movement that began in 1915.2 3.1.5  The meaning of cultural enlightenment Although the Revolution of 1911 played a role in overthrowing the rule of the Qing Dynasty, from an analysis of the nature and role of this revolt it cannot be said that it had limitations that could not be ignored. This limitation was manifested in the following three aspects: First, the goal of the Revolution of 1911 was only to overthrow the rule of the Qing government. The leaders of the alliance leading the revolution thought it would succeed if the Qing government were ousted and the “Republic of China” were established. They did not regard the elimination of the feudal system as the goal. As a result, the “Republic of China” government established the first constitution in China’s history (the “Provisional Constitution”), but it was ineffective, because it did not change the fundamentals of the feudal system, let alone prevent the establishment of a bourgeois democratic regime. China, after the Revolution of 1911, was still under the control of the Beiyang Army. Not only that, but because the rule of the Beiyang Army was summoned by the banner of the “Republic of China,” the feudal forces in various places were brought together in the name of the new republic. Second, China was still a typical agricultural society at that time. The development of modern industry was restricted, the power of national capital was extremely weak, and the rural areas were firmly under the control of feudal forces. The Revolution of 1911 did not change the feudal situation in the countryside. The army established in the revolution did not focus on how to exert the power of the farmers or how to eliminate the feudal system to expand their own influence and strengthen their own group. If the leaders had influence in the revolution, it was limited to a few large cities and feudal rule in the countryside remained strong. Third, even though there were intellectuals in the large cities calling for democracy and freedom, other intellectuals who had nostalgia for feudal ethics, traditional rituals, and state concepts had also gathered in those cities. They were not necessarily supporters of the Qing Dynasty, but they did support feudal culture, ethics, and customs. They did not necessarily want to revert to a society under the royal rule of the Qing Dynasty, but they opposed the criticism of feudal morality and style after the Revolution of 1911. This was the situation in the early years of the Republic of China.

2 Li Yining, “The New Culture Movement and Western Influence,” Guangming Daily, May 4, 2016.

Cultural enlightenment  67 Due to the above three situations, the New Culture Movement had the nature of cultural enlightenment from the beginning. It used “democracy” and “science” as weapons against the various feudal forces that hung over society, including those that supported the restoration of Emperor Pu Yi, who had abdicated under the Qing Dynasty; the warlords, who used “Republic of China” for separatism; and the feudal landlord forces who held rural feudal real estate and controlled the countryside, as well as conservatives and other forces, scattered in the cities, who maintained feudal ethics and culture. Cultural enlightenment was the most important ideological education of the time, because through the unremitting efforts of the leaders and participants of the New Culture Movement, it was the first time in history that they had an impact on feudal morality, culture, and style. No one can erase this achievement. 3.1.6  The significance of cultural innovation The New Culture Movement not only played a role in cultural enlightenment, but also in cultural innovation. We have described cultural enlightenment above. Its significance lay in criticizing the feudal system, ethics, and culture that hindered China from advancing under the banner of democracy and science and awakening the people to strive for the early realization of democracy and science. The significance of cultural innovation lay in proposing a new culture to replace the old one, mobilizing the people with the new culture, enabling them to arm themselves with the new culture in all fields and in all areas of society, and becoming soldiers of the new culture on the road of criticism and exploration. People criticizing the old culture enriched the new culture and it also grew through trial and error. The formation of cultural innovation finally came about because of the people’s constant creations. In this sense, cultural enlightenment and cultural innovation are inseparable. Cultural enlightenment is the premise, the first sound, and the prelude; cultural innovation is the result, the achievement, and the leap. In celebrating the centennial of the New Culture Movement, there was no forgetting the achievements of the leaders and participants of the movement in cultural enlightenment, or their efforts and achievements in cultural innovation. The main point of cultural enlightenment was to awaken the people, indicating that only the elimination of feudal autocracy and the removal of feudal morality and culture could meet the requirements of “Mr. Democracy” and “Mr. Science” and lead China to embark on a new path. The main point of cultural innovation lay in building new culture under the guidance of democracy and science. This task was much more difficult than cultural enlightenment, and it took much longer. There are three main reasons for this: First, the key to cultural enlightenment lay in the word enlightenment. Recognizing the terrible consequences of feudal ethics, culture, and customs and habits for the people, it was necessary to use the New Culture Movement to attack their dangers in the hope that more people would turn against

68  Cultural enlightenment the old rituals and habits. The key to cultural innovation lay in innovative research, innovative exploration, and innovative development. What was new culture? The exploration of everything and the possibility that a single generation could not complete the task of creating new culture. It was a constant attempt that might end in failure. Cultural innovation did not easily relate to people’s lack of experience, but the lack of experience might have been related to the choice of wrong paths at the beginning or incorrect theories that were regarded as correct theories at first. Practice is the sole criterion for testing truth, and this principle was established following a number of failures in trying. Second, as far as China is concerned, the Chinese people’s pursuit of democracy and science has gone through a lengthy process of seeking truth. Western countries have experienced their own process of cultural enlightenment and cultural innovation, and they have their own national conditions. Furthermore, China was different from the way in which the Western countries lived. It is impossible to copy the experience of Western countries. After Russia’s October Revolution and the establishment of the Soviet state, was the model of the Soviet Union copied? Of course not. In the cultural field, whether it is Western countries or the Soviet Union after the October Revolution, the cultural innovations in those countries cannot become models for Chinese cultural construction. We must continue from the actual situation of Chinese society. We can learn from Western countries and the Soviet Union but copying should never be a choice. This is another reason cultural innovation is much more difficult than cultural enlightenment. Third, the role of cultural enlightenment was to make the Chinese people understand that the old culture was hindering China’s progress and supressing the minds of Chinese. Therefore, it was necessary to criticize it and abandon it. However, the problem was not as simple as some people had thought it would be after the start of the New Culture Movement. In the criticism of Confucian theory by some people in the New Culture Movement, there was indeed historical inevitability under the conditions at that time, because after the Revolution of 1911, from Yuan Shikai to the Beiyang Army to some conservatives in the cultural circles, they all advocated “Confucius,” “reading classics,” and returning to old traditions. Some attempted to restore the monarchy, and others advocated the reconstruction of the feudal order. In this situation, the leaders of the New Culture Movement had fiercely criticized Confucius, which is fully understandable. Later generations distinguished “studying Confucius” from “Confucianism” in cultural innovation work. This is the progress of later generations because they recognized that the critical inheritance of Confucian doctrine would help safeguard China’s outstanding cultural heritage. Cultural innovation is indeed an arduous task, one that requires historical and practical research to analyze. This process began in the New Culture Movement in 1915 and lasted for eight or nine decades. It was not until the

Cultural enlightenment  69 18th National Congress of the Communist Party of China (CPC) that there was great progress.

3.2  The historical status of the Chinese New Culture Movement 3.2.1  The new stage of the New Culture Movement We can divide the New Culture Movement centred in Peking University into two stages. In the first stage, that is, the early stage of the movement, the new culture of Western capitalism was opposed to the old culture of feudalism in China. In the first stage, many Chinese people still believed in the new culture of capitalism and wanted to replace the old culture of feudalism in China with it. They hoped to transform China into a capitalist country. In the second phase, that is, the later stage of the New Culture Movement, we see the appearance of advocates and participants of the New Culture Movement. Some people still believed that China could adopt the Western capitalist system and advocated the establishment and promotion of the bourgeois democratic system in China. However, others believed that moving the Western capitalist system to China might not necessarily be in line with the country’s national conditions and that there might be other outlets for China’s reform. Li Dazhao was one of the representatives of the latter view. Li Dazhao’s speech at Tiananmen Square in Beijing in November 1918, and the article he published in the January 1919 issue of New Youth are masterpieces of exploring new paths. Peking University hosted Li Dazhao’s speech at Tiananmen Square. The title was “The Victory of the Common People.” Li Dazhao said in his speech, “The Allies won the battle, the Central Powers were defeated, and the First World War ended. This is the ‘axiom victory over power.’ ” He believed that it was not the strength of the Allies that had won the war, but the new spirit of the human world; that it was not the capitalist government of any country, but the people of the world. He believed that the victory belonged to the people. The Li Dazhao article New Youth also published in that issue was titled, “The Victory of Bolshevism.” This article warmly praised the victory of Russia’s October Revolution and predicted that “the human alarm bell has rung! The dawn of freedom has appeared! The future of the world is the world of the Red Flag.” On November 16, 1918, Peking University President Cai Yuanpei gave a speech at a gathering of students celebrating the First World War victory of the Allies. He believed that “the world after this will be the world of labour.” He also said that “everyone who uses his own labour makes a career that is good for others, whether he uses his body, mind, or labour.” His conclusion was, “We must understand the value of labour, because labour is sacred!” This all says that the development of the New Culture Movement predicted the acceleration of differentiation. Those who doubted the Western capitalist system were increasingly inclined to explore new roads. The outbreak of the

70  Cultural enlightenment May 4th Movement in 1919 caused people in the New Culture Movement to go further on the new road and to become more radical. 3.2.2  The origins of the May 4th Movement and its great significance On January 21, 1919, China, as one of the victorious Allies, sent a delegation to the Paris Peace Conference in Versailles. On January 27, the conference discussed the Shandong issue, which concerned Japan’s refusal to hand over Germany’s rights in Shandong. The United Kingdom, the United States, France, and other countries granted to Japan all the rights of Germany in Shandong despite the Chinese delegation’s request. The news was received in Beijing on May 2, and it shocked and angered the country. On May 3, Peking University students consulted with other college and university students and decided to hold a large demonstration on May 4. On the morning of May 4, 1919 more than 3,000 students from Peking University and 13 other colleges and universities gathered in front of Tiananmen Square and staged a demonstration to refuse to sign the peace treaty. At about 4 pm, the demonstration appeared at Cao Rulin’s residence in Zhaojialou (at the time Cao Rulin was chief communications officer and recognized by the students as pro-​Japanese). There they beat Zhang Zongxiang, the Japanese ambassador, who had just returned from Japan, and burned Cao Rulin’s residence. Military police rushed to the scene and arrested 32 of the students. On May 5, to protest the government’s arrest of the students, students from all colleges and universities in Beijing went on strike. On May 6, people and students from Tianjin, Jinan, Shanghai, Wuhan, Changsha, and Guangzhou held demonstration after demonstration. Under the pressure of the people, authorities released the arrested Beijing students on May 7. In response to the patriotic actions of the Beijing students, students from Shanghai, Tianjin, Wuhan, Changsha, and other places set up student liaison meetings. However, the Beiyang government continued to arrest students who took to the streets, and the news spread to other cities across the country. On June 4, 1919, starting from Shanghai, more than 100 cities in 20 provinces across the country held student strikes, general strikes, and store closures (shopkeeper strikes), demanding not only the release of the arrested students, but also the removal of three pro-​Japanese officials: Chief Communications Officer Cao Rulin, minister to Japan Zhang Zongxiang, and Printing Bureau President Lu Zongyu. Under the pressure of the people, in addition to the release of the arrested students, the president, Xu Shichang, had no choice but to remove Cao Rulin, Zhang Zongxiang, and Lu Zongyu. At this point, the development of the New Culture Movement was no longer limited to cultural issues, ethical issues, and the transformation of traditional customs. Political issues and social orientation had risen to the top of the public’s attention. Conscious young people from all over China, as well

Cultural enlightenment  71 as some middle-​aged people, learned from the May 4th Movement that the only way China could have hope would be by organizing, studying theory of scientific socialism, establishing a communist group as soon as possible, and eventually establishing the CPC. In short, the shift in concern in the late period of the New Culture Movement, especially the influence of the May 4th Movement, provided the conditions for the establishment of the CPC in July 1921. Since then, Chinese society has undergone earth-​shaking changes. 3.2.3  The eastward spread of Western culture The gradual eastward spread of Western culture after the launch of the New Culture Movement was inevitable. As early as the late nineteenth century, the Qing government had sent international students to study in Western countries. From the end of the nineteenth to the beginning of the twentieth century, students went to study in Japan. In addition, a growing number of students were also studying at their own expense in Europe, America, and Japan in the early twentieth century. Therefore, the eastward spread of Western culture was not something that first appeared at the beginning of the New Culture Movement in 1915. The eastward spread of Western culture refers to bringing the scientific knowledge, methods, and spirit of Western countries to China to influence the country and play a role in its scientific progress. Broadly speaking, we can divide science into two categories. One is natural science, including knowledge, methods, and applications in the fields of mathematics, physics, astronomy, chemistry, biology, geology, geography, medicine, pharmacy, and engineering. This category also includes the manufacturing, research, and development of military technologies and military equipment. The other category, the humanities and social sciences, includes philosophy, literature, linguistics, history, archaeology, library science, museum studies, ancient books, ancient writing, ethics, law, political science, administrative management, economics, business administration, sociology, anthropology, ethnology, education, culture, sports. This category also includes military theory and military management, as well as subjects between the natural sciences and the humanities and social sciences, or those that combine the natural sciences and the humanities and social sciences, such as psychology, environmental studies, planning, information management, and medical ethics. Scholars also put philosophy into a separate category, arguing that it belongs to the humanities, the social sciences, and natural sciences. In any case, the eastward spread of Western culture was a huge project. It introduced the scientific knowledge, methods, and spirit of various disciplines to many fields in China. This depended on the long-​term efforts of all. Although the Qing government had sent many foreign students to study abroad from the late nineteenth century to the early twentieth century, it had also invited foreign experts to come to China to give lectures or serve

72  Cultural enlightenment as consultants for a department or unit. We can also consider this a part of the eastward spread of Western culture, but compared with the New Culture Movement that began in 1915, there are five major differences between the two: First, the international students from the late nineteenth century to the early twentieth century were sent by the Qing government or local governments. They studied technology and military but did not intend to introduce the politics, economy, and laws of the Western countries as academics. If there was introduction, it was only a part of the personal behaviour of the international students. After the launch of the New Culture Movement, both the Beiyang government and the foreign students sent by the provinces were influenced by the New Culture Movement, and they began to care about the introduction of humanities and social sciences, scientific methods, and scientific spirit. This was heretofore unprecedented. Second, after 1915, some of the students who returned to China were willing to engage in education. They could get their wish, in general, because from Beijing and Shanghai to the provinces, everyone wanted to develop education, cultivate talents, and develop people’s wisdom. Whether it was in Beijing or Shanghai, or in the capital cities of the provinces, new colleges and universities, teacher-​training schools, and high schools had been set up. Therefore, the students who returned to China could find a place to use their talents, and they regarded the classroom as a forum for the eastward spread of Western culture. This was a rare situation in the late nineteenth and early twentieth centuries. Third, from the late nineteenth century to the beginning of the twentieth century, although the students who had been sent abroad to study had made contributions on the technology side after returning to China, some held positions in government and had been put in important positions. They immersed in their daily work and they had no major achievements or influences on reform. After the start of the New Culture Movement, a number of students who had returned from abroad had appeared as a group of thinkers and politicians who led the people. They became leaders of the New Culture Movement, that is, people like Chen Duxiu, Li Dazhao, and Hu Shi. They had their own independent opinions, saw shortcomings, and vigorously called for reform. Thus, under their leadership, they were able to launch a nationwide discussion about the new path. This was different from the situation found under the Qing government in this time. In other words, although the Western doctrine had already lost people in China, the Qing government had always been wary of it. People viewed Western doctrine as heresy, as government control was extremely strict. At that time, China’s political and ideological circles could not make huge waves, and there still existed a depressing social situation. In 1915 the New Culture Movement had already been active in the Republic of China for four years, and the Qing government’s rule had been over for four years. In Beijing and Shanghai, the control of speech was much looser than that of any time of the Qing government. So, under the

Cultural enlightenment  73 advocacy of famous figures such as Chen Duxiu, Li Dazhao, and Hu Shi, China’s press and publishing circles dared to publish articles that boldly commented on the radical tendency of politics. The emergence of this situation told the people that the eastward spread of Western culture was already a trend that could not be stopped and that Chinese society could no longer maintain its depressing pattern. A major social shock was about to begin, and what would happen to Chinese society in the future would also cause controversy. This was the most important result of the New Culture Movement. Fourth, students sent to study abroad returned to China to hold positions in technical, engineering, and management. They brought the advanced knowledge they learned back to China, but they did not form academic or communication centres to enlighten and mobilize the people. Simply put, they were just fighting alone and doing their part. That is all they did. From a big-​picture point of view, the students who returned to China, scattered like sand into various provinces and cities or units, and could not form a force that could drive China’s industrialization or institutional reform. The situation changed, however, after the start of the New Culture Movement. The editorial department of New Youth had become the centre for mobilizing and unfettering the people. The leaders of the movement had become the organizers of actions to deepen it and plan its next stage. In addition to the editorial department of New Youth, there were also centres, like Peking University. After Cai Yuanpei became the president of the university, the school had become the academic centre in the true sense of the New Culture Movement, as well as the command post of the later stage of the movement. The article, “The Victory of the Common People,” was by Peking University professor Li Dazhao and given at a public lecture held in front of Tiananmen Square. To celebrate the victory of the October Revolution, New Youth published the article, “The Victory of Bolshevism,” in its January 1919 issue. The author was again Li Dazhao. On May 4, 1919, the student demonstration in Beijing headed by Peking University students shocked Chinese and foreigners. During the process of showing that “Chinese people are awake!” some of the students were arrested and the students from Peking University took the lead in the student strike. President Cai Yuanpei came forward to negotiate with the Beijing police department and demanded the immediate release of the students. In the late nineteenth and early twentieth centuries, this was simply not possible. Fifth, the development of the New Culture Movement, especially since the outbreak of the May 4th Movement in 1919, had become clearer in intellectual, ideological, cultural, and educational circles. The student activists were divided into three tendencies. Some were actively exploring how to set up the CPC and follow the path of Marxist guidance. They believed that Chinese society must undergo the workers’ and peasants’ revolution, and they worked to set up a new society in order to revitalize China and achieve prosperity, freedom, equality, and justice. At that time, there were ideas about setting up a program of work-​study and group after group of people with lofty ideals

74  Cultural enlightenment hoped to go to Western European countries to understand Marxist doctrine through this program. In addition, a small number of aspirants arrived in Moscow through Siberia, interested to understand the achievements of the October Revolution and to improve their own standards. Whether it was through the work-​study movement in Western European countries or directly going to Moscow through Siberia, many of them later became loyal followers of the CPC. Another group chose to go south to Guangdong, because Sun Yat-​sen and his supporters, after setbacks, finally stood firm in Guangzhou, and the propaganda of the National Revolution had won the support of many people. Compared with the lifeless Beiyang government, Guangzhou stood for a new road and hope. Those who took part in the New Culture Movement or in the May 4th Movement supported the National Revolution led by Sun Yat-​sen, so they headed south while others entered the newly established CPC. There were also participants in the New Culture Movement who were always concerned with cultural and academic discussions. They dedicated themselves to cultural, academic, and press circles and became scholars who continued to pursue new cultural missions. There were very few people who really wanted to work in the Beiyang government or with its institutions.3 3.2.4  The continued exploration of social change The New Culture Movement and the craze of the eastward spread of Western culture that began to take off did not stop when the May 4th Movement ended. Two conditions for the introduction of foreign natural sciences and humanities and social sciences were already in place. The two conditions were the following: First, except for Beijing and Shanghai, most provincial capital cities built universities and technical colleges. The funds for school construction and daily expenses came from the central government and local governments, from churches and other public welfare institutions, and from the business world and social sponsors. This resulted in a competition for talent among provincial capital cities and revitalized their academics and their local economies, including the researching, introduction,, and teaching of the doctrines of scholars from Western countries and Japan. Second, new publishers and magazines and study and research groups popped up in places like Beijing and Shanghai and in some of the provincial capitals. There was an acceleration in the publication of books and magazines and the spread of new knowledge and new doctrines also accelerated. News agencies, magazines, and study and research groups attracted intellectuals

3 Li Yining, “The New Culture Movement and Western Influence,” Guangming Daily, May 4, 2016.

Cultural enlightenment  75 who were interested in promoting new ideas, new cultures, and new doctrines, and they quietly engaged in “learning from abroad” and “seriously studying new ideas and new doctrines” and promoted their own learning experiences. It was precisely because of the foundation laid by the New Culture Movement in addition to the numerous people who had joined the new cultural undertakings across the country that the new culture had grown stronger. Let us talk about that culture from the end of 1918. For example, on December 22, 1918, Chen Duxiu and Li Dazhao founded the Weekly Review in Beijing, Chen Duxiu wrote in the publication: “The purpose of the Weekly Review is to propose axioms and oppose power in hopes that the future power cannot defeat the axioms. Long live humanity! Long live the newspaper!” The Weekly Review promoted anti-​feudal, anti-​warlord rule, and anti-​imperialist ideas, and introduced the October Revolution and socialist doctrine. In addition to Chen Duxiu and Li Dazhao, the main writers of the magazine included Zhang Shenfu, Hu Shi, Zhou Zuoren, and Wang Guangqi. In another example, in October 1918, just two months before the publication of the Weekly Review, the Jiangsu education sector, Peking University, Nanjing Higher Normal School, Jinan School, and the China Vocational Education Association jointly established the China New Education Cooperative. This cooperative published the New Education monthly magazine in Shanghai in 1919, edited by Jiang Mengling. New Education advocated the education of civilians, promoted vernacular Chinese, and advocated the establishment of a democratic republic based on local autonomy. For another example, on March 23, 1919, the Peking University Civilian Education Lecture Group was announced at Peking University. Deng Zhongxia and Liao Shucang were general affairs officers. The Civilian Education Lecture Group had four fixed lecture venues in Beijing. The speeches included anti-​ Japanese patriotism, democratic politics, breaking superstition, opposing feudal family systems, and advocating science and culture. Then, on July 1, 1919, just less than two months after the outbreak of the May 4th Movement, Wang Guangqi and Li Dazhao set up the Young China Association in Beijing. The purpose of the association was stated as “The spirit of the undergraduate for the activities of the society to create a ‘young China.’ ” There were 42 members, and Wang Guangqi was the president. After it was set up, supporters of the association needed to be introduced by five members of the association to become members. Outside Beijing, Tianjin’s progressive youth were sponsored by such people as Zhou Enlai, Guo Longzhen, and Deng Yingchao, and on September 16, 1919, the Tianjin Student Union and the Women’s Patriotic Comrades Association formed the “Awareness Society” and began to irregularly publish articles in Enlightenment magazine, promoting anti-​ imperialist and anti-​feudal  ideas. In 1920, Yun Daiying, Lin Yunan, and others set up the Wuhan Liqun Book Society, founded at No. 14 Wuchang Street. The bookstore distributed

76  Cultural enlightenment Marxist works and radical books and magazines, influencing many young people. Most of the members of the trendy small group in Wuhan became members of the Book Society, which soon became a joint organization of Wuhan’s radical groups. Here, we should mention the New People’s Study Society, which formed in Changsha, Hunan, on April 18, 1918. As early as the fall of 1915, at the beginning of the New Culture Movement, Mao Zedong wrote a letter to Changsha schools. Soon, more than 20 like-​minded people gathered around him. In the winter of 1917, they decided to set up the “New People’s Study Society.” On April 18, 1918, its inaugural meetings were held in Xia Cai and Sen Jiazhong, Yuelu Mountain, Changsha, Hunan. The first membership totalled 21 people, including the promoters Mao Zedong and Cai Hesen, and others including He Shuheng, Zhang Kundi, and Luo Zhanglong. The meeting passed the constitution of the society, which Mao Zedong authored. It stipulated that the society would aim to innovate academics, carry out honourable deeds, and improve people’s hearts and customs. On July 6, 1920, official members of the society held a meeting in Montargis, France. The participants included Cai Hesen, Xiang Jingyu, Cai Chang, Li Weihan, and more than 20 others. The meeting confirmed its direction as “reforming China and the world.” Cai Hesen advocated the establishment of the Communist Party and the path of the October Revolution. On August 13, Cai Hesen wrote a long letter to Mao Zedong, arguing for the formation of the Communist Party of China and requesting help from the international proletariat. On December 1, Mao Zedong sent a letter to Cai Hesen, in which he strongly agreed with him. In China that October, Li Dazhao, Zhang Shenfu, Zhang Guotao, and others were setting up the Beijing Communist Group. The Marxist Theory Research Society of Peking University, which was set up months before, became a mass organization under the leadership of the Beijing Communist Group. On November 17, 1920, Peking University Daily published a notice of the Peking University Marxist Theory Research Society and the news and sponsor list of the activities of the society. Among the promoters were Li Dazhao, Gao Chonghuan, Wang Youde, Deng Zhongxia, Luo Zhanglong, Wu Rumin, and 20 others. So far, the evaluation of the New Culture Movement had been clear. Although the publication of Youth Magazine, including the change in name from Youth Magazine to New Youth a year later, was only a critique of China’s feudal morality, literature evaluation standards, and order—​where the New Culture Movement was going, and what the movement wanted to achieve was still unclear to its leaders and participants. “To build a new society”: This statement can have a variety of explanations. Only in the later period of the New Culture Movement, whether it was the main leaders (Chen Duxiu and Li Dazhao) or the university students who actively participated in the New Culture Movement, there was a clear direction—​the path of the October Revolution and the belief in Marxism. The close integration of ideas on anti-​ imperialism and anti-​feudalism was the goal of the New Culture Movement.

Cultural enlightenment  77 The biggest achievement of the movement was the establishment of the CPC, which put China’s reforms on the right path and in line with China’s national conditions. 3.2.5  The New Culture Movement and the establishment of the Communist Party of China In April 1920, just as New Culture Movement members were preparing to establish the Communist Party of China and hoping to receive assistance from international communist organizations, the Communist International delegation arrived in Beijing, led by Russian Communist Party member Grigori Voitinsky. Voitinsky and his party focused on discussing the issue of setting up a Communist Party in China with Li Dazhao and others. Chen Duxiu not attend the discussion because in February, in order to escape from the Beiyang government, he had been accompanied by Li Dazhao, posing as a businessman on a bus to Li Dazhao’s hometown of Laoting, Hebei, to avoid authorities before heading to Tianjin. On the way Chen Duxiu and Li Dazhao had discussed preparing for the establishment of the CPC and agreed to set it up separately in both Beijing and Shanghai. Chen Duxiu went at once to Shanghai to start planning for Party building work there. After negotiating with Li Dazhao, Voitinsky said the conditions for the establishment of the Communist Party in China had matured, as had the conditions for the addition of the Communist International after the founding of the Party. Li Dazhao agreed and brought Voitinsky to Shanghai to meet with Chen Duxiu. Afterward, Voitinsky stayed in Shanghai to help Chen Duxiu prepare for the Party-​building work. Voitinsky also brought Marxist-​ Leninist books to distribute in China. On July 23, 1921, the First National Congress of the CPC was held in secret at the home of Li Hanjun, No. 3 Shudeli, Beile Road, French Concession, Shanghai. The official representatives to the meeting included Li Da and Li Hanjun from the Shanghai group, Dong Biwu and Chen Tanqiu from the Wuhan group, Mao Zedong and He Shuheng from the Changsha group, Wang Jinmei and Deng Enming from the Jinan group, Zhang Guotao and Liu Renjing from the Beijing group, Chen Gongbo from the Guangzhou group, and Zhou Fohai from the Tokyo Group, as well as Chen Duxiu’s representative, Bao Huiseng, a total of 13 representatives. The representative of the Communist International, Maring (Hendricus J. F. M. Sneevliet) and Vladimir Abramovich Neiman-​Nikolsky, also attended the meeting. Zhang Guotao presided. On July 30, the French Concession noticed Li Hanjun’s family. On July 31, the conference moved to a boat on Nanhu Lake in Jiaxing, Zhejiang Province, where the meeting was concluded. The General Assembly determined that the Communist Party of China’s goal was to overthrow the bourgeoisie with a proletarian revolution to set up a proletarian regime. The General

78  Cultural enlightenment Assembly chose Chen Duxiu, Li Da, and Zhang Guotao to form the Central Bureau of the Central Leading Organization. Chen Duxiu became secretary of the Central Bureau. Li Da and Zhang Guotao handled propaganda and organization. The convening of the First National Congress of the Communist Party of China proclaimed the establishment of the Communist Party of China and began a new phase of Chinese politics. Looking back at the beginning of the New Culture Movement in 1915, it took six years to set up the CPC in 1921. The New Culture Movement played a key role in cultural enlightenment. The Chinese people realized that the CPC, which led the Chinese revolution, had been founded. If there had been no New Culture Movement, no May 4th Movement, and no cultural enlightenment, China’s revolutionary situation could not have had such rapid progress.

3.3  Continued cultural enlightenment and deepened cultural innovation 3.3.1  The New Culture Movement has only come to a temporary end and will continue In the founding of the Communist Party of China, people with lofty ideals who took part in the New Culture Movement were educated in it and were seriously considering the question of where China was going, and also the question of which doctrine to choose. At that time, among the various political theories about the humanities and social sciences that came from abroad, were the doctrines of popular democratic systems in Western countries, the practical experience of Japan’s “Meiji Restoration,” the theory of anarchism, the doctrine of guild socialism, the doctrine of village socialism, the Marxist doctrine, and so on. In the end, China’s progressive youth chose Marxism from out of these doctrines and saw it as the doctrine of scientific socialism. Other works from abroad did not attract them; they found interest in The Communist Manifesto, written by Karl Marx and Friedrich Engels. Back in 1917, after the news of the victory of the October Revolution had spread to China, although the progressive youth had differences in their approach to social change, “the road to the October Revolution” had become the road they had yearned for. This was also a result of choice. After the founding of the CPC, many people believed that they should embrace Marxism and take the path of the October Revolution. It was not enough to author articles in the press to advocate anti-​imperialist and anti-​ feudal ideas. To have action, it was necessary to go deep into the factories and the countryside and connect with more people with lofty ideals to start a new cause. From this perspective, there were two major differences with the “enlightenment role of culture” discussed by people at the beginning of the New Culture Movement compared to the “enlightenment role of culture” discussed by the CPC:

Cultural enlightenment  79 One difference was that when the New Culture Movement began, people focused on critique of feudal ethics, feudal literature and style, and feudal family rule in Chinese society. They believed that these obstacles remained, that the people needed an awakening, and that Chinese society was still lifeless. In the later period of the New Culture Movement, in addition to continuing to criticize these feudal aspects, participants were even more concerned with choosing a path of social change in China. They pondered: Choose the democratic model of the Western countries? Or use the October Revolution as a model for learning and embarking on the road of the workers’ and peasants’ revolution? Another difference was that at the beginning of the New Culture Movement, the participants, including university students, were less involved in other areas compared with caring for civil education and deeply understanding the situation of civilian education in real life. However, in the later period of the movement, especially after the establishment of the CPC, they and like-​minded people who accepted anti-​imperialist and anti-​feudal revolutionary ideas and were determined to change the face of Chinese society, saw to it that civil education was not the only area of practice. It also included factories, rural areas, and neighbourhoods, and people even headed to Guangdong. They believed that a great revolution was about to begin in China. Sun Yat-​sen’s powerful Kuomintang had changed its policy line, and the door of the first cooperation between the Kuomintang and the Communist Party had opened. The revolutionaries were in a good place. After the establishment of the Whampoa Military Academy, people with lofty ideals in the academy promoted the Northern Expedition with their own practical actions. Provinces and cities began to set up farmers’ associations, and the situation in rural areas began to change. These things were unexpected in the early days of the New Culture Movement. This fully illustrates the fact that, although the New Culture Movement was not as enthusiastic as it used to be, the debate continued and only temporarily came to a pause, and the situation of the Great Revolution was taking shape. The New Culture Movement was ongoing. This was the general situation in the first few years after the establishment of the Communist Party of China. 3.3.2  Cultural enlightenment is far from complete For the continuing New Culture Movement, although people did not talk about it as they had in previous years, the goal of the movement was far from complete in anti-​imperialist and anti-​feudal construction and building a new China. Why? We can analyze this from two different perspectives: Objective situation and subjective power. From analysis of the objective situation, we have no choice but to draw the conclusion that China’s feudal forces were still deeply ingrained. Imperialist control in China was still strong and the revolutionary advance elements were

80  Cultural enlightenment weak, so it was difficult to drive the imperialist forces away and to eliminate the feudal forces. We cannot avoid this fact. For the Northern Expeditionary Army to win in the coming campaign, it had to rely to a considerable extent on the national government’s own policy of uniting revolutionary forces and mobilizing the workers and farmers. However, in April 1927, the Kuomintang betrayed the revolution and wantonly slaughtered CPC members and others who insisted on launching the Northern Expedition. This changed the situation and the National Revolution deteriorated before it was completed. In a situation where the enemy was both strong and weak, the Northern Expedition paused, and the National Revolution failed. Following what happened, the CPC revolutionaries went underground. The August 1 Nanchang Uprising also resulted in defeat. In the end, only the uprising in the border area of Hunan and Jiangxi and the uprising in the Dabie Mountains in Hubei Province, together with uprisings in other places, preserved the revolutionary forces. Thus, the warlords in the country were the same as in the past and imperialist forces controlled China as much as in the past. Looking at things from the aspect of subjective power, the conclusions obtained are similar. The CPC was only a newly established political party at that time and its leadership was in the hands of scholars who did not understand China’s national conditions. They did not know how to mobilize and unleash the people, how to set up a revolutionary base for workers and farmers, and how to build revolutionary armed forces. Of course, on the political front, for leaders of the CPC, there was neither experience nor lessons for the leadership of the National Revolution, so Communist Party members were not vigilant when the April 12th massacre was launched against the Party and they lacked countermeasures. Under this extremely tricky situation, the CPC had grown stronger through the establishment of revolutionary bases and waging the bloody battles of the Red Army. In this way, the CPC persisted. These situations clearly told later generations that the task of cultural enlightenment was far from complete. How to build revolutionary base areas, how to build a people’s army under the command of the CPC, and how to train a group of cadres who would dedicate their life to the cause of the Party and, in particular, how to let the people recognize right and wrong, were all tasks of cultural enlightenment that needed to be completed. They eventually completed these tasks in the Agrarian Revolution, the War of Resistance Against Japanese Aggression, and the War of Liberation. Even though the Chinese people stood up after the birth of the People’s Republic of China on October 1, 1949, how to build Chinese society and how to gradually change from an agricultural society to an industrial society and then to a modern society were other arduous tasks. They still needed to carefully study and conduct cultural enlightenment. Those arduous tasks ahead were not less than those of the revolutionary period. This is our understanding of the meaning of cultural enlightenment.

Cultural enlightenment  81 3.3.3  The trend of cultural innovation is unstoppable As mentioned, we cannot separate cultural enlightenment and cultural innovation from each other. Cultural enlightenment focuses on awakening the people, enlightening the people, and letting them know what is right, what is wrong, what should be retained, upheld, and carried forward, and what should be abandoned, changed, and abolished. Intricately linked to cultural enlightenment is cultural innovation. However, cultural enlightenment was no easy task and cultural innovation was even more difficult. This is because the goal of cultural enlightenment is to awaken the people to abandon the old culture, habits, order, and system, while the goal of cultural innovation lay in the creation of new culture, habits, order, and system. Not only that, whether the new culture, new habits, new order, and new system to be created through cultural innovation would truly conform with the new trend—​whether they would help to unite the majority of the people, whether they were in line with national conditions, whether they were conducive to economic development, and whether they could increase per capita income and narrow the rich–​poor gap—​all of that had to stand the test of time. In other words, as a substitute for the old culture, the government did not form, nor did it promote, the new culture. Without the people’s approval, many so-​called new cultures are merely fleeting forms. This is the difficulty of cultural innovation. Replacing the old system with a new one was a system replacement or could also be a cultural alternative. However, the replacement was much less than the resistance of cultural substitution. Cultural alternatives, even if there are good reasons for them, are popular for years but are not easy to change into a new culture due to traditional habits and customs. Let me give two examples. In 1958, Peking University sent a group of faculty members to work in several townships, such as Zhaitang Township in Mentougou District (then known as the Jingxi mining area). I was a faculty member of the economics department at the time assigned to the village of Xizhaitang in Zhaitang Town. The university also assigned members of the law, biology, and sports departments to Xizhaitang Village. We found in the village that women in their thirties still had bound feet. They were all born in the 1920s. The Republic of China had been founded for ten years by then. How could their feet still be bound? This could only happen if there was no change in old habits. Later, I heard an old man in the village say that less than one year after the July 7th Incident that is, in 1938, the Eighth Route Army came to Zhaitang, where the Pingxi base area was established, the rural women stopped binding their feet under the education of the Eighth Route Army Task Force. The Qing government never abolished the old custom of women’s foot-​binding. Another example is in October 1964, when more than a thousand teachers and students from Peking University went to Jiangling County, Jingzhou District, Hubei Province, to participate in the Four Cleanups work, which is also known as the Socialist Education Movement. I also participated, living

82  Cultural enlightenment in a poor peasant’s farmhouse of the Mount Tai Brigade of the People’s Commune of the Tan Bridge in Jiangling County, where I  participated in the Four Cleanups work as well as in farm work. Gradually, we found that there was a custom in the rural area that restrained people, known as “taking in a son-​in-​law to bear the bride’s family name.” They said this custom had been around for hundreds of years and had not changed. Under this system, women are the mainstay. When a woman is an adult, she is the head of the family. She finds a man from a different village and calls him “a live-​in son-​ in-​law.” After the marriage, the man bears the woman’s last name and their children take the mother’s surname. If the family had brothers in addition to the daughter of the family, then when the brothers were adults, matchmakers would tell them who to marry. After negotiations, they would “marry” to an outside village and be “a live-​in son-​in-​law” of a family and switch to the woman’s last name. This was the case during the time of the Qing Dynasty, as it was during the time of the Republic of China, and the same was true during the Japanese occupation. By 1964 (the year we arrived to take part in the Four Cleanups work), it was 15 years since the founding of the People’s Republic of China in 1949 and yet it was still like this. They still practiced this custom. We became familiar with the village political leaders later and asked them, “Why is this practiced here?” They said: “For many years, our ancestors lived like this, and we got used to it.” Afterwards, I met the political leaders of the county public security bureau, who said the same thing. They said this large area was originally marshy land. The ancestors of these villagers came here many years ago and turned the marshy area into paddy fields. They plant two seasons of rice every year. In winter, they grow broad beans. After the spring, they turn the broad beans into the ground to function as green manure. This is equal to three seasons a year, and it is exhausting work, but they had no choice. At that time, there were no chemical fertilizers. Even if there were, the farmers were too poor to afford them. In addition, schistosomiasis occurred in the area, and the men working in the rice fields suffered from it and died early. Therefore, there were more girls than boys on the land. I went to the fields to recruit women to add a labour force in the fields. The eldest daughter was the head of the house and the “live-​in son-​ in-​law” from the outside village paid no attention to the housework and just worked in the fields. When the brother of the parents (sister) grew up, they had to go to another home to be “a live-​in son-​in-​law” and would take on the woman’s surname. Originally, they implemented this system to adapt to the shortage of male labour, so change was not easy. After more than 30 years, in 2002, I was then a member of the Standing Committee of the National People’s Congress and vice chairperson of the Financial and Economic Affairs Committee of the National People’s Congress. I went to Hubei for research, and when I arrived in Jingzhou City, I went to the countryside with members of Peking University to take part in the Four Cleanups Movement in the countryside. The farmers’ lives had improved. I asked the village political leaders (who were young) if

Cultural enlightenment  83 the live-​in son-​in-​law practice still existed. They replied, “Yes, but it is not as common as it used to be.” A village cadre next to him said with a smile: “The young men go to Shenzhen, Wuhan, Jiangsu, and Zhejiang to work. Nobody wants to be a live-​in son-​in-​law and do farm work all day! Even the young unmarried girls go out to work, and all the women in the village who are married have children.” It seems that old customs and habits do change but that change is slow and is not something that can be accomplished by administrative order. In any case, cultural innovation was indeed much more difficult than cultural enlightenment. Eventually, there was no way to hinder or block the trend of cultural innovation. New culture always stands out in major changes in the social system. There are always people with foresight or hindsight in society, and there are also conservatives who resist social system reform. This is not necessarily related to personal commercial interests. Those who hold different attitudes towards cultural innovation might think that although cultural innovation does not harm their own economic interests, it might cause intense social unrest and damage the national economy. In this case, those who resist cultural innovation will argue that even if we do denounce certain people, nothing will change. The problem lies in the word “belief.” People always have convictions. Some people with certain beliefs will oppose certain cultural innovations. They also think that they are patriotic and love the people. As a result, they do not know that they have become an obstacle to social progress, and they become a member of the conservative group. However, these are common things in replacing old culture with new culture. The wave of cultural innovation will not disappear due to the obstruction of some people. This is history. 3.3.4  The new culture of China in the twenty-​first century depends on the people’s continued innovation At present, the cultural innovations we encounter have at least the following three characteristics: First, China has succeeded since the revolution in 1949. After the establishment of the People’s Republic of China, the socialist planned economy was established in the 1950s and the new culture established with it was compatible with the planned economic system. After the conclusion of the Third Plenary Session of the 11th Central Committee of the CPC, China entered a period of reform and opening up, and this gradually transformed the planned economic system into a socialist market economic system. In the process of this system transformation, cultural innovation is inevitable, because since the system has changed, the criteria for evaluation will inevitably change accordingly:  The previously affirmed will be denied; the previously denied will be affirmed. Of course, in this transformation, those who have been denied in the past are still denied, and those who were affirmed in the past are still affirmed. It is up to the people to make their own judgements and make their own decisions.

84  Cultural enlightenment For example, as already mentioned, we have implemented the rural household contract system. As early as the early 1960s, there were people who advocated the adoption of the household contract system. People severely criticized this at the time. The grassroots political leaders who advocated the household contract system were all detained under the bad name of “restoring capitalism” and even sentenced. However, in the early 1980s, the central government affirmed the rural household contract system after a pilot program and then promoted it to the whole country. The effect of implementing the household contract system in the rural areas is that remarkable: Agricultural production increased, farmers’ income increased, and food supply in the market was ample. Soon, the government cancelled the coupons that they had used for years to buy food, oil, meat, and clothing. From that point on, the evaluation of the rural household contract system changed. Is it not an example of institutional and cultural innovation to evaluate the rural household contract system with new standards? The transformation of this system and people’s evaluation of the rural household contract system fully proves the correctness of “practice is the sole criterion for testing truth.” The correct evaluation of the rural household contract system reflects the renewal of the people’s ideas. Many reform measures in the transition from a planned economy to a socialist market economy after reform and opening up should be judged according to the rule of “practice is the sole criterion for testing truth” and be re-​evaluated. This includes reconsidering the rise of township and village enterprises, the establishment of special economic zones, the reform of the shareholding system of state-​owned enterprises, the operation of private enterprises, the role of capital markets, and the evaluation standards of China’s accession to the World Trade Organization. In short, for China, the planned economic system has turned into a socialist market economic system, and has proved by practice that this was the correct reform measure. Their evaluation and affirmation should be the added content of cultural innovation. If the economic system has changed, but the evaluation criteria are still geared towards the planned economic system, people will become confused, and this can only harm real economic development. There would be no benefit from this. The second comprises ethical issues concerning the distribution of income, that is:  What kind of distribution gap is considered proper and fair, and what kind of distribution gap is considered unfair and unjust. This is not a problem, because the “big rice pan” model prevailed under the planned economic system. Now, people think that it is fair and just and thus regard it as normal.4

4 The second section of Chapter 10 of this book has a more detailed analysis of the issue of income distribution.

Cultural enlightenment  85 In fact, not all people in the “big rice pan” eat from a single pan. According to the fourteenth-​century Chinese novel, The Water Margin, when Lin Chong defeated Wang Lun, Chao Gai set up a distribution system for Mount Liang. The second section of Chapter 10 of this book has a more detailed analysis of the issue of income distribution. Then, they transported the property they had stolen from the government back to the mountain and divided it into two halves, part of which was knockoffs of public property and part of which was used for distribution. More than a dozen mountain chiefs (there were only about a dozen on the mountain at the time) split this half and there were many other people on the mountain who divided the other half. So, this is the two pans of the “big rice pan.” Nobody on the mountain was eating from one pan. This was also the case under the planned economy. Which class you belonged to determined which pan you ate from. If you belonged to one class, then you would eat from this pan, thus there were large stoves, medium stoves, small stoves, and special stoves. However, before the Cultural Revolution (1966–​76), the above situation was unknown to most people. Most people believed what I wrote about those times: The people I am close to are the people I usually have a good relationship with. They eat from this pan. I do not know if there is a pan outside this pan. I do not know what is in this pan. I do not even dare to imagine that I can go to that pan to eat. After the Cultural Revolution, people began to talk about it, saying, “What is the ‘big rice pan?’ The ‘Gang of Four’ is on Diaoyutai. Do they eat like us?” The sway of confidence in the “big rice pan” helped people gain a new understanding of the principle of distribution of the socialist society and understand the principle of distribution under the socialist market economy. In fact, the fairness of income distribution is unclear. Who can say that the average distribution is fair? Under normal circumstances, the average distribution cannot be fair, and only the average distribution under special conditions is fair. The following is an example of a special case. A city has a drought and fresh water is in short supply. The city supplies one small bucket of water per person per day. It is the same for the poor and the rich. This is fair. Another example of exceptional circumstances would be a village that is flooded. Let us say that all the villagers have gone up the mountain. They use motorboats to transport their buns (bread) until relief comes, carried in steamboats. Each person gets two steamed buns, and no one is poor. No matter who is poor or rich, everyone is equal. This is fair. The average distribution of fresh water and food under the above special conditions is fair because it involves people’s right to life, and everyone is equal in the right to life. Then, in addition to exceptional circumstances, the distribution of income in the market economy should be based on a model of efficiency and fairness. There is no doubt that we should emphasize efficiency in the market economy. It is not realistic to talk about the reasonable distribution of income without

86  Cultural enlightenment efficiency. What if there is a large income gap? The government can coordinate this via an adjustment of the distribution of income. In general, this focuses on two points. One is to impose certain taxes on high-​income people, such as personal income tax and estate tax. Of course, the tax rate should be proper, otherwise it will dampen the enthusiasm of business operators and investors. The second is to give low-​income families a living allowance. The efficiency and fairness of income distribution should be the main purpose of income adjustment. This will inevitably become the guiding ideology for the distribution, and it will also become the basis for the market to regulate it. We cannot do this under the planned economic system. We should adjust the evaluation criteria for the distribution of income under the planned economic system with the gradual establishment of the market economic system. Third, the income distribution gap is not only economic, but also social. This is an easy omission in economics, which only considers the income distribution gap in the economic sense and ignores it in the social sense, or only considers the income distribution gap in the social sense and ignores it in the economic sense. Here, the first thing to understand is the difference between the rationality of the income distribution gap in the economic sense and the rationality of the income distribution gap in the social sense. In the economic sense, we assume that all suppliers of production factors take part in market economy activities from the same starting line and the result of the competition makes them have a certain gap. This gap in income distribution is the product of efficiency or the benefit principle under equal opportunity conditions. In other words, there are two conditions for the rationality of the income distribution gap in the economic sense. First, the opportunities for the suppliers of production factors are equal. They are on the same starting line, and the opportunities are equal, that is, the starting point for their participation in market economic activities is the same. Second, everything is based on efficiency or the benefit principle. If these two conditions are seen, then we cannot consider the gap in income distribution between suppliers of production factors to be unreasonable. If there is a violation of one of the conditions (opportunity is not equal or income is not collected according to efficiency or benefit), then the income distribution in the economic sense would be irrational. The degree of the gap in the economic sense is irrational depending on the extent to which the suppliers of production factors deviate from the first or second condition above, or to the extent of the deviation from the above two conditions. In the social sense, whether the income gap between the suppliers of production factors taking part in market economic activities is rational is determined by other criteria. Of course, the above two conditions for measuring whether that gap in the economic sense is rational or not (first, whether the suppliers of production factors have equal opportunities and stand on the same starting line; and, second, whether this is all based on efficiency or benefit) is also suitable for assessing whether the income gap of suppliers of

Cultural enlightenment  87 production factors in the social sense is rational. Therefore, the above two conditions are still valid. However, it is not enough to measure the income gap of suppliers of production factors in the social sense, and it is not enough to rely on the above two conditions. We must try to find other conditions. The irrational distribution of income in the social sense may manifest in the existence of income distribution gaps that cause instability in society. Social instability hinders economic development, resulting in slow growth, stagnation, or decline in efficiency or benefits which, in turn, results in lower per capita income or makes it harder to improve the situation. So, how do you judge whether society is stable or unstable and to what extent society is unstable? We can take the satisfaction of the members of society with their own income and that of others as indicators. One of the indicators is the individual’s absolute income satisfaction, and the other is the individual’s income satisfaction compared to others.5 Personal absolute income satisfaction is different from personal relative income satisfaction. Personal absolute income satisfaction is the basis of personal relative income satisfaction. The importance of the impact of personal relative income satisfaction on social unrest is the four situations of A, B, C, D: A Where personal absolute income satisfaction is good, good satisfaction with personal relative income has minimal impact on social unrest; B Where personal absolute income satisfaction is good, poor satisfaction with personal relative income has minimal impact on social unrest; C Where personal absolute income satisfaction is poor, good satisfaction with personal relative income has significant impact on social unrest; D Where personal absolute income satisfaction is poor, poor satisfaction with personal relative income has significant impact on social unrest. As for the personal absolute income satisfaction and personal relative income satisfaction of members of society, the average absolute income satisfaction of society and the average relative income satisfaction of society can express them. Therefore, we should express the above order of the impact of personal income satisfaction on social unrest in terms of the average absolute income satisfaction of society and the average relative income satisfaction of society. In measuring the social income distribution gap, we can use the value and change of the Gini coefficient as a surrogate indicator. The lower the Gini coefficient, the closer to the inequality of income; the higher the Gini coefficient, the greater the gap in income distribution, and the farther away from equality of income. Although the above has already stated that average income distribution in general is not the target of income distribution, we can

5 See the second section of Chapter 10 of this book.

88  Cultural enlightenment still use the Gini coefficient as a reference indicator for judging the average income satisfaction of society, because if it is increasing, it will lead to social unrest. In view of the current situation in rural China, we must focus on changes in the income of rural residents in China after the confirmation of land rights. Before the founding of the People’s Republic of China (in the revolutionary base areas) and after the launch of land-​reform policies, the land of farmers was divided into high-​ level cooperatives and used to establish people’s communes. Under the people’s commune system, farmers had no autonomy, and of course, no property rights. After reform and opening up, the country promoted the rural household contracting system, but the farmers still only had the right to contract and manage the cultivated land, which means they still lacked property rights. They did not have a lot of income, so the Gini coefficient remained high for a long time. After the conformation of land rights, the situation changed significantly. Farmers not only obtained the right to run the contracted land, but also the right to use the house site and the property rights of the house on the house site. After the confirmation of land rights, there were land transfers, and the scale of the agricultural operations increased. The number of farmers working outside the home and running small and micro-​sized enterprises increased. In the pilot areas, mortgage loans for the property of farmers were also available to help them start a business and make money. These were all new phenomena never before seen, so a decline in the Gini coefficient was predictable. The above-​mentioned new phenomena in the Chinese economy, especially in the rural areas after the confirmation of land rights, clearly tells us that the new ideas, the new situation, and the implementation of new reform measures required us to update some of the popular old evaluations and old ideas of the past. Now that we have reformed a series of practices under the planned economic system, how could we continue to use past evaluation criteria? This shift in development philosophy was undoubtedly the added content of cultural innovation in the new era. 3.3.5  Why do we need to add cultural enlightenment and cultural innovation to cultural economics? We can divide Western economics into two parts:  Macroeconomics and microeconomics. Both macroeconomics and microeconomics adopt the method of quantitative analysis to examine the relationships between relevant variables in the economy. The difference between the two is that macroeconomics studies the whole of national economic activity and analyses aggregates, so we also call it aggregate economics. Microeconomics looks at the economic activities of individual economic units (businesses and consumers) and analyze quantities, so we also call it quantity economics. In addition, the economic study between aggregate analysis and quantity analysis, such as regional economic activity and regional development, we often

Cultural enlightenment  89 refer to as regional economics. For the study of the economic activities of an industry sector and the rise and fall of industries, we often refer to this as industrial economics. Like regional economics and industrial economics, we often refer to such research as mesoeconomics or structural economics. Mesoeconomics also adopts the quantitative analysis method, but the scope of the research is between aggregate analysis and quantitative analysis. In addition to quantitative analysis methods as well as macroeconomics, microeconomics, and later mesoeconomics using quantitative analysis methods, there is also institutional economics, which adopts non-​quantitative analysis methods to look at so-​called institutional problems. Institutional economics has a long history. Institutional economists who focus on institutional analysis were in place long before modern Western economics. For example, we often consider the British economist Richard Jones in the early nineteenth century to be the earliest institutional economist, although Jones’s influence in the world of economics is small. Later, in the late nineteenth century, the economists of German historical schools had a major influence in the study of institutional economics. Their influence expanded across the Atlantic and directly affected American economics. At the end of the nineteenth century, there was an institutional school of economics in the United States. Although people saw the American institutional school as a variant of the German historical school, its influence grew. In the early twentieth century, the three main representatives of the American institutional school were Thorstein Veblen, John Commons, and Wesley Mitchell. Later in American economics we saw the appearance of institutional economists such as John Galbraith, Kenneth Boulding, and Robert Heilbroner, whose research focuses on institutional and social changes. Veblen’s main representative work, The Theory of the Leisure Class, is a masterpiece of the capitalist world from a cultural point of view. Galbraith’s The New Industrial State and Economics and The Public Purpose are two books that analyze the silent changes of the capitalist social system from the cultural level. Although the authors of institutional economics have been in a non-​mainstream position in Western economics so far, their discussions of the role of culture in capitalist society and the influence of culture on capitalist institutions is still valued by readers. When discussing what cultural economics should study and what to advocate, theories of the new institutional school are worthy of attention, even though these works were written close to a hundred years ago. Cultural economics, as already pointed out, is a branch of economics that studies the relationship between culture and economy. Therefore, from the problems it studies, it will inevitably involve the analysis of economic aggregates and economic quantities, but the analysis of institutions is undoubtedly a key part of cultural economics. We can even argue that if a book on cultural economics disregards institutional analysis and only discusses quantitative analysis, it is not in line with the original intention of the analysis of the relationship between culture and economy. We cannot clarify the evolution of the relationship between culture and economy if cultural economics research

90  Cultural enlightenment does not discuss the origin of institutional changes and the replacement of evaluation standards, the changes of old orders and old ethical concepts, and the establishment of new orders and new ethical concepts. In other words, we must seriously interpret the issues of cultural enlightenment and cultural innovation in cultural economics so that we can follow the footsteps of the times. It is precisely because of the profound influence of institutional changes on culture that this book explains basic concepts of cultural economics in the first chapter and the cultural industry in the second chapter, and considers cultural enlightenment and cultural innovation in the third chapter because, in my opinion, this can put cultural economics on the right track. For the fourth chapter, I have chosen the title “Cultural Adjustments.” The fifth chapter is titled “Cultural Inclusion,” which I think is reasonable.

4  Cultural adjustments

4.1  Order of the three adjustments 4.1.1  The mission of economics: Study the effective allocation of resources What is economics studying? From ancient times to today, there have been various interpretations. However, these different interpretations have gradually begun to come together, that is, more economists and researchers tend to think that economics is the study of the effective allocation of resources. People’s lives and production are inseparable from the supply of resources. The simplest example is that people want to survive and want to live. However, they cannot live without land, without fresh water, or without the crops produced on the land or the wild fruits. They are inseparable from huntable animals that live on vast grasslands or from fish that live in rivers and lakes or in the sea. Thus, everything that we can use to sustain human life is a necessary resource for people to live and to produce. However, in a certain sense, we have limited resources on which human beings can depend for life and for production. The term “limited” does not refer to the stock of resources, but only to the resources that we can obtain and utilize. Resources that are far away or that we cannot exploit and utilize are resources that are currently unavailable, or resources that are not available to us, so we cannot consider them. Therefore, we must limit resource allocation in economics to the resources that people can obtain and use under existing technical or physical conditions. With concepts or rules like “ownership,” “property rights,” or “use rights,” we could talk about how to allocate resources and use resources and study how to allocate resources more efficiently and use resources more reasonably. The earliest effective allocation of economic resources resulted in this way. In production and life, people gradually exchange products. That is how the earliest market transactions appeared. The market is just a place for trading. People bought things to the market where they would become commodities and the commodities would become products after trade. Later, the market gradually expanded and the number of people taking part in trade increased. The types and quantities of products for trade were much more. People saw the

92  Cultural adjustments transport market as a commodity, that is, a product that we could trade. Then there was the businessperson. A businessperson is a person who specializes in buying goods and selling them, including businesspersons who buy goods and then transport them to another place to sell for profit. In this way, three new concepts appeared. The first concept was currency. Buyers and sellers restrict what we can barter, and it is often impossible to make a deal this way. It is much more convenient to have cash, which might have begun with an item such as a shell. The second concept was market management. Whoever acts as market manager depends on the specific conditions of each place. In some places, we can choose people who we trust and who are both reputable and responsible. In other places, the government might appoint people (if a government or similar authority had appeared). The third concept was government organization. Although this appeared later, if the situation was different with government organization. This is because the government managed the market. However, this was only part of the government’s function. What is more important is that the government managed resources, controlled the allocation of resources, and was firm about resource intervention and allocation. A person could not violate the government’s decision or government would punish violators. In addition, the government had to levy taxes for management, for defence, and for obtaining funds. It could even monopolize resources and would not allow anyone to undermine this monopoly. There are two systems for distributing resources and two means for distributing resources. One is the system of resource allocation in the market, that is, the change in the supply-​and-​demand relationship in the market, and the allocation of resources via the market. The other is the system of resource allocation by the government, that is, government directives are what allocate resources, regardless of the wishes of the participants in the market. One means of resource allocation is the system by which the market allocates resources, that is, resources are allocated according to changes in market supply and demand, and the gap caused when supply exceeds demand or supply is less than demand is relieved in market fluctuations. The other is how the government distributes resources, that is, according to government directives or government-​developed plans. Government directives and government-​ developed plans are laws and regulations, and people must not violate them. The two different systems for resource allocation and the two different means of distributing the resources reflect two distinct guiding ideologies. In social economics, the government can do certain things, and the market can do certain things. Under the government system, the guiding ideology is “the government can take care of it.” The thinking is that government is strong enough to do so, which means it is out of our hands. So, the market does certain things (such as the production of small commodities and the operation of retail stores). The implication is that the government is strong, and it will regulate these things. Under the market system, the guiding ideology is that “the market can take care of it,” which means the government only does things that the market cannot do or does badly. So, what are the things that the

Cultural adjustments  93 market cannot do or does badly? Things such as national defence and public security, the construction of major infrastructure, controlling industries with large social benefits and low economic benefits, reduction of regional income gaps, and coordination of personal income distribution. Also, for social and economic stability and development, we need to have macroeconomic regulation and control. Macroeconomic regulation and control are the responsibility of government, and it should shoulder this responsibility. The above examples explain the basics of resource allocation problems clearly. Below, let us further explain the difference between market regulation and government regulation. 4.1.2  Market regulation The market appeared in the late period of primitive society when trading occurred between tribes. This was the earliest market activity. We can also say that market regulation began at this time. The impact of this on the economic activities of the tribes and the production and life of the tribes was the impact of the market on the allocation of resources. Not every tribe can be completely self-​sufficient. For example, not every tribe had copper ore mines in the area where they lived, so they needed something to exchange with copper-​producing tribes. Not every tribe lived near the sea or had salt mines, so they needed something to exchange with the salt-​producing tribes. So, what did they use to exchange with other tribes? On the one hand, tribes had to consider their own resource endowments. For example, tribes that produced cattle and sheep could increase the number of cattle and sheep, and tribes that produced wood could increase the output of logs in exchange for other tribal products. Market transactions are self-​ regulating based on price fluctuations caused by the ratio of supply and demand of commodities. This is a characteristic of market regulation. The market does not acknowledge monopoly. When there is a monopoly this hinders market transactions. However, if it is not a government monopoly, market transactions will continue as usual. We cannot make government monopolies at the national level, and it is impossible for government to monopolize all kinds of goods, except during wars or when there are only a few special commodities. For example, countries will sometimes monopolize salt and iron by not giving official approval or refusing special rights to run the mines. Some countries have provisions on land transactions that restrict foreigners or people from a certain class in the country to buy land. Others have special regulations for purchases and operations by ethnic minorities or members of another religion. The list goes on. Yet, in addition to special times (such as wartime), the market still plays a regulatory role in resource allocation, because government monopoly is only regulating the production and sales of a few industries and a few goods. From the perspective of technological progress, the coexistence of a monopoly and market regulations are even conducive to technological progress.

94  Cultural adjustments This is because perfect competition is not a system suitable for technological progress, and perfect competition cannot guarantee the long-​term benefits of technological progress. Imagine a completely competitive situation. In such a situation, all enterprises and inventors will be in a wait-​and-​see state. Where technology is invented, they will study and imitate, so no one wants to make a technological breakthrough, but prefer to imitate, because imitation costs less, but they still can gain from technological progress. In this market situation, how can there be a big technological breakthrough? There is no protection for the technical achievements of inventors. Who is willing to invest a lot of time, energy, and resources to invent in a situation like this? A complete monopoly is also not suitable for technological progress. Enterprises that enjoy complete monopolies do not need to invest a lot of resources to conduct experiments, because the complete monopoly has guaranteed their own profits. What reason is there to use a lot of resources to experiment and even conduct trials to ensure profits? All of this is unnecessary. Under a complete monopoly, there is no threat from opponents, so why not enjoy the vested interests? Therefore, only the market between perfect competition and complete monopoly, that is, the market of “monopolistic competition,” is the most suitable market for technological progress. The market has certain competition that can promote technological progress and new breakthroughs in technology. The market has a certain monopoly (referring to government protection of patent rights, that is, patent rights can be maintained for a certain period of time, during which permission is necessary to use other people’s inventions and original achievements) that recognizes technological monopolies for a certain period of time. The above-​mentioned relationship between market regulation and competition and monopoly is meant to help us understand the true meaning of market regulation:  Both encourage competition and protect technological progress. Here, it is also necessary to talk about the relationship between market regulation and government management. But first let us talk about the “mixer” hypothesis. For example, let us say you have a small packet of white sugar and a small packet of sesame seeds. You find a primary school student to mix the white sugar and sesame seeds evenly. The student knows to pour the white sugar and sesame seeds into a cup without overfilling it and fills the cup halfway, then covers it. The student shakes the cup about a dozen times and then opens it, and we see that there is an even mix of white sugar and sesame seeds. The mixer principle is the same. We place a pile of cement, a pile of pebbles, and a pile of sand into a mixer, turn the power on, and then start the mixing. After a while, there will be an even mix of cement, pebbles, and sand. Market regulation is exactly like this. The market is like a big mixer, and the mixing work is conducted by the mixer. After we put various production

Cultural adjustments  95 factors into the market, they are stirred, mixed, and reorganized and, in the end, we achieve an effective combination of resources, and efficiency will appear. So, what role does the market manager play? The manager of the mixer has three functions during the operation of the mixer: 1 Develop rules and regulations for the operation and running of the mixer; 2 Troubleshoot; 3 Fine-​tune: If the mixer is running too fast, slow it down; if it is running too slow, speed it up. Market managers also play a similar role in the market-​operation process: 1 Formulate rules and regulations for the market; 2 Troubleshoot; 3 Fine-​tune: If the market is running too hot, cool it down; if it is running too cold, warm it up. In any case, the mixer manager cannot replace the mixer, and the market manager cannot replace the market. However, there is another question. Where does the power of the mixer come from? A real mixer usually has an external power supply. Once plugged in, it will run as soon as we switch it on. But what external power supply does the market have? There is none. Markets must be dynamic, and enterprises and individuals who need to take part in market activities are the energy. The more energetic they are, the more energetic the market will be. The more energetic the microeconomic entities (enterprises and individuals), the more market operations will be normal, and the more promising they will be. These are the characteristics of market regulation. 4.1.3  Government regulation Government regulation should focus on demand management in the near term. In the medium term, it should focus on supply management. In the long term, it should focus on social coordination, including the narrowing of the income-​distribution gap, improvement of social-​life quality, and coordination of social psychology. Therefore, we cannot ignore the role of government regulation in any country. Even the most developed markets—​those in the United States and Western Europe—​have placed government regulation at the forefront. Why should we focus on the management of demand from the perspective of recent national economic management? We can analyze this from three aspects:  Investment-​demand management, consumer-​demand management, and foreign-​exchange demand management.

96  Cultural adjustments 4.1.3.1  Demand management 4.1.3.1.1  INVESTMENT-​DEMAND MANAGEMENT

In China the task of recent national economic management is to support economic stability through the adjustment of aggregate social demand, and the management of investment demand is particularly important. In order to manage investment demand, it is easy for developing countries to cause a situation of over-​investment, which usually relates to the guiding ideology of economic development, that is, eagerness for success and the one-​sided pursuit of speed. From the perspective of the economic system, it relates to state-​owned enterprises as market entities, which often do not bear investment risks. This shows that important requirements should be placed on the institutional reform of state-​owned enterprises to make enterprises become market entities that run independently and bear investment risks. 4.1.3.1.2  CONSUMER-​DEMAND MANAGEMENT

In most developing countries, the expansion of consumer demand is often associated with the expansion of investment demand. This is because if the scale of investment in fixed assets expands, then the number of employees increases, and the total wages of employees will increase as well. This is a common phenomenon in the planned economy. For the Western economies, the expansion of consumer demand in recent years is associated with rising social-​welfare spending. A more common phenomenon is that the growth of public consumption expenditures drives the growth of consumer demand. As a result, the demand for consumer goods is greater than the supply, which in turn causes prices to rise. This shows that for developing countries, we must try to curb the excessive growth of investment demand. For the developed countries in the West, we should prevent the excessive growth of social-​welfare expenditures so that consumer demand can return to normal. 4.1.3.1.3  EXCHANGE-​RATE MANAGEMENT

In national economic management, we should also work on exchange-​rate management. The exchange rate is not only a sign of the normal operation of a country’s economy, but also an important means of regulating the flow of imports and exports and capital. In general, the goal of exchange-​rate management is to adjust the balance of international payments, and the focus of this management is on the basic balance of international payments. The difficulty of exchange-​rate adjustment is that it cannot be effective only by the adjustment measures of a single government. Exchange-​rate fluctuations are related to the management of investment demand and of consumption demand. Even more so, they are related to the international trade situation and the flow of capital. The balance of payments should not be aimed at a mere balance of payments, but should be considered in the context of the

Cultural adjustments  97 economy as a whole and in terms of what would be more conducive to economic stability and development. Similarly, an exchange-​rate rise is more favourable in certain cases while, in other cases, a decline in the exchange rate is more favourable. There is no fixed pattern in this regard. As can be seen from the above, in the short run the focus of government regulation is undoubtedly on demand management (investment-​ demand management, consumer-​demand management, and exchange-​rate management) but, from the medium-​term perspective, it is on supply management. 4.1.3.2  Supply management To support stability and development of the economy, it is not enough to manage only from the demand side. Medium-​term national economic management is supply management. In general, supply management includes four critical issues: Industrial restructuring, regional restructuring, technological restructuring, and labour restructuring. 4.1.3.2.1  INDUSTRIAL RESTRUCTURING

There is a supply–​demand relationship between various industries like raw materials, fuels, or spare parts. The criteria for judging whether there is coordination in the supply–​demand relationship depend on price levels, product quality, and the level of technology. Even without major technological innovations, changes in product supply occur often among industries, mainly because of changes in product prices and the supply-​and-​demand of products. Or, due to the emergence of alternatives there is a significant increase in the supply process that causes huge reductions elsewhere because of changes in things like energy use, structure and consumer preferences. This would inevitably affect the changes in the supply-​and-​demand factors of various industries. Overcapacity in an industry, or insufficient supply in an industry, are related to this. What this involves the issue of industrial structure: Changes in the quantity of products supplied between industries will lead to the elimination of certain industries if they do not adjust their structure. However, industrial restructuring is not possible in a brief period. Moreover, how to reduce or stop the production by enterprises, what products to produce, and where the surplus labour force is going—​these are all up to enterprises, but it is not easy to make decisions quickly. Some industries are in weak positions, and they need to plan before a decision can be made on how to complement these weak industries. 4.1.3.2.2  REGIONAL RESTRUCTURING

The regional economy is an integral part of the national economy and has a comprehensive nature. Regardless of a region’s size, we can analyze it according to the industrial structure, so regional restructuring to a certain

98  Cultural adjustments extent includes the industrial restructuring of the region. However, regional restructuring also includes aspects outside the industrial structure. For example, regions prone to droughts and that have low urbanization rates and small populations might depend on nomadism for a living. The main problems in such regions are water diversion and water storage for improved conditions for the livestock industry and increased production for farmers would increase their income. In such regions, the main problem is not setting up an industry. Thus, regional restructuring is not effective in the short term, and it is necessary to improve the regional structure through medium-​term planning. 4.1.3.2.3  TECHNOLOGICAL RESTRUCTURING

Technological structure refers to the proportion of technologies at various levels (such as state-​of-​the-​art technology, less-​advanced technology, mid-​ range technology, outdated technology, and original technology), as well as the proportional relationship between them. Technological restructuring refers to an unreasonable proportion between various levels of technology in the economy. For this reason, we need to change it so that each level of technology can occupy a proper position in the economy and adapt to the requirements of economic growth. In theory, we need to eliminate outdated technology, but the decision should be made according to the economic situation. For example, in economically underdeveloped regions, local small enterprises might still be using less-​advanced technology to supply the products that residents need, while still maintaining the employment of workers. We must consider any decision to cut these small enterprises, together with related issues. Local farmers might still use original manual artisanship to create scarves, hats, and apparel that reflect local ethnic customs. These things are attractive to tourists and we should not simply eliminate them for the sake of technical simplicity. Of course, shutting down small coal mines and small smelters in certain places due to air pollution, water pollution, and other reasons is another matter, because if these small factories rely on outdated technology to produce, this will inevitably lead to environmental damage, as well as waste resources due to inefficiency. 4.1.3.2.4  LABOUR RESTRUCTURING

When regulating the national economy from the supply side, this also relates to labour restructuring, which is also a problem that we need to solve by medium-​term management. In industrialization, Western countries have met problems such as the inability of labour to adapt to economic restructuring and technological restructuring. In industrialization, the technical level of the labour force is getting higher, and the demand for skilled workers, especially skilled technicians, is increasing. However, at the same time, the employment opportunities for unskilled workers and workers without unique skills are

Cultural adjustments  99 narrowing. We cannot solve this problem quickly. We must set up vocational and technical schools early on to train skilled workers. The above four aspects (industrial restructuring, regional restructuring, technological restructuring, and labour restructuring) illustrate the point that demand management is not easy and that supply management is actually more difficult, because supply adjustment mainly involves structural adjustments (industrial restructuring, regional restructuring, technological restructuring, and labour restructuring). Without structural adjustments, we cannot expect supply to grow in the long-​term. 4.1.3.3  Social coordination Social coordination involves various problems, usually such as the narrowing of income-​distribution gaps, improvement of social-​life quality, and coordination of social psychology. In fact, these problems are much more difficult than demand management and even supply management. For example, in present-​day Western European and the Nordic countries, GDP per capita is among the highest in the world, and the gap in the distribution of per capita income is also small. This is reflected in the decrease in the Gini coefficient, and the improvement in the quality of social life is obvious as well. However, they all have met unfamiliar problems and new contradictions, because social psychological disharmony has emerged. Economists have affirmed that Western European and Nordic countries have been working hard to improve social welfare and to clean up the environment since the 1950s, but they are also worried about social issues in these countries. For example, social estrangement caused by the influx of Asian and African immigrants, by ethnic and religious conflicts, the increase in the financial burden caused by excessive welfare expenditures, and the social uneasiness caused by the decline in work efficiency and lack of innovation. The difficulty of social coordination has attracted the attention of the international economics community, but the academic community is still debating what kind of government adjustment measures would work. 4.1.4  Moral power regulation People often consider market regulation to be the first type of regulation. The market relies on changes in supply and demand to spontaneously adjust the allocation of resources. Market regulation is also known as the “invisible hand,” which means the social economy plays a silent role. People often refer to government regulation as the second regulation. It relies on laws, regulations, and rules as well as government-​developed policies to directly or indirectly regulate resource allocation. We can achieve government regulation in a planned or unplanned manner. No matter how the government regulates, it is government intervention. Therefore, the biggest difference between government regulation and market regulation is that we

100  Cultural adjustments do market regulation silently through the “invisible hand,” while government regulation is done through the “visible hand.” Here, the term “visible hand” refers to laws, regulations, rules, and policies. Is there a third regulation besides the first regulation (market regulation) and the second regulation (government regulation)? To be sure, there is indeed a third regulation: Moral power regulation. From the perspective of human history, the emergence of the market is a matter of only a few thousand years. In the dismantling stage of primitive society, there were barter exchanges between tribes, which were things that the tribes caught or harvested. They traded the agricultural, livestock, and fishery products that they bred and grew themselves with other tribes and their members at mutually agreed locations. This constituted the earliest market transaction, and it occurred only a few thousand years ago. Government regulation came about after the establishment of countries or a similar type of organization. Government could intervene or take part in trading, a situation that came even later than the trading between tribes. But when did human society appear? The answer is long before the market or the government appeared. Human society has existed for at least several thousand years. Back then, since there was no market, there was no market regulation. There was also no government, and so there was no government regulation. So, what caused human society to adjust in that prolonged period? And by what force did human society regulate during those long years? It was a moral force that regulated. Moral power regulation includes regulation of habits, customs, and common conventions or practices. This was the only adjustment before the emergence of the market and the government. In the human society that had formed before the emergence of the market and before government, the push to regulate habits or the moral power that was recognised by the people at that time was a cultural tradition regulation. This cultural tradition was recognized and adhered to by the people at the time, and they relied on this cultural tradition to adjust their relationships and handle the relationships between each other. Under the influence of this cultural tradition, people’s behaviour gradually became orderly and standardized, customary conventions were created and passed down, and this became a recognized practice. In ancient times, how did members of a tribe carry out production, hunting, and gathering activities? The kinds of tasks that each person shared (divided by men and women, old and young) could only be adjusted by customary power or moral power. Another example is how the means of subsistence was distributed within the tribe, between people, and between homes. Especially in the case of a food shortage, only customs and moral principles could regulate how to distribute food within the tribe. At that time, it was assumed that if people violated established cultural traditions, then their behaviour was not standardized and the allocation of resources was disorderly, which would cause instability within the tribe and undermine the order gradually formed between members. The result would be a disaster that would help no one.

Cultural adjustments  101 The famous British economist John Hicks used the term “customary economy” in his book, A Theory of Economic History, which he considered to be the earliest non-​market economy model. Hicks wrote: In the customary economy, there is a people who are not much disturbed in their ancient ways by external pressures. Their economy can function, with every member performing his allotted task, including the decision-​making which is left to him within his allotted circle; overriding decisions “from the centre” will scarcely ever have to be made.1 This “customary economy” is self-​adjusting for maintaining a balanced state. As Hicks wrote: Once the system has attained an equilibrium, it can continue for long ages without the need for reorganization—​without the need for decisions of an organizational characters. The ordinary emergencies, such as harvest failures or attacks by the “usual” enemies would not require new decisions; ways of dealing with them could be incorporated within the tradition rules. So long as the equilibrium persisted, there might even be no need for an organ by which ultimate authority could be exercised.2 So, the “customary economy” mentioned by Hicks, was an economic way in which human society relied on moral power to regulate before the appearance of market and government regulations. This shows that a third regulation does exist in human society. Before the emergence of market regulation and government regulation, moral regulation was the only regulation. This situation has been supported for a considerable period. The question that comes next is, did moral regulation still exist after market regulation and government regulation came about? Did it continue to play a role? Let us turn to this discussion in the next section.

4.2  Progress of the third regulation 4.2.1  The actual situation in remote areas Since ancient times, the development of various regions has always been extremely unbalanced. Some places have developed earlier, and others have developed later, but there are also some remote and inaccessible areas that have been closed to the world for a long time. Outsiders do not go to these

1 John Hicks, A Theory of Economic History, Oxford: Oxford University Press, 1969. 2 Ibid.

102  Cultural adjustments remote places, and the locals do not come out. They have no way of knowing the outside world. In addition, there are inhabited islands, but some residents on the islands might be connected to land and thus are influenced by the villagers there, while other islands may be too remote, so the residents simply do not come out and outsiders do not go to these islands either. Due to the remoteness of certain areas, their residents do not know that the outside world is inhabited and that there are various types of goods available, so they are ignorant of the market and have no contact with it. There are no markets in these remote areas or on these closed islands, so there is also no market regulation. Government made intervention possible in economic activities or in regulation. However, government power is only valid in areas under government authority. Regarding remote areas and the places where the mountains are high and there are no roads or rivers and the islands are isolated, the government has no administrative agencies in these places and does not recruit new soldiers, impose levies on crops, or collect taxes in these places. It does not exercise its power there, and administrative officials do not regard them as under their own authority, and government regulatory power does not reach there. In remote areas and islands where there are already residents living there, but the market forces cannot reach them and the government has no control over them, what do they rely on to maintain order? They can only rely on the “customary economy,” described by Hicks, and rely on moral power regulation. Of course, it is impossible for residents to never come together. After years of market activity, people might enter these remote places. Government authority might also extend to these places at a later time, and as a result, these places would accept government intervention and government regulation. However, like everywhere else, moral power regulation will still have a certain role to play. This is because the three roles of market regulation, government regulation, and moral power regulation work together. 4.2.2  The actual situation during the period of social unrest There is an old saying in China:  “Small chaos in the city, big chaos in the countryside.” This is a summary of the response of the people during times of war in ancient China. “Small chaos in the city” refers to a small disturbance that causes rural residents to flee to the city with their young and old in search of relatives and friends, but since they often have no one in the city, they just wander the streets during the day and find temporary shelter on the streets at night to keep their families safe. The government deals with the problem of displaced people in the city by adopting resettlement methods to allow them to have a place to live, and also open warehouses to provide porridge, so the displaced people from the countryside do not starve to death. During this period of

Cultural adjustments  103 difficulty, some wealthy households in the city will often donate money to help the people who have fled there to survive. The reason we call it “small chaos in the city” is because a city has a protective wall, and soldiers guard it. The rural refugees keep safe by hiding in a city during small disturbances in the countryside. During the “small chaos in the city” period, the market is still active and still plays a regulating role, but prices rise as the food supply tightens. In this critical moment, however, from the government to ordinary urban residents, everybody tries to keep the rural residents who have fled to the city from starving or freezing to death. Moral power regulation still plays a role. The situation is different when there is “big chaos.” Social unrest refers to the military repression caused by foreign invasions, fighting between warlords, and peasant uprisings, or the separatism of military districts and other conditions caused by peasant uprisings. In an era of great turmoil, a city is often a battleground that the military will besiege and cut off from food crops and water. Attackers would flood and burn the city and sometimes slaughter the residents after it fell. Therefore, during periods of social unrest, the residents of a city, whether rich or poor, would run to the countryside—​and the more remote the better. Such great turmoil would paralyze the market, and market regulation would not play any role. The government would also fail, and government-​issued orders would not work, but the people would survive. Residents of a city who fled to the countryside could connect with each other in the turbulent social environment, encourage each other, and take care of each other. What power did they rely on? It is moral power that makes everyone work to tide the refugees over during the difficulties. When the social unrest ends and market transactions return to normal, the government would re-​issue orders and everything would return to normal. Some residents of the city would return to their former place of residence, while others, who were willing to stay in the countryside, would settle there. But there were more new urban residents who were willing to live in the city. This showed that everything was normal, and that moral power regulation still played a role in social economic and cultural life. 4.2.3  Regulation of the non-​transaction field We can divide social life into two major areas. We can call one the “trading field,” which includes market activities, market transactions, and market competition, as well as other market-​related matters that belong to the trading field. Since it is a matter in the trading field, market regulation plays a role as usual and does not affect the role of the market itself, depending on the changes in the number of transactions or the ups and downs of prices. Another area is the non-​transaction field. For example, family relationships, clan relationships, neighbourhood relationships, hometown relationships, classmate relationships, teacher-​ student relationships, and colleague relationships are all non-​ transactional. For another example, academic

104  Cultural adjustments activities, social activities, religious activities, and public welfare activities also belong to this field. Since all the relationships and activities in the non-​transaction field are not related to transactions, there is no space for market regulation, and market rules and market practices are not applicable. So, does government regulation enter the non-​trading field? Not necessarily, as it depends on specific circumstances. Take family relationships as an example. Family relationships are not subject to market rules, and market conventions do not work in the non-​trading field of family relationships. What role can governmental management play? To put it simply, government and laws set a certain boundary for family relations, and family members recognize the boundary and do not cross it. If they cross this bottom line, the law will intervene and the government will investigate it. If there is elder abuse, spousal abuse, or child abuse, there will be people who will report it, or the abused family members themselves will complain to the government or its affiliates. This will force the government to investigate the matter. As for family disputes that have not crossed the legal bottom line, the government will not investigate and will not intervene. Let me give you another example, say religious activities. If there is no violation of laws and regulations, the government will not question the religious beliefs of residents. The residents themselves are the ones who decide what kind of religion to believe and what kind religious activities to take part in, and the government will not ask questions. If a believer violates the precepts of his own religion, his religion will deal with the issue according to its own rules. If serious, it might punish him, but it is still an internal affair. The government still controls the legal bottom line and this will not change. However, the government intervenes only when a religious believer uses the guise of religion to engage in activities not permitted by law (such as illegal gatherings, obtaining money by fraud, and insulting women), which could include arresting believers who violate the law. In this way we can make a brief point on the regulation of the non-​ transaction field. The various relationships between residents in the non-​ transaction field are not handled according to market rules; and if there is no violation of the bottom line of laws and regulations, they are not subject to government intervention, and government agencies are not in charge. In the non-​transaction field, the role of regulation is still customary power, that is, moral power. This raises a new question, namely, the rationality of individual behaviour in the non-​transaction field. Countless individuals make up society. There are interactions between people, and there are conflicts. Everyone has their own goals. What is important is how to make sure one’s goals do not conflict with those of another. Suppose that to achieve one’s goals one must compromise another person’s goals. In that case, it is necessary to explore the rationality of the behaviour of this or that person and the rationality of their respective goals. The reasonableness of the behaviour and the reasonableness of the

Cultural adjustments  105 goals are not only aspects of economic activities, but also aspects of social activities. A  person’s behaviour or goals in economic activities may be reasonable and consistent with his or her actions in social activities while at the same time be unreasonable in terms of social activities. Therefore, it involves a person’s inconsistencies in the economic and social consequences of behaviour in the non-​transaction field. This is indeed a problem that is difficult to coordinate. I will analyze this problem at three levels: At the first level, we must first look at the effects of market and government regulations. In the non-​transaction field, as mentioned above, we do not use market rules, and market measures are also inaccessible. Government regulation or government intervention will only come into play when relevant activities in the non-​transaction field reach the legal bottom line. This illustrates the limitations of market and government regulations. At the second level, whether moral power regulation plays a role in the non-​transaction field relates to the rationality of people’s economic and social activities. In general, moral power regulation can coordinate the goals of economic activities with social activities. This is the special function of moral power regulation, and it also makes moral power regulation more suitable for the coordination of behaviour and goals in the non-​transaction field than market regulation and government regulation. We can only do this by relying on moral power. At the third level, from this point of view, there are two bottom lines in the non-​transaction field and various related relationships and activities. First is the legal bottom line and second is the moral bottom line. Every member of society knows these two bottom lines exist and that they must be adhered to and not gone against. The bottom line of the law is rigid and we cannot cross it. This is correct. However, does this mean that the moral bottom line is flexible? We cannot look at the problem like this. Both lines are bottom lines that do not allow for violations and breakthroughs. In this way, order in the non-​transaction field is normal and the rationality of behaviour in the non-​ transaction field and the rationality of goals will tend to coordinate.3 4.2.4  The three regulations do not necessarily conflict with each other: They are more likely to be complementary As mentioned above, we often refer to market regulation as a way of resource allocation, as the “invisible hand,” and we often refer to government regulation as a way of resource allocation as the “visible hand.” Is customary and moral power regulation the third way? Is it the “invisible hand” or the “visible hand?” These questions have answers.

3 There is further analysis in the third section of Chapter 9 in this book on the rationality of individual behaviour.

106  Cultural adjustments Judging from the nature of customary and moral power regulation, is it a choice between the “invisible hand” and the “visible hand,” or are the measures unseen and seen? Therefore, we might want to generalize customary and moral power regulation as “invisible but visible” and “visible yet invisible.” For example, self-​discipline is most commonly, and often, used in moral power regulation. Everyone must be self-​ disciplined; there can be no exceptions. Self-​discipline is an invisible regulation. It manifests in cultural traditions, moral beliefs, and basic codes that everyone has formed with their own identity. In the absence of market regulation and government regulation, society could change from disorder to order through customary and moral power regulation, which is a type of invisible regulation and even a silent, undetected self-​regulation. Moral power regulation might also be visible. An example would be the formulation of township regulations, and the residents’ compliance with the regulations and keeping them in mind. Some ancient villages have inscribed village codes on stone tablets or on wooden boards so that the villagers will not forget them and to educate future generations. This is moral power regulation that is visible. Even if the text of the codes on the stone tablet or on the wooden board in the township is unclear or if the writing is not well recognized, the villagers would still remember it. This is still a visible example of moral power regulation. Moral power regulation that is visible also reflects in “cultural construction.” Cultural construction includes cultural construction in villages, communities, campuses, enterprises, and groups. All these cultural constructions are visible, but the consequences of them are invisible, because these cultural constructions produce a sense of identity and a sense of responsibility. This is particularly important in the construction of village culture, community culture, campus culture, enterprise culture, and group culture, because the formation of identity and the establishment of a sense of responsibility do not happen overnight. It is a process of years. We can say that cultural construction is the cultivating point and the point of action for moral power regulation. Cultural construction is visible, but the sense of identity and responsibility that is cultivated is both invisible and visible, because valuable cultural construction results may be visible, and they will be passed down to others and carried forward by others. From this, we can clearly point out that market regulation, government regulation, and moral power regulation do not conflict with each other, but complement each other. The three together maintain an excellent cultural atmosphere to ensure the orderly operation of the social economy. In the context of market regulation and government regulation, moral power regulation also has a role to play. One can imagine that we cannot ignore the role of self-​discipline in moral power regulation. Under market regulation, if suppliers, consumers, and managers lack a high degree of self-​discipline, the orderly operation of market transactions would be impossible. In market trading activities, if one of the

Cultural adjustments  107 suppliers, demanders, or managers is dishonest, does not follow the rules, or harms others out of self-​interest, this would bring disorder to the market. In such a case, what hope would we have for the prospects of the market? In the market development process, not only do you need investments in physical capital and human capital, but you also need investments in social capital. Social capital refers to an invisible capital, which reflects in interpersonal relationships. For example, some farmers or urban residents in Guangdong and Fujian provinces earn a living in Southeast Asia, because they have fellow villagers, acquaintances, and friends in Southeast Asia. Thus, after they arrive in Southeast Asia, if they are hardworking and honest, they will get support and help from their fellow villagers, acquaintances, and friends there. What is it that they rely on? Social capital. If you lack integrity, others will avoid you, and if others avoid you, you will not have the help of social capital. This shows the importance of integrity and the importance of moral power regulation. In government regulation, it is also necessary to coordinate with moral power regulation. If government officials lack integrity and government agencies deceive the people, how would government regulation not fail? What is more, if officials take bribes and bend the law, reverse right and wrong, and create miscarriages of justice unabated, how could this not lead resistance and mass uprisings? This shows that the moral character of government officials is most important. People long for honest and clean officials because they hope that government regulation will be for the people, which is also the prerequisite for government regulation to be able to achieve results. From the above, we can conclude that market regulation and government regulation are not all-​powerful in any social environment or economic situation. There are limitations in market regulation that we cannot ignore. There are also inevitable limitations in government regulation. Without moral power regulation, market regulation or government regulation cannot play their due roles. We often refer to this as market or government failure. When discussing such failure in the world of economics, we must bring up the role of morality. It is difficult to achieve perfect results if the role of morality is not emphasized, no matter how good the market arrangements or how careful the government manages its programs. 4.2.5  Taking the management and guild organization of medieval cities in Western Europe as an example The management of medieval cities in Western Europe and the history of guilds can serve as convincing examples of market regulation, government regulation, and moral power regulation. First, from the fall of the Western Roman Empire in 476 and the establishment by Germanic peoples of a hierarchy of large and small aristocratic territories on the vast lands of the former Western Roman Empire, the original inhabitants became serfs one after another. On the estate, the owner was the

108  Cultural adjustments lord, and the serfs cultivated the land, fed the livestock, and supported the estate with their manual labour. They had no personal freedom. Serfs who fled would be returned to the estate and tortured. When an original lord set up an estate, the hope was that the estate would become a self-​sufficient territory. However, this was impossible, because many foods and supplies are not self-​ sufficient (such as salt, condiments, armour, fine weaponry, war horses, silk, cotton, quality wool, decorations, cosmetics, carpets, and tapestries), which means everything had to be purchased in Eastern cities. To buy these things you needed to have money. And where would the money come from? This is something that the lords worried about all the time. An estate produced food, wine, olive oil, beef, and mutton, crude farming tools, and household items. But other estates also produced these things, so trade could not be conducted between them. The lords later came up with the idea to let their serfs engage in arts and crafts so they would not have to cultivate the land, feed livestock, and support the estates with their manual labour. They could go out to do small business or be craftsmen, and they would pay money to the owners of the estates on a regular basis. In economic terms, they did not have to pay rent and live in abject servitude, and the serfs who were able to change their status to artisans and craftsman and get paid (that is, money to pay land rent) were of course willing to do so. So, these serfs often would leave the estates and go out to make a living, or engage in handicrafts, or set up small businesses. Where did they gather? Mostly at intersections, or at the confluence of two rivers and near piers, or around churches, or on the ruins of the Western Roman Empire. This formed a medieval market in Western Europe. After a period, there were more merchant shops and handicraft workshops. Some former serfs made money and their lords freed them, and they became free people. Some also bought their families’ freedom, and the market became their home. Some old cities that had been dying for many years after the fall of the Western Roman Empire had come back to life about 800–​900  years after the demise of the Western Roman Empire (around the 13th to 15th centuries) because of the increasing number of migrants and people who came to develop the industrial and commercial industries. Cities (including new cities and restored old cities) had become a major feature of the late feudal system in Western Europe. These cities were different from the cities of the Roman Empire in both political and economic terms. They produced and developed in the opposite way of the serf system and for the serfs they became places of refuge and places to live. Many serfs came to the city to work in the handicraft industry. Some were craftsmen or shop owners, some were helpers, and some young people were apprentices. The market prospered because of the development of handicrafts and commerce. The market was active, market transactions were gradually standardized, and market regulation covered entire cities. The cities set up management agencies, and urban residents chose people who were capable, well-​respected, and supported by everyone. They set up regulations and systems, and urban

Cultural adjustments  109 management was becoming increasingly orderly. This shows that both market regulation and government regulation do play a role. To ensure security and prevent neighbouring lords from looting and even swallowing up a city, the cities implemented a compulsory military system and levied taxes to raise funds. However, under the situation of that time, market regulation and government regulation alone were far from enough. The role of customary and moral power regulation was becoming increasingly important. This had become the consensus of urban residents. For example, various handicraft industries had set up guilds and rules within the guilds. From practitioners in the industry to apprentices, helpers, and shop owners, everybody had to follow such rules. There was a rigid limit on how many people could work in a handicraft workshop, and the number of work hours was also stipulated by the guilds, usually from sunrise to sunset, and only natural lighting was allowed as it was prohibited to work in artificial light. Apprentices who became helpers or helpers who became shop owners (craftsmen) had to pass assessments and strict examinations to ensure that they had the required technical level. In some cities, there were strict restrictions on the scale of handicraft workshops. A shop owner could only have one workshop, and some guilds also stipulated how many looms each workshop in the industry could use or how many ovens each bakery could have. To limit the number of employees in workshops, in addition to the public announcement that the number of employed helpers and apprentices could not exceed the regulations, some guilds also stipulated the number and qualifications of handicraft workshop family members who could participate in workshop production, limiting family members to the sons, brothers, and nephews of shop owners and excluding other relatives. Why were there so many restrictions on competition in the handicraft guilds in the medieval cities of Western Europe? This is because, under the conditions of the time, it was not easy to set up a handicraft workshop to make a living in a city. The above-​mentioned restrictions on competition from the guilds themselves were nothing more than to prevent the expansion of urban handicraft workshops from squeezing out the other workshops. This restriction was neither from the market nor from the government. It was neither a market regulation nor a government regulation, but rather, a customary and moral power regulation. The purpose was only to prevent excessive competition and to keep the urban handicraft industry stable. The governments and guilds in the medieval cities of Western Europe also produced regulations to help each other. This is also an example of moral power regulation. These regulations include: Some cities set up charitable foundations and used the donations to help the poor. Each guild also had its own charity to take care of the sick in the industry and the poor who had suffered an unfortunate accident. Some cities also set up almshouses and institutions for the relief of poverty to accommodate the homeless poor. Another reason for urban management to do this was

110  Cultural adjustments to avoid affecting the normal industrial and commercial activities in the city and to avoid leaving a bad impression on foreign businesspeople. Some cities had long issued “beggars’ badges” to limit the number of beggars. London also implemented this system until 1517, which covered about a thousand people.4 Buildings in the cities were packed together and wood was used for the building materials, so preventing fires was a task for the entire population. Since it was very time-​consuming to start a fire with flint, households did not like to put out their fires after the “curfew” bell rang. The residents would let the fires burn all day so they could use them again the next morning, which made it easy for fires to break out. Since there were no water pumps, once a fire did break out, an entire street or an entire residential area could burn down. For this reason, urban areas and guilds set up a patrol system and adult men had to participate in the patrols and the firefighting work. To help the poor to cook, some cities set up “public stoves” to let the poor who were not working at home toast bread in the “public stoves.” The cities also tried to ensure that all residents had food. One way they did this was when foreign merchants brought food or fish, city officials would buy all the food in the name of the city and then divide it into small portions for distribution to the public. Why did the city-​allocated food include fish? Because fish was for the poor in the medieval cities. Besides people’s main foods (fish was much cheaper than pork, beef, and mutton), some guilds set up poverty relief organizations. If a craftsman (shop owner) or a helper in the industry was sick, a poverty-​relief organization would send people to take care of him. If the person died of an illness, they would pay their families a pension. These were traditional practices, but the guilds carried them on. In short, the reason why the medieval cities of Western Europe could maintain stability and economic development for a long time had an important relationship with the three kinds of regulations (market regulation, government regulation, and customary and moral power regulation).

4.3  The two foundations of efficiency 4.3.1  The material and technical foundation of efficiency In a market economy, the market regulates efficiency. The driving force of interest is the performance of market regulation. To benefit, each resource-​ investing entity must combine production factors according to supply and demand and the price levels of the factors of production in the market. Under such conditions, efficiency in the market economy will increase. Therefore, in

4 See W.  H. B.  Court, A Concise Economic History of Britain:  From 1750 to Recent Times, New York: Cambridge University Press, 1954.

Cultural adjustments  111 the market economy, the mechanism behind efficiency is the efficiency mechanism, which is the choice mechanism of resource combination schemes in the field of resource investment. The coordination of production factors forms the material and technical foundation of efficiency. In a market economy, every resource investor must consider the combination of resource investment and choose the most effective combination of resources. In the market economy, each resource investor must choose the most favourable material and technical conditions, so that the material and technical foundation of efficiency can play a more effective role. This is a feature of the market economy. If government regulation plays a significant role in the economy, there must be various effects of government regulation behind efficiency. The government has its goals, has its own focus, and has its specific measures as well as the effects of their implementation. However, the government does not have a single goal; it has multiple goals. In order to realize multiple goals, the government needs to use various regulatory measures to influence the behaviour of resource-​investment entities, so that they can choose the area in which to invest resources and the method of resource allocation, and make decisions that satisfy government aims. In this sense, the priority of efficiency is not only the formation of resource allocation in the market. The order in which the government arranges its goals is also likely to influence it. Government actions have a huge effect on efficiency, resulting in the rejection of certain market choices, or at least reducing the choices. But even so, this does not mean that the role of the material and technical foundation ignores efficiency in government regulation; it only means that the order of government goals has a weakening effect on the role of the material and technical foundation. In the view of market-​economy supporters, government regulation is unlikely to focus on the role of the material and technical foundation for a long time, otherwise the government’s multiple goals would be difficult to complete. 4.3.2  The moral foundation of efficiency Efficiency has two foundations: One is the material and technical foundation of efficiency and the other is the moral foundation of efficiency. Factories, equipment, energy supplies, raw materials, and spare parts, together with enough supply of labour, constitute the material and technical basis for efficiency. This is what people notice. We do not necessarily see the moral foundation of efficiency, because moral power is invisible. From the perspective of industrial and agricultural production, people usually pay attention to the quantity and quality of labour. The quantity of labour means that we need a certain amount of labour under certain technical conditions. This quantity is still incompatible with production and management requirements, which we notice, because it is part of the material and technical foundation of efficiency. As for the quality of the labour force, this

112  Cultural adjustments refers to the technical level and technical proficiency of the labourers, but their physical condition is also considered. These are also part of the material and technical foundation of efficiency. So, in the discussion about the quality of the workforce, what did we neglect and what did we miss? What we neglected and missed was the moral foundation of efficiency. We often neglect and miss the moral level of workers, because the efficiency and enthusiasm of the workers are not part of the discussion on efficiency. The first thing to note is that efficiency comes from cohesiveness, including the cohesiveness of the collective workforce and the cohesiveness of society. Whether it is the cohesiveness of workers or the cohesiveness of society, we cannot see it, and the clear “unity” does not necessarily reflect the real situation. We already addressed this issue in the discussion on the “third efficiency concept,” or the X efficiency.5 What we need to reiterate or expand on is that the cohesive force size is the embodiment of whether the interpersonal relationship is coordinated, or to what extent it is coordinated. Cohesion is divided into two categories. One is group cohesiveness and the other is the cohesiveness of society. Group cohesiveness is conditioned by the coordination of interpersonal relationships within the group, and the cohesiveness of society is conditioned by interpersonal coordination in society. Cohesion produces efficiency:  Group cohesiveness produces group efficiency and the cohesiveness of society produces social efficiency. Groups, in this case might include enterprises, farms, institutions, and government agencies, as well as communities, villages, societies, and families. Groups can be big or small, but each has its own cohesiveness. Group organization can be loose or tight, but tightness does not mean greater cohesion. Although some groups have strict organization, members might fight with each other, or the leadership might be separated from its members, which creates a strong central force. Take enterprises as an example. Some enterprises have great cohesiveness. Not only does the efficiency of the enterprises continue to improve, but when an enterprise encounters difficulties, the employees of the enterprise can unite and work hard to make themselves and the enterprise overcome the difficulties. This is the result of the role of moral power. Social cohesion size is the same. Social cohesion comes from the public and can be consistent with the leadership and overcome difficulties. This is also the result of the role of moral power. From here, we can draw an argument. Whether it is a country, a region, or an enterprise, people often say that they want to “share weal and woe.” This saying is not bad, but it is not precise either. Why is it inaccurate? Because “share weal” and “share woe” are not the same things. “Share weal” depends on the system and on the implementation of it. For example, let us say an enterprise is in a period of prosperous development, and its products have better sales and a broader market. How the enterprise

5 See the third section of Chapter 1 in this book.

Cultural adjustments  113 distributes income and how it rewards its employees is managed according to a system. If the system that developed in the past is unreasonable, the rules formulated in the past can be changed according to certain procedures, but separate rules cannot be used to bypass the system. If this were the case, the enterprise would be chaotic. Therefore, we cannot separate “share weal” from the system. “Share woe” is not the same as “share weal.” “Share weal” also depends on the system but is not necessarily effective. For example, if an enterprise is having difficulties, it cannot sell its products, and the enterprise loses money. The employees might want to leave and find another job. The enterprise believes that, since each person signed a contract when entering the factory and the contract has not expired, if you do leave the enterprise, then you will be required to pay a fine. The workers calculate what the fine will be and then insist on leaving. The system cannot limit the departure of employees when the enterprise is in a tricky situation. Now, if “share weal” depends on the system, what is it that “share woe” depends on? Share woe depends on the sprit, and share weal depends on identity. “Spirit” means that employees rely on an inner force to overcome difficulties and unite to work hard for the transformation of the enterprise. “Identity” is the recognition for a group in which a person belongs. As you should know, a person is a member of a group. As a member of a group, he or she regards this group as their own home. Their identity is not in form but is in their hearts. The degree to which a person agrees with his group reflects his level of concern for it, that is, the extent to which he forms an identity with the group. Not only that, we cannot simply summarize the identity of a person to a group with the word “interests,” which often means special interests. For example, even though a person belongs to his own family, we cannot explain his identification to his family with the word “interests.” In another example, let us say we have an academic group, such as an academy or a research association with several members. The reason these members take part in the group and have a high degree of recognition for it is not necessarily related to interests. It may be out of academic interests and hobbies or out of respect or trust in the academic community. Or it may also be out of a sense of responsibility, that is, to think one has a responsibility to revitalize academics, so they fund the academic community. Or, for example, let us say a person takes part in a public welfare group or a charitable organization. He might be enthusiastic about public welfare and charity and so does not consider any personal interests at all. These examples all show that we cannot erase the consideration of going beyond interests. The higher level of recognition for a group by an individual plays a key role in moving beyond interests.6 6 Chapter 8 of this book, “The Highest State of Culture and Management,” has a more detailed analysis of this.

114  Cultural adjustments In this way, we can profoundly understand the meaning of “share weal depends on the system, and share woe depends on the spirit and on identity.” 4.3.3 Extraordinary efficiency Among the two foundations of efficiency, the material and technical foundation is the most important. However, I would like to remind you that by itself, an efficient material and technical foundation can only produce conventional efficiency. How is extraordinary efficiency generated? This is related to the moral foundation of efficiency. The material and technical foundation of efficiency and the moral foundation of efficiency are independent upon each other. The material and technical foundation of efficiency does not link to the moral foundation of efficiency. The addition of modern technology and equipment to an enterprise does not necessarily lead to an increase in the moral standards of employees. Similarly, when the moral level of employees in an enterprise has risen, that does not mean its technical equipment gets updated, but the employees will better protect the technical equipment. Of course, the material and technical foundation of efficiency and the moral foundation of efficiency may also influence each other. The key lies in the enthusiasm of the enterprise’s employees. For example, if the employees of an enterprise agree with the enterprise and enthusiasm is bursting out, it is possible to put forward rational proposals and adopt them, thus increasing the total factor productivity of the enterprise. Or, the enterprise adopts technical measures to improve working conditions and safe production, which makes the workers’ union believe that the enterprise cares about them, thus improving working conditions and making production safe. This will increase their enthusiasm along with the total productivity factor of the enterprise. There are three examples of the emergence of extraordinary efficiency. 4.3.3.1  The patriotism bursting forth in the war of aggression Take the example of the War of Resistance against Japanese Aggression, which began in 1931. This war against Japan lasted for 14 years, but regardless of how great the military equipment gap was between China and Japan, and regardless of how difficult the logistics support was for China’s soldiers, their anti-​Japanese determination gave them high fighting spirit. They fought many a bloody battle against the enemy and persevered until August 15, 1945, when Japan announced an unconditional surrender to end the Second World War. Why did the Chinese army have such a determined anti-​Japanese fighting spirit and why did the civilians have a matching work spirit? These are all manifestations of extraordinary efficiency, and they came from the moral foundation of efficiency. It is moral power that allowed China to finally win in the long-​term War of Resistance.

Cultural adjustments  115 4.3.3.2  Rescuing victims of huge natural disasters and rebuilding their homes This is another example of a burst of extraordinary efficiency. The 1998 Yangtze River Flood and the 2008 Wenchuan Earthquake in Sichuan were all unprecedented catastrophes. However, as soon as the flood and earthquake occurred, countless people volunteered and rushed to the front line of disaster relief to rescue people in danger and save the injured. Soldiers of the People’s Liberation Army struggled for days in the disaster areas and brought the wounded to hospitals. Also, people from all over the country donated funds to help the people rebuild their homes. These kinds of rescue and relief operations are the embodiment of extraordinary efficiency, and the embodiment of extraordinary efficiency is the result of moral power. In other words, the mass rescue and relief operations fully reflect the fine traditions of the Chinese nation and are the condensation of the noble qualities that have been handed down for thousands of years. 4.3.3.3  Historical immigrant society Another example that reflects moral power is the source of extraordinary efficiency. From the Jin Dynasty to the end of the Ming and Qing dynasties, together with migrating to northeast China, areas with concentrations of ethnic minorities in the west, and Southeast Asia after the middle of the Qing Dynasty, the facts show that the movement of immigrants in Chinese history was both inspiring and tragic. After the Jin Dynasty, the Central Plains had frequent wars. The Han Chinese in the Central Plains fled South and crossed the Yangtze River to Jiangxi and then to Fujian, Guangdong, Hunan, and other places, and some stayed in Jiangxi. We later collectively referred to these immigrants from the Central Plains as Hakkas. When the Hakkas first arrived in the South, their tools were simple and crude, they lacked manpower, and the environment was tough, but extraordinary efficiency appeared. Why did this happen? At the beginning of the formation of the immigrant society, there was no market regulation, no government regulation, and everything depended on customary and moral power regulation. Afterward, the Central Plains culture took root there and extraordinary efficiency had arisen. The Hakkas defeated the harsh climate, produced offspring, and eventually spread throughout the world. After the middle of the Qing Dynasty, the people of Shandong and Hebei were “Chuang Guandong,” the people of Shanxi, Shaanxi, and Gansu were “Going to the West Gate,” and the people of Fujian, Guangdong, and Hainan were “South of the Ocean.” The situation was like that for the Hakkas, too. Without customary and moral power regulation, it is unlikely that they would have achieved such impressive results. In the case of “Chuang Guandong,” the time from the middle of the Qing Dynasty to the early years of the Republic of China was not long, but the development of the Northeast had achieved

116  Cultural adjustments initial success. They reclaimed a lot of uncultivated land and many towns began to take shape. This is a manifestation of extraordinary efficiency. 4.3.4  Moral power regulation is, in the final analysis, cultural regulation It has already been pointed that moral power regulation can take on many forms, including invisible regulation, such as self-​ discipline, memorizing the ancestral teachings of the clan or family, memorizing the conventions of associations, communities, and villages, and so on. There are also visible regulations. For example, students must abide by school rules and not break them; market transactions must be kept in good faith and money should not be earned dishonestly; and one must live a frugal life and not pursue extravagance. However, we should also understand that customary and moral power regulation is, in the final analysis, cultural regulation. Cultural regulation sits between visible and invisible. For example, being honest and trustworthy and keeping promises are the result of cultural indoctrination. Many people are familiar with such teachings since childhood. If you ask some teenagers when you must learn about these codes, they will tell you that you must remember them from the time you learn how to sing a song. Children’s songs and nursery rhymes are simple, and children learn them from an early age, making them unforgettable for a lifetime. Business dealings, no matter where you go, can accept the teachings or creeds of “nursery rhymes.” This is also a reflection of cultural regulation. The concept of “good faith” goes back all the way to the very beginning of commodity exchange. No one has ever dared to openly challenge the concept or principle of “good faith.” Nor has anyone ever dared to claim to be a businessperson who does not keep his word. This is because “good faith” is a culture that has spread to the business world. Whoever violates this principle will certainly be condemned and despised as shameless. Who would dare to take that risk? It is precisely because there is no geographical boundary in the spread of culture and no difference between old and new cities that some practices of customary regulation and some teachings of moral power regulation continue to spread. This phenomenon is not only happening around the world, but also in China, and it is a common thing in history to spread in the business world through trade and exchanges between countries. Although history is like big waves lashing the beaches, constantly screening the lessons and rules of various traditional cultures, what stays is still based on positive maxims. This is the basis for cultural traditions and cultural regulation. There is still a problem, however. From the various cultural lessons and rules that have been handed down through history, many of them are popular adages from ancient times, but in the market and in government management work, new things, new phenomena, new experiences, and new lessons always emerge. Why are we not seeing the elimination of the crystallizations of these old cultures, and why do they continue to be passed down through

Cultural adjustments  117 generations? What forces are driving them to continue to influence people from generation to generation? There is only one answer. The public will perceive what is good and what is bad from its own practice, what should remain and be carried forward, and what should be abandoned and not be taken as an example. The public can preserve the fine traditional cultures that they believe should be passed on to their children and grandchildren in plain language, so that the inheritance of customary and moral power regulation is maintained from generation to generation. Starting from ancient China, water control was a major event related to public life stability and social development. From having a government and the governance of government, how to prevent and control floods had become the most concerning measure of the public and government departments. When studying ancient Chinese history, some foreign scholars have concluded that it was natural to form a highly centralized autocratic system on the land of China for the purpose of flood control. This is because, in their view, if there was not a highly centralized autocratic government, how could the country organize such a grand water-​control project? Therefore, water control, centralization, and autocracy are inextricably linked. Books on ancient Chinese history published abroad have advocated this view, so much so that some people have said that a highly centralized autocratic system was necessary to manage floods in the Eastern tradition. In fact, why a highly centralized autocratic system formed in ancient China is an extremely complicated issue that we cannot discuss here. Huge water-​ control projects have a certain relationship with autocratic governments as the organizer of water control, so it seems that we cannot completely deny this point. However, because floods often bring disaster, and people study them with water-​management projects in mind, the influence that history has had on the Chinese nation is by no means generalized by the so-​called Eastern tradition of a highly centralized autocratic system. If China’s national tradition is related to water control and flood prevention, then the conclusions should be such that it is a channel rather than a blockade, a solution rather than a bad thing, a multi-​party coordination rather than randomness, coming together rather than forsaking good, and having a big heart rather than simply taking care of one’s home. This is the spiritual wealth left to future generations by thousands of years of water-​control experience. In short, the focus on guiding and not blocking constitutes a collection of valuable experiences of the Chinese people from ancient times. From the highest rulers of the past to the government officials at all levels, if they managed water conservancy and dealt with floods, then they understand the importance of guiding. Blocking was, at most, successful one time but would always fail in the end. Guiding was the effective way to control water. Guiding goes with the flow. Guiding is an experience derived from ancient water-​control paths but later adapted to social and political life. Guiding means tolerance, and “slow flow is always wider than rapid flow.” Among the people, Chinese often used the

118  Cultural adjustments word “guiding” to deal with family and clan conflicts and neighbourhood and community disputes. The meaning of resolve is like that of guiding. Frequent frictions or conflicts occur in interpersonal relationships, and even leave grievances. How do you treat them? We cannot treat them without guidance or mediation. “Harmony is prized” is the principle of dealing with interpersonal relationships that Chinese people have cherished and applied in history. It is by no means accidental. “Harmony is prized” is the way of life that the Chinese people in the past have summed up from the perspective of guiding and resolving. They believed that we should not block contradictions, but solve them. This is an example of cultural regulation.

5  Cultural inclusion

5.1  World diversity and cultural diversity 5.1.1  World diversity People have long noticed the diversity of the world. Experts and scholars in the history of world civilization have long recognized the four great ancient civilizations. Egypt, Babylon, China, and India each have their own characteristics and they independently existed in ancient society. People will mention the exchanges between Egypt and Mesopotamia, and they will also mention the interactions and influences between them. However, they must admit that the Egyptian and Mesopotamian civilizations existed and developed under under environments different from each other and historical conditions. Ancient China and ancient India also emerged as civilizations early, but they had distinct cultural origins and were independent of each other. The existence of these independent and growing civilizations is a fact that no researcher can deny. Later in Europe, West Asia, and North Africa, the Greek city-​ states appeared one after another, and the Persian Empire appeared, too. The Persian Empire was once a powerful nation in Southeast Europe, West Asia, and North Africa. Later, in the middle of the Italian peninsula, we saw the appearance of the Roman Kingdom and the Roman Republic, which evolved from the Roman Kingdom, as well as the Roman Empire, which later evolved from the Roman Republic. At the same time, outside the northern territories of Greece, the kingdom of Macedonia appeared, which conquered all the Greek city-​states and then ruled them. The Macedonian king, Alexander, destroyed the Persian Empire and the Macedonian Kingdom became a great empire across Europe and Egypt as well as West Asia and part of Central Asia. The diversity of the world was more obvious than ever before and it was more prominent, too. Macedonia’s King Alexander did not last long. He died when he was rich and strong. His kingdom launched a battle for power and eventually formed three Hellenistic dynasties:  The Antigonid (mainly governing Macedonia and Greece), the Seleucid (mainly governing West Asia and parts of Central

120  Cultural inclusion Asia, later withdrawing from Central Asia due to insufficient strength), and the Ptolemaic (mainly governing Egypt). The three Hellenistic kingdoms continued to develop and were in constant conflict with each other. At the same time, the Roman Republic had risen. Carthage fell to the Roman Republic in the western Mediterranean, thus expanding the territory of the Roman Republic to the Greek city-​states in southern Italy and Sicily. Then, Rome commanded its army to march south to the three Hellenistic kingdoms, namely, the Antigonid Empire, the Seleucid Empire, and the Ptolemaic Kingdom. Soon after Rome conquered the Ptolemaic Kingdom, the Roman Republic became the Roman Empire. The content of world diversity increased. The world continued to change. Christianity was first a religion that civilians and the poor believed in. In the polytheistic culture of the Roman Empire, restrictions on Christianity forced the practice underground. Missionaries who had secretly spread Christianity were arrested, sentenced, and even executed. But there were more people who believed in Christianity. Christianity spread between the royal aristocrats of the Roman Empire and their families until finally the Roman emperor believed in it, and it was later chosen as the official religion of the empire. In this way, the world added even more diversity. The Germans originally dwelt in the northern part of the northern bank of the Danube River and lived a nomadic life in a primitive society. However, they also saw the thriving, bustling, and rich Roman Empire. When they had the opportunity, they headed south to plunder, which put the Roman Empire on guard against the Germans. In the late period of the Roman Empire, there was constant conflict between the Germanic chieftains, not only to compete for territory, but to incorporate more soldiers and acquire more wealth and crops and to win the throne of the emperor. The wars between the warlords raged without end. This broke the business path and severely hit businesses. Merchants and wealthy households were scared off by another raise in taxes and grain collection. Average workers and peasants also returned to their hometowns to escape the situation. The western part of the vast Roman Empire was the hardest hit, and the nobility, merchants, and wealthy people there turned to the Eastern Roman Empire. The eastern army was better treated, and its combat effectiveness was stronger. In comparison, the western part of the empire was underpowered and had to recruit Germans or other nomads to serve as mercenaries. After Christianity was chosen as the official religion by the Roman emperor, we saw the formation of two Christian centres. One was in the East, centred on Constantinople, the capital of the Roman Empire, and the other was in the West, centred on Rome, the former capital of the Roman Empire. The popular and common language in the eastern region was Greek, and Latin was used only in the western region. The East had a considerable number of rich people. They donated money and land to the Greek Orthodox church, and the church was rich as a result. Unlike the eastern church, the

Cultural inclusion  121 Roman Catholic church in the West was poor, but the Western church resolutely cooperated with the Eastern church and claimed to be the rightful authority of Roman Christianity. It was inevitable that the church would be divided according to the division and independence of the Eastern and Western empires. Like the Germans, the Huns and other nomads in Eastern Europe continued to move south and they occupied and looted the territory of Rome. The remaining land steadily diminished, leaving only the empty shell-​like Roman city and the central part of Italy. The south remained in the hands of Western Rome. Both the Huns and the Germans arrived in the vicinity of the city of Rome, ready to attack, but they refused to yield to each other. They wanted to defeat each other. In 453, Attila the Hun died suddenly, throwing the Hun army into chaos, and Attila’s subordinates fought with each other. They withdrew from Italy, divided up the land along the Danube as the kingdom of the Huns, and then finally got their wish by setting up a regime in the region. The Western Roman Empire fell in 476. Western historians have called the collapse of the empire the beginning of European medieval history. The Western Roman Empire perished, but the Eastern Roman Empire continued to exist, with Constantinople as its capital. They built Constantinople in the vicinity of the original Greek immigrant city of Byzantium, so historians refer to the Eastern Roman Empire as the Byzantine Empire. The Eastern Roman Empire itself never used the name “Eastern Roman Empire.” It always claimed to be “The Roman Empire.” As for the vast Western Roman Empire, it became the territory of the Frankish Gauls. Here, we saw the formation of kingdoms and the manor was set up and peasants became serfs attached to the lords. This was another important change in the world situation. The diversity of the world was even more obvious. 5.1.2  Cultural diversity World diversity inevitably leads to cultural diversity. As mentioned above, the earliest four ancient civilizations of Egypt, Babylon, China, and India have shown that ancient Egyptian civilization, Mesopotamian civilization, Chinese civilization, and Indian civilization formed and developed on their own. They are each the birthplace of a civilization that had taken root in their own land, and they grew and spread regionally. Later, Greek culture based on the Greek city-​ state system was born, ancient Iranian culture formed in West Asia, and Roman culture formed on the Italian peninsula. It evolved into a Hellenistic culture during the Eastern Expedition of the kingdom of Macedonia and later into Greek-​Macedonian culture (Antigonid culture), Greek-​ Macedonian-​ Western Asian culture (Seleucid ancient culture), and new Egyptian culture (Ptolemaic culture), the three Hellenistic kingdoms of the Antigonid Empire, the Seleucid Empire, and the Ptolemaic Kingdom, which were later destroyed by the Roman Republic.

122  Cultural inclusion Then, the Roman Republic also evolved into the Romanian Empire. Roman culture had become the culture of the Roman Empire. However, the diversity of culture has always existed. The Roman Empire conquered many lands in Europe, Asia, and Africa. The frontiers of the Roman Empire expanded greatly and experienced a period of about two hundred years of prosperity. How large was the map of the Roman Empire at its peak? Visualized on a modern map, from the West to the East, it stretched eastward from England across the Channel and extended to the Netherlands, Belgium, Luxembourg, and Germany’s Rhine and south of the Danube, and also included some cities with Roman immigrants in Austria, Hungary, Romania, the Balkans, and the northern coast of the Black Sea. Then it stretched south to Turkey, Syria, Iraq, Lebanon, and Palestine. Further west, it included Egypt, Libya, Tunisia, Algeria, Morocco, Mauritania in the Southern Mediterranean, crossed the Strait of Gibraltar, and included Spain, Portugal, and France in Southern Europe. This was the domain of imperial Rome. The seat of government, Rome was on the Italian Peninsula (later the seat was moved to Constantinople), and the Greek immigrant city-​states on the island of Sicily had become Roman cities. Regarding cultural unity as more important than anything else, the cities and city-​states that had surrendered themselves received the status of autonomous cities in the empire, and the residents of the surrendered cities and city-​states were granted Roman citizenship to show that they were in the same territory as Rome. This policy of Rome was quite effective in the vast areas of the West because Rome was the conqueror and culturally strong, so the western region soon became Romanised. However, Rome was far from conquering the eastern region, and the cultural unification that conquered the cities and city-​states was far from easy. Why was this happening? As already pointed out, the eastern region was originally the territory of the Greek city-​states. Later, Alexander of Macedonia conquered the Greek city-​states and his Eastern Expedition destroyed the Persian Empire, which was then Hellenized. After the death of Alexander, the Antigonid Empire, Seleucid Empire, and Ptolemaic Kingdom were founded in the eastern part of Rome and became part of the territory of the Romans. The Roman Republic became the Roman Empire shortly after the last Hellenistic kingdom (the Ptolemaic Kingdom) was conquered by Rome.. Thus, in the vast eastern part of Rome, Greek culture and Roman culture coexisted. In fact, Greek culture still dominated in contrast to the Roman culture that the Roman Empire tried to promote. The western part of Rome had finally been Romanised and the eastern part of Rome had always been a mixture of Greek and Roman cultures. Roman culture did not take Greek culture in the eastern part of Rome. The economic centre of the Roman Empire was in the eastern region. Although the political centre was still in Rome in the early days of the empire, it had to move to the capital city of Constantinople. The emperor regarded Constantinople as the new capital and military generals of the eastern

Cultural inclusion  123 region served the emperors. Greek became the common language used in the eastern region, from the royal family and ministers to ordinary people. Even Christianity used Greek to preach. The Bible that believers read was in Greek, and the clergy only spoke Greek. The status of Roman culture in the eastern part of the empire clearly fell to second place. Greek culture had the upper hand. After the Western Roman Empire was destroyed by the Germans in 476, the vast western part of the empire gradually evolved into a Germanic kingdom and a territory of princes, and the Latin language was adopted. At the time of the Germans adopting Christianity, the Bible was in Latin. Roman culture had evolved in the western part of Rome into a feudal Germanic culture in Western Europe that opposed the Hellenistic culture of the eastern region (Byzantine culture). This clearly shows that politics and culture are both connected and different. As victor, Rome once wanted to promote Roman culture throughout the republic (and later the empire), granting the conquered the status of autonomous cities and Roman citizenship, but only succeeded in the sparsely populated West. In the economically developed former Hellenistic kingdom, Greek culture and Roman culture always coexisted until Greek culture (or Hellenistic culture) gradually gained the upper hand. Roman culture gradually lost its advantage in the East and the eastern region eventually rejected it. After the establishment of the Germanic regime, the culture of Rome in the West gradually evolved into a feudal-​Germanic culture in Western Europe. 5.1.3  Can a culture be merged into another culture? Since ancient times, human history has recorded many cultures, but the evolution, integration, and innovation of cultures have never stopped. The phenomenon in which one culture becomes another culture is also uninterrupted. Many cultures displayed brilliance for a while in the course of historical progress, but over time they silently disappear or merge into another culture and are no longer mentioned by future generations. This is common in history. For instance, there were about a thousand city-​states in the Greek city-​ state era. They were large and small, but even small city-​states had always been independent. They may have joined the city-​state alliance under certain circumstances, or later exited from the alliance to join another city-​state alliance. We can refer to these large and small Greek city-​states as the products of a certain culture, because they each had their own gods to believe in, but we can also refer to the culture of all these city-​states as Greek culture. However, while we can refer to them collectively as Greek culture, we still cannot erase the distinctive characteristics of the culture of the respective city-​states, that is, we cannot deny the existence of cultures, such as Athens culture, Sparta culture, Corinth culture, and Thebes culture. Even today, two thousand years later, long after the Greek city-​state era ended, we can still see the difference between the cultures of Athens and Sparta. The preservation of historical

124  Cultural inclusion sites to the present shows the long history of the culture of Athens and the culture of Sparta. Here is an example. When the Western Roman Empire was destroyed by the Germans in 476, many kingdoms, vassals, and manors ruled by the Germanic lords emerged in the western lands of the Roman Empire, which led to the gradual formation of Western European feudal–​Germanic culture. But what happened after that? Although the entire Western European region was developed under the influence of feudal–​ Germanic culture, its own cultures gradually emerged, such as Spanish culture, French culture, English culture, Scottish culture, Low Countries culture (Netherlands culture), and Nordic culture. There were two major regions in Western Europe—​Italy and Germany—​because these two regions, the Italian and the German, were divided, each setting up feudal city-​states or an absolute monarchy. So-​called Italian culture and German culture did not exist at the time. In Italy it was Venetian culture, Genoese culture, Pisa culture, Florentine culture, and others. In Germany it was Hanseatic League culture, Rhine culture, Prussian culture, Bavarian culture, and others. After many years, the two regions set up unified countries, and the concepts of Italian culture and German culture appeared. It is difficult to distinguish how close Italian culture or German culture is to the original Western European feudal-​Germanic culture. After the political unification of Italy and Germany, the original Venetian culture, Genoese culture, Pisa culture, Florentine culture, and others all merged or blended with Italian culture. Likewise, the original Hanseatic culture, Rhine culture, Prussian culture, Bavarian culture, and others all merged or blended with German culture. Historically, one culture is likely to merge or integrate with another culture. The key is the political unification before the integration of diverse cultures. Still, political unity is not the most natural trend of cultural integration. The most obvious are two examples. One is England and Scotland. England and Scotland were originally two countries independent from each other. The Roman army crossed the English Channel and occupied England but did not encroach on the Scottish region. Scotland was still independent. The late Roman Empire withdrew its troops stationed in Britain to Western Europe due to insufficient military strength in the western region. Scotland continued to be independent on its own land. There was often war between England and Scotland until union came about by treaty, then Scotland was no longer an independent country. However, Scotland still kept its own culture. This shows that ethnic factors may be more important in cultural inheritance than political unification. In Italy and Germany, the integration of different local and city-​state cultures after the unification as the Holy Roman Empire may have been the premise of cultural integration. Let me give you another example. When the Europeans immigrated to North America and Canada, the French people, who gathered in eastern Canada believed in Catholicism and spoke French. The British and other Western Europeans who immigrated to the eastern seaboard colonies to the

Cultural inclusion  125 south, believed in Protestantism, including Anglicanism and other Protestant factions, and they mainly spoke English. Later, after defeat the French and Indian war, Canada became part of the British Empire and eventually became independent. However, the descendants of French immigrants kept their French cultural traditions in the eastern part of Canada where they lived. In Canada, the Protestant and Old Religion (Catholic) cultures have always coexisted, so there are independent opinions. Why did political unity not achieve cultural integration? We can only explain this by national factors and religious beliefs, otherwise it is difficult to clarify the cultural background of eastern Canada. This provides another angle. Ethnic factors and religious beliefs may play an especially significant role in the hindering of cultural integration. 5.1.4 The foundation of the integration of ancient Chinese culture Ancient China is a very convincing example in the discussion of cultural diversity and cultural integration. When the Zhou Dynasty unified China (1046 B C E and ended in 256 B C E ), the areas under its control, including the Yellow River Basin, the Huai River Basin, and the Yangtze River Basin, all established vassal states with the ruler of the Zhou Dynasty as the core. However, whether it was the Yellow River Basin, the Huai River Basin, or the Yangtze River Basin, ethnic minorities lived there, too. They coexisted with the vassal states of the Zhou Dynasty and maintained friendly exchanges with each other, but they were not recognized as dependents of a specific vassal state. Sometimes, they also fought with the vassal states that ruled the region, and then were defeated and surrendered, or they left the authority of the vassal states and moved to other places. During the Western Zhou Dynasty, the vassal states still feared the ruler of Zhou for his power. Therefore, they still respected him as the leader and met their own obligations according to the rules and regulations set up by him. In the Eastern Zhou Dynasty, the situation changed dramatically (770–​221 B C ). In the East, the capital moved to Luoyang and its forces and power were waning. The powerful and prosperous in the vassal states gradually ignored the declining ruler of Zhou. The strongest of the vassal states was the Jin State in the North, the Chu State in the South, the Qin State in the West, and the Qi State in the East. The four kingdoms of Jin, Chu, Qin, and Qi at first swallowed the nearby weak vassal states then, by force, or forming alliances with each other, kept the pact together. War was endless. It was difficult for the ruler of Zhou to protect himself, and he could not restrain the four rising vassal states. From the perspective of ethnic factors, there was no difference between the four states of Jin, Qi, Chu, and Qin. They were the first vassal states that the ruler of Zhou nominally divided. On religious beliefs, Jin, Qi, Chu, and Qin all worshipped their ancestors. The residents of these warlord powers were grateful to their ancestors and hoped that they could bless the future generations with happiness. If there was any Jin culture, Qi culture,

126  Cultural inclusion Chu culture, and Qin culture in the Eastern Zhou Dynasty, there were few differences between them. They all worshiped ancestors. The state of Jin later split into three additional states: Zhao, Wei, and Han. These three vassal states, together with the Qi, Chu, and Qin states, plus the Yan State in the North, formed the Seven Warring States. However, the cultural characteristics of each of the seven states were not significant, regardless of loyalty factors or ancestor worship. The difference was that after the seven stood side by side, the influence of academic thought on cultural formation increased. In fact, at that time, the seven states were popular in such doctrines as Confucianism, Taoism, Legalism, and Mohism. The dissemination of these doctrines had no governmental boundaries. The Qin Dynasty adopted the legalist thought of Shang Yang’s reforms, and its influence was far-​reaching. Other vassal states also wanted to follow the rule-​of-​law path, but they could not stand the conservative forces of the old aristocracy in China, and the results were far less effective than the Qin State. Confucianism had spread in various vassal states, but it is difficult to say whether Confucianism governed a particular vassal state. One explanation is that at that time, the vassal states were fighting for hegemony and it was related to their survival. What state dared to rule with Confucianism at such a moment? As for Mohism, although there were propagandists and even believers running around the states trying to stop the fighting and bring about peace, the results were not great. Speaking of the popular Taoist doctrine at that time, it was more suitable for the rulers of all the states to cultivate themselves, and no vassal state dared to govern national politics according to Taoist doctrine. Therefore, although the Qin State adopted Shang Yang’s view and changed the law, Shang Yang himself suffered a horrible death at the execution ground, but the rule-​of-​law aspect had not changed and was still being pursued by Qin. As a result of the long struggle of the Seven Warring States, Qin unified China. Qin practiced the rule of law, but harsh rule and severe punishment made the common people complain. The Qin State soon died. After the dispute between Chu and Han, Xiang Yu failed, and Liu Bang unified China in the name of the Han Dynasty and retained the Qin system. After several decades of the rule of Wen and Jing, when Emperor Wu ruled the Han Dynasty, the dynasty was shaken, but the culture was also unified. Qin culture, Qi culture, and Chu culture, as well as the cultures of Yan, Zhao, Han and Wei, together with the influence of Wu-​Yue culture in Jiangsu and Zhejiang and the influence of Bashu culture in Sichuan—​all were within the scope of Han culture, but the region was vast. Under the Han Dynasty, Qin culture, Qi culture, Chu culture, Yan-​Zhao culture, Wu-​Yue culture, and Bashu culture still existed as local characteristics. The existence of these local cultures was not contradictory to the existence of Han culture as a unifying culture. The continued existence of the local cultures conformed to the national conditions of China at that time, and the local cultures integrated with Han culture over time. No matter whether it was the Western Han Dynasty or the Eastern Han Dynasty,

Cultural inclusion  127 the rulers of the past dynasties not only respected Han culture but rejected and suppressed the local cultures. During the Wei, Jin, and Southern and Northern dynasties, Chinese culture entered a new stage of development. At this time, the northern and western ethnic minorities entered the northern and central parts of the Central Plains and established vassal states. They even made themselves kings. The Eastern Jin and Southern dynasties were partial to the Jiangnan region, gradually forming the so-​called Six Dynasties of the Wu, Eastern Jin, Song, Qi, Liang, and Chen cultures, and families of power and influence had the upper hand. The Yellow River Basin finally set up the Tuoba regime of the Xianbei people. The Tuoba people set up the Northern Wei Dynasty. The capital was originally in Datong, Shanxi, and later moved to Luoyang. This was a period of great national integration. The Northern Wei Dynasty built the Yellow River basin into a multi-​ethnic political entity that had also implemented the dominant family system. From this perspective, there were few differences between the Northern Wei and Southern dynasties. The Northern Wei Dynasty was wary of invasion from different peoples in the North. Their main opponents at the time were the Rouran and later the Turks. To prevent them from invading the Central Plains, the Northern Wei Dynasty always pushed for the defence of the northern border. The Southern Dynasty was committed to the development of Fujian and Guangdong while preventing the Northern Wei Dynasty from moving South. The Central Plains culture and the Southern Dynasty culture began to flow with greater power into Fujian, Guangdong, and other regions long regarded as wild places. Later, the Northern Wei Dynasty split into Eastern Wei and Western Wei. The Northern Qi destroyed the Eastern Wei, the Northern Zhou destroyed the Western Wei, and the Northern Qi destroyed the Northern Zhou Dynasty. Finally, the Sui Dynasty destroyed the Northern Zhou Dynasty. After the demise of the Northern Zhou Dynasty, the Sui forces increased greatly and went south to destroy the last dynasty of the Southern Dynasties, that is, the Chen Dynasty. China was reunified under the rule of the Sui Dynasty. The Sui Dynasty was also a short-​lived dynasty. The Sui Emperor Yang ruled the state without a supporting faction and the people suffered from Sui politics. After the death of the dynasty, the warlord period divided and consumed China. In the end, the Tang Dynasty again unified the country. In the early Tang Dynasty, during the rule of Emperor Taizong of Tang, China finally entered an age of prosperity. After a lengthy period of wars (581–​619), the Tang Dynasty flourished. There was economic development, social stability, territorial opening, and ethnic integration. The process of the Xianbei people and other northern minorities blending with the Han nationality accelerated. Even in the lower reaches of the Yangtze River, where the culture of the “Six Dynasties” had long been popular, the prosperous Tang Dynasty included a wide range of Han culture (or Han–​Tang culture). Although people still talked about the “Six-​Dynasties,” it was just nostalgia. In fact, the Tang Dynasty became prosperous, and Han–​Tang culture covered a large

128  Cultural inclusion area in the southeast. Similarly, the Xianbei culture of the Central Plains had integrated into Han–​Tang culture. In the Tang Dynasty, after about three hundred years of prevalence, political and intellectual circles considered the dominant-​family political system in the Southern and Northern dynasties to be obsolete. The big surnames and big nationalities of the past had long since declined, and society did not talk about past genealogy. A new genealogy had replaced the former genealogy. The way to serve as an official also changed, because starting from the Sui Dynasty, the government and society both valued imperial examinations and an unobstructed path to official service, so the old officials could no longer be respected as before. When the An-​Shi Rebellion occurred under Emperor Xuanzong of the Tang Dynasty, although it was later settled, an unexpected ending occurred, that is, warlord power expanded, and the power of the Tang Dynasty’s central government weakened. The imperial power diminished because the military districts each controlled a side, and the armies defied the central government. When the buffer towns had separate regimes, it was necessary to implement policy to consolidate their rule by forcing the local rich and powerful households to bow down to the military districts, or else they would be wiped out. The northern region became a battleground for warlords to fight for power. The secular majority, which did not obey the local warlords, fled, delivering a hard blow to the politics of family power and influence. Hereupon we enter the situation of the late Tang and the Five Dynasties. From the beginning of the An Shi Rebellion to the establishment of the Song Dynasty, or about two thousand years, it was a transitional period in which the feudal social system of China changed. After the establishment of the Song Dynasty, the regime of the Khitan and later the Jurchen, who rose up in the North, adopted a policy of compromise. They would rather contribute gold and silver to the Khitan (Liao Kingdom) and Jurchen (Jin Kingdom) and even the northwest Tangut (Western Xia Kingdom) to maintain peace and not fight and thereby avoid losing land due to defeat. It was in this situation that the Song Dynasty lasted for three hundred years (the Northern and Southern Song dynasties). During the Northern Song Dynasty and the Southern Song Dynasty, China’s society, politics, and economy changed one after another. The major changes are as follows: First, there was no longer value for family power, and official career promotion depended on the imperial examination. If the poor immersed in reading and understood their subjects, they could become officials or could serve in the local government or in the central government. Without imperial examination results, however, you could not enter officialdom. Therefore, the official style had changed dramatically, and the imperial examination played a heavy role in this. Second, people could buy and sell land. No longer did you have to be of noble lineage to become a property owner, as in the Southern and Northern dynasties. After the An Shi Rebellion in the Tang Dynasty, the separation of

Cultural inclusion  129 the buffer towns, and the peasant uprisings at the end of the Tang Dynasty, the ethnic minorities in the northwest and the North and their armies entered the Central Plains. They broke up noble land holdings and confiscated the property, so the opening of land property rights in the Song Dynasty had become an inevitable trend. Merchants could buy land, and if their descendants ruined the family, they could sell the land again. This was the portrayal of the so-​called “thirty years on the east of the river and thirty years on the west of the river.” Third, the market expanded. People could make market transactions, and participants now included industrial and commercial workers, farmers, and ordinary urban residents. The government did not intervene in market activities, because only when the market expanded would the taxes go up. The status of wealthy merchants depended on the amount of property they owned and had nothing to do with their family status and origin. The Song Dynasty no longer just talked about family status and roots as had the Sui and Tang dynasties, as I pointed out in the book The Origin of Capitalism: Comparative Studies of Economic History:  China’s feudal society before the An Shi Rebellion was a rigid system. Chinese feudal society after the Song Dynasty was an elastic system. The two hundred years during the mid-​to-​late Tang period and the Five Dynasties were a transition period from a rigid system to an elastic system in China’s feudal society.1 In the mid-​to-​late Tang Dynasty and the Five Dynasties, China finally realized the transition from a rigid feudal society to a flexible feudal society. China was still a feudal society, but the system had changed. Feudal society still existed after the Song Dynasty and continued for another thousand years due to the system transformation. This is a unique example of world history: A flexible feudal society. Han and Tang cultures still covered the whole society, but Chinese society moved away from the rigid system. After becoming an elastic system, the Han and Tang cultures were enriched and became the Han, Tang, and Song cultures. Minority cultures continued to integrate with the Han, Tang, and Song cultures. When the Jin Kingdom of the Jurchen destroyed the Liao Kingdom, where did the Khitan go? The Khitan people who entered the Central Plains region merged with the Han people, and Khitan culture gradually merged into the Han, Tang, and Song cultures. Later, the Mongols moved south and destroyed the regimes set up by the Tangut and the Jurchens (Western Xia Kingdom and Jin Kingdom) and destroyed the Southern Song Dynasty. However, the Western Xia and Jurchen peoples who entered the Central Plains region gradually merged among the Han Chinese. The cultures of Western Xia and the Jurchen also blended with the Han, Tang, and Song cultures in the Central Plains. There were even Mongolians who

1 See Li Yining, The Origin of Capitalism:  A Comparative Study of Economic History, Beijing: The Commercial Press, 2003.

130  Cultural inclusion settled in the Central Plains after the Yuan Dynasty, the Western Xia, and the Southern Song Dynasty. Some of them stayed in the Central Plains after the Yuan Dynasty moved northward, and they also merged into the Han, Tang, and Song cultures to varying degrees. This is also an example of cultural integration. This was true with the Manchus after they unified China, including their descendants in the Central Plains and the descendants of the Eight Banners. From this, we can clearly see that one culture and another depend entirely on the friendliness of distinct cultures. The Han, Tang, and Song cultures have a long tradition. In having a good relationship with other cultures, there was no religious discrimination against those cultures. There was also no discrimination against the descendants of other ethnic groups in production activities, such as industry and commerce, imperial examination preparation, and farming and animal husbandry. In this way, over time, there was “inclusiveness.” The integration of different national cultures is the result of cultural tolerance.

5.2  The content of cultural tolerance 5.2.1  Intermarriage is an important symbol of cultural tolerance We can learn from Chinese history that as early as the Spring and Autumn Period and the Warring States Period, marriage between royal families and nobles was common in the states of Qin, Jin (later divided into the three states of Zhao, Wei, and Han), Yan, Qi, and Chu. It was regarded as a reflection of friendship. The Han people themselves did not have the religious beliefs popularized in the form of state religion. Although religious beliefs existed, they focused on teaching people to be good, teaching people to rise, and teaching people to conduct themselves in a proper way. This was different from the situation in Western European countries, where there was official governmental religious belief, and this is an important symbol of cultural tolerance. An obvious example is the kindness that the Han showed to the Jewish people. The Jewish people adhered to their faith and never changed. The Roman Republic and the Roman Empire occupied Palestine in expanding eastward, and some Jews fled their native land and over the centuries moved to various European lands. In time, the European countries became Christian, and keeping the Christian faith was a constant norm in these countries. Christianity was divided into two factions in Europe. One centred on the Pope in Rome, and the other centred on the religious leaders of Constantinople. The two faiths both claimed to be the only true Christians. So, no matter which country or region the Jewish people migrated to in Europe, people discriminated against them and called them pagans. Christians from all over Europe dealt with the Jewish people differently. Most Christians in the nations of Europe did not associate with Jews, did not intermarry, and did

Cultural inclusion  131 not allow them to bury their dead in Christian cemeteries. Therefore, Jewish populations in Christian countries often lived in separate communities. Yet Jews traditionally managed key aspects of European life from the Middle Ages on, especially in finance, law, and mercantilism. Branches of the Jewish people flowed to the Central Plains of China in the middle of the Tang Dynasty. It is said that when the Jews came to China, they divided into two routes. One route entered the Central Plains by land: The Jewish people passed through Iran and Afghanistan and through the vast Western Region until there were on the road leading to Chang’an. The other route was by ship from the Arabian Peninsula and the Persian Gulf: Via India, Sri Lanka and Southeast Asian countries, the Jews then landed in Fujian and Guangdong with the cargo ships, thus gradually opening up the Maritime Silk Road. After passing, by water or overland, merchants would buy or sell the speciality products of the Arab countries and of Iran, India, and Southeast Asian countries. The number of Jewish people arriving in China by land and water increased over time. Most Jews lived in Henan, including Luoyang and Kaifeng. The Han people did not discriminate against them. Han people could marry Jews, which is something that the Jewish people would not have seen in European countries. This was also an important condition for the Jewish people to gradually coexist with the Han people in the Tang and Song dynasties and eventually merge with the Han people. 5.2.2  The way to make a living During the Tang and Song dynasties, an important measure taken by the Han for the Jewish people who had moved to the Central Plains of China was to open the way of making a living to them. In European countries, residents viewed Jewish people as pagans and their work situation was different. For example, Jews also set up handicraft workshops to produce handicrafts to support their lives. But regardless if it was a Jewish-​run shop or a small shop, guild organizations would block it and the Jewish people were not allowed to be included in the basic guild rules. Jews could run more exceptional industries, such as currency exchange, money lending, and commission collection. However, these lending industries were not respected at the time. People often referred to Jewish people in this industry as “loan sharks” and discriminated against them. Christians were not officially allowed to charge interest on loans; moreover, if the interest rate set by the money lenders was too high, the church could let the priests and others tell the debtor that the debtor did not have to pay the debt, because such lending was not protected by the church. Over time in Western European countries, due to the need to develop international trade, the practice of money lending shifted to the field of international trade. Small loans were managed by governments. It is precisely because the government involved itself in the usury business that Jewish

132  Cultural inclusion people were often maligned, and anti-​Semitism gradually became a convention. Of course, the Jewish people suffered because they could not challenge the government. However, Jews who earned a living in the Central Plains of China, whether they were engaged in the deposit and loan business or in handicraft industries, could engage in these businesses. In the eyes of Chinese businesspeople, if the industry was allowed, the Jewish people would be treated equally. This shows that there were no anti-​Jewish bans in the law. In the Tang and Song dynasties in China, since all the people who engaged in industrial and commercial activities took fair and open measures, there was no “Jewish incidents” in Chinese history. 5.2.3  The possibility of buying property In European countries, Jewish people, sometimes declared pagans, faced discrimination in buying property. They could not acquire real estate and manors. In the Middle Ages in Europe, this was a rule applied everywhere. This kind of ban had been followed by the Germanic nobility during the establishment of Western European feudal culture. After royal power was gradually fixed, the rulers could appoint ministers with close ties to the royal family in the name of the state or bestow rewards on leading businessmen and the rich and powerful in the name of the state. Therefore, treatment of the Jewish people gradually changed in some European countries. If the Jewish people were law-​abiding, they could buy property by relying on the wealth accumulated by their legal operations. As for the wealthy Jewish families who ran industrial and commercial industries and financial industries for royal families or governments, the royal families or the government would encourage them. However, this was a phenomenon that often occurred after the sixteenth and seventeenth centuries, and it was quite different from what it was when cities were first established. Of course, just because Jewish industrialists, merchants, and financiers could buy property, this did not mean that there was no longer racial discrimination against them, because religious beliefs still existed, and marriage was still strictly restricted. Jews were at first able to receive the same treatment as locals in these European countries in the economic aspect, such as the way of making a living and the possibility of buying property. However, when it came to the issue of intermarriage, the legal obstructions were deeply rooted, and this was an insurmountable barrier. On the one hand, Christian families refused to marry infidels and were unwilling to accept Jews in the family. On the other hand, Jewish families believed they kept the religion left by their ancestors and that they could not break the creed of not marrying different religious believers. They swore by their ancestral training and dared not abandon the rules left by their ancestors. While it was possible for Jews to make a living and buy property in some European countries as the economy developed, it was difficult to break the old rules of intermarriage and marriage. Even after

Cultural inclusion  133 the beginning of industrialization, this was still the case. In European countries, even after the American continent became the residence of European immigrants and their descendants, marriage customs stayed in the past, that is, families of different religious beliefs did not marry. 5.2.4  To serve as an official The last thing to mention is the rules or practices of different nationalities on the official career path. There are similarities and differences between official careers and the possibility of making a living or buying property. As far as the official career of a minority was concerned, they might be subject to discrimination, or then again, they might not. It depended on how the majority treated the minorities in the area. Sometimes, or at certain stages, the majority was tolerant. Minorities did not face discrimination in terms of official careers and might have even been allowed to follow their own talents or opportunities. But sometimes the majority was not tolerant. Minorities could face discrimination in official careers and those careers might exclude them. Therefore, compared with the possibility of making a living or buying property, as mentioned above, the similarity was whether the minorities could make flexible career choices and this depended on whether the majority were willing to be tolerant and let them choose their own careers and paths to prosperity. Compared with the possibilities of making a living and of a buying property, the opportunity for an unobstructed official career did not appear at first. In China, the majority (as with Christian states in Europe) improved their treatment of minorities, such as Jews, by first opening up different ways of making a living, such as allowing them to operate industrial and commercial enterprises and financial enterprises, and then by allowing them to buy property, including land and housing, and finally by opening up official careers, so that the Jewish people could achieve higher-​ranking official positions after holding lower-​ranking positions of public office. This step-​by-​step, progressive official career opening might be based on the provisions of laws and regulations or it might not. However, we can say that in European countries it depended on the personal decisions of the top leaders. If the kings of European countries agreed to open their official careers to members of minorities, this showed the advancement of cultural inclusion, which is historical progress. This means that minorities in Europe had a broader path to earning a living and had the possibility of buying property. It also means that minorities had the opportunity to enter an official career or even obtain a senior position. These had become facts after years of historical changes, and there were repetitions and even pauses in the evolution process. But the progress of history is constant, even if there is major repetition. The situation of the Jews in Germany was good and bad. To illustrate, Adolf Hitler massacred the Jews after he rose to power. He put the Jews into concentration camps and conducted historical retrogression and extreme policies, including genocide.

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5.3  The meaning of cultural tolerance 5.3.1  Cultural tolerance is the premise of cultural integration From the connotation of cultural inclusion analyzed in the previous section, we can clearly see that in China cultural inclusion includes the following four important aspects:  First, different peoples got along well, and intermarriage had become a common phenomenon. Second, the different peoples could choose how to make a living, such as opening a workshop or a store, running a business or providing financial services, or being employed. Third, the different peoples had enough financial resources to set up a business, including buying land, buildings, and other immovable properties. Fourth, the different peoples could enter official careers based on their talents and performance, and not only could they hold certain public positions, but they had the opportunity to improve their positions. Economic development gradually achieved the latter three points, and the first point, that is, getting along well with others and marriages between different peoples, appeared later in the process. This expanded the scope of cultural tolerance and set a precondition for cultural integration. During the discussion on the Jewish people in the Tang, Song, Yuan, Ming, and Qing dynasties, it has been pointed out that the Jewish people in China were not discriminated against by Han Chinese, Mongolians, or Manchus. They could engage in various occupations to make a living, and they could buy land, build a house, or run a business, and could even enter an official career. China was not like the European countries, where there was a strong relationship between the government and a state religion such as Christianity. Chinese people had freedom of religion, and believers could choose Buddhism, Taoism, Judaism, or Christianity. If the Jewish people in the Christian countries of Europe had this freedom of worship, the residents of European countries would have considered it heresy and resisted. The situation in China was vastly different. Chinese civil society was one in which multiple religious beliefs coexisted. Therefore, when the Jewish people came to China, they still practiced their faith. The Chinese government did not interfere with Jewish beliefs and customs, and this policy formed the premise of cultural tolerance and national harmony. During the Tang, Song, Yuan, Ming, and Qing dynasties, the Jewish people who moved to Kaifeng and its neighbouring areas in Henan, whether they entered the Central Plains through Central Asia and the Western Regions, or landed in the Quanzhou area of Fujian through the Maritime Silk Road and then gradually made their way to the Central Plains, got along with the Han people in the Central Plains very well, and after a period of a few hundred years, the Han and Jews became very friendly neighbours. They could also intermarry. Some Jews maintained the faith and worshipped in their synagogues, but others took on Han family names, spoke Chinese, and integrated into Han society.

Cultural inclusion  135 The Yuan Dynasty was established by the Mongolians. The Qing Dynasty was established by the Manchus. However, like the dynasties set up by the Han in the Tang, Song, and Ming dynasties, the Yuan and Qing dynasties did not discriminate against the Jews who moved to China. They respected Jewish religious beliefs and career choices, allowing the Jewish people to run businesses and to buy property. Even in the Yuan or the Qing dynasties, the Chinese still treated the Jewish people as previously. They were familiar with Confucian classics, took part in the imperial examinations, and had excellent test scores, and they continued to be appointed as public officials just like the Han Chinese and other members of the Chinese people. Everyone followed the procedures set by the court. It is precisely because of this that the Jewish people in the Tang, Song, Yuan, Ming, and Qing dynasties blended into Chinese culture over time. In other countries of the world, we cannot find a similar phenomenon in history. It is particularly important to note here that during the reign of the Yuan Dynasty, Mongolian policies toward the various other ethnic groups in the Western Region were significantly better than those of the Han people (referring to Han Chinese living in the North China and Central Plains regions), and even better than Han Chinese in the Southern Song Dynasty. This might be because, in the eyes of the Mongols, the other ethnic groups from the Western Regions were less likely to resist the Mongols than were the Han Chinese, who were previously occupied by the Jin Dynasty and even less likely than the Han Chinese in the Southern Song Dynasty. It was only after the Southern Song Dynasty was destroyed by the Yuan army in the South did the Mongols believe that the different ethnic groups from the Western Region were more of a threat than the Han people, especially the Han people Under the rule of the Southern Song Dynasty. After the Qing Dynasty unified China in 1644, it believed that it was carrying forward the orthodoxy of the Ming Dynasty. Therefore, it continued to take the lead in adopting a tolerant policy that gave Manchu, Mongolian, Han, Western regions, and members of the various ethnic minorities in the South the chance to make a living, buy property, and enter into an official career. This policy was related not only to the small number of Manchus, but also to the Qing Dynasty’s reluctance to expand ethnic conflicts. The reason the Qing Dynasty no longer built the Great Wall in the North was because Mongolia and Inner Mongolia now fell into Chinese territory. Was it still necessary to build the Great Wall in the North? This directly pointed out that the stability of the country lay in the support of the people’s hearts. If the people were not happy and were unsatisfied, even if the government spent a lot of capital and consumed a lot of labour and building materials, what use would it have served to continue building the Great Wall? The emperor of the early Qing Dynasty had such vision and strategy. It was valuable and far-​sighted.

136  Cultural inclusion 5.3.2  An explanation of the expansion of cultural tolerance with the Sinicization of Buddhism as an example Buddhism is a religion originally from India, and China has many Buddhist believers. But there are three things worth noting: First, the spread of Buddhism in China was broad. The people who really devoted themselves to Buddhism were mostly monks and nuns. They used the Buddhist temples as a place to live and read Buddhist scriptures. This is not including the unmarried believers. China had many Buddhist believers. However, the situation was generally like this:  If there was something that Buddha needed to bless, they would go to the temple to worship statues of the Buddha and bodhisattvas in order to tide over the difficulties, such as someone at home becoming seriously ill or suffering from a disaster that has affected the family, hoping to be blessed by the Buddha and the bodhisattvas. Also, families who had been married for many years without male offspring or had no children would go to the temple to worship and make various wishes. These residents, including officials, businesspeople, and students, also had the habit of going to the temple to wish for good fortune. When they returned from worshipping, they at least felt psychologically balanced. Such Buddhist believers were characteristic of the spread of Chinese Buddhism, but they were different from the many foreign families who believed in a certain religion. Someone who once commented on Chinese Buddhist believers said: They “worship if there is something and they do not worship if there is nothing.” Second, many Buddhist teachings spread to China, but the most popular ones were short idioms: “The good will be rewarded with good, the evil with evil; if the reward is not forthcoming, the time has not yet come.” The people were convinced of these sayings. They formed a folk Buddhist belief that this was the way to be human, and the famous sayings determined the future. Sayings like this were more useful than those spread by the Buddhist classics. In other words, only when people did virtuous deeds could they make a good life and would they have security in their life. The formation of Chinese folk ethics is related to the popularity of this kind of good and evil. Third, we must note the prominent changes in Buddhism in the Tang Dynasty, that is, the development of Zen Buddhism, which was the result of blending Buddhism with Chinese philosophy. This made Buddhist teachings more humane and more suitable for Chinese folk customs and ethics. The formation of Zen could be promoted in the vast areas where Chinese Han people lived, indicating the Sinicization of Buddhism after the Tang Dynasty and showing that the form of Buddhism popular in China was becoming increasingly different from the Buddhism found in India and the form of Buddhism popular in Southeast Asian countries. The famous dispute between Shenxiu and Huineng, that is, the dispute between “gradual awakening” and “sudden awakening,” is the most enduring debate in the formation of the Southern School of Zen. In fact, there is reason

Cultural inclusion  137 for both gradual awakening and sudden awakening. This is because among the people who believe in Buddhism, some gain enlightenment quickly while others gain enlightenment slowly. People are different. Therefore, there is a saying that “gradual awakening and sudden awakening both have a reason.” In addition, this is because the knowledge of Buddhism is not a fixed thing. In accepting Buddhism, every believer has a need for a self-​reflection and the self-​disciplined experience of “cleansing oneself.” From this point of view, sudden awakening cannot abandon gradual awakening, and gradual awakening cannot avoid the possibility of sudden awakening. It is precisely because Chinese-​style Buddhism has been discussed among the people since the Tang Dynasty that it was closely integrated with Chinese philosophical thinking, and the Chinese intellectual community further deepened the study of Zen thought in the discussions on Buddhist teachings, constantly expanding its scope. Taking Zen as an example: Zen has had a profound influence on folk beliefs, and that influence in the intellectual world is also very large. The expansion of Zen influence is closely related to the view that Zen advocates tolerance. Moreover, after the Tang Dynasty, in China, in addition to Northern Buddhism, or Mahayana Buddhism, Southern Buddhism, also known as Theravada Buddhism, also made its way to the Yi area in Yunnan. In addition, there is Tibetan Buddhism in the Central Plains region (brought to Tibet by Princess Wencheng of the Tang Dynasty), which is from India and Nepal. After Tibetan Buddhism, several sects spread in Tibetan-​inhabited areas and Mongolian-​inhabited areas. In the Qing Dynasty, China adopted a policy of tolerance for various religions. There was no discrimination against any Buddhist factions, including Southern Buddhism and Tibetan Buddhism. As for religions such as Taoism, Islam, Christianity, and Judaism, people could set up houses of worship, and the Qing Dynasty permitted them to teach if they did not violate any laws or regulations. China has always upheld such a policy. However, the Qing Dynasty did ban certain “cults” aimed at countering the government, such as Bailian and Tianli. This practice even continued in the late Qing Dynasty. In some areas, churches or temples were set up by several religions. For example, in Yinchuan, Ningxia, there was a temple with Buddhist, Taoist, and Islamic places of worship. The believers of the three religions each made pilgrimages to the idol or doctrine that they worshipped. This situation is rare in other countries of the world. 5.3.3  How to look at the fight against monastic forces in Chinese history Judging from the process of cultural tolerance and integration in China, some dynasties attacked Buddhist monasteries. This led to the implementation of compulsory means of forcing monks and nuns to secularize, the closing of monasteries, and the confiscation of monastic lands. Why is this? There are a few issues to consider from the point of view of authority:

138  Cultural inclusion First, because ordinary small landowners and Buddhist believers would donate small plots of land to monasteries to guarantee their future and also add themselves to the team of monks, there was more and more dedicated monastic land, and the farmland located in temples was exempt from taxes. As a result, the government’s tax revenue declined, which made those in power feel uneasy. Second, not only did small landowners and Buddhist believers donate land to monasteries, but people in the labour force also became temple monks with the donations of the land. Thus, they no longer served the government or the military. For the government, this was a major loss of human resources. Therefore, when an emperor was in opposition to a monastery, he had to make the labour force return to normal life or move out. Third, another important reason why an emperor would crack down on Buddhist monasteries was out of fear that the rich and powerful families would collude with the monasteries and become separatist forces against those in power, thus weakening authority. If left unchecked, this might one day threaten their survival and even overturn the government. For these reasons, dynasties attacked monasteries and weakened their power. This had also occurred abroad. For example, emperors in the Eastern Roman Empire (Byzantine Empire) attacked churches. In the nineteenth century, the Russian central government also attacked Orthodox leaders to support the Tsar’s authority. However, weakening the power of monasteries and eradicating Buddhism are not the same in Chinese history. Dynasties attacked Buddhist monasteries to maintain power, but policymakers, including emperors, did not target Buddhist believers because this would make it hard for the rulers to consolidate power and would only turn the people against them. Therefore, during fights with monasteries, people would still read Buddhist texts and efforts were made to avoid stirring up dissatisfaction among Buddhist believers. In Chinese history, emperors weakened the power of monasteries, but they never went to the extreme of trying to end Buddhism. The attacks were intended to consolidate power and prevent monastic power from becoming too great. They were not intended to treat one religion as a state religion while rejecting others or fostering a religion to ban another. Dynasties also raised the status of Taoism, but this did not mean that they deliberately degraded the status of Buddhism. The improvement in the status of Taoism might be due to an imperial court and royal family advocating Taoist alchemy in hopes of finding a secret recipe for longevity, or it might be due to a belief that Taoism could help the army win in battle. Raising the status of Taoism did not mean that an emperor had set out to degrade the status of Buddhism, restrict its believers, or set out to belittle Buddhism in other ways. After Buddhism was introduced to China, emperors always placed Buddhism and Taoism in the most prominent position of national concern. After the Sinicization of Buddhism, that is, after Zen Buddhism became

Cultural inclusion  139 popular in China, in general, on the issue of religion among the people, courts did not set out to foster one religion and attack another. Various religions or sects grew through their own processes of communication, which also created the conditions for cultural tolerance and mutual understanding. 5.3.4  The key is a policy on people’s livelihood The Ming and Qing dynasties did not interfere with the spread of religions. For example, after the Ming conquest of Yunnan, Buddhism was allowed to spread naturally. As a Buddhist holy place, Mount Jizu attracted believers, and its influence grew. It is one of the holy places of Buddhism in northern China. At the same time, Southern Buddhism flourished in Yunnan in the southwest, where the Dai people lived. The Ming government did not intervene in the spread of Northern Buddhism or the spread of Southern Buddhism in southwestern Yunnan, nor did it block exchanges between Southern Buddhism and Buddhism in Myanmar and Thailand. For example, before the Ming Dynasty, the Yuan Dynasty ruled, and the Yuan army was stationed in various parts of Yunnan. Despite this, Islam, the belief of the original inhabits of the Western and Northwest territories, was passed on to Yunnan. The rulers of the Ming Dynasty also did not intervene in the spread of Islam. They referred to these believers in Yunnan as Hui people. They had mosques, and the government protected these places of Muslim worship. In the early years of the Qing Dynasty after the Revolt of the Three Feudatories, the government adopted an inclusive policy on people’s beliefs. It did not discriminate against Northern Buddhism, Southern Buddhism, Islam, or Tibetan Buddhism in the border areas of Yunnan and Tibet, and cultural tolerance continued. Even after Christianity passed through Myanmar and spread to ethnic minorities and Han Chinese in the western region of Yunnan, the Qing Dynasty was tolerant. for the policy played a significant role in maintaining social stability in Yunnan. The Qing government learned from the great turmoil of the late Ming Dynasty and so knew that the key was to implement a policy on people’s livelihoods. Ethnic conflicts could lead to social unrest because exorbitant taxes or harsh labour could upset the people. Therefore, the Qing government put social stability first and strove to appease the minorities in the frontier areas. However, there was a problem. The Qing government knew that if indigenous leaders controlled ethnic minority areas, that this could calm or reduce conflicts in these areas. However, the government also worried that this might increase the power of local autocratic forces who would do as they please, and this would exploit the local people even more. For this reason, the Qing government repeatedly considered, and finally decided to bureaucratize local leadership. However, the Qing government did not solve the problem of land allocation in the southwest minority areas. After land reforms were implemented, the government had no choice but to follow the original land ownership

140  Cultural inclusion system in those minority areas to maintain the basic order of local villages and avoid conflicts between ethnic minorities in disputes over water. The Qing government did not station troops in the areas with concentrations of ethnic minorities. Rather, it only kept a small number of troops stationed at border crossings or traffic routes. When certain ethnic groups rioted, the government sent troops to keep order, but usually withdrew them after the riots had subsided. The bureaucratization of local leadership was is in line with the requirements of a large, unified country. The government also tasked officials (such as county magistrates) with disaster relief and safeguarding victims of natural disasters, keeping commerce flowing, and attracting foreign businesspeople to come and revitalize the economy. Because the government adopted a policy aimed at developing the economy and resolving old disputes between different ethnic groups, it gradually advanced cultural tolerance in the southwest. There were no conflicts between large ethnic minority groups and the Han, nor were there between ethnic groups. This situation continued until the Republic of China and the War of Resistance against Japanese Aggression. The problem of bandits was also rampant in the southwest. On the other hand, according to information on the southwest region of the anti-​Japanese battlefield, the Kuomintang garrison played a role in supressing bandits, and there were no major robberies on the main roads. (The author moved to western Hunan with his family at that time; he and his family also went to Sichuan and Guizhou). Most travelled by buses and wooden boats. In the villages and towns of western Hunan where the Miao and Yi peoples lived, it could be seen that they were close. There were still bandits, but you did not notice their activities and it was not until the founding of the People’s Republic of China (PRC) that the People’s Liberation Army discovered them. The economic development of the southwest part during the Anti-​Japanese War and the inland migration of people along the eastern coast of the Yangtze River were a good thing for mutual exchanges among ethnic minorities in the southwest region. 5.3.5  Religious conflicts and the resolution of ethnic barriers Chinese historical experience, especially since the founding of the PRC, showed that it was possible to gradually resolve religious conflicts and ethnic barriers and gradually realize cultural tolerance. I have been to many ethnic minority areas in China since the 1980s to conduct research on poverty alleviation and urbanization. The main impression I  had was that the process of reform and opening up and economic development—​and the process of mutual exchanges and mutual learning among different ethnic groups—​increased the centripetal force of nationality and decreased the centripetal force of separation. This is an experience worth promoting. It underlines the direction for social harmony and the realization of common prosperity for all ethnic groups.

Cultural inclusion  141 The premise of cultural integration is cultural tolerance. The growth of various ethnic groups has verified this. An obvious example is that although different ethnic minorities usually have their own New Year’s Day and their own way of celebrating, the Han Chinese Spring Festival (the first day of the lunar calendar) has gradually become a common festival of the Chinese nation. As you know, many countries have customs like festivals. In recent years in China, in addition to celebrating the traditional New Year festivals of ethnic minorities, the Han Chinese New Year has gradually become a national festival. From the end of the lunar calendar to the Lunar New Year to the Lantern Festival on the fifteenth day of the first lunar month, these days have become major days of joy and celebration for ethnic groups and the Han people, during which time they sing and dance and perform lion and dragon dances. Together with family and students, I have spent the Spring Festival with locals of the Miao and Tujia ethnic groups in Hunan; and in the Miao, Bouyei, and Yi areas of Guizhou; the Dai, Bai, Jingpo ethnic minority areas of Yunnan; the Hui areas of Yinchuan in Ningxia, Guyuan, and Qingtongxia; the Tibetan, Mongol, and Tu areas of Qinghai, as well as the Li and Miao inhabited areas in Hainan and the Tujia inhabited areas in Chongqing. The ethnic minorities in these areas celebrated the Spring Festival with Han residents and they all danced together and performed lion and dragon dances together. Moreover, their income has increased and the Spring Festival atmosphere has become increasingly great in recent years due to economic development of these areas. These are reflections of cultural inclusion and cultural integration. It seems that there is a basis for describing the Lunar New Year as a common festival of the Chinese nation. Another change in customs and habits in ethnic minority areas is that the number of migrant workers is increasing year by year. We surveyed the Mongolian inhabited areas in Inner Mongolia as well as the Miao inhabited areas of Guizhou and found that there were not many ethnic minority members and no women going out to work in the 1990s. In the last ten years, both men and women have gone out to work, and even couples go out together, including couples working either in the same town or in different towns or provinces. Some families bring their children with them, but most leave their children at home with grandparents. Of course, there are also those who leave their children alone in the countryside with neighbours or relatives. The increase in the number of ethnic minority migrant workers has led to the empty-​nest phenomenon in rural areas and left-​behind elderly and left-​behind children are social problems. On the other hand, the influence of cultural tolerance is growing due to the increase in the number of migrant workers from ethnic minority areas. Take as an example Bijie, Guizhou, which I investigated many times. When working in Bijie in 2004, I found that few people left the mountains or villages to go to work in the coastal provinces and cities. They thought that it was too hard to leave their hometowns and worried about not being able to find suitable work. Moreover, those who did leave worried

142  Cultural inclusion about their household land and mountain forest contracts. There were Miao, Yi, and Hui people in Bijie who had never been to Guiyang. Now, they work in towns in Hunan, Guangdong, and Hubei. What if they are not suitable for the local life? Fortunately, in such cases, Party and government leaders in Bijie encouraged them to go to other provinces to work and assured them that the property rights of contracted land, homesteads, and old homes in villages would not change. Being fully prepared for tomorrow, they finally left the mountains and dedicated themselves to their new cities and towns. Since 2006, Party and government organizations in Bijie have provided training before these individuals go out to work, so that they are skilled. They also introduce them to units that need workers. Therefore, the Miao, Yi, and Hui ethnic groups, once shut in by the mountains, have finally formed a large-​ scale workforce to display their talents in enterprises or construction sites in Hunan, Guangdong, and Hubei. We conducted the same research in Bayannur, Ulanqab, Chifeng, and Tongliao in Inner Mongolia Autonomous Region. According to our data, the phenomenon of local migrant workers began in the 1990s. After 2005, the number of migrant workers increased rapidly. Our research found that many of the migrant workers in Bayannur and Ulanqab went to the cities of Hohhot and Baotou and some moved to the cities of Wuhai and Erdos to engage in coal mining and building or in road construction work. Some workers also engaged in landscaping, environmental protection, and service industries. Some of the migrant workers from Mongolia worked in large-​scale managed pastures. In fact, we met pastoralists in Xilinhot City who claimed to graze cattle, sheep, and horses for large-​scale pastures. In Chifeng and Tongliao cities, we met small-​business owners and servers who worked in catering. They were originally herders, but due to the expansion of desert areas and the lack of water and grass, they went out to run catering businesses, while others worked as servers. In Tongliao City, we also met migrant workers from other pastoral areas. They said that the young girls in their hometowns went out to work, so the young men could come out. The adult men who did not go out were unmarried and could not find a wife. When asked what they had to do to try to find a wife, they replied that you had to go out to meet someone and be able to save money for marriage. In any case, from the survey of Bijie in Guizhou and the survey of Bayannur, and Ulanqab, Chifeng, and Tongliao in Inner Mongolia, we found that migrant workers not only could find suitable jobs, but also make friends and find wives and build families. At the same time, exchanges between ethnic groups have increased, and the gap between different ethnic groups will gradually resolve. This is evidence of cultural tolerance. In the economic development and social stability of ethnic areas, in addition to these achievements in Guizhou and Inner Mongolia, there were similar cases in northwest and southwest Yunnan. An atmosphere of harmonious ethnic exchanges is necessary to make religious barriers disappear. Cultural inclusion is not just a matter of words.

Cultural inclusion  143 I used to divide national culture between advanced and backward and between civilized and uncivilized. However, drawing a line between advanced and backward cultures and between civilized and uncivilized customs according to customs and habits of ethnic groups is not conducive to the harmonious coexistence of those groups. Customs or festivals are symbols of national culture. However, making a distinction between advanced and backward cultures and between civilized and uncivilized cultures not only makes it impossible to achieve national harmony and national friendship, but it deepens whatever gaps there are. Cultural tolerance must serve as the basis of cultural integration, with the premise that different ethnic groups respect and help each other. Moreover, we should understand that cultural integration is a lengthy process and coercion is not the way to achieve it. Coercion will only cause misunderstandings, and it cannot erase barriers. For the religious beliefs of local ethnic minorities, we need to respect them and be more tolerant to make ethnic relations harmonious. 5.3.6  The role of urbanization in promoting cultural inclusion The fourth section of Chapter 2 elaborates on urbanization. Following is an added explanation. Industrialization and urbanization have moved forward in parallel in Western countries. When the Industrial Revolution began in Britain in the late eighteenth and nineteenth centuries, industrial enterprises were founded, and there was great demand for the labour force to move from the rural areas to the cities. Therefore, the industrialization process was also a process of urbanization. In the early nineteenth century, countries of the Western European continent, mainly France, Belgium, and the German states and, later, countries in Eastern Europe, Southern Europe, and Northern Europe, also industrialized. Like Britain, these continental countries lacked industrial labour, so the labour force flowed out of the countryside to fill the needs for industrialization. Britain was the first country to have urban diseases. After Britain’s Industrial Revolution, much of Continental Europe began to industrialize in the mid-​nineteenth century, followed by the appearance of urban diseases. This included things like street crowding; migrant workers building their own shacks and forming shantytowns, or slums; and dirty air, dirty water flowing everywhere, and noise pollution. In addition, the cities had limited jobs and too many country people were flooding into the cities looking for work (not only domestic workers, but also farmers and unemployed people from the more impoverished countries of Eastern Europe, Near East, Southern Europe, and North Africa) and the social security situation had deteriorated. From the end of the nineteenth century to the beginning of the twentieth century, urban diseases became more serious in the industrialized countries of Western Europe. Thus, in countries with rapid economic development like Britain, France, and Germany, there was reverse urbanization. In the eyes of

144  Cultural inclusion wealthier families, the cities had become unsuitable for living, so they moved to the outskirts and bought or built new homes in the surrounding rural areas. They sold their residences in the cities or kept them so that they could sometimes return and have a place to live part of the year. After wealthy families got cars, transportation became convenient and reverse urbanization became even more common. Yet, while wealthy families moved out of the cities, the poor and their families continued to move into the cities to find work. The concept of hometown played an important role in this, because with the help of fellow hometown workers, newly arrived farmers who were looking for a job or the unemployed might have a place to settle down or to resettle the family and could help them find work. In London, migrant populations gradually formed different neighbourhoods. For example, there were areas of British immigrants and Indians and settlements that were full of Middle Eastern and North African immigrants. Despite friction between workers who were looking for work, or cultural barriers, there was still communication and mutual help. These are all examples of cultural inclusion. In China, after the Opium War, there was a gradual increase in the establishment of foreign-​funded factories. After the First World War broke out, various port cities reached the climax of national capital investment and construction. These cities also had the problem of insufficient labour, so they attracted outside workers to take part in the industrialization. At that time, there was no household registration system for rural and urban households. Farmers went to work in the cities, and their wives and children moved to the cities, too. Since 1958, when the Chinese household registration system changed to the dual system, there has been urban household registration and rural household registration. The rural labour force keeps the rural household registration even when they go to work in the cities and are migrant workers. The ethnic minority areas also have the urban-rural household registration system and this creates restrictions for ethnic minorities who are registered as rural households. This makes it even more difficult for farmers from ethnic minority areas to work in urban areas. There is an artificially solidified gap between the different ethnic groups, one that limits cultural tolerance, not to mention cultural integration. We need to promote social harmony in China from two directions. First, we must break the barriers caused by the urban-rural household registration system over the years to China’s urban and rural areas and end the unfair treatment of rural households before and after they enter the cities. Second, the urban-rural household registration system in areas with ethnic minorities has isolated ethnic minority farmers and herders or rural handicraftsmen. When they enter the cities, they find it hard to make a living or buy property and difficulty communicating with other ethnic groups. They undoubtably lack an important platform such as found in the town for exchanges and mutual understanding between different ethnic groups,

Cultural inclusion  145 because they are bound to their ethnic minority village and they live in the same place all year round. How could closure in the countryside not have harmed them? In addition, they cannot use the town as a communication platform, so how can they share the fruits of reform and opening up and economic development like urban residents? From the above analysis, we can understand the importance of urbanization to the development of the whole nation. In the current urbanization process, the focus is on urbanization of people, and urbanization that promotes cultural tolerance and cultural integration. This is important for the simultaneous development of urban and rural areas and for national harmony. The urbanization that China is promoting at this stage is new urbanization. This means that we no longer regard bringing in rural labour as a way to simply increase urban labour but regard new urbanization as a reform measure that relates to the coordinated development of China’s urban and rural areas. First, we must implement the new development concepts of innovation, coordination, green, openness, and shared; promote the sustained and healthy development of China’s economy and society; and ensure the goal of building a well-​off society in an all-around way as scheduled. In the process of the urbanization of provinces, municipalities, and autonomous regions, we should include reform of the urban-rural household registration system in upcoming work arrangements to realize the goal of bringing an estimated 400  million farmers into the cities at an early date. In gradually changing the household registration from a dual system to a single system, we should allow migrant workers and their families to become urban residents and settle down in the cities. We cannot ignore this step in adjusting the industrial structure, expanding consumption, and improving the economic development and social harmony between urban and rural areas. According to preliminary estimates, there were 260 to 270 million migrant workers in China by the end of 2015. In addition, more than 40 million rural married women have long-​term separation with their husbands; more than 40  million rural left-​behind children lack parental nurturing and care; and there are still about 40 million left-​behind elderly in rural areas. Thus, there are 400 million farmers to settle in the cities. It is not hard to imagine the benefit that transforming the urban-​rural household registration system into a single registration system would bring to China’s economic and social development in the years to come. This would not only greatly increase consumption and investment, but also drive the development of the primary, secondary and, especially, tertiary industries. There is no precedent in the world for such substantial changes. At the same time, we should pay attention to the processes of people-​ oriented urbanization and new urbanization. We cannot ignore the significance of exchanges and, especially, friendly exchanges between Han and minority residents. As mentioned above, ethnic minority farmers and herders also work in cities or run businesses and services. However, due to the existence of the rural household registration system, it is difficult for them to

146  Cultural inclusion develop in cities and for their children to study and live with the children of Han residents. This situation affects the exchanges of adults and children of different nationalities on the big platform of the city. The rural household registration system often restricts ethnic minorities to villages. Ethnic segregation has existed for a long time, and this has restricted exchanges for a long time, making it impossible to talk about national cultural exchanges and cultural tolerance, and even less so cultural integration. Therefore, what we should expect from the profound changes brought about by the implementation of the new urbanization and the reform of the urban-​rural household registration system is that the road to cultural tolerance and cultural integration will be smooth. On the large platform of urbanization, all ethnic groups, under the guidance of the CPC and the resolutions of the 3rd, 4th, and 5th plenary sessions of the 18th National Congress of the CPC, will contribute more to the realization of the Chinese dream in a more united manner.

6  Cultural confidence

6.1  The meaning of cultural confidence 6.1.1  What is cultural confidence? Cultural confidence means that a nation should have full confidence in its traditions, culture, and core values. Cultural confidence and national confidence coexist and are inseparable. For the various ethnic groups in China, the tribal leaders Xuanyuan, Shennong, and Chiyou formed the earliest political organizations and devoted themselves to economic development, social stability, opening territory, and the formation of a stable social order, all of which began the formation of the Chinese nation. The earliest Chinese culture also began to spread in China. Since then, after thousands of years of development and through the expansion of territory and economic prosperity—​ although wars in the country did not stop, the peace years were always more than the war years—​ cultural traditions were followed, and the substance of life became increasingly abundant. You can say that the inheritance of culture from the historical dynasties is why Chinese culture has become one of the few in the world to last so long and continue to flourish. Cultural continuity and carrying the torch forward rely on national and cultural confidence. National confidence and cultural confidence form a whole. As mentioned earlier, even in times of great social turmoil, endless wars, the rise and fall of dynasties, ethnic minorities in border areas going south to the Central Plains, and new state or local governments, culture still enriched the content, and cultural heritage remained unbroken. Not only that, but even when the cities were economically depressed due to the destruction of war, and the residents fled to the countryside or the mountains to seek refuge, they still passed down the culture. In the past, when government was unable to establish the rule of law, villagers in most rural areas practiced self-​ governance and relied on habits and moral power to maintain social stability. This reflects cultural confidence. We can even argue that every time Chinese society experienced major social unrest, a new dynasty flourished, and its

148  Cultural confidence prosperity would often exceed that of before the war. Illustrations include the rule of Wen and Jing in the early Han Dynasty, the rule of Zhenguan and of Kaiyuan in the early Tang Dynasty, the unification of the Central Plains and Jiangnan in the Song Dynasty, the Yongle period of the Ming Dynasty, and the more than a hundred years of prosperity under the Qing Dynasty emperors Kangxi, Yongzheng, and Qianlong. The cultural confidence of the Chinese nation is the root cause of these historical facts. If the people did not have cultural confidence, how could they have used such great power to repair the whole country after a change in government? If the new ruling group (from the founders of a new dynasty to the officials ordered to preside over central and local governments) did not have cultural confidence or enough knowledge of the Chinese people’s feelings, it would be impossible to realize such prosperity and glory. This clearly shows that from social unrest to new dynasties, cultural traditions and cultural confidence must form the basis. Cultural confidence contains a strong governance concept, that is, cultural tradition accumulated and passed down over the years tells people that it is impossible to rebuild prosperity and improve people’s livelihoods without hard work and that it is impossible to restore social order and the normal life of the people without honesty. This stems from cultural confidence. In the same way, rulers in the early days of new dynasties thought that in order to rule the whole country for a long time, certain policy adjustments were needed, such as reducing taxes, encouraging immigrants to open uncultivated land for farming, and alleviating social contradictions. Historical books of the dynasties have summarized these turbulent lessons. Long-​term cultural development is the basis of cultural confidence because it brings together the essence of the rules of common obedience and motivation of the nation and leaves it to future generations. Respect for cultural accumulation means passing cultural treasures to future generations as a common belief in a code of conduct. Cultural confidence is undoubtedly national confidence. 6.1.2  Clearly oppose historical nihilism and national nihilism Historical nihilism and national nihilism are extremely harmful. If we apply historical nihilism to Chinese history, we will think it is inferior to foreign countries. If that is the case, there is no way we can talk about cultural confidence. Similarly, if we look at the history and the current situation of the nation through the lens of national nihilism, it will be inferior to the past. If that is the case, there is no way to talk about national confidence. We should recognize that historically correct and false beliefs often coexist, and that correct and false beliefs are often confused, which has an impact on private and political circles. Even over an extended period, a false belief will prevail, and people will suppress, restrict, or crush correct beliefs. However, history is advancing in the struggle of different beliefs. Time will filter beliefs like a sieve. No matter how prevalent false beliefs are and no matter how

Cultural confidence  149 suppressed or crushed correct beliefs are, history tells us that more and more people will reject false beliefs and the public will eventually recognize correct beliefs and then make them their own. This kind of recognition may be a long time in the making but, like large waves, after years of cultural development, the whole nation will recognize the cultural treasures that have been passed down. Historical nihilism and national nihilism usually affect each other. When people look at the history of their own nation through the lens of historical nihilism, they often deny national achievements. They think that the nation has done nothing and will do nothing and that it brings only endless suffering and oppression to the people. Moreover, it might never be able to get rid of such a fate. How did this result come about? What is there to cherish in national history? Who are the national heroes to respect? When people look at the history of their own nation through the lens of national nihilism, they only feel sad and embarrassed. It seems that there is nothing to be nostalgic about in the nation’s history and nothing passes on to future generations. This does not conform to the history of the nation. To make the concept of cultural confidence more thorough, let us turn to the analysis of the concept of identity. 6.1.3  Identity and cultural confidence The concept of identity appeared long ago. We could even say that it existed in primitive society. A person is a member of a group and cannot leave his own group. This was especially true in primitive society. Then, a person who did not agree with his group or broke away from it would be unable to survive. Thus, identity is a relationship between the individual and the group. So, here is how we define identity. A person is a member of a group and consciously or unconsciously regards it as his own organization. He not only coordinates with and adapts to it, but also interacts with other members of it, who coordinate with and adapt to each other. In other words, identity means a person admits that he is adapted to a group, acknowledges that he is a member of it, and feels he is one with it. In primitive society, a person recognized belonging to a tribe and being a member of it. This means that he had to be loyal to it and obey it. Otherwise, he would be a nonconformist, and the tribe would expel or even execute him. Later, as society progressed, the relationship between people and groups became much more complicated than that between tribe members and tribes. First, there was government with the establishment of states or city-​states based on tribes and tribal alliances. The identity between the resident and the state (or city-​state) replaced the earlier personal identity with the tribe. In addition, there were more people in society and the emergence of various groups and various kinds of identity relationships. There were large groups and there were small groups. The smallest group might be a family, a small village, or a small handicraft workshop with workshop experts (artisans),

150  Cultural confidence helpers, and apprentices, or a workshop run by family members. Later, as the economy developed, there were more workshops and workshop masters (artisans) in an industry united to form a craft guild; more businesspersons, who organized trade associations, and more helpers who wanted to have a mutual aid organization, so they set up helper associations. This was typical of medieval cities in Western Europe. Workshop owners led industry guilds, and the artisans who took part in these guilds identified with them. At the same time, members of trade associations and helper associations began to identity with each other. The religious church organization formed in religious communication. Different religious believers formed an identity with their own religious organizations. The same religion can be divided into different sects, and the believers can form an identity with one sect while others can form an identity with another sect. The sects might be in a state of opposition with one another, but they can also exist in peace and the debate might be concentrated between the different sects. Furthermore, the believers are likely to obey the sectarian organizations they believe in, but they also communicate with one another. Changes in groups continued, and later, political parties appeared. Some people who joined a political party were close to that party, while others only had a loose identity. Because policy proposals differed among political parties, there were always news ones, so members of one political party might withdraw from it and transfer to another one, changing the identity relationship. After the world entered the industrialization stage, people took part in more groups. For example, if a person bought a house in the city and moved into it, he would naturally take part in community organizations and homeowner associations. This person will feel compelled to agree with these groups and will support their arrangements. Another example is that of a scholar who specializes in a certain field and becomes part of the professional academic community due to various relationships. He forms an identity with the academic group. He has a responsibility not to damage the reputation of this group and will fight for it. This reflects his sense of responsibility. Since he has formed an identity with this academic group, he should help preserve its reputation. Participation or membership in a group does not necessarily relate to personal interests. For example, a person might be enthusiastic about the protection of endangered animals and plants, or keen on wetland protection or the protection of cultural sites. This might be purely for the concern of a cause rather personal interest. In addition, there are charitable and non-​ profit organizations in society and some people are keen on charity and public welfare undertakings. Therefore, they take part in such activities without considering their own interests and do work for them. It is impossible for us to explain this kind of group identity from the perspective of what interests the individual has.

Cultural confidence  151 From this, we can see that identity is a cultural phenomenon. Society sees identity in modern society more as a social force that transcends market and government, and culture is its foundation. Here is a subtle example. Let us say that a family has three boys. The family economy is having problems, so when the first boy graduates from junior high school, he must go out to find work, help his father, and help shoulder the responsibility of raising the family. Later, the family economy begins to improve, and the second boy graduates from high school and goes to university. However, after graduation, he must work to ease the burden on the family. After a few years, the family’s economic situation improves. Now, the third boy in the family graduates from university. He can go to graduate school and even study abroad. If the first and the second child formed an identity with the family and fully understand the situation of their parents in the past, they will not feel like they were discriminated against at home. They will not question why they had to go to work after graduation and did not get to go to graduate school. They will not ask these questions because they have formed an identity with the family, which means in this case, the identity is unforced and voluntary. For the family members, the identity they have with the family and the recognition of the decisions made by their parents are not only voluntarily, but they also feel that they were the best decisions. In this sense, identity reflects a culture. It is a kind of obedience from within. We should realize that there are at least two ways for a person to belong to a group. One is not by choice and the other is choice after consideration. For example, a person cannot choose the region, country, and family they are born into. Things like what kind of family he is born in, what kind of parents he has, whether he is an only child or has brothers and sisters, where he is born, and whether his family moved when he was young, are all destined after birth. He has no choice. However, there is another situation. After going through adolescence and especially after adulthood, what school he studies at, what kind of classmates he has, the teachers and classmates who influence him, and the colleagues who influence him after he joins the workforce are not a family or personal choice. Thus, as for the adult family members who still strongly identify with the family (such as parents, brothers, and sisters), we can only think of this as the result of family education and a reflection of culture. This is the cultural confidence that the family environment has cultivated over a prolonged period. In fact, it is all right to call identity a cultural accumulation. For example, perseverance in one’s faith, a sense of responsibility for one’s profession, trust in and reliance on one’s favourite brands, and support for a player or a team in a sports competition can all be seen as an identity. This also reflects cultural confidence. This has deepened our understanding of identity and has given us various forms of identities in society.1

1 These issues are discussed more deeply in the first section of Chapter 8 in this book.

152  Cultural confidence

6.2  Comprehensive understanding of the concept of human capital 6.2.1  Overview of human capital Before the 1960s, although economists focused on education, human cultivation, quality of labour, and even quality of national education, and recognized the importance of education, they did not formally use the term human capital. It was not until the 1960s and 1970s that this term became popular. The spread of the concept of human capital was a major advancement in economic theory. Before, when economic circles discussed capital, they only focused on physical capital, that is, the capital formed by production. This includes things like land, buildings, and equipment used by factories. We convert physical capital like raw materials, fuel, and power, as well as spare parts and means of transportation, from money, so capital input is indispensable. Whichever country has more money and capital investment is at the forefront of economic development; and whichever enterprise or enterprise group has more financial capital and converts that into advanced factories, equipment, and raw materials, can grow and lead in the market. After the 1960s and 1970s, the concept of capital changed to include the inclusion of human capital in the scope of capital. A  concise explanation of human capital is that it refers to people’s knowledge, skills, experience, and wisdom. It also includes the quality of people, sense of responsibility of people, and the hard work and diligence of people, and the spirit of people who are unsatisfied with the existing level of knowledge and technology. This is an important part of human capital. With human capital, especially human capital that involves the quality of people, the sense of responsibility of people, the hard work and diligence of people, and the continuous quest for learning and enthusiasm for learning, the connotation of human capital becomes much richer. Some economists believe that human capital is becoming more important than physical capital. The more industrialization advances, the more important human capital becomes. People often say that during times of war, a country might suffer huge material losses—​ railways, bridges blown up, port facilities destroyed, and enterprise buildings and equipment, residential buildings, and even entire towns bombed into ruins—​however, if there is human capital and a commitment to the reconstruction of those things, everything can be quickly rebuilt—​and even better than before. This is the embodiment of the role of human capital. If a country lacks enough human capital and lacks high-​quality human capital, it would be hard to turn the ruins of war into new towns. Economists also believe that human capital will play a more prominent role than before with the progress of industrialization and the promotion of informatization. This is also unmatched in any period before. For example, the increase in patents, the development of new areas of technology, and the

Cultural confidence  153 increase in the proportion of highly skilled workers are all unprecedented. Previously, it was difficult to support economic growth while lacking the labour force. Now, it is impossible to upgrade industries and products without the guidance of high-​tech scientists and highly skilled technicians. This has prompted countries to increase demand for high-​end talent. In contrast, the supply of high-​end talent cannot keep up with the growing demand. This was unimaginable a hundred years ago, fifty years ago, or even a decade ago. Not only that, but the development of science and technology and the promotion of informatization have demand more from workers in terms of discipline and team spirit. Workers who lack discipline or a spirit of cooperation and teamwork, or who take matters into their own hands and cannot work together or do not learn to adapt to advanced technology are eliminated. This is also unprecedented. This shows that the more advanced science and technology become, and the broader the scope of information, the higher the requirements for quality, skilled workers (whether scientists, engineers, administrators, or technicians). The key still lies in the determination and perseverance of workers to absorb new knowledge and skills. The whole society must also have a diligent learning and research atmosphere to form a social atmosphere. This kind of atmosphere is also a kind of prod and invisible pressure. Once we form nationwide enthusiasm for learning and research, workers will be semiconsciously and even consciously involved in the trend of learning and further studies. In this way, human capital will enter a growing stage for both workers and worker collectives. Some regions may grow faster and more than others, and some regions may grow slower or shrink in size. However, no matter what, human capital growth will certainly become a consistent trend in all the regions. This is something we should expect. 6.2.2  Human capital accumulation is cultural accumulation How do we accumulate human capital? According to recent economic research, it relies on the following three ways: One is learning, including self-​study after formal studying at all levels and after leaving school. We gain knowledge and skills through learning. Therefore, learning is a basic way to help increase a person’s human capital. The second is the accumulation of work experience. In general, people go to work after finishing school. They work in a unit or enterprise or do their own thing, such as farming, running an enterprise, or going into business. They might also do freelance work, such as writing, artistic creation, and opening clinics. A  person’s career can change over time, and industry or personal expertise can change, too. So, experience can come from various aspects. The accumulation of personal experience is the enrichment of personal human capital, which is another way of saying the growth of personal knowledge and skills.

154  Cultural confidence Third, society, families, and friends continue to exert beneficial effects, so the sense of personal social responsibility continues to increase, and personal integrity continues to increase. Of course, family members, friends, colleagues, and classmates have a positive influence on a person in their life, but outside forces can have a negative influence, depending on how these negative influences are dealt with. Some people will fall under negative influences, but most can rule out the negative influences and stick to their own correct path. Therefore, when discussing whether a person’s character is right or wrong, whether moral cultivation is high or low, or whether there is a sense of social responsibility or its degree, the influence of society, family, friends, colleagues, and classmates, as well as personal self-​control, cannot be ignored. There is a saying that one takes on the colour of one’s company. This means we cannot ignore the influence that those around us will have on our personal conduct. This is an easily missed aspect in the growth of human capital. In summary, when discussing the accumulation of human capital, we should consider the above three approaches. Learning, including self-​study is unquestionably the basic approach, and the increase in personal work experience is equally important, but we gain personal work experience as we get older, and this will increase human capital. In addition, we should not ignore the positive or negative impacts that society, family, and friends exert on a person. These three ways coexist, and we cannot ignore their effect on the human capital situation in a person’s life. We need to explore the accumulation of human capital as cultural accumulation. We can analyze this from two aspects: A personal point of view and a social perspective. There is often a connection between these two aspects. First, we will analyze from a personal perspective. As mentioned above, if individuals are diligent in learning, whether they are entering school or trying to learn by themselves, they will be able to enrich their knowledge and develop skills. This is both an increase in personal human capital and cultural accumulation. The accumulation of personal work experience is also an example of cultural accumulation. More importantly, when a person studies or works or is with friends, fellow villagers, and colleagues there is positive influence on personal conduct. This is also the embodiment of the increase in personal human capital; therefore, we can call it a part of personal cultural accumulation. The combination of human capital accumulation and cultural accumulation is important for the improvement of the quality of a person’s life, and we cannot underestimate its significance. Next, we will analyze from a social perspective. When most people in society can consciously learn knowledge and skills and can accumulate experience from personal work and gradually become skilled workers, the stock of human capital in society will grow, and the so-​called demographic dividend will increase. In this case, the old demographic dividend will become a new demographic dividend. In China, the old demographic dividend is the dividend generated by the economy by relying on the supply of cheap rural labour. The new demographic dividend is the result of employees (including

Cultural confidence  155 labourers) due to knowledge growth, rising in skill level, and skilled work. The new dividend is constantly emerging and is a new pillar for the continuous development of the economy. What is more important is the influence that the constantly changing social atmosphere has on people. They pay attention to moral cultivation, stress mutual help and friendship, assist and learn from each other, talk about integrity, emphasize social responsibility, and underscore family responsibility. As a result, social harmony becomes a product of the social atmosphere. The society has a new dividend, and that is the social harmony dividend that we usually talk about or expect. The social harmony dividend is the embodiment of the core values of socialism. This is the common hope of the society and the result of cultural accumulation and a reflection of people’s cultural confidence. 6.2.3  Another discussion on cultural confidence and the human capital relationship As mentioned above, we are unable to clarify the positive role of human capital in economic development and social harmony from the perspective of technological progress and improvement in workers’ ability, and we can only partially explain cultural confidence from this perspective. To explain the emergence of cultural confidence and its role in the social economy, three points are most important. The first is fine cultural traditions, the second is the vital role of moral power in social regulation, and the third is system reform. We can give further explanations from these three aspects. 6.2.3.1  Cultural traditions Ancestors in dynasty after dynasty passed down fine cultural traditions. Although they lived in different ages and worked and laboured in different fields, they left fine traditions everywhere. We can find them in township regulations and civil contracts, in the classics, and some are purely verbal, but people keep them in their hearts. These are precious cultural heritages that have been screened by the efforts of our ancestors. Like the screening of gold ore, culture passed down from generation to generation has stood the test of history. Cultural traditions are the pride of the Chinese nation. 6.2.3.2  The role of moral power in social adjustment Previously, when talking about the two adjustments of market regulation and government regulation, I mentioned a third adjustment, that is, moral power regulation. I  also mentioned that moral power regulation is also a cultural adjustment. In primitive society, before the emergence of market regulation and government regulation, moral power was the only regulation. In the case

156  Cultural confidence of market regulation and government regulation, it was still necessary to act in concert with the role of moral power. Otherwise, the efficiency of market regulation and government regulation would decline. Therefore, the role of moral power regulation is to promote market regulation and government regulation. The history and reality of China have also proved this. 6.2.3.3  System confidence The source of cultural confidence cannot depend on system confidence. Under the feudal system, although people did have cultural confidence, it was difficult for them to exert enthusiasm due to the unreasonable interference and hindrances of the system. The theory of blood linage, the hierarchical organization, the identity system, authoritative repression, and autocratic rule also greatly curbed people’s cultural confidence. The feudal system had become a constraint on people’s thoughts and behaviours. Even after the establishment of the socialist system, if the legal system was not perfect, if the system was unreasonable, and if officials were not doing their duty, people would lose confidence in the socialist system, deeply affecting cultural confidence. We can see that confidence in the socialist system is not natural. It is related to the deepening of legal system construction and systemic reform. Since reform and opening up, especially since the 18th National Congress of the CPC, China has made great progress in construction of the rule of law, and the rule of law has become an idea shared by all the people. China has also intensified market-​oriented reforms, and market regulation plays a decisive role in the allocation of resources. This has led to substantial changes in the economy. The streamlining of administration reflects not only the fact that the state does not conform to, cancel, or change the marketization of current laws, regulations, and rules. It also reflects the public announcement of government powers and responsibilities and the negative investment list. This mobilizes the enthusiasm of the people and keeps the government and its personnel from acting indiscriminately. This increases public confidence in the socialist system and enhances system and cultural confidence. In this way, we can guarantee that society will move in the direction of harmony, stability, and prosperity, and that the economy will move toward sustainable development. This will inevitably enrich the content of human capital and the role of human capital will enter a new platform with the enhancement of cultural and system confidence. This is a completely predictable result.

6.3  Cultivate the young generation’s spirit of innovation 6.3.1  The unification of efficiency and ethical standards In economic development and evolution, the debate about efficiency standards and ethical standards continues. Since economics is the study of

Cultural confidence  157 the effectiveness and rationality of resource allocation, economists regard resource allocation efficiency as a top priority. Some economists consider moral issues to be a topic outside the scope of economic research, so they leave those issues out. Of course, some experts who study institutional economics hold a different view, believing that moral judgment is also an object of economic research. This is because economists need to study economic norms. The exploration of efficiency standards is important, but it is only empirical research. Moreover, moral standards are normative research, and empirical research and normative research are inseparable. If they were separate, economics would be unable to explain many real-​life related norms. So, in other words, economics needs both economic research and normative research. As explained earlier in this book, empirical research should explain what something is and is not, and normative research should explain how something should and should not be. According to normative economic principles, efficiency standards and ethical standards are complementary. The only difference is that efficiency standards have no ethical standards. Economic development goals limit the framework of efficiency growth and goodness. For the same reason, declining efficiency is wrong and bad. How can this be an effective way to evaluate the results of people’s economic activities and the economy? Here are two common examples. One is to increase GDP. Let us say that a region mines a lot of coal for building thermal power plants and supplying electricity. From the input–​ output ratio perspective, GDP may increase. Therefore, from the perspective of efficiency standards, coal production and power generation will increase, which we should obviously classify as good. However, we could also look at it from the perspective of environmental degradation. Should we not consider how environmental degradation will affect the quality of life of residents in an area or the possible harmful effects on the health of local people? From the perspective of ethical standards, this is something that economists, political scientists, and sociologists with social responsibility must evaluate. Here is another example. Let us say that there are large areas of wetland in an area. To increase food production, the local government begins to turn the wetlands into farmland. From the point of view of production, the result is that large areas of wetland become farmland, food production increases, and GDP increases. However, who will measure the losses after the disappearance of the wetlands? In other words, we do not know the extent of the damage that the disappearance of the wetlands will cause to the residents. The disappearance of the wetlands is a long-​term hazard for them. It is also difficult to estimate the ecological impact due to the disappearance of migratory bird habitats. Therefore, this is a lesson to remember in economic development. It is not enough to simply calculate by efficiency standards. There are many other examples. From this we can see that efficiency standards and ethical standards are in fact inseparable. Unifying these two standards is beneficial to both empirical analysis and normative analysis.

158  Cultural confidence To deepen the analysis and research of this problem, let us take farmer entrepreneurship and innovation and human capital growth as examples to explore the improvement of farmer human capital. 6.3.2  Great practice: Making millions of farmers entrepreneurs and innovators For thousands of years, farmers, the most basic producers, have had to work hard without proper social concern and care. The situation was bad for farmers under the feudal system, so there is no need to describe it here. Our focus is on most farmers after the founding of the People’s Republic of China in 1949. After the establishment of the socialist planned economy, the people’s commune system suppressed the enthusiasm of farmers. Farmers joined the people’s communes and the urban-rural household registration system blocked their personal development and personal business opportunities. In addition, for a long time, investment in the countryside was inadequate, the rural appearance changed little, farmers’ income was low, rural education facilities were poor, rural labour productivity grew slowly, and even labour productivity did not grow or shrink while the population increased. It was not until the 3rd Plenary Session of the 11th Central Committee of the CPC that the rural situation began to change due to the implementation of the rural household contract system. After the introduction of the rural household contract system in 1979, new practices appeared in the countryside. The most obvious and most influential ones are exemplified by two points. First, because of the household contract system, farmers gained the opportunity and the possibility to leave the countryside and work in towns and at construction sites for a higher income. Second, even if farmers stayed in the countryside to farm rather than go out to work, they still had greater autonomy compared with the people’s commune system of the past. For example, they could raise fish and shrimp, chickens and ducks, and pigs and sheep; they could grow trees and flowers; and they could make handicrafts. This not only has mobilized their enthusiasm, but also has encouraged them to acquire new knowledge, learn about new technology, about market rules and the law. In addition, they have had to learn how to work and live together with different people. The concept of integrity is also deeply rooted in farmers taking part in market operations. Indeed, after reform and opening up, there were tremendous changes in some provinces, municipalities, and autonomous regions in the countryside after the implementation of the household contract system up until before the opening of the 18th National Congress of the Communist Party of China—​a period of about thirty years. This is thanks to rural reform and opening up, and to rural policy changes. In China over the past three decades, changes in the rural areas, agriculture, and farmers have been in coastal areas, along rivers, and in the surrounding areas of large and medium-​sized cities. Differences in rural development are

Cultural confidence  159 still relatively large. There are three reasons for this. The first is that the natural differences in various regions are increasingly obvious. In the western regions, the border areas of several provinces, the land and freshwater resources in poor areas, and areas with concentrations of ethnic minorities have had less contract with the market, government investment in poverty alleviation has been limited, and local culture has been quite conservative. Therefore, compared with the coastal areas along the Yangtze River and the surrounding areas of large and medium-​sized cities, the gap is growing. The second reason is that these poverty-​stricken areas cannot find a suitable way to get rich. Farmers want to get rich, but they lack both funds and skills. Even if they did work in and around the cities, they can only do heavy physical labour, such as work as porters, unskilled labourers, and miners. The third reason, which is the most important, is that the urban-rural household registration system binds the entire countryside. Without rural land-​use rights and the right to transfer land, farmers found it difficult to break out of their predicament. This all started to change after the 18th National Congress of the CPC. The situation of rural areas, agriculture, and farmers in the past thirty years of reform and opening up became much better than before, but they were still subject to a considerable amount of suppression until after the 18th National Congress. After the 18th National Congress, the situation of rural areas, agriculture, and farmers improved. Four important reforms are the reason: 1

The establishment of use rights for rural land. This reform began in rural Zhejiang. For years now, this reform has determined the contractual management rights of rural land, the land-​use rights of rural housing, and the property rights attached to the houses built by farmers on their rural land. Originally, these rights were vague. They enjoyed collective ownership, but it was in name only. Farmers had no property rights. The government requisitioned and occupied contracted land and rural housing land and demolished and removed self-​built houses. This was the actual situation in the countryside. However, this is no longer the case. An investigation of Zhejiang’s Hangjiahu three cities found that after the establishment of rural land-​use rights, the farmers could legally manage contracted land, use house sites, and build their own houses. This was a joyous thing for the farmers in the rural areas of Hangjiahu. In their own words, they said it removed the fear that the government would take away their land and demolish their homes. Today, they have three rights (land-​management rights, homestead land-​use rights, property rights for self-​built houses on house sites) and three certificates (a contract-​management certificate, a homestead land-​use certificate, and a property-​rights certificate for self-​ built homes on house sites). This has put their hearts at rest. 2 Farmer land transfers are taking the road of large-​scale operation and entrepreneurship innovation. This was unimaginable before the establishment of rural land-​use rights. After the establishment of land-​use rights,

160  Cultural confidence land transfers became a practical choice. This has produced two results. First, farmers who are interested in farming have expanded their family farms through leasing, subcontracting, and escrow. They have intensively farmed and used advanced agricultural technologies to improve the total factor production efficiency of farming and increase investment income. Second, some farmers think that they can gain more income from businesses or services than from engaging in agriculture, aquaculture, and the fruit industry. Therefore, they transfer land to farmers or agricultural enterprises that are willing to farm and then turn around and invest in or run businesses and services. Whether farmers run their own farms or engage in businesses or services, there are success stories. These cases have had a large demonstration role in society and in the countryside, driving more farmers to start undertakings and innovate under the condition that land is transferable. 3 In 2016, reform of the long-​existing urban-​rural household registration system has finally begun. This major reform initiative encourages farmers to move their residences to towns and promotes family reunion. After transferring land, farmers can choose to live in urban areas, open workshops, do business, and set up service enterprises. This is the trend of the times. As mentioned earlier, returnee, a term used in the past, refers to a student who goes abroad to study, obtains a degree, and returns to work. Nowadays, there is another popular term, that is, urban returnee, which refers to those who have left the countryside to work in towns and construction sites or for self-​employed business or service industry work. After gaining skills and saving money, they return to their hometowns and become entrepreneurs or innovators. Reform of the urban-rural household registration system has allowed them to make other plans; reunite with their families, and move to urban areas; operate family farms, orchards, vegetable gardens, or livestock farms in their local areas; or operate stores, workshops, small-​and micro-​sized enterprises, and service enterprises in their local areas. Their entrepreneurial and innovation activities are making life better. 4 During their time of going out to work, they gradually gain new understanding of market conditions and work experience. More importantly, they make friends during their work. They are all migrant workers, so they discuss things like starting a partnership or forming a cooperative organization in the countryside. This is better than starting a business alone, and the impact is great. Some have gradually gained a reputation as entrepreneurs, and some have gone abroad to invest in entrepreneurship. Regardless, they have not forgotten their experience of working in China’s cities. They claim their growth is inseparable from their experience as migrant workers. The changes in rural areas, agriculture, and farmers in the four aspects above show us that the vision and ambition of today’s farmers are different

Cultural confidence  161 from that of more than two decades ago or even a decade ago. The changes in rural areas, agriculture, and farmers brought about by the progress of reforms were unthinkable more than twenty years ago. That is why the title in this section is “Great practice:  Making millions of farmers entrepreneurs and innovators.” 6.3.3  Farmer is a profession, not an identity The reform of the urban-rural household registration system is still moving forward, but we can already see that most farmers welcome it. In larger industrial cities, leaders in the management industry told us that they are now experiencing unfamiliar problems. Technicians and skilled workers have been moving out from these cities. Why is this? After an investigation, we found that these workers had moved to other industrial cities. This was a profound finding. According to this finding, when old industrial cities had set up industrial enterprises years ago, they started recruiting technicians and skilled workers from other places. Most of these people had been farmers in nearby villages who only did farm work before they entered the city. They learned industrial skills after entering cities and factories. Back then, there was no urban-rural household registration system, so it was easy for them to live like urbanites after entering the city. Their spouses and children also followed them and they lived like other urban households. This was the reality decades ago. However, the situation changed after the establishment of the urban-rural household registration system in 1958. As pointed out earlier, after the establishment of the urban-rural household registration system, the identity of farmers evolved due to the existence of household registration issues. Under normal circumstances, it was difficult for farmers to register as urban households. Even if they contracted their land and went out to work, their registration as a rural household did not change, so they could not register as an urban household and integrate into urban society. However, migrant workers were the backbone of industrial enterprises in these cities because they worked there for years. They became skilled employees and were inseparable from the cities. If these former farmers had left the cities and the factories, it would have been a loss for both. We still have not fully resolved this contradiction. Migrant workers and their families and migrant technicians and skilled workers think it necessary that we reform the urban-​rural household registration system. Urban and industrial enterprises have adopted a transitional approach by keeping migrant workers, while migrant workers have tried to resolve their own and their families’ household registration issues by moving to cities with more relaxed conditions. Therefore, we can see that the reform of the urban-rural household registration system has become the trend of the times and that it needs to be resolved soon.

162  Cultural confidence It seems the general trend of viewing the role of the farmer as a profession rather than as an identity is unstoppable. For China in the future, the term farmer will mean be a profession, not an identity, and this will have far-​ reaching significance. Most important, when farmer is no longer an identity but a profession, it creates a fair situation for all residents. This is something that farmers have wanted for years. It would also confirm the various rights enshrined in the Constitution. There is a reason we could not do this in the past. It is not far-​ fetched to say that farmers’ rights have been different from those of urban residents since the founding of the People’s Republic of China. This might be due to the fact that regions and traffic conditions differ, or that they have had different communication with the outside world. Regardless, we cannot deny the important and even decisive role that the urban-rural household registration system plays here. The farmer identity puts limits on their activities and even if they do work in cities, household registration restricts them. This means that they and their families cannot integrate into urban society, and this is obviously unfair. Therefore, after the role of the farmer is no longer an identity but a profession, their enthusiasm will increase and they will have a solid sense of fairness. In the future, this will lead them to make changes in their work and lives. They will change careers and engage in industrial, commercial, and service industries. If farmers no longer engage in agriculture, they will become professionals and thence no longer farmers. When I did research in Jiangsu, Zhejiang, and Guangdong. I saw that in the villages on the north bank of the Yangtze River in Jiangsu, local farmers did not work the farmland there. Farmers from northern Jiangsu came to cultivate the land. What did the local farmers do? An investigation showed that they worked in enterprises, or in hairdressing, bathhouses, restaurants, and transportation units, or ran small supermarkets, shops, and workshops. They no longer engaged in agriculture, so they were no longer farmers. When surveying in Zhejiang and Guangdong, we found the farming situation in those rural areas was similar. Local farmers did not cultivate the land. Fields were not barren, and there were always people to farm. In Zhejiang, I  saw farmers from Anhui, and in Guangdong, and I  saw farmers from Jiangxi. The farmers in rural Zhejiang opened shops and workshops in the city or worked in nearby factories. The same was true for farmers in rural Guangdong. Under this circumstance, the farmers who left Anhui to farm in Zhejiang still had agriculture as their occupation, but the local farmers no longer engaged in agriculture. Instead, they went out to work in business, and they could change their occupations. The situation in Guangdong was similar. This shows that farmers changing their occupation is a new normal. This reflects cultural confidence and is something that has taken years to develop. When farmers flooded into towns and construction sites in the early 1990s, I took graduate students to the cities of Shenzhen, Dongguan, Foshan, Zhongshan, and Zhuhai for research. We asked migrant workers from Hunan,

Cultural confidence  163 Hubei, Jiangxi, and Guangxi why they came to work in the Pearl River Delta. We also asked them about their ideas and plans. Most said they wanted to make money, return to the countryside and build a house, and then live there and farm. Others said that they wanted to build a house, marry a wife, have a son, and live comfortably. However, by the beginning of the twenty-​first century, when my new researchers and I came across migrant workers from other provinces in places like Shenzhen, there responses changed. When we asked them about their plans, many of them wanted to get involved in the market, learn skills, start a business partnership, or be a small-​business owner. Others said they if they could save money and find a partner outside, they could buy a house, even if it was a little small, and settle down as a family. It is possible they did not want to return to their old rural homes or, more likely, could not afford to, but they did want to start a business and change their occupation. Therefore, farmers have cultural confidence. They believe that they can become market entrepreneurs and can adapt to the market environment. This is a valuable concept, and it adapts to the tide of reform and opening up. Today, in the deepening of the reform of the urban-rural household registration system, farmers have obtained urban residence permits or are applying for them, and it is becoming increasingly common for them to change their occupation. Some farmers might not be necessarily considering a change in occupation, but they still hold two or more jobs. This means they are engaged in farming, planting, breeding, or growing vegetables, but are also engaged in industrial, commercial, and service industries. Not long ago, I  conducted a survey in Jiaxing, Zhejiang, and in Quanzhou, Fujian, and found that some farmers are working more than one job. For example, families have farms, vegetable gardens, and fruit trees, but they also have small shops or workshops in town. These are part-​time jobs. When I asked them, “Do you have a moment?” They replied, with a smile, “We hire people, what are you busy with?” They also said, “Many of the workers we’ve hired help us raise chickens and pigs. Some help us sell things in stores, and some help us make purchases and transport things.” We can find such examples not only in Zhejiang or Fujian, but also in other provinces and cities. This shows that Chinese society is becoming more market oriented. Whether farmers change their occupation or work two or more jobs, this is the result of taking part in market activities. They used to be stuck in remote villages or in deep ravines, where their market knowledge came from personal experience. This is cultural accumulation, and it has made them dare to change occupations or to work more jobs. The market environment educated them, and they understand the rules. They learned cultural confidence, and they experienced making a living away from home and working hard. The market is like a big school. China’s professional structure has been unreasonable for years. To put it briefly, the proportion of farmers is too high and the number of farmers itself is too large. In any developed country in the world, how can there be such a high proportion of farmers? How can there be so many people working in

164  Cultural confidence agriculture? In the socialist planned economy era, it was extremely difficult for farmers to change their occupation, and the government set the number of places in the workforce. This unreasonable situation lasted until the start of the reform of the rural land ownership system and until the start of the reform of the urban-rural household registration system. Now, farmers can switch occupations and work more than one job. One of the biggest changes from all this is that the proportion of farmers in the entire population has gradually diminished over the years. The professional structure has finally begun to change. We are only just now beginning to see the effect of farmers switching occupations and working more than one job. It is difficult to predict how Chinese society will change in one or two decades from now, but we can reason that real career farmers (or professional farmers) may fall below 10 per cent of the population. This would bring about economic changes in China, which we can summarize as “modernization.”

6.4  New entrepreneurial groups 6.4.1  The definition of entrepreneur The term entrepreneur is originally from Europe, and the famous Austrian-​ American economist Joseph Schumpeter began to use it after emigrating to the United States in 1939. In Schumpeter’s view, innovation was the driving force for economic growth. Without it, the economy would stagnate and be lifeless. If there is innovation, not only will there be economic growth but also economic fluctuation, and growth and fluctuation will always alternate. Fluctuation sometimes brings economic recession, but this is only the result of growth, because a new round of innovation will appear and cause another round of economic growth. In that way, economic growth, fluctuation, and stagnation, and then economic growth again, form an economic cycle. Therefore, Schumpeter believed that innovation was the real driving force for economic growth. In this view, fluctuation and stagnation are nothing but stages of innovation preparation and the gap before innovation. Schumpeter believed that entrepreneurs drive innovation. The terms entrepreneur and innovator are synonymous, in that entrepreneurs are innovators and innovators naturally become entrepreneurs. Schumpeter also defined entrepreneur as someone who is visionary, courageous, and organized. Having a vision is to discern where the potential benefits are, so that you can understand the economic trends. Being courageous means taking risks and pursuing potential benefits after discovering them, and then turning them into real benefits. If someone finds potential benefits but does not dare to invest in realizing them, then this person is not an entrepreneur. As for organizational ability, it means that as an entrepreneur, you should be able to combine factors of production to make the potential benefits a reality. Schumpeter believed that the task of entrepreneurs was to recombine the factors of production,

Cultural confidence  165 improve efficiency, make economic growth, and achieve new benefits, that is, potential benefits. Therefore, innovation must be the result of the recombination of production factors. Entrepreneur, as a synonym for innovator, is the person who sets out to recombine the factors of production.2 6.4.2  Entrepreneur social responsibility I have already explained the above when discussing the harmonization of efficiency standards and ethical standards. Here, we will focus on the social responsibility of entrepreneurs. It is common to hear people say that efficiency standards come naturally after a person enters the market to engage in industrial and commercial activities, that standard is natural, but ethical standards are the principles that come later and become personal behaviours. People who engage in industrial and commercial activities (we can call them large and small entrepreneurs) are naturally eager to pursue profits and are profit driven. In the practice of industrial and commercial management, they gradually feel that they must not only benefit, but that they also need to follow the rules. Profit-​seeking is a natural efficiency standard. There is no exception for people engaged in business, and they later realize that they should think about social responsibility. They think they should take on social welfare responsibility, pay more attention to social responsibility, and invest in social welfare activities, so they need to pay equal attention to efficiency and ethical standards. Therefore, it is a law to profit first. Most people in business and industry have this experience. This is a popular view in society, but we ignore a problem. There is not necessarily any regularity to this, because a person who has not received family and social education since childhood will not play such a role. It is important to realize that we should nurture the concept of social responsibility from childhood. Family education includes education for the children on public welfare, taking responsibility, and helping the weak and the poor. We cannot let children develop freely and ignore what we should and what we should not do in society. The primary task of parents is to have a sense of family responsibility and to educate their children with the right perspective, and this should start from childhood. The sense of family responsibility that parents should have is an indispensable part of social responsibility. It is worth repeating that a child starts from elementary school, then goes to secondary school, and then enters university. In this process, his knowledge increases, but his sense of family and social responsibility should begin before he joins the workforce. In addition, people do not become socially responsible just by running a business enterprise. For example, to be frank, we should include the ethical

2 The first section of Chapter 9 in this book further discusses the recombination of production factors.

166  Cultural confidence standard of not making or selling fake, counterfeit, or inferior goods in the scope of market activities. After making money, a person does not just think that he should help disadvantaged or poor groups and undertake public-​ welfare activities. From the time you enter the market, you should have a high place in your heart for principles. How much money we make is not the basis of social responsibility. Simply put, everyone should have two bottom lines: The legal bottom line and the moral bottom line. We must not cross the bottom line of the law and we cannot break the law. We must also recognize the moral bottom line and not break it. Respecting these two insurmountable bottom lines has nothing to do with individual property, and it is something that applies to everyone without exception.3 A person who knows this is someone who has a sense of social responsibility, and it has nothing to do with one’s occupation. 6.4.3  Discussion on the third allocation Here, we will discuss the third allocation. Earlier, I pointed out that market regulation is the first adjustment, and it relies on the invisible hand of market supply and demand. Government regulation is the second adjustment, and it relies on laws, regulations, and rules. The adjustments made by moral power, customs, and culture are the third allocation. It is an intangible adjustment (such as self-​discipline, which is typically invisible) and a tangible moral regulation (such as township rules and regulations, residential community rules). Correspondingly, social income distribution also has a first distribution, a second distribution, and a third distribution. The first distribution of income is that done under market regulation. We can divide income into wages, salaries, and bonuses and subsidies associated with wages and salaries. What determines the nature of different incomes in the market? The quantity and quality of production factors by producers in the market, and the quality reflects efficiency. That is to say, the quantity, quality, and efficiency of production factors by the producers of production factors become the first distribution of income after market evaluation. The second distribution of social income is the redistribution of income under government regulation. Any one country and government has its own policies and goals, and they formulate policies to achieve goals. To achieve goals like raising funds, narrowing the income gap between different sectors of society, and helping low-​income families to survive, the government can adopt income-​adjustment policies, such as collecting tax from people who have reached a certain income level, and levying estate taxes, inheritance taxes, and transfer taxes on people who are transferring property. The government could also coordinate social income distribution by giving subsidies, relief, or

3 This was discussed in the second section of Chapter 4 of this book and is elaborated here.

Cultural confidence  167 allowances to low-​income people or families. This is the second distribution of income under government regulation. In economic books, we usually refer to personal income after this as personal disposable income. Personal disposable income is at the discretion of the individual, or for consumer spending, investment, or savings. However, social income distribution and redistribution do not stop there. Individuals may use their disposable income for public welfare, philanthropy, donations, and gifts, such as helping an area or helping low-​income families. This is the third allocation of income. From this, we can see that there are three distributions in society. The first allocation is income distribution under market regulation. The second is income distribution under government regulation. The third is when an individual with disposable income makes donations with voluntariness and love and with a sense of social responsibility. What is the nature of individual voluntary donations? The moral power effect gives manifestation to these donations. Some people who donate use their real names, and others do not. Regardless, both are donations under the inspiration or encouragement of moral power. The number of donations can be great or small, but this does not change the nature of the third allocation. Donations, such as individuals donating to their hometowns or low-​income families in their hometowns, to welfare organizations for the disabled, to people in disaster areas, to people in poverty-​stricken areas, and to one’s alma mater, are all spontaneous and conscious behaviours influenced by moral power, which is a manifestation of a high sense of social responsibility. 6.4.4  The social and economic significance of the third allocation The third allocation has a wide impact since it is a conscious and voluntary donation. Its influence and the field in which it plays a role is not comparable to market regulation and government regulation and it is beyond market regulation and government regulation. Since the third allocation is the result of the role of moral power, that is, the result of cultural adjustment, it is a social transfer of income to families in need, poor areas, and specific groups (such as disabled people) to show care or human kindness. It is not like market regulation, which is a frosty transfer of factors of production after income transfer, and it is not like government regulation, which relies on laws, regulations, and rules to transfer income. Thus, people can increase mutual concern in the third allocation process. Here are two examples. During an investigation in Tongdao County in the Huaihua area of Xiangxi, we found a warming facility in the countryside. You can find these facilities at regular intervals along the countryside road. These warming facilities are in the area where the Dong people live. This mountainous area is very cold in winters. Therefore, according to the customs and habits of the Dong people, there must be a place with a bench and charcoal fire basin every few miles for people to rest at. Farmers donate the charcoal

168  Cultural confidence used for heating. No one steals the charcoal. The pavilions have piles of charcoal and the farmers will add more when it runs out. The warming pavilions have a long history. The Dong people have passed this tradition down to the present and it is a custom in Dong villages. Everyone supplies charcoal. The poor will supply what they can, and the wealthy will supply more. This is an example of the role of moral power. Another example is in Hunan. In the Hunan countryside, especially in mountain villages, there are many fast-​flowing rivers, but few bridges or private ferries for people who want to cross them. However, we found in the villages in the hilly areas of Xinhua and Xupu counties in Hunan Province, that Han farmers often place small wooden boats on the banks of small rivers and creeks for people to use. No one keeps watch or collects money. The village farmers donate the boats. This is also a public welfare undertaking, one which supplies convenience for people travelling on foot. In fact, trading cities have long had tombs and burial grounds. If a migrant worker dies in the city, fellow villagers can bury him for his family and villagers to mourn. This is a righteous act—​a form of righteousness. The first distribution of income under market regulation and the second distribution of income under government regulation leave a blank space in promoting social coordination and improving the quality of life of urban and rural residents. The development of public welfare undertakings and charitable causes fills in the blank by relying on people to care for and support socially disadvantaged groups to alleviate social disharmony. Private donations form an added investment with a scope that is more extensive than that of the government. From the perspective of the impact of the third allocation of income on social concepts, we can see that society’s belief in happiness is changing. Economics has long argued that production itself is not an end, because people are not simply for labour. People are not for production; production is for people. The purpose of production is to improve people’s lives and to make people more caring and cultivating. If we only produce more products and do not improve people’s living standards, and environmental pollution and ecological damage seriously degrade people’s quality of life, then this is not in line with the purpose of production. Similarly, if people’s education levels do not improve much while production grows, their cultural quality will decline over time, so it is difficult to say that this is in line with the purpose of production. According to the discussion on the purpose of production, what is important for each member of society is not how much they increase social output value, but how to make the growth of social output value improve people’s living conditions and move them towards general well-​being and prosperity with a higher level of culture and education. In this way, they will know how to have a higher quality of life and how live in a harmonious social environment. Traditionally, the concept of happiness has always been associated with personal income. The general belief is that the more income, the happier. In

Cultural confidence  169 fact, this concept is one-​sided. Economic development and general improvement in income levels made happiness take on new meanings, and people had higher demand for social harmony. Market regulation or government regulation alone will not satisfy people’s demand for social harmony. The first and second distributions of income alone will not increase people’s sense of social harmony and happiness. The role of moral power, the general improvement of people’s sense of social responsibility, and the promotion of charitable causes are all-​important in this case and are irreplaceable.4 The ancient Chinese left profound words: If my children are not as good as me, should I leave them money? If my children are better than me, should I leave them money? In other words, if children are not successful and do not seek advancement, then would not leaving property to these black sheep only encourage them even more to live a sensuous and luxurious life? On the other side, if children have good qualities and talents, why bother to leave them anything? They have already surpassed expectations. These words reflect the advice handed down from ancient Chinese and are worth thinking about. 6.4.5  The growth of the third allocation is predictable You will often hear the argument that the total amount of donations from public welfare undertakings and charitable causes in Western developed countries is more than that from the society of China. How should we look at this? We can analyze it from three aspects. First, industrialization and agricultural mechanization in Western developed countries have been around for two hundred years, and the formation from entrepreneur to the general middle class has formed over a hundred years. Their income levels are high, and their families have accumulated more assets. In contrast, China’s industrialization and agricultural mechanization began much later than Western developed countries. After the founding of the People’s Republic of China, the country implemented a socialist planned economy for a long time. The country changed the original national capital enterprises into public–​private joint ventures and later incorporated them into the state-​owned capital enterprise system. After reform and opening up, private enterprises developed, and the middle class began to form. The amount of donations to public welfare undertakings and charitable causes in Chinese society will increase over time. This is completely understandable. Second, adopting apportionments to push enterprises and the private sector to make donations has been around in China for a long time. We should realize that in the true sense, the third income distribution, that is, social donations, should be voluntary. Apportionment of donations that do

4 Below, in the third section of Chapter 8, we will further explore the meaning of happiness.

170  Cultural confidence not conform to the original intention will cause resentment among the donors. This practice does not exist in developed countries in the West. Therefore, the newly issued Charity Law of the People’s Republic of China adheres to the principle of voluntariness and charity. This is necessary. The development of public-​welfare undertakings and charitable causes and the increase for donations to charities in the community are pressing. Third, non-​profit, charitable organizations should keep clear statements on donations from enterprises and residents and keep records of how they use this income. They must be able to withstand auditing and verification and must not get involved in illegal activities. We must enforce the recent adoption of the Charity Law. Until recently, Chinese enterprises and individuals did not trust charity organizations. An important reason is that these organizations did not use their money and property donations in the places or projects as intended, or there may have been corruption. The implementation of the Charity Law solved this problem and ended the concerns. As a result, public and enterprise donations will grow rapidly. In summary, we can conclude that with the deepening of China’s economic development and reform, and with the advancement of the legal system, although the total amount of donations from people of society (including enterprises and individuals) in China is still not comparable to that of developed countries in the West, this number will increase over time. Driven by social responsibility, Chinese enterprises (especially private enterprises) and middle-​class people will do their part to increase their savings and drive a larger share for the third allocation. 6.4.6  Enterprise culture and confidence China’s enterprise culture has a long history. In the past, there were many famous, long-​ established enterprises, each with its own characteristics in enterprise culture. The most representative of them have the following four aspects of enterprise culture construction: First, integrity education. Long-​established brands pass down integrity as the most valuable experience in running the enterprise. Under their shop signs, you will often see words like “high quality at a great price and a brand you can trust.” According to experts, this reflects integrity as the foundation. Second, giving employees a sense of belonging. When examining long-​ established brands, I found the dedication of loyal staff to be the reason they could grow and develop for so many years. The establishment of a sense of belonging is not entirely a hometown relationship, a family relationship, or a neighbourhood relationship, nor is it being part of the labour force. It is a harmonious atmosphere within the enterprise and the tradition of helping each other and having mutual respect and love. Third, strict enterprise discipline. It is important to penalize those who do bad things and to award those who do good. Even the owner of a store is no exception. A common example is that the children of a storeowner are free

Cultural confidence  171 to spend the store’s money for personal enjoyment, gifts, or gambling. Once detected, they must return it, and the family reprimands them or expels them and they do not return. This is common in the business district in southern Anhui and is the reason Huizhou merchants have been prosperous for such a long time. Fourth, owners need to play a role in taking care of the pensions, medical treatment, and funerals of retired employees. In some long-​established brands, old-​age employees rely on them and this is an important reason for their loyalty to the owner and the enterprise. Even in times of war, when business is slow and the enterprise cannot make money, few employees will quit. The reason is that they have formed an identity with the enterprise. They regard themselves as a member of the enterprise and are willing to share the same pains with it. Although the above is all about China’s traditional enterprise culture in the past, there are points worth noting. First, the traditional enterprise culture that businesspeople led gradually took root and blossomed because of the unanimous support of owners, partners, and employees. This culture has experienced wars and periods of economic recovery after wars. It is supported by the owners, partners, and employees of more and more enterprises in the business world. Simply put, it is in line with the spirit of Chinese traditional culture, such as integrity and helping others. Second, such rules and regulations also line up with the business practices of that time. The market is competitive, and everyone recognizes the law of survival of the fittest, so the traditional enterprise culture shows the way to survive. Everyone will reject whoever violates the business rules and earns ill-​gotten gains by incorrect means—​including rejecting the business community—​and, in the end, they will become a loser, and people will take this as a warning. Of course, we are talking about a situation in the past, but people still adhere to it. We can only describe this as a manifestation of the strength of enterprise culture. More than thirty years after reform and opening up, new entrepreneurs have appeared in China. They are the products of this reform, and they have grown up in this land we call China. At present, the term “92” is popular in Chinese society. This is the so-​called external institutional entrepreneurial group that appeared in China under the influence of Deng Xiaoping’s policy after the inspection of Guangdong in the spring of 1992. They are young and usually have high academic qualifications. Some have worked in organizations and held certain positions. They know quite a bit about the situation overseas. In addition, they know how to raise funds, and they have achieved results. Since 1992, they have been involved in entrepreneurial innovation (including technology, management, and marketing innovation) and have established private enterprises, particularly high-​tech private enterprises, which is a significant change in the Chinese economy since 1992. The year 1992 was a turning point, or a new starting point. Since 1993, more people aspiring to engage in private enterprises have turned away from

172  Cultural confidence government organizations. Some of them have made achievements and become new entrepreneurs. My enterprise research found that they value enterprise culture and have their own experiences and confidence. This has great reference or demonstration significance for the development of private enterprises in the future. To evaluate new enterprises and new entrepreneurs, we must first look at innovative practices and the spirit of innovation. In addition, if an entrepreneur lacks a sense of social responsibility, it is impossible to make the enterprise stronger and bigger, and it is impossible to integrate the employees with the enterprise itself. Enterprises have their own beliefs, guidelines for handling affairs, and rules for employees. This is enterprise culture and the enterprise cultural confidence of new enterprises. As for small and micro-​sized enterprises, they have sprung up all over the country since the start of reform and opening up in the 1980s, especially in the coastal provinces and cities and the cities along the Yangtze River. Among them, there are small businesses, shops, and workshops, and there is transportation. In addition, rural farmers have since set up rural enterprises and raised funds, built factories, bought equipment, and conducted market activities on their own. The managers and operators of these township enterprises are all farmers. They give play to their talents and make achievements in the development of township enterprises. Later, to clarify the property rights of township and village enterprises, township and village enterprises introduced a shareholding system or a shareholding cooperative system. Some township and village enterprises are poorly managed, or reorganized into private enterprises, or individual or minority investors have taken them over. This has allowed private enterprises, including small and micro-​sized enterprises, to present themselves with fresh faces after entering the twenty-​first century. Small and micro-​sized enterprises have entered a new stage of development. Yiwu in Zhejiang, Jinjiang in Fujian, and the Pearl River Delta in Guangdong are all obvious examples. Large private enterprises have their own characteristics, and their own enterprise cohesion and culture. Small and micro-​ sized enterprises with more quantity, but at a much smaller scale, do not have their own distinctive enterprise cultures like that of the famous large private enterprises, yet this does not mean that they have no enterprise culture and are not adapted to enterprise cohesion under the new situation. On the one hand, they understand the necessity of grouping together in the face of fierce market competition. To compete in the market, these small and micro-​sized enterprises adopt the practice of grouping, such as grouping together for survival, overcoming challenges, helping each other, and passing on experience. Through practice and tests, these enterprises have been able to overcome difficulties by grouping together. On the other hand, small and micro-​sized enterprises understand the importance of networking. They can reduce the costs of production, marketing, and employment through networking, and make more

Cultural confidence  173 friends, come into contact with peers and potential partners, and prepare for their expansion. Should we not consider grouping together an enterprise culture? Is not networking a new way to survive and develop? This shows that small and micro-​ sized enterprises also have their own enterprise culture. These enterprises, like large private enterprises, have sprung up all over the country after reform and opening up. Small and micro-​sized enterprises, like large private enterprises, are motivated, confident, and enthusiastic; have their own ambitions; and have their own visions for the future. Although the size is different, the fighting spirit is not, and the confidence in enterprise culture is similar. Therefore, when discussing enterprise culture and enterprise confidence, we cannot leave out small and micro-​sized enterprises.

7  Cultural checks and balances

7.1  Moral checks and balances and cultural checks and balances are synonymous 7.1.1  Moral checks and balances Moral checks and balances mean the same as moral constraints. Everyone in society is naturally a member of this large group and so should abide by the laws, regulations, and rules, and by this large group’s rules and customs. Society is a large group made up of various small and medium-​sized groups and micro-​sized groups. These relatively smaller groups naturally form, and membership is exclusive. For example, people are born into groups, such as clan or family. People also join these groups and, after joining them, become a part of them. For example, schools, work units, industry organizations, mentoring relationships, and academic groups, as well as religious organizations, the military, political parties, and gangs. Once you join these types of groups, you might be able to withdraw, or you might not. If the joiner does not withdraw, then he is subject to the group and must abide by its articles of association, rules, and discipline. However, we cannot say that all these individuals after joining a group are subject to moral constraints. We can only say that there are moral constraints and power constraints. Moral constraints are voluntary, and power constraints are mandatory and unopposable. For example, the power of the government would be free to act indiscriminately if not under government management. We can divide management into two categories, namely, the constraints imposed by a democratic, rule-​of-​ law government, and the constraints imposed by an autocratic government. The power exercised by a democratic, rule-​of-​law government is restrained by the laws, regulations, and rules that it must follow, as well as by procedures to follow. An autocratic government exercises power purely out of the decisions of the ruler. This kind of government power is random and arbitrary. We can express moral constraints in more concise language with the two bottom lines already mentioned: The legal bottom line and the moral bottom line. Without constraints on power, people will cross the legal bottom line at

Cultural checks and balances  175 will, and society will fall into disorder. Without constraints on morals, people will cross the moral bottom line at will, and society will also fall into disorder. Economics research tells us that in social and economic life, everyone who is active in the economy has their own expectations. This is what gives people hope and encouragement, and this pushes them to form tangible or intangible plans and set near-​, medium-​, and even long-​term goals. Every person has expectations, hopes, and passions, and this gives rise to economic activities in society. Similarly, the most worrying aspect in social and economic activities is economic disorder. Once there is disorder in the economy, confusion drives expectations, and then people cannot realize their original plans for investment, consumption, and savings. Under such circumstances, social and economic activities will certainly be chaotic, because prospects for the future change. Everyone would feel overwhelmed, and this would only produce the consequences that people would not like to see, so they start to believe in fate and in luck. In this case, the victims are all the original vulnerable groups: The poor, the bankrupt, and the unemployed. No one believes in the whole society and no one would forget this historical lesson. Once there are no more constraints on morals, it is extremely difficult to recover. It would take years to rebuild moral codes. 7.1.2  The role of moral checks and balances We cannot limit the role of moral checks and balances or moral constraints to a person who must abide by the legal line and moral bottom line. If a person lacks moral restraints, he will not only cross the legal bottom line and the moral bottom line at will, but will destroy public expectations in society, which will lead to disorder, but also to the abuse of power and supervision failure. Take the power of the government and its staff as an example. Their power is not by ethics, but by law. The nature of government power is that there must be authority for there to be law, and that there would be chaos if law lacked authority. We should refine the authority of the law according to the responsibilities of the government and its departments and staff, including such things as approval procedures and deadlines for documents. Some responsibilities can prevent the government and its departments from acting in a chaotic or negligent way. In any country, laws and regulations give government officials and their departments and agencies the necessary powers to achieve the government’s goals. On the other hand, these officials, including their departments and agencies, must be constrained and supervised to prevent them from abusing their power or doing wrongful or illegal acts or failing to perform their duty. Government officials and staff of government departments and agencies must abide by rules, be self-​disciplined, and make strict demands on themselves. This kind of constraint is a constraint on power but also a constraint on morals. For them, power constraints and moral constraints are one in the same. They

176  Cultural checks and balances cannot neglect power constraints (also known as laws and regulations and regulatory constraints), nor can they neglect moral constraints. A crucial issue here is that the government itself cannot violate the law, and government officials must accept restrictions and supervision from two aspects. One aspect is that the government acts as an organization to bind and supervise all its members, and no one is an exception. On the other hand, it is subject to social constraints and supervision, and no government member is exempt from social supervision. The abuse of power crosses the legal and moral boundaries. All units and individuals exercising power must be vigilant about this. At the same time, there should be a certain amount of punishment to show legal authority in the case of abuse of power by officials or staff of government agencies, but it is also necessary to compensate those who have suffered damage because of abuse of power. Establishing a compensation system for victims is another constraint on power. Compensation for victims is the responsibility of the state, and the punishment for abuse of power (compensation for victims) is another kind of compensation, but the two are different, and we should not conflate them. Although abusers of power are subject to restrictions or difficulties in the implementation of the compensation, compensation penalties are still an implementable system to help reduce the abuse of power. From China’s experience in intensifying its fight against corruption in recent years, we know that we cannot ignore the role of social supervision and public opinion supervision in combating corruption. However, can the public still speak out for justice if they are afraid of power and retaliation? Will the public stand up against those who abuse power and use power to gain more power? This is a matter of overall national quality. If most people dare not expose government staff who show favouritism and abuse the law out of fear of retaliation, and only complain in private, it is just a matter of them agreeing to come forward and exposing the bad behaviours. However, they dare not take part in the disclosure and struggle, which reflects the need to improve the quality of the people. Only when more people in society put the public interest first and dare to fight against corrupt officials who abuse power can we bring about an overall improvement in the quality of the people and will public supervision be effective. Therefore, we cannot ignore the significance of improving the quality of the people. Moral checks and balances in society can only restrain and punish abusers if there is continuous improvement of the quality of the people. The above analysis shows us that the reason moral checks and balances can fully play their role is inseparable from the rule of law environment and self-​discipline. We cannot separate checks and balances from the rule of law environment, and it is inseparable from the self-​discipline of each member of society. Self-​discipline is to constrain and motivate yourself by behaviour standards formed by ethics. People must form an identity with, accept, and implement behaviour standards. Moral checks and balances require the

Cultural checks and balances  177 supervision of government officials and all government agency staff who exercise power, but these need the self-​discipline of all members of society. As they say, if you are not correct, how can you teach others how to be correct? This is the premise of moral checks and balances, that is, public self-​discipline is the premise for the supervision of those who hold power. 7.1.3  Why is it that moral checks and balances are cultural checks and balances? Let us start with faith. Beliefs are the persistence of an ideal, principle, and ethical concept that restrain one’s own behaviour on the one hand and resist, condemn, and fight against those (not only those who hold power) who violate moral standards. It is precisely because of this kind of belief that we can enhance social constraints and supervision. Beliefs can also include religious beliefs. Whether it is Buddhism Taoism, Christianity, Islam, or another religion (such as Judaism), the rules that believers follow usually include human philosophies and norms. Since what we observe is human philosophies, it is entirely possible for religious believers to have a consensus on self-​discipline with non-​religious believers who believe in certain philosophies of life and a consensus on the promotion of ethics. This is the result of moral checks and balances. In this sense, moral checks and balances and self-​discipline are the cohesion and exertion of cultural power. Social and cultural checks and balances play other roles, too. We need to further explore them from a group perspective. When people join a group in society, that group’s ideals, principles, and ethics becomes reflected in behaviour. After identifying with a group, people who believe in the group will always express this through their actions, which in turn will help the group move closer to achieving its goals. The realization of goals will also encourage the group to achieve more goals. The reason is the incentive of faith, and the belief that one’s ideals, principles, and ethics must win. Similarly, the combination of group and personal goals makes it hard to withdraw from the group or to recognize failure. As pointed out earlier, in the big migration from the Central Plains to southern China, we can see group identity everywhere. As mentioned, the history of the flow of ethnic minorities in China who moved south from the Central Plains after the turmoil in the Western Jin Dynasty has already demonstrated the resilience of immigrant groups and the spirit of facing hardships. Moral checks and balances played a role throughout the process. This also reflects the role of cultural checks and balances. Therefore, it is reasonable to regard moral checks and balances and cultural checks and balances as being synonymous. As mentioned earlier, the role of faith in people’s social life interweaves and mixes with people’s enterprising spirit, innovative spirit, fighting spirit, spirit of disaster relief, and mutual assistance and mutual love, and it does all this without asking them whether or not they believe in a religion. People who do not believe in a religion also have firm beliefs in a philosophy of life. This is

178  Cultural checks and balances the role of culture. For a believer, faith is faith and it acts as a constraint and an incentive. Faith is both a constraint on individual behaviour and an incentive for individual behaviour, and a behavioural constraint and behavioural incentive for other group members. In short, moral checks and balances and cultural checks and balances are synonymous. Knowing this allows us to deeply understand the significance of moral checks and balances and of cultural checks and balances.

7.2  Economic man hypothesis and social man hypothesis 7.2.1  The meaning of the economic man hypothesis The economic man hypothesis has long existed in classical economics. It refers to the fact that each person involved in an economic activity starts from his own situation, goals, and wishes, thereby arranging his own behaviour and formulating his own development plans, including short-​term and longer-​term arrangements. Specifically, this hypothesis assumes that everyone involved in market activities is an economic person. So, what exactly is an economic person? Someone who looks to maximize personal interests; in terms of investment, someone who wants benefit to outweigh cost; in terms of consumption, someone who wants maximum satisfaction at minimum cost; and in terms of savings, someone who wants the highest return with minimal risk. Under the economic man hypothesis, there is no need to cheat or harm people, but only focus on protecting one’s own interests. If all people can increase their own interests, they will certainly abide by the recognized order, will not do anything illegal, and will do what is good for others in an objective way, because everyone is dealing with others as market participants. Classical economics advocates the economic man hypothesis, which assumes that personal gain is beneficial to others. The market order will keep going if everyone acts in this way. Thus, as we can see, the normalization of the market order is beneficial to any market participant. This leads to a crucial conclusion. In the eyes of classical economists, the economic man hypothesis is not intended to encourage people to be selfish, but to illustrate the principle that if all investors seek to avoid risks and strive to get the most benefit at the lowest cost, this is good and will promote economic growth and benefit others. Similarly, if all consumers earnestly strive to be choosy and to get the most satisfaction at the lowest price, this is good and likewise will promote market prosperity and benefit others. Alternatively, if all savers think carefully, they can get more benefits with the lowest risk, which is good and will promote personal life improvement and economic stability and growth. The economic order will thus have a solid foundation, and this is good for the whole society. Classical economists who advocate the economic man hypothesis are not trying to advocate selfish ideas and style. Rather, they are trying to explain that the economic man has universality, that self-​interest is the starting point,

Cultural checks and balances  179 and that self-​interest and profitability are inseparable, because benefiting others is the final, objective result. 7.2.2  The meaning of the social man hypothesis The economic man hypothesis has been popular for years. However, people have seen that it is flawed, inadequate, and even misleading. These defects, deficiencies, and misunderstandings lie in the fact that people are not purely so-​called economic or social people. As an economic person, people may follow the principle of economic man and arrange their own investment, consumption, and saving behaviours from the perspective of minimizing costs and maximizing benefits. However, as social persons, there are other considerations, that is, they do not follow the principle of economic man. Therefore, people do not invest, consume, or save according to the economic man hypothesis, but they also arrange their activities according as social persons. Let us take investment as an example. Let us say that there are two places for investors to choose: A and B. A’s investment cost is lower than B’s, and A’s investment return is higher than B’s. According to the economic man hypothesis, this person will certainly choose A as the investment location. However, the choice is B. This goes against common sense, right? This investor may have various ideas. For example, B might be the investor’s hometown. It is still relatively poor, and it is difficult for workers there to find employment. Therefore, this person might feel that he should fulfil his social responsibility as an investor and set up a business there to increase local employment and local GDP and taxes, so he invests in B instead of A for the sake of social considerations and not as an economic person. Another example is someone who used to live or work in B. At that time, he did not have money and he owed debts to the villagers. He left B and went out to find work without repaying them. Years later, after becoming an entrepreneur, he remembered his experience in B when he was younger. There was always guilt in his heart and he felt like he had wronged his folks, so when considering where to invest he chose B and planned to donate a school, library, or hospital. He did this to calm his heart. There should be little doubt that he did this out of social consideration and not as an economic person. Here is another example of consumer behaviour. The famous American economist Thorstein Veblen (1857–​1929) published a book called The Theory of the Leisure Class (1899), in which he proposed the concept of conspicuous consumption. He pointed out that there is conspicuous consumption in society. This kind of consumption is not to satisfy personal needs of clothing, food, and shelter, but to show off, to chat about ostentation and extravagance, and to consume and spend to raise one’s social status. For example, the purpose of buying and wearing elegant clothing or going out on a luxurious vehicle is to show off personal wealth, family property, and social class to pedestrians or strangers. This kind of consumption is clearly different from

180  Cultural checks and balances the daily consumption of most consumers and the festive day consumption of Chinese New Year. Celebration of daily life and festive days may be in line with the economic man hypothesis, because these consumers are still trying to minimize spending and maximize satisfaction. However, it is difficult to explain conspicuous consumption with the economic man hypothesis. We can only explain it with the social man hypothesis. This is because the conspicuous consumer is no longer an ordinary economic person; he has already appeared before everyone as a social person. The purpose of his consumption is to express his identity, social status, or family status. It has become an abnormal consumption. From this point of view, conspicuous consumption is not normal. We can only see it as a result that is in line with the reality of the social man hypothesis. This also shows that when we talk about the social man hypothesis, we may find that there are two completely different properties. According to the social man hypothesis, a social person is socially responsible or personally conscience-​stricken when it comes to the choice of investment location. The other is that a social person consumes to attract attention. The social responsibility or personal guilt of the social man hypothesis has a positive effect, while conspicuous consumption has a negative effect. In fact, the social man hypothesis is quite complicated. Another example is from the perspective of consumers, that is, the bad consumption habits caused by corrupt customs in the countryside. Not long ago, I went to the rural areas of southern Shaanxi, western Liaoning, and Tongliao City in Inner Mongolia with members of the Economic Committee of the National Committee of the Chinese People’s Political Consultative Conference. The local political elites in the rural areas complained about “gift money.” What is gift money? They explained that during burials and weddings in neighbouring villages (such as weddings, childbirth, full moon, one full year of life, birthdays for elderly people, or death at home), relatives and friends of the same village must give money to their neighbours, hence the name “gift money.” In the past, this was a widespread practice. Back then, each family would give a few cents, one yuan, or two yuan. Later, it rose to five yuan and ten yuan. Now, even 50 yuan is not okay. They usually give 100 yuan (because one hundred-​yuan banknotes are red, which has a lucky meaning, and sometimes as much as 300 and 500 yuan). This is a heavy burden. It makes migrant workers not want to return home during the Spring Festival, because they have worked hard for the year and it is not easy to make money, and they have finished giving out gift money. Therefore, gift money is a heavy burden. We asked the village cadres if this is something that they had to do. They replied that it has become a custom and asked how to abolish it. The practice of gift money is difficult to explain with the economic man hypothesis. We can only explain it with the social man hypothesis, because this is a routine expenditure based on traditional customs. Why would you want to give gift money? Because the villagers are all part of the same village group. If they do not give gift money, the villagers will mock them. This practice relates

Cultural checks and balances  181 to their interpersonal relationships in the village. Only when villages themselves change this habit can they end the practice of gift money. This shows we cannot limit the scope of the social man hypothesis to public welfare and charitable expenditures, nor to conspicuous consumption. It should also include the gift-​giving expenses caused by folk practices. 7.2.3  The long-​term coexistence of the economic man hypothesis and social man hypothesis Above is an explanation of the meaning of the economic man and social man hypotheses. It is difficult to make a judgment of who is right and who is wrong for these two assumptions. Each has its own scope of application and its own role. No matter the reasons for their continued existence, they will continue to coexist for a long time. As already explained, the economic man hypothesis itself is not a matter of right and wrong. It merely explains that people will follow the principle of least cost and maximum benefit when taking part in market activities and economic life. It does not mean that investors and consumers seek nothing but profit or want to take advantage and harm people. It only means that people want to avoid risks, minimize losses, strive to improve efficiency, and increase benefits. This is both human nature and a way of doing business. The starting point of the social man hypothesis is different from that of the economic man hypothesis. The premise of the social man hypothesis is that an adult who takes part in market competition and economic activities is both an economic person and a social person, because he cannot do without the large group of society. He also cannot do without the various smaller groups in society. Not only is he a member of smaller groups but may be active in them. In this case, he will express his wishes, reasons, or principles as a member of the group. For example, he will have faith, have general relationships, or have special relationships. His ideas will change these relationships. In his role as a social person, his behaviour will change in response to changes in ethics. This explains why he would be enthusiastic about public welfare undertakings and charitable causes and not consider cost minimization and benefit maximization as an economic person would. When he takes part in social activities and associates with members of this large group of society or with smaller group members under the large social group, there might be conspicuous consumption, or he will obey traditional consumption habits and give gift money. His social behaviour completely reflects that his consumption behaviour is sometimes irrational. This reflects his social characteristics and is not surprising. In fact, as early as 1955, the American economist Herbert Simon proposed a change to the economic man hypothesis known as the bounded rationality hypothesis. The bounded rationality hypothesis means that because people have limited subjective cognitive ability and because the objective environment is complex and variable, the best decision of cost minimization and

182  Cultural checks and balances benefit maximization is difficult to achieve. People tend to settle for second best decisions, which are more realistic. In addition, we can only apply the best decision to a single target at most. Under the multi-​objective premise, it is impossible to find the best decision, which means the second-​best decision is the best choice. For example, we decide between buying fabric and a needle or the latest fashion or between eating in a cafeteria or shopping for groceries. Along the path of Simon’s bounded rationality, Western economists have proposed a third-​best hypothesis, that is to say, Simon’s suboptimal decision-​ making still cannot solve practical problems, so we should be prepared to choose the third best. The Simon doctrine is still out of touch with real life, because suboptimal is still difficult to find. It is better to take a step back and be realistic and adopt the third best choice. Nevertheless, people have questioned the economic man hypothesis, and Simon has proposed suboptimal decision theory, or the bounded rationality hypothesis, but nothing has been unable to shake it, let alone negate it. Even with the appearance of the social man hypothesis, it is only a supplement to that hypothesis, thereby suggesting that people are both economic and social. As an economic person, we invest in economic life and market competition according to the principle of minimizing cost and maximizing profit. We consume and save (as mentioned above, savings is just a transitional approach, as savings will eventually break down into investment and consumption). Suboptimal decision-​making or bounded rationality is only a correction to the economic man hypothesis and does not break out of its scope. As for the person as a social person, he will have another set of considerations and will make one or another decision, but it does not affect the existence of the economic man hypothesis. In the next few years, policy makers—​as social people, will have new investment ideas and methods, or new concepts and methods of consumption. At most, we can only say that people have a new understanding of their own responsibilities and behaviours as social people. The economic man hypothesis and the social man hypothesis will still coexist for a long time. 7.2.4  Analysis of the two accounts of family business Here we will discuss the issue of decision-​making as it applies to the rise and development of family businesses to help us gain a better understanding of the economic man thesis and the social man hypothesis. We can see from the rise and development of family businesses that they do not fully fall under the economic man hypothesis. Why are there so many family businesses? There are three reasons: First, the head of the family can bring family members together, is able to work, and is able to lead them to start an enterprise. They admire the family head, listen to him, and follow his directions. The family business rises like this. Second, family members work together during the start-​up period and have a strong centripetal force. If they lacked unity and a large centripetal force

Cultural checks and balances  183 during the start-​up period, they would not be able to do it. If they grudgingly ran the family business, it would soon decline and none of them would gain if the family members were to compete with each other and argue and split up. Third, family businesses must prosper, have their own characteristics, have their own head, speak honestly in the market, and abide by the law. To this end, the head of the family must make rules and regulations for everyone to follow. No one can be an exception. Anyone who breaks the rules, even the most intimate children and grandchildren, must be dealt with according to the rules. In this way, they can set up an enterprise culture, and the family business can gradually expand and continue down its path. In ancient and modern times in China and abroad, many family-​owned enterprises have become famous old names because of the above three conditions. However, family businesses do not rely solely on the economic man hypothesis to prosper. From the very start of an enterprise, the family head has a dual mission. This dual mission is not in line with the modern enterprise system. However, the family business can continue for years and is relying on the realization of the dual mission. The first of the dual missions is for entrepreneurs to follow market rules. Integrity and following the law are most important. Under this premise, family businesses will strive to minimize costs, maximize benefits, be smart and strong, be competitive, and gain a good reputation in the fierce market competition in line with the economic man hypothesis. This is the way for family businesses to stand on their own feet. The leadership of any family-​led family business will not violate this principle. Another mission of the dual mission is to prevent the family from continuing to be poor in the process of growing and expanding the family business (or because there are few males, poor ability, or many sick members). That is to say, as the founder of the family business and its head, the head of the family has the responsibility to take care of the weak family members, not let them fall behind, and make sure they do not miss out on the dividends the family business receives in development. This shows that the family head has two accounts in mind. The first is the business’s economic account. The second is the family’s economic account, or the benefits that the family gets from running the business and how they will continue to thrive and make more money. We can say that the family account is a family-​responsibility account for the family group. For example, they can take care of the weak family members, get out of poverty as soon as possible, and can share the benefits and gradually improve their lives. Although this is not a social-​responsibility account of the family business, there is not necessarily a relation between it and the economic man hypothesis. Both accounts exist simultaneously, which is a characteristic of a family business. The existence of the family account is indeed a major feature of family business because the family is using its income and profits for the family’s well-​being. If the family business uses its income and profits to help the weak,

184  Cultural checks and balances such as helping orphans and widows, the family members will not have any divisive opinions. However, they would not be enthusiastic participants if they had to raise the poor among the family, because such poverty might be due to unhealthy habits, such as gambling, visiting prostitutes, or smoking opium. They would also not agree with providing subsidies and dividends for such family members. What happens next? Family members might argue to split the family, splitting the family business and thus reducing its size. As a result, they would each run a smaller business and have to stand on their own feet, which makes the family account narrower in scope. However, despite the relative smaller size of the family business after a split, there is still a family account. Afterward, the family business still must pay for the welfare of the family members, but there are fewer people to take care of and to share in the dividends. It is difficult for family businesses to change the practice of the family account. Unless it becomes a modern enterprise, it will be hard to do away with the family account practice. Some family-​owned enterprises have good business performance after a split, but their children and grandchildren will increase in number quickly. After several generations, the family business might return to a situation like that before the separation, which might cause dissatisfaction among the family members. They might think that the family account practice cannot play a reward–​punishment role, and the phenomenon of eating from the same big pot in the family business is prevalent, so the family members might argue and ask for separation. This is the main reason family businesses have difficulty in keeping the peace over an extended period. From the rise of a family business to years later, then to the production revival after separation, the family often will separate again after a period of years. This is a common phenomenon in the rise and fall of family businesses, and it reflects that the family business system has certain contradictions. The economic man hypothesis and the social man hypothesis coexist and clash with reality. The only solution is to transform the family business—​that is, implement a modern enterprise system in the true sense. This means clear property rights, a sound enterprise governance structure, a professional management system, and social responsibility, rather than bearing responsibility for the family group as in the past. 7.2.5  Cultural checks and balances of the economic man hypothesis and the social man hypothesis As mentioned above, in economic life and in market competition, the economic man hypothesis and the social man hypothesis have coexisted for a long time. The family business is, to a considerable extent, a special case, because family businesses have a responsibility for the family group, so after a period, there will be an internal family business battle that causes separation. We can leave this situation behind here.

Cultural checks and balances  185 What are the long-​term prospects for the coexistence of the economic man hypothesis and social man hypothesis? We can make the following assessment. The economic man hypothesis will exist for a long time, but with growing doubts about it. For instance, Simon’s bounded rational hypothesis and suboptimal decision theory, John Keynes’s animal spirits (Keynes pointed out that people’s investment decisions are often irrational, the product of animal spirits, that is, an impulse to act that is no different from animals), and questions raised by experimental and behavioural economics. With that said, investments and consumer behaviour are unpredictable. We need more practice or facts to reduce doubts about the economic man hypothesis. There are also questions about the social man hypothesis. People are social people, but this is also difficult to define. Although a person is a member of this large group of society, there are unknowns. We do not know what kind of family background he will have, what affect he will have on the family, what habits he will develop from childhood, and what preferences he will develop. After stepping into society, we do not know who he will be in contact with, what kind of experiences he will have, and the nature of his behaviour. Moreover, society is a large group and there are small groups in society. Can we predict what religion he will believe, what political party he will join, what kind of community he will live in, which friends he will meet, or what good or bad habits he will develop? With all these unknowns, can we still determine whether a person will conduct economic and social activities as a social person? It is impossible to predict the effect he will have as a social person. Is this not forever a mystery? Even if we imagine the future, how effective would that be? Therefore, it is difficult to say if someone’s behaviour is in line with the social man hypothesis but not the economic man hypothesis. This is an after-​the-​fact judgment. It is extremely hard to make advance predictions. From this point of view, both the economic man hypothesis and the social man hypothesis are flawed. There are still doubts or inadequacies in these two fields that we need to explore and verify. The economic man hypothesis and the social man hypothesis will not only exist for a long time, but also will undergo changes and will complement each other, so we cannot reach conclusions under the two hypotheses at this time. Experimental and behavioural economics will deepen the discussion, but it will still be impossible to make a judgment on their correctness. Only history can confirm this. However, we can at least find a point from the economic man and social man hypotheses debate, that is, the long-​term coexistence and debate of these two hypotheses reflects the role of cultural checks and balances. While the economic man hypothesis is flawed and inadequate, it still has its applicability. It can act as a guide for people in economic life and market competition under certain circumstances (although the social man hypothesis is too broad, there are various kinds of social people, so in some cases, it can also act as a guide for people in social life and deal with interpersonal relationships). Therefore, the economic man hypothesis and social man

186  Cultural checks and balances hypothesis are two guiding principles that act in concert with, and complement, each other. This is the cultural balance between the two hypotheses. To be specific, cultural checks and balances as mentioned here have at least two meanings: First, the coexistence of the two hypotheses tells everyone that economic life and social life are not the same thing. The principles applicable in economic life may not apply to social life, and the principles applicable in social life may not apply to economic life. Therefore, their coexistence complements and supplements people’s lives and behaviours. This is a cultural check and balance. Second, the coexistence of the two hypotheses also tells everyone that each hypothesis has both its applicability and its shortcomings, and with economic development and the advancement of science and technology, especially universal education and growing concern about the quality of life, people’s social awareness will go up. In this way, a greater sense of social responsibility will complement the shortcomings of the economic man hypothesis and allow people to gain a deeper understanding of the social man hypothesis. Although this is a slow process, we should regard it as a cultural check and balance. Since market regulations and government regulations are not enough, the importance of moral power regulation will become increasingly obvious and this will deepen the awareness of human beings as social people. This is also a cultural check and balance. For example, people’s enthusiasm for poverty alleviation will endure, the emphasis on ecological protection will increase steadily, and charitable causes will receive more donations. In other words, people as social people will continue to play their part. We can also call this the deepening and refinement of cultural checks and balances.

7.3  The thinking of the small business owner and social and economic balance 7.3.1  Social progressive and suppressive factors Regarding economic fluctuations, in addition to looking at the process of adapting to the adaptation, or basic adaptation, between macroeconomics and microeconomics, it is also necessary to study the socio-​economic self-​ regulation function. A social economy is like a person’s body in that it has a self-​regulation function to restore balance. Sometimes, the process of adjusting and restoring equilibrium takes time. In other cases, the process is quicker. Yet, this does not constitute a substantive difference. Since situations are different, the difficulty of returning to a state of normal equilibrium differs. It is not a hinderance to the usual adjustment process. However, in humans, once this self-​ regulation function goes away or weakens, and a person becomes ill, it is difficult to say when that person will be back to normal. They might need to undergo major surgery to recover, and

Cultural checks and balances  187 that might save their life, but the human body will no longer be able to return to its original state. Let us take this discussion a bit further. If we divide the human self-​regulation function into parts, we can divide it into progressive functions and suppressive functions, and these two functions do exist at the same time. The progressive function refers to outward, flexible, and positive effects. The suppressive function refers to inward, rigid, and negative effects. Under normal circumstances, the two functions work at the same time to make the human body nurse itself back to health and to keep and restore balance. Under normal conditions, a person will not be too active or too suppressed, and even if the progression is greater than the suppression or vice versa, the body will naturally return to a normal state after a self-​regulation process. If the body’s self-​ regulation function has not degraded and is not gone, the body will always tend towards equilibrium. However, it is usually impossible for the body to achieve an absolute and lasting equilibrium. The equilibrium of the human body is always dynamic and relative. When a sick person gets a shot, or even an operation, it is to play a process in helping the body to restore its self-​regulation function. In fact, the social economy, like the human body, has to self-​regulate to maintain dynamic and relative equilibrium. We can also divide the socio-​ economic self-​regulation function into two functions:  Expansion (progressive) and contraction (suppressive), and the two functions coordinate with each other, constrain each other, and enhance each other. It is these functional constraints and supplements that allow the social economy to, in general, maintain dynamic and relative equilibrium, despite operational fluctuations. Imagine if only the expansionary function played a role in the social economy and there was no contracting function, or that the contraction function mechanism failed. It is obvious that the social economy would expand too much, people would be too excited, and investment frenzy would not only appear, but the fever would rise. The entire social economy then is like a big casino buzzing with excitement. If it gets out of control, it will collapse. On the other hand, if there is only a contracting function in the social economy and no expansionary function, or if the expansion function mechanism fails, the same social economy will shrink too much, become stagnant, cold, lifeless, and inactive, there will be no innovation, and it would feel hopeless. The social economy would fall into a state of stagnation and recession, which would then lead to a socio-​economic collapse that would be hard to clean up. This shows that, only with expansion (progressive) and contraction (suppressive) mechanisms and functions, can any social economy avoid getting too hot or too cold. There is no reason to fear economic fluctuations, as there is still a propensity towards equilibrium that is, of course, always dynamic and relative.1

1 See Li Yining, Socialist Political Economy, Beijing: The Commercial Press, 1986, pp. 321–​325.

188  Cultural checks and balances In this sense, this also reflects cultural checks and balances. Progressive and expansive economic behaviours and market activities reflect a culture and personal appeals and aspirations, while suppressive and contractive economic behaviours and market activities reflect culture and a personal resistance to change, and conservatism. 7.3.2  The role of the ideas of small business owners Sometimes, commentators will view the ideas of small business owners or their awareness in a negative way when discussing economic growth and GDP expansion. Commentators argue that these owners lack foresight, lack aspiration, are satisfied with just making ends meet, will quit while they are ahead, and are reluctant. They want to innovate but are afraid of risk. It would seem that small business owners are conservative forces in the economy and are typical of those who have held back economic growth. This view and evaluation are not correct. Why is that? Because we are forgetting, or just not understanding, that there is a need for a buffer in the economy, and this requires suppressive and contractive mechanisms. We should understand that there are microeconomic units in socio-​ economic activities, including enterprises and individuals. In terms of unit numbers, large enterprises account for only a small fraction of the total. Most are small and medium-​sized enterprises or even micro-​sized enterprises. The investors and operators of these enterprises are all small business owners, that is, people with small business owner ideas and awareness. Personally, most concepts about investment and consumption are not different ideas. They are so-​called conventional, from the top, from the books, and from experience. In other words, they have the ideas and awareness of small business owners. At least, this describes the current situation in Chinese society. Based on the above discussion, it should be clear that we cannot underestimate the role of small business owner ideas and awareness in the social economy. In recent years, critics have zoomed in on the structural characteristics of China’s securities market to comment on its volatility. That being that there are too many retail investors and too few institutional investors. Therefore, once the stock market heats up from buying and selling, it is obvious that these small investors will be impatient and frantic, and once it cools down, they will be disheartened. Small investors will follow the trends, an approach that reflects small business owner ideas and awareness. At the same time, in everyday life there are indeed small shareholders who just want to make ends meet and quit while they are ahead and will end their small gains in the securities market. They are afraid of risk, and they value safety. They hold on to cash and wait for opportunities during periods of market volatility and feel happy inside when the stock market plunges because they think they protected their wealth. They think they have the initiative and will bide their time. The ideas and awareness of small business owners

Cultural checks and balances  189 actually form a buffer mechanism for the society so that the social economy will get too hot and out of control or get too cold due to long-​term stagnation that is hard to stimulate . In 1998, when researching in Shanghai and Shenzhen, we found an interesting phenomenon. The people who traded in the stock market were newcomers. They had never engaged in speculation before, and they lacked experience. Some of them were old and had just retired when they joined the ranks of shareholders. When the stock market crashed, there were losses, including among them. However, they were accumulating experience and slowly maturing. At first, they did not know how to quit while still ahead, but they later learned this. Over time, they naturally became a buffering force. This shows that the market will train a conservative team. Unquestionably, from the perspective of the economic behaviour of small investors, these microeconomic units are all over the place (including small and medium-​sized enterprises and small investors). Because their investment activities are everywhere, and there is no law to follow, they reflect socio-​ economic expansion or socio-​economic contraction. This creates irregular market fluctuations that are hard for observers and critics to predict. This is not necessarily a terrible thing. If there were not so many small-​and medium-​ sized enterprises and individuals with small business owner ideas and awareness, it is inevitable that investment would be impulsive and would not be suppressed or rolled back, making the overheating of the economy unmanageable. Similarly, if there were too few small-​and medium-​sized enterprises and individuals with small owner ideas and awareness, how would we know when the economy stagnates? Could we rely on large enterprises and wise investors to make the economy thrive again? This might be asking too much. This clearly shows that small and medium-​sized enterprises and individuals make up the majority of players in the stock market. To prevent the economy from being too hot or too cold, holders of the ideas and awareness of small business owners who are satisfied with just making ends meet and quit while they ahead are an inseparable part. 7.3.3  The role of the enterprising spirit The enterprising spirit both opposes and coordinates with the ideas and awareness of small business owners. This reflects cultural checks and balances, and we can often see this in social and economic life.2 As for the significant role of the enterprising spirit, we all know that the recombination of production factors lies in the discovery of new profit opportunities in opening new markets and in innovating. Technological, product, and industrial innovations, the innovation and upgrading of raw materials

2 We looked at the concept of entrepreneurs in the fourth section of Chapter 6 of this book, but there is still a need to further explore the concept.

190  Cultural checks and balances and power, enterprise management, and marketing management are how the economy shakes off stagnation. Entrepreneurial efforts produce innovation, and these results reflect the enterprising spirit. So, what is the connection between this and small business owner ideas and awareness? There are three aspects that we can discuss. First, as already mentioned, the social economy itself has a self-​ regulation function or mechanism, that is, a function and mechanism for expansion (progressive) and a function and mechanism for contraction (suppressive). The self-​regulation functions and mechanisms are why the social economy will not get too hot or too cold. Entrepreneurs innovate and aim to recombine production factors. This is a driving force behind the economy. If innovation is effective, it will drive small, medium, and micro-​ sized enterprises and individual investors to work towards upgrading industry, products, and organization, and towards updating marketing. This will encourage these microeconomic units (including small, medium, and micro-​sized enterprises and individuals) with small owner ideas and awareness to take part in the reorganization of environmental production factors. They will provide services including innovative pre-​production, mid-​production, and post-​production services, spare parts production, and facility services, as well as logistics, sales, and other aspects of exertion, thus forming a new economic growth pattern. Only inventors, entrepreneurs, and the enterprising spirit lack the cooperation of a large number of microeconomic units. There is nothing we can do without the formation of a new round of economic growth. Microeconomic units are good at following the trends, at finding business opportunities, and at finding a position that suits them. This is in line with the actual situation. Therefore, we cannot attribute the formation of new economic growth patterns to inventors and entrepreneurs. Credit should also go to microeconomic units (small, medium, and micro-​sized and individual investors). Second, after innovations emerge, that is, after a new round of recombination of factors of production, entrepreneurs are not alone in trying to gain new profit opportunities. Microeconomic units (small, medium, and micro-​sized and individual investors) also move to make new considerations when investing. For whatever reason, some of them might have missed out in an earlier round of innovation. Thus, they missed an opportunity that was conducive to their own development and so do not want to miss the next opportunity. They will take part in the new wave of innovation, including in innovative pre-​production, mid-​production, and post-​production services, or provide spare-​parts production, improve service facilities, and enhance services, as well as provide logistics and sales services, thereby promoting the formation of a new round of economic growth while also increasing their own profits. These microeconomic units follow the trends, which reflects the ideas and awareness of small business owners, but it is also a new round of innovation to guide all who are keen on the encouraging situation. Therefore, it is

Cultural checks and balances  191 normal for those microeconomic units that have still not caught up with an earlier round of innovation to play catch-​up. Third, the above-​mentioned enterprising spirit and the mutual balance and cooperation of ideas and awareness of small business owners are routine in socio-​economic development and reflect cultural checks and balances. Nevertheless, change is still possible when an innovation is in its infancy after its emergence. Due to the changing winds of macroeconomic policy, the consequences of adjustment might be unfavourable for the promotion of innovative projects. Alternatively, the changes might spark new products, processes, and industries that are similar in foreign countries, and their quality, performance, and durability might surpass that of similar products in China, making these new domestic products appear to be backward. Under this circumstance, these innovative domestic products will face challenges in the market, and this would first be reflected in the domestic innovations of giant enterprises. Giant enterprises will look for countermeasures and then follow the trends and cooperate and collaborate with the small, medium, and micro-​sized domestic enterprises that take part in this kind of innovation. They might just want to make ends meet and withdraw if the situation becomes too unfavourable or they might find a way out. They might also shift capital to other areas to avoid greater risks. As for individual small investors, they will also make adjustments for the purpose of investment security. All of this is possible. The countermeasures of the microeconomic units under the guidance of small business owner ideas and awareness are not necessarily bad, but we should regard them as a signal. That is, if they advance, then advance; if they retreat, then retreat at once. There is no benefit for this kind of socio-​ economic adjustment or self-​adjustment. Those who engage in innovative enterprises can also clear their minds and make new arrangements early. 7.3.4  Re-​recognizing the vitality of microeconomic units Above, we analyzed the entrepreneurs and enterprising spirit in the social economy and did an analysis on the ideas and awareness of small, medium, and micro-​sized enterprises and individuals as the biggest part of microeconomic units. Together, the self-​regulation functions and mechanisms in the social economy can play a role in keeping the social economy from collapsing due to expansion and re-​expansion, and from falling into a lifeless state due to contraction and re-​contraction. Above, we also clearly said that the social economy needs both pioneering entrepreneurs and an enterprising spirit. Under certain circumstances, it also needs the contractive and conservative ideas and awareness of small business owners, so that it can develop steadily through self-​adjustment. This shows that profits and losses, without a doubt, relate to the quality of operations and management and to changes in the social and economic situation. Profits and losses are not necessarily the result of operations and management themselves nor operation mistakes but might relate to unexpected

192  Cultural checks and balances changes in the objective economic situation and of managers. In any case, operations and management are still important. This is something that no enterprise or individual investor can ignore. Here we will further discuss the issue of the vitality of microeconomic units. When discussing microeconomic units, we must first point out that since we are referring to enterprises and individuals, it is undoubtedly necessary to include large enterprises as well as small, medium, and micro-​sized enterprises and, regarding individuals, we should not only refer to all types of investors, but also all types of consumers. Both enterprises and individuals are microeconomic units. Their vitality is the vitality of enterprises and of individuals. In addition, the social economy has functions and mechanisms for self-​regulation that relate to the vitality of enterprises and individuals. Enterprise vitality refers to the initiative and enthusiasm of enterprises in production and operation. They take the initiative and actively adjust production scale, improve technology, improve management, improve marketing, and broaden the market. They also increase employee wages based on the situation of the enterprise and have a talent incentive system. Individual vitality refers to individuals as producers of production factors and consumers of market goods. They take the initiative and have enthusiasm in economic life. They take the initiative and actively contribute their talents, skills, and wisdom, and they acquire the required production and living materials according to their needs. Whether it is an enterprise or an individual, their production, initiative, and consumption activities relate to economic benefits (profitability or consumption satisfaction). This is the source of the vitality of microeconomic units. Furthermore, the initiative and enthusiasm of microeconomic units gives enterprises and individuals vitality, which in turn gives the social economy self-​regulation functions and mechanisms. However, their vitality is not only from their initiative and enthusiasm. Whether this kind of initiative and enthusiasm gets blocked or not relates to whether enterprises and individuals suffer operating losses and to their social responsibility as social entities. See below for a separate explanation. 7.3.4.1  The negative impact of operating losses There are reasons for losses in enterprise and individual operations. They may relate to poor operations or even the lack of operations, but not all losses are due to poor operations. For example, national macroeconomic policy adjustments, government tax increases, and rising energy and raw material prices cause enterprise and personal losses. Another example is that new products and processes appear in market competition, some of which come from abroad, which brings about losses. This is something that enterprises might not foresee. Alternatively, although an enterprise might foresee it, it will lose in the market competition if it innovates too late. For another example, although changes in social consumption fashions and habits are

Cultural checks and balances  193 generally slow, this rate of change accelerates as the economy grows and household incomes rise, so enterprises or individuals unable to keep up with the latest changes in consumer fashions and habits will be affected and incur losses. Above are just three examples, but it allows us to understand that we cannot just attribute industry, enterprise, and individual losses to poor operations or lack of operations. Sometimes losses are just difficult to avoid. What impact does this have on enterprises and individuals? In short, the impact of these gains or losses on their own economic interests of an enterprise or individual (as producers or operators of factors of production) is usually symmetrical. If an enterprise or individual is profitable, then it will take the initiative and have enthusiasm for more profits. They will expand by adding investors, producers, and production factors to move the social economy up. Conversely, if an enterprise or individual is losing money, the losses will be taken until bankruptcy ensues. Losses guide both enterprises and individuals. There is no vitality if an enterprise does not bear profits and losses; if an individual does not bear profits or losses and if the country suffers losses. If enterprises and individuals lack vitality, the social economy will lack self-​regulation functions and mechanisms. To put it another way, only enterprises that manage their own losses are real enterprises and only individuals who manage their own losses are real producers of production factors and investors. 7.3.4.2 The impact of enterprise and individual social responsibility on economic performance Enterprises and individuals are not only economic agents in the social economy. They are also social agents. As economic agents, only assuming sole responsibility for one’s own profits or losses can make them energetic yet feel pressured. If they are energetic, they will take the initiative and have the enthusiasm to continuously adjust their economic behaviour, seek advantages and avoid disadvantages, and strive for more profits and lower costs. However, when they have a sense of social responsibility and put it into action, they appear as social entities and their behaviour will change in response. For donations to public welfare undertakings and charitable causes, although the donations are voluntary and not the result of mandatory apportionment by relevant departments, they will inevitably bear the costs of decisions. This conforms to the social man hypothesis, as mentioned earlier. However, we do need to ask ourselves the following: When enterprises or individuals donate to public welfare undertakings and charitable causes as social entities, do they think about gaining or losing money? If they are taking this into consideration, is it detrimental to their social image? We cannot just assume that it is wrong for enterprises and individuals to consider how such expenditures would relate to their own earnings or losses. Below are three different situations:

194  Cultural checks and balances First, there are donors who devote themselves to public welfare undertakings and charitable causes. They believe they should be socially responsible and do not consider monetary expenditures or changes to their own property. Second, there are donors who feel that it is worthwhile to donate money. For example, they like to receive social praise and want beneficiaries to respect them, and they want to earn a good reputation. These are intangible benefits. Such ideas are not bad, but reasonable. If donations support public welfare undertakings and charitable causes, the effect is good. Even if the donors think like this, it is human nature and there is nothing wrong with it. It is not necessary to guess what they have in mind. Third, there are donors who believe that their monetary donations, in addition to helping public welfare undertakings and charitable causes, might also contribute to their future career development. For example, the money might be for poverty alleviation in a certain area, which could be beneficial for investing and opening markets in the future and creating conditions for the future development of this enterprise or individual in this region. This links donations to personal future development. It is okay if the donor thinks like this. If the donor follows laws and regulations when investing and developing, there is no problem, because it is not a normal business transaction and there is no bribery. When an enterprise or individual donates, we just need to look at the effect and not worry about the ideas, plans, and intentions. Since a donor is a social person, he naturally has various social ideas. Why does it matter what is going on in the heart? From the coexistence of the economic man hypothesis and the social man hypothesis in the social economy or the coexistence of the enterprising spirit and the ideas and awareness of small business owners in the social economy, we can see that the social economy is often in a state of dynamic and relative equilibrium. This stems from the expansion and contraction of the two functions and mechanisms in the social economy and will not lead to overheating and an unmanageable situation, or to overcooling and a lifeless situation. The social economy functions normally because of the above three coexistences, that is, the coexistence of the economic man hypothesis and the social man hypothesis, the coexistence of the enterprising spirit and the ideas and awareness of small business owners, and the coexistence of the expansion (progressive) functions and mechanisms and the contraction (suppressive and conservative) functions and mechanisms.

7.4  The persistence of cultural checks and balances 7.4.1  The gap in understanding of culture among people of different ages Old people and young people have become two different types of judges or commentators. In fact, generation gaps have existed since ancient times, but in the feudal era, the younger generation did not dare to disregard the views of

Cultural checks and balances  195 the older generation. Therefore, although generation gaps have always existed, for most, a generation gap is just a barrier between generations. In China, it was not until the Revolution of 1911 overthrew the Qing government and the Republic of China was established that the generation gap became increasingly obvious. Especially after the beginning of the New Culture Movement in 1915, and after the May Fourth Movement and cultural innovation, the state of opposition between generations became public in major cities across the country. We discuss this in an earlier section, so there is no need to repeat it here. Some time before the Qing Dynasty collapsed in 1911, the public nature of the generation gap in large and medium-​sized cities centred on three issues. First, could a woman enter school for education? The older generation of conservatives often insisted that so-​called women’s incompetence was an ancient German teaching, and that women should not go to school for education. Before this, the issue of whether to bind young girls’ feet had already caused controversy. After debate, the argument for ending the practice of foot binding finally won, but the debate over whether a woman should go to school continued for a long time. Opening is a continuous process, but it finally broke through the barrier of opening schools to girls in large and medium-​sized cities. The young generation won this generation gap conflict. The second is the issue of marrying the partner of your choice and the freedom to marry. The older generation of conservatives insisted that parents should approve of marriages and play the dominant role in this decision. The younger generation was reluctant to let their parents arrange marriage for them, which resulted in a long struggle. The result was that children resisted and ran away from home. There were even suicides. Eventually, after a long debate, the younger generation finally won marriage freedom, but this victory is largely contained to the intellectual world and large and medium-​sized cities. The third is the issue of women’s employment. After women complete their studies, they enter the workforce, which has made women’s employment a social concern. The younger generation, including the women who graduate from school, believe that women have knowledge and should be free to find employment or even start their own business. However, the older generation is full of people who are conservative and old-​fashioned, and so they look at women with old eyes. They do not think that all jobs are suitable for women. Thus, there was a conflict between generations. However, the younger generation also won this conflict, because the times have changed and public opinion has changed, too. The freedom for women to find work or start their own business has gradually become a social trend. The above-​mentioned generational barriers and conflicts have experienced a tempering process since the beginning of the Northern Expedition. This is because in the social awakening process overall, more people from older generations have realized that defending certain traditions are no longer in line with reality. They have realized that certain old concepts will only lead to

196  Cultural checks and balances family division and tragedy, and that it is impossible to change the ideas of younger generations, and even harder to reverse social trends. More importantly, after Japan invaded the three provinces in northeast China in 1931, provoking the Shanghai battle (the January 28th incident), the defence of the Great Wall battles, and Japan’s launch of the Lugou Bridge incident on July 7, 1937, the entire nation put national salvation first. Young people embarked on the battlefield of the anti-​Japanese national salvation movement. There was no longer a conflict between generations, and the old generation supported the young generation in taking their part in the war of resistance movement. The barriers and conflicts between generations eased and faded. Here, we should also pay attention to a new kind of situation. Before the War of Resistance against Japanese Aggression, there were generational barriers and conflicts in large and medium-​sized cities, especially along the Yangtze River. After the outbreak of the War of Resistance, there were changes in the generational relations in rural areas, where older generational attachments to the past usually related to the strong influence of clan and family forces. These forces restricted fresh ideas, fresh concepts, and the new spirit of the younger generation, which made it difficult for them to express themselves and even to prove themselves in the countryside. This situation changed drastically after the outbreak of the War of Resistance. One of the changes is that the War of Resistance was a national war. The whole country had the same enemy, and the whole people wanted to drive the Japanese invaders out of China. Cities and villages in the enemy-​occupied areas suffered. Farmers devoted themselves to the immediate need for food. The Eighth Route and New Fourth armies set up base areas around the country. Farmers, like urban residents, received education and wholeheartedly supported the front lines. Both old and young people in the countryside contributed to the War of Resistance. In this case, what generation gap is there? Behind the areas of Kuomintang rule, in addition to farmers paying for food, the farmers also laboured (repaired roads, transported materials, and other repair work) and went out as troops (including risking capture by the enemy). At that time, there was no generation gap. The second change was that, after the beginning of the War of Resistance, residents of coastal cities and rural areas fled to the rear. They brought the experience and customs of capital, machinery and equipment, knowledge, technology, and market transactions. This brought certain changes to the inland urban and rural areas ruled by the Kuomintang. Some refugees moved their families to the countryside and set up factories in the mountain regions. (The author fled with his family to Yuanling County in western Hunan Province and lived in Taichang Village but not in the urban area. The author studied at Yali Middle and Junior High School in Changsha. The school later moved its students to Baitiantou Village in Yuanling, which was away from the city). This had a good impact on the farmers in the rear and the rural atmosphere gradually changed.

Cultural checks and balances  197 This shows that, during the War of Resistance, the rural areas of the revolutionary base areas as well as the rural areas under Kuomintang rule gradually changed for the better. We should not forget this history. Of course, there is still a generation gap today. It has been more than seventy years since the establishment of the People’s Republic of China, and today’s generation gap is completely different from that which existed in Chinese society for the more than 20 years before the War of Resistance. This is because the generational barriers and conflicts are a reflection of the old generation’s defence of old teachings and old-​fashioned ways. This has made the young generation want to resist those ways. The current so-​called generation gap is different from that in the past and does not necessarily reflect the stubbornness, rigidity, and conservativeness of the old generations. The barriers relate to the appreciation and evaluation of literary works. There are inconsistencies on the current views of certain practices in society or in relation to family lifestyles and early childhood education methods. This kind of barrier does not involve the question of who is progressing and who is not, who is open and who is not, or who is right and who is not. Therefore, we should expect that generational barriers will exist for a long time. Even if they do, and each generation has its own way of life, this will not change the fact that older people and younger people live now together in harmony. From the perspective of cultural checks and balances, the generational barriers and conflicts in large and medium-​sized cities along the Yangtze River in China’s coastal areas before the War of Resistance involved an understanding gap between the older generation (most old people) and the younger generation (most young people). We could say that what is old-​ fashioned conforms to the struggle for social change and adheres to the old teachings and struggle for progress. However, different generations have distinct cultures, unique styles, and different behaviours, which do not necessarily have a negative or harmful impact on social progress. The reason is that the earlier generation gap stemmed from the gradual change of Chinese society and the remains of Chinese clan and family power exiting from the historical stage. Therefore, the older generation still sticks to old teachings and family rules. New culture, the latest trends, and new knowledge influence the younger generation, and they are at the forefront. The appearance of two cultures (old culture and new culture) is inevitable, and the conflict between them is unavoidable. History will bring to light the advantages of the new culture, and the contest will update the old culture. We will then pass down the valuable parts and screen out the outdated parts. This is also a manifestation of cultural checks and balances. As for the current modernization of society, since it does not involve the question of who is right or wrong, this generational barrier has a coordination function and may always exist. From another angle, this shows that it is possible that different generations can work together and have mutual understanding, even if they coexist for a certain period. This is not a cultural check and balance, but the result is cultural progress.

198  Cultural checks and balances 7.4.2  The gap in understanding of culture among people of different occupations Just as there are generation gaps between people of different ages, people of different occupations also have different ideas and attitudes towards the same things and phenomena. This situation has existed for years. For example, industry wage differences caused by different industries, differences in the social evaluation of occupations caused by different occupations, and different views on the social status of occupations caused by the possibility of promotion. There is also the issue of the extra income of employees due to different industries (including allowances, subsidies, bonuses, and various welfare payments issued by enterprises). All of this has formed a dual labour market. The dual labour market means that the labour market has a high-​level labour market and a low-​level labour market. The difference between the two is the following: First, the wages of employees in the high-​level labour market are high, and the wages of employees in the low-​level labour market are low. Second, employees in the high-​level labour market enjoy more benefits, and employees in the lower-​level labour market have fewer benefits or even no benefits. Third, employees in the high-​ level labour market have more learning opportunities, and they can continuously improve their knowledge and technical skills. There are few learning opportunities for workers in the low-​level labour market and they must do manual labour and repetitive work. Fourth, in the high-​level labour market, employees have more opportunities to improve their positions and titles. They can rise steadily. In the low-​ level labour market, employees have few opportunities for improvement. The kind of labour they engage in is what they will do until they retire. Therefore, workers in the high-​level labour market and workers in the low-​ level labour market are completely cut off from each other. It is difficult for workers in the low-​level labour market to transfer to the high-​level labour market. This has the following two consequences: First, workers in the low-​level labour market lack social vertical mobility. They have little chance of learning again and have no possibility of moving to the high-​level labour market. Their income is low, and their children have fewer opportunities for education and advanced studies. Thus, they form a phenomenon known as occupational hereditary, that is, their fathers are engaged in low-​level physical labour throughout their lives so their sons and even their grandchildren will have to do similar work. For them, there is no opportunity to change this hereditary occupation. Second, this situation has caused complaints and resentment among workers in the low-​level labour market, and among their families, children,

Cultural checks and balances  199 and other people. They think it is unfair, but they cannot change the situation. Over the long run, this will result in social unrest. The common belief is that white-​collar workers work in the high-​level labour market, while blue-​collar workers work in the low-​level labour market, and that white-​collar workers have a higher status than that of blue-​collar workers. This situation has been in Western countries since the industrialization period. Up to the present, similar situations have occurred in Chinese society. In the past few years, we conducted research in Shenzhen and other Pearl River Delta cities and found that the children of migrant workers still take part in the work of migrant workers. However, society is progressing, and the economy is growing. In recent years, new situations have occurred in both Western European countries and China, which has helped adjust and bring change to the dual labour market. In Western Europe, a notable change is the expansion of national social security. Although a continuous increase in welfare expenditures is not conducive to fiscal stability, it is good for low-​level labour market workers, as it improves their income. At the same time, the labour conditions of industrial and mining enterprises have also improved, thanks to robots and better working conditions. In addition, universal education enables the children of manual workers to receive more education and the possibility to enter higher education, which does away with or reduces the occupational hereditary phenomenon. However, there are unfamiliar problems. First, it is becoming more common for young people in their home countries to choose a career. They would rather rely on state relief than do physical labour or accept jobs with poor working conditions. In addition, immigrants from Africa, Asia, and Latin America have flooded into Western European countries in search of jobs, filling professional vacancies, and even squeezing out employment for the young people in these countries. It is not easy to solve these problems. In China, although the low-​level labour market has existed for more than thirty years since reform and opening up, it has also undergone changes in recent years. First, the supply of low-​level labour has been on the decline, but demand has not changed. Why is this? There are fewer migrant workers than before. Before, there were a substantial number of migrant workers leaving villages for coastal towns along the Yangtze River to find work, so the supply was large. Enterprises could employ simple labourers and manual workers on the cheap. However, things have changed in recent years. Fewer migrants go out to work, so there is not enough supply, and the enterprises that do hire simple labourers and manual workers must pay higher wages. Even so, the number of simple labourers and manual workers in the market is still decreasing. As a result, enterprises and families who hire babysitters and maternity matrons are finding it hard to hire people in Chinese cities and towns, which has led to some economic researchers asserting that China’s demographic dividend has dried up and no longer exists.

200  Cultural checks and balances In fact, this is only an inevitable stage in industrial development. China’s dual labour market is beginning to transform. The low-​level labour market itself has also changed and is no longer the same as it was in the early stage of industrialization. According to the evolution of the low-​ level labour market in post-​ industrialized countries in the Western developed world, we can draw the following conclusions: As mentioned above, the supply of simple and manual labourers in their countries is becoming fewer, and they are reluctant to engage in simple or manual labour after receiving a better education. Moreover, it is possible for them to work in the high-​level labour market. Alternatively, they may prefer to rely on family for support, focus on their career choice, wait for the right employment opportunity, or rely on social welfare. In addition, large numbers of immigrants from countries in Africa, Asia, and Latin America, who became simple or manual labour providers, have replaced them. We saw this in our surveys in Spain, France, Germany, and Denmark. We also found similar low-​level labour market changes in China at its current stage. However, the obvious difference is that there are not a lot of immigrants from developing countries entering the domestic low-​level labour market. Moreover, we did not find many urban and rural residents who prefer to rely on social security rather than employment. An important reason for the lack of supply in the low-​level labour market is that younger people in urban and rural areas would rather receive vocational and technical training or study to get into vocational and technical schools so they can find a well-​ paid job, or would prefer to start their own business, either alone or with partners. Small and micro-​sized enterprises solve this problem with entrepreneurship. In addition, as already mentioned, there are migrant workers who, after having worked in cities and towns, have returned to their hometowns to start a business or have started a business in the cities and towns. In society, they are a part of the cities and the towns, and this has a great demonstration effect on the young people in rural areas. There are fewer and fewer young people in urban and rural areas who enter the low-​level labour market to work as simple labourers and manual workers. This is a good thing, because it shows that the professional structure of Chinese workers is changing. A blue-​collar middle class is taking shape and a new demographic dividend is appearing. In fact, the employment style is also changing. New employers are looking for a suitable employment method. Enterprises are still hiring people, especially in emerging industries and industries with shortcomings, where the demand for skilled workers has not diminished, but what is different from the past is that some candidates work from home and do not need prospective employers to provide office space, nor do they need to work standard work hours every day. They accept tasks on a contract basis, work at home, and deliver results on time. They can use their own computers. They get piecework pay. Is it still necessary for enterprises to arrange office space for each hired worker? Another example is that after online shopping appeared, the country’s express

Cultural checks and balances  201 delivery industry became prevalent, adding millions of couriers. They have their own electric motorcycles and earn income by contract and completion of work. They do not need an office or employer-​provided electric scooters. Computers are spreading rapidly. Based on the traditional meaning, if manual workers complete their work online, do we call them blue-​collar or white-​collar workers? Even they can no longer define what a blue-​collar worker is, and what a white-​collar worker is. The distinction between blue-​collar and white-​collar is a professional concept from the industrialization period. Its meaning has already faded, and the boundaries between them are increasingly blurred. Especially with the formation of a blue-​collar middle class and its growth, the distinction between blue-​ collar and white-​collar workers has become increasingly difficult to delineate. People think that the concept has become outdated, and that it will disappear in the Information Age and post-​industrialization era. The concept of a dual labour market will lose its meaning in the Information Age and the post-​industrialization era in China, and that is already the case in Western developed countries. It still exists, but there is no longer a so-​called low-​level labour market. The conditions that we have used to define this concept (such as low wages, few benefits, no learning opportunities or hope for promotion) will cease to exist over time. This is China’s social and economic development prospect. 7.4.3  Further understanding of the persistence of cultural checks and balances According to the above, the economic man hypothesis and the social man hypothesis will coexist for a long time and will complement, and cooperate with, each other. The enterprising spirit and the ideas and awareness of small business owners will also coexist for a long time, and each has its own role to play, which means they will also complement and cooperate with each other. As analyzed earlier, there are generation gaps between people of different ages. Although the modern gap is different in meaning due to separate times, the current so-​called generation gap is the reason for people’s understanding of culture itself and of cultural checks and balances. This means that cultural checks and balances have always played a role in the social economy, dissolving the barriers and conflicts between generations. As for the gap between different occupations and in the understanding between those in the two labour markets, these will also change along with social and economic development. After the era of industrialization turns into the Information Age and the post-​industrialization era, there will be significant changes in the career choices of domestic workers compared to the past. This will be due to supply-​and-​demand changes in the low-​level labour market and the expansion of social welfare and social security, but especially because of the promotion of compulsory education and vocational and technical education, improved vertical mobility channels, and better working conditions in the

202  Cultural checks and balances low-​level labour market. From this situation, we can see social and economic progress. We can argue that the existence of generation gaps does reflect two cultures, and that the emergence of the dual labour market reflects both the existence of two social statuses and of two income levels, as well as the existence of two cultures. Although the conflict between the two cultures is real, there is more than just conflict. They also complement and cooperate with each other. This is cultural balance. Cultural checks and balances do not only reflect in the generational barriers and conflicts that are alleviated over a long period, but also demonstrate the integration between parties in conflict, that is, a concept will contain some content that originally belonged to other concepts. Changes in the dual labour market can also show similar problems. At the beginning of industrialization, there was clearly a difference between the high-​ level labour market and the low-​level labour market. White-​collar workers and blue-​collar workers were two labour groups. The social status of the former was significantly higher than that of the latter, and it was almost impossible for the latter to convert to the former. However, after an extended period of industrialization and after the Information Age and the post-​industrialization era replace the industrialization period, the strength of cultural checks and balances will become clear. The difference between white-​collar workers and blue-​collar workers in the dual labour market will narrow, fade, and eventually disappear. Is this not an effect of cultural checks and balances?

8  The highest state of culture and management

8.1  Proposition of the concept of common destiny 8.1.1  The meaning of the concept of common destiny As mentioned multiple times, people are part of society and members of this large group of society. Under this large group, there are various small groups that people are members of. Therefore, the term “identity” appears. In short, identity refers to the relationship between individuals and small groups under the large group. The individual, whether he takes part in small groups or just takes part in clan or family, has always existed. For example, he is a national and social member of a country. He forms an identity with the country and with the society. Let us say he is also a believer and follows a religion and is a member of a microeconomic unit (an enterprise, a staff member of an institution, or an investor or a partner). He forms a relationship with the religion and microeconomic unit and later forms an identity. Identity is not formal but substantive, which means that the members have a common view of destiny for the groups that they have formed an identity with. For clan and family, a person cannot decide what kind of clan or family to live in and cannot change this, unless abandoned or adopted or given to a family. Therefore, this is not a relationship that we can change later. The identity of a child to the parents or grandparents results from birth. After children grow up, they might understand political concepts, religious beliefs, and lifestyles differently than their parents and grandparents, but the basis of the relationship, that is, the blood relationship, does not change. In this case, members of a clan, especially members of a family, inevitably have a common outlook on destiny. The identity of same group members links to the concept of common destiny. The degree of identity reflects the degree to which a person cares about the fate or tribulations of the group, that is, to what degree they identify with the group. For example, if children in a family grow up to value filial piety and their parents’ encounter difficulties, then they will wholeheartedly solve their parents’ problems, regardless of personal circumstances. However, if the parents are conservative and stubborn, they might oppose their children’s

204  The highest state of culture and management choice of partner and arrange their marriage. The generational barriers between them might cause the children to leave home. Even so, when the parents meet difficulties (such as fires, floods, robbers), the children might still feel attached to them and give relief or supply other help. We can attribute this to the common destiny of family. Take the relationship between an enterprise and its employees as an example. Let us say that the enterprise has several employees. Although the employees come from all over the country, it was the enterprise that recruited them. However, if the enterprise carries out its culture well, is honest and law-​abiding in production and management, and its employees identify highly with the enterprise, then once it is in trouble due to poor management, the workers will care about the fate of the enterprise because of their high sense of identity. They will associate the enterprise’s difficulties with their own difficulties, and produce ideas, find ways to help, and do their best in their work. This is an expression of the common destiny of group members and groups. From this, we can see that the common destiny view of group members and groups (whether large or small) is not necessarily due to interests. 8.1.2  Transcendental interests From a broader perspective, the attitude of the people towards country has a deeper meaning. Your birth determines your nationality. Therefore, in terms of the relationship between the country and its people, we can say that it will not change in a lifetime. There are families who immigrate abroad, family members who move abroad, and people do change their nationality, but their original nationality still has a profound influence. Their identity is with the original country. Some people, although they move abroad, do not stop seeing themselves as nationals of the original country. The people of a nation, including expatriates living abroad, still see themselves as members of their country. In most cases, this kind of identity is inseparable from their common destiny. We should note that country and government are not the same concepts. The nature of a ruler determines who is in power in government, whether he is concerned about the nation and pays attention to the people’s livelihood, and whether he safeguards national interests and the interests of the people. The people of a nation might support one government but not the next one or might even oppose the next government. However, this is different from whether the people of a nation have formed an identity with the country and is different from making the ultimate sacrifice to protect your country from foreign aggression. Take the modern and contemporary history of China as an example. After the outbreak of the Opium War in 1840, the political rulers were corrupt, and the ruling class was decrepit and muddleheaded, but the people were patriotic and had formed an identity with the country. When the imperialists invaded China in 1840, and the country was at a critical juncture, even though the people were dissatisfied with the Qing government and the

The highest state of culture and management  205 government of the Republic of China and even wanted to overthrow them, they still fought against the foreign invaders. This fully reflects the common destiny of the people. From this point of view, the word “interest” by no means explains a country’s national identity. National patriotism, national sense of honour, and social cohesion, as well as the sense of responsibility at all levels, far exceed national considerations of personal interests. Now, we will more deeply explore the relationship between a person and a group (including large groups and small groups) to illustrate the transcendental interests of the people or group members. We can divide into four different situations the reasons a person becomes a member of a group: 1 2 3 4

Have no choice; Have a choice; Have no choice becomes have a choice; Have a choice becomes have no choice.

The above four situations exist in real life. To have no choice means that a person who belongs to a group cannot change this membership by his own will. He has no choice. For example, a person cannot choose which country, which city or rural area, which clan, or which family he is born into or who his relatives are. If you were born in China during the planned economy period, you had a place of origin, a class, and a household registration. After birth your childhood, youth, and teenage experiences were determined. There was no way to change the destiny of the family living conditions and living environment at a youthful age. Where you studied and what you would do in the future were also not choices. Alternatively, in China’s planned economy, because of the different registration system for urban and rural households, rural households’ choices were greatly limited, but things were not completely non-​selectable. For example, when young, although there were rural household registration restrictions, the youth and even middle-​aged farmers could go to work in the frontier areas or in idle land areas. People called them drifters and they were fine with this. Opportunities increased after the planned economy became a market economy. After reaching a certain age, people had more choices in study, work, and life, such as what school and major to choose, what kind of education and degree to pursue, and what kind of position to pursue in the future. Thus, these types of group relationships are optional. In addition, when a person grows up, choice of spouse as a personal decision will gradually become a general disposition of society, and not a decision for parents. As for what party, what social group, or whether one should pursue self-​employment, these are also personal decisions. Under the conditions of freedom of religious belief, religion is also optional, including the freedom not to believe in any religion. Going from having no choice to having a choice is a special case. A common example is a change in nationality. A person does not choose his nationality when he is born, but it can be changed later in adulthood. People will change

206  The highest state of culture and management from one nationality to another. This situation often relates to international immigration and to the choice of international immigrants themselves and to the immigration policies of another country. After immigration, the person forms an identity with the large group, that is, in addition to the original country, there is the newly naturalized country. As another example, in both Chinese and foreign history, there have been occupations that are hereditary, especially artisans and the military. It was customary for a child to inherit the father’s business. This transfer was not by the will of the father and son. However, this practice was later relaxed, as people (people skilled in handicraft, people in the military, and other hereditary occupational households) could choose their own occupations. Thus, the groups that people form an identity with will change. Going from having a choice to having no choice is a more special case. For example, secret sects and gangs form secret societies, or other secretive groups do not allow their members to leave the organization. The members might even take an oath that explains the penalties of leaving the organization, and if they do leave, the group will punish them to consolidate the organization. The person is free if he does not join such an organization or group, but once he makes the choice to become a member, he must identify with it for life and cannot leave it. In this case, the organization or group will see exit as an act of rebellion and will punish the person. When a person is born, he cannot choose to become a member of certain groups (from the state to clan to family). It is impossible to talk about interests or transcendental interests in this case, because as a child he is involuntarily subordinate to these groups. When he grows up, if he sticks with the group, he will have a sense of national identity and a sense of identity with the clan and family. This sense of identity is a view of common destiny. It is a sense of responsibility for nation, clan, and family and not for personal interests, otherwise he might end up on the evil path of betraying the country or betraying the clan and family because of personal interests. As for a person who has lost this kind of sense of responsibility after considering his personal interests, he becomes a traitor who is spurned and ridiculed by people or as the scum and traitor of clan and family. After his death, people will reject him from the ancestral hall and the clan cemetery with these extremely disgraceful characterizations. Of course, this kind of situation does exist. During the War of Resistance against Japanese Aggression, for example, traitors went over to the enemy. So, there are such people. In fact, the reason a person will not think about personal interests when confronting major issues of principle and have ideas and practices that transcend personal interests might stem from a kind of belief or rational choice, or possibly even a sense of honour. The consideration of faith here refers to the fact that the development of beliefs is not a one-​off event but cultivated over years. Rational choice refers to a person who, after his own thinking, chooses a group and becomes a member by his own volition. This usually refers to an academic group or

The highest state of culture and management  207 non-​profit organization or a political or cultural organization that is in line with one’s morals. People have a high degree of identity with such groups or organizations. We call this a sense of honour. It means that a person joins a group because he thinks that it has a high reputation in society and is respected, and that its cause is in line with one’s own morals. Therefore, the above-​mentioned individuals agree with the group they join, which is a choice that transcends personal interests. In addition, whether it is out of faith, rational choice, or honour, they are not mutually exclusive. There may be intersects between them and overlaps. This is a characteristic of choice and identity and is common in social life. 8.1.3  Starting point fairness and outcome fairness Let us turn to the consideration of fairness. There are usually two concepts of fairness. One is fairness at the starting point and the other is fairness at the outcome. The two are not to be confused, but they are interrelated and do complement each other at times. What is starting point fairness? In general, we can explain it with a concise statement, that is, everyone is standing at the same starting line. From the perspective of economics, we call this equal opportunity. Taking the situation under the planned economy as an example, the dual household registration system made the starting point unfair. For example, rural household registration is different from urban household registration, so when an enterprise is recruiting, many opportunities are only open to urban households and not to farmers. This is obviously an unfair starting point. Even though reform and opening up freed farmers in China to go to cities to work, migrant workers still cannot integrate into urban society after they work in the city. They and their spouses and children are different from urban residents, so their children cannot receive compulsory education in public schools in the city for instance. This reflects starting point unfairness. Here is another example. After the resumption of the college entrance examination in the late 1970s, all high school graduates became eligible to apply for higher education. The general belief was that this would make the starting point fair. However, was that really the case? It was not. Let us say for example that there are two high school graduates. One is from a school with high quality education, where the teaching resources are strong, the teaching facilities are good, and the teaching environment is good. The other graduated from a high school in a remote province, where the teaching resources are weak, the teaching equipment is poor, and the teaching environment makes it difficult to learn. Can we say that they are standing on the same starting line? If the two students get into the same department of a famous university with the same score on the entrance exam, it would seem that the second student is more talented or worked harder on his studies than the first, because the starting line was unequal. In other words, if the second student could live in a big city and study in a high school with high-​quality education, his score on

208  The highest state of culture and management the college entrance examination might have been higher than that of the first student, who had the same advantages. What do we do about this? The allocation of education funds must be reasonable, and the level of secondary schools in counties and towns in remote provinces must be improved over time. Otherwise, it will be difficult to change the unfairness of the starting point of education and entrance examinations. What is outcome fairness? The general explanation is that the premise is still equal opportunity, and outcome fairness should be the result of equal opportunity and fair competition. In economic terms, under the premise of equal opportunity and fair competition, the most qualified or best competitors get all the positions. In transactions, it is the quantity and quality of the factors of production that produce income. Thus, to understand outcome fairness, we must understand that while differences do exist, they are reasonable. In market competition, we should accept the winners in fair competition. In daily life, a situation that touches on a person’s right to life is the only situation in which we cannot judge fair outcomes by competition. For example, let us say that prolonged drought has severely deprived a city of water. To counter this, we must distribute water in a fixed amount. Each person can only fill a small bucket with water each day so that the distribution is even. This is fair. Another example is that of a flooded village. Let us say that the flood washed away the homes in the village and so the villagers took refuge in the mountains and lack food. In response, neighbouring villages bring steamed bread as relief. How do we distribute it? To make the distribution even and fair, each person receives two steamed breads per meal. The victims of the natural calamity did not have to argue, and they all thought that the outcome was reasonable. These two examples rely on the method of equal distribution (equal distribution of water during a water shortage and equal distribution of steamed bread during a time when there is no food), because they involve people’s right to life. If the distribution were not equal, but rather, based on wealth or power, only some people would be able to buy more water and steamed bread. This is unfair. Everyone has the same right to life. We cannot say that those with money and power should live and those with no money and no power should starve to death or die of thirst. Therefore, equal distribution is fair but only under special conditions. It makes both the starting point and the outcome fair. However, in general, we cannot always call the outcome of ostensibly egalitarian distribution fair. Under the conditions of equal opportunity and fair competition, the assumption is that there is only equal opportunity and no equality of results or that opportunity is in name only. In fact, if the starting point is not equal due to assorted reasons, the results will not be equal. This will dissatisfy people, so it is difficult to form an identity with the group, and the concept of common destiny is difficult to achieve, too. These are all issues that we need to explore and resolve during the implementation of group goals.

The highest state of culture and management  209 8.1.4  Countermeasures for narrowing the urban-​rural income gap under the market economy For this large group of society, an important condition for people to share the view of a common destiny is to narrow the gap between the rich and poor. In modern Chinese society under market-​economy conditions, narrowing the rich-poor gap is about narrowing the urban-rural income gap that has formed over the years. This is an unavoidable major problem. In the years before the founding of the People’s Republic of China, it was no big surprise that there was a gap between urban and rural incomes, because property owners exploited the farmers who were at the bottom of society. If that was the case, however, then why did the farmers take part in the War of Resistance against Japanese Aggression? This was because of the enemy of that time. The save-​the-​nation movement mentioned before was most important. The common destiny view provoked the enthusiasm for the anti-​ Japanese save-​the-​nation movement. Thus, regardless of how dissatisfied the bottom of society was at the national government’s economic policies back then, the workers and farmers had all invested in the anti-​Japanese group. After the founding of the People’s Republic of China, the government implemented a planned economic system. During those years, the urban-rural income gap continued to have a big relationship with the implementation of the urban-rural dual household registration system. In addition, years of policy mistakes caused famine, and this made farmers’ lives extremely difficult. However, after the 1960s, the government adjusted rural policies, which finally improved the farmers’ situation. Reform and opening up began in 1979 after the Third Plenary Session of the 11th Central Committee of the Communist Party of China. We began to first see changes in the rural areas with the implementation of the household contract system. The rural contracting system mobilized the enthusiasm of most farmers, their income increased, and the output of agricultural products increased. The government gradually phased out the system of coupons for grain, oil, meat, and clothing. However, this raises a question: Why did the urban-rural income gap in Chinese society expand rather than narrow? In addition, why did the trend not end by the time of the 18th National Congress of the Communist Party of China in 2012? These questions cannot but cause economists and government departments to think. We should realize that the continued widening of the urban-rural income gap is not conducive to social stability and sustained economic development, and that it prevents China from becoming a rich country. In the 2013 publication, The Road to Dual Economic Transformation in China, I analyzed this issue. Following is the view.1

1 See Li Yining, The Road to Dual Economic Transformation in China, Beijing: Renmin University of China Press, 2013, Chapter 5, Section 1.

210  The highest state of culture and management In economics, there are three concepts of capital, namely, physical capital, human capital, and social capital. Physical capital includes production materials converted from money, such as factory buildings, equipment, and raw materials. Human capital refers to the knowledge, technology, experience, and wisdom embodied in people. Social capital is an intangible capital that refers to the interpersonal relationships and the people. It is important for people to have credibility, and the combination of physical capital, human capital, and social capital can create wealth. However, if we compare the urban and rural situations in China at this stage, both rural areas and farmers were at a disadvantage when urban residents dominated any of the three types of capital. Take material capital as an example. Land in the city is state-​owned. Ancestral folk houses have property rights and house property certificates. The newly bought commercial houses of urban residents also have property rights and house property certificates. If urban residents want to start a business, the house property certificate can serve as collateral to secure capital from the bank. For years, farmers collectively owned arable land, house sites, and self-​built houses. Except for reform test areas, they could not mortgage their land or self-​built houses, so they had no property rights. When the farmers wanted to start a business, where would the first bucket of currency come from? This was the situation for farmers, and it made it difficult for them to start a business and prosper. Now, let us take human capital as an example. Education forms the basis of human capital. However, at this stage, the allocation of educational resources has always favoured cities, especially large cities, and in the rural areas educational resource allocation is less. In terms of compulsory education, the teaching resources and facilities of urban primary and secondary schools are superior to rural areas. Rural schools have poor teaching resources and facilities. The result is that the human capital of farmers is far less than that of urbanites. We can also look at social capital. If urban residents want to make a living away from home and start their own business, there will always be acquaintances, relatives of relatives, and friends of friends who can help. Farmers have less social capital, especially those living in mountainous areas. They want to enter the market, but they do not know how and have no interpersonal relationships to help them. There is no denying that they are not equal to urban residents. Since China’s reform and opening up in the 1970s, the income gap between urban and rural areas has grown, which is completely understandable. The question is, what measures are in place to solve this problem? First, implementation of land-​use rights in rural areas now allows farmers to obtain the management rights of contracted land, to use homesteads, and to own the houses they build. This not only enables farmers to settle down and no longer worry about the arbitrary occupation of their land or forcible demolition of their homes, but also enables them to obtain mortgages

The highest state of culture and management  211 and loans to improve business operations and to self-​innovate. If willing to migrate to find work or start a business, they can obtain funds by transferring their land (such as subcontracting, leasing, and shareholding). These measures have raised the amount of material capital in the hands of farmers. Second, educational resource allocation should move towards an equilibrium, so that counties (especially poor counties) have more education funds to improve teaching resources and facilities in primary and secondary schools. At the same time, there is a need to vigorously develop vocational and technical education, including the establishment of vocational and technical colleges and schools, to increase the stock of human capital belonging to farmers and their children and to narrow the urban-rural gap in terms of human capital. The third is to encourage farmers to take part in market activities and start their own business to gain more social capital. At the same time, all market-​ economy participants should rely on themselves to find and accumulate social capital. The most important thing is to have credibility, and this is something that we can earn by ourselves. Establishing credibility will give a person a steady stream of social capital. Of course, in addition to the gradual reduction of the urban-rural income gap involving material, human, and social capital, we must also pay attention to the role of the government’s secondary allocation and the three allocations from all people. According to the 13th Five-​Year Plan adopted by the Fourth Session of the 12th National People’s Congress in 2016, China aimed to build a well-​off society in 2020 to help poverty-​stricken counties shake off that poverty. Therefore, it is necessary to mobilize national power to complete the task of building a well-​off society in an all-​round way. We can summarize specific measures in the following six aspects: 1

We must make sure poverty alleviation is right. This means that we must learn from the lessons of past poverty-​alleviation efforts. We can no longer spread poverty-​alleviation funds as in the past. Like irrigation by flooding, the effect is not great. We should do irrigation by dripping to make poverty alleviation funds more effective. 2 We must improve the efficiency of financial-​poverty alleviation. This means that all kinds of financial institutions should put rural credit in a prominent position to make it easy for farmers to get loans and thereby make credit more targeted so as to solve the “last mile” problem. 3 We must actively support rural areas to promote the diversification of agricultural operations. It is necessary to develop planting, breeding, orchards, vegetable supplies, fungi production, and growing flowers according to local conditions, so that each village has its own characteristic industry to boost the income of farmers. In addition to financial poverty-​ alleviation funds, we also need to have rural credit, villager cooperation, and advance payments. At the same time, we should encourage private enterprises to take part in rural poverty-​alleviation work.

212  The highest state of culture and management 4 Relevant government departments need to formulate plans for steadily promoting farmland irrigation, agricultural mechanization, construction of rural internet facilities, technical training for farmers, and rural social security. This will bring benefits to rural areas, agriculture, and farmers. At the same time, in the areas where conditions allow, we should develop tourism and help rural families with family hotels, restaurants, and teahouses. 5 We should encourage farmers who work, open small workshops, or run services in cities to settle in those cities so that they can afford to buy or rent low-​cost houses there. We can combine this measure with the reform of the household registration system in large and medium-​sized cities (that is, unify household registration so that it no longer divides people into urban and rural categories). As mentioned above, a point-​based household registration system could apply to both large-​size cities and medium-​size cities. 6 In the vast areas, when the rural regions have realized the integration of urban and rural social security, we can transform these villages into new communities and then promote subareas, which will turn the urban-rural household registration system into a unified one. This will bring China’s rural areas, agriculture, and farmers under one system and realize the unified household registration system that we have yet to implement. The social and political significance of narrowing the income gap between urban and rural areas is obvious. Achieving this will create a harmonious society in China and give people’s common destiny a permanent role to play.

8.2  The three principles of management 8.2.1  The mandatory principle and its effects After discussing the determination of the identity between individuals and groups and the concept of common destiny, we are prepared to discuss the three principles of management (mandatory principle, incentive principle, and adaptation principle) and explore the highest realm of management through these principles. First, let us discuss the mandatory principle. Among the three principles of management, the mandatory principle is the principle of the lowest level. Nevertheless, we cannot abandon it. Its main point is coercion, and the basis for coercion comprises rules and regulations. Whether it is state management, local government management, enterprise management, social group, or institution management, there must be a system of rules and regulations and discipline. The basis of state and local government management is laws and regulations. If the laws and regulations lack authority, the central and local governments cannot exercise their powers, because laws and regulations are what give the government power.

The highest state of culture and management  213 This is the embodiment of the mandatory principle. After the central and local governments obtain authority for laws and regulations, they and their departments will exercise their power according to the laws and regulations. However, there is still the problem of responsibility. Responsibility means that the government and its departments must follow procedures and cannot act arbitrarily, as well as follow deadlines and not procrastinate. Furthermore, there is also the issue of the revision of laws and regulations. The National People’s Congress passes laws, so it also has the power to amend laws. This is something that we cannot violate. Enterprises also have their own rules and regulations and their own discipline. These rules and regulations are also mandatory. This is necessary to keep the production and operation of the enterprises going. For example, you are not allowed to arrive late or leave early, be absent from work, violate operating procedures, drink alcohol, fight, or embezzle company funds and engage in malpractice for personal gain. Enterprises also have their own penalties, such as fines, demotion, and wage reduction, and even dismissal. There is no discipline without rules and regulations. Likewise, there is no discipline if enterprises do not implement rules and regulations, or if implementation of discipline varies from person to person. If this is the result, production and operations will be chaotic, and efficiency will inevitably decline. This is not something that an enterprise wants. In addition to the management of social groups and institutions, mandatory principles and discipline are also indispensable. We do not need to elaborate on the reasons here. However, the main reason is that a lack of mandatory principles and discipline might lead to the deterioration of the normal working order, and efficiency will decline. 8.2.2  The incentive principle and its effects The incentive principle is the basis for the approach taken at the second level of management. As already mentioned, the mandatory principle belongs to the first level, and we cannot do without it. There must be discipline, and everyone should follow established rules and regulations, otherwise the normal working order will deteriorate, and efficiency will decline. However, the principle of coercion alone is not enough. Thus, there is the second level of management, which we call the incentive principle. From the perspective of economics, motivation derives from material interests. Motivation refers to the initiative and enthusiasm of engaging in production and operation or supplying factors of production (including capital, labour, and land). Material interest refers to the increase in income earned by engaging in production and operation or the supply of factors of production (including capital, labour, and land). Motivation is the initiative and stimulation of enthusiasm of those who are engaged in production or operation or the supply of factors of production, and this links to the increase in their income (material interest). This connection is normal in a market economy.

214  The highest state of culture and management As already stated, the flaw of the motive power hypothesis is that normal economic activity is not limited to material interests, and it does not consider unusual circumstances. Under market-​economy conditions—​when there is foreign aggression against a country, for instance—​the people will dedicate themselves to fighting the aggressor, without regard to material interests. In the face of a huge natural disaster, people will rescue the injured and help the victims regardless of material interests. In the immigration process, people will put the interests of the group first and create productivity and economic growth in immigrant areas, while putting personal material interests aside. We talked about such a situation earlier. We should add that the role of material interests could diminish over time. With the gradual growth of material interests and improved living conditions, material interests may no longer be the main driving force for personal initiative and enthusiasm as in the past when living in poverty. That is to say, the economic man hypothesis may continue to work, but as a social person, he may have a social person’s needs and not simply work overtime for material interests. In this new situation, we cannot analyze the formation of motivation from the perspective of material interests. In Socialist Political Economy, I put forward a general hypothesis.2 Broad interests include both material and non-​material interests. For any producer or person who provides factors of production, the increase in monetary income is important, but as income increases and life improves, more attention will be paid to non-​material interests, such as moral encouragement and social reputation and honour and the inner relief brought about by the realization of social responsibility. The proportion of each of these driving forces will change, and we can find such examples in economic life. What we have not mentioned yet is that there may also be such a question about non-​material interests. When individuals are not driven by the material benefits of personal gain, the main driving force becomes national prosperity and security and collective happiness and comfort. In this case, does the management incentive principle exist? Does the incentive principle still work? For these questions, we can make the following explanation: First, as far as the entire economic activity is concerned, we cannot consider that the incentive effect of material interests constitutes a declining phenomenon for all workers, operators, and managers. It is even less likely that all workers, operators, and managers will no longer pay attention to the phenomenon of material interest incentives. Second, there will be workers, operators, and managers who, because of increased awareness, improved living conditions, and rising personal income levels, do not pay great attention to material interest incentives. However,

2 See Li Yining, Socialist Political Economy, Beijing: The Commercial Press, 1986, pp. 396–​397.

The highest state of culture and management  215 from the perspective of broad interests, moral encouragement, and awards can also function as incentives. We should not ignore this. Third, from the social responsibility of workers, operators, and managers to the spirit of patriotism, love of hometown, and love of enterprise, the realization of social responsibility is beneficial to society, and the spirit of patriotism, love of hometown, and love of enterprise is beneficial to country, hometown, and enterprise. We can explain this with the hypothesis of broad interests. This assumption also illustrates the source and persistence of motivation. 8.2.3  The adaptation principle and its effects Let us move on to the management-​ adaptation principle. As mentioned above, the mandatory principle is the first level of management, the incentive principle is the second level, and the adaptation principle is the third level, which is also the highest level of management. What is the adaptation principle? To be concise, management consists of two aspects. One is the management subject and the other is the management object. The management subject is the management department and staff, which we usually call the managers. The management object, on the other hand, is what is managed. Adaptation means that the manager and the managed adapt to each other, harmoniously coexist, and eventually merge into one. The managed agrees with the manager and the manager agrees with the managed. Therefore, the principle of adaptation is the principle of identity: Since there is mutual identity, we are one. According to the mandatory principle, enterprises have their own rules and regulations. If an enterprise forbids its employees from drinking alcohol before work, employees know they will be punished if they show up to work drunk. This is discipline, and employees must abide by it. However, according to the principle of adaptation, there is another way. For example, the enterprise undertakes ideological education work through enterprise authorities, so the employees understand that drinking alcohol before work makes it easy to get into an accident during or after work, easy to get hurt, or even get into a major accident that puts employees and the people around them in danger. Hence, employees understand that they must not drink alcohol before going to work. The enterprise shows care and love by looking out for them, and this makes the employees want to abide by the discipline and follow the enterprise’s regulations. Furthermore, when the employees realize that the enterprise’s regulations and discipline are to ensure their safety and improve production efficiency, this will increase the production of enterprise products and make their employment stable and boost enterprise profits. This is favourable to the employees, so they will intentionally abide by the discipline, making the discipline respected throughout the entire enterprise. If, through practice, the employees feel that the rules are not reasonable, they can also propose changes to the managers.

216  The highest state of culture and management This makes the enterprise consistent, adapting the management subject and management object to each other and making them form an identity with each other. Whether it is the management mandatory principle or the management incentive principle, although we can regard it as a cultural phenomenon, it does not reflect the cultural friendliness, harmony, and identity of both parties. Only by adapting to each other and forming a single identity can we truly have a new enterprise culture. People call well-​known enterprises, regardless of their size and market share, culturally harmonized and coordinated if they rely on more than just the mandatory and incentive principles and pay attention to the role of adapting to and forming an identity with the enterprise culture. The principle of adaptation is a new culture. Old culture, no matter what kind of old culture it is, theoretically puts the main emphasis on management, thus forming a manager-​centred style. The managed is dependent or submissive and must take orders from and obey management. In this sense, the official position and the hierarchical structure constitute the basis for the exercise of management power. This is incompatible with both the principle of adaptation and the principle of identity. The principle of adaptation or the principle of identity is the embodiment of new culture. The idea is to put the management and the managed in a fair position to end the pattern of being unequal and bring the two sides into a harmonious and friendly state, as well as to make the manager and the managed equally self-​reliant, self-​determined, and self-​respecting. This would bring the manager and managed into a true state of equality. In other words, the management principle of adaptation reflects the fairness and impartiality of management. 8.2.4  The highest level of management Pure input and output do not determine the highest level of management and are not simply based on the amount of enterprise profitability. The highest level of management is management that is intangible. It can bring together managers and the managed in harmony so that they can contribute to the same goals in a concerted and conscious manner. This does not mean that all we need is the principle of adaptation to abandon rules and regulations as well as discipline, nor does it mean that we do not need the incentive principle. What this does mean is that when the manager and the managed achieve mutual adaptation and mutual identity, they enter into a new realm in which the two sides can cooperate with and understand each other, thus forming a new realm of management, that is, the highest level of management. As mentioned earlier, an imaginative spirit is necessary for any enterprise. Entrepreneurs are undoubtedly the original innovators, and they reconfigure factors of production, both entrepreneurial and innovative. This is often the

The highest state of culture and management  217 case at the start of an enterprise. It is then that the employees, as the management object, that is, the managed, are usually willing and heed commands. Since the enterprise has just been set up, the employees are new, so it is good to be amenable and heed instructions. Entrepreneurship requires an enterprising spirt and this spirit comes from the entrepreneur. Enterprise culture was like this at the beginning of its formation, but it has failed to play its due role. We can call the original enterprising spirit the first enterprising spirit. It forms along with the entrepreneur’s first entrepreneurial practice. On many occasions, the first enterprising spirit will not exist for long. Why is that? After an entrepreneur reaches his first goal and makes money, and the enterprises has been set up in the market, they might think there is no need to persist in entrepreneurial activities. Another reason is that an entrepreneur might not realize that market competition is endless. By the time they have reached their original goals, there will be new opportunities and competitors. Particularly, the latest technologies, new processes, and new products will emerge, and challengers will always be a threat to their status. If they do not see the threat until it is too late, they will lose market share and the once glorious days will end. Therefore, entrepreneurs with vision and wisdom are not satisfied with just reaching the first goals. They actively plan, prepare for a second undertaking, and start a third undertaking. Continuous entrepreneurship and innovation require perseverance, courage, and staff enthusiasm. Managers, and especially investors and entrepreneurs, are the dominant players when first starting an enterprise. The newly recruited employees are the managed parties. They are willing and heed commands, so when undertaking a second or third venture, they will contribute to the enterprise’s new entrepreneurial activities. However, this by itself is not enough. Employee enthusiasm, intelligence, suggestions, coordination, adaptation, and identity are even more necessary. This is because second and third undertakings are different from the first. When the founders of the enterprise put the first undertaking into motion, the employees were new, and the founders bought and built the mechanical equipment and buildings. Presently, there is not talk about adopting employee suggestions. However, second and third undertakings are different. If enterprise work culture performs well and the relationship between the managed and the managers has improved in terms of adaptation and identity, the employees might make their own suggestions, and the enterprise will benefit from the process of the second and third undertakings. Enterprises have recognized this. The above discussion is about the relationship between the managers and the managed from a business perspective. Let us now examine similar issues from a social perspective, so we can understand the internal buffer and prevention mechanism of society through adaptation and identity. From a social perspective, the management party, encompassing all levels of government, includes all nationals as well as various enterprise units,

218  The highest state of culture and management institutions, and social groups of all sizes. There are also three principles of management: The mandatory principle, the incentive principle, and the adaptation principle. The principle of adaptation is also the third level of management. However, in macroeconomic management, a major problem is how to set up a buffer and prevention mechanism in society. Relying on the mandatory principle is not enough, nor can we just rely on the incentive principle. The important thing is to rely on the management principle of adaptation. We should realize that social stability and harmony require a new balance of power. What is this new balance of power? In 1982, I  co-​authored the book, The British Economy in the 20th Century: A Study of English Diseases:3 In this book, I explored how the public functions as a new balancing force in British society. Specifically, the public puts forward their opinions as members of society and as citizens. For example, when an enterprise causes environmental pollution that threatens or harms nearby residents, this deepens the contradiction between the enterprise and nearby residents. At this time, the government, as a management party, may put pressure on the enterprise and order it to suspend production or shut down. However, this might result in the employees of the enterprise being unemployed. Therefore, the employees of the enterprise will ask government departments to ensure their employment. This puts the government in a dilemma. The residents complain that the government is not doing anything, and the employees complain that the government is being too hasty. Enterprises often use employee placement as an excuse to resolve environmental pollution problems. In this case, the public can play a balancing role in coordinating the relationship between the parties, mainly because the public always considers issues from the perspective of social order and quality of social life. The public considers more public goals and interests. Residents living near the polluted areas are part of the public; the employees of polluting enterprises are also part of the public and relevant enterprise investors and management and decision makers are themselves part of the public. As for the local government, public representatives elect them, and their actions are subject to public restrictions. Therefore, the consultation mechanism works in the context of public participation. Negotiating and resolving problems is reasonable, and this is the embodiment of the role of the buffer and grooming mechanisms in society. Public coordination and attention will eventually alleviate the contradiction that is difficult to solve, and society will find a new balance.4 The public exerts its own unique balance, which is also the process individuals use (including the residents in the contaminated area and the employees of polluting companies and their investors, managers, and decisionmakers) in adapting to the changing society, and establish new ideas and development 3 Luo Zhiru and Li Yining, The British Economy in the 20th Century:  A Study of English Diseases, Beijing: People’s Publishing House, 1982, pp. 461–​462. 4 We will further elaborate on the buffering and grooming mechanisms in society in Chapter 10 of this book.

The highest state of culture and management  219 concepts that are compatible with the changes. The consultation mechanism reflects the promotion and implementation of the new development concepts. Achieving the highest level of management is necessary to realize the adaptation principle. The more that individuals can adapt to a changing society, the easier it is for them to accept new development concepts that are compatible with the changes. Individuals may change their traditional views of interpersonal relationships and think of managers as one of their own. In this sense, management is a culture, and the principle of adaptation, as the third level of management and the highest level, is a new culture. This new culture embodies both the manager and the managed.

8.3  Management and people 8.3.1  People are not for production, production is for people The analysis of the three levels of management inevitably involves the major issue of what the purpose of production is. In the book Socialist Political Economy, I proposed that “people are not for production, but production is for people.”5 If economics only studies the production, circulation, distribution, and use of things, it is useful, but that is not enough. In economics research, most important is not the study of things, but the study of people. The same is true for the study of management. Management is not only the study of management objects, but more importantly, how to put the mobilization of people in the main position. Motivation and enthusiasm are important. People are not only the subject of management research, but also the primary goal of management research, that is, how to make the management of things become a means to improve the quality of people’s lives. The three management principles discussed above have explained this issue. Here we will talk about the purpose of production. People are members of society and even social subjects. Production itself is not the goal, and the world does not exist to produce things. Production is for people and for happiness. That is to say, no one should be living in the world simply as a factor of productivity. The reason people take part in production is far more than this. In other words, if you do not understand that production is to improve people’s living conditions, production will lose its meaning. There is the assumption that a society with a large increase in GDP is mainly for military expansion in preparation for aggression against foreign countries rather than for improving national life, constructing domestic social welfare facilities, addressing the widening rich–​poor gap, and promoting universal education. This assumption is completely contrary to the purpose of

5 See Li Yining, Socialist Political Economy, Beijing: The Commercial Press, 1986, Chapter 19.

220  The highest state of culture and management production. Based on this thinking, even if a country has a GDP growth miracle in a certain period, it can embark on a road of self-​destruction. The history of Nazi Germany for more than a decade is evidence. The true purpose of production is to let people feel respected, cared for, and cultivated, to feel meaningful in life, to have value, and to be creative, innovative, and accomplished, so that they can become a complete person. It is also from this perspective that macro-​and micro-​level production goals are consistent. Let us talk about the purpose of micro-​level production. Enterprises, whether they are state-​ owned, mixed-​ ownership enterprises, or private enterprises, regardless of their size and the number of employees, must care for and cultivate their employees. They must also meet standards in terms of product quality and must not ignore quality or deceive customers. In other words, an enterprise is not in line with the purpose of production if it does not care about the health and safety of its employees and only regards them as a profit-​making labour force. Alternatively, it is not in line with this purpose if it does not care about environmental protection and releases emissions or accumulates wastewater, waste gas, and waste residue, thereby harming nearby people. There will be no good end for this kind of enterprise. It will either collapse or the government will ban it. From the perspective of macro-​production purposes, as mentioned above, any system or country should correctly manage the relationship between people and things. It should be human dominance rather than object dominance. Develop production, increase GDP, and let people have more material and spiritual products for the purpose of being human. This is the purpose of production in the macro sense. Therefore, relying solely on GDP growth and regrowth will not necessarily end the phenomena of seeing things but not people, putting strong emphasis on things but not on people, and placing things above people. It also will do nothing to stop these errors in judgement from happening repeatedly. 8.3.2  The monotony of people’s lives Historians, sociologists, and political scientists in the West have long noticed the monotony of people’s lives. They point to medieval Europe is a typical example of boring life. At that time, the manor bound the serfs, and they served under the supervision of the manor’s housekeepers as labourers and grazed cattle and sheep for the lord. The only fun was to go to the market in a nearby town on a religious holiday to see the performances of touring troupes. In some villages, serfs also formed their own amateur troupes, performing for Christmas or other festivals, and the villagers were able to enjoy a few days of fun during the festivals. Life was also very monotonous even for the lords and nobility, who usually lived in castles and countered boredom with forest and grassland hunting. The serene and exclusive castle only made the aristocratic family living inside of it feel that life was dull and even lonely. After the rise

The highest state of culture and management  221 of medieval cities, aristocratic families preferred having a house in the city so they could live there instead of in the castle. The Middle Ages gradually turned into modern society, and Western European societies based on farming and handicrafts began to industrialize. After the start of industrialization, although this introduced more products, people still had a monotonous life—​just a different form from the Middle Ages. In a sense, industrialization broke the laws of life in the Middle Ages, but a new industrial social-​life monotony replaced the old one. Chimneys stood in vast numbers, black smoke filled the sky, wastewater flowed, and farmers who rushed into the city for work brought their families (women and children) to live in the suburbs, forming slums and shantytowns. The farmers and children were not in school, or they had to leave school because they could not afford tuition. People were busy with life from morning until night, working in factories, looking for work, and setting up street stalls to earn money to support their families. In the evenings after work, the city streets were full of small hotels and tired workers who drank alcohol to pass the time. Is this not a reflection of the monotony of life? No one likes to live like this. The young people could not help but say that they were living the life of their grandfather’s generation. Industrialization changed the lives of people but also made life even more monotonous than before. After more years, industrialization entered the late stage, and post-​ industrialization and the Information Age began in Western countries. This was another substantial change in the times. Although the concept of the welfare state had worked for decades after the end of the Second World War and it was realized in Western countries, the urban appearance changed, and some countries focused on developing a green economy and green society. However, this brought with it a new life monotony. Especially in big cities, what are people busy doing all day? In addition to being, as the past, busy with finding work and changing jobs, people are speculating in and keeping an eye on the stock market, looking at mobile phones, texting, talking about secrets, transmitting information, discussing elections, defaming the government, comparing material benefits, and preventing terror. People have wondered if this not a life that is more monotonous than in the past. Looking ahead, people are even more afraid than ever. If we use robots, will unemployment become more serious? Terrorists are increasingly running wild, so is it safe to travel? Nuclear weapons have proliferated and are easy to manufacture, so will we suffer calamity? In addition, the divorce rate is getting higher, the number of single-​parent families is increasing, and the family concept of children is weakening, so where is the joy of family? From this point of view, if a society has material but its spiritual wealth is poor, and if society can only satisfy people materially but not spiritually, what is the meaning of life? It seems that the monotony of life is not a trivial matter, but a matter of production, a quality-​of-​life issue, and a problem that all countries must pay attention to in economic growth and social development.

222  The highest state of culture and management 8.3.3  Improved quality of life and coordinated development of the national economy Monotony of life is only one of the phenomena of poor life quality, and mediocre quality of life reflects not only in the monotony of people’s lives; in fact, its scope is far greater than that. To be precise, quality of life is a sign that reflects people’s lives and well-​ being. It includes the natural aspects of life quality as well as the social aspects. The natural aspect of quality of life includes purification, greening, and beautification. For example, purification refers to environmental protection and ecological restoration. If a region is in industrial construction and production, destroying the environment, arbitrarily discharging waste gas and wastewater, and accumulating waste residue, causing residents to suffer, then this reflects a decline in people’s quality of life. Therefore, it is necessary to purify the environment and restore it to its original state, such as by restoring wetlands, woodlands, and grasslands so that the people can still have a clean environment. Greening is a necessary symbol of rising quality of life. To achieve greening, we should abandon the traditional agricultural production methods of deforestation and destruction of grasslands. In addition, in agriculture, where people are used to farming, we should use fertilizers and pesticides as little as possible or even stop using them, instead using farmyard manure as much as possible and biological means to control pests. Moreover, large-​scale afforestation is the way to achieve greening. Beautification means keeping the ecological conditions as healthy and as beautiful as possible in the cities and rural areas so that the people can experience the picturesque scenery; it means preserving cultural monuments so that they become tourism treasures; and it means making all parts of the country a hometown of culture and a land of ecology. The social aspect of quality of life reflects in the following four aspects. First, the social welfare facilities are complete, and everyone can enjoy the fruits of social welfare. Life is innocent and stable. Second, the public security situation is good, and society has an atmosphere of peace, conformity, and harmony. Third, education is universal, culture is popular, people have knowledge, love to learn, work hard, are polite, and are respectful to the old and helpful to the young, and the atmosphere is constantly improving. Fourth, the level of living services is always increasing. Whether living in a big city or in a small or medium-​sized city, whether living in a plain area or in a mountainous area, life services are convenient, and traffic is smooth. In this way, there is quality of life. This is in line with the purpose of production. The improvement of the natural and social aspects of quality of life depend on increasing the investment in society to improve and raise the quality of life. The added investment source can only be social surplus. However, it is impossible for this surplus to improve the quality of life of residents, otherwise there is no guarantee for social reproduction expansion. Moreover, industries or undertakings (such as culture, education, health, pension, public services,

The highest state of culture and management  223 environmental protection and governance, and social governance) aimed at improving quality of life cannot develop in isolation from the development of other sectors, otherwise not only will quality of life not improve, but it will have a negative impact on the economy. From this we can conclude that there is an alternating relationship between the improvement of the quality of life of residents and the growth of production. We can even express the view that it is too simple to say reducing the growth rate of production is all that is needed to improve the quality of life of residents, and that such thinking hinders the quality of life. We should view this issue in an all-​around and comprehensive manner. On the one hand, from a static point of view, society has more funds to reproduce on an extended scale and less funds to improve the quality of life of residents under the established conditions of the total social surplus. On the other hand, from a dynamic point of view, society has more funds to reproduce on an extended scale, which means society can have more surplus, thus preparing the material conditions for the improvement of residents’ quality of life. This shows that the total amount of funds used by society for quality of life may increase with the growth of production and may increase by more than the growth rate of production. The main reason is that the various sectors of the economy are developing in coordination. 8.3.4  Improvement of residents’ quality of life from the perspective of culture To sum up, the three principles of management are a kind of culture, especially the third principle of management. That is, the highest principle (adaptation principle or identity principle) reflects high-​level management and is a kind of culture. In addition, improvement of residents’ quality of life is also a culture. Since the pursuit and management of quality of life closely relates to the realization of the purpose of production and to the degree of realization, it is necessary to conduct an in-​depth analysis from the perspective of culture. As mentioned earlier, we can examine the quality of life of residents from natural aspects as well as from social aspects. From the natural aspect, the improvement or decrease of the quality of life relates to people’s living environment. Environmental damage is the main reason for the decline of quality. Ecological restoration, environmental protection, and ecological and environmental governance relate to people’s happiness, and this is a cultural embodiment. Therefore, in terms of the natural aspect of quality of life, there are cultural issues. Now, let us look at the social aspect of quality of life. Quality of life also involves environmental and ecological issues, but the environment, as discussed here, focuses on the social environment, and ecology refers to social ecology. For example, let us say that the security situation has deteriorated, and residents live in an unsafe environment. They are always on edge, afraid of robbery, fear terrorists will kill them for no reason or that a gun battle or

224  The highest state of culture and management explosion will kill them and worry that someone may take them hostage. This is a life without happiness and pleasure. Who would want to live in such a social environment and social ecology? Furthermore, the status of welfare facilities is also a measure of the quality of life of residents. Although China’s investment in the construction of welfare facilities has continued to increase after reform and opening up, the scope of benefits is also expanding. As a developing country, China must coordinate the welfare protection of urban and rural residents per the state’s financial resources. In Western European countries, they have adopted the terms welfare state and welfare society, as it relates to their national conditions. The expansion of China’s social welfare is in line with China’s social economy. This will continue in an orderly away and be a systematic process, and we should not ignore the actual situation in Western European countries. We should keep this situation in mind. Employment is also a critical issue of the social aspect of the quality of residents’ lives. Employment often combines with quality of life in society and residents’ expectations for quality of life. This is mainly because they are most worried about a serious economic recession causing an increase in unemployment. According to social survey data, inflation usually precedes residents’ unemployment considerations. Putting hyperinflation aside, under normal circumstances residents think that inflation is just a matter of how well they can eat or what they can eat. Alternatively, they think that unemployment is an issue of having something to eat or not. Even if there are unemployment benefits, there are conditions to receive such benefits; it is of a relief nature, and the amount is not much. We conducted research in some counties in Hunan Province in the mid-​to-​late 1990s. One unemployed person (at that time, Hunan, like the whole country, defined unemployed as waiting for employment) told us that inflation does not hinder young people from falling in love, finding a partner, and marrying into a family. However, if you are unemployed and at home, who would fall in love with you and who would be willing to marry you? This is the national situation in China and the thinking of Chinese young people. Therefore, I said: Unemployment is more than just worrying about inflation. Of course, hyperinflation is another matter. Together, the above-​mentioned things clearly show that not only is management a culture, but that the improvement of residents’ quality of life reflects in culture, because it reflects a desire, a pursuit, a code of conduct, and an ethnical code as well as a social evaluation standard of people. 8.3.5  Further understanding happiness The discussion about management principles and the quality of life of residents brings our understanding to a new research topic, namely: What is happiness, and how do we understand it. From the point of view that the purpose of production should be to care for and cultivate people, we have learned a truth: If society only produces more

The highest state of culture and management  225 and more products, and people’s material and spiritual life are not improved, then it does not meet the requirements of the purpose of production. In the traditional concept, happiness always relates to a person’s income and how much property he possesses. It seems that the more income and the more property, the happier. As people become aware of and improve their understanding of quality of life, however, their understanding of happiness changes. The first change is that we used to think that if income rises and property increases, it means happiness. Later, more people believed that if quality of life does not rise but falls—​such as the environment worsens, waste water and waste gas are discharged everywhere, or people’s health is poor—​that even if the income of a person or a family increases and wealth increases, they will not feel happier than before. Another example is that if social security is worsening, this will reduce one’s sense of security and amplify insecurity. Even if they increase their income or property, they will not feel happier. The second change is that people are gregarious. People are members of groups, like the small group of family and a circle of friends. A person, even if income and property increase, will lose his original circle of friends if he misbehaves or is dishonest. If the family breaks down for whatever reason, the children might run away and the relationship between the married couple might rupture. In that case, even if income and property are greater than before, what happiness is there if you become lonely because you lose contact with your friends and loved ones? The third change is when people are more aware that a person should have a sense of social responsibility. After this awareness forms, they devote themselves to public welfare undertakings and charitable causes and are more willing to help others. When willing to help the poor, even if one is not rich, social responsibility brings happiness. This is a deep understanding of happiness. Happiness constantly takes on new meanings but will never remain constant (income and property increases are the main signs of happiness or even the only sign). In fact, the interaction of people is what spreads the new concept of happiness. The improvement of quality of life means happiness. Family harmony, friendships, filial piety, and social harmony all reflect happiness. The sense of social responsibility turns into action, being ready to help others, and being happy to help the poor also means happiness. Establishing a new concept of happiness is the prospect of a harmonious society. The changes are not limited to the above examples after setting up a new outlook on the concept of happiness. We can also use the latest ideas as examples. For example, people used to think that property was most important, and that more property meant greater happiness. However, people are increasingly aware that in real life, time is more valuable than money. Why is this? We can store money, but we cannot store time. Life has a limit. For a person, a day means one less day. Therefore, cherishing time and making effective

226  The highest state of culture and management use of time can make people more active and generate greater happiness. Another example is the fact that all people will get old. If there is no family and friendships, there will be loneliness when old, so there is no happiness. Therefore, old people should know how to be old and give full play to their ability to work. There is no reason for them to leave the group if their physical condition can adapt. They can do what they can do and be down to earth. This reflects happiness. In life, as people become old, they will have higher requirements for cultural life. They might care more about spiritual life than before. If old people can narrate or use words to describe what they have experienced in the past, it would be a pleasure for others and an education for future generations. This is also within the scope of what it means to be old and is a manifestation of happiness. The discussion about the definition of happiness continues to this day. Everyone understands it differently, knows it differently, sees it from different angles, and each person experiences it differently. This is a fact, and it is impossible to force the same meaning. Those who insist on increasing income and property for happiness may not be a minority. They have their own situation to think about, and it is understandable to insist that happiness is the growth of income and property. If their living conditions and working environment change, their outlook on happiness will gradually change, too. 8.3.6  Economics should be the science of social enlightenment and design In Chapter  20 (“The Mission of Economics:  Conclusion”) of my book Socialist Political Economy, I put forward a new point of view, that is, “economics is the science of social enlightenment and social design.”6 Today, three decades later, when discussing cultural economics, I  once again mention this. The social mission. There is not a significant difference in giving economics the name political economy or giving political economy the name economics, because the two are the same. Both study how to care for people and train people, how to make people feel respected, and how to develop people in a comprehensive manner. The reason we should give economics the name social enlightenment science is that we base economics on the people-​oriented premise. We must make people understand what is worth yearning for and fighting for in the social economy and what is not worth yearning for and fighting for. Specifically, we can divide the study of economics into three levels: The first level is the study of existing economic institutions and systems. At this level, we can analyze economic operations under existing economic institutions and systems and explore solutions to problems in economic operations.

6 See Li Yining, Socialist Political Economy, Beijing: The Commercial Press, 1986, p. 531.

The highest state of culture and management  227 The second level is the study of economic and social development goals. Economic and social development goals involve the coordination and complementarity of a series of industries in the national economy. On this basis, we can carefully analyze and formulate development plans. The third level is the study of the status and role of people in society. Since the purpose of production is ultimately to care for, educate, and train people, then learning economics is to enable people not only to have knowledge and expertise, but more importantly, to enable them to distinguish between right and wrong in the social economy, so that they have the correct orientation to realize their goals. Although the three levels of research differ, they are all within the scope of the science of economic enlightenment. In particular, the third level of research is more socially enlightening, because it tells people what economics advocates, opposes, affirms, and denies. At the same time, we must be clear that what we emphasize is social enlightenment of economics, that is, emphasize the importance of normative research in economics. However, this does not mean that there is no need for empirical research in economics, nor does it mean that empirical research can bring down economics. We should realize that we conduct empirical research in economics under the guidance of certain normative research. The results obtained by the research enriches the content of normative research, and this puts social evaluation, policy discussion, setting scientific goals, and the analysis of right and wrong on a more theoretical basis.7 Thus, we can have an in-​depth discussion of economics as a scientific issue of social design. We should know that economics is the science of application and is by no means empty talk. In learning economics, and after deciding what is worthy of attention and effort, we should achieve the goals and visions that are worthy of pursuit or whatever should be achieved as soon as possible. To avoid this or that error in implementing the goals, we need to ask ourselves what we should do, what we should do first, and what we should do later. This is the social design role of economics. With social design, the social enlightenment of economics will be more than just words. As a social-​design science, economics tells people how to conduct economic restructuring and economic reform, how to conduct economic construction and social construction, and how to formulate scientific and realistic development plans and milestones and then turn these milestones into reality. It also tells people how to use material wealth created by people to reproduce on an extended scale and effectively use it to improve the income level and quality of life of residents. In this sense, social enlightenment and social design are unified and inseparable. Economists should be fully aware that they should

7 For more about the three levels of research in economics, see Li Yining, Systems, Goals, People: The War Faced by Economics, Harbin: Heilongjiang People’s Publishing House, 1986, Chapter 5.

228  The highest state of culture and management have a dual mission. The first is social enlightenment, that is, telling people why they should study economics and letting them know why they should aim at certain goals. The second is social design, which tells people why they should do this and not that. An economist should remember that he is both a social enlightener and a social designer. 8.3.7  The mission to revive management research We did not always distinguish between the study of economics and the study of management. In ancient times, regardless of whether we are talking about China or European countries, we discussed the study of economics and management together. In ancient China, when people considered how to enrich the country and strengthen their soldiers, they always discussed these two things together. For example, people combined economic policies with management principles and methods on salt, cast iron, agricultural production, population policy, border trade, taxation, and market transactions. In ancient European countries, people thought about how to manage the market, manors, and finance, how to conduct foreign trade, and how to formulate tax policies. Particularly, they considered whether to charge interest on loans and how transaction prices should be determined. Likewise, they discussed economic policies and management principles and methods. In ancient times, whether it was China, or a European country, keeping the study of economics and the study of management together did not last long. In general, modern economies formed at the start of industrialization (1870s). Management also gradually separated from economics after industrialization began, but the line between it and economics was still unclear. Economics continued to develop and eventually split into two major fields:  Macroeconomics and microeconomics. Macroeconomics discusses national economic issues, while microeconomics, as the basis and starting point of macroeconomic research, focuses on price formation, including productivity, market competition, and monopoly, the fairness principle, and the nature of welfare. The study of management focused on key issues in management theory and the newly developed departments and fields at that time, such as business administration, agricultural management, market management, transportation management, and urban management. National economic management was still part of economic research. Labour market management, economic cycle response, securities market, and fiscal management are all of interest to the economics community, but management researchers also examine similar problems and regard them as their own research tasks. Here are three examples. First, since the formation of economic fluctuations and cycles, expectations have become an indispensable part of economic performance analysis for the economics community. Economists and management scientists have since focused on expected behaviour and are keen on expectations theory and

The highest state of culture and management  229 methods. From the perspective of economics, the study of expectations theory and methods has many similarities with the study of them from the perspective of management. In fact, they are indistinguishable. Economists and management scientists contribute to the advancement of expectation theory and methods in their research. Are the reasonable expectations (or rational expectations) of Western economic theory not the result of their joint efforts? Second, the short-​ cycle, medium-​ period, and long-​ period theory (also known as short-​wave, medium-​wave, and long-​wave theories) are from research on theory and methods that have developed after Western industrialization had progressed to a certain stage. This is also a development of in-​depth studies conducted by economists and management scientists. Economic data has shown that the economic cycle has formed different interpretations, such as short-​term, medium-​period, and long-​term cycles and this result relates to multi-​angle discussions among economists and management scientists. Studying the economic cycle not only helps to explain the role of a range of factors in the formation of economic cycles, but also helps to find effective countermeasures. This is both an economic and management research issue. The two adopt different analytical methods, but this can be conducive to the progress of economic-​cycle theory and methods. Third, the emergence and development of public-​choice theory depends not only on the joint efforts of economists and management scientists, but also on the efforts of political scientists, legal professionals, and sociologists. This is because public-​choice theory involves a wide range of content, so it is not a clear discipline. As far as the rent-​seeking theory in public-​choice theory is concerned, it is not simply a study of economics, or a study of management, or a combination of law, political science, and sociology. To a certain extent, management research and its branches (such as social management, anti-​corruption research, and legalization) are just as important as economics and its branches (such as public economics). Thus, in public-​choice theory, the study of economics and the study of management intertwine or complement and support each other. The above three examples are enough to show that the study of economics and the study of management are both different and the same. Therefore, since economics is a social enlightenment and social-​design science, management should be, too. Hence, we really have gained a deeper understanding of the mission of management research. The highest level of management is adaptation and identity. As a science of social enlightenment, management research should be people-​oriented, and not just focused on the management of objects and the use of objects. Since management research should be a social-​design science, it should guide society to become harmonious and guide people to become fully developed.

9  Cultural and economic sustainable development

9.1  Recombination of factors of production 9.1.1  Back to the driving force of sustainable economic development In Chapter 6 of this book, the third section talks about how cultural confidence fosters the innovative spirit of young people, and the fourth section talks about the new entrepreneurial group. We have already discussed that entrepreneurship and innovation drive sustainable economic development, that is, they mobilize entrepreneurs, innovators, and the public to take part in the initiative and enthusiasm of entrepreneurship and innovation, which drives sustained economic development. In this chapter, I am prepared to further analyze this issue based on the earlier discussion and once again emphasize the role of culture in the sustainable development of the economy. We are still talking about the recombination of factors of production. We should realize that the recombination of factors of production intricately links with technological progress, and that the speed of technological progress is bound to increase. If you look at a generation (25  years), it is clear that cultural heritage forms the basis of the technological progress of the 25 years before, which was far faster than the previous 25 years and more than 25 years ahead. We can distinguish a century by a generation of 25 years. There are four 25 years in total, which is the time of four generations. Compared with the 25 years of the early twentieth century, technological progress is just not the same. The acceleration of the recombination of factors of production not only triggers changes in people’s economic life, but more importantly, leads to changes in their thinking. This should cause us to re-​examine the ideas that we once considered correct and normal. Innovative ideas will form because of technological advancement and the recombination of production factors, thereby promoting economic development. This is a repetitive, endless process, so each generation is constantly rethinking the past, predicting economic changes and exploring the state of recombination of factors of production. In 1986, I wrote the following in Systems, Goals, People: The War Faced by Economics: “How should we explain the concept of traditional factors of

Cultural and economic development  231 production? Can it summarize the full content of productivity? Should we consider new factors of production? Can we summarize the latter in an original production factor?”1 In fact, these words have ambiguously told people that culture may be in factors of production but will be in the future as a part of productivity and a new part of production factors. In the book, I wrote the following: After the rise of the new technological revolution, will the boundary between mental and physical labour become increasingly unclear? Can we simply classify the work of workers into mental or physical labour under modern production conditions? For another example, why is there such a large productive ability in the capitalist world today? Why are there such rapid and huge developments in science and technology? What is the relationship between this and the recombination of factors of production?2 The above words show that in the in-​depth discussion of the study of economics and the study management is indeed a fundamental issue that relates to the reorganization of production factors. To put it simply, the recombination of production factors is innovation and we cannot have innovators without this recombination. In addition, entrepreneurs gain potential benefits to achieve sustainable economic development. 9.1.2  How do we recombine production actors? It is necessary to make a brief account of the role of people in economic research. Humans are the object of economic and management research, as well as the subject. As an economic research object, people should understand the differences between human phenomena and natural phenomena. A clear example is the following: Assume that tomorrow is a rest day or holiday. People may hope that tomorrow will be a sunny day suitable for travel or for a walk. However, the wishes of travellers and young people do not determine whether it will rain tomorrow. Even if more people want it to be sunny tomorrow, the natural world has its own laws, and it will rain when it rains. A human phenomenon is different. Let us say that stockholders have a large number of stocks on hand and everyone hopes that they will rise tomorrow, so they buy more stocks, and the stock market really rises. As we can see, a human phenomenon changes according to the behaviour of the majority. Changes in behaviour can lead to certain changes in the economy. This is the difference between natural phenomena and human phenomena.

1 Li Yining, Systems, Goals, People: The War Faced by Economics, Harbin: Heilongjiang People’s Publishing House, 1986, p. 13. 2 Ibid., pp. 13–​14.

232  Cultural and economic development Moreover, as a research subject of economics and management research, people inevitably have subjective judgements, and will constantly adjust their own understanding in economic life and then adjust their own decisions. People also influence each other. When a new fashion product comes out, relatives, friends, or acquaintances will influence other people, or they might change their preferences and seek out fashion products because of advertisements. We should also point out that in the study of economics and the study of management, the premise of the hypothesis is more important than the derivation of the formula, and the provisions of the value criterion are more conducive to the discussion of the problem than the mathematical calculations. This is something that we tend to overlook. Now, let us turn to the question of how to reorganize the factors of production. In the end, the reorganization of production factors depends on three crucial conditions. One is the market system, the other is the structure of human resources, and the third is capital investment. 9.1.2.1  Market system History has shown that the planned economy is not conducive to the recombination of factors of production. This is mainly because in the planned economy, enterprises are not market entities with independent management rights. They depend on administrative departments at all levels and higher-​ level administrative departments must approve major decisions. This hinders their initiative and enthusiasm for the reorganization of production factors. As a result, the planned economy does not change into a market economy, and there is no market regulation. Particularly, this kind of economic system does not recognize the decisive role that market regulation plays in resource allocation, which makes it difficult to reorganize factors of production. 9.1.2.2  Human resources structure To effectively re-​assemble production factors, the second important condition is to have high-​quality human resources, including scientific research professionals, administrative talent, marketing talent, technicians, and skilled workers. Talent cultivation is not a temporary task, and there must be long-​ term consideration and planning. It is only possible to create conditions for the reorganization of production factors by having all kinds of quality talent. Western developed countries attach importance to basic education, higher education, and vocational and technical education. This is something that is worth learning from. 9.1.2.3  Capital investment First, we should note that, because of the increasing emphasis on modern technology research and adoption, the costs of scientific and technological

Cultural and economic development  233 research and development in Western developed countries have increased in recent years. The increase in total factor productivity of an enterprise causally relates to its investments in research and development. People often consider this the main reason an enterprise can continue to expand its market share. Now, we will discuss where an enterprise gets its financing. The most important capital supplier for enterprise finance is the capital market. Capital market financing is usually international, that is, capital supply may be either domestic or international. If the enterprise’s products are highly competitive, and it has a large market share, there is no need for investors. Among the investors from home and abroad, there are no strategic investors. What they are looking at is not only the current situation of the enterprise, but also its prospects. The enterprise can transform its major technological innovations into enterprise productivity due to the influx of large amounts of funds and can expand market share and increase profits under the premise of technological innovation. Due to the international economy, the trend of economic interdependence among countries has developed significantly since the end of the Second World War, and the international economic division of labour has increasingly shifted from vertical to horizontal. Therefore, not only will economic interdependence among countries not weaken, it will continue to expand. This is the best time to regroup global production factors. Visionary entrepreneurs will not miss these opportunities. 9.1.3  Supply side structural reform and resource allocation The recombination of factors of production is also one of the urgent tasks in the dual transformation of China’s economy in recent years. Demand-​ side and supply-​ side reforms are important, but supply-​ side reforms are more important, because they tightly integrate with structural adjustments. Without structural adjustments, it is difficult to advance supply-​side reforms smoothly. The basis of supply-​side reform in China is actual domestic conditions. After economic development in China enters a new normal, the economy will need to maintain a medium-​ to-​ high-​ speed growth rate to adapt to the current and future situations and no longer rely on high-​speed GDP growth. In economic operations, what is more important is the quality of economic growth rather than pure quantity. In other words, we must start from improving supply quality through structural adjustments, and not only eliminate backwardness, high-​pollution, and excess capacity, but also fill the shortcomings in the economy and accelerate the development of high-​tech industries to gradually transform China from a manufacturing power into a creation power. Therefore, structural adjustment is an important task in the economy, and supply-​side reform refers to structural adjustments on the supply side.

234  Cultural and economic development In economics, both supply-​ side reforms and supply-​ side structural adjustments are usually medium-​term measures, because we cannot realize them in the short term.3 Supply-​side reforms will meet difficulties, but we can overcome them. Specifically, there are two major difficulties in supply-​side reform. One is to cut overcapacity, that is, shutting down industries with overcapacity. The difficulty lies in how to arrange the employees of these excess, loss-​making enterprises. It is better to raise workers than to raise loss-​making enterprises with guiding ideology and specific measures. This pertains to loss-​ making state-​owned enterprises. There is already overcapacity and even serious excess, so will it not be a loss if the state keeps raising these enterprises? It is a bottomless pit and there is no benefit at all. Raising employees is different, however. Apart from the employees who have reached retirement age or are reaching retirement age and preparing to get social security retirement benefits, young and middle-​aged workers can receive technical training and then the enterprise can help them find work where there is demand. If they are willing to be self-​employed or start their own business, they should get proper aid, such as microfinancing and tax relief. In short, it is up to the government to raise employees, and this is much more effective than raising loss-​making enterprises. Another difficulty is to fill in the shortcomings, that is, filling industry shortcomings in the economy and developing high-​tech industries. This requires encouraging private capital to enter short-​term and high-​tech industries, and the state giving effective support in terms of credit and tax reductions and exemptions. In this regard, we can overcome the current difficulties. Government, private enterprises, and investors must have confidence. In short, how do we understand the main points of supply-​side reform? First, we need to eliminate and shut down high-​pollution enterprises with overcapacity and accelerate structural adjustments. Second, fostering industry shortcomings and high-​tech industries will accelerate structural adjustments. This two-​pronged approach will work. The conclusion is that the time to cut losses quickly has come. To do that, we must make up our minds and not delay. Regardless of whether the overcapacity comes from state-​owned enterprises, private enterprises, or mixed-​ ownership enterprises, it is fair to close them. We should understand that market regulation plays a decisive role in resource allocation and is a necessary mechanism for the reorganization of production factors under the market economy system. It is imperative to set up this mechanism. The longer we drag our feet, the greater the costs and the greater the difficulty.

3 For more about structural adjustment, see Li Yining, Economic Management, Shijiazhuang: Hebei People’s Publishing House, first edition, 1988, revised 1997.

Cultural and economic development  235 9.1.4  Re-​recognizing the relationships between people In the readjustment of resource allocations and the recombination of production factors, economists and management circles have also proposed the re-​recognition of the relationships between people. For example, what is the cost of economic growth? Is the result of economic growth more beneficial than harmful to society and humanity? What are the pros and cons and the misfortunes and blessings, and how do we measure them? What is the criterion for judging? If we determine that the cons are greater than the pros, or the misfortunes are greater than the blessings, how do we make up for this? We cannot reverse history, and society cannot return to where it started, so what do we do? These are difficult problems. For another example, why is there still poverty in rich countries? Why do we have crime, violence, and public security deterioration in modern large cities? Why are so many young people morally bankrupt, lacking faith, and dispirited? How do these situations arise? Is it hard to realize that these problems will not end if we just let them go unchecked? In terms of the recombination of factors of production, this may promote technological progress as well as economic growth and greater efficiency but may also bring negative and bad results. For example, drug manufacturing and sales have formed an industrial chain and sales network. Is this not a bad way to restructure production factors? The production and sale of drugs is just one example. There are other examples, such as the manufacture and sale of counterfeit and low-​quality goods, the proliferation of pornography, and even human trafficking, especially the abduction and sale of infants. These are all negative results from the recombination of production factors, and they use resources in a bad way, which is harmful to society. However, the most impacted victims are individuals and the public. In studying the recombination of factors of production, we cannot ignore the existence of these problems. The fields of economics and management are broad and relate to people. We should note that in group relationships, people have different goals or different understandings, and this can cause conflicts. Some of these conflicts will go away after the misunderstandings. Others will exist for a long time, deepening misunderstandings and leaving these problems to future generations. Moreover, the accumulation of differences and misunderstandings between people relates to their respective sources of information and the scope of information transmission. That is, the more the independent information sources, the more they will know each other, and the better they will understand their differences. This involves a problem that relates to both economic research and management research. In other words, it is increasingly necessary for economics and management studies to target mutual understanding and harmonious friendships between people, so that information and its transmission become a way to help resolve conflicts and make misunderstandings and gaps between people gradually

236  Cultural and economic development fade until they disappear. The significance of the recombination of production factors goes far beyond traditional theory. Its role is to improve the efficiency of resource allocation, to create a boundary between GDP growth and profit expansion, and to adjust and reconcile the relationships between people and place win-​win results in a prominent position. In this way, we can deepen the meaning of the recombination of factors of production, that is, not only to improve resource allocation efficiency, but also to grasp the direction of the recombination of production factors, not distorting the nature of the recombination, and curbing the negative and bad effects. This will make misunderstandings between people fade away and make the realization of a harmonious society a reality.

9.2  The reality principle and sustainable macroeconomic development 9.2.1  Non-​idealization of government behaviour The reality principle is like the ideal principle. In the industrialization stage, Western classical economics, and later neoclassical economics, held the view of equilibrium theory, that is, if the market is fully functioning, both aggregate demand and aggregate supply can achieve dynamic and relative equilibrium. Although absolute equilibrium is not possible, it is good to have relative and dynamic equilibrium. Therefore, in decision theory, the emphasis is on the ideal principle, which is the best decision. Decision makers follow the economic man hypothesis with the goal of minimizing production costs and maximizing profitability and believe that they can realize the ideal principle if the market is fully functioning. Before 1936, John Maynard Keynes was a neoclassical economist. He stuck to his view on equilibrium theory in the 1920s and 1930s, and the work he published during this time reflects this. After the outbreak of the global economic crisis in 1929, he kept the same view until 1936, when he published The General Theory of Employment, Interest, and Money. This was a major turning point in Keynes’s thinking on economics. He shifted from equilibrium theory to non-​equilibrium theory, that is, he argued that the capitalist economy was unbalanced, aggregate demand was insufficient, the ideal principle was difficult to realize, and the market did not play its due role. Thus, it became necessary to rely on macroeconomic regulation and control policies, including fiscal and monetary policies, to prevent recurrent unemployment and inflation. Keynesian economics became the mainstream school of Western economics after the end of the Second World War. The principle of reality also replaced the ideal principle. The reason the principle of reality got more supporters in contemporary Western economics is that Keynes regarded the government’s macroeconomic regulation and control policies more effective than the dominant theories of classical and neoclassical economics.

Cultural and economic development  237 In the 1950s and 1960s, people in the West hailed Keynesianism as the basic policy of governing the country. However, Western economists opposed to Keynesianism did not just go away. They still criticized Keynesianism. One of the important themes that came out of this was the non-​idealization of government behaviour. Why was government behaviour non-​idealized? We can explain it in five aspects: First, the government does not have complete information when making decisions, but only partial information. This is because it takes considerable time to collect all the information, and the information cost is too large for the government to bear. Second, when the government implements macroeconomic regulation and control policies, the targets are enterprises and individuals. Enterprises and individuals are all over the country and they have their own interests. Some government measures might cause them to oppose or resist, whereas a different initiative might cause other enterprises and individuals to act this way. This is a reality in the policy world and such a situation is difficult to avoid with countermeasures. Third, it is difficult for the government to obtain prompt feedback on the effectiveness of its macroeconomic regulation and control policies. This also requires feedback channels and methods. It is not easy for the government to get information on policy measures in the short term, because lower levels of government have various concerns and fear that reflecting objections will cause dissatisfaction with higher levels of government. Thus, when the policy error becomes serious, the government will consider adjusting it, but it is often too late when this happens, and the losses are already exceptionally large. Fourth, subordinate units at all levels of government can easily report good news and hold back unpleasant news. Therefore, the government must be able to screen reports by subordinate units on the effects of policy, which relates to the professional skills, abilities, experience, and style of government officials. Moreover, we cannot rush to judge the true extent of reports by subordinate units, and it may be necessary to have more time for investigations and for meetings and discussions. Fifth, the government can adopt a third-​party evaluation method, but how to choose a third party is another problem, because the key question is whether it can perform due diligence as an evaluator, as well as whether we can use the random lottery method under the same situation and conditions. Showing fairness has its risks. 9.2.2  Proposal for multi-​goal problems As mentioned earlier, after the Second World War Keynesianism became the mainstream of economics in Western developed countries for about twenty years. However, Keynesianism as a guiding doctrine for policymaking focused at the time on full employment as the policy goal. Shortly thereafter, economists included stable prices, economic growth, and the basic balance

238  Cultural and economic development of international payments in macroeconomic policy goals. Multiple goals replaced a single goal, becoming the policy target system since the 1960s. Among the above four macroeconomic policy goals, economists disagreed on which one should rank first. In fact, there were two viewpoints. One has existed since Keynesian economics became mainstream, that is, full employment is the most important goal because if the number of unemployed breaks through the warning line, society is difficult to stabilize, and the political situation becomes turbulent. Thus, it became necessary to make full employment the top priority. The other centred on the experience of Western countries since the 1960s, that is, economic growth should be the most important policy goal. The reason is that GDP growth is necessary for improving national strength and easing social conflicts. Without economic growth, there can be no military-​industrial development. Without enough economic construction funds, it is impossible to improve people’s living standards, and impossible to develop cultural, educational, health, social security, and other undertakings. It would be difficult to even alleviate unemployment. Therefore, the call for GDP growth as the primary goal of macroeconomic policy gained the upper hand starting from the 1960s. Despite this, Western countries supported the multi-​objective nature of macroeconomic regulation and control policies. According to the experience of the 1950s and 1960s, although economists saw full employment or economic growth as the most important goal, they did not think that we should highlight one goal over the other, because macroeconomic policies interconnect and cooperate with each other. In the West in the 1970s, especially in the United States, there was an anomaly in the economy, namely, unemployment and inflation erupted simultaneously. Unemployment combined with inflation is what we call stagflation. Keynesian economic theory says that stagflation is unreasonable. This is because, according to Keynesian economics, insufficient aggregate demand or effective demand is the cause of unemployment, and excessive aggregate demand or effective demand is the cause of inflation. Therefore, according to Keynesian economics, unemployment and inflation cannot happen at the same time. How can aggregate demand be both insufficient and excessive? Keynesian policies with demand adjustment as the core also failed. How can we expand aggregate demand to solve the unemployment problem and at the same time suppress aggregate demand to end inflation? This is the background of the so-​called Keynesian crisis argument in the 1970s. However, the problem arose, so the economics community had to respond to the unemployment and inflation complications. Different Western economic schools proposed ways to deal with the situation. Keynesians also explored new explanations. Therefore, the 1970s was an era of intense debate among different groups in Western economics. This is when the left of Keynesian economics came into being, and the representative was the British economist Joan Robinson. A  member of “the Cambridge School” of economics, Robinson believed that Keynesian

Cultural and economic development  239 followers had forgotten an important aspect of Keynesian economics, namely, the issue of income distribution. She believed that Keynes himself had been concerned about the situation of income distribution in capitalist society and its evolution. Capitalist society could not ignore income distribution without regard to economic development, thinking that this would somehow delay the problem. Even with macroeconomic regulation and control policies, it would have still been difficult to avoid social instability caused by uncoordinated income distribution. The Keynesian mainstream believed that unemployment combined with inflation was due to the formation of two large monopolies in the US economy:  Trade unions and multinationals. The trade unions manipulated wage levels so that wages rose but did not fall, which led to the formation of wage rigidity. Multinationals manipulated price levels so that prices rose but did not fall, which led to the formation of price rigidity. Wages and prices played leapfrog, taking turns jumping over each other, so the unemployment problem did not diminish, and rising wages and prices caused inflation. In the end, this created unemployment and inflation complications. Stagflation is difficult to avoid when there is wage rigidity and price rigidity. Keynesian economic followers, including the Keynesian mainstream and left, emphasized government intervention. Their opponent was the liberal economics school, in which the monetary school was the most influential. The main argument of this school was that the government should not directly intervene in the economy, and the market should play its regulatory role. Controlling the flow of money would normalize economic operations. The main representative of the monetary school was Milton Friedman, at the University of Chicago, who held this position. The monetary school appeared in the 1950s. After the 1960s and the 1970s, the school competed with the Keynesian mainstream. In the 1980s, American economists who shared the economic point of view of the monetary school proposed supply as a solution to the economic problems in the United States. They were known as the supply-​side school. Economic liberalism praised the so-​called supply-​side school, because they disagreed with the macroeconomic regulation and control policies pursued by the Keynesian mainstream. They believed that this kind regulation and control would cause people to expect disorder and make government intervention in economic activities too strong. As a result, the economy would evolve into constant fluctuation. They also believed that the most important policy was to reduce taxes. Only by reducing taxes could investor enthusiasm be mobilized to revitalize the economy. This thinking was in line with the claim of US President Ronald Reagan in the 1980s, so Reagan adopted the tax cut policies proposed by the supply-​side school, and the US economy gradually got rid of stagflation. This shows that even if macroeconomic regulation and control policies were adopted in the United States and other Western countries after the 1980s, the supply-​side tax reduction proposals would still have been part of

240  Cultural and economic development the government’s fiscal regulation of the economy—​it just so happened that tax cuts were an important means of achieving economic policy goals. However, the unemployment and inflation complications that appeared in the 1970s showed that the multi-​goal policy gained a prominent position in the economic policy system. Starting at the beginning of the twenty-​first century, this form of economic regulation attracted increased attention and later made environmental protection, low-​carbon economy, income distribution, and social welfare the targets of macroeconomic regulation and control policies. This shows that more Western economists recognized these concerns for the livelihood of people. 9.2.3  Analysis of the socio-​economic structure and institutional structure Before the emergence and growth of contemporary Western development economics, the classical school analyzed the issue of economic development. It emphasized the significance of capital accumulation and the free market economy for economic development and considered the role of institutional factors and structural factors in economic development. Later, the neoclassical school also analyzed economic development. Although it still focused on the study of capital accumulation, it did not consider the role of institutional and structural factors. The neoclassical school engaged too much in quantitative analysis, making it too one-​sided. However, after the Second World War, development economics gained increased attention. Yet, this was not only because a group of Asian and African colonies broke free from colonial rule in the years after the war and became newly independent developing countries. It was also because in the twentieth century a group of Asian and African countries had broken free from the control other countries. Nevertheless, as their economies lagged, Latin American countries wanted to take advantage of the fantastic opportunity after the end of the Second World War to push their economies forward. These Latin American countries became examples of development economics for research and policy guidance. However, whether it was Asia, a newly independent country in Africa, or a developing country in Latin America, after the end of the Second World War, they all met problems with the local socio-​economic structure in their development. This had become a major obstacle to the path of industrialization and modernization. If they could not solve it, it would be difficult to enter the ranks of middle-​income countries, even after a lengthy period of arduous effort. The socio-​economic structure mentioned here refers to the economics of these newly independent Asian and African countries or Latin American countries that had gained independence but were still economically backward. An economy is composed of two parts. One is the advanced economic part, and the other is the traditional part. Of the two, colonial powers or strong investment and even local private capital usually set up the advanced

Cultural and economic development  241 economic part. This includes things like mining, smelting, and manufacturing enterprises in cities and along ports and railways. The traditional economic part refers to the rural areas. This part of the economy is backward. Farmers live in poverty, productivity is low, and people farm, prepare land for raising crops, or graze for a living. Many of these areas still practice tribal rule. Thus, the advanced economic sector is separate from the traditional economic sector. The advanced economic sector cannot promote the economic growth of the traditional economic sector, and the traditional economic sector cannot supply labour to the advanced economic sector, because the gap between regional cultures is too great. Rural residents do not understand the urban economy or the industrial service industry, so they are unable to adapt to the demand for labour in urban areas. From the perspective of economic development, under the dual structure of society and economy, cities can only develop by relying on the capital and technology investments and market development by colonial powers or other Western countries. In the rural areas, everything stays unchanged, and these areas may stagnate for a long time. Under the established colonial system, it was difficult to coordinate the development of the advanced economic part of the cities and the traditional economic part of the countryside. This situation continued until the end of the Second World War. It was not until the 1960s, after colonies in Asia and Africa became independent, that the situation changed, and the economic backwardness of the already independent Latin American countries changed. However, these Asian, African, and Latin American countries still faced difficulties, because institutional and structural factors still played a role, and there was no transformation of the socio-​ economic system. In their economic development, Western economists had to admit that theories of development economics under the premise that institutional structural factors still dominate the social economies of developing countries did little to change the situation for these countries and the local poor. 9.2.4  Discussion on the middle-​income trap Thus, this chapter will focus on the so-​called middle-​income trap. The middle-​income trap means that a country’s economy, after entering the ranks of middle-​income countries, stays in this stage for a long time. There is a contradiction between the original growth mechanism and the development model, and the advantages of the original development have gradually disappeared, making it difficult to enter the ranks of high-​income countries. This is the case for the Philippines, Malaysia, and Indonesia in Asia. Similarly, this is the case for Mexico, Argentina, and Chile in Latin America. They all got stuck in middle-​income trap. Regarding the middle-​ income trap, a 2007 World Bank report on Southeast Asian and Latin American countries illustrated the existence of the

242  Cultural and economic development middle-​income trap. However, the World Bank analysis still had shortcomings. It did not answer the question of why these countries in Southeast Asia and Latin America fell into the middle-​income trap. Therefore, it is necessary to have a deeper discussion on this. In view of the economic situation and difficulties faced by certain Asian, African, and Latin American countries after entering the ranks of middle-​ income countries, we can say that three major problems still are unresolved. They are the institutional trap of development, the social crisis trap, and the technology trap. The existence and roles of these three traps made these developing countries fall into the so-​called middle-​income trap and stagnate after entering the ranks of middle-​income countries. Therefore, we can name these three major problems the three lofty mountains. The harder it becomes to pass over them, the harder it is to get out of the predicament.4 9.2.4.1  Institutional trap of development Countries that have fallen into the middle-​income trap are not necessarily experiencing the fierce transformation of traditional institutions when they enter the ranks of middle-​income countries from the ranks of low-​income countries, and they may retain the characteristics of more traditional institutions. Traditional forces and social organizations still play a significant role. These characteristics and old forces tend to be tenacious in rural areas, especially in economically backward mountainous and remote areas. They become institutional barriers to the development of these countries, that is, an institutional trap of development. In addition to land issues, institutional barriers to development also manifest in the following five areas: First, traditional organizations and clan and family forces are deeply rooted, hindering marketization. These old forces influence local governments and have become major property owners or run large plantations, making it difficult to set up market order. Second, traditional social restrictions on marketization and the land system in these countries are unreasonable, agricultural productivity is low, rural income is low, and rural purchasing power is far from sufficient, resulting in low domestic demand and limiting economic development. Third, developing countries need financial support for further economic development. However, the financial situation is usually difficult in these countries due to the extremely limited economic development, resulting in a vicious circle of fiscal deficit and low economic growth rates. Fourth, the development of the financial industry in these countries is usually abnormal. On the one hand, there is a serious shortage of capital and a

4 See Li Yining, “Crossing the Three Big Mountains to Avoid Traps,” Reference News, April 4, 2016.

Cultural and economic development  243 tradition of usury. On the other hand, capital cannot find a suitable way out of the country. The main reason for this is that the financial industry is controlled by foreign capital or bureaucratic power. Fifth, the institutional obstacle to development in these countries is that the vertical flow channels of society are severely blocked. This is due to things such as bureaucratic power, monopoly groups, and large landowners, as well as race, identity, religious, and cultural relationships and gender discrimination in society. The way to resolve this is through deepening institutional reforms. However, institutional reform is by no means an easy task. Resistance to such reforms is growing, the interests of interest groups are getting larger, and the overall difficulty of conducting such reforms is getting larger. 9.2.4.2  Social crisis trap The so-​called social crisis trap refers to the newly independent developing countries in Southeast Asia and the Latin American countries that gained independence in the nineteenth century. After entering the ranks of middle-​ income countries, the gap in domestic income distribution increased due to the lack of reasonable solutions to land problems, thereby arousing strong dissatisfaction among low-​income families. Moreover, due to the increase in fiscal deficits in economic development and rising prices, there are often unemployment and inflation issues. For developing countries, employment pressures are always there. After economic development reaches a certain level, young adults from rural areas, including women, leave the countryside to find jobs in the cities, because those who left the countryside earlier have a demonstration effect on those still in the countryside, thus attracting more rural men and women. When entering the city, the number of job seekers exceeds the number of jobs available. As a result, they become unemployed, wanderers, and occupants in slums. This not only worsens the state of public security, but also makes these people from the countryside more dissatisfied with their own situation compared with the living conditions of the rich in the city. In addition, because of rising unemployment, they know that cities cannot absorb their labour. Under the instigation of radicals, they often take part in demonstrations and marches, become political forces, or even take part in conspiracy that aims to overthrow the government. Under this situation, national finances only can rely on the growing fiscal deficit to alleviate social confrontations. This hinders economic development, and market supply is obviously insufficient, so inflation is inevitable. It is difficult to suppress inflation caused by the growing fiscal deficit, which intertwines with inflation caused by insufficient supply. To alleviate the supply shortage, there must be enough capital and other factors of production inputs; and to alleviate unemployment, there must be qualified labour and capital investment. This is the situation in these countries, so it is hard to calm the situation in case of social unrest. This is the social crisis trap.

244  Cultural and economic development 9.2.4.3  Technology trap Developing countries that have fallen into the middle-​income trap have long been stagnant and cannot get out of their predicament. This also relates to lack of technology breakthroughs. It is important to understand that developing countries often lack the most important conditions for technological innovation:  Capital and technical talent (including professionals and skilled workers). However, when we say insufficient capital, it is not that these countries really lack capital, but that the rich in the country regard holding real estate as their primary goal. Even if they do invest in industries, the target of investment is always things like mining, smelting, construction, and labour-​intensive manufacturing industries; rarely does it involve high-​tech industries. Therefore, investors believe that the risk is high, and they are unwilling to take this risk. In terms of technical talent, there are students studying in Western developed countries who are reluctant to return to China for reasons of wages, benefits, and work environment. The talent cultivated in the country equally sees such opportunities and is willing to flow overseas. This outflow of technical professionals is very natural. In addition, developed Western countries have always relied on capital markets to finance technological innovation industries and support the development of high-​tech industries. However, not only is the domestic capital market not perfect in these developing countries, but also wealthy investors are often eager for quick success and only want to invest in real estate, rather than support domestic high-​tech industries. This creates a technology trap. Once this trap takes shape, it is difficult to cross the middle-​income trap. From this point of view, if the newly independent Asian and African developing countries cannot solve the dual structure of society and economy in the process of economic development and cannot find support points for economic development, they cannot eliminate stagnation at low-​income levels. They also cannot enter the ranks of middle-​income countries and will always be a member of the low-​income countries. This is also the main reason newly independent countries in Asia and Africa have not been able to get rid of their low-​income predicaments. While some are independent and have made achievements in economic development, other countries, in Southeast Asia and Latin America, which have entered the middle-​income ranks, are stuck in the middle-​income trap, because they have failed to overcome the institutional traps of social development, social crises, and technology. This has made them the unfortunate who falls into the middle-​income trap.

9.3  Social psychology analysis in economic research 9.3.1  Significance of psychosocial analysis According to Maslow’s hierarchy of needs, we can divide human needs into five levels:  Physiological, safety, love and belonging, esteem, and

Cultural and economic development  245 self-​actualization; and these five needs can be broken down into various levels from low to high. Physiological is the lowest-​level need, safety is a lower-​level need, love and belonging is a mid-​level need, esteem is a higher-​level need, and self-​actualization is the top-​level need. When people’s living standards move from low-​level to mid-​level and high-​level, the importance of low-​level needs begins to decline, and the importance of mid-​level needs rises. Later, high-​ level needs also begin to rise. These needs are the driving force for people’s economic activities at each stage of development. Since China’s society consists of countless individuals with various levels of needs, countless people with unique needs conduct economic activities. For this reason, Western economists increasingly feel there is need to combine economic research with social psychology research. They point out that economics is not a natural science, but a humanity, that society is not a natural science laboratory, and that society is a system. Although mathematical analysis is useful, we can only use it for reference. We cannot accurately express various social changes via mathematical formulas. Therefore, we must understand that people’s psychological, social, and accidental factors often play a significant role.5 Some economists’ understanding of behavioural and socio-​ economic changes is often inaccurate, and the main reason may be the result of simply focusing on the analysis of economic variables and ignoring the role of various relevant factors in psychosocial aspects. Therefore, some economists have suggested that since actors (enterprises and individuals) in the modern social economy are different from those before industrialization and even from the longer period after the start of industrialization, whether it is an enterprise or an individual, they are increasingly influenced by the psychology of enterprise decision makers. Even if they are truly individuals, their investment behaviour and consumer behaviour are different from the motivations, attitudes, and aspirations of their ancestors and forefathers from 200  years ago, a hundred years ago, or even decades ago. Although traditional economics also examines and studies the desires and needs of people’s ancestors and parents, it used to treat people as indiscriminate groups. In fact, group was a general concept. Can group mental states replace those of individuals? Can we equate group behaviour with that of individuals? In the modern social economy, we use traditional group analysis methods to examine people. How right are the results of such analyses? Among the various young people in society today, how many of them are convinced of traditional economists’ assertions about group behaviour? When traditional economics analyzes group behaviour and aspirations, it often ignores the role of key factors behind economic operations as well as

5 Li Yining, Systems, Goals, People: The War Faced by Economics, Harbin: Heilongjiang People’s Publishing House, 1986, p. 316.

246  Cultural and economic development the true meaning of these factors. The high-​level needs (love and belonging, esteem, and self-​actualization) mentioned in the evaluation of Maslow’s hierarchy of needs are good examples. Is it necessary for young people in modern society to have love and belonging, esteem, and self-​actualization needs after their income grows and living conditions improve? Young people in modern society do not necessarily have the same mid-​level and high-​level needs as their ancestors and parents. Because of information popularization and other reasons, it is more likely that there will be love and belonging, esteem, and self-​actualization needs even when income is low, and life is not prosperous. They will move the factors that are behind the economic operations to the front of the stage to be like others. Although poor, they have a sense of love and belonging, the right to respect, and the desire to realize themselves. We can also regard such young people as a precocious generation, but in any case, we cannot ignore the importance of this for psychosocial analysis. 9.3.2  Limitation of social endurance Social endurance is a new research topic in economics. It is also a common research object in economics, management science, political science, sociology, and social psychology. Though such problems are not new to scholars, their examination in the field of economics relates to the macroeconomic regulation and control policies of Western countries after the Second World War. In the macroeconomic regulation and control policy aims of Keynesian demand-​management theory, there are two main goals that link to social endurance. First is the goal of full employment, which involves how high the unemployment rate must be to limit social endurance. Second is the basic price-​stability target, which involves how high the inflation rate must be to limit social endurance, and whether it is socially unsustainable, and what are the limits of inflation in society. We need to analyze these things, and a country’s national conditions play the decisive role. As for the extent of social endurance in the case of unemployment and inflation, it is even more necessary to make judgements based on a country’s actual situation, and we should not draw conclusions easily. Western economists have proposed the concept of the so-​called social unrest index, which is equal to the sum of the unemployment rate and the inflation rate. There are also Western economists who propose the concept of a social performance index, which is equal to the sum of the rate of unemployment and the rate of inflation divided by real GNP or by real GDP. The social performance index differs from the social unrest index in that we add in GNP or GDP. The significance is that the social affordability of the unemployment rate and the inflation rate relate to the economic growth rate. If the economic growth rate is high, there might be greater social endurance in the event of both unemployment and inflation; if the growth rate is low, especially when negative growth occurs, then social affordability will inevitably decrease, and social unrest might increase at the same time.

Cultural and economic development  247 Despite the above-​mentioned large and small indicators that we can use to judge social tolerance, we still need to explore four situations from the perspective of economics. The first is the fact that social endurance depends on the degree of national trust in government. If the unemployment rate or inflation rate rise at the same time that the country is invaded by an enemy, or at the same time that the nation’s citizens think that even if the economy suffers serious losses, the government’s fight against foreign enemies is justified, then there will be support for and trust in the government, and social endurance of the resulting difficulties will increase. This is common sense, and we analyzed it earlier in this book. The second situation is if a sudden natural disaster occurs. Something like a major earthquake, flood, or drought would seriously damage the social economy and displace the victims. The government would do its best to help the victims and resettle them, expanding the fiscal deficit in the process. Under this situation, the people will have trust in the government and will believe that it is doing its part by acting and taking charge in disaster relief and post-​ disaster work, so national and social endurance would increase. The third situation is the emergence of a global economic crisis from one or more large countries that has a significant impact on the global economy, with a scope of influence that includes small countries. By the time we feel the inevitable international economic crisis, it would have already had a large effect on small countries in the world economy. It would be hard to avoid the economic impact, but if it is not viewed as a mistake of the domestic government and foreign economic penetration and weak foreign financial supervision were to blame for the crisis, then the people would calmly support the government’s countermeasures, and national endurance would also increase. The fourth situation would be when the government of a developing country or a developed industrial country is determined to conduct internal institutional reforms due to defects in the domestic system. However, institutional reforms like interfering with the stakes of interest groups are unlikely to be successful and might even cause economic turmoil. In this case, the government may close enterprises, thereby increasing unemployment. Alternatively, it may adjust unreasonable prices, thereby raising prices. The unemployment rate rise and the price level increase may be the result of reforms or may be the result of the divestment of stakes or the transfer of enterprises to foreign countries. If the people determine that it is reform-​related, they may continue to support the reforms and demand that the government conduct them. Therefore, they will have greater social endurance as the unemployment rate rises and the inflation rate increases. All of this relates to whether there is national support for the government’s reform efforts. From the above four situations, we can see that social endurance is a flexible concept. We must judge it according to the specific conditions of a country, and the threshold that a society can bear is variable. An index (such as the

248  Cultural and economic development social unrest or social performance indexes mentioned above) cannot necessarily supply a clear explanation. Regarding a nation’s ability to withstand economic shocks, we can examine this from another angle, that is, the experience accumulated by people’s own experiences. Even though we might assume otherwise, people have experienced social shocks before, such as the impact of the international fiscal crisis, high unemployment and inflation, and huge natural disasters. If, they lack the experience of social shocks, then they will be less able to withstand sudden social shocks. However, if a nation has experienced social shocks in the past, then they will be psychologically prepared and have a greater level of tolerance. Again, this shows that the size of social endurance varies from country to country, from nation to nation, and from person to person. 9.3.3  Personal preference and common codes of conduct For any individual, both investment and consumption should be self-​ determined, but personal investment behaviour is subject to greater restrictions than personal consumption behaviour, even in the market economy. In the market economy, what restrictions are there on personal investment behaviour and what restrictions are there on personal consumption behaviour? Money, energy, and time are necessary premises for personal investment and consumption, so it is not necessary to elaborate on this here. However, what are the common restrictions in addition to these necessary premises? The answer is legal and moral restrictions. Whether it is an individual investor or consumer, there are two bottom lines. The legal bottom line and the moral bottom line. Both lines are insurmountable. We have already discussed this and there is no need to repeat it here. In addition, there are different restrictions on personal investment and personal consumption. For individual investors, costs and profits are an issue for consideration and deliberation. An economic person always thinks that the lower the cost, the better, the larger the profit, the better. If cost is high and profit is little, or if losses outweigh gains, the individual will withdraw as an investor. Even if everyone around them believes that opportunity knocks but once, the investor will pull out. For individual consumers, individuals as economic agents always want to buy satisfaction, fulfilment, and happiness. This is different from the personal desire to be able to achieve the goal of lowest cost and maximum profit as an investor. This is because we can calculate both cost and profit as well as what is there to gain or lose. However, personal consumption behaviour and personal investment behaviour are different. The satisfaction, fulfilment, and happiness of consumer behaviour are all feelings that depend on the individual evaluation criteria of each consumer. For example, two consumers might spend the same on a latest fashion. However, one consumer may feel satisfied, fulfilled, and happy, while the other may feel the opposite, dissatisfied, unfulfilled, and

Cultural and economic development  249 unhappy. Why do they have two hugely different evaluations of the outcome of the same consumption behaviour? This shows that the evaluation criteria of consumer behaviour can vary widely. A traditional view holds that one being economically reasonable requires reasonable consumption and being economically unreasonable is unreasonable consumption. This traditional view does not summarize the rationality or irrationality of consumption, because people are less constrained in consumption compared to investment. People have greater freedom in consumption. If a person uses his own money to consume, then as long as he does not break the law or violate moral codes, his consumption depends entirely on his own wishes. For example, although a person is not wealthy, no one can stop him from going to a nice restaurant to eat. The only restriction for consumers in a fancy restaurant is that they are neat and tidy. Consumers spend their own money, and under this premise, he can spend whatever he wants to spend. There is no reason to assume that he cannot consume this way. As for the consumer’s personal decision, if he thinks it is fine to enter such a restaurant, and his appearance is dressy and tidy, then no one can stop his consumption behaviour. Of course, if a person’s monthly salary is low, and he goes to a fancy restaurant and his acquaintances know that he is a parent and has a child, they might criticize him directly or indirectly and tell him not to spend his money this way. However, you cannot criticize him if he goes alone. This touches on personal preference and common codes of conduct. When judging the rationality of individual consumption, we cannot simply proceed from the behaviour of individual consumers and the rationality of their established goals, nor can we judge the social rationality of consumer behaviour according to the number of consumers of a certain type. What is involved here is the issue of a dual-​interest criteria for the target. In the book Review of Western Welfare Economics, we reviewed Jan Drewnowski’s views on the dual evaluation system.6 Drewnowski believed that we must base the socialist economy theory on the concept of a dual evaluation system, because in the socialist economic system, there is a dual evaluation system:  The national and personal preference functions. This means that two types of decisions—​national decision-​making and personal decision-​making, can coexist. The two can coexist and may be uncoordinated, but national decision-​making still forms the basis of the final decision. Based on the analysis of Drewnowski, Jan Tinbergen further discussed the dual evaluation system of the socialist economy. He believed that Drewnowski’s contribution lay in analysing the relationship between personal welfare and social welfare. As for the conflicts and contradictions between national and personal preferences, they are often unresolved. Therefore,

6 See Li Yining, Wu Yifeng, and Li Yi, Review of Western Welfare Economics, Beijing:  The Commercial Press, 1984, pp. 152–​156.

250  Cultural and economic development Tinbergen suggested that we should solve this through the development of education and rely on the state to meet the needs of the collective.7 Drewnowski and Tinbergen’s research on dual preferences is instructive. In real social and economic life, in addition to personal preferences, interests, consumption behaviours, and goals, we also have public preferences, interests, consumption behaviours, and goals. The latter clearly stands for the collective will. Every member of society, regardless of whether they are living in a socialist economy or not, must follow common rules. We can also give these common rules the name of social norms, and every member of society is expected to abide by them. So how do personal preferences and consumption behaviours fit into common codes of conduct? This involves the two bottom lines already mentioned:  The legal bottom line and the moral bottom line. No personal behaviour, including consumer behaviour, can cross these bottom lines. Tinbergen’s proposal to coordinate the inconsistencies between personal behaviour and public goals through education and through government-​ built public facilities to meet the public utility or service needs of members of society is possible. The unresolved problem is that personal behaviours differ and the degree of realization of personal preferences varies. In addition, public codes of conduct or social norms cannot satisfy everyone. How should we manage this? With that, we turn to the next question. 9.3.4  How should we view the gap between personal behaviour and social norms? As mentioned above, Chinese society is composed of countless individuals. There are inconsistencies between personal preferences, and Tinbergen showed in “The Significance of Welfare Economics for Socialism” that there is a degree of inconsistency between personal preferences and personal interests. We should unify public codes of conduct or social norms, so that we can tackle the questions of how to bridge the gap between different individual behaviour and common social norms, and how to dilute these differences. If the customs and habits of different regions or ethnic groups are involved, we must have a process of relieving and diluting that relies on mutual respect and mutual understanding between regions and ethnic groups. After a long time, the barriers will disappear, and the regions and groups will tend to coordinate with each other. For example, after the Jewish people in China lived together with the Han people for a long time, their relationship with them tended to be harmonious. We have already discussed this issue and will not repeat it here. What we need to explore more is when there are personal preferences, interests, and goals, but also public preferences, interests, and goals. Who

7 Jan Tinbergen, “Welfare Economics’ Relevance to Socialism.”

Cultural and economic development  251 should be responsible if the gap between the former and the latter has not disappeared or even has expanded? A simplistic approach is to say the individual is fully responsible. Why is this method too simple? Because its premise is that, in society, if personal preferences and behaviour are inconsistent with public preferences and standards, responsibility lies in the individual. Once personal interests and public interests clash, the individual must be responsible. Personal preferences should give way to public preferences, and personal goals should give way to public goals. In other words, the public is always right when compared to the individual. In fact, we still need to re-​examine this issue. Here, we will discuss the two bottom lines mentioned above (the legal bottom line and the moral bottom line). Both personal and public actions should follow these two bottom lines, with no exception. Villages and families use public codes of conduct for the ancestral training of a village or for a family ancestral hall. However, do they conform to legal or ethical standards? Even if such practices such as beating a thief or throwing two adulterers into a river did not conform to the nation’s laws of the time, should we not abolish them? Public codes of conduct are different from laws and regulations, and they gradually form among people. Heads of villages and families have played a key role in the formation of public codes of conduct. They are the ones who collected the common folk rules in villages and families, selected them, or had literati change them. Sometimes village rules are no longer suitable for a village, so they must be adjusted with the characteristics of the village in mind, and the villagers will pass them down from generation to generation. There are also guilds and employee groups in urban areas that have such kinds of rules, which may have also been passed down over time. In any case, residents will follow them if they agree with them. From this point of view, from the historical evolution process to the present stage, progress is constantly adjusting, changing, and supplementing public codes of conduct. However, since we pass them down and they also undergo generational revisions, they cannot be perfect. Therefore, we cannot simply assume that when personal preferences and behaviours conflict with public codes of conduct that the responsibility lies with the individual. We need to point out that during the historical dynasties, and especially in modern times, there were more opportunities for literati to form, modify, and amend local public behaviour norms, including many idealists or those who held idealistic ideas or doctrines. Their motivation to take part in the formation, revision, and supplementation of traditional public codes of conduct might include the ideal of transforming existing public codes of conduct. In fact, while the underlying motivation might be fine, their ideas did not necessarily bring happiness, because the more they were faithful to their own goals, the more likely they were to intervene and undermine the spontaneous forces that play a role in the social economy. The more they ruined this spontaneous power, the more damage it would cause to the villages and towns. In the minds of idealists, public goals either have led to mistakes or have failed to

252  Cultural and economic development change the old public rules and set up new ones. Without a doubt, there are kind-​hearted, noble-​minded idealists who have devoted their life to setting up public codes of conduct and examining themselves, but what has been the result? They placed their ideals in the highest position and eventually fell out of touch with reality and into trouble. One of the most obvious examples is the transformation of the Russian populist peasant villages from the late nineteenth century to the early twentieth century. The result of this was that the peasants revolted against the populist members who went to the countryside, completely bankrupting their idealism. Since public codes of conduct can exist in society for a long time, there must be reasons for their existence. Changes to local public codes of conduct should happen over a lengthy period because residents need to understand, identify with, and adapt to the process. In this case, being too hasty is counterproductive. To narrow the gap between personal behaviour and public codes of conduct—​ in addition to revisiting public codes of conduct or making changes, additions, and adjustments—​we also need a new understanding of personal behaviour. More people in society should realize that while personal behaviour is changeable, it takes time, because the changes must take place within the scope of the legal and moral bottom lines, and we cannot adopt forceful measures. Measures such as persuasion, education, demonstration, and incentives should be taken to narrow the gap between personal behaviour and public codes of conduct. However, these issues will not end soon. Society is advancing, the economy has been developing for a long time, people’s understanding of quality of life is deepening, the gap between the old personal behaviours and public codes of conduct is narrowing, and a new gap between personal behaviours and public codes of conduct has arisen. This is not surprising, because this is normal. People should understand that this is normal and adapt to it.

9.4  The role of re-​discussion in sustainable economic development 9.4.1  Culture and market competition The first step should be to talk about procedural and non-​procedural decisions. As mentioned earlier, market regulation is the first kind of regulation. It is by the invisible hand, that is, the law of the market. Market regulation should play a decisive role in resource allocation. You can find an explanation of these principles in earlier chapters. If we take it a step further, we will find that whether it is a government, enterprise, or individual decision, we can divide it into two types: Procedural and non-​procedural decisions. Procedural decision-​making refers to the substantial number of recurring decisions that occur in the economy (including daily life). They are decisions that have rules and regulations to follow. For example, the determination of an enterprise’s daily raw material consumption and daily purchase volume is

Cultural and economic development  253 a procedural and routine decision. A country’s decision in the economy also must follow certain rules and regulations. For example, what is the size of the national grain reserve? What is the food shortage in a province (city, district)? From where should we distribute the grain? Such decisions have rules to follow, and the decisions themselves are procedural decisions. Non-​ procedural decision-​ making refers to the occasional, one-​ time decisions that occur in the economy (including daily life). For example, in the case of an accident, an enterprise will deliver raw materials on schedule from a production area. However, what do we do if a flood or earthquake disrupts the railway and we cannot transport the raw materials as usual? This is a non-​ procedural decision. For another example, let us say there is a fixed amount of national grain reserve. There is also a plan about where to transport the grain, how much to transport from a certain province, and by what means to transport to a certain province. However, a flood or earthquake has disrupted the railway, so how we conduct this process is a non-​procedural decision. Obviously, procedural decision-​making and non-​procedural decision-​making are two ends, like a spectrum, but there are a series of intermediate decisions between the two ends to also consider. The difference between procedural and non-​procedural decisions is the difference between the two different decision techniques. The procedure in procedural decision-​making refers to the standard and customary operation procedures. The standard operation procedure is a procedure recorded in writing. The customary operation procedure is a procedure saved in human memory. Non-​procedural decision-​making relies not on habits or on fixed and documented standard operating procedures, but on the experience, insight, and intuition of decision makers, and the judgements and deployments made thereby. Non-​procedural decision-​making relies more on the imposing manner, courage, and wisdom of the decision maker, that is, it relies to a considerable extent on a decision-​maker’s creativity. In a market competition environment, we must judge the knowledge, experience, and creativity of investors, managers, and decision makers through practice and after-​the-​fact inspection to determine the correctness of their decisions. This is a feature of market competition or the market environment. This allows us to see that rapid and substantial changes in the market are common occurrences. Those who fully understand market trends in a rapidly changing market are not those who study mechanically, but those who are insightful, judgemental, and creative. From a cultural perspective, both procedural and non-​procedural decisions are a culture. Both government and enterprises base their decisions on procedural decision-​making, rather than on the best candidate for non-​procedural decision makers, and follow procedures in a down-​to-​earth manner, make decisions based on unexpected situations, and put their judgements into practice.

254  Cultural and economic development Foreign economists and management scholars generally believe that it is much harder to train talent who can make non-​procedural decisions than those who can make procedural decisions, because those who make non-​ procedural decisions need courage in addition to wisdom. The market is fully of uncertainties. Without wisdom, how can we understand the situation, and how can we quickly make judgements and take decisive measures? This reflects the need for policy makers to be responsible in market competition. This is the talent that is the most difficult to cultivate in the complex and volatile market. We can also say this: It is easy to get an army but hard to obtain a general. We do not just find such talent in the fiercely competitive market environment, and such talent is likely buried in society. Without deep-​level reform of state-​owned enterprises, such talent is likely to fall into oblivion. If we do not succeed in transforming private enterprises, such talent will never stand out from the crowd and will always be bound and squeezed by the family system. 9.4.2  Culture and government management In theory, whether in developed countries or developing countries, and no matter how much the market economic system develops, a reasonable economic adjustment system or an internal control mechanism or system in the economy usually consists of five parts.8 1 2 3 4 5

Scientific decision-​making procedures; Procedural administrative measures; Effective coordination of economic adjustment means; Sound economic legislation and economic supervision systems; Complete information system.

These five parts form an organic whole, and they function effectively according to certain procedures. In government management, a prominent issue is how to connect macroeconomic management and microeconomic management and not let them get out of touch with each other. We should know that while macroeconomic regulation is necessary, it is not enduring nor has it always existed. We cannot relax macroeconomic management nor can we neglect it. Like any microeconomic unit, management can either be tangible or intangible. We must constantly implement macroeconomic management and not slacken the effort. This is the main point of macroeconomic management. In fact, some countries have been trying to regularize macroeconomic regulation and control, which has become dependent on it. The governments of these countries have adapted to this kind of macro regulation and control

8 See Li Yining, Systems, Goals, People:  The War Faced by Economics, Harbin:  Heilongjiang People’s Publishing House, 1986, pp. 86–​87.

Cultural and economic development  255 dependence. Even if they were to stop using this means of regulation and control, they would not know how to govern the country or how to manage it. This is undoubtedly abnormal, but over time, this has become a habit so they would not know what to do if they stopped adopting macroeconomic regulation and control. This kind of situation is a very harmful to the market economy. In short, macro regulation and control dependence has at least three major drawbacks. First, macroeconomic regulation and control measures will stimulate or repress market operations, which makes diversified investors and the decision makers and management of all levels of microeconomic units passive and causes them to lose the initiative. Their main consideration is how to respond in a way that is beneficial to themselves under such policies. Market flexibility and options become weak, and the market itself loses its vitality due to restricted market competition. The market share will inevitably cause disturbances in the form of repeated changes in macroeconomic regulation and control. In the case where the role of the market mechanism has limits, microeconomic units must take a wait-​and-​see approach and be on the lookout for abnormal patterns in the countermeasures. Second, market regulation should play a decisive role in resource allocation, which is a normal function of the market economy. However, once government is dependent on macro regulation and control, it becomes difficult for market regulation to take on its decisive role. This is because, if the government has long relied on macroeconomic regulation and control to stabilize the economy, it will have inevitably promoted industry and regional interest groups and, even intentionally or unintentionally, promoted the growth of certain interest groups. If this is what the government intended to do, then that is its failure, but it might not recognize this. Even if the government is not aware of certain interest groups, it might still promote their development, which is also the government’s failure. Therefore, it is unwise and harmful for a government to rely on macroeconomic regulation and control for a long time. Third, we must know whether any macroeconomic regulation or control measure will have certain side effects and sequelae. The difference is that some measures have more side effects and serious repercussions than others. However, once a government depends on macro regulation and control, these side effects will grow over time, and the repercussions will become more serious. You must be on guard about this. Therefore, any country or government that adopts macroeconomic regulation and control measures must prevent excessive dependence on these policy measures and must understand that any such measures have side effects and sequelae. This leads to a conclusion that has important policy implications. If it seems rather easy to solve problems in economic operations through macroeconomic regulation and control measures, we should examine whether there are major obstacles in the market economy. Although the market economy has grown for years, this obstacle might be a matter of years ago. Over the next

256  Cultural and economic development few years, will there not be new situations? Does the market economy need to continue to adjust and deepen reforms to make up for the shortcomings of the current system? We should realize that deepening reform does not mean to abandon or overthrow the earlier market economy, but that we must adjust and deepen the reform to continuously improve its operation. From this perspective, macroeconomic regulation and control measures are still available, but they should focus on pre-​adjustment, fine-​tuning, and structural regulation, rather than on forming macro regulation and control dependence. More importantly, we cannot ignore the role of government management. Macroeconomic regulation and control are a policy measure that the government can adopt under certain circumstances. It is impossible to replace government management with macroeconomic regulation and control. We should base government management on the rule of law, because without authority, the government has no power to manage situations. Doing this would put the economy on the right track. Government management is a cultural embodiment. With government management, the social economy can follow the path of the legal system. Macroeconomic regulation and control based on pre-​adjustment, fine-​tuning, and structural regulation should also follow laws and regulations. This also reflects a culture. We should base government management and macroeconomic regulation and control on the legal system to ensure the sustainable development of the economy. 9.4.3  Culture as an integral part of factors of production The first section of this chapter discussed the significance of the recombination of factors of production for innovation and for sustainable economic development. Here, we should point out that production factors will also undergo changes in the sustainable development of the economy. We can divide these changes into two trends. One is the weakening of human resources in the factors of production, and the other is the strengthening of human resources. These two changes relate to the pessimism and optimism of socio-​economic development prospects. Of course, the pessimism and optimism mentioned here are two extremes. There are still intermediate views between them, and there is the belief that pessimistic social and economic prospects might turn optimistic through people’s efforts, or vice versa. If people tend to lead a life of pleasure and are low-​spirited and decadent, socio-​economic prospects might turn pessimistic. This means that the key is whether people strive or not. As the saying goes, man proposes, God disposes. In fact, the planning lies with man as well as the outcome. Why is there a pessimistic argument for the socio-​economic outlook? The basis for economists, sociologists, and political scientists with this argument is the following. From the perspective of natural conditions, there is population, resources, environment, and climate to consider. Economists, sociologists, and political

Cultural and economic development  257 scientists believe population growth, resource consumption, environmental damage, and global warming have exceeded Earth’s limits. Even if we reduce the rate of population growth, continued economic growth will eventually lead to resource depletion and serious environmental pollution. Moreover, they believe that global warming disasters will continue to appear and when the ice in the Antarctic and Arctic melts, the sea will inundate coastal land and many islands. They especially worry that there will come a point when human beings can no longer bear such natural disasters. Added resources and the adoption of modern technologies might delay the final collapse of human society, but it does not end the human survival crisis. Moreover, new inventions will still cause damage to the environment and might even accelerate resource depletion. From the perspective of social conditions, the focus is on the changes in the concepts and behaviours of the next generation and the generation after that. Hedonism, decadence, and nihilism have become rampant, so there have been people in developed Western countries who have called young people another “Beat Generation.” Should people live in the world only for pleasure? The sense of social responsibility continues to diminish, spiritual power continues to disappear, drug abuse has become a hobby, and fornication has become a fashion. If we continue like this, what hope can there be for the social economy? This leads to more questions. Why do people argue that the socio-​economic outlook is optimistic? What is the basis for their optimism? From the perspective of natural conditions, those who argue that the socio-​economic outlook is optimistic believe that since people have begun to recognize the seriousness of environmental damage and resource depletion, governments and people have begun to protect the environment, control pollution, and save resources and manpower over the past 40 years, and have striven to restore the environment as soon as possible. Because of this, they argue that we cannot ignore these achievements. Although it is impossible to quickly cure the environment destroyed by industrialization, the efforts of governments and people in various countries have achieved results in recent years. From the perspective of social conditions, they believe that the key is to promote universal education, reform the education system, correct the social atmosphere, and guide the lost young people to the right path. In addition, science continues to develop, and technology is constantly improving and, from a global perspective of poverty, ongoing alleviation work has achieved results. Therefore, there is no reason to be pessimistic about the prospects of human society and the world economy. Again, can pessimism solve these problems? To solve these problems in terms of natural conditions and social conditions, vigilance and governance are necessary if we want to prevent environmental degradation or further corruption of the social atmosphere and be better able to improve the environment and social atmosphere.

258  Cultural and economic development From this point of view, if we can correctly handle pessimism and optimism about the prospects of social and economic development, these two arguments actually help governments and the public to pay attention to the improvement of the natural environment and cultural environment. For the structure and quality of production factors, it is also necessary to combine social and economic development to improve the quality of production factors and structural adjustment. The common trend in all countries is that more and more people recognize the importance of culture, because environmental improvement, ecological restoration, improvement of people’s quality, scientific progress, and adoption of new technologies are all manifestations of the structural adjustment of production factors and the rise of quality. Can we compare the quality of production factors today, especially the quality of people, with that of 50  years ago, 100  years ago, or 200 years ago? Today, the impact of culture on people’s cognizance is far greater than was that of their parents and grandparents. In other words, the effect of today’s recombination of factors of production is different than that from the first, middle, and late stages of industrialization. The level of human resources has increased, the quality of equipment and raw materials has risen, and even the concept of production and development has changed. This is the promotion of the role of culture in the sustainable development of the economy. 9.4.4  China’s confidence in overcoming the middle-​income trap We have outlined the discussion of the middle-​income trap in the second section of this chapter, which generally explains the basic reasons why countries in Latin America and Southeast Asia have fallen into the middle-​income trap after entering the ranks of middle-​income countries. What we need to explore here is, Will China also fall into the so-​called middle-​income trap? Can China cross the middle-​income trap from the ranks of middle-​income countries? We can say this. If China does not learn from the lessons of some developing countries; does not deepen reform from a planned economy to a socialist market economy; does not adjust the structure; does not narrow the income gap between urban and rural areas; and does not innovate, it is impossible for China not to fall into the middle-​income trap. A key issue for China is that it is necessary to transform the mode of economic development when the economy develops to a certain stage. If we do not transform the development mode in time and still rely on cheap labour and on extensive economic development, then China will lose the original advantage and the economy will be stagnant. This is a precursor to falling into the middle-​income trap, and it should call up vigilance. Furthermore, without rapid transformation and replacement of economic development methods, we will lose development confidence, and the consequences will be serious. One serious consequence is that investors in

Cultural and economic development  259 the real domestic economy will withdraw their investments or move their enterprises to Southeast Asian countries that have developed late. The amount of domestic investment will decrease, and the development of the economy will confront the challenges of capital shortage. At the same time, due to insufficient capital investment, professional and technical talent related to the development of the real economy will also flow outward. Initially, under the original economic development mode, professional and technical talent were scarce. At this time, there was an outflow of professional and technical talent due to insufficient capital investment, which led to a shortage of professional and technical talent. Insufficient capital and a shortage of professional and technical talent would quickly make a hole in the real domestic economy or turn it into something different. This is because investors, capital, professional talent, and technical talent in the real domestic economy would not only go abroad, but they might also turn to the virtual economy and increase the economic bubble. The economic bubble would not last long, however. It would burst or shrink, which would then cause volatility and shock in the economy, making continued development even harder to realize. People want to see China overcome the middle-​income trap. Although this is a wish, it is also achievable. Transforming the traditional development mode is the most important condition. To transform it, we must continue to promote reform, eliminate institutional, systemic, and structural obstacles, narrow the income gap between the urban and rural areas and the gap between the rich and the poor, and increase the degree of social harmony. At the same time, it is necessary to promote independent innovation, industrial upgrading, the growth of emerging industries, and major breakthroughs in innovative technologies. We should recognize that if the capital market is still an imperfect and incomplete system and it does not support technological innovation, then even if China does cross the middle-​income trap and enters the ranks of high-​income countries, it might still stagnate in the high-​income stage or even fall into a new income trap like some countries. China has the confidence to cross the so-​called middle-​income trap, but this statement does not reflect China’s economic development goals. Does overcoming the middle-​income trap mean that the country has become a powerful economy? Have we realized the Chinese dream of the people? No, and not yet. We must not only become a high-​income country, but also become the world’s leader in terms of culture, science, technology, talent development, and social harmony. This is in line with the expectations of the people. Therefore, confidence is still the backbone of achieving the above goals. Where is the basis of this confidence? It comes from the country’s path, theoretical systems, and institutions. Briefly, confidence in China’s path, theories, and institutions is our strength and the basis for our realization of the Chinese Dream.

260  Cultural and economic development In the past 70 years since the founding of the People’s Republic of China, especially in the 40  years since reform and opening up, China has successfully gone from a low-​income country to a middle-​income country and now is moving from a middle-​income country to a high-​income country. Looking ahead, the Chinese people are full of confidence in China’s prospects.

10  Cultural heritage and cultural sharing

10.1  Cultural heritage 10.1.1  The Max Weber theory When discussing the far-​reaching impact of culture, let us start with the Max Weber theory. Weber (1867–​1920) was a German economist, sociologist, and historian. He is the founder of economic sociology and a famous representative of cultural history. Weber authored many books in his life, covering a wide range of things, and is well-​known especially for his influential book, The Protestant Ethic and the Spirit of Capitalism. In this work, Weber deals with the spirit and dynamic of economic development. On the one hand, he emphasizes the importance of material factors in economic development; on the other hand, he emphasizes the role of spiritual factors. He thought that people’s spiritual motivation comes from their ethical concepts and from cultural heritage and the enthusiasm therefrom. In European countries, people often associated ethical concepts and cultural heritage with religious beliefs, and these beliefs are what generated spiritual motivation. It is under the influence of religious beliefs that economic development accelerated. Weber thought that the spirit of capitalism was the premise of capitalist society. In the process of economic and social development in European countries, there could be no Protestantism without religious revolution, and without Protestant ethics and the spread and inheritance of Protestant culture, there would be no spiritual power of capitalism or capitalist society. In the history of Europe, according to Weber, some countries on the northern coast of the Mediterranean Sea developed economically earlier, but why did capitalism originate in Western Europe and not in southern Europe? In the fourteenth and fifteenth centuries, Italian city-​states had prosperous handicrafts and commerce, but the southern European economy never crossed the boundaries of feudalism and the threshold of capitalism. Why is that? Weber believed that before the religious revolution, the Roman Church still spiritually ruled over the European countries by Catholic traditions. According to Catholic concepts at the time, man was the servant of God and

262  Cultural heritage and cultural sharing a sinner. So, what did that mean? One thing it meant was to work hard to cultivate oneself, suppress individual desires, and dedicate one’s life to God for the purpose of redemption. The second thing it meant is that one could donate money to the Church for atonement. The Church would use the donations of its believers to set up charities and public welfare undertakings and would use the rest to build churches and for the Church to squander. Under the control of this ethical concept, how could the economy accelerate development? Weber concluded that it was impossible to produce capitalism under the guidance of old ethics and old culture. Why, then, did capitalism appear in Western European countries (such as the Netherlands and the United Kingdom) in the fifteenth to the seventeenth centuries? Weber argued that its appearance was related to a religious revolution that began in the sixteenth century. This religious revolution caused the Catholic Church (known as the Old Religion) to clash with Protestantism, and this split Protestantism from the Holy See, dividing European countries (excluding the Orthodox countries) into two major beliefs: Catholicism and Protestantism. Germany, the Netherlands, and Great Britain were leading Western European countries that founded Protestantism. Countries in the south of Europe still believed in Catholicism, that is, the Old Religion. We can describe Protestant ethics is like this: Man is the servant of God and all people have sinned and need redemption. What is redemption? You work hard, live a life of thrift, and accumulate wealth. One of their beliefs is that it is for God that people work, so you must be diligent and not afraid of hardship. The purpose of the frugal life of believers is to accumulate wealth to make the scale of one’s business bigger and bigger. The greater the achievements, the better the work done for God, and the more successful one will be in work. As for personal consumption, this was subject to accumulation. Therefore, Protestants lived a simple and not a luxurious life, but their practices were different from the often-​ascetic practices of medieval Christians. The latter’s frugality only was to show atonement and was not for the creation of new wealth. Protestants believe that the harder they work and the more wealth they accumulate, the greater their achievements before God. Weber believed that the powerful influence of Protestant ethics and culture created and developed capitalism in Western European countries. Work hard and get rich for God became a Protestant ethical and cultural view. 10.1.2  Cultural evolution and cultural heritage According to the Max Weber theory, the reason capitalism first emerged and developed in Western European countries is first and foremost due to the religious revolution that began in the early sixteenth century. Protestantism’s ethics spread in Western Europe. However, the formation and enrichment of Protestant teachings has gone through about two centuries. In the past 200 years, Protestants have passed down and evolved their culture until finally

Cultural heritage and cultural sharing  263 their teachings extended to all corners of Western European society. We can divide Protestantism into denominations, each of which has its own interpretation of Protestant teachings. There are also disputes between them. Believers have passed down and evolved these disputes from generation to generation. They have become faithful to their beliefs, and we can no longer close the rifts between Protestantism and the Old Religion. Cultural heritage and cultural evolution combine with each other. From the birth of Protestantism to the eighteenth century, there were three major schools of Protestantism:  Martin Luther’s orthodoxy, Calvinism, and Anglicanism. Although each denomination has its own characteristics and its own teachings, they have drawn a line with the Old Religion. It is a fact that they all have different interpretations of Protestant teachings, but we can call this cultural heritage and cultural evolution. Every Protestant, no matter to which denomination he belongs, their attachment, their faith, and their loyalty to the denomination will undoubtedly contribute to the growth of Protestant ranks. This is the power of cultural heritage. So, what happened to the Old Religion? The Holy See still leads the Old Religion, but it still evolves, right? Are its believers still starting from the original teachings in inheriting the old culture and not thinking about evolution? This is not the case. We cannot deny that, since the late eighteenth century, old ethical concepts and culture have also evolved. Without cultural evolution, there is no cultural inheritance in the true sense. We should realize that the Netherlands and the United Kingdom were the first Western European countries to produce and develop capitalism, and the United Kingdom was first to industrialize. They all believed in Protestantism. After the beginning of industrialization in Britain, there was an increase in national strength. British industrialization affected France and the Nordic countries. Germany was not yet united, and still had principalities, with Prussia the most powerful of a loose league of German states. The Nordic countries and most of the German states believed in Protestantism. They followed the British and Dutch models to develop industry, and there was no major issue among them in terms of ideology. However, southern Europe, France, Spain, Portugal, and Italy were different from the Nordic countries and the states in Germany, because France, Spain, and Portugal were old-​fashioned countries, and Italy, like Germany, was still not unified and had sovereign states. Italy was also an old-​fashioned country that the Holy See influenced. Therefore, these old countries in southern Europe had to go through a stage of cultural transformation to embark on the capitalist path. Otherwise, ideology would have created an obstacle in developing capitalism and industrialization. Such cultural evolution has naturally become a new problem facing southern European countries. The situation in France is typical. After the religious revolution, France adhered to the autocracy of the Old Religion and killed or expelled Protestants. Rulers had absolute power, nobility and bishops had high positions, the third level of the population had no power, and serfs were at the bottom of society.

264  Cultural heritage and cultural sharing The French Revolution broke out in 1789 under this kind of political system. France was in an environment of civil strife until Napoleon came to power and became emperor. After Napoleon stepped down and went into exile, France accelerated the construction of a capitalist society and promoted industrialization. Religion (Old Religion) started to evolve in the social and economic transformation in France. From that point on, the French passed down old teachings to future generations and concepts gradually changed from generation to generation. The French still believed in the Old Religion, but the old ethics and old culture went through changes. No doubt, the French Revolution shocked Old Religion believers. Their views on wealth accumulation became more like those of Protestants in the United Kingdom, the Netherlands, and the Nordic countries, and their understanding of the capitalist system got closer and closer. This is also a cultural heritage and cultural evolution, but it did not fundamentally change the underlying situation. Spain, Portugal, and Italy, as well as Ireland, have always been faithful to the Old Religion. Although they developed capitalism later than France and began industrialization later as well, the trend of old ethics and cultural concepts was still like that of France. In other words, if the culture of the Europeans in the Middle Ages did not change—​and there was still the autocratic rule of the Holy See, the law enforcement of the wealthy and unruly bishops, and things like inquisitions and executions—​if that were the case, could a believer experience storms such as a bourgeois revolution and still be loyal to the pope and the bishops as before the religious revolution? The times have changed, and although their beliefs did not change, they might no longer obey the canons set by the Holy See and the bishops. While believers have passed down the old teachings, doctrinal interpretations do change, as do the obligations of the believers. The old teachings that believers have passed down are different from the ones before the religious revolution and after the religious revolution. Cultural inheritance will continue, and culture itself will continue to evolve. There will always be new norms, interpretations, and meanings in cultural inheritance and cultural evolution. This is the unchangeable law of cultural development. 10.1.3  The excavation and protection of cultural resources As mentioned above, culture comes down from generation to generation and evolves from generation to generation with the changes of the times. Due to culture’s long history, people did not care about their cultural heritage at first, so they constantly buried cultural sites. In addition, because there are cultures with no written records at all, cultures have been lost, and cultural sites have disappeared. This is a huge loss for human society. Fortunately, scholars, including archaeologists, anthropologists, and historians, have invested a lot of labour and in-​depth research in the exploration of cultural resources to find archaeological results in this vast field

Cultural heritage and cultural sharing  265 according to ancient narratives or legends. This has made us aware of the living conditions, political conditions, economic conditions, and cultural achievements of ancient peoples. Cultural resources are priceless. For example, in recent years, Chinese archaeologists, cultural relic scientists, and historians excavated the cemetery of the grandson of the Emperor Wu of the Han Dynasty in Nanchang, Jiangxi Province, and unearthed many dynasty utensils, jewellery, and funeral items. It is hard to estimate the value of the unearthed cultural relics, so we can only describe them as rare treasures. It is even more difficult to put a value on them for research of the ritual system, funeral service, and customs of the Western Han Dynasty. This is just one of many examples. There have also been major archaeological discoveries in the West that help future generations gain understandings of ancient historical truths. In the study of the “Epics of Homer,” for example, is Homer indeed a real person or pure myth? Who wrote the “Epics of Homer?” It is possible that the authors were poets who combined songs and poems, and Homer might just be one of them. The continuous excavation of sites informs us about the Homeric era. The interpretation of archaeological excavations has told descendants about the myths and legends of the “Trojan Horse” epic records, as well as the social reality of the experiences of the Achaeans (the Greek natives who set up the Mycenaean dynasty). Only by combining written records and archaeological excavation results with in-​ depth research can future generations gradually explain the production of the “Epics of Homer” with historical truth. People need to protect cultural resources both at home and abroad. The systematic and scientific excavation of sites and the identification of cultural relics are necessary to protect cultural resources. Just because cultural resources are invaluable, we should not view them more so from the perspective of social wealth. So, where should the cultural sector’s funding for the protection of cultural resources come from? There are four ways. The first is from financial allocations. We need to earmark finances for the excavation of cultural sites and the protection of cultural resources, as well as for the construction of cultural museums. We cannot omit this financial allocation. With the development of the social economy, the proportion of financial resources for the excavation and protection of cultural resources in GDP should gradually increase. That is, as national economic power increases, the country should bear the costs to excavate and protect more cultural resources. The second is from donations from public welfare groups and from enterprises and individuals concerned with cultural resources. We not only can use these donations for the excavation and protection of cultural sites, but also for the construction of museums. For example, an American donor set up Peking University’s archaeological museum. Donors like this love cultural relics. In addition to the archaeological museum donation at Peking, he also made similar donations in other countries. In China, with the development

266  Cultural heritage and cultural sharing of enterprises and their concern for cultural undertakings, there will be more donations to promote cultural undertakings. Most Chinese will also join the ranks of donors for their responsibility to protect cultural sites and relics. Thus, we can expect that the amount of public welfare contributions will increase over time. Third, we still need to invest in and support existing and newly discovered cultural sites. We should encourage enterprises to invest in tourism facilities related to cultural resources if they can protect those cultural resources and will not damage them. We should also improve transportation facilities leading to tourist attractions, and tendering and bidding are a way to achieve investment in this area. Fourth, when conditions are ripe, financial institutions can issue bonds for the excavation and protection of cultural resources (which we can refer to as cultural bonds) and raise funds from the private sector for the excavation and protection of cultural resources. Finance or large cultural enterprise groups can back the cultural bonds, with the thinking that such bonds are marketable and sustainable. In addition to the above four ways of funding the discovery of cultural resources and the funds necessary to protect them, there may be other funding sources. Regardless, the general principle is that the excavation and protection of cultural resources is a public-​welfare undertaking that is not for profit. This principle does not change. 10.1.4  Transformation of potential demand and supply to actual demand and supply We should view the excavation and protection of cultural resources as a demand—​a general demand. Who are the demanders? The state and all levels of government are the greatest demanders for the excavation and protection of cultural resources, as they have the responsibility to unearth and protect buried cultural resources. Most residents and enterprises in related industries are also demanders, because they do not want the motherland’s culture to disappear and want it to shine bright in the future. There is an uncurbable demand to travel, sightsee, and appreciate the cultural scenic spots of the motherland. In this field, the rules for the excavation and protection of cultural resources are the same as a general demand. Demand divides into potential demand and actual demand, and supply divides into potential supply and actual supply. We can transform potential demand into real demand, and this will bring new demand. Similarly, we can transform potential supply into real supply, that is, potential supply can become real supply and this real supply will bring new supply with it. In terms of the excavation and protection of cultural resources, it is only a potential demand. Demanders (including governments, enterprises, and individuals) are only hopeful about the excavation of new cultural resources.

Cultural heritage and cultural sharing  267 Before the discovery a cultural site, there is only a potential demand. The discovery of a cultural site may be accidental. For example, Yin Ruins in Anyang, Henan; Mogao Caves in Dunhuang, Gansu; and Emperor Qin’s Terracotta Warriors in Xi’an, Shaanxi. These cultural site discoveries came about by accident. However, once discovered, and after the excavation of the sites, they drew attention from all over the country and the world. Excavation work has increasingly become a focus of government, enterprises, and individuals. After we excavate cultural resources to a certain point and they become tourist and sightseeing attractions, the demand for tourism and sightseeing transforms from a potential demand into a real demand. Not only that, but the demand drives supply. If the demand grows, supply will follow. On the other hand, if the demand is little, further growth becomes difficult. The increase in supply mentioned here includes convenient transportation, good accommodation and facilities, and more tour guides and public-​service personnel at scenic spots. This supply also stimulates economic development and changes the districts and counties of the cultural sites. However, development does not end here. On the one hand, new demands arise. For example, tourists will want to buy research books about the cultural sites, souvenirs, and even local specialities, and they will tell their families and friends about what they saw when they return home, which drives more tourists. The supply side will also continue to increase. If traffic, accommodation, shopping, tour guides, and other facilities cannot keep up with the demand, new bottlenecks will form, which is not conducive to a popular cultural site. From this, we can clearly see that if we persist in the exploration and protection of cultural resources, then demand and supply will drive each other. This is conducive to the continued discovery, excavation, and protection of cultural resources, but furthermore, this is conducive to the deepening of cultural understanding, love of traditional culture, and respect for the evolution of humanity’s culture. Cultural heritage is endless. It also makes people pay attention to history and educates the young people. The more we look, the more we will see that all countries excavate and protect their own domestic cultural resources. This helps people from around the world to understand and learn from each other. Every country, whether it is a developed country, an industrialized country, a developing country, or an economically backward country, has its own history and its own cultural sites, including existing ones and those that have been destroyed in wars. All people create and spread culture. On certain cultural sites, there have been mausoleums, palaces, castles, and cities, and there have been spacious squares, shops, schools, residential areas, and avenues. It is wars that have destroyed all of this. Some places have experienced many wars and catastrophes, and things get built and destroyed and built and destroyed over and over again. There are places that have become ruins after the destruction of a war and still have not recovered. These cultural sites not only show the prosperity of

268  Cultural heritage and cultural sharing the past, but also tell future generations how wars have ruthlessly turned these places into ruins. These ruins tell future generations how valuable peace is. The aggressors and saboteurs are historical sinners and they deserve the condemnation of future generations. In short, cultural sites can educate future generations and remind us that we should cherish peace and cultural heritage.

10.2  Sharing is a culture 10.2.1  The meaning of sharing We can explain the word “sharing” from three different perspectives: Economic, political, and social. From the perspective of economics, sharing means that, whether it is economic growth or economic system reform, development and reform achievements belong to the whole society. Therefore, sharing means that everyone should get the fruits of development and reform. It cannot be that one group of people in society gets the results and another group does not. If this is the case, then there is no sharing. Of course, in economic growth, people from different regions and occupations will achieve different results in development and reform due to regional and industry differences. This is inevitable, but the government should take note of this situation and adopt other means to enable those who do not enjoy the results to share in the benefits. This is where the government’s second adjustment comes into play. In addition, there are cases in which some people get development and reform results first before others. This is a normal phenomenon, and there is no reason to think it is not. A good example would be the reform of the household contract system in rural areas after 1979. In this example, the farmers were the first to gain from the reform, and their enthusiasm improved as a result. Then, a few years later, cities did away with the coupons for food, oil, meat, eggs, and other things, which helped urban residents. From the perspective of political science, it means that whether it is the standardization of political management or the advancement of political system reform, it will certainly reflect in the rights and obligations of citizens. If people gain more rights, such as civil rights or other items as stipulated in the Constitution and other laws, this defines civic obligations more clearly than before. This is political progress and the sharing of political achievements. The difference between the interpretation of sharing from the perspective of political science and that from the perspective of economics is that economists focus more on the sharing of results from economic development and economic system reform, while political scientists focus more on the equalization of rights and obligations. That is to say, political scientists put more emphasis on eliminating hierarchy and the traditional identity system, and focus on not only allowing certain groups of people to enjoy the rights and obligations conferred by the Constitution and other laws, but also on

Cultural heritage and cultural sharing  269 making other groups unable to enjoy these rights or adding obligations. This is unfair and does not conform to the principle of sharing. For example, even though we started reform and opening up in China a long time ago, we still adopt the planned economy-​era urban-rural household registration system, which is a prominent phenomenon of the principle of sharing in the political sense. This system has been in existence for more than fifty years, since 1958, and it was only recently that we began to consider reforming it. Although we may need to take a staged approach to transforming the urban-rural household registration system into one that is unified, the hope is that once we start the reform, there is no stopping it. From a sociological perspective, the issue that sociologists consider the most is the coordination of income distribution. When economists examine the principle of sharing, although they also consider income distribution, their main focus is on how to make development and reform results available to people from different regions and different occupations in economic development and economic reform, which includes narrowing the income distribution gap. Sociologists have a broader perspective when studying income distribution and pay more attention to social backgrounds and individual employment status and also have more social survey data on how to narrow the social income distribution gap. However, the policy recommendations of economists and sociologists for narrowing the gap in social income distribution are the same. To achieve sharing, we must rely not only on the government to help the poor, but also on society and the nation. However, neither economists nor sociologists have really solved this problem: the explanation for the rationality of the income gap. Below, we will turn to the explanation of this puzzle. 10.2.2  Discussion on the rationality of the income distribution gap The question about whether the income distribution gap is reasonable or not depends on whether the income distribution itself is reasonable, and then on whether the income distribution gap between people is reasonable. The difficulty of the problem is not limited to this. The difficulty lies in the fact that there is an objective difference in the rationality of the income distribution gap in the economic sense and in the social sense. This is the key to the discussion of the income distribution gap. I analyzed this issue in the book Ethical Issues in Economics.1 Economically speaking, we assume that producers of production factors take part in market economy activities from the same starting line, and competition results in a certain income gap. This income-​distribution gap is the distribution of benefits under the conditions of equal opportunity. Therefore,

1 See Li Yining, Ethical Issues in Economics, Beijing:  SDX Joint Publishing Company, 1995, pp. 27–​41.

270  Cultural heritage and cultural sharing there are two conditions for the rationality of the income distribution gap in the economic sense. First, the opportunities for producers of production factors are equal and the starting point for taking part in market economic activities is the same. Second, the producers of production factors gain by the principle of benefits distribution. Let us now talk about respective income. In the economic sense, the income gap is reasonable, or the opportunities between producers of factors of production are unequal; or not all producers of factors of production earn income from the distribution of benefits, or both of these situations. In the social sense, whether the income distribution gap is reasonable or not, we cannot just apply criteria for judging this in the economic sense (that is, whether opportunity is equal or not and whether production factor producers earn income according to the principle of benefits distribution). Moreover, we cannot depend on the indicators behind economic operations, such as using the degree of social stability or instability as a criterion. However, we should note that there are reasons for social stability or instability that do not necessarily relate to income distribution. For example, there might be unfair justice but no complaints; or the environment is deteriorating, but the government refuses to govern the situation. The existence of an income gap is only a reason for social instability. Therefore, researchers can only discuss the income gap as a factor that causes social instability under the premise that there are other conditions that often combine to increase prices. The book Ethical Issues in Economics includes three indicators for analysis.2 The first indicator is personal absolute income satisfaction. This refers to the degree to which an individual’s income as a supplier of factors of production corresponds to the expected value. If the personal income is equal to or higher than the expected value, the personal absolute income satisfaction will be high or remarkably high. If it is lower or much lower than the expected value, the satisfaction will be low or remarkably low. The second indicator is personal relative income satisfaction. The supply of production factors corresponds to the ratio of the income from the provision of production factors to that from others. If it corresponds to the expected ratio, the individual is satisfied with his relative income. If it is greater than the expected ratio, the individual is still satisfied with his relative income. However, if it is less than the expected ratio, the individual will be dissatisfied with his relative income. The third indicator is the average social absolute income and the degree of relative income satisfaction. Why is this an indicator? My view is that society consists of many members. People have different absolute income satisfaction, and personal relative income satisfaction is different, too. However, when the absolute income satisfaction of a member of society is low or the individual is dissatisfied with his relative income, this will not lead to social unrest. There is

2 Ibid.

Cultural heritage and cultural sharing  271 social instability only when most people’s absolute income or relative income satisfaction are low. Thus, it is necessary to rely on average social absolute income and relative income satisfaction as reference indicators for social stability. At the same time, we also need the concept of critical values. When the average absolute income satisfaction of the society is below the critical value, or the average relative income satisfaction of the society is below the critical value, then we must consider how to adjust income distribution policies. 10.2.3  The process of social unrest accumulation and cultural sharing The government needs to recognize and understand the concept of sharing and its realization. Social unrest is often a cumulative process. It is a lengthy process to take us from a stable society to an unstable society and then to violent social turmoil. If we use the average absolute income satisfaction of the society and the average relative income satisfaction of the society as indicators to judge relative social stability, social unrest, and social turmoil, then it is important to understand the concept of critical values. When below the threshold, the government at all levels has ways to alleviate social conflicts, resolve social unrest, and improve the relationship between the government and the people. However, it does not mean that we cannot clean up the situation if the threshold is crossed. If the government can find proper ways to communicate and negotiate with the people, the government can still quell the problem. In fact, we cannot limit sharing to issues of social income distribution. It also includes the work style of government officials, environmental governance, judicial justice, and government integrity. The government often needs to understand the actual situation from the source, so sharing is an important principle and goal that cannot only restore social stability, but also make social governance more successful. Therefore, cultural sharing naturally comes to the fore. The connotation of cultural sharing goes far beyond the scope of income distribution and in general includes five aspects. First, the sharing of cultural traditions. As already mentioned, the cultural heritage of a nation from its distant past to the present is the common cultural heritage of the people. Sharing refers to the sharing of this heritage by the whole nation. People not only have the right to share, but also the responsibility to protect, explore, and continue to promote cultural heritage. We cannot exclude certain people from cultural and traditional education, nor should it be possible for only some people to gain cultural and traditional education. Second, cultural sharing includes recognition of rights and obligations. This means that people should be on an equal footing in terms of access to and use of rights. This also means that in terms of obligations, all members of society have the responsibility to assume obligations. This is the content of cultural sharing. Hierarchy, identity, bloodline, and gender, ethnicity, and property-​based discrimination are all contrary to the principle of sharing and

272  Cultural heritage and cultural sharing are unfair. This unfair and unequal treatment has occurred in history and we should have abolished it long ago. The meaning of sharing is justice and equality. Third, cultural sharing also reflects in the economy. Cultural sharing, according to earlier analysis, reflects in at least the following two areas. One: All regions, cities, rural areas, and ethnic minority settlements throughout the country should be able to share in the results of economic development and economic system reform, so that all people have a sense of gain. Moreover, we should not exclude certain areas and residents. Two: In terms of social income distribution, we must care about low-​income groups, and we cannot allow the gap in social income distribution to keep growing. This is especially true for low-​income people who feel that their satisfaction with absolute income and relative income are declining. In this example, sharing is undoubtedly a synonym for a well-​off society and common prosperity. We analyzed this earlier. Fourth, cultural sharing also means that the social security and quality of life of all people should improve over time. With the continuous development of the economy and the experience of other developed countries, welfare measures have become the main points of governance in many Western European countries. Of course, a developing country should do its best to implement welfare measures in a systematic way according to the country’s national conditions, but the general trend should be the universality of welfare measures. Even if the amount of benefits received by each citizen is low, the measures themselves would be in line with the principle of sharing. As the economy develops and fiscal revenue grows, we can increase the welfare measures, but we cannot set another threshold for the beneficiaries. Rather, we should base the measures on sharing, such as free compulsory education, public medical care, and old-​age security. Fifth, even for developing countries, another important content of sharing is that farmers have their own fields, and residents have their own homes. For farmers, they need a place to farm. In economic terms, we can say that farmers should have a piece of land for cultivation and a piece of land for their home and to enjoy arable and construction land property rights. The property rights that we are talking about here are workable and not just nominal. With farmland property rights, farmers can transfer and mortgage land, and with construction land property rights, farmers can build houses and live in peace of mind. In the eyes of farmers, this is the most important and most practical sharing. It puts them at ease and gives them a sense of security. They do not have to worry about anyone seizing their cultivated land, nor do they have to worry about anyone demolishing their self-​built houses and thereby making them homeless. The implementation of property rights for cultivated land and self-​built houses means that the law protects the property rights of farmers, so they can work and live with peace of mind. If they work hard, every economic situation improves. As for urban residents, although some people still do not have the financial resources to buy a home, if they can get

Cultural heritage and cultural sharing  273 a home loan, they can still buy one, or the government can supply low-​rent housing, which is another safe option. For low-​income urban families, this is also sharing. Through analysis of the above five aspects, we can clearly see that sharing is the basic principle of ending social unrest and promoting a more harmonious society. Whether an economist, a political scientist, or a sociologist, there is no controversy about this meaning of sharing. 10.2.4  Leisure and entertainment are an integral part of cultural sharing When it comes to equality of rights, we should not forget that, in addition to exercising elections, freedom of speech, freedom of religious belief, the right to education, and the right to share social welfare measures, and that leisure and entertainment are part of cultural sharing. Residents have the right to leisure and entertainment. All residents of society (such as retirees and the self-​employed or people who start their own undertaking) can enjoy legal holidays or take part in recreational activities. Entertainment is an activity of cultural sharing. For retirees, they have worked hard their entire life, but in that time, being caught up in work, they might not have had time to spare for leisure and entertainment, or because they lived in a place with no possibility of recreation, such as borderland, mountains, mining and forest areas or on an island. In cases like this they would only have time for leisure after retirement. As for the self-​employed or people who have started an undertaking, many of them are busy at the start-​up stage, so even if they did want to have fun, it would be hard. In addition, people used to have to deal with inconvenient traffic, crowded accommodations, and poor leisure and entertainment conditions. This means that it would be difficult even if one wanted to relax and travel. We pass culture down from generation to generation. Culture can both educate people and cultivate their personalities. In this sense, leisure is not just rest, but also an activity of knowledge dissemination and of personality training. Cultural sharing undoubtedly includes knowledge dissemination and personality training. As for the fun in tourism, that is a personal experience. In other words, sharing is also a form of pleasure. Mass literary and artistic activities in cities have made great progress in recent years. Street-​or community-​level organizations, trade unions, women’s federations, cultural stations, or people will organize singing, opera, dance, yangge (a popular rural folk dance), calligraphy, painting, embroidery, weaving, and cooking activities. When such activities began few people took part in them, but the number continues to rise. There are also literary and artistic activities that employ teachers, such as music teachers, dance teachers, calligraphy teachers, and painting teachers. Universities for senior citizens are also immensely popular. It not only brings together the elderly to learn things but, more important, it allows them to have a common home, where

274  Cultural heritage and cultural sharing the spirit of education, entertainment, and mutual aid can help make them feel comfortable. No matter how economically developed or how widespread the public services are, the elderly in a society will have a feeling of loneliness. Older families without children and grandchildren will be lonely in old age. Even if they have children and grandchildren, a family in modern society might live in different cities or villages, might consist of several families, and family members might rely on mobile phones or online messages to keep in contact. As a result, the elderly part of a family become “empty nesters.” Thus, the emergence of old-​ age loneliness is inevitable. Therefore, cultural sharing has gradually taken on a new meaning, that is, in addition to leisure and entertainment, it functions to dispel worries. With leisure time, the elderly in the family can spend more time with their children and grandchildren, and there are more opportunities for children and grandchildren to spend time with them. In aging, it is not necessarily best to send the elderly to a nursing home. When we surveyed nursing homes in some areas, we found that in addition to the elderly who had lost their ability to care for themselves, there were usually some with grandchildren, especially those who could still care for themselves, who preferred to live at home and were reluctant to go to a nursing home. Why is that? The elderly like to socialize and be with their children and grandchildren. This is human nature and is very natural. In this way, cultural sharing has added content. Family gatherings and frequent contact with generations of people is more than just fun. Family contact with the elderly in the family adds to the happiness of life. We could even argue that this will make the family’s historical experience or entrepreneurial history a common asset for future generations. Although this is an intangible wealth, it is something that the elders can leave to their children and grandchildren and even their great grandchildren.

10.3  Family business succession 10.3.1  Family enterprise inheritance On cultural checks and balances in Chapter 7 of this book, the “Economic Man Hypothesis” and “Social Man Hypothesis,” I  analyzed two books on family business, pointing out that family businesses do not solely rely on the economic man hypothesis to prosper. From their start, family businesses have a dual mission. The first mission is that entrepreneurs must follow market rules and be honest and law-​abiding. In operations, they must strive to minimize costs and maximize benefits. However, the family business also has a second mission. From its start, the family business takes care of the weaker family members and makes sure that they get a share of the profits that the family business has gained in development. This shows that the head of a family business always has two accounts in mind. One is the economic account and the other is the family account. We can call the latter one the family group account.

Cultural heritage and cultural sharing  275 Family businesses have the responsibility to help the weak in the family. If the weak are indeed orphans and widowed mothers or the old and fragile, and the family business uses profits from the family business to help them, other family members will not have opinions. However, if the reason they are poor is due to bad habits, such as selling their own house and land properties to lead a life of dissipation and use drugs, other family members will have opinions. So, what happens at this point? There will be arguments to separate the family and, after the family splits, the family business will shrink in size and each branch will run its own business and stand on their own. After a while, as the children and grandchildren prosper, the family business will expand again. The family business will still have two accounts at the same time, that is, both the economic account and the family group account. When the separatist storms that occurred years ago recur, the family business will split again. This is a common phenomenon in the rise and fall of family businesses. It is also a reality that both the economic man hypothesis and the social man hypothesis coexist and contradict each other. In the second section of Chapter 7 of this book, I discussed how a family business can get out of the above-​mentioned dilemma, that is, the transition from a traditional family business system to a modern enterprise system with clear property rights, good enterprise governance, and professional managers. In this chapter, after re-​mentioning the contradiction between the economic man hypothesis and the social man hypothesis in family business, we are ready to focus on the issue of family business succession and explore the prospects of family business. In general, a family business is a business set up by a family under the family head. The family head is an older and capable person. The prestige that comes with age can convince family members, and being capable means having the business skills and market-​transaction knowhow necessary to make the family business bigger and stronger. This is the kind of family business that thrives. After the establishment of a family business, inheritance becomes a prominent issue to pay attention to. Entrepreneurs will get old and die, so family business will inevitably have to consider inheritance after a certain period, just as a dynasty must set up an heir at an early date. If the decision to appoint an heir is too late, then the result is chaos, and this would affect the dynasty’s ability to continue. The situation of a family business is like this. The issue of family business inheritance not only revolves around the head of the family. It also relates to those who influence the main members of the family and who have influence in the family. It relates to all family members. Because there is an interest relationship, it involves the relationship with the future family business head in terms of what is good and bad, and who is a close or distant relative, so this is more like a fierce struggle than it is a major storm. No matter how a family business produces its heirs, it is a major event that affects the prospects of the family business. The eldest son inheritance system is a rule of inheritance from ancient times. This is the most consistent system with the traditional practices of

276  Cultural heritage and cultural sharing family businesses. Usually, three reasons convince the other family members. First, eldest son inheritance is customary and faultless. Second, in the early days of the family business, the eldest son is the father’s best helper. Together, they learned about the hardships of entrepreneurship and are familiar with the enterprise’s situation and market conditions. Third, this son has had contact with the administrators or managers of the operations and management under his father. If he were to take over, he would have the support and cooperation of these administrators and managers. For these three reasons, family members in many family businesses accept the eldest son inheritance system. However, the adoption of the eldest son inheritance system might meet difficulties. The following are possible difficulties. First, the eldest son might not necessarily have the qualities of his father. If he does not have the qualities of his father—​for example, he is unable to work diligently or cannot find an administrator or manager who is both competent and has different ideas—​can he become a strong leader? Second, although the eldest son can become a successor to the family business, what if he is not interested in running it and wants to engage in another occupation (such as civil servant, lawyer, teacher, or doctor)? Third, the parents might have more than one son. Compared with the others, the eldest son might not be as good at operating and managing the family business. Are the family head and family members not going to consider letting a son other than the eldest son take over? Fourth, if there is a family dispute that requires the separation of production as mentioned in the second section of the seventh chapter of this book, and the parents are old, sick, or deceased, and the eldest son is the successor, will he be able to overcome the difficulties? This shows that, although it is possible to implement the eldest son inheritance system according to traditional rules, in actual conditions, family business members do not necessarily adopt the eldest son inheritance system. How to realize family business inheritance seems to be determined only according to the situation of each specific family business. This is the normal state. Under normal circumstances, the inheritance system of family business will inevitably choose between searching for an able and virtuous person in the family or searching for a family member who is able and virtuous. Searching for an able and virtuous person in the family means that the head of the family business chooses the most capable and most popular person from the family members who are closest to him as the heir. Searching for a family member who is able and virtuous means that the head of the family business chooses the person who is the closest to his blood relationship from the family members he thinks the most capable and most popular. The commonality between the two methods of selecting family heirs is that both are inseparable from blood relations and from family. It is impossible to jump out of the family circle to promote the successor of the family business.

Cultural heritage and cultural sharing  277 Future heirs and family business administrators are not a concept. The heir must involve the inheritance relationship of the property so there is a blood relationship. The administrator or manager may have a certain share of the property rights of the family business but may also be from outside the immediate family or a product of the original employees of the family business. Therefore, in considering the two ways of selecting an heir, that is, searching for an able and virtuous person in the family or searching for a family member who is able and virtuous, there is still no consideration to ignore the blood relationship. The only way the family business will transform its path is by choosing a family business administrator or managerial talent who is not related by blood. 10.3.2  Choosing family business administrators or managers On the family business choices of heirs and administrators (managers), if you transition from searching for an able and virtuous person in the family to searching for a family member who is able and virtuous, compared to the traditional inheritance system, there still is room for improvement. However, compared with the establishment of a modern enterprise system, there still is a long distance. This shows that family businesses must continue to reform and transform. To truly transform into a modern enterprise, in addition to having clear and diversified ownership rights, it is necessary to establish and improve the enterprise governance structure, that is, to establish shareholder meetings, a board of directors, and a board of supervisors, as well as systems of appointment, responsibility, and to determine the term for the general manager. The board of directors should appoint the general manager and will be given a certain term. He is the person in charge of the enterprise’s operations and management and is the executive of its business. He is the administrator or manager of the enterprise. The professional management system of Western industrial countries formed around the middle of the nineteenth century and has developed considerably from the 1930s onwards. Before the founding of the People’s Republic of China, China began to set up a professional management system, but it lacked standardization. It was a product of the family management system, not the modern enterprise system. Back then, shop owners trusted the Chinese professional managers; the apprentices, clerks, and department heads of enterprises, who appeared over time; and the people recommended by relatives and friends, and appointed them to positions like housekeeper and accountant. However, these housekeepers and accountants, regardless of whether people called them managers or not, had unclear responsibilities and unclear power. After the founding of the People’s Republic of China, state-​ owned enterprises were set up. After the rise of public-​private partnerships in 1956, private companies became public-​ private partnerships and later became

278  Cultural heritage and cultural sharing state-​owned enterprises. The state-​owned enterprises adopted the administrative management model. This means higher authorities appointed the managers, there were administrative levels, and higher authorities decided what the enterprises produced and where they sold their products. Not only were there no professional managers, but there was no need for them. This was the typical case under the socialist planned economy. After reform and opening up, state-​owned enterprises adopted the contract system. Under the contract system, there was no need for professional management, all you needed was a contractor. This made the contracted state-​owned enterprises behave in a short-​term manner and made them deploy as much equipment as possible for short-​term benefits. As a result, the enterprises lost development potential and thus state-​owned assets. Therefore, the government finally suspended the contracting system and then implemented shareholding system reform. State-​owned enterprises turned into joint-​stock enterprises or limited liability enterprises, and some of the joint-​stock enterprises became listed. However, state-​owned enterprises were generally controlled by state-​ owned capital in the reform. This means that the shareholding system played a role only in market financing. The operating mechanism of the enterprise did not change, there was no enterprise governance structure, and the administrative management model before the shareholding system reform did not change. Thus, there was no need to set up a professional management system. How could state-​owned enterprises deepen reform? This did not become a significant issue until the 18th National Congress of the Communist Party of China. State-​owned enterprises have different countermeasures depending on the industry. State-​owned enterprises in competitive industries, including those that became joint-​stock enterprises and listed enterprises, were further reformed, becoming mixed-​ ownership enterprises and, depending on the industry of the enterprise and the state of the enterprise itself, the proportion of state-​owned capital did not have a bottom line. A  sound enterprise governance structure was necessary for any state-​owned capital to take part in a mixed-​ownership enterprise. Although the professional management system is tedious and difficult, it had become a consensus. The key was how to standardize it. At the same time, in China private enterprises (including family businesses) wanted to transform into modern enterprises. The transformation of private enterprises mentioned here refers to large and medium-​sized private enterprises, including family enterprises with a certain scale. Whether a small-​ scale private enterprise transforms or not is determined by the enterprise itself. As for micro-​sized enterprises, they have their own considerations and thus have more self-​determination. The transformation of private enterprises (including family businesses), as already mentioned, requires clear ownership rights. Second, there must be equity standards including share diversification. Of course, if the equity of the family business is clear, there is diversification. The third step is to improve the enterprise governance structure of private enterprises and family

Cultural heritage and cultural sharing  279 businesses to set up shareholder meetings, a board of directors, and a board of supervisors. As the saying goes, small as it is, the sparrow has all the vital organs. This will standardize the enterprise and prevent future disputes. The fourth is to hire professional managers, including within the enterprise, among family members, and from the community. Private enterprises and family businesses have done this, which should play a demonstration role for other private enterprises and family businesses, so the prospects are promising. Professional managers are appointed, have responsibility, have a specified period of employment, are assessed for performance, and they can be dismissed at the end of their term or reemployed. Professional managers can also resign without renewing their contract. The biggest difficulty in China’s current implementation of the professional management system is that the professional manager market has not yet fully formed, and the supply of professional managers is insufficient. This system gradually formed after years of exploration and trials in Western industrial countries. Since the professional manager adopts the appointment system and also recommends who is on the board of directors and chairs the board, the appointed general manager should have clear responsibilities and clear rights so that he can fully carry out the operations and management of the enterprise. After accumulating experience over a long time, Western industrial countries have formed intermediaries that link the supply side and demand side of professional managers. Professional managers are executives of enterprises. They have certain status in enterprises and business circles. When they do not find suitable positions, they do not fill out applications and give out their resumes as ordinary employees would do. For them, doing so would only lower their reputation and make them lose face. So how do you connect the demand side and supply side of professional managers? You rely on intermediaries, such as recruiting firms, enterprise-​consulting firms, and senior executives to introduce enterprises to them. These enterprises are intermediaries that are engaged in the introduction of professional managers. Therefore, in China at this stage, the supply of professional managers and the coordination between the supply side and the demand side are still problems, with no immediate solution. However, private enterprises can be first to try things because private enterprises, including family businesses, are more likely to recruit professional managers. 10.3.3  Human capital dedication and the profit-​sharing system When we were in Zhejiang, we discussed the issue of professional managers with private enterprises, family business entrepreneurs, and investors. They said that private enterprises and family businesses could recruit competent professional managers, but it was hard to say how long those managers would last. Since they are capable, visionary, and honest, other private enterprises and family businesses go talent poaching, for example, by promising better treatment. Thus, when the appointment expires, he will leave, and the enterprise

280  Cultural heritage and cultural sharing must find someone else. Asked what to do and how to keep talent, private enterprise replied that the only way was to make them shareholders. There is no pulling them away once the professional managers become shareholders in the enterprise. So, let us move on to the sharing issue in the next part. The economics community has always believed that the inputs of material capital and of human capital create wealth and profit. However, why is profit only distributed to the material capital investors when they have a share (they receive dividends) and the human capital investors can only share the profit from the wage expenditure part in the production costs? This is obviously unfair and unreasonable. Therefore, economists have long suggested that material capital investors and human capital investors should share gains, because without physical capital investment, it is impossible to generate profits; and without human capital investment, it is equally unlikely to generate profits. Many economic researchers have favoured a theory of economics that material capital investors and human capital investors should share profits. The material capital input mentioned here refers to the providers of financial capital. Because the enterprise has a financial capital investment, it can build factories and purchase machinery, equipment, and raw materials. Afterward, it can start production and supply goods and labour to the market. Finally, the enterprise can earn profits via market sales. The human capital input mentioned here refers to the management, production, sales, and service personnel who have contributed knowledge, skills, experience, and wisdom to the production, sales, and service activities of the enterprise in terms of human capital. Their dedication may be tangible or intangible or it may be numerically calculable or impossible to calculate or measure. However, without human capital dedication, enterprises will not profit. As a result, the concept of sharing has expanded. This is because not only should material capital investors pay dividends, but also human capital investors can take part in the dividends. If we leave out the contribution of human capital investors, the way in which enterprises distribute profits is neither comprehensive nor fair and just. Enterprises (including state-​ owned enterprises, mixed-​ ownership enterprises, private enterprises, and family businesses) need to rethink how they distribute profits. Executives and those who make special contributions in technology should enjoy the incentives of property rights under the enterprise property rights incentive system. All employees at a certain working age should be participants in the employee shareholding system so that the distribution of profits is reasonable in how it gets shared. The practice of motivating senior managers, talented individuals who have made outstanding contributions to technological innovations or marketing have already proven themselves effective. We can divide incentives into bonuses, job promotions, and property rights, and we can combine incentives. The enterprise should determine the amount of incentives according to the

Cultural heritage and cultural sharing  281 industry and the specific circumstances of the enterprise, and it is not necessary to copy the practices of other industries or enterprises. There are two main points to note here. First, we must reward those who contribute to the enterprise. Second, the incentive system must be open to prevent individual leaders from making the final decision, or to balance internal contradictions so as to not violate the original intention of the incentive system. It would have a negative effect if we did violate it. There would be workers who would feel like it was unfair and have dissatisfaction and resentment against the enterprise leadership and could even prompt them to leave the enterprise. Relatively speaking, it is harder for state-​ owned enterprises or state-​ controlled mixed-​ ownership enterprises to implement ownership-​ right incentives than it is for private enterprises and family businesses. This is because implementation involves the loss of state-​owned assets and relies on whether state-​owned enterprises and state-​controlled mixed-​ownership enterprises evaluate their assets in a scientific and reasonable manner. Without detailed rules and regulations, it is understandable that the enterprise leadership would not dare to promote the practice of property-​right incentives in their operations. Furthermore, the implementation of the employee stock ownership system, and especially that of listed enterprises, would meet difficulties. Even private enterprises and family businesses are no exception to this. In the 1990s and the beginning of the twenty-​first century, state-​owned enterprises twice did not implement an employee stock ownership system. In general, the issues were as follows.3 First, the asset valuation was inaccurate, resulting in a large loss of state-​ owned capital due to underestimation. Second, at that time, the management-​level of state-​owned enterprises had a large share and they often exercised substantial control over the enterprise with employees only able to hold a small proportion of shares. Third, the executives of state-​owned enterprises sometimes did not contribute much and used commercial bank loans to get shares in state-​owned enterprises. Fourth, there were external benefit transfers. This means letting outsiders, especially officials, buy internal shares or shares for employees and then transfer the premium after the enterprise went public and profit from it. Fifth, there were no rules to follow in the transfer of employee stocks. Therefore, the practice of employee ownership in state-​owned enterprises in the 1990s and early twenty-​first century failed, and the lessons are worth remembering. In the future, we must have rules and regulations and follow them, and we must act according to procedures. State-​owned enterprises can no longer adopt the irregular practices of holding everyone’s shares, giving

3 Special commentator of Beijing Youth Daily, “Employee Stock Ownership Is the Real Challenge to Deepening the Reform of the Country,” Beijing Youth Daily, April 10, 2016.

282  Cultural heritage and cultural sharing away shares, voluntarily transferring shares within the enterprise, and arbitrarily selling stocks to individuals who are not enterprise employees. We can implement a shareholding system for private enterprises and family enterprises, but it also requires rules and regulations. Otherwise, not only would it not bring employees together and mobilize their enthusiasm, but it would affect the unity of employees and add to their dissatisfaction with the leadership of the enterprise, even causing them to resign.

10.4  Sharing as a goal that will persist 10.4.1  The goal of cultural sharing Cultural heritage and cultural sharing are long-​term goals for the country or society and for all regions and enterprises, and they will continue to exist. Not only that, cultural heritage and cultural sharing are interdependent and cooperate with each other. To illustrate the interdependence and cooperation between cultural heritage and cultural sharing, we can talk about hopes in life. Members of society always hope that life will keep getting better, hope that their children’s lives will be better than their own generation, and hope that their grandchildren’s lives will be better than their children’s generation. This is the hope of life. The driving force for economic development comes from this, at least in part. In cultural heritage, there is a lot to inherit—​too numerous to mention, but it inevitably includes hope in life. Some of the maxims of moral education that have been circulated from generation to generation since ancient times—​such as integrity, tolerance, helping others, helping the poor, diligence, and self-​discipline—​have become family creeds. However, the hope of life not only reflects in cultural heritage, but also in cultural sharing. As already mentioned, many times before, the content of cultural sharing is extraordinarily rich, and the scope of the sharing is broad, and people naturally add new insights to the sharing. It is because of the new understanding of sharing that the hopes in life have increasingly surpassed the boundaries of family, clan, region, and group, and have become social consensus. This is the new height of cultural sharing. Although the hopes that parents have in mind have increasingly become about social welfare concerns under the guidance of the principle of sharing and are no longer just about what to leave to their children, this does not necessarily dampen children’s feelings towards their parents. This is because the next generation may be able to get rid of the influence of traditional ideas to a substantial extent, so their views on their future may also change. For example, in the future, more people in the next generation will understand that affluence depends on their own efforts rather than on the inheritance left by the earlier generation. The earlier generation supplies proper conditions and opportunities for the education and development of the next generation. However, the next generation must work hard to make their lives better. If one does not work hard, then even

Cultural heritage and cultural sharing  283 if the earlier generation has supplied better conditions and there are more opportunities, improved living standards are still hopeless. The enthusiasm and contribution of the previous generation for public welfare undertakings, charitable causes, and education, especially their sense of social responsibility and conviction, sets a good example for the next generation and plays a demonstration role for them.4 From this perspective, this is both a cultural heritage and a continuation and deepening of the concept of cultural sharing. In the end, we can clearly say what the goal of cultural sharing is. There is no harm in doing a summary. The goal of cultural sharing lies in making cultural traditions and innovations the commonwealth of human beings and constantly disseminating and researching them so that people will share the content. We can use a metaphor to describe the relationship between cultural traditions and cultural sharing. Cultural heritage is a straight line enriched since ancient times, because people have always discovered, protected, and studied cultural resources. Cultural sharing is like a horizontal line that has extended at both ends since ancient times, because people’s understanding is continuously deepening and increasing the sharing. This vertical and horizontal line summarizes the lasting interdependence and fusion of cultural heritage and cultural sharing. 10.4.2  On the social safety valve The social safety valve, or the safety valve in the operation of the social economy, means that in socio-​economic operations, if the social contradictions are sharp, and the dissatisfaction of some people in the society is relatively large, the government and society should take these contradictions and dissatisfactions seriously. They should resolve the contradictions and not allow them to grow, and they should give social dissatisfactions an outlet and not block them. Therefore, society should have an internal buffer mechanism and grooming mechanism, which causally relates to the social safety valve.5 People cannot help but ask: Do we not have market regulation and government regulation? Why is it that market regulation and government regulation cannot end social dissatisfaction? The reason is clear. Market regulation plays a role in dealing with market-​related disputes. The market has its own rules and its own order, but social dissatisfaction does not necessarily come from market participants. In market competition, if there is a price or a delivery problem, we can deal with it through market rules, but a party breaking market rules or disturbing market order will not necessarily create more dissatisfaction in society. This shows that market rules alone are not enough.

4 See Li Yining, Beyond the Market and Beyond the Government: On the Role of Moral Power in the Economy (revised edition), Beijing: Economic Science Press, 2010, p. 161. 5 Ibid., p. 187.

284  Cultural heritage and cultural sharing Government regulation also meets similar problems. The most important basis for government regulation is laws, regulations, and rules, and the emergence of social dissatisfaction may not violate them. The government can only explain and persuade or warn not to cross the boundaries of the law. This may resolve the social dissatisfaction, but it may not. This shows the limitations of government regulation. This shows that we cannot just rely on market regulation and government regulation to resolve social dissatisfaction. To this end, it is necessary to explore ways to alleviate social conflicts and resolve social dissatisfaction. We need to acknowledge that society has a buffer mechanism and a mechanism for grooming. These mechanisms exist in the public’s concern and participation in social affairs. The more the public cares about social affairs, the more actively they take part in them and the more they help to resolve social conflicts and ease social dissatisfaction. Not only does the public care about social affairs and takes part in social affairs, it also pays attention to social order, cares about public goals and public interests, and is willing to work for these goals. Therefore, the more the public has a sense of social responsibility, a spirit of public welfare, and concern about social affairs, the more likely they will form a safety valve in socio-​economic operations and form buffer and grooming mechanisms in society.6 As we all know, people in society influence each other. From a family to a circle of friends to a circle of alumni or an association, there are positive influences and negative influences. Assuming that society is dominated by those who value public goals and public interests and who use their own practical actions to promote social coordination, then under their influence, more people will care about social affairs and buffer and grooming mechanisms in society will gradually dispel social dissatisfaction. We can also resolve dissatisfaction in society from its source through dialogue and consultation. With public participation, there are buffers and mechanisms for mitigating social conflicts, and it is possible to include formal channels. This is the social consultation system. The social consultation system has years of practical experience in China. It helps the communication between the government and the people. The core of the system consists of representatives and corresponding public social organizations who care about public goals and public interests. Things are easy to solve with their participation. This is a social and economic safety valve with Chinese characteristics. Further analysis shows that the social and economic safety valve with Chinese characteristics has two categories: Tangible safety valves and intangible safety valves. Among the tangible safety valves, in addition to the consultation meetings involving the central and provincial, municipal, and county-​ level social consultative bodies and their public representatives,

6 See Li Yining, Beyond the Market and Beyond the Government: On the Role of Moral Power in the Economy (revised edition), Beijing: Economic Science Press, 2010, pp. 194–​195.

Cultural heritage and cultural sharing  285 there are community, charitable, and non-​profit organizations. Community organizations are local autonomous organizations. They are primary-​level organizations that reflect the opinions and suggestions of residents. They also have a social relief function, which is to give proper aid to families with difficulties. As for charitable and non-​profit organizations, the distribution of their own awards helps poor people to get rid of their difficult situation as soon as possible, helps them overcome poverty and achieve prosperity, and helps poor areas to construct public facilities so that we can realize the goal of sharing at an early date. This shows that the above tangible safety valves can play an active role. A more effective safety valve is the intangible safety valve. In Beyond the Market and Beyond the Government: On the Role of Moral Power in the Economy, I  pointed out that “people’s psychological and spiritual ‘safety valves’ may be more effective safety valves than tangible social safety valves.”7 I still insist on this view to this day. Specifically, people’s psychological and spiritual safety valves refer to their recognition of this large group of society, their confidence in the prospects for social development, and their prospects for life. If they work together, social development goals are achievable, as are social welfare goals, and people’s living conditions will improve, and people will have more opportunities to display their talents. People’s recognition of this large group of society also reflects that if there are still unsatisfactory things in real life, it does not matter. This is because through reform, adjustment, and the establishment and improvement of social checks and balances, what is unsatisfactory will diminish or disappear. In short, with psychological and spiritual safety valves, we can resolve social contradictions, and social thoughts will have a correct orientation. This is the role of culture, which is also irreplaceable by market and government regulation. Market and government regulations are no replacement for the role of culture, but the role of culture promotes the transformation of people’s ideas and motivates people. From the perspective of social and economic operations, it is one of the criteria for judging whether to train people, respect people, and care for people. This is an effective way to end some people’s despair towards society. Freeing some people from a state of despair is also a crucial function of culture. 10.4.3  On moral reform Regarding the impact of culture on the social economy, we can sum up the following three points: First, the reason human beings are different from animals is that human beings have a cultural heritage. Human beings have recorded their own

7 Ibid., p. 197.

286  Cultural heritage and cultural sharing understanding of themselves and their understanding of society as cultural resources that only humans have. Second, human beings understand that personal life has a limit, but the life of clan and family can go on forever, so survival and reproduction are the most primitive goals of humankind. However, thanks to cultural inheritance, human understanding has improved. Human beings have gradually transformed the goal of survival and reproduction into a rational goal, that is, development and creation as common goals. After development and creation become goals shared by all, the content of human life will become increasingly abundant. Third, concepts of culture and ethics are also constantly innovating and enriching. From the late period of primitive society to modern times, culture has been continuously improved and constantly updated. While human society has repeatedly abandoned old culture, it has set up new cultures and new ethical concepts, emphasizing science, knowledge, self-​confidence, self-​respect, sharing, and rule of law. Overall, human progress and cultural progress coordinate with each other. The most important symbol of cultural progress is not only scientific development and technological breakthroughs, but also conceptual changes and moral reform. The development of science and technology, the transformation of ideas, and the reform of morality are often mutually reinforcing. As far as moral reform is concerned, it concentrates on the progress of science and technology of the relevant period and focuses on the fruits of the transformation of old ethics. Long ago in the past, old ethics emphasized hierarchy and identity, emphasizing that God was the centre and the officials were the centre. God infinitely adored the people, who were both afraid of and obedient to the officials. People not only depended on God, but also on officials. Therefore, the break between new and old culture first reflects a change of ideas and the formation of new ethical concepts. Moral reform is primarily that human beings are no longer slaves of God, nor are they dependents of officials. People are people. Moral reform is a lengthy process. Looking at the history books of China and foreign countries, since moral reform, what is the number of years that have passed since we have had gruesome killings, severe tortures, whole villages wiped out, and outright lies? People had to suffer to get to this point. Only through continuous reform of mortality can future generations gain current understanding. The new ethics is people-​oriented and people-​centred. This is a great achievement of moral reform. However, we have not completed the task of moral reform, and it is impossible to complete it quickly. This is because moral reform involves the improvement of the quality of people. This is a difficult point to make, but we must make significant efforts to improve the quality of people. The rule of the traditional social system distorted morality for a lengthy period. In a large environment that does not allow facts and truth, most people in society only looked out for themselves and were hypocritical. The mouth said yes but the heart said no, and a few were deliberately hypocritical for

Cultural heritage and cultural sharing  287 the purpose of personal gain. Conscious hypocrisy is a moral distortion and conscious hypocrisy is a moral decay. There was a social system foundation for the moral distortions and moral decay under the traditional social system. So, why do moral distortions and moral decay continue to exist even after the overthrow of the traditional social system? The arduousness of moral reform is the only thing that can explain this. In today’s China, reforming morals and improving the quality of the people are still urgent tasks. What we need to pay attention to is that in any society with moral decay, whether there are bad people or not, there sometimes will be more decay and sometimes less, and some places will have more decay than others. Why is there such a difference? There are only three reasons. One is the implementation of the rule of law. Two is the effectiveness of education. Three is the degree of moral self-​discipline of the people. To put it simply, good social custom can fade and, if it does, the fading will often start with hypocrisy, a lie, or meaningless words and empty talk. Therefore, to reform morality and improve the quality of the people, we must start from the rule of law, education, and self-​discipline. This is the common aspiration of society, and no one can violate this wish. 10.4.4  On the reconstruction of social trust People always live in a specific group, and that group is either big or small. However, regardless of its size, its existence and the maintenance of interpersonal relationships are inseparable from trust. Without mutual trust, it is impossible to produce harmonious interpersonal relationships. The market relies on social trust to keep going. Any enterprise that wants to survive and develop in the market must rely on its own credit and the credit of others. This is because trading activities only take place when enterprises and individuals trust each other. Market transactions between enterprises, between enterprises and individuals, and between individuals are nothing more than the trade of goods and services. Whether we are employed or seeking employment, lending money, leasing or transferring real estate, or acting as an entrusted agent (settlor, insurance, mergers and acquisitions, restructuring), there must be trust between both parties. In addition, there are usually far more non-​transaction areas in social life than there are trading areas. In the non-​transaction field, the relationship between people includes family, clan, relative, neighbourhood, hometown, classmate, teacher-​student, and alumni relationships. Although none of these acts according to market trading rules, trust is always there. Without trust, all these relationships would suffer. In fact, social trust is also a process. In this process, the interactions between people and the business activities between enterprises all rely on the continuous accumulation of mutual trust to develop and expand. In the transactional field, if there is loss of social trust, there will be market disorder and trader expectations cannot be ascertained. As a result, the economy will

288  Cultural heritage and cultural sharing go backwards, that is, trade once based on credit returns to cash transactions, and even cash transactions return to physical transactions. Finally, it may be hard for even physical transactions to exist. The situation might be even more serious and more difficult to imagine in the non-​transaction field. Once we lose social trust, everyone is in danger. No one can believe in others because there is no trust. Interpersonal relationships crumble, and all social organizations break up as a result. What social stability is there? This shows that social trust reconstruction and moral reform are not only interrelated, but also equally important. In terms of social trust reconstruction, all people are traders as soon as they enter the trading field. Their relationship with each other is subject to the rules of the trading field and cannot cross the legal bottom line or moral bottom line. As noted earlier in this book, there is a Western proverb:  He who lies to everyone will discover that everyone has deceived him. This is a profound proverb. It means that the deceitful person will never succeed in trading activities and eventually everyone will abandon him. In the non-​transaction field, the truth is the same. People will see those who lack credibility as unethical. Who wants to deal with such a person, let alone be willing to help this person? In the end, family, clan, relatives, and friends may cast him aside as a person who lacks creditability and morality. No one will sympathize with him, and no one will help him. There is a popular saying in the economics world, that is, the modern economy is a credit economy. These words are good, but do not express a deep enough understanding of the modern economy. Why say this? We judge economists from the perspective of the increasing influence of the financial industry and its increasingly significant role in economic growth and stability. The reason the modern economy is a credit economy is not only that the financial industry is becoming increasingly important, but also because the modern economy has shifted from the industrialization period to the information period. In the information economy, people are most concerned about credit. The use of information tools is becoming increasingly widespread, financing channels are widening, and the number of people investing in entrepreneurship is increasing. These are manifestations of the increasingly close relationship between the credit economy and information. In the case of telecom fraud cases for instance, the means are new, the amounts involved are getting bigger, and the number of victims is increasing. This has become a major scourge in the Information Age. The contest between committing crimes and solving cases is also receiving increased attention. These incidents reflect the new situation and unfamiliar problems of the credit economy in the Information Age. Therefore, in today’s discussion on the credit economy, the earlier concepts are far from enough. The term credit economy is still useable, but we must add new understandings. At this stage, when the credit economy is a new concept in the Information Age, both moral reform and social trust reconstruction are more necessary than ever before.

Cultural heritage and cultural sharing  289 Do we need a new understanding of the modern economy? In the industrialization era, or at the beginning of the credit economy, the importance of moral reform and social trust reconstruction was certainly not as high and profound as it is for people today. Understanding must deepen with the progress of the times, as this is something that is independent of human will. Learning and innovation go hand in hand, and we must pay equal attention to science and technology and moral reform and social trust reconstruction. This is a major trend that no one can stop. Looking forward to the future, moral reform and social trust reconstruction will certainly advance along with science and technology. Moral reform and social trust reconstruction will still be important tasks in the future. Moral reform and social trust reconstruction are tasks of cultural construction. In the third chapter of this book, we discussed cultural enlightenment and cultural innovation. In the fourth chapter, we discussed cultural adjustment. In the fifth chapter, we discussed cultural tolerance. In the sixth chapter, we discussed cultural confidence. In the seventh chapter, we discussed cultural checks and balances. In the eighth chapter, we discussed the highest state of culture and management. In the ninth chapter, we discussed cultural and economic sustainable development. Moreover, we discussed cultural heritage and cultural sharing in this chapter. In the future, can we give humanities and economics the name of cultural economics? Cultural economics summarizes the basic content of humanities in economics, highlights the role of moral power in the economy, and emphasizes the importance of the three adjustments and the third allocation. These are all issues that have not yet received attention.

290

Postscript

Since the mid-​1990s, I  have been teaching students the subject of beyond markets and governments in EMBA, MBA, and graduate classes at the Guanghua School of Management at Peking University, and have taught courses on the relationship between culture and economy. In 2010, Economic Science Press published a revised edition of Beyond the Market and Beyond the Government: On the Role of Moral Power in the Economy (the first edition was published in 1999). In the preface to the revised edition, I wrote this passage: “Not long ago, some students asked me, ‘Of your published writings, which three books do you believe best reflect your academic standpoint?’ I recommended the following”: 1 2 3

China’s Economy in Disequilibrium (Economic Daily Press, 1990, Guangdong Economic Press, 1998, and Encyclopedia of China Publishing House, 2009); Beyond the Market and Beyond the Government:  On the Role of Moral Power in the Economy (Economic Science Press, 1999, revised in 2010); The Origin of Capitalism:  A Comparative Study of Economic History (The Commercial Press, 2003).

This book in front of us, Cultural Economics, is my latest work, done at the invitation of The Commercial Press. It was written from 2015 to 2016. I want to say that this book is another one of my masterworks. The reason I authored Cultural Economics is inseparable from my attention to the role of culture in the economy in later years. I  have always been concerned about the importance of cultural development in the development of socialism with Chinese characteristics, thus the determination to explore and elaborate on cultural and economic development, economic reform, and economic transformation from a wider field. From this perspective, I not only explored when writing this book, but also have a hope that readers will realize the significance of cultural research and continue to explore, discover, and summarize. A path always comes out step by step. In this regard, no one is all-​seeing, and everyone is on a path of exploration. Later generations surpass their

Postscript  291 predecessors, which conforms to laws but also to the mission given by history. I hope to see more books on cultural economics. I received a lot of help from students during the writing of this book. They were: Cheng Zhiqiang, Tong Guangyi, Pu Yufei, Luo Qing, Liu Jianxin, Liu Huanxing, Jiang Cheng, Zhang Wenbin, Liu Yuming, Li Jinbo, Teng Fei, Zheng Shaowu, Zhao Jinyong, Fu Shuaixiong, Yin Jun, Liu Haibei, Hao Yang, Chen Qi, Huang Shunkui, Wang Fuhuan, Liu Liwen, Zhao Qiuyun, Wu Yuchen, Bai Ye, Meng Ming, and Li Heran. My thanks should go to the editors and proofreaders of The Commercial Press for their significant effort to the editing and publishing of this manuscript.

292

Appendix Bibliography of the works of Li Yining on the relationship between culture and economics

1 Economics of Education (Beijing Press, 1984) 2 Systems, Goals, People: The War Faced by Economics (Harbin: Heilongjiang People’s Publishing House, 1986) 3 Socialist Political Economy (The Commercial Press, 1986) 4 Economic Management (Hebei People’s Publishing House, first edition, 1988, and revised in 1997) 5 Environmental Economics (co-​ authored with Zhang Zheng, China Planning Publishing House, 1995) 6 Ethical Issues in Economics (SDX Joint Publishing Company, 1995) 7 Economy, Culture, and Development (SDX Joint Publishing Company, 1996) 8 Transformational Development Theory (Beijing Tongxin Publishing House, 1996) 9 Beyond the Market and Beyond the Government:  On the Role of Moral Power in the Economy (Economic Science Press, 1999, and revised in 2010) 10 The Origin of Capitalism:  A Comparative Study of Economic History (The Commercial Press, 2003) 11 Collection of Lectures of Li Yining at Peking University (Economic Science Press, 2003) 12 Collection of Economic Reviews of Li Yining (Economic Science Press, 2005) 13 Collection of Special Works of Li Yining (Economic Science Press, 2005) 14 Collection of Essays on Reform of Li Yining (China Development Press, 2008) 15 Self-​Selected Works of Li Yining (Xuexi Press, 2008) 16 Strive Hard to Find a Way: Selected Works of Li Yining (Encyclopaedia of China Publishing House, 2013) 17 The Road to Dual Economic Transformation in China (Renmin University of China Press, 2013) 18 Low-​Carbon Economy (co-​authored with Fu Shuaixiong and Yin Jun, Jiangsu People’s Publishing House, 2014)

Appendix  293 19 Always Take in the Mountain View from Different Perspectives: Selected Essays of Li Yining (Expanded Edition) (The Commercial Press, 2014) 20 Work Hard and Ask for Nothing:  Selected Works of Li Yining (Encyclopaedia of China Publishing House, 2015)

Index

adaptation principle of management 21,  215–​16 adjustments, cultural: government regulation 95–​9; management of Western European medieval cities and 107–​10; market regulation 93–​5; moral power regulation 99–​110; order of three 91–​101; progress of the third regulation in 101–​10; studying the effective allocation of resources and 91–​3; three regulations as complementary and 105–​7; two foundations of efficiency and 110–​18 Agrarian Revolution 80 Alexander, King of Macedonia 119–​20 allocative efficiency 18–​19 An Shi Rebellion 128–​9 ancient civilizations 121 Anglicanism 263 animal spirits 185 asset restructuring 34–​6 bandits 140 Bao Huiseng 77 Beyond the Market and Beyond the Government: On the Role of Moral Power in the Economy 285 Boulding, K. 89 bounded rationality hypothesis 181–​2,  185 British Economy in the 20th Century: A Study of English Diseases, The 218 Buddhism 136–​7,  138–​9 business entities, cultural industry 28–​30 Cai Chang 76 Cai Hesen 76 Cai E 61 Cai Yuanpei 64–​5, 69, 73

Calvinism 263 Cao Kun 61 Cao Rulin 70 capital investment 232–​3 career paths 133 Catholicism  263–​4 checks and balances, cultural: economic man hypothesis and social man hypothesis and 178–​86; persistence of 194–​202; progressive and suppressive factors in 186–​8; small business owners and 186–​94; as synonymous with moral checks and balances 174–​8 Chen Duxiu 58, 59, 62–​5, 72, 75, 77–​8 Chen Gongbo 77 Chen Tanqiu 77 Chen Zhenhan 1–​2, 3 China: aging population in 51–​2; confidence in overcoming the middle-​ income trap in 258–​60; continued innovation as central to new culture of 83–​8; cultural industry and new impetus for economic growth in 38–​40; culture of ancient 125–​30; development strategy for the cultural industry in 37–​8; emergence and development of new culture of 58–​69; fight against monastic forces in history of 137–​9; meaning of cultural enlightenment in 66–​7; religious conflicts and resolution of ethnic barriers in 140–​3; spread of Buddhism in 136–​7; see also New Culture Movement China New Education Cooperative 75 choice  205–​7 Christianity 120–​1, 133; intermarriage and 130–​1; Protestant ethics and  261–​4

Index  295 Civilian Education Lecture Group 75 codes of conduct 248–​50 Collection of Special Works of Li Yining 3 collective goals 19–​20 common destiny: countermeasures for narrowing the urban-​rural income gap under the market economy and 209–​12; meaning of 203–​4; starting point fairness and outcome fairness and 207–​8; transcendental interests and 204–​7 Commons, J. 89 Communist Manifesto, The 78 Communist Party of China (CPC) 35, 39, 53, 69, 73–​4; New Culture Movement and establishment of 77–​8 confidence, cultural: comprehensive understanding of concept of human capital and 152–​6; cultivating young generation’s spirit of innovation 156–​64; defined 147–​8; enterprise culture and 170–​3; farming and 158–​64; historical nihilism and national nihilism and 148–​9; identity and 149–​51; meaning of 147–​51; new entrepreneurial groups and 164–​73; system confidence and 156 conspicuous consumption 89, 179–​80, 181 construction, cultural 106 consumer-​demand management  96 contract systems 25 costs in creation of cultural products 15–​17 creation, cultural products: costs in 15–​17; resource allocation efficiency and adjustment in 17–​19; social benefits of 23–​7; X efficiency and production status in 19–​23 creativity and cultural industry 45–​6 credit economy 288 criteria for social evaluation of cultural products 8–​9 cultural accumulation, human capital accumulation as 153–​5 cultural heritage: cultural evolution and 262–​4; excavation and protection of cultural resources in 264–​6; family business succession and 274–​82; Max Weber theory and 261–​2; transformation of potential demand

and supply to actual demand and supply and 266–​8 cultural industry: business entities in 28–​30; China’s development strategy for 37–​8; cultural undertakings and 30–​1; defined 28–​32; economic growth role of 38–​45; economies of scale and 33–​4; emergence of social-​ harmony dividend and 55–​7; green economy and 53–​5; high technology and 32–​3; international trends in 32–​8; mass creativity innovation and entrepreneurship and 45–​6; monopoly and 36–​7; mutual beneficial interaction with related industries to 43–​4; as neutral industry 31–​2; new content of GDP and development of 44–​5; social development role of 45–​57; social employment growth and 41–​3; social-​harmony dividend and 55–​7; social old-​age pension security and 51–​2; social purchasing power in rising household income and 40–​1; structural adjustment and asset restructuring and 34–​6; urbanization and 46–​51 cultural products: changes in criteria for social evaluation of 9–​10; criteria for social evaluation of 8–​9; economic benefits of creation of 15–​23; harmful content in 13; lag in social evaluation of 7–​8; premium of 21–​3; social benefits of creation of 23–​7; social evaluation of use value of 10–​15; special nature of 4–​10; transaction processes for 5–​7; two categories of 5 cultural regulation, moral power regulation as 116–​18 cultural resources: excavation and protection of 264–​6; supply and demand of 266–​8 Cultural Revolution 1966–​76 85 cultural undertakings and the cultural industry 30–​1 culture: gap in understanding of, among different generations 194–​7; among different occupations 198–​201; government management and 254–​6; improvement of quality of life from perspective of 222–​4; as integral part of factors of production 256–​8; market competition and 252–​4; sharing as a 268–​74 customary economy 101

296 Index Darwin, C. 10 demand management 96–​7 Deng Emming 77 Deng Xiaoping 171 Deng Yingchao 75 Deng Zhongxia 76 design, social 226–​8 dispute resolution 139–​40 diversity: cultural 121–​3; world 119–​21 Dong Biwu 77 Drewnowski, J. 249–​50 dual evaluation system 249–​50 dual labour market 198–​201 Duan Qirui 61–​2 Eastern Zhou Dynasty 126 economic man hypothesis: cultural checks and balances of 184–​6; family business and 182–​4; long-​term coexistence of social man hypothesis and 181–​2; meaning of 178–​9; small business and 194 economics: cultural, benefits of cultural products creation and 15–​27; cultural enlightenment and cultural innovation included in 88–​90; as a discipline 14–​15; role of cultural industry in economic growth and 38–​45; as science of social enlightenment and design 226–​8; social psychology analysis in 244–​52 Economics and Culture 3 economies of scale and cultural industry 33–​4, 43–​4 Economy, Culture, and Development 3 education economics 15 efficiency: extraordinary 114–​16; material and technical foundation of 110–​11; moral foundation of 111–​14; unified with ethical standards 156–​8 empirical economics 14 employees, disharmony among 20 Engels, F. 78 Enlightenment 75 enlightenment, cultural 66–​7, 226–​8; deepened cultural innovation and continued 78–​90; included in cultural economics 88–​90; as incomplete 79–​80 enterprise culture 170–​3 enterprising spirit 189–​91 entertainment industry 43, 50; as part of cultural sharing 273–​4

entrepreneurship: cultural industry and 45–​6; defined 164–​5; social responsibility in 165–​6, 193–​4; third allocation and 166–​70 environmental economics 15 Ethical Issues in Economics 269–​70 ethical standards unified with efficiency 156–​8 ethnic barriers, resolution of 140–​3 European cultures 124–​5 evolution, cultural 262–​4 exchange-​rate management  96–​7 extraordinary efficiency 114–​16 fairness 207–​8 false beliefs 148–​9 family business: choosing administrators or managers of 277–​9; economic/​ social man hypotheses and 182–​4; family enterprise inheritance and 274–​7; human capital dedication and profit-​sharing system in 279–​82; succession in 274–​82 family relations: identity and 151, 203; regulation of 104 farmers: as entrepreneurs and innovators 158–​61; as profession, not identity 161–​4 Feng Guozhang 62 festivals, cultural 141 Five Dynasties 129 French Revolution 264 Galbraith, J. 89 Gao Chonghuan 76 gap between personal behaviour and social norms 250–​2 gap in understanding of culture: among different generations 194–​7; among different occupations 198–​201 GDP (gross domestic product): cultural industry and growth of 38–​40; development of cultural industry and new content of 44–​5; social coordination and 99; social endurance and 246 general goods, use value of 12–​13 General Theory of Employment, Interest, and Money, The 236 generational gaps in understanding culture 194–​7 gift money 180–​1 GNP (gross national product) 246

Index  297 goals, inconsistent 19–​20 government management and culture 254–​6 government regulation 95–​100; as complementary with other regulations 105–​7 Greek culture 121–​4 green economy 53–​5 guiding 117–​18 Guo Longzhen 75 Han culture 129–​30 Han Dynasty 126–​7, 265 happiness 224–​6 health economics 15 Heilbroner, R. 89 Hellenistic kingdoms 119–​20 He Shuheng 76 Hicks, J. 101 highest level of management 216–​19 historical books 9 historical immigrant society 115–​16 historical nihilism 148–​9 History of the Ancient Greek Economy 2 History of the Roman-Byzantine Economy 2 households: social purchasing power of 40–​1; urban-​rural household registration system 50 Huang Deze 3 Huang Xing 60 human capital: accumulation of, as cultural accumulation 153–​5; cultural confidence and 155–​6; overview of 152–​3 human capital dedication and profit-​ sharing system 279–​82 human resources structure 232 Hu Shi 63–​4, 65, 72, 75 identity 203; cultural confidence and 149–​51; national 205 immigration, international 206 incentive principle of management 21, 213–​15 inclusion, cultural: cultural diversity and 121–​3; cultural tolerance as premise of 134–​5; fight against monastic forces and 137–​9; foundation of integration of ancient Chinese culture and 125–​30; merging cultures and 123–​5; policy on people’s livelihood and 139–​40; religious conflicts and

resolution of ethnic barriers and 140–​3; role of urbanization in promoting 143–​6; spread of Buddhism and 136–​7; world diversity and 119–​21 income distribution gap 86–​8, 166–​7; rationality of 269–​71 industrialization 47, 59; checks and balances and 201–​2; monotony of life and 221 Industrialization and Institutional Adjustment 2 industrial restructuring 97 inertia range 20–​1 information dissemination 50 innovation, cultural 45–​6, 67–​9; continued cultural enlightenment and deepened 78–​90; cultural confidence and 156–​64; ethical standards and 156–​8; included in cultural economics 88–​90; making millions of farmers entrepreneurs and innovators 158–​61; new culture of China depending on continued 83–​8; unstoppable trend of 81–​3 institutional structure 240–​1 institutional trap of development 242–​3 intermarriage 130–​1 Introduction to Cultural Economics 3 investment-​demand management  96 invisible hand 99–​100, 105–​6 Jewish people 250; career paths of 133; intermarriage and 130–​1; property buying by 132–​3; trade and 131–​2 Jiang Mengling 75 Jin Dynasty 115, 127 Jones, R. 89 Kang Youwei 60 Keynes, J. M. 185, 236 Keynesianism: non-​idealization of government behaviour and 236–​7; proposal for multi-​goal problems and 237–​40 labour force 47–​50; dual labour market and 198–​201; restructuring of 98–​9 lag in social evaluation of cultural products 7–​8 Leibenstein, H. 19 leisure industry 43, 50; as part of cultural sharing 273–​4 Liang Qichao 60

298 Index Li Da 77–​8 Li Dazhao 58, 59, 62–​5, 69, 72–​3, 75–​7 Li Hanjun 77 Lin Yunan 75–​6 Liu Renjing 77 Li Weihan 76 Li Yuanhong 61 Luo Zhanglong 76 Luther, M. 263 Lu Xun 64, 65 Lu Zongyu 70 macroeconomics 89 macro-​level production 220 management: adaptation principle of 21, 215–​16; highest level of 216–​19; incentive principle of 21, 213–​15; mandatory principle of 21, 212–​13; mission to revive research on 228–​9; people and 219–​9 mandatory principle of management 21,  212–​13 manufacturing industry 43; labour force for  47–​50 Mao Zedong 76 market competition and culture 252–​4 market economy, narrowing the urban-​ rural income gap under 209–​12 market regulation 93–​5, 99–​100, 166; as complementary with other regulations  105–​7 market system 232 marriage 130–​1, 195 Marx, K. 78 Maslow’s hierarchy of needs 244–​5 material and technical foundation of efficiency  110–​11 Max Weber theory 261–​2 May 4th Movement 70–​1, 75, 195 medieval Western European cities, management of 107–​10 merging of cultures 123–​5 mesoeconomics 89 microeconomics 88–​9,  191–​2 micro-​level production 220 middle-​income trap 241–​4,  258–​60 migrant workers 48–​50; cultural inclusion and 141–​2 Ming Dynasty 139 Mitchell, W. 89 mixer hypothesis 94–​5 monastic forces, fight against 137–​8 monopolistic competition 94

monopoly 36–​7, 93, 94 monotony of life 220–​1 moral checks and balances 174–​8 moral foundation of efficiency 111–​14 moral power regulation 99–​101; actual situation during period of social unrest 102–​3; actual situation in remote areas 101–​2; as complementary with other regulations 105–​7; as cultural regulation 116–​18; regulation of non-​transaction field in 103–​5; social adjustment role of 155–​6 moral reform 285–​7 multi-​goal problems  237–​40 National Bureau of Statistics 28–​9, 39 national nihilism 148–​9 natural disasters 115 Neiman-​Nikolsky, V. A. 77 neutral industry, cultural industry as  31–​2 New Culture Movement: background of 59–​62; continued cultural enlightenment and deepened cultural innovation and 78–​90; continued exploration of social change and 74–​7; eastward spread of Western culture and 71–​4; establishment of the Communist Party of China and 77–​8; generation gap and 195; historical status of 69–​78; 100th anniversary of 58–​9; meaning of cultural enlightenment and 66–​7; new stage of 69–​70; origins of the May 4th Movement and 70–​1; Peking University as centre of 64–​6, 69; real leader of 62–​4; significance of cultural innovation and 67–​9; temporary end to  78–​9 New Education 75 New Industrial State and Economics, The 89 New People’s Study Society 76 New Youth 62–​4, 65, 69, 73 nihilism  148–​9 non-​idealization of government behaviour  236–​7 non-​procedural decision making 252–​4 non-​transaction field, regulation of  103–​5 normative economics 14 Northern Dynasties 127 not-​for-​profit cultural undertakings 31

Index  299 occupational gaps in understanding culture 198–​201 old-​age pension security 51–​2 Old Religion 263–​4 operating losses 192–​3 Opium Wars 2, 59, 144, 204 Origin of Capitalism: A Comparative Study of Economic History, The 1, 2, 129 patriotism 26, 114, 205 Peking University 64–​6, 69, 76, 81–​2 Peking University Daily 76 people: and economics as science of social enlightenment and design 226–​8; improved quality of life for 222–​4; monotonous lives of 220–​1; production for 219–​20; re-​recognizing relationships between 235–​6; understanding happiness in 224–​6 perfect competition 94 personal behaviour 250–​2 personal goals 19–​20 personal inertia 21 personal preference 248–​50 premium of cultural products 21–​3 procedural decision-​making  252–​3 production factors, culture as integral part of 256–​8 production for people 219–​20 productive efficiency 17–​19 property ownership 132–​3, 272–​3 Protestant Ethic and the Spirit of Capitalism, The 261–​2 Protestantism 261–​4 psychosocial analysis 244–​6 Public Purpose, The 89 public stoves 110 Qin Dynasty 126 Qing Dynasty 60, 66–​7, 72, 82, 115–​16, 135; Buddhism in 137; generation gap and 195; land reforms in 139–​40 quality of life 222–​4 reality principle and sustainable macroeconomic development 236–​44 recombination of factors of production 230–​6 regional restructuring 97–​8 religious conflicts 140–​3 resource allocation: cultural products creation and efficiency and adjustment

in 17–​19; mission of economics as understanding 91–​3; supply side structure reform and 233–​4 Review of Western Welfare Economics 249 Robinson, J. 238–​9 Roman culture 120–​4 scale advantage 33–​4, 43–​4 Schumpeter, J. 164 self-​regulation  186–​7 share weal 113 share woe 113 sharing: goal of 282–​3; as goal that will persist 282–​9; leisure and entertainment as integral part of cultural 273–​4; meaning of 268–​9; moral reform and 285–​7; process of social unrest accumulation and cultural 271–​3; rationality of income distribution gap and 269–​71; social safety valve and 283–​5; social trust reconstruction and 287–​9; see also cultural heritage Simon, H. 181–​2, 185 Sinicization of Buddhism 136–​7 Sino-​Japanese Wars 2, 59–​60 small business owners: enterprise and social responsibility and 193–​4; impact of enterprise and individual social responsibility on economic performance of 193–​4; negative impact of operating losses on 192–​3; re-​recognizing the vitality of microeconomic units 191–​2; role of enterprising spirit in 189–​91; role of ideas of 188–​9; social progressive and suppressive factors for 186–​8 Sneevliet, H. J. F. M. 77 social benefits of cultural products creation 23–​7 social change 74–​7 social coordination 99 social crisis trap 243 social design 226–​8 social development, role of cultural industry in 45–​57; green economy and 53–​5; mass creativity, innovation, and entrepreneurship and 45–​6; social-​ harmony dividend and 55–​7; social old-​age pension security and 51–​2; urbanization and 46–​51

300 Index social employment growth and cultural industry  41–​3 social endurance 246–​8 social enlightenment 226–​8 social evaluation of cultural products: changing criteria for 9–​10; criteria for 8–​9; lag in 7–​8; use value 10–​15 social-​harmony dividend 55–​7, 144 social income distribution 86–​8, 166–​7 Socialist Political Economy 219, 226 socialist systems 26 social man hypothesis: cultural checks and balances of 184–​6; family business and 182–​4; long-​term coexistence of the economic man hypothesis and 181–​2; meaning of 179–​81; small business and 194 social norms 250–​2 social old-​age pension security 51–​2 social psychology 244–​52 social purchasing power 40–​1 social responsibility, entrepreneur 165–​6,  193–​4 social trust 287–​9 social unrest accumulation 271–​3 socio-​economic structure  240–​1 Song culture 129–​30, 135 Song Dynasty 128–​9 structural adjustment 34–​6 suboptimal decision theory 182, 185 succession, family business 274–​82 Sui Dynasty 127, 129 Sun Yat-​sen 60–​1, 74, 79 supply and demand of cultural resources  266–​8 supply management 97–​9 supply side structural reform 233–​4 sustainable development: reality principle and 236–​44; recombination of factors of production for 230–​6; role of re-​discussion in 252–​60; social psychology analysis in economic research and 244–​52 system confidence 156 Systems, Goals, People: The War Faced by Economics  230–​1 Tang culture 129–​30 Tang Dynasty 127–​9; Buddhism in  136–​7 Tang Jiyao 61 Taoism  138–​9

technology: cultural industry and 32–​3, 43–​4; market regulation and 93–​4; restructuring of 98 technology trap 244 Theory of Economic History, A 101 Theory of the Leisure Class, The 89, 179 third allocation 166–​70; see also moral power regulation 3-​2-​1 order  39–​40 Tierra del Fuego 10 Tinbergen, J. 249–​50 tolerance, cultural: content of 130–​3; meaning of 134–​46; as premise of cultural integration 134–​5; Sinicization of Buddhism and expansion of 136–​7 tourism industry 43, 51 trade  131–​2 traditions, cultural 155 transaction processes for cultural products  5–​7 transcendental interests 204–​7 urbanization: cultural inclusion and 143–​6; cultural industry and 46–​51 urban-​rural household registration system 50, 144–​5 urban-​rural income gap, narrowing of the  209–​12 use value of cultural products, social evaluation of 10–​15; difference between general goods and 12–​13; how to evaluate and look at 13–​15 Veblen, T. 89, 179 visible hand 105–​6 Voitinsky, G. 77 Wang Guangqi 75 Wang Huixin 3 Wang Jinmei 77 Wang Youde 76 War of Liberation 80 War of Resistance 80, 114, 196–​7 Water Margin, The 85 Weber, M. 261–​2 Weekly Review 75 Wei Dynasty 127 Wenchuan Earthquake 115 Western culture: eastward spread of 71–​4; Protestant ethics in 261–​4

Index  301 Western Zhou Dynasty 125–​6 world diversity 119–​21 World Trade Organization 84 Wuhan Liqun Book Society 75–​6 Wu Peifu 61 Wu Rumin 76 X efficiency 19–​23, 112 Xiang Jingyu 76 X negative efficiency 21 Xu Shichang 70 Yan Daiying 75–​6 Yangtze River Flood 115 Young China Association 75 Youth Magazine 62, 64, 76

Yuan Dynasty 135 Yuan Shikai 60–​1, 68 Zen Buddhism 136–​7, 138–​9 Zhang Guotao 76, 77–​8 Zhang Kundi 76 Zhang Shenfu 75, 76 Zhang Xun 61–​2 Zhang Zongxiang 70 Zhang Zuolin 61 Zhou Binglin 1, 2, 3 Zhou Dynasty 125 Zhou Enlai 75 Zhou Fohai 77 Zhou Shuren 64 Zhou Zuoren 75