Chinese and Indian Business: Historical Antecedents 9789004172791

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Chinese and Indian Business: Historical Antecedents

Social Sciences in Asia Edited by

Vineeta Sinha Syed Farid Alatas Chan Kwok-bun

VOLUME 24

Chinese and Indian Business: Historical Antecedents Edited by

Medha Kudaisya and Ng Chin-keong

LEIDEN • BOSTON 2009

This book is printed on acid-free paper. Library of Congress Cataloging-in-Publication Data Chinese and Indian business : historical antecedents / edited by Medha Kudaisya and Ng Chin-keong. p. cm.—(Social sciences in Asia, 1567–2794 ; v. 24) Includes bibliographical references and index. ISBN 978-90-04-17279-1 (pbk. : alk. paper) 1. China—Commerce—History. 2. India—Commerce—History. 3. Industries—China—History. 4. Industries—India— History. I. Kudaisya, Medha M. II. Ng Chin-Keong. III. Title. IV. series. HF3834.C475 2009 338.0089’951–dc22

2008048199

ISSN 1567–2794 ISBN 978 90 04 17279 1 Copyright 2009 by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Hotei Publishing, IDC Publishers, Martinus Nijhoff Publishers and VSP. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. printed in the netherlands

CONTENTS Acknowledgements ....................................................................... Note on Contributors ...................................................................

vii ix

Introduction ..................................................................................

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Chinese and Overseas Chinese Business History: Three Challenges to the State of the Field ............................. Sherman Cochran

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Beyond Networking: An Institutional View of Chinese Business ..................................................................................... David Faure

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‘Decentering’: the Rise of Hong Kong as a Network Society .... Wong Siu-lun Marwari and Chettiar Merchant’s, c. 1850s–1950s: Comparative Trajectories ......................................................... Medha Kudaisya

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‘Colonial Syndrome’ and Technology Choices in Indian Industry ......................................................................... 121 Dwijendra Tripathi Indian Business, State and Civil Society: Implications for Global Participation .................................................................. 143 Aditya Mukherjee Bibliography .................................................................................. 163 Index ............................................................................................. 175

ACKNOWLEDGEMENTS This volume arose from the proceedings of a workshop held at the Department of History in the Faculty of Arts and Social Sciences of the National University of Singapore. The workshop aimed to study the historical antecedents of business in the two economies of China and India. Discussions during the workshop shed light on many previously unexplored aspects of business and its historical evolution in the two societies. They also highlighted the different trajectories which the study of business history have taken in India and China. The proceedings of this workshop, along with two invited contributions, are presented in this volume. In the organization of the workshop and the subsequent work involved in bringing its proceedings to fruition in the form of a publication, we have incurred many debts. We would like to acknowledge the Department of History of the National University of Singapore and the Asia Research Institute which strongly supported this project. We owe a special thanks to Tan Tai Yong in the Faculty of Arts and Social Sciences at the National University of Singapore for his consistent encouragement and for gently prodding us to put this volume together. We would also like to thank participants at the workshop for their comments. Financial support in generous measure was given by the Tan Foundation. Contributors to the volume have been indulgent with the time it has taken to put the volume together and we are grateful for their patience. We would like to thank the two anonymous referees to whom this manuscript was sent for review for their incisive comments. Finally, we are much indebted to the editors of the Brill Social Sciences in Asia Series, Vineeta Sinha and Syed Farid Alatas, for their strong interest in the project and their encouragement. We thank Anthony Green for his meticulous editing of the manuscript.

NOTE ON CONTRIBUTORS Sherman COCHRAN is the Hu Shih Professor of History at Cornell University. His major publications include Encountering Chinese Networks: Western, Japanese and Chinese Corporations in China 1880–1937 (Berkeley: University of California Press, 2000); Inventing Nanjing Road: commercial culture in Shanghai, 1900–1945 edited by Sherman Cochran (Ithaca: East Asia Program, Cornell University, 1999); Big Business in China (1980); Chinese Medicine Men and Consumer Culture in China, 1880–1956 (Harvard University Press, 2006) and (co-editor) Cities in Motion: Interior, Coast and Diaspora in Transnational China (Berkeley: University of California Institute of East Asian Studies, 2007). WONG Siu-Lun is Professor and Director of the Centre of Asian Studies at the Hong Kong University. His main publications include: Sociology and Socialism in Contemporary China (1979), and Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong (OUP, 1988). He is also the co-editor of Hong Kong’s Transition: A Decade after the Deal (1995), Hong Kong in the Asia-Pacific Region: Rising to the New Challenges (1997) and Dynamic Hong Kong: Its Business and Culture (Hong Kong, Centre of Asian Studies, The University of Hong Kong, 1997). David FAURE is Professor of History at the Chinese University of Hong Kong. He was previously teaching at the Faculty of Oriental Studies at the University of Oxford. His main publications include Colonialism and the Hong Kong Mentality (2003); (co-editor) Economy: A Documentary History of Hong Kong, Volume 3 (2004); Hong Kong: a reader in social history (edited, OUP, 2003); China and Capitalism, A History of Business Enterprise in Modern China (Hong Kong University Press, 2006); Emperor and Ancestor: State and Lineage in South China (Standford University Press, 2007). Dwijendra TRIPATHI is one of the pioneers in the study of Indian business history and was, for many years, Kasturbhai Lalbhai Professor of Business History, Indian Institute of Management. His most recent publication is The Oxford History of Indian Business (OUP, 2004). Other publications include Dynamics of a Tradition: Kasturbhai Lalbhai & his Entrepreneurship (Manohar Publications, 1982); an edited volume on

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Business and Politics in India: A Historical Perspective and Business Houses in Western India: A Study in Entrepreneurial Response, 1850–1956 (with Makrand Mehta, Manohar Publications, 1990). Aditya MUKHERJEE is Professor at the Centre for Historical Studies, Jawaharlal Nehru University, Delhi. His publications include Imperialism, Nationalism and the Making of the Indian Capitalist Class 1920–1947 (Sage, 2002) and, with Bipan Chandra and Mridula Mukherjee, India’s struggle for independence, 1857–1947 (Viking, 1998). Medha KUDAISYA teaches at the History Department at the National University of Singapore. Her most recent work is The Life and Times of G. D. Birla (OUP, 2003). Other publications include: ‘Reforms by Stealth’: Indian Economic Policy, Big Business and the Promise of the Shastri Years, 1964–66’ in South Asia, Journal of the South Asian Studies Association of Australia, Special Issue on ‘Society, Realm and Nation in Colonial and Postcolonial South Asia’ Volume XXV, No. 2, August 2002 and ‘G D Birla, Big Business and the Partition of India’ in D. A. Low and Howard Brasted (ed.) North India and Independence: Freedom, Trauma and Continuity (New Delhi, Sage 1998). Editors: Medha KUDAISYA NG Chin-keong, Professor (retired), Department of History, Faculty of Arts and Social Sciences, National University of Singapore. He has worked on Chinese maritime history in general and China’s southeast coast and Fujian in particular.

INTRODUCTION In recent years the phenomenal rise of the economies of China and India after the 1980s has led to a proliferation of academic studies and commentaries. While few of them offer serious analysis, many have used phrases such as the emergence of the two ‘Asian giants’, the unshackling of the ‘caged tigers,’ the rise of the ‘dragon and the elephant’ and of the ‘Asian juggernauts.’ Much of the focus of such works has been on economic performance, development strategies and the comparative advantages of the two nations.1 References have been made, for example, to the ‘three billion new capitalists’ mainly from China and India who are going to redefine the global economic future. Yet the comparative study of business as an agent of change in the two societies still remains something of a historical blind-spot. It was the need to undertake a scholarly examination of the historical antecedents of these entrepreneurs in a comparative manner that has brought these articles together into one volume. As the essays presented here engage with a number of issues, this Introduction aims to outline only some of the more salient ones. One common concern of the essays that are included here is the interface between political systems and the commercial propensities of mercantile groups. The articles on China are especially interested in

1 Such works include Alan Winters and Shahid Yusuf (ed), Dancing with giants: China, India, and the global economy (Washington: Institute of Policy Studies, 2007), David Smith, The dragon and the elephant: China, India and the new world order (London: Profile, 2007), Brahma Chelleney, Asian juggernaut: the rise of China, India, and Japan (New Delhi: Harper Collins, 2006), Waheguru Pal Singh Sidhu and Jing-dong Yuan, China and India: cooperation or conflict? (Boulder: Lynne Rienner, 2003). There is also literature comparing different sectors of the economy such as T. N. Srinivasan (ed), Agriculture and trade in China and India: policies and performance since 1950 (San Francisco: ICS Press, 1994), George Rosen, Contrasting styles of industrial reform: China and India in the 1980s (Chicago: University of Chicago Press, 1992), Lawrence Saez, Banking reform in India and China (New York: Palgrave Macmillan, 2004), James M. Popkin, Partha Iyengar, IT and the East: how China and India are altering the future of technology and innovation (Boston, Mass.: Harvard Business School, 2007). The term used in looking at the two countries, ‘ChIndia’ first coined by the Indian politician Jairam Ramesh, has also been used by others such as Pete Engardio (ed.), Chindia: how China and India are revolutionizing global business (New York: McGraw-Hill, 2007).

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this theme.2 In his article ‘Decentering: the rise of Hong Kong as a network society,’ Wong Siu-lun argues that the British imperium and its attendant values were necessary for the birth of the truly commercial spirit that is reflected in Hong Kong’s network society. By implication Wong argues that Chinese-style centralization was too debilitating, and that a network society could only be born with the replacement of the Chinese regime with the British imperial presence in 1842. With its remarkably strong and resilient centre, traditional China, anchored deeply within the Confucian ethos, was inherently hostile to innovative mercantile activities. Not surprisingly, the centre was managed by a regime which perceived networking activities as being disruptive to social order, in that while they were economically useful, they were culturally subversive. The mobile nature of merchants and their operations also implied that they thrived on breaking down boundaries and borders, and the Chinese literati-based state sought to discourage the formation of merchant families by placing them at the bottom of the status system. The state also enacted laws to deprive merchants of power and social prestige and attempted to restrain them from venturing overseas by imposing a registration system that extolled sacred attachment to 2 State-business relations have been an important theme within business historiography on both China and India. Interestingly, in both contexts, this discussion has been driven by the question as to why the economy did not modernize and a concern with the non-development of capitalism. Chinese historiography has concentrated on government-business relations and interactions within the setting of business enterprises in which the state had a stake. For the historiography on China, see Robert Gardella and Andrea McElderry, ‘Guest Editors Introduction: Interpretative trends and priorities for the future’ in Robert Gardella, Jane K. Leonard, Andrea McElderry (ed.), Chinese business history: interpretative trends and priorities for the future (New York: M. E. Sharpe, 1998). Some representative works include Parks M. Coble, Jr, The Shanghai capitalists and the Nationalist government, 1927–1937 (Cambridge, Mass: Council on East Asian Studies, Harvard University, 1980), Susan Mann, Local merchants and the Chinese bureaucracy, 1750–1950 (Stanford: Stanford University Press, 1987), Susan Mann, “The Ningpo Pang and Financial Power at Shanghai.” In Mark Elvin and G. William Skinner, eds., The Chinese City Between Two Worlds (Stanford: Stanford University Press, 1974), N. T. Wang, China’s modernization and transnational corporations (Lexington: Lexington Books, 1984), Kirby, William C., “The Chinese War Economy.” In James C. Hsiung and Steven I. Levine, eds., China’s Bitter Victory: The War with Japan 1937–1945 (Armonk: M. E. Sharpe, 1992) and his “Continuity and Change in Modern China: Economic Planning in the Mainland and on Taiwan,” Australian Journal of Chinese Affairs 24 ( July, 1990). See Yen-P’ing Hao, ‘Themes and Issues in Chinese Business History’ in Robert Gardella, Jane K. Leonard, Andrea McElderry (ed), Chinese business history: interpretative trends and priorities for the future (New York: M. E. Sharpe, 1998). Amongst the new work is Donald Hay (et al.), Economic reform and state-owned enterprises in China, 1979–1987, (New York: Oxford University Press, 1994), Doug Guthrie, Dragon in a three-piece suit: the emergence of capitalism in China (Princeton: Princeton University Press, 1999).

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one’s native place. In these ways the embryonic entrepreneurial forces were subdued and tamed. As such, Wong argues, under Confucianism the mercantile tradition was contained and suppressed and denied status. This had the effect of nurturing pent-up energy and tension that was for long bottled-up and waiting to be released. Western intrusion, striking at that critical point of tension, was historically significant as it shattered the cap and released the entrepreneurial energy. While the drama of collapse could be found in Peking, the saga of the rebirth of entrepreneurial values, which eventually moulded a new centre, could be seen in Hong Kong. Wong thus argues that only a weakening of the Chinese empire in the mid nineteenth century allowed the emergence of Hong Kong as a substantial trading port and as the hub of the new entrepreneurial spirit. This leads Wong to a discussion of business networking within the Chinese community.3 He focuses on the formation and transformation of network societies throughout history, pointing to the tension that exists between cultural centres and business networks. Once ties to the cultural centre in China proper were weakened under colonial rule and the centre had crumbled, the social order in Hong Kong was no longer the same. With that weakening, Wong argues, a new centre emerged in Hong Kong, one which formed a distinctive network-based 3 Wong Siu-lun’s other works which examine Chinese networks includes ‘The Chinese Family Firm: A Model,’ British Journal of Sociology, 1985, 36.1: 58–72, Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong (Hong Kong: Oxford University Press, 1988), ‘Chinese Entrepreneurs and Business Trust’ in Gary G. Hamilton, ed., Business Networks and Economic Development in East and Southeast Asia (Hong Kong: University of Hong Kong, 1991), ‘Business networks, cultural values and the state in Hong Kong and Singapore’ in Rajeswary Ampalavanar Brown (ed), Chinese business enterprise in Asia (London: Routledge, 1995). Networks have historically been more the concern of scholars working on China than those working on India. Business history in India has been largely preoccupied with themes of mercantile communities, state-business relations, business and politics, rise of Indian industry and firm and family. The debates on South Asian merchant networks have emerged in the context of trading diasporas and have not taken centre stage in studies of business on the sub-continent. The scholarship on South Asian networks does not lend itself to comparison with that on Chinese networks. Amongst the few works which examine such networks are Thomas A. Timberg, The Marwaris, from traders to industrialists (New Delhi: Vikas, 1978), David Rudner, Caste and capitalism in colonial India: the Nattukottai Chettiars (Berkeley: University of California Press, 1994) and more recently Claude Markovits, The global world of Indian merchants, 1750–1947: traders of Sind from Bukhara to Panama, (Cambridge: Cambridge University Press, 2000). On the Chinese literature see Yen-P’ing Hao, ‘Themes and Issues in Chinese Business History’ in Robert Gardella, Jane K. Leonard, Andrea McElderry (ed.), Chinese business history: interpretative trends and priorities for the future (New York: M. E. Sharpe, 1998).

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social order. This new social order was polycentric in nature and rich in network capital. And this type of capital, Wong highlights, is more diffused and mobile than economic capital and represents one of the least institutionalized forms of assets. At a microscopic level network capital is embodied in the plurality of kinship and friendship ties that individual Hong Kong families have established in different parts of the world. David Faure’s ‘Beyond Networking: an Institutional View of Chinese Business,’ argues that the Confucian ethos of centralization and marginalization of mercantile traditions and values brought about an institutional structure for commerce that was largely regressive till it came face to face with the West. It was as a result of the Western impact from the early 1900s that modern commercial practices came to be introduced to China. When the state was forced to restructure its control over merchants and their organizations, it followed this with the introduction of company law and the acceptance that commerce could be instituted as a right on its own. As is well acknowledged there then took place a ‘total transformation’ and a flowering of commerce in China. Both Wong and Faure’s chapters try to show that the traditional Chinese state posed constraints for commerce and that the colonial impact aided the efflorescence of the commercial spirit in Chinese business. In Faure’s view, traditional Chinese business was not founded on the tenets of Confucianism, or networks of connections, but grounded in practices associated with contracts, accounting and incorporation. He argues that historians of China have yet to face up to the Weberian challenge of analyzing historical discourse that addresses the creation and adaptation of institutions which allowed business to be conducted. The manipulation of rituals for the purpose of business gives rise to the impression that Chinese business is particularly attuned to networking. However, Faure insists that the great deal of emphasis given to institutions with strong ritual meanings in Chinese networking relations comes from a time when rituals served more than ends. Thus, unlike Europe, business networks in China did not lead to the rise of an individualist ideology; instead they brought about the discovery of the power of ritual as a means of governance. Faure concludes by claiming that the study of Chinese business has to move beyond its fixation on Confucianism, or the importance of trust (which is not specific to merely the Chinese), and to a more rigorous analysis of rituals. Sherman Cochran in ‘Chinese and Overseas Chinese Business History: Three Challenges to the State of the Field’, strikes a different

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stance from that of Wong and Faure. According to him, historians have overestimated the capacity of governments to control and limit business and the networks of business. He suggests that there is a need to suspend judgment on whether governments controlled or contained businesses in the early twentieth century. He further suggests that Asian business history needs to be more fully mapped to produce a deeper and more nuanced interpretation of business-government relations. In this chapter Cochran shows how political obstacles and exogenous shocks such as wars did not impact on the commercial propensities of Chinese commercial groups. Rather, Chinese entrepreneurs successfully overcame political barriers without much difficulty and were able to reach nationwide in China and overseas markets in Southeast Asia, even though their businesses were repeatedly touched by political and military events. He argues that business was able to flourish, irrespective of political obstacles and that mercantile networks were capable of transcending all sorts of barriers. Cochran urges for the focus of research to shift from looking at the state and its regulatory regimes to understanding how brokers and business people were able to function, despite the regulatory propensities of the states in which they operated. He highlights the dynamics of social networks in business organizations. Cochran points out that in his earlier work Wong Siu-lun, along with other sociologists, argued that Chinese business organization takes the form of social networks based on kinship and regionality, as compared to Western business organization which takes the form of corporate hierarchies based on large, impersonal corporations and strong state and legal institutions. Scholars have largely concentrated their attention, in Cochran’s view, upon the challenges which Chinese businesses have faced between retaining traditional social networks and adopting new-style Western corporate hierarchies. He urges scholars who use concepts such as ‘traditional’ and ‘modern’ business organization to do so with caution, and he argues that big businesses operating in China were often very flexible and that they acted expediently according to market conditions and employed a range of strategies to capture the domestic market. He further suggests that, instead of positing a strict dichotomy between corporate hierarchies and Chinese social networks, the scholarly emphasis should be on ‘dynamic interaction’ and ‘interdependency’.4 In his view

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See also his book, Encountering Chinese networks: Western, Japanese, and Chinese corporations

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the history of business firms challenges us to reconsider interpretations that attribute the dynamism of Chinese businesses solely to the one-way transition from traditional networks to corporate hierarchies, or to flat dichotomies between the traditional and the modern. Instead, Cochran urges for more subtle explanations for understanding the dynamism of Chinese business by examining its inner workings. The three chapters on India shed further light on state-business relations but from a somewhat different perspective. The first article on Indian business looks at two prominent mercantile communities in the nineteenth and twentieth centuries, the Marwaris and the Chettiars. Medha Kudaisya traces the fortunes of these trading diasporic communities who emerged with their strong networks as niche players in the economies of South and South-east Asia. The Marwaris dominated the South Asian hinterland, while the Chettiars found their fortunes in South-east Asian credit markets as the region saw greater integration in the world economy from the mid-nineteenth century. Kudaisya argues that by the 1950s the Marwaris had made the transition from being niche players to becoming industrial conglomerates. However, she points out that by this period the Chettiars had been largely eased out of the markets in which they had operated. Forced out of money-lending and indigenous banking due to the world economic depression and political changes in the countries in which their capital was entrenched, the Chettiars were unable to move into industry. It was not that they lacked opportunities or capital. Rather, this happened because they continued to seek investment outlets in banking, insurance and trade and hesitated to invest boldly in large industry. Kudaisya offers several reasons for this ‘failure of capital’. These include the Chettiars’ traditional over-engagement with agricultural credit, their lack of economic diversification and aloofness from trade, weak ties with foreign capital and a lack of exposure to Western business. She also draws attention to the Chettiar tendency to act as independent

in China, 1880–1937 (Berkeley: University of California Press, 2000) p. 4 and pp. 178–182. Amongst the fascinating new works on networks is Bryna Goodman, ‘Native Place, City and Nation: Regional networks and identities in Shanghai (Berkeley: University of California Press, 1995); Adam McKeown, ‘Conceptualising Chinese Diasporas, 1842–1949’ Journal of Asian Studies, 58,2 (May 1999): 306–337 and his Chinese Migrant Networks and Cultural change: Peru, Chicago, Hawaii 1900–1936 (Chicago: University of Chicago Press, 2001) and Marc Casson, ‘Networks: a new paradigm in international business history’ in Mo Yamin and R. Rudolf (ed.), Anxieties and management responses in international business (New York: Palgrave Macmillan, 2007).

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entities and their lack of alliances with state agencies and, not the least, the very nature of their enterprise, which did not call for managerial, financial and administrative integration. In a rather different vein, Dwijendra Tripathi in ‘Colonial Syndrome and Technology Choices in Indian Industry,’ looks at British colonialism by analyzing the relationship between indigenous business and the colonial state. He shows that so deeply was Indian business socialized in the colonial way of doing things that it tended to adopt British technologies without being able to see the value of indigenizing technology to suit local needs. Further, business exhibited a streak of cautiousness, bordering on conservatism, which Tripathi attributes to the colonial impact upon the attitude, ethos and behaviour of business leaders. So powerful was this impact that it led to what Tripathi calls, a ‘colonial syndrome’—an instinctive inclination to ‘emulate the practices, behaviour and institutions’ of the ruling country, notwithstanding the resentment against political subjugation. What this meant for Indian industry was a kind of ‘technological myopia.’ Even the ‘progressive business group’ of the Tatas viewed metropolitan technology as superior to what could be developed indigenously. Traditionally, most scholars claim that the lack of Research and Development (R&D) in industry was due to the colonial state’s self-serving pursuit of exploitative policies. Another reason put forth has been the ‘organizational and institutional environment’ in India. Yet, Tripathi highlights that as most of the promoters of Indian mills came from mercantile families that had neither the knowledge nor the experience of dealing with modern technology, they concerned themselves primarily with financial aspects, leaving technical matters to British experts who, for their part, showed a natural bias for Western technology. As a result, little effort was made to develop and sustain an environment conducive to scientific research and innovation. Applied skills were often passed from generation to generation, leading to the routinization of certain methods and techniques, and thus impeding technological innovation. The ‘colonial syndrome’ that clouded the vision of Indian mill-owners thus compounded the adverse effects of a lack of technological orientation. Tripathi argues that, although the colonial regime attempted to set up agencies for scientific and technological research relating to selected industries, the ‘colonial syndrome’ meant that Indians believed that metropolitan technology was unquestionably superior to what they already possessed or could develop indigenously. The rather passive attitude to technological choice and innovation on the part of Indian industrialists was an

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unintended byproduct of colonialism. Tripathi urges scholars to consider that an examination of colonial policies alone does not provide a full understanding of the colonial phenomenon and its effects. For a more rigorous analysis, it is necessary to probe colonialism’s impact on the attitudes and behaviour of the colonized. In an attempt to move away from the colonial impact on the propensities of business—a subject on which much work has been done by a number of scholars5—Aditya Mukherjee’s ‘Indian Business, State and Civil Society: Implications for Global Participation’ examines state-business relations during a period of intense nationalist mass mobilization. Mukherjee seeks to show how big business dealt with the different strands of the nationalist movement.6 He argues that big business was able to engage constructively with both the colonial state and the foremost nationalist party, the Indian National Congress. The leaders of the capitalist class saw the necessity of effectively intervening in politics to forge a close alliance with emerging Indian nationalism. With many astute strategists among their ranks, including the legendary G. D. Birla, Indian business leaders evolved a comprehensive critique of colonialism.7 They were able to show how colonial rule and the 5 The research work on state–business relations in India has focused on the impact of politics and state on business; business choices and initiatives with reference to the political system and the impact of the colonial state on investment decisions. An example of this type of research is Dwijendra Tripathi (ed.), State and business in India: a historical perspective, (New Delhi: Manohar, 1987). 6 There is a rich body of literature which looks at business and politics, with many works going back to the 1970s. Some of these are Howard L. Erdman, Political attitudes of Indian industry: a case study of the Baroda business elite (London, Athlone Press, 1971), M. N. Pearson, Merchants and rulers in Gujarat: the response to the Portuguese in the sixteenth century (Berkeley: University of California Press, 1976), A. D. D. Gordon, Businessmen and Politics: Rising nationalism and a modernizing economy in Bombay, 1918–1933 (Delhi Manohar, 1978); Stanley Kochanek, Business and politics in India (Berkeley, University of California Press, 1974), Dwijendra Tripathi (ed), Business and Politics in India, (New Delhi: Manohar, 1992), Claude Markovits, Indian business and nationalist politics, 1931–1939: the indigenous capitalist class and the rise of the Congress Party (Cambridge, Cambridge University Press, 1985), D. A. Low, ‘The forgotten Bania: merchant communities and the Indian National Congress’ in Low (ed), Eclipse of Empire (Cambridge, Cambridge University Press, 1991), Medha Kudaisya, The life and times of G. D. Birla (New Delhi; New York: Oxford University Press, 2003) and Aditya Mukherjee’s work entitled Imperialism, nationalism, and the making of the Indian capitalist class, 1920–1947 (New Delhi: Sage Publications, 2002). 7 The response of business groups to nationalist activity and the inner dynamics between the two has been a subject of much debate within Indian historiography. The debate has followed two main trajectories—one view being that there was a ‘grand design’ followed by business, which came together in its views on political issues. This view is espoused by Bipan Chandra and Aditya Mukherjee. See Bipan Chandra, Nationalism and Colonialism in Modern India (New Delhi: Orient Longman, 1979). Other

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policies of the colonial state prevented Indian economic development and they made wide-ranging efforts to combat the former in pursuance of their goal of independent capitalist development. Mukherjee claims that by the early nineteenth century, colonial intervention had caused the extensive business networks that existed in India to be more or less destroyed or severely restricted. The business community however, survived, due to activities such as petty trade and money lending, and modern business groups, particularly in the industrial sphere, began to emerge in the closing decades of the nineteenth century. However, it was only due to the opportunities that arose after World War I that the business community could make significant economic advances and be able to acquire a leading position before Independence in several important sectors of the economy. The growth of Indian businesses from World War I until Indian Independence was not as a result of the policies of the colonial state, asserts Mukherjee, but was the product of the space wrenched from it. Further, Mukherjee provides an overview of the process by which Indian business emerged as a class, as well as its relationship vis-à-vis the colonial state in the twentieth century. He then discusses the postcolonial state vis-à-vis civil society at large in Independent India. In the economic sphere, the Indian business leaders strongly critiqued the colonial state and thereby played the role that had been performed by the first generation of nationalist leaders in the nineteenth century. For their part, the nationalist leaders acknowledged the role played by the business leaders and sought their assistance in combating imperialist designs in the economic sphere. Business leaders consciously highlighted and embraced issues which related not only to their own class interest but also to the larger interests of other sections of society. They were also willing to oppose measures that were of immediate class interest, if these were not seen to be in the interest of the nation. It was precisely

scholars emphasize that the relations between business and nationalist activity were more ad hoc and that business followed a judicious path of allying with either the state of nationalist politics depending on circumstances and their stakes at different points in time. Such a view is followed by scholars such as A. D. D. Gordon, Businessmen and Politics: Rising nationalism and a modernizing economy in Bombay, 1918–1933 (Delhi: Manohar, 1978), Stanley Kochanek, Business and politics in India (Berkeley: University of California Press, 1974), Dwijendra Tripathi (ed.), Business and Politics in India: A historical perspective (New Delhi: Manohar, 1992) and Claude Markovits, Indian business and nationalist politics, 1931–1939: the indigenous capitalist class and the rise of the Congress Party (Cambridge: Cambridge University Press, 1985).

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the fear, expressed as early as 1930, that the Congress was shifting far too much to the Left that led the capitalists to galvanize themselves and evolve a complex strategy which would strengthen the influence of their class perspective both within the national movement and in civil society as a whole. After Independence, the position taken by Indian capitalists on issues of political economy was shaped by the perspective of their class, the colonial experience, the emerging consensus on the preferred development path and the existing understanding of development theory in other parts of the world. In the post-liberalization scenario, Mukherjee contends that Indian business still did not step outside the societal consensus to insist on economic reforms before a societal consensus had emerged in its favour within civil society. Overall, by considering issues such as these, this volume seeks to examine the historical antecedents of the business communities in China and India at a time when they look set to shape the economic future of Asia. Although dealing with two very different historical traditions, it is hoped that the essays presented here will serve to highlight the need to put forth comparative perspectives.

CHINESE AND OVERSEAS CHINESE BUSINESS HISTORY: THREE CHALLENGES TO THE STATE OF THE FIELD Sherman Cochran There are three challenges facing the field and sub-field of Chinese business history: (1) the challenge to theorize long-distance trade in nineteenth century studies; (2) the challenge to synthesize business history and political history in early twentieth century studies; and (3) the challenge to explain the dynamics of business networks in late twentieth century studies.1 In each case I will first summarize the state of the field and then point out a current challenge to the state of the field. I am merely claiming to point out “a” challenge rather than “the” challenge in each period. In this lively field, scholars have posed many challenges to standard interpretations and are continuing to do so all the time. Theorizing Long Distance Trade On the subject of the need to theorize long distance trade in the nineteenth century, the current state of the field has been determined most decisively, I believe, by three scholars: G. William Skinner, William T. Rowe, and Takeshi Hamashita. G. William Skinner has led the way by creatively applying central place theory to nineteenth-century China and analyzing its marketing structure at all levels of the urban hierarchy from villages and market towns at the rural base to the largest cities at the urban cores of what he calls “macroregions.” In nineteenth-century China, he has delineated eight macroregions (North, Northwest, Lower Yangzi, Middle Yangzi, Upper Yangzi, Southeast, South, and Southwest) and one macroregion 1 I discuss here the state of the field of Asian business history particularly with regard to business networks. When I first began to work in the field thirty years ago, I probably could have covered, or at least alluded to, all of the major publications on this subject in a single talk. But now, thanks to the work of many scholars, I see no way to present a comprehensive survey here today. So I have decided to confine myself mainly to Chinese and overseas Chinese business history, and even more specifically, I want to identify three challenges facing this field or these sub-fields.

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(Northeast) that did not become fully formed until the twentieth century. In all of these macroregions, ecological features such as mountain ranges set formidable boundaries for long-distance trade.2 According to Skinner, Chinese entrepreneurs only succeeded in traversing these macro-regional boundaries by forming extensive and far-flung social networks. Like members of family firms in almost all parts of the world, they based these networks on kinship, but as Skinner has pointed out, they were also able to recruit and bind together trustworthy non-kin in their large-scale networks because of “a special feature”: the members of each network “shared a common origin (that is, t’ung-hsiang, or ‘same-native-place’ ties)”.3 These native-place ties differed from home town ties or ties based on place of birth. All Chinese inherited their native places from their fathers whether or not they or their fathers had ever been to their native places, and they made use of native-place ties in forming social networks for many reasons including shared spoken language, familiarity with each other’s families or lineages, and expectations for retirement in their native places where their reputations were at stake. In Skinner’s words, the basis for these entrepreneurial alliances in Chinese social networks “came down to a matter of trust and accountability, on the one hand, and reliable business competence, on the other . . . and theirs was a vital role in the articulation of China’s semiclosed regional economies”.4 Building on Skinner’s insights, William Rowe has reaffirmed the vital role that these Chinese networks played in China’s long-distance trade in the nineteenth century and has gone a step farther to suggest that the country’s regional economies were not as semiclosed as Skinner supposed. In a study of Hankou, a city nicknamed “the Chicago of China” because of its commercially strategic location on waterways near the centre of the country, Rowe has argued that Chinese social networks based on native-place ties managed nothing less than “a truly integrated national market” in the latter half of the eighteenth century and all of the nineteenth century. According to his interpretation, Chinese trading 2 G. William Skinner, “Regional Urbanization in Nineteenth-Century China,” in The City in Late Imperial China, ed. G. William Skinner (Stanford: Stanford University Press, 1977), 211–49. 3 G. William Skinner, “Mobility Strategies in Late Imperial China: A Regional Systems Analysis,” in Regional Analysis, vol. I, Economic Systems, ed. Carol A. Smith (New York: Academic Press, 1976), 361. 4 Skinner, “Mobility Strategies in Late Imperial China: A Regional Systems Analysis,” 361; emphasis added.

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groups overcame barriers of distance and preindustrial technology and successfully circulated not only luxury goods but also low-priced bulk commodities such as grain and raw cotton throughout the country. Although Rowe has candidly acknowledged that “meaningful statistics” on this nationwide trade are not currently available, he has cited considerable non-quantitative evidence that is very convincing.5 While Skinner and Rowe have confined themselves to China, Takeshi Hamashita has shown the reach of Chinese networks outside China. Reappraising China’s imperial tributary system, he has discovered that it served the purpose of “intra-Asian trade” as well as interstate foreign relations, and he has renamed it “the tributary trade system”.6 He has acknowledged that Western powers linked this trading system with the international market, leading to “the closer integration of the Southeast Asian and southern Chinese economies and their extension into the Indian Ocean trade zone” in the nineteenth century.7 But he has insisted that these Western initiatives did not give Westerners control over intra-Asian trade even in Western colonies—much less the uncolonized states of China and Japan. Remaining under Asian management, “the marketing structure in the European colonies [as well as non-colonies] in Asia continued to display the characteristics of the traditional intra-Asian trade associated with the tributary system”.8 Hamashita has emphasized the longevity of the China-centered tributary trade system—“The Sinocentric world is thousands of years old, not hundreds”9—and he has hinted at its relevance for the future, but he has not systematically extended his studies of it beyond the nineteenth century. As my summaries imply, these scholars have challenged each other. Skinner’s notion of semi-closed macro-regions (which he published in the 1970s) was challenged by Rowe’s characterization of a national market (which he published in the 1980s). And Hamashita’s mapping of intra-Asian trade (which he began publishing in the 1980s and is still elaborating even now) has challenged Skinner’s and Rowe’s 5 William T. Rowe, Hankow: Commerce and Society in a Chinese City, 1796–1889 (Stanford: Stanford University Press, 1984), 60–62 and passim. 6 Takashi Hamashita, “The Intra-regional System in East Asia in Modern Times,” in Network Power: Japan and Asia, eds. Peter J. Katzenstein and Takashi Shiraishi (Ithaca: Cornell University Press, 1997), 120. 7 Ibid., 128. 8 Ibid. 9 Ibid., 135.

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confinement of their schemes within China’s national borders. Moreover, other scholars have challenged Skinner. For example, David Faure, whose article is included in this volume, has criticized Skinner’s regional systems approach for overstating cultural unity and understating human agency.10 And Ng Chin-keong, has made discoveries about sustained smuggling on the China coast that call into question Skinner’s conclusions about cycles of regional development.11 But in posing these challenges, neither Rowe nor Hamashita nor Faure nor Ng nor anyone else (as far as I know) has attacked the theoretical basis for Skinner’s approach until recently. In a January 2002 issue of the journal Modern China, Carolyn Cartier has become the first scholar to find fault with the theory underlying Skinner’s macroregional model. From the beginning, Skinner’s conception was flawed, she charges, because he chose to base it on an oversimplified version of central place theory when a more sophisticated and flexible version was available. Subsequently, the basis for this macroregional model became even more untenable because central place theory itself became outmoded—“abandoned by most geographers by the late 1970s”.12 These theoretical weaknesses, she argues, have “limited or even blocked” research on a number of topics, including long-distance trade.13 She claims that Skinner’s “marketing systems and macroregional approaches . . . do not theorize . . . long-distance trade”.14 And, since these models “pay little attention to important inter-provincial and inter-regional trade routes, . . . the structural embeddedness in the macroregion perspectives discourages investigation into . . . longdistance and maritime trade”.15 Skinner has discouraged historians from investigating long-distance trade, she maintains, by setting seemingly fixed macro-regional boundaries, and she objects to his very act of

David Faure and Helen F. Siu (eds.), “Conclusion: History and Anthropology,” in Down to Earth: The Territorial Bond in South China (Stanford: Stanford University Press, 1995), 209–22. 11 Ng Chin-Keong, Trade and Society: The Amoy Network on the China Coast, 1683–1735 (Singapore: Singapore University Press, 1983), 53; cf. G. William Skinner, “Presidential Address: The Structure of Chinese History,” Journal of Asian Studies 44:2 (February 1985): 271–92. 12 Carolyn Cartier, “Origins and Evolution of a Geographical Idea: The Macroregion in China,” Modern China 28.1 ( January 2002): 102. 13 Ibid., 107. 14 Ibid., 99. 15 Ibid., 117–8. 10

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“map production—especially the drawing of maps of regions without political boundaries, constructed without substantial data points”.16 As an alternative, she calls for an “unbounded regional geography” which would focus on human agency and “the social construction of regional meaning”.17 Her aim, she says, is to put “emphasis on social processes over spatial patterns”.18 As a business historian, I have mixed feelings about Cartier’s critique. On the one hand, I do not see logically why Skinner’s macroregional model prevents or precludes investigations into long-distance trade. For example, as Cartier admits (in a somewhat buried footnote), William Rowe has conducted his investigation of long-distance trade quite explicitly in the context of Skinner’s macroregional model.19 On the other hand, I think that Cartier is right about Skinner’s macroregional model not theorizing long-distance trade and not adequately taking into account human agency. Although perhaps not convincing on all her points, Carolyn Cartier has posed a challenge that business historians should take seriously. As an alternative to Skinner’s macroregional model, Cartier proposes a shift of focus from the patterns of retailing to the process of negotiating trade agreements. In addition, she calls for a different approach to relations of scale. Instead of tracing impersonal flows of goods up and down urban hierarchies within and between macroregions (as Skinner does), we should concentrate on human agents such as merchants and entrepreneurs and should “explain the actual workings of social and economic processes through a spatial hierarchy, moving from local to regional, national, and international levels of concern”.20 In other words we, as business historians, should not uncritically allow maps based on ecology (like Skinner’s) or maps based on administration (showing national and provincial boundaries) or any other maps to restrict our thinking about how human agency has shaped space in business history. We should not be inhibited from tracking entrepreneurs across macroregional and national boundaries, and we should be attentive to the well-worn paths that entrepreneurs have followed and the brand-new trails that they have blazed. Moreover, in analyzing

16 17 18 19 20

Ibid., Ibid., Ibid., Ibid., Ibid.,

106. 123. 127. 133, n41. 124.

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long-distance trade, we should not confine ourselves to the Western, Japanese, Chinese, Indian, or other owners and managers presiding at the top in Asian businesses. We also need to pay attention to brokers making transactions and translating ideas at all levels of each business’ distributing system. Only then, after we have begun to see the reach of businesses horizontally across borders and vertically up and down spatial hierarchies, can we produce nuanced maps for business history in nineteenth-century Asia. Up to now, we have very few studies of transregional and transnational entrepreneurs in Asian history, and we have virtually nothing on businesses’ brokers in spatial hierarchies, so I think Cartier has posed a challenge that deserves attention from business historians. Synthesizing Business and Political History The second challenge that faces specialists in the history of the first half of the twentieth-century is the need to synthesize business history and political history. In my discussion of Skinner, Rowe, Hamashita, and Cartier, I think we can see a trend toward investigating wider and wider business networks in nineteenth-century studies. And yet, historians have paid little attention to business networks for managing long-distance trade in China and Southeast Asia during the early twentieth century.21

In Cochran (2000), I have presented case studies of business networks managing long-distance trade in China during the early twentieth century, but much more remains to be done on this subject. Several other specialists on early twentieth-century China have investigated the roles played by Chinese social networks in organizations other than long-distance trading groups. On networks in political parties, see Andrew J. Nathan, Peking Politics, 1918–1923: Factionalism and the Failure of Constitutionalism (Berkeley: University of California Press, 1976); Christian Henriot, Shanghai, 1927–1937: Municipal Power, Locality and Modernization. Translated from the French by Noël Castelino (Berkeley: University of California Press, 1993); and Keith R. Schoppa, Blood Road: The Mystery of Shen Dingyi in Revolutionary China (Berkeley: University of California Press, 1998); on networks in merchants’ associations, see Mann (1974) and Bryna Goodman, Native Place, City, and Nation: Regional Networks and Identities in Shanghai, 1853–1937 (Berkeley: University of California Press, 1995); on networks of industrial workers see Emily Honig, Sisters and Strangers: Women in Shanghai Cotton Mills, 1919–1949 (Stanford: Stanford University Press, 1986); and Elizabeth J. Perry, Shanghai on Strike: The Politics of Chinese Labor (Stanford: Stanford University Press, 1993); on networks of criminals, see Frederic Wakeman Jr., Policing Shanghai, 1927–1937 (Berkeley: University of California Press, 1995), and Brian G. Martin, The Shanghai Green Gang: Politics and Organized Crime, 1919–1937 (Berkeley: University of California Press, 1996); for essays touching on all of these kinds of networks in a single city, Shanghai in the early twentieth century, see 21

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Instead, specialists on the early twentieth century have generally focused on business-government relations and have concluded that Chinese businesses came under political control and became limited by official intervention. Lloyd Eastman, Parks Coble, and Marie-Claire Bergère have all noted that Chiang Kai-shek’s Nationalist government cracked down on Chinese capitalists and extracted forced “donations” in Shanghai as early as the spring of 1927, shortly after Chiang completed the Northern Expedition and founded a new national capital at Nanjing. And they have argued that the Nationalist government proceeded to limit the growth of Chinese businesses by imposing state capitalism on China during the “Nanjing Decade” (1927–37).22 In Bergère’s concise summary of this thesis, the Chinese bourgeoisie became “subordinated to, and integrated into, the State apparatus”.23 Subsequently, according to William Kirby, the Nationalist government dominated Chinese capitalists even more fully during the SinoJapanese War (1937–45) and the Chinese Civil War (1946–49). Subtly distinguishing his interpretation from earlier ones of the Nanjing decade, Kirby has noted that the Nationalist government gave priority to heavy industry over light industry, and he has acknowledged that light industry was “largely outside government control before 1937”.24 Nonetheless, like Eastman, Coble, and Bergère, he has observed that the Nationalist government began to formulate industrial plans before the Sino-Japanese War of 1937–4525 and, more than the other historians, he has emphasized that after the war it “continued in the direction of increased economic control and expanded the state sector and the planned economy at a rapid rate”.26 Frederic Wakeman Jr., and Yeh Wen-Hsin (eds.), Shanghai Sojourners (Berkeley: Institute of East Asian Studies, University of California, 1992). 22 Lloyd E. Eastman, The Abortive Revolution: China under Nationalist Rule, 1927–1937 (Cambridge, Mass.: Harvard University Press, 1974); Parks M. Coble Jr, The Shanghai Capitalists and the Nationalist Government, 1927–1937 (Cambridge, Mass.: Council on East Asian Studies, Harvard University, 1980), Marie-Claire Bergère, The Golden Age of the Chinese Bourgeoisie, 1911–1937. Translated from the French by Janet Lloyd (Cambridge: Cambridge University Press, 1989). 23 Bergère, The Golden Age of the Chinese Bourgeoisie, 1911–1937. 274. 24 William C. Kirby, “Continuity and Change in Modern China: Economic Planning in the Mainland and on Taiwan,” Australian Journal of Chinese Affairs 24 ( July 1990): 125–32. 25 Ibid., 128–132. 26 William C. Kirby, “The Chinese War Economy,” in China’s Bitter Victory: The War with Japan 1937–1945, eds. James C. Hsiung and Steven I. Levine (Armonk, New York: M.E. Sharpe, 1992), 204.

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Overseas Chinese businesses, though not subjected to the rule of governments in China, did not escape official restrictions, according to Southeast Asian specialists. In Carl Trocki’s chronology, Western colonial governments completed “the absorption of Chinese settlements in Southeast Asia by European colonies (1830–80) . . . and the integration of the overseas Chinese into the global capitalist system (1880–1910)”.27 While citing Singapore as his principal case, Trocki has asserted, “The Chinese history of Singapore is a microcosm of this process of [Western] envelopment of Chinese economic activity [throughout Southeast Asia]”.28 In the mid-twentieth century, this Western domination was succeeded by Japanese domination as Japan’s imperial government ousted Western colonial governments and imposed its own military rule in eastern regions of China between 1937 and 1945 and in virtually all of Southeast Asia between 1942 and 1945. A vital question is whether historians should accept the contrast between these early twentieth-century studies and the nineteenth-century studies that I summarized earlier. If the first set of specialists has been right about Chinese constructing powerful and extensive business networks throughout China and Southeast Asia in the nineteenth century, then has the second set of specialists also been right about Chinese, Japanese, and Western governments effectively subordinating, integrating, and enveloping Chinese business networks in the early twentieth century? I think the answer is ‘no’. In my book Chinese Medicine Men: Consumer Culture in China and Southeast Asia, I have challenged the standard interpretations of business-government relations as outlined above. My topic is the marketing of medicine in China and Southeast Asia, and I show that Chinese entrepreneurs overcame political barriers and reached nationwide in China and overseas in Southeast Asia during the early twentieth century.29 To be sure, like their counterparts in the West, Chinese-owned businesses in East Asia were repeatedly—almost incessantly—touched by political and military events in the early twentieth century. In the West, Western businesses were held back by World War I in the late 1910s, the Great Depression of the 1930s, and World War

27 Carl A. Trocki, Opium and Empire: Chinese Society in Colonial Singapore, 1880–1910 (Ithaca: Cornell University Press, 1990), 30. 28 Ibid., 34. 29 Sherman Cochran, Chinese Medicine Men: Consumer Culture in China and Southeast Asia, 1880–1956 (Harvard University Press, 2006).

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II in the late 1930s and early 1940s;30 and in Asia, Chinese businesses faced the Chinese revolution of 1911, the fall of the Qing dynasty and the collapse of the two-thousand year old imperial system in 1912, a series of political campaigns such as the May Fourth movement of 1919 and the Northern Expedition of 1926–28, prolonged rivalry between Chiang Kai-shek’s Nationalist government and Mao Zedong’s Communist movement dating from the late 1920s, and half a century of military conflict, culminating in the Sino-Japanese War of 1937–45 and the Chinese Civil War of 1946–49. As I have mentioned, several Chinese historians have concluded that Chiang Kai-shek’s Nationalist government exploited opportunities during some of these events—especially the Northern Expedition and Sino-Japanese War—to extract revenue from Chinese capitalists and subordinate them under state capitalism. But this conclusion does not seem to be well borne out in the history of Chinese-owned businesses in light industries. Even in wartime, these Chinese businesses grew steadily or spectacularly in China under Chinese Nationalist rule and Japanese occupation and in Southeast Asia under Western colonial rule and Japanese occupation. In the long run, these Chinese-owned businesses continued to use their networks to manage trade and integrate markets almost without interruption between the late nineteenth and mid-twentieth centuries. So, while Western transnational businesses were apparently held back from enlarging and integrating markets by events in the West during the first half of the twentieth century, Chinese businesses have not been so categorically held back from enlarging and integrating markets for consumer goods by any military conflict or political intervention except one: the trading policies of the People’s Republic between the mid-1950s and the late 1970s. This, then, is a second challenge to the state of the field. My research suggests that historians have overestimated the capacity of Chinese, Japanese, and Western governments to control and limit Chinese business networks in the early twentieth century, and I hope that other historians will look into this possibility by approaching business-government relations not only through official records and political history but also through companies’ records and business history. I have focused my

30 Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge Mass.: Harvard University Press, 1990), 605–6.

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research mainly on China, but I think that the challenge also applies to Southeast Asia. As Ruth McVey has observed: . . . the intra-regional and international connections of the Nanyang business families have hardly been mapped, and little is known about how their capital flows from one area to another. No doubt, as the study of the region’s business history becomes more developed, the exploration of these connections will seem a less daunting task; in the meantime, we must note it as a major white area on the Southeast Asian politicaleconomic map.31

I agree with McVey, and I think we should suspend judgment as to whether governments controlled or contained businesses in early twentieth-century Asian history until we have risen to McVey’s challenge to explore business families’ connections, develop business history, and fill in “a major white area” on the map. Only then, after Asian business history has been more fully “mapped,” will it be possible to produce a more complete and nuanced interpretation of business-government relations in the early twentieth-century. Understanding Networks The third challenge is to explain the dynamics of social networks in business organizations since the middle of the twentieth century. On this subject, I think the state of the field has been most fully established by sociologists, including Wong Siu-lun, whose paper is included in this volume. In general, they have argued that Chinese business organization takes the form of social networks by contrast with Western business organization, which takes the form of corporate hierarchies. “In the Chinese case,” to quote Wong Siu-lun, “entrepreneurs tend to dominate the market by activating particularistic ties such as regional networks rather than by building up large, impersonal corporations.”32 Other sociologists, including Edward Chen and Gary G. Hamilton, have described the difference between the Chinese way and the Western way

31 Ruth McVey (ed.), “The Materialization of the Southeast Asian Entrepreneur,” in Southeast Asian Capitalists (Ithaca: Southeast Asia Program, Cornell University, 1933), 31. 32 Wong Siu-Lun, “Chinese Entrepreneurs and Business Trust,” in Business Networks and Economic Development in East and Southeast Asia, ed. Gary G. Hamilton (Hong Kong: Centre of Asian Studies, University of Hong Kong, 1991), 24.

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of doing business by contrasting “the network characteristics of the Chinese economy [that] are rooted in such local institutions as kinship and regionality” and the “firm autonomy in the West [that] rests upon strong states and legal institutions”.33 These and other scholars have participated in an ambitious comparative study of “network capitalism,” and they have made a point of distinguishing between Western corporations with hierarchical organizations, on the one hand, and Chinese businesses with social networks, on the other. This distinction has been concisely summarized by S. Gordon Redding: “In many Western economies, the main efficiencies in coordination derive from large-scale organization. In the case of the Overseas Chinese, the equivalent efficiencies derive from networking”.34 I have posed a challenge to this interpretation in my book, Encountering Chinese Networks (published in 2000), where I have suggested that Western, Japanese, and Chinese businesses in Chinese history did not make a clear-cut and lasting choice between corporate hierarchies or social networks as two mutually exclusive ways of doing business. If we focus too sharply on the contrast between Western corporate hierarchies and Chinese social networks, we run the risk of essentializing them by reducing them to fixed end-points of economic development, leaving no possibility for historical contingencies and future change. I freely admit that my challenge to these studies of post-World War II Asia is based on my research into the history of the pre-World War II period. So if we are to take up this challenge, how can we avoid essentializing Asian business networks in studies of the late twentieth and early twenty-first centuries? A good place to start, I think, is with the Chinese family firm. For business historians, perhaps the supreme challenge on this subject has been posed by Wong Siu-lun in his article, “The Chinese Family Firm: A Model,” published in 1985. As a modelbuilding social scientist, he has identified a developmental cycle for family-owned Chinese firms in four phases—emergent, centralized, regimented, and disintegrative—and as a history-conscious thinker, he 33 Edward Chen and Gary G. Hamilton, “Introduction: Business Networks and Economic Development,” in Business Networks and Economic Development in East and Southeast Asia, ed. Gary G. Hamilton (Hong Kong: Centre of Asian Studies, University of Hong Kong), 6. 34 Gordon S. Redding, “Weak Organizations and Strong Linkages: Managerial Ideology and Chinese Family Business Networks,” in Business Networks and Economic Development in East and Southeast Asia, ed. Gary G. Hamilton (Hong Kong: Centre of Asian Studies, University of Hong Kong), 45.

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has challenged us to imagine a different range of historical contingencies in each phase. This way of thinking about family firms over time might help explain why they resist the transition from social networks to corporate hierarchies in some phases, make this transition in other phases, and make the reverse transition in still other phases. This third “reverse transition” (from corporate hierarchies to social networks) is my current preoccupation. I find this subject fascinating because it seems to present an opportunity to pursue the challenging idea that businesses in Chinese and overseas Chinese history (and perhaps elsewhere) have taken advantage of an organizational process that historians have tended to ignore. Alfred Chandler, the dean of business historians in Western studies, has kept attention riveted on another organizational process. In his influential theory, he has postulated that the key decision for businesses has been whether to cross the threshold from personal capitalism (under management by founders of businesses and their families) to managerial capitalism (under management by professionals from outside founders’ families)—a step that Chandler has identified as the crucial point, or even the end point, of modern institutional development in capitalist enterprises.35 Similarly, China specialists have often concentrated on the choice that Chinese businesses have faced between retaining old-style traditional Chinese social networks or crossing a (Chandlerian) threshold by adopting new-style modern Western corporate hierarchies. Within these dichotomies, historians have generally seen the choice for Chinese businesses as a one-way street. Almost invariably these businesses are shown to have chosen to go from old social networks and traditional businesses practices to new corporate hierarchies and modern business practices; or they are seen clinging to the old and traditional and rejecting the new and modern. But can we not consider a case where a business goes in the opposite direction by making the transition from a corporate hierarchy to a social network? Is this an aberration—a case of going the wrong way down a one-way street? Or is there something right about it—something revealing and suggestive about family firms in Asian business history? My research on the history of a Chinese business family, the Lius of Shanghai, raises these questions. I do not know whether this case is representative or significant, but I think that it has the potential to

35

Chandler, Scale and Scope: The Dynamics of Industrial Capitalism.

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challenge current thinking about organizational processes in Chinese businesses. From an early age, Liu Hongsheng, the father in this family, had a vision of himself as a modern capitalist, and before he reached his fiftieth birthday (when his eldest children had completed their educations), he seemed to have transformed himself in nearly every respect from a traditional merchant into a modern capitalist. Born into a moderately prosperous merchant family in Shanghai in 1888, he learned English at missionary schools—first St. John’s Middle School and then St. John’s University, one of the first Christian colleges in China to offer non-Christian students a liberal arts education that was taught in English. According to historian Yeh Wen-hsin, St. Johns gave “young Chinese from affluent financial, commercial, industrial, and professional backgrounds an unabashedly Western-oriented education”.36 Leaving St. Johns without completing his degree at age 21 in 1909, he landed a job with one of China’s biggest businesses, the Kailuan Mining Administration, which was under British ownership until 1912 when it became an Anglo-Chinese joint venture. It was at Kailuan that he learned from Westerners about modern business management as he rose swiftly through the ranks. As early as 1920 when he was just in his thirties, his net worth exceeded one million Chinese dollars (yuan), and at that point he began investing in industrial enterprises. Within ten years he had opened mills manufacturing a variety of products— matches, woollens, briquettes, and cement—and had become renowned for instituting modern business practices in these enterprises. In the early 1930s Liu Hongsheng seemed to take the ultimate step toward modern capitalism by transforming the organizational structure of his business. He transferred authority from his personal contacts (mainly family members and associates from his native place of Ningbo) to professional managers, and he reorganized his business so that it was run less through his social network than through an impersonal corporate hierarchy like those adopted by modern businesses in the West. If Liu’s career had ended at that point, his record as summarized above might well have qualified him for an unambiguous designation as a modern capitalist. However, he carried out another reorganization of his business that undermines or at least greatly complicates the

36 Yeh Wen-hsin, The Alienated Academy: Culture and Politics in Republican China, 1919–1937 (Cambridge, Mass.: Council on East Asian Studies, Harvard University, 1990), 75.

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distinction between traditional management through social networks and modern management through corporate hierarchies. In the late 1930s and 1940s, he shifted authority away from his professional managers and into the hands of his sons. Liu did not merely revert from modern to traditional business management. Instead, he began to implement his vision of his family as a modernizing capitalist institution. He conceived this vision at least as early as 1929 when he began sending his children abroad for their education. Within the next two decades, three sons and a daughter had gone to Massachusetts Institute of Technology, Harvard Business School, and other colleges and universities in the United States; three sons and a daughter had attended Cambridge University and other academic institutions in England; and two sons and a daughter had studied at places of higher learning in Japan. As shown in the Liu family’s correspondence, he gave each of his children clear instructions. He specified each child’s major subject, monitored each one’s progress, and assigned each one special tasks for their summer vacations. Above all, he insisted that all of them must return home on the completion of their studies to serve the family business. He envisioned his family members, in short, as top executives in a modern capitalist corporation under his leadership. While Liu envisioned a family bound together under his leadership in the business world, his wife Ye Suzhen envisioned a family bound together under her leadership in the domestic realm. She wanted all of her sons and daughters-in-laws to live in her home town of Shanghai and to reside with her in a single dwelling—“five generations under one roof ” (wushi tongtang) in the classic expression or “four generations under one roof ” (sishi tongtang) in the expression popularized by the twentieth-century novelist Lao She. Her commitment to this idea derived from her background and experience, which had followed a supposedly traditional pattern in some ways and departed from it in others. Born in Shanghai in 1888, Ye received minimal formal education. She spoke only one Chinese dialect—Shanghainese—never learning Mandarin or any foreign language. Barely literate, she did not hold a job outside the home or play any discernible role in managing a business. After she grew up in Shanghai, she met Liu, a man with whom she had much in common: their place of birth (Shanghai), year of birth (1888), families’ vocational background (merchants), and native place (Ningbo). This last connection was particularly significant because the native-place tie binding together sojourners from Ningbo was famously

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strong. Since the tenth century, and especially in the nineteenth century, Ningbo had been known for producing merchants who migrated widely in China, creating powerful networks for managing finance and long-distance trade, and showing fierce loyalty to their native place.37 Thus, as the daughter of Ningbo merchant, Ye followed Chinese and native-place traditions to the extent that she submitted to an arranged marriage with the son of another Ningbo merchant. And yet Ye’s vision of family was not stereotypically traditional any more than her husband’s vision was stereotypically modern. Perhaps her most striking departure from a stereotypically traditional pattern derived from her relationship with her natal family. Customarily Chinese women married “out” of the families of their birth and “into” the families of their husbands. Following a wedding, a young Chinese bride was commonly cut off from her natal family and placed at the mercy of her in-laws, leaving her initially with little more power in their household than a servant. In general, only after she bore a son and allied herself with him did she acquire any leverage for negotiating with her husband, father-in-law, and particularly her mother-in-law and sisters-in-law. But in Ye’s case, the bride’s relationship with her natal family was different. Ye came from an exceedingly wealthy family. Her grandfather, Ye Chengzhong (1840–99), was one of the richest men in nineteenthcentury China and probably the richest merchant in nineteenth-century Shanghai. Born poor in Ningbo, he had moved to Shanghai at age thirteen and had risen from rags to riches, leaving to his heirs at the end of the nineteenth century assets valued at between six and eight million ounces of silver (taels).38 At the time of her grandfather’s death in 1899, Ye was eleven years old, and a few years later when she reached a marriageable age, her family initially opposed her betrothal to Liu because they said she would be marrying “down” into a family of lesser wealth and status. (These slights were never forgotten by Liu who in 1920 gained special satisfaction, if not revenge, by buying out the Ye family’s match factory after its fortunes had begun to decline).

37 Shiba 1977: 437; Rowe 1984: 231; Leung 1982: 29–51; Susan Mann Jones, “The Ningpo Pang and Financial Power at Shanghai,” in The Chinese City Between Two Worlds, eds., Mark Elvin and G. William Skinner (Stanford: Stanford University Press, 1974). 73–96. 38 Sherman Cochran, Encountering Chinese Networks: Western, Japanese, and Chinese Corporations in China, 1880–1937 (Berkeley: University of California Press, 2000), 14–16.

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Retaining advantages from her attachment to her original family, Ye entered a new family that was in no position to bring her to full submission. She had no father-in-law because Liu Hongsheng’s own father had died in 1895 when Liu was only seven years old, and she did not show filial submission to her mother-in-law’s satisfaction. As her mother-in-law complained, Ye was never as generous to the Liu family as the wife of Liu Hongsheng’s older brother was. In all these ways, Ye maintained an untraditional position of strength as a young bride in relation to her in-laws. Meanwhile, Ye demonstrated an extraordinary capacity for gaining her in-laws’ respect in the traditional way: by bearing children, especially sons. Between the ages of 21 and 32 (1909–21), she had children at the rate of nearly one per year, delivering seven consecutive sons and then two daughters and another son. Later she had two more children, a son in 1929 and a daughter in 1933. Giving birth sixteen times, she had twelve children who survived their infancy (according to an interview with Ninth Daughter, January 2001). As more and more children arrived and grew up, Ye began to arrange marriages for them, and she persuaded Liu to move into bigger and bigger Shanghai houses so that she would have the space to bring together her children, her daughters-in-law, her grandchildren, and her large staff of servants all under one roof with her presiding over them. These, then, were Liu Hongsheng’s and Ye Suzhen’s visions for their family. Although his might be seen as more modern and hers as more traditional, their two visions were by no means incompatible. When taking the short view, they differed on some points—he insisted on sending the children abroad their educations, for example, and she expressed her preference that they should remain in Shanghai—but when taking the long view, they were in agreement on the three fundamental rules that they laid down for the family. All children must: (1) return home from educations abroad to spend their lives in Shanghai; (2) work in the family business or serve the family’s interests in some other way; (3) marry a Chinese (ideally a Shanghainese), not a foreigner. How successful were Liu and Ye at carrying out their visions of their family? As shown in the family’s correspondence, their children did not always passively follow their orders. While generally using deferential language, the children contested and negotiated major decisions, especially the ones concerning their personal lives: their choices of careers, selections of spouses, commitments to political movements, and pledges of allegiance to China or other nations. And yet, by the time Liu and

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Ye died in the mid-1950s, they had achieved remarkable success at convincing their children to abide by their longstanding three cardinal rules—the ones requiring all children to return to Shanghai, work in the family business, and marry Chinese rather than foreigners—albeit in the context of a very different time. By the 1950s, Liu’s original vision of the family business as a modern capitalist corporation with his sons as top executives was completely undermined by the Communist revolution and the new government’s transformation of his businesses into “public and private jointly managed enterprises” (gongsi heying qiye). At the same time, Ye’s original vision of five generations under the roof of one grand mansion also became inconceivable in the wake of the socialist revolution. Nonetheless, by the mid-1950s all of Liu’s and Ye’s children had returned to Shanghai, taken jobs that met with Liu’s approval, and married Chinese in accordance with Ye’s wishes. This story is meant to illustrate the challenges that we face in analyzing Chinese business networks as organizational forms. In rising to this challenge, if the history of the Liu family business is any indication, it would be advisable to use the concepts of traditional and modern business organization with great care, if at all. Let us reflect for a moment on some of the points of ambiguity (if not confusion) that arise if we think in terms of a transition from the traditional to the modern in this case. First, from the beginning of their long marriage, Liu and Ye divided responsibility between his management of the business (which might be characterized as modern capitalist management) and her management of their household (which might be considered traditional household management). But their roles were not wholly separate or in opposition to one another. On the contrary, they fully collaborated both in producing their children and in formulating and enforcing rules governing their children’s choices of residences, jobs, and marriage partners. Second, Liu initially managed his business through social networks (which are often labelled as traditional) and subsequently replaced these with corporate hierarchies (which are often described as modern). But then he later shifted executive responsibilities from his professional managers to his sons (going, if we retain the dichotomy, from the modern to the traditional). Third, in handing over authority to his sons, Liu reverted to family leadership (which has generally been regarded as traditional), but he appointed to leadership positions sons who had been educated in the world’s leading capitalist institutions (which taught them business practices that are usually considered modern—more modern than

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those that had been previously used by their father and his professional managers). Fourth, if the term traditional is worth retaining at all, perhaps it may be said that the Lius followed the Chinese tradition of occupational specialization within the family. As historians of late imperial China have shown, families during the Qing dynasty (1644–1912) commonly improved their social and economic status by developing two specialties: one branch specialized in mastering Confucian learning for the purpose of passing the government’s civil service examinations and securing positions in the official bureaucracy, and another branch specialized in operating money-making enterprises to provide financial support for the family.39 In post-imperial China, by contrast, the members of the Liu family all became specialized to achieve the goal of money-making, not to pass civil service examinations (which had been abolished in 1905) or to serve the Qing dynasty (which had fallen in 1912). So the history of the Liu family challenges us to reconsider interpretations that attribute the dynamism of Chinese business organization solely to a one-way transition from social networks to corporate hierarchies or to flat dichotomies between the traditional and the modern. In response to this challenge, we should seek more subtle explanations for the dynamism of Chinese businesses, and I think some of these explanations might be found in the inner workings of Chinese families. If we can come to understand more fully how Chinese business families have made decisions, then we can determine how they have reinvented themselves as firms in the post-imperial, post-World War II, and post-Mao eras, and, for that matter, the twenty-first century. Since 1900, if not earlier, Chinese business families seem to have shown great flexibility in dealing with the world as a whole, but so far, only a few of these families have been studied.40 In the future, many more

Ho Ping-ti, “Aspects of Social Mobility in China, 1368–1911,” Comparative Studies in Society and History 1:4 ( June 1959): 338; Richard C. Howard “K’ang Yu-wei (1858–1927): His Intellectual Background and Early Thought,” in Confucian Personalities, eds. Arthur F. Wright and Denis Twitchett (Stanford: Stanford University Press, 1962), 296–298. 40 General surveys have been written about twentieth-century family firms that were led by several Chinese: Aw Boon-haw, Tan Kah-kee, and Loke Wan Tho of Singapore, Li Ka-shing of Hong Kong, Liem Sioe Liong of Indonesia, Chin Sophonphanich of Thailand, Henry Sy of the Philippines, Y. C. Wang of Taiwan, Rong Yiren of China, among others. Perhaps the most comprehensive and colourful survey on this subject is by Lynn Pan, Sons of the Yellow Emperor: A History of the Chinese Diaspora (New York: Kodansha International, 1994). As far as I know, scholars have barely begun to investigate the inner dynamics of Chinese business families, but promising possibili39

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deserve attention, especially if historians can gain access to their family correspondence. Conclusion These, as I see it, are three challenges that now face us in Chinese and overseas Chinese business history. First, how can we theorize long-distance trade, redraw maps, and bring to light human agency in the business history of the nineteenth century? Second, how can we synthesize business history and political history to deepen our understanding of business-government relations in the early twentieth century? And third, how can we explain the dynamics of Chinese social networks without essentializing them, especially in the context of recent business history since the mid-twentieth century? These three challenges are formidable and will not easily be overcome, but each of the three is worth investigating in its own right, and each has contemporary relevance. In the twenty-first century, I believe that we can imagine the future of long-distance trade, business-government relations, and social networks in Asia more realistically and creatively if we establish historical baselines and use them as our point of departure.

ties are evident in pioneering works by John Omohondro, Chinese Merchant Families in Iloilo: Commerce and Kin in a Central Philippine City (Athens: Ohio University Press, 1981); C. F. Yong, Tan Kah-kee: The Making of an Overseas Chinese Legend (Singapore: Oxford University Press, 1987); Wong Siu-lun, Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong (Hong Kong: Oxford University Press, 1988); Jennifer W. Cushman, Family and State: The Formation of a Sino-Thai Tin-Mining Dynasty, 1797–1932 (Singapore: Oxford University Press, 1991).

BEYOND NETWORKING: AN INSTITUTIONAL VIEW OF CHINESE BUSINESS* David Faure This article argues that traditional Chinese business was not founded on the tenets of Confucianism, nor on “networks” of connections, but on practices which had to do with contracts, accounting, and incorporation. As the law was largely silent on these matters, businesses were operated under political patronage and universal practices were sanctioned by ritual. The Company Law, introduced into China in the late nineteenth century and enacted by successive Chinese governments in the twentieth century, made a tremendous impact on these practices, but traditional business practices existed side by side with reforms introduced via Company Law. When I went to graduate school, almost thirty years ago, we graduate students in Chinese studies were all made to read Fairbank, Eckstein and Yang (1960) the gist of which argued that China failed to modernize because its government was too conservative.1 That thinking held until the Asian Financial Crisis when the pendulum swung the other way: the ideological conservatism that goes by the name Confucianism or traditional values now apparently contributes to East Asian growth. If one reads Max Weber in Economy and Society, one should know that neither argument has much strength. Yet, of course, it was the Max Weber of the Protestant Ethic who gave rise to the argument that religion lurks in the background in the emergence of capitalism. As a starting point of this paper, therefore, one must answer the Protestant Ethic and expound Economy and Society. This can be done by dipping into Paul Connerton and Fernand Braudel.2 Weber did not argue that the Protestant ethics, * This article was written before the publication of the author’s China and Capitalism, A History of Business Enterprise in Modern China (Hong Kong: Hong Kong University Press, 2006). Thanks are due to Hong Kong University Press for permission to reproduce some paragraphs published therein. 1 John K. Fairbank, Alexander Eckstein, and L. S. Yang, “Economic Change in Early Modern China: An Analytic Framework,” Economic Development and Cultural Change, 9:1 (1960), 1–26. 2 Paul Connerton, The Tragedy of Enlightenment, an Essay on the Frankfurt School (Cambridge: Cambridge University Press 1980), 120–1, and Fernand Braudel, Civilization and

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not even its spirit, led to capitalism. He argued instead, that in an age when business was not regarded as the norm, one had to be Puritan in order to be capitalist. Weber in Economy and Society, however, arrived at a research programme which sought to explain the historical rise of capitalism. It starts from the fundamental basis that social institutions had to be created in order for business to be viable, challenging, in effect, the assumption of Adam Smith and the classical economists that businesses might result from the mere presence of unequal advantages. He did not quite say that if one could reduce transaction costs, one might advance the cause of business, but he did say that businessmen might only make rational decisions if the world of business was made calculable. A corollary of that observation would be that conflicting institutions might well make calculation impossible. Confucianism China historians have yet to face the Weberian challenge. If Chinese business is to be explained as the product of a cultural tradition, China historians have to come up with the history of how institutions were created and adapted which allowed business to be conducted. Confucianism had a little to do with that, but only a little. That little comes under the name of “networking”, the choice of the word reflecting a fundamental misunderstanding of Chinese society. The Confucianism which had any impact on social behaviour in China came out of an ambitious programme formulated in the southern Song dynasty (1127–1278) and which was then propagated in the Yuan (1279–1367) and the Ming (1368–1643). The programme, often referred to as neo-Confucian, called for the conversion of uncontrollable people by teaching them rituals. It had to be implemented in the schools which were to be run by the local governments, and supported by a code of conduct that was built around filial piety to parents and loyalty to the emperor. The programme worked because it was implemented with the spread of literacy, the extension of the official examination, the development of local government, increasing monetization, and upward mobility associated with a class of literati which saw its vested

Capitalism, 15th–18th Century (London: Collins 1982), especially volume 2, The Wheels of Commerce, which is an exposition of Weber’s research programme even though Weber is not so much as mentioned.

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interest in maintaining the Confucian ideology. The impact of all this on how society was to be organized was tremendous. However, that was not because the neo-Confucians succeeded in making Chinese people more filial and therefore more prone to maintain their contact with kith and kin. To say that would assume any political ideology could be so pervasive that it could govern all aspects of human life. What the neo-Confucians did succeed in doing was to place ritual at the centre of the relationships between the individual and the state and, moreover, to install the literati as its guardians. It created a language in which ritual compliance substituted for hierarchical control. Not even the emperor could rise above ritual, and so, just as the eighteenth-century Western world might assume that human action might be governed by societal norms which were derived from the laws of nature, the Chinese literati might argue that the ritual order dictated the proper functioning of the affairs of humankind.3 One result which was closely related to the emerging status of the literati was the degradation, not of trade, but of the political standing of the merchant. Possibly one of the most misunderstood statements of Chinese administrative ideology, the phrase “scholar, farmer, artisan, and merchant” has often been invoked to indicate that the merchant was the lowest status of all classes. The inference is mistaken, because even though the Chinese merchant had no status in politics, his wealth had always drawn covetous awe, if not respect. The Chinese statement of the four categories of people (read min, or “subjects of the emperor”) is not a description of social division in the mode of social conflict theories, but a statement of the four occupations which made up the functional whole of the imperial realm, and the realm being a functional whole, the scholar might take pride of place, but the merchant, being the tip growing out of the agrarian root, was as much an essential part of it. Yet merchants did not make up a political estate, and so, as is well known, successful merchants wanted their sons to sit the imperial examination so that the family would become members of the literati. The avenues of social mobility worked too well: even though every now and then, we historians catch a glimpse of political lobbying on a commercial interest, no political lobby represented the collective interests of the 3 David Faure, “State and Rituals in Modern China, Comments on the ‘Civil Society’ Debate,” paper given at the International Conference on Society, Ethnicity and Cultural Performance, Institute of Anthropology, National Tsinghua University, Institute of Ethnology, Academia Sinica and Centre for Chinese Studies, National Central Library, Taipei, May 1999.

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merchant as such. Chinese business advanced not because the law or administration might be steered consciously towards its promotion, but because merchants, exploiting opportunities, could, by taking part in rituals, pay their dues to the political order, and bend politics towards their ends. The manipulation of rituals can well give the appearance that an ideology which emphasizes the place of ritual in politics that is to say, Confucianism holds central place. The manipulation of rituals for the purpose of business gives rise to the impression that Chinese people are particularly attuned to “networking”. Trust in the person, rather than the institution is said to be a Chinese trait. The obvious answer to this description is that ritual encompasses institution no less than it does business. Trust for members of one’s family relies on faith in the institution of the family no less than trust in one’s bank manager might rely on the faith one must have on banking and the law that governs it as an institution. A “father” is often, though in the modern world, not always, unique, while bank managers change, so it is fair to say that the one sort of institution leads to particularistic traits while the other universalistic. However, if the particularism-universalism is to be generalized, it should be remembered that even in a traditional society, priests and officials do move around. The plain truth of the matter is that all businessmen network, so that a great deal of emphasis is given to institutions with strong ritual meanings, and a look at their history will show that it comes from a time when the rituals served more than ritual ends. The Institutions of Business in Imperial China Much as they were in Europe, the institutions for business in imperial China, were created out of an environment in which business was not their expressed aim. Europe discarded the ritual cover in the long years between the Commercial Revolution (say the seventeenth century) and the Industrial Revolution (say the nineteenth century). China also went through a Commercial Revolution in the sixteenth century, but China did not, like Europe, arrive at an individualist ideology which made its way in business and politics. Instead, China discovered the power of ritual as a tool for administration. The substitution of business institutions for ritual, therefore came relatively late for China. It was, in fact, one of the greatest impacts that the West made. The process took the whole of the twentieth century, and, to this day, has not been completed.

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To be Weberian about business carried out under the ritual mode, we may say that even then, risks were, within limits, calculable. They were calculable because arrangements existed for the creation and enforcement of contracts, partly because, despite the principle of collective responsibility in Chinese law, individuals were held responsible for most of their actions and, in relation to the establishment of longterm credit, it was possible, via ritual, to create the fiction that liability might continue beyond the individual’s mortal life. China historians do not have agreement on what the institutions which made risk-taking calculable might consist of. I would propose that, at least since the commercial revolution of the sixteenth century, the following features were dominant: • Written contracts relating to land are commonly employed; • Chinese accounting does not adequately handle depreciation and bad debts; • Chinese corporations emerge from a ritual legal context; • Chinese firms opt for internal banking; • Chinese banking tends to be weak; • Chinese management opts for sub-contracting; • Patronage takes paramount importance in all businesses, and political patronage in businesses of scale. This is not meant to be an exhaustive list. It is a list that is arrived at by positing contracts, accounting, incorporation, and financing as major elements of business. These practices were all related to risk-taking. The objection will be raised by some among my China historian colleagues that the twelfth century, rather than the sixteenth century, should be the turning point. Indeed, it can be, and if historians are allowed to generalize, we may find turning points which are even earlier. The further back one goes in time however, the more the generalizations become irrelevant, for the territorial concentration of Chinese state control would have shifted. Until the twelfth century, most of what Chinese history books tell us about China took place to the north of the Yangtze River. After the twelfth century, although I cannot quantify the recording of events, population, and certainly wealth, concentrated to the north of the Yangtze was very different from that in which the centre of the economic activities had shifted to the Yangtze but was governed from Beijing. An argument about Chinese business, therefore, faces the same general issue as faced by any argument about Chinese culture: it has to balance the rise of a corpus of ideas which posits the unity of

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the Chinese state with the means by which state administration spread over the expanding terrain that over four millennia became China. An appreciation of government over the geographic terrain is necessary for a grasp of the character of Chinese business institutions. Take, for example the prevalence of land contracts. They are found in all parts of China where land was put to cultivation. They are so common, in fact, that China historians take them for granted. We classify them, we probe the legal implications of their terms, we seek origins for the practice, we put it down to innate conservatism that land, rather than industry, should be regarded as a target of investment, and we do not ask why it was that most contracts had to do with land.4 The answer, of course, is amazingly simple. The use of written contracts extended with the implementation of Chinese local (that is to say, county-level) government, and they were used wherever Chinese government created titles for land ownership. This is not to say that successive Chinese governments were concerned with promoting a land market. Quite the contrary—a persistent strain in Chinese administrative thought believes that land should be state property and that the less it is privately amassed, the better it is for the state. Successive Chinese governments were interested in taxation, for which land was a ready resource. The techniques for land registration were, therefore, developed for that purpose, but, wherever land was registered, property rights were created and it became possible for land to be sold. While China historians write about the ancient origins of land contracts, they therefore tell only half the story and that is, that for most of what now counts as China today, land contracts were not known for most of Chinese history. Despite the early origins of written contracts in China, many of the highly commercialized parts of China did not use written contracts for land transfer until after 1500. The fact that written contracts were practically universal wherever Chinese local government was established says something about the nature of the government, but contractual practices cannot be taken very far without considering whether the party that might affix a name to the document was necessarily an individual person or a corporation. To complicate the situation further, neither contract nor incorporation

4 A convenient summary of the use of written contracts in Chinese history may be found in Valerie Hansen, Negotiating Daily Life in Traditional China, How Ordinary People Used Contracts, 600–1400 (New Haven: Yale University Press, 1995).

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can be divorced from the technicalities of accounting, for what is the point of entering into a contract that specifies the division of profit unless the contracting parties can agree upon the manner by which division may be conducted? The contractual tradition, incorporation, and accounting must, therefore, be taken as a complementary set, and once they are looked at together, the Chinese set shows many weaknesses. Chinese accounting, for example, provides no recognition for bad debts or depreciation, and so contracting partners, knowing these shortcomings, get around them. The one contract that is often cited from a Ming dynasty Huizhou merchant handbook illustrates how this might be done. The contracting parties, in the presence of the gods, set up the partnership, and, in order for it to continue, agree that they would draw only as much as is necessary for their livelihood. The light that this practice sheds on the weakness of accounting should not be missed: the contracting parties agree not to draw their full entitlement because they know that the dividend is merely nominal. Instead of a full distribution, therefore, they keep a running account with the firm, drawing from it, in their own words, only as much as they might need for their households. In the absence of capital accounting, it is only when firms wind up that the contracting parties can be certain of the value of their holdings. For this reason, contrary to the folklore, Chinese partnerships and family firms cannot last.5 Lest the Huizhou contract gives the impression that Chinese accounting was primitive, it is useful to note that Braudel cites a partnership contract for eighteenth century Nantes that is almost identical.6 Let it also be said that whether double-entry was also a Chinese accounting practice is not the point. It was as it should be that even in Western Europe, double-entry accounting was taught in accounting textbooks for centuries before it was widely practiced. The amount of ink spilled on this issue only shows how Weber’s stress on double-entry has often been misconstrued. Weber’s institutional approach to the rise of capitalism requires positing an accounting methodology such as double-entry to be in place if capital accounting is to be taken seriously, and for capital accounting to become a mental exercise if the maximization of profit is to be contemplated. As the reformers of Chinese accounting in the

5 David Faure, “The lineage as business company: patronage versus law in the development”. 6 Fernand Braudel, op. cit., 438.

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1920s and 1930s realized, Chinese accounting put its stress not on credit and liability but on cash flow. The question the Chinese merchant was able to ask, with his accounting method which may be translated as the four-column summary, is essentially the increase of cash in hand of one accounting period over the last. It treats, therefore, the withdrawal of dividend not as the settlement of liability, but as an element in cash flow. It works well when the true profit of the enterprise is not called into question but it is quite incapable of settling disputes that involve questions of true value. The lack of capital accounting in Chinese accounting practice set Chinese business practices apart from Western business practices, but not because it lacked double-entry. Chinese corporations, therefore, took a totally different approach to the maintenance of continuity from that of Western firms. The partnership was not, and not meant to be, long-lasting, but the holding operation might have to be.7 A clue to the holding operation may be found in the character that is often used for its name: tang translated for the sake of the Hong Kong law courts in Cantonese as tong. The tang is a hall. The Chinese character denoting it is the same character that would be used for an ancestral hall or a hall in a temple complex. It stands for a physical building, even though in its business application, no building is necessarily implied. The tang holds property on the understanding that it is held for the maintenance of sacrifice to ancestor or deity, and as such, the property held is thought of as belonging to the spirit to whom sacrifice is offered. The case is clear-cut in ancestral sacrifice, because the ancestor is often denoted as the party that is registered for tax. It was standard practice in Ming dynasty household registration to carry the household name on the books even long after the registered person’s death, and it was also common practice for fictitious personal names to be registered. This understanding of registration would accord well with the argument presented here that registration created title to land. Ming household registration, obviously, did not

7 The issue of whether a corporation is or is not more than a collection of individual contracts is a question that arose in Western law but not in Chinese rituals. Chinese rituals bypass the issue by assuming that land could be held under names, some of which were ancestral. Ming and Qing administrative practice accommodated registration under the names of deceased persons and so no conflict arose between the “law” and common practice, where the name pertained to a historic person, real or imaginary. For another interpretation, see Teemu Rushkola, “Conceptualizing Corporations and Kinship: Comparative Law and Development Theory in a Chinese Perspective,” Stanford Law Review, 52:6 (2000), 1599–1729.

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apply to deities. For this reason, the common conception of property holding at a temple dedicated to the deity might well be at variance with the legal understanding. Land was held under the names of temples, and Ming legal fiction would assume that because temples could not share in the corvee service required of household registration, tax and service which accrued to its holding might be assigned to households. In reality, the reverse was often true. Among the many exploits of the famous Hanshan Deqing at the Buddhist monasteries in early seventeenth-century Guangdong was sorting out the tax liabilities of the Nanhua Monastery, one of the important centres of Zen Buddhism in China. Local families which had control of its registered holdings were not delivering rent, but the monastery was held liable for tax, and the result, as one might expect, was impoverisation of the sangha. As Liu Zhiwei has very convincingly argued, by the sixteenth century, household registers dealt with tax accounts and not real households. Ming and Qing law was never revised to reflect this change.8 Corporations which were formed with the ostensible purpose of offering sacrifice to the ancestor or deity, therefore, did not rely on the keeping of accounts to maintain a fair distribution of profits, even though accounts were maintained and made public knowledge. They depended on the rules of inheritance. In the southern lineages in the provinces of Guangdong and Fujian each lineage segment, that is to say, descendants of the deceased ancestor in whose names the property was held rotated their right to manage the estate, but the sacrificial meats purchased with proceeds from the estate were distributed to all male members of the lineage.9 The combination of the two practices results from the two interpretations of partible inheritance that was the common practice for these areas. Estates to provide for sacrifice were also established on contribution, and where the target of sacrifice was

Liu Zhiwei, Zai guojia yu shehui zhi jian-Ming-Qing Guangdong lijia fuyi zhidu yanjiu (Guangzhou: Zhongshan Daxue Chubanshe, 1997). 9 Examples are abundant in the genealogies and some are cited in the Structure of Chinese Rural Society: Lineage and Village in the Eastern New Territories of Hong Kong (Hong Kong: Oxford University Press, 1986). However, again ink is spilt because writers on the subject do not distinguish the different kinds of land rights that accrued to these institutions. The heavy reliance on Maurice Freedman, Chinese Lineage and Society: Fukien and Kwangtung (London: Athlone Press, 1966), exaggerates the importance of land rights created by purchase or registration—the sort that led to the rotation described here—as an essential function of the lineage. Quite apart from any benefits that might be derived from such holdings, membership to the lineage might grant the right of residence and reclamation, and that would not entail the holding of any property as a “trust”. 8

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a deity rather than an ancestor, the management body took the form of a voluntary association (hui). Unlike membership in the lineage, membership in the voluntary association might be bought and sold, and the right of participation in the association, therefore was frequently represented as a share ( fen).10 Unlike family operations, holding operations conducted in the name of the ancestor tended to be long lasting: lineages survived for centuries, their members being located in the same villages, holding land in the same areas, managing the estate under the same institutions that had been set up at the time the lineage was founded. If lineages thrived, and many did, complications were introduced by what Maurice Freedman called segmentation, which was less a process of division than the proliferation of land-holding trusts. The development often came with increase in wealth, which led to social inequality and not necessarily managerial inefficiency. The equivalent in temple holdings is less clear. Where land donated to the temple is managed by voluntary associations, the temples easily out-survive the associations. However, one suspects that the control of a temple could involve a highly charged political situation. Where rights and responsibilities are clearly demarcated, and where the local power structure is maintained, such as I have seen in the records of water-management associations in Shanxi, disputes take place within the framework of temple management. Where they are not clearly demarcated, or where the local power structure is fluid, it takes local warfare to determine how power might change hands. The continuity of institutions in the ritual framework can take many forms. Obviously, no deposit bank can be successful unless its clients believe that money deposited might still be returned in the event of the banker’s death, and, for this reason, China’s bankers, the Huizhou merchants, were long known for their filial piety.11 In promoting an image of themselves as financiers, however, the Huizhou merchants, were the exception. The much more common pattern of financing must be the form taken by the Chaozhou merchants, as described by Choi Chi-cheung from his very detailed records of several families operating in the late nineteenth and early twentieth century in Shantou, Hong

10 Examples I have seen of such shares date from no earlier than the eighteenth century. 11 This is well-documented. See, for instance, Ye Xian’en, Ming-Qing Huizhou nongcun shehui yu dianbuzhi (Rural society and the system of bonded tenants in Huizhou in the Ming and the Qing) (Hefei Anhui renmin, 1983).

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Kong, and Southeast Asia.12 In this pattern, successful Chinese family firms invest in their sons and relatives’ businesses, the new business firms maintaining close trading relationships among themselves. The crossholding of equity and credit adds to the trust that is built on family and kin relationships. The Chinese term for the resulting relationship, lianhao (linked firms) indicates that the operators understand the networking that is set up in the process. Yet, to stress their common origin and lineage ties misses the boundaries set up for the network: outsiders cannot easily enter the internal banking that is effectively placed at the heart of joint operations. The maintenance of internal banking in this manner puts financial rather than administrative control at the centre of Chinese business management. It allows for the operation over long distances that is found in some, especially overseas, Chinese businesses, and the spread of independent units of command would appear to be diametrically opposed to the vertical integration that became the norm after the rise of modern industry. Nevertheless, this successful pulling of cash holding to allow a group of firms to meet their cash flow demands was adapted by the more successful Shanghai merchants in their holding operations in the early twentieth century. The weakness in Chinese accounting makes an impact on the manner of production as it does on the partnership. No Chinese operation, with the exception of some parts of the government bureaucracy and the military, was run by a strict order of command. Instead, it was common practice to sub-contract so that the sub-contractor was paid for the work for which he hired his own workmen. Numerous examples may be cited to illustrate this tendency, from the central government’s mints in Beijing to the largest imperial factories in the most prosperous cities.13 12 Choi Chi-Cheung, “Competition among brothers: the Kin Tye Lung Company and its associate companies,” in Rajeswary Ampalavanar Brown, Chinese Business Enterprise (London: Routledge, 1996), vol. 1, 65–82, and “Kinship and Business: Paternal and Maternal Kin in Chaozhou Chinese Family Firms,” Business History 40:1 (1998): 26–49. 13 Studies on the silk factories include: Peng Zeyi, “Cong Mingdai guanying zhizao de jingying fangshi kan Jiangnan sizhiye shengchan de xingzhi” (A view of the nature of Jiangnan silk production from the Ming official silk works), Lishi yanjiu (1963): 2, reprinted in Cuncui xueshe, Zhongguo jin sanbai nian shehui jinjishi lunji, vol. 3, Hong Kong: Cuncui xueshe, 1979, pp. 46–69; Peng Zeyi, “Qingdai qianqi Jiangnan zhizao de yanjiu” (A study of the Jiangnan silk workshops on the early Qing), Lishi yanjiu, 1963: 4, in Cuncui xueshe, Zhongguo jin sanbai nian, vol. 2, 79–104, Paolo Santangelo, “The Imperial Factories of Suzhou: Limits and Characteristics of State Intervention during the Ming and Qing dynasties,” in The Scope of State Power in China, ed. S. R. Sehram (London and Hong Kong: School of Oriental and African Studies and Chinese

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Even when factories came to be built in Shanghai, on a Western model, shop-floor workers were commonly recruited on a sub-contract basis.14 I know of no study which has examined the issue at close range, but I would think that sub-contracting must have been attractive because it avoided supervision costs. It is not clear to me that the lack of capital accounting is necessarily the decisive factor in this, but the use of accounting in trade, rather than production, might well be. Finally, comment has to be made regarding the involvement of the Chinese government in business. The story might best be told from the angle of the salt trade in the Ming dynasty. The salt trade, by law a government monopoly but in effect traded as futures, offered a window of opportunity for the Ming government to service a national debt. The kaizhong fa (which I can translate loosely as the “open bidding method”), which required merchants to carry rice to the border areas in return for a salt ticket which entitled them to purchase salt at government salt depots, involved merchants in substantial capital outlays and a spirit of speculation in the ups and downs of salt ticket trading. There is no need to second-guess as to where that practice might lead Chinese business, for we know that it produced the major financiers, the Huizhou and the Shanxi merchants, who went into long-distance trade financing and the very important credit institution, the pawn shop. The salt trade proved unprofitable for the Ming government, who renounced its debt (denominated in salt), tightened the rules of the salt monopoly and, in effect, turned the right of salt trading into grants that it gave to hereditary syndicates. The abolition of the kaizhong fa established the method by which the Chinese government in successive centuries managed big business, a method long known to historians as official supervision and merchant management. The differences in the two policies by which the salt trade was managed should not be lost: despite all the insider trading conducted by members of the imperial family, eunuchs and senior officials, the kaizhong fa allowed individual merchants to compete in the market for the best price that they could

University Press, 1985), 269–294. For studies on the mints, see Peng Zeyi, “Qingdai Baoquan Baoyuan ju yu zhuqian gongye,” Zongguo shehui kexue yuan Qingji yanjiu suo jikam, 5 (1983), 179–204. See also Tim Wright, “A Method of Evading management—Contract Labour in Chinese Coal Mines before 1937,” in Rajeswary Ampalavanar Brown, op. cit., vol. 3, 505–527. 14 Emily Honig, Sisters and Strangers: Women in the Shanghai Cotton Mills, 1911–1949 (Stanford: Stanford University Press, 1986).

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obtain for investing in salt futures. Official supervision and merchant management turned the right to trade into a favor which the emperor, or his officials, might grant on their whims, in return for unregulated and arbitrary demands for payments. Abolishing the kaizhong fa and substituting for it the gang fa (the syndicate method) enshrined the role of official patronage in business. Commercial papers did not return to big business in China until the nineteenth century, while syndicate merchants ceased to drive for competitiveness in their search for profit, and instead, wanted government protection against smugglers and the black market. If one could think of history as one of the many viable courses taken, the sequence of events that brought about the abolition of the market in salt futures might represent for China the abandoning of capitalism for the conduct of business under patronage. The impact was felt only in the world of high finance. Nothing in the operation of the salt business, under the kaizhong fa or the gang fa, required the state to recognize business incorporations as such. It could be argued that the business practices which grew in the West depended on a legal structure that accepted individualism and the individual’s ownership of property as its foundation, and it could also be argued that the neo-Confucian programme, by ignoring the legal status of the individual, was hopeless as an ideology which might promote a legal structure for business. However, it has also to be said that business institutions were created in China which brought about a great deal of economic development from the sixteenth to the eighteenth century. The argument which seeks to elucidate the workings of Chinese business must, therefore, also explain why the Chinese economy came to such grief in the nineteenth century when China had to confront a new world dominated by the West and a great share of the responsibility would have to rest with the weakness of Chinese banking. Native banking operated on too small a scale to make much impact on the industrial financing that was needed. Native banks, however, could not have operated on a larger scale unless the Chinese government had instituted a national debt and thereby recognized that bankers had the right to issue paper money. The abolition of the kaizhong fa towards the end of the Ming Dynasty, therefore, was a decisive turn in Chinese business history. China gave up the finance market and turned instead to official patronage, which continued into the next dynasty as “official supervision and merchant management”. The right to engage in trade on a large scale was to be granted by imperial favour, in return for which, merchants were subjected to unspecified and arbitrary exactions

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in the form of gift. Taxation by fiat was, by definition, unpredictable. No bank of scale could have operated in that environment.15 The imperial order was in full sway by the time the Opium War in 1840 dramatically imposed new terms for trade between the West and China. The contractual tradition governed most Chinese business, incorporation was made possible by ritual practices, and accounting was an integral part of business but it was neither applied in production nor capable of handling capital analysis. The government had not recognized the merchant’s right to trade and demanded that it be conducted by license from imperial monopoly under “official supervision” or be subject to brokerage taxes, neither of which demand the government succeeded to enforce. The new terms required China to accept extraterritoriality in designated treaty ports, that is to say, enclaves were to be set aside, in which Westerners, and soon also Japanese, might reside and conduct business under their own, rather than Chinese, law. The new terms overhauled Chinese business practices, but the change did not come immediately. The move towards modern business took the whole of the twentieth century. Moving towards Modern Business in the Twentieth Century Again, a nutshell history will be helpful for a discussion of changes in Chinese business practices, and to my mind, the most important change in the Chinese business environment came in the position of the Chinese merchant in politics. I refer not to social prestige, because I am not convinced, even in the days when the scholar official had supreme place of honour as guardian of rituals, that wealth was not recognized for what it could provide. Yet in politics, before the abolition of the official examination in 1905 and the spate of reforms that it precipitated, the merchant did not represent himself as merchant for he hid behind the cloak of the official, which he acquired through purchase or through his sons and nephews’ examination success. The implementation of the Company Law and the Chambers of Commerce Law after 1905 carried a significance that can hardly be exaggerated. It implied a sea change in China’s political constitution.16 The name “chamber of

15 Ray Huang, Taxation and Government Finance in Sixteenth-Century Ming China (Cambridge: Cambridge University Press, 1974), 189–224. 16 Ma Min and Zhu Ying, Chuantong yu xiandai de erchong biancou—wan Qing Suzhou

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commerce” belies the political importance of these institutions created in 1904: the chamber of commerce was virtual local government into the 1930s, complete with its own paramilitary armed forces. It went well beyond the traditional merchant guild, which served primarily to cement the ties that merchants trading away from home needed with one another—not least because that was the only effective means by which they might enforce payment from the locals—or the voluntary associations at temples and institutions, having purview over all commercial matters in any town or city. In this state they served as a role model also for overseas Chinese communities, even though the situation there was coloured by colonial law and politics. In Hong Kong, the Chinese Chamber of Commerce was overshadowed by its political connections to the Chinese government and in Dutch Indonesia, by separate laws which were enforced on the Chinese population as distinct from the natives or the Dutch. The impact also went well beyond the 1930s. It is true that the imposition of central government reined in the influence of some chambers of commerce, especially the ones in the large cities such as Shanghai and that, by the 1950s, they were to disappear altogether under the aegis of socialism. Yet, since the 3rd Plenum of the 11th Party Congress in 1978, a series of events followed, which added up to a policy about-turn as great as the late Qing abolition of the official examination—the private entrepreneur has returned with a vengeance. Political patronage, it must be understood, did not ever give way, in 1905 or 1978, but its top-heaviness had dissipated, and, if business had been guided by the dragon’s head, it was now being wagged by its tail.17 True it is, therefore, that in outlining the changing background, some emphasis will have to be given to the Western impact. The West brought the steam engine and the internal combustion engine, the telegraph, the railway, the spinning mill, the steam-driven flour mill and much more. Equal emphasis must also be given to the economic environment. This would include the need for financing industry on a totally unprecedented scale with the coming of the railway and, by the

shanghuige’an yanjiu (The duet of tradition and modernity—a case study of the Suzhou Chamber of Commerce in the late Qing) (Chengdu: Bashu shushe, 1993); Roger R. Thompson, China’s Local Councils in the Age of Constitutional Reform, 1898–1911 (Camb., Mass.: Council on East Asian Studies, Harvard University, 1995). 17 David Faure, China and Capitalism, Business Enterprise in Modern China (Hong Kong: Division of Humanities, Hong Kong University of Science and Technology, 1994), esp. chapters 2 and 3.

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1980s, in areas such as oil exploitation, telecommunication and financial services. This was when the Chinese government, after closing China to effective foreign investment for three decades, allowed in the power of multi-nationals in international competition, some of it on China’s home ground. Gone also were the days when silver ruled the Chinese market—after 1935, paper currency reigned, with all its relentlessness when and if the issuing banks maintained no vigilance on its supply. It has also to be remembered that the first half of the twentieth century saw China constantly at war. Ranking with all these changes for their impact on China should also be the many innovations built into the Company Law, such as the concept of limited liability, accounting requirements, the right of the state to tax, and the responsibility of the state to protect share-holders.18 The useful point of departure in this little-noticed subject in Chinese history, even more than Max Weber, is Karl Polanyi, and his view that the market does not spring naturally from unequal advantages, for decisions have to be taken by governments to release it from their control before mercantile activities can take off.19 When in the West, royal charters and then company law marked out the boundaries of these activities, in China, business sought protection under state-sanctioned rituals. When China, following the West, acknowledged business as a rightful activity and adopted similar laws, it followed then that merchants would make use of them. As should be expected, given China’s size and the political turmoil of the first half of the twentieth century, a considerable time gap must exist between the introduction of the law and its gaining sufficient credibility for its impact to be seen. It is, therefore, not a strong indictment against the legal tradition that the introduction of company law in 1904 had not brought about a rush in company registration. Yet, the introduction of company law into China was much more effective than the statistics of company registration would suggest. Chinese business in the twentieth century, under the impact of company law, underwent tremendous transformation. But this bland statement clouds the continuities and discontinuities with previous busi-

18 Teemu Ruskola op. cit., and William C. Kirby, “China unincorporated: company law and business enterprise in Twentieth-century China,” Journal of Asian Studies 54:1 (1995): 43–63 both recognize the importance of the 1904 and subsequent company laws. 19 Karl Polanyi, The Great Transformation, the Political and Economic Origins of Our Time (Boston: Beacon Press, 1957) (1st ed. 1994).

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ness tradition that China historians have yet to work out. There is no reason to assume, for instance, that with the rise of the company, the family need necessarily take second place in the management of business, and there is no reason why political patronage must necessarily be less of a factor in the business climate created by institutions which refer to themselves as “companies” than would be created by lineages. Yet the finance market, and within it in the Chinese context, banks in particular, could benefit from the terms of company legislation in its demand for greater transparency. The requirements of accounting and legal representation in company law give rise to new professional expertise and, therefore, new professions. In sum, the following generalizations may be made about the institutions of business in China through the twentieth century: • Chinese firms increasingly took on the character of companies as defined in successive versions of the Company Law • Banks remained the weakest link in the business chain but signs may be detected of an impact being made by banking practices • Since the 1930s a perceptible growth can be seen of accountants as a profession but the enforcement of accountability is not yet settled • Families continued to wield power with the framework of the public company • Patronage remained a requirement in the world of business Some of these features can be traced to legislation and its enforcement, in China proper as well as in areas outside China where Chinese business have proliferated. Some features have continued not because of any tenacity of tradition but because twentieth-century governments have adopted policies similar to their nineteenth-century predecessors. The finance market has wielded a much stronger impact on the practice of businesses, but the jury is still out as to whether Chinese firms might be made accountable to their share-holders to the same degree as Western firms might. In none of these changes did Confucianism as an ideology have any bearing. The slow and steady move towards company legislation did not begin with China enacting a company law. Businesses traded as companies in China before that came about. They did so in the Western enclaves, which were opened for trade from the early years of the nineteenth century, at a time when it was a moot point as to whether they registered with any government or paid any tax on profits. When the Company

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Law was enacted in Hong Kong in 1865, it became possible for businesses to register in Hong Kong and to trade in the Western enclaves within China.20 The protection of companies registered outside Chinese jurisdiction, in Hong Kong or abroad, made an immediate impact on Chinese businesses. The history of this impact has been worked out succinctly by Chinese historians, who have described it as “Chinese merchants attaching their capital [to foreign firms],” a feature which re-occurred in the 1980s when foreign investment was permitted in special economic zones. In other words, Chinese merchants, instead of trading in their own names, invested in Western firms because the law provided divergent treatment for foreign and local investments. In the late nineteenth century, the practice was associated with the role of the compradore, which became a well-known feature of Western businesses in China. As Yen-ping Hao showed some time ago, the compradore should not be construed as an agent.21 Whether he was “principal” or “agent” was a thorny point of law for the Shanghai mixed court, but at least this much is clear: it was his personal guarantee which gave the firm credit among Chinese merchants, and this practice was carried on into enterprises, such as the Nanyang Brothers Tobacco into the 1920s: enterprises that might be given a more modern appearance by adherence to company legislation. The late 1870s and 1880s were very much a learning period for Chinese merchants in the treaty ports. They learned about the operation of companies from working with them, and from reading about them in the newspapers several decades before China enacted a company Law.22 The idea of the “company” also made its way into China via the finance market. The terminology might be all different, but the monopolies which were granted by the Chinese emperor for the running of steamship companies and mines worked, in at least one way, as chartered companies did in the West: the Chinese emperor’s grant of a monopoly was a privilege on which capital might be raised. Previously, equity was provided through partnerships, in which the partners 20 Stephanie Po-yin Chung, Chinese Business Groups in Hong Kong and Political Change in South China, 1900–25 (Basingstoke: Macmillan, 1998). 21 Hao Yen-ping, The Compradore in Nineteenth Century China, Bridge Between East and West (Cambridge: East Asian Research Centre, Harvard University, 1970). 22 Lee Pui-tak, “Understanding and Practice of ‘New Business’ in NineteenthCentury China,” in R. Ampalavanar Brown, op. cit., vol. 1, (453–480), and Wang Tai Peng, The Origins of Chinese Kongsi (Singapore: Pelanduk Publications, 1994), give useful documentation of early use of the term “gongsi” for the English word “company”.

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probably were acquainted with one another. Increasingly through the 1880s and 90s, even government monopolies sought to raise capital by selling shares. In those early days of share-dealing, Chinese imperial monopolies retained two Chinese characteristics: the shares were guaranteed a dividend, which gave them a character more similar to a bond, and the emperor retained his right to appoint the chief executive. Guaranteed dividend and the chief executive by imperial, rather than share-holders’, appointment do beg the question as to whether these government enterprises were companies. The history of the first of these, the China Merchants’ Steam Navigation Company, in the second half of the nineteenth century, suggests that they certainly were. It is unfortunate that the literature on the China Merchants’ Steam Navigation Company is saddled with a moralistic overtone that does not take into account the realities of business. Historians who study its history argue to no end whether the senior executives of the company were officials or merchants, and Albert Feuerwerker, who has written the classic account of the history of this company, found it nepotistic, corrupt and unable to live up to its claim of salvaging China’s steam transport business from foreign competition.23 To take the last charge first, it has long been ingrained in the theory of the market that it is not private vice that is necessarily evil, but that it is evil only when it does not add up to public benefit. China Merchants’ Steam Navigation was founded on the understanding that it would manage steamers, but if it found the real estate market more of a money-spinner, one should only expect that it would exploit its holdings of wharves and jetties up and down the Yangtze. Chinese business literature is sadly unrealistic in not acknowledging what every businessman knew in China, which was that rising real estate prices could make that a very profitable investment, whatever claims are made about the enterprise’s principal business. As for corruption and nepotism, there need be no defence of that in China’s business climate of the 1870s. In those early days of the Chinese finance market, investors were cautious of the share certificate, 23 The classic study of China Merchants’ Steam Navigation remains Albert Feuerwerker, China’s Early Industrialization, Sheng Hsuan-huai (1844–1916) and Mandarin Enterprise (New York: Atheneum, 1970), (1st pub. 1958) but it may now be supplemented by Lai Chi-kong’s Ph.D. thesis and various studies in Chinese, notably, Zhang Houquan, Zhaoshang ju shi (A history of the China Merchants’ Steam Navigation Co.) (Beijing: Renmin jiaotong chubanshe, 1988), and Zhu Yingui, Guojia ganyu jingji yu Zhong-Ri jindai hua (State intervention in the economy and the modernization of China and Japan) (Beijing: Dongfang, 1994).

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and for that reason, China Merchants’ Steam Navigation did not find it easy to raise share-capital. Capital was raised, therefore, through private connections, and investors were assured by the presence of their friends and relatives holding office in the firm. Once entrenched, however, corrupt practices and nepotistic appointments were not easy to root out, and the company may, therefore, rightly be criticized for making no effort to do so when, by the 1880s, thanks largely to its success, the holding of shares in government enterprises had become quite attractive and a clearer delineation of management and ownership might be installed. As to the official or merchant background of its executives, China historians miss the point altogether by focusing on their origin. China Merchants’ Steam Navigation was a strange hybrid as long as government, rather than share-holders, appointed its chief executive. When the chief executive lost the backing of his mentor in the bureaucracy, he shifted quickly enough to the view that he should be appointed by the share-holders, and it was not until the early 1900s, with the enactment of Company Law, that share-holders elected a board of directors who might, at least, be made formally aware of company affairs through an annual report. It took China three decades, therefore, to learn the essentials of company governance, and government enterprises such as China Merchants’ Steam Navigation were very much the experiments conducted in the process. China historians know of the history of few companies to the detail they do of China Merchant Navigation. Yet such knowledge, gleaned from the company’s operational papers rather than hearsay, is vital if we are ever to reconstruct a history of Chinese business. In two recent D.Phil. theses at Oxford, Elisabeth Köll and Kai-yiu Chan, working precisely on company records, show in considerable detail the essential features of this history from approximately 1900 to the 1930s. Köll studied the very well-known spinning and weaving business of Zhang Jian in Nantong County. Located on the coast to the north of Shanghai, Nantong was, until the last years of the Qing dynasty, saltproducing country. Zhang Jian’s contribution rested on his converting the salt fields to cotton cultivation, a feat which was only accomplished because he had both official backing and strong local contacts. Zhang raised the share capital which contributed to the mills, but the company operated more like a family business, for his brother ran the business while share-holders had minimal knowledge of what went on, had few channels to express an opinion and none which worked effectively on the chief executive. In place of accountability, Zhang exuded the air of the

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national politician that he was. The biographical literature stresses his origin in winning first place in the official examination in 1894. More relevant than that, however, was his participation in the electoral politics of the last decade of the Qing dynasty in Jiangsu province, where Nantong was located, and his successive stints in the cabinet during the Republic. The political patronage of the successful national politician of the 1910s paid off for, as Köll found out, the mills were, for the most part, unprofitable propositions, and Zhang’s fortune was made, not from yarn and cloth, but from loans which were raised from government land grants on the pretext that cotton was needed to supply the mills and, while the mills were run on share-capital, the land-development side of the business operation was more like family enterprise. Köll also found out that the smoke screen of local construction, noted in most studies of Zhang Jian as an example of his civic consciousness, was quite costly to the industrial operation, involving Zhang’s charity work funded by his business operations or his private theatrical company packaged as Nantong’s local opera. It was not surprising, therefore, that the business collapsed with Zhang’s death. By the 1920s, the banks were worried by the ever-increasing insolvency and in 1926 took over the Nantong operations. Their treatment of Nantong in the crisis represents one of the rare documented instances we have of the impact that bank capital might make on business management, for by taking over the factories, they strengthened the hands of the company’s financial control—based in Shanghai—and curbed the excesses which might derive from the whims of the chief executive. Nantong is an excellent example of the abuse of company resources when share-holders are totally unable to hold the CEO to account.24 Kai-yiu Chan’s study of the business empire of Liu Hongsheng in Shanghai deals with a different sort of company. In Liu Hongsheng, Chan confronts the transformation of the compradore into the independent business man. Liu Hongsheng began his business career as compradore for the Kailuan mills in Shanghai. Crafty and resourceful, he held shares in agencies he contracted with on behalf of Kailuan, the conflict of interest being so obvious that he had to hide his shareholding interests from his principal. The resulting relationship was Elisabeth Köll, “Regional Enterprise in Modern China: the Da Sheng Cotton Mills in Nantong, 1895–1926” (D. Phil. Thesis, Oxford, 1997), now published as From Cotton Mill to Business Empire: the Emergence of Regional Enterprises in Modern China (Cambridge, Mass.: Harvard University Asia Center, 2003). 24

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never easy, and so Liu Hongsheng put behind him his compradore position, renegotiated his Kailuan contract, and set up on his own. He never looked back. He expanded his coal distribution business, and he put his coal supply to work in a cement factory, producing cement at a time in the 1920s and 1930s when the building trade was booming. After 1927, Liu threw in his lot with the Guomindang government, becoming a prominent member of the new-found influence, he put on the appearance of a supporter of scientific management, and backed the new government efforts to catalyze the major industries, winning for his own enterprise a substantial share of the cement market. All the while, Liu’s business empire was actually managed along the traditional line of a finance office answerable to himself, through which all funds into and out of his businesses were channeled. He implemented, essentially, an internal bank within his businesses, all of which, unlike the scattered overseas Chinese operations, came under his own control. This very traditional aspect of Chinese business, as Liu’s experience demonstrates, can readily take on a form that is very close to financial control in a modern business. Liu probably did face cash-flow problems in the late 1930s, which he tried to solve by running a fully registered bank, taking deposits and possibly also government-issued currencies, but he did not seem to have contemplated looking for share-holders. He would not have been the only successful Shanghai merchant to shun the stock market. His contemporary Rong Desheng, who ran the largest number of spinning mills in all of China, kept his business within the family, making it quite clear that the financial reporting required by law did not appeal to him. With very rare exceptions, Chinese businesses remained family-owned, and the weakness of the stock market as a source of capital for them could well be a reason. That reason, however, could be circular. More to the point, one might argue that the push factors in death duties such as those implemented in the United Kingdom which forced families to give up control were absent in China, while the concept of share-holding, divided among surviving descendants, actually helped to maintain unity of control even as family property was divided.25 By the 1920s, Shanghai was a booming economy in which new and successful companies were founded on partnership capital—whether or 25 Chan Kai-yiu, “The Structure of Chinese Business in Republican China: the Case of Liu Hongsheng and his Enterprises, 1920–1937” (D. Phil., Oxford, 1997), now published as Business Expansion and Structural Change in Pre-War China: Liu Hongsheng and His Enterprises, 1920–1937 (Hong Kong: Hong Kong University Press, 2006).

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not they were registered with the central government. There were stock exchanges, but few Chinese companies were floated and they dealt, in the main, with bonds and commodity futures. Changes were being introduced in the area of commercial papers, one of which noted by the economist Ma Yinchu, consisted of papers of lading being provided by the railways and warehouses as the result of which it became possible for banks to make loans using goods in transit as collateral. A change such as this had substantial impact on inland cities such as Wuhu, which were centres of the rice trade. It is easy to mistake Shanghai consumerism for modernity in business methods. Yet, as also pointed out by Ma Yinchu, it was precisely the shortage of commercial papers which inhibited the growth of banking in China. Chinese businessmen did not write cheques; their practice consisted of keeping account entries which were periodically cleared. They required no draughts to pay for their orders, and so banks had few bills to discount except for what were issued by the government.26 Although the impression may be had from the current literature that commercial papers—bills of various sorts—had a place in Chinese business, a careful reading would show that they were much more prevalent in the last few decades of the nineteenth century than earlier. Our impression that bills were important comes from the operations of the Shanxi banks, primarily after the Taiping rebellion when provincial taxes might be remitted to Beijing by cheque. Native banks, including some of Shanxi origin, survived in Shanghai into the 1920s not because of any cultural barrier but because the new Chinese commercial banks, such as the Bank of China, were severely constrained by politics.27 Even then, it was the modern banks such as the Bank of China, Jincheng or Shanghai Commercial Savings, which were examples of reform, taking over the remittance business of the “native banks”, and pushing into industry and high-street savings. Throughout the late Qing and Republican eras, Chinese banks were quite incapable of underwriting substantial industrial loans, and so for mining operations and railway building, the Chinese government turned to the foreign banks. It would be unfair to attribute the financial weakness of Chinese banks to business practice alone, for a substantial part of the foreign banks’ standing in China emerged from the flexibility 26 Ma Yinchu, Zhonghua yinhang lun (A study in Chinese banking) (Shanghai: Shangwu, 1929). 27 Huang Jianhui, Shanxi piaohao shi (A history of the Shanxi banks) (Taiyuan: Shanzi jingji chubanshe, 1992).

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they derived from being involved in servicing China’s substantial foreign loans. Moreover, the problem was aggravated by China remaining on the silver standard when the world was moving towards gold, with the result that China’s foreign loans, denominated in gold, had to be repaid with considerable premium as the international price of silver slid continuously in the years between the two world wars. It might even be argued that by the 1930s, if the Chinese government was to introduce a paper currency, there was little alternative to centralized banking, and centralizing banking only made it easier for government to devalue the currency in a situation of deficit financing. Considering the nightmare scenario that the Guomindang government faced in the 1930s—world economic depression, a sharply fluctuating price of silver in the international market, internal and external war, all coming within a decade—it presented a credible economic policy which it had little time to try out. Banking remained its weakest link, and the closeness of banking and government policies which became a trait in Chinese financial management continued into the reforms of the 1980s and 90s. Yet, China had moved on. The fact that returned students such as Ma Yinchu, trained in the economics departments of the leading universities of the United States, could return to China, be given appointment at the Bank of China, be asked to speak regularly on the economy and to have his lectures written out and published, suggests that a demand for knowledge of the economy was eagerly sought after, and if Liu Hongsheng in the 1930s found it to his advantage to advocate scientific management, the groundwork for an interest in business administration had been prepared in the previous decades. The change in mood went well beyond the media. The change in management in many ways took the shape that might resemble an echo of the drive towards rationalization in the West. In the mills of the Rong family, this meant the factory management attempting to gain direct control over the workers, and cutting out the intercession of the sub-contractors in the process. It also meant a vigorous interest in accounting practices and the emergence of accountants advocating Western accounting methods. Although the most prominent accounting school, the Lixin, was founded in Shanghai in 1928, even in the early 1920s, companies operating in Shanghai which were dependent on share capital had retained the service of accountant Xu Yongzuo to audit their accounts. One might say that some impetus towards independent audit was given by the Company Law of 1914, but the weakness of the central govern-

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ment makes it unlikely the law was very seriously enforced. Rather, for different reasons, most of which had to do with the raising of loan or share capital, some business companies saw it fitting for their image to be able to produce audited balance sheets in the 1920s, while by the 1930s, cost accounting was becoming a focus of interest. There should be no attempt to underplay the professionalization of Chinese business. The professionalization of business, set off with the requirements of company legislation, continued into the 1950s.28 China business historians will eventually have to face the question of how much the business practices of the 1950s, for all the socialism that was introduced by the Chinese Communist Party, was built on the rationalization of management which began in the 1920s. We are probably even today, too committed to the idea of total revolution to take an objective view. The break with tradition in management came, probably not in the 1950s, but in the short and sharp changes of the few years of the Cultural Revolution. Enterprises taken over by the state in the 1950s carried on their accounting practices, with one very major change, for if management was not to benefit from any declared profit, all accounting was conducted with the view of minimizing tax payment. The substitution of tax accounting for capital accounting must have had its consequences in the management of businesses, which we must leave to surmise until we have the chance to examine the records of some of these enterprises in detail. The Cultural Revolution, nonetheless, was reversed by the 1970s. Long before the 3rd Plenum of the 11th Party Congress in late 1978 when, under the leadership of Deng Xiaoping, the Chinese Communist Party chose economic development as its guiding principle. The 1980s and 90s saw China retracing with a more hurried pace, steps which had been taken from the 1870s through the 1920s. Benefiting from a long period of peace and international trade boom, in those two decades, the Chinese government totally

28 Robert P. Gardella, “Squaring Accounts: Commercial Bookkeeping Methods and Capitalist Rationalism in late Qing and Republican China,” Journal of Asian Studies, 51:2 (1992): 317–229, may be supplemented by Gao Zhiyu, Zhongguo kuaiji fazhan shi (A History of Developments in Accounting in China), Henan renmin chubanshe (1985); Guo Daoyang, Zhongguo kuaiji shi gao (Draft history of accounting in China) (Beijing: Zhongguo caizheng jingji chubanshe, 1988); Chen Xinyuan and Jin Nan, Xin Zhongguo kuaiji sixiang shi (A history of accounting thought in the new China) (Shanghai: Shanghai caijing daxue chubanshe, 1999); and Xie Rong, Li Shuhua and Wang Jianchun, Zhongguo zhuce kuaijishi zhiye fazhan zhanlue (Professional development strategy for registered accountants in China) (Shanghai: Lixin kuaiji chubanshe, 2000).

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revamped the miserable business environment into which China had fallen in the 1970s. It is easy to read into those events of the 1980s and 90s a sense of inevitability which masks the very brave decisions which were taken by the Chinese leadership. As always, there were false starts and detours. The reforms of 1978 instituted some very major principles, such as the establishment of special economic zones in which foreign investment was permitted, and the revival of private contracts in the countryside, which brought rural business back to life. Most important of all, they built on the contractual tradition that been widely known in all of China from the sixteenth century so that, once permitted, private arrangements might be made which went well beyond the reformers’ initial expectations. In effect, throughout the 1980s, contracts were employed much in the same way as they were in the nineteenth century, before a company law was enacted. In the same way, too, it may be said, substantial Chinese capital sought a foreign guise so that it might take advantage of the protection of special economic zones. In the midst of this success, the reformers sought then to introduce the contractual tradition into state enterprise. That did not work for a very simple reason, for it was not very clearly specified if contracts set up between managers and the enterprises should be based on profit or the successful completion of planned quotas. Towards 1986, the contractual arrangement for state enterprises was abandoned in favor of the cross-holding of shares. This concept had been introduced to correct the lineal control of Chinese industry from the ministries but, once introduced, it sparked the restructuring which was necessary. The restructuring of Chinese state enterprise, introduced under the name “enterprise conglomerates”, was also made possible by the political turmoil of 1989, but was set back on its course in 1991 with the much publicized southern tour of Deng Xiaoping, which assured the continuation of the leading role of the special economic zones. Throughout the 1990s, business incorporation proceeded at breakneck speed. Those of us who visited China regularly but had no access to the business world saw the changes through the textbooks that appeared in Chinese bookshops. Books on company law appeared in the early 1990s, soon to be followed by books on accounting and, by 2000, books on company auditing. In the early 1980s, the stacks on which were shelved legal textbooks were slim. But by the 1990s, together with management and accounting, they posed an impressive presence in any business or social science section of a Chinese bookshop, even

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in fairly small cities in the interior. Again, however rapid and however major, changes introduced by law were not instantaneous. They set the tone for the new generation of professionals who were being groomed, and it might be some time before there could be enough of them. Beyond the Clichés It is time for the study of Chinese business to move beyond the clichés. The king is naked: those who describe Chinese traditional business as Confucian are quite incapable of describing how Chinese business has worked. Those who think that business is built upon trust have merely said the obvious about any society. If we have learnt anything at all from Western business history, it is that business practices, like the machinery that set off the Industrial Revolution, had to be invented and, while we might relate inventions to a tradition, within any invention there is always the element of novelty, which is unpredictable. No Chinese culture dictated the invention of Chinese business institutions. The task of the Chinese business historian is not to relate Chinese business practices to the ideas and ideals of China’s philosophers, knowing fully well that many of these were bypassed in the interest of day-to-day decision-making. Instead, he or she documents the building blocks by which business was made possible, demonstrates the linkages that may be discerned among them, and relates them to broader social parameters. What might those parameters be in a new Chinese business history? As writers who relate Chinese business practices to the loosely defined Confucian philosophy are fond of pointing out, they have much to do with the high-handedness of the Chinese state. But even here, too, the discussion is muddled by a smokescreen of ignorance, created by an over-emphasis on politics at court and a lack of appreciation for government on the ground. Despite the literati ideals, Ming and Qing officialdom was characterized by its striving towards an administrative ideal. The administrative problem was not created by a top-heavy government but, on the contrary, by the very thin spread of the official presence which, by default, relegated much of local organization to the locals. This situation did not change until the establishment of the Chinese People’s Republic. When government was supplemented by lines of command established within the party. Insofar as the market grew out of the boundaries so created by the restricted powers of the

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state, the institutions which were put in place for business catered both to the needs of the entrepreneur and the effective recognition by the state of his freedom to participate in the market. In imperial China, where the ritual order incorporated the rule of law, therefore, institutions set up for religious sacrifice offered the framework under which business was conducted, while in post imperial China, as the ritual order gave way to a social order defined in terms of social classes, it was company law that introduced the concepts which set up these divides. The frequent reference to Confucianism and networking as essential elements to Chinese business has missed altogether the functions of ritual in traditional China, and the impact of the West from the nineteenth century. If there is not very much to the Confucian philosophy which contributed to China’s economic success in the Ming and the Qing, there is also not much to the Confucian philosophy as a driving force of the East Asian economies. China was not different from the West in that many features of business arose from a setting in which business was not yet an acceptable political norm, as a result of which incorporation was subsumed under a ritual order. Yet the ritual order promoted economic development because property rights were protected when they were placed under the tutelage, if not of the law, then of the ancestors and the gods. The principles of accounting proved inefficient for the calculation of capital, having taken off with an emphasis on cash flow rather than assets as in the Western tradition. Moreover, because China did not ever make the transition from trade accounting to production accounting (as one might have found in the Western factories), high supervision costs encouraged sub-contracting. The strength of Chinese business remained in the contractual tradition, which, reflecting the extensive use of writing in Chinese society, the importance of the law as a guiding standard in matters relating to land, the inherent weakness of government offices in local administration, and the weakness of any legal tradition in the regulation of commercial papers, brought about the proliferation of non-state agencies of arbitration under a ritual framework. In a sense close to Weber’s use of the words, these agencies were “liturgical”. The introduction of the Western company brought about a total transformation of Chinese business, since the Western company implies within it a definition of the limits of the state in the control of merchants and mercantile organizations, the acknowledgement that commerce might be instituted in its own right, and the possibility for the gathering of share capital beyond the narrow

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range of those acquaintance. The change had to come with a fundamental change in the Chinese constitution, and its impact was seen, not immediately, but progressively over the entire twentieth century. The substitution of the Western ideals of the company for the ritual framework of business took the whole of that time. Yet, throughout the process, patronage did not abate as a factor of business organization. The reason for this is not to be found in the Chinese family but in the weakness of the legal tradition in offering protection for the individual and the fair allocation of state resources. Patronage had a long tradition in Chinese business history because it was inherent within official supervision and merchant management. Even when officially supervised and merchant-managed enterprises sought share capital, questions of corporate governance did not arise and so it was the government that appointed the chief executive as the merchants were expected to produce the capital. Patronage was reintroduced in the 1930s as the state regulated business enterprises on a wide scale. Beyond 1949, the demise of the market left the bureaucracy in supreme control and there was no other means of distribution of resources or power except by patronage. The total destruction of commercial legislation in the 1960s and most of the 70s meant that when the legal system was revived, it had no roots and no credibility. In the absence of accountability, the privatization of state enterprises necessarily put patronage in a central place. In the best of circumstances, patronage is always a fact of life in the circles of high finance. Where the law does not exercise control, it pervades throughout society. The introduction of the Western company into China, therefore, does not have to mean an overhaul of patronage except in form. The law might demand greater transparency, but unless it is enforced, patronage society seeks to conduct its business within closed doors. Recent events in Chinese government actions in the stock market give rise to some hope that the demand for transparency is meant for real. Nevertheless, that transformation has not yet arrived in China.

‘DECENTERING’: THE RISE OF HONG KONG AS A NETWORK SOCIETY Wong Siu-lun The Chinese business network per se is nothing new.1 When the Chinese began to trade thousands of years ago, business networks would have emerged. Therefore, we should not be surprised to find that the sensitivity towards risk, the emphasis on reciprocity, and the art of nurturing guanxi or personal relations for economic purposes have had a long history in Chinese society.2 As cultural values sustaining the operation of business networks, they could easily be traced back to the early dynasties or even antiquity. But this old phenomenon experienced a phase of spectacular growth during the modern era. It began to flourish on the fringe of the Chinese empire, along the southern coast, when the empire faltered and Hong Kong emerged as a trading port in the middle of the nineteenth century. Since then, it has had a new lease of life and has transformed itself into something that is far more vital in its growth and far more extensive in its reach. I shall call this an ‘entrepreneurial network’ so as to distinguish it from its traditional forebear. What is the source of the extraordinary vitality of this form of entrepreneurial network? And why did it burst forth into such splendid exuberance on the periphery of the empire and not elsewhere?

1 An earlier version of this paper entitled ‘Cultural Centres and Entrepreneurial Networks: The Hong Kong Case’ was presented at the Workshop on Asian Business Networks and History organized by the Department of History and the Asia Research Institute at the National University of Singapore on 15 June 2002. A later version bearing the present title was presented at the “Conference on Paradigms and Perspectives in Hong Kong Studies” organized by the Centre of Asian Studies at the University of Hong Kong on 12–13 December 2003. I wish to thank the participants in the workshop and the conference for their helpful comments. I am also grateful for the support provided by the Hong Kong Culture and Society Project at the Centre of Asian Studies of the University of Hong Kong. 2 Yu Ying-shih, “Business Culture and Chinese Traditions—Toward a Study of the Evolution of Merchant Culture in Chinese History”, in Dynamic Hong Kong: Its Business and Culture, eds. Wang Gungwu & Wong Siu-lun (Hong Kong: Centre of Asian Studies, The University of Hong Kong, 1997), 1–84.

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The key lies in the very fact that this transformation occurred on the periphery of society. It suggests that a tension exists between the cultural centre and business networks. It looks as though a strong centre would inhibit the growth of networks, and that only when a centre declines would networks flourish. When the former waxes the latter would wane, and vice versa. In other words, it is the process of what one may call ‘decentering’ that leads to the rise of entrepreneurial networks in a society. Each society, as Edward Shils points out, has a centre.3 The centre, in this case, refers to the central zone, the realm of values and beliefs that are connected to the sacred. These core values are espoused by the ruling authorities, which constitute the elite. The centre is a centripetal force. It draws people towards it with its idealistic appeal. It creates a vertical order with different gradations of proximity to it. It sustains the central institutional system that holds a society together. It is the force of social integration. A network, on the other hand, operates in the market place. It is concerned with the world of the mundane, enmeshed in matters of exchange and profit. It abides by the principle of reciprocity with an inherent levelling impulse. It seeks to extend its reach and to proliferate. It defies barriers and boundaries. It is a centrifugal force that subverts vertical hierarchies. It inclines towards a horizontal form of order. Thus it is no wonder that its relationship with the centre is a tense one, as the two forces are exerting their pull in different directions. A centre is strong when it is endowed with an intense and concentrated form of charisma. Charisma is an awe-inspiring power: the power to create and to destroy; the power to connect to the vital and the divine, the power to determine order.4 Thus a strong centre invokes charismatic power to create and maintain social order, to uphold social integration. In so doing, it reins in all centrifugal forces, including that of networking, and holds them in check.

3 Edward Shils, The Constitution of Society (Chicago & London: University of California Press, 1982). 4 Ibid., 128.

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Confucian and Mercantile Traditions In the case of traditional China, the centre was remarkably strong and resilient. Dynasties rose and fell. But the basic pattern of social order, sustained by a centre infused with Confucianism, persisted. The Confucian centre was able to ward off various challenges; it renewed and reinvented itself, and maintained one of the most enduring social systems in history. This feat was achieved not by despotic coercion, but by a strenuous effort to concentrate charisma at the centre and to prevent its dissipation. The focus of this effort was on the conversion of various forms of social capital into the symbolic capital of Confucian learning. All the other types of capital, such as commercial wealth, were looked down upon and left unprotected institutionally. Such a pattern strengthened the symbolic centre that was embodied in the imperial bureaucracy, the emphasis being on the creation of a centripetal mechanism. The symbolic centre, anointed by Confucian values, reigned supreme. But, as G. W. Skinner has shown, the traditional pattern of integration was not single-stranded in its composition.5 A duality existed. There was the bureaucratic, administrative hierarchy. Then there was the marketing network. Hill Gates also identifies the coexistence of what she calls ‘the tributary mode’ and the ‘petty capitalist mode’ in traditional China.6 What was the relationship between the administrative and marketing hierarchies that embodied the Confucian and the mercantile traditions respectively? According to Skinner, at the apex of the system, close to the symbolic centre, the mercantile tradition had to give way, and the marketing hierarchy had to merge with and be subordinated to the administrative one. In terms of the whole system, the mercantile tradition was economically useful but culturally subversive and therefore had to be contained. Why was the mercantile tradition so threatening? It was because its inherent logic was a centrifugal one, creating forces that would spin off from the centre. By the nature of their activities, merchants were mobile. They thrived by breaking down borders and barriers. The Confucian literati, as guardians of the centre, long recognized the threat William G. Skinner, “Marketing and Social Structure in Rural China, Part I’, The Journal of Asian Studies 24:1 (1964), 3–43. 6 Hill Gates, China’s Motor: A Thousand Years of Petty Capitalism (Ithaca & London: Cornell University Press, 1996). 5

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of mercantile and networking activities as disruptive forces to social order. Hence the Chinese literati sought to discourage the formation of merchant families by putting the merchants at the bottom of the status system, enacting laws to deprive merchants of power and glory, restraining merchants from venturing overseas, and binding the merchants with a registration system that extolled the sacred attachment to one’s native place. As such, the embryonic entrepreneurial force was subdued and tamed. Joseph Levenson, in his study of Confucianism, did not deal with the problem of the rise of capitalism or entrepreneurship in China, but he made it abundantly clear that Confucianism was inherently hostile to the notion of innovation and to mercantile activities.7 The amateur ideal of the literati occupied the supreme centre and permitted no challenges. That was the very basis of the stability of the Confucian system. The value of innovation and entrepreneurship had to wait till that system collapsed before it stood any chance of acceptance into the sacred centre. Seen in this light, the recent debate on Confucianism and economic growth in East Asia is largely misguided. At best, it is only concerned with the ghost of Confucianism. Max Weber made the same point in his comparative study of religion in China.8 He recognized the very considerable commercial skills and resources already in existence in traditional China. But the hurdle to an indigenous breakthrough to industrial capitalism lay in the sphere of ultimate values at the supreme centre. Weber’s thesis on the Protestant ethic and the spirit of capitalism could be restated in terms of the paradigm of centre and periphery. It was the fundamental reinterpretation of the system of ultimate meaning in the supreme centre in Christian societies in the West that let loose the Promethean force of capitalistic enterprise. Business was accepted as one of the possible callings, and thus blessed with charisma and sacredness. If we follow Levenson and Weber in their analysis, then the crucial question is not whether China had a mercantile tradition similar to that in the West. We can safely assume that such a tradition, like the tradition of science and technology, did exist. The critical issue is that of breakthrough and transformation. It is the question of how the

7 Joseph R. Levenson, Confucian China and Its Modern Fate, Volume One: The Problem of Intellectual Continuity (London: Routledge and Kegan Paul, second impression, 1965). 8 Max Weber, The Religion of China: Confucianism and Taoism (New York: The Free Press, 1951).

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mercantile tradition was contained and suppressed, and how it had been denied status and charisma under Confucianism. Then we are able to see the long-standing tension, and the pent-up energy waiting for release. We can also see the historical significance of the western intrusion as striking at that critical point of tension, shattering the cap and releasing the entrepreneurial spirit. Similar to the Protestant reformation, this was not a calculated move on the part of the western powers to spread the gospel of capitalism. It was an imperialistic act with unintended consequences. With that fatal blow, it sent the Confucian system crumbling to the ground. It also set the Chinese Prometheus free. For the drama of collapse and the disintegration of the supreme centre, we can look to Peking. However, for the drama of rebirth, revealing how entrepreneurial values were moulding a new centre, the stage was in Hong Kong. Rise of Hong Kong Let us first affirm this: Hong Kong is a special creation of the western impact on China. Before that, Hong Kong was hardly distinguishable from the other peripheral areas on the margin of the Chinese empire. Of course it had a history before British colonialism. But that would be an unremarkable regional history of the Xinan County, one local history among thousands of similar histories under the Confucian state. But the western impact diverted it into a new course, giving it more than a local significance by tapping into the subterranean currents of mercantile endeavours in China. As a creation of the western impact, Hong Kong is unique even among the treaty ports. It may lack the glamour of pre-war Shanghai. But it has an uninterrupted history of relative stability as a British colony for over a century. There is enough time for the budding bourgeois culture and institutions to grow and to mature. In comparison, Shanghai is a less congenial breeding ground for the nascent entrepreneurial force in China. It did not have a consistent form of administration to provide a reliable framework for the operation of modern business. Shanghai also had a more bruising history of roller coaster development full of abrupt twists and turns. In contrast, Hong Kong had a much smoother ride under British rule, a safe haven away from the storms raging on the mainland. When the Chinese communist historians tried to find the equivalence of the stage of capitalism for China, they did not pay much attention

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to the coast. They conducted their search mainly in the interior, among the handicraft sectors. But it should be external trade along the coast that would give the merchants and proto-capitalists the best opportunity to escape from the domination of the Confucian officials. Hong Kong differed from Shanghai in this connection too. Hong Kong had been very active in the external trade by sea, as shown in the presence of business houses dealing with long distance trade, such as the Nanbei Hang [South-North Traders] and the Jinshan Zhuang [Gold Mountain or California Traders]. Hong Kong was the hub of overseas Chinese migration from the time of its creation as a British colony.9 Shanghai, however, was not much of a launching pad for the Chinese who ventured abroad. Why do some cities and urban centres emerge in the contemporary world with such dynamism and vibrancy? In the case of Hong Kong, we need first of all to set the spatial and temporal parameters for investigation. Spatially, if we adopt a network perspective, then the boundary of Hong Kong is clearly fluid and elastic. We are looking at a site where vital social forces converge and then radiate outwards. As Skinner points out, administrative and commercial networks have different configurations, and the character of the network nodes would vary. So we need to map out precisely the network configuration for Hong Kong.10 On the time dimension, we should not be preoccupied with the immediate present. The momentum of dynamism is built up over a considerable period of time. Since Hong Kong is a creation of the western impact on China, the entire colonial period should be the proper temporal unit for analysis. Blockage and Release: Merchants into Entrepreneurs The main theme for the formation of an entrepreneurial force in a society is that of blockage and release. Blockage is a denial of access to

9 Elizabeth Sinn, “Emigration from Hong Kong before 1941: Organization and Impact”, in Emigration from Hong Kong, ed. Ronald Skeldon (Hong Kong: The Chinese University Press, 1995), 35–50. 10 Takeshi Hamashita, A Large Perspective on Hong Kong: Asia’s Network Node (Hong Kong: Commercial Press, 1997) [In Chinese].

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the cultural centre, not just social barriers to occupational advancement. In traditional China, the Confucian order was built by suppressing the forces of wealth, might and beauty. Social integration was achieved by denying status and prestige to the merchants, the wandering knights and women. Once the blockages crumbled, these repressed minorities were released to become formidable champions of innovation. When Hong Kong came under British rule in 1842, the social and cultural effect was that it afforded shelter and protection to the suppressed tradition of trading and seafaring. As a result, traders and seamen in the main flocked to the place. The more prominent Chinese moving to the new colony were those connected to the British traders in various ways—compradors, interpreters, and servants etc. This raises the question—how did British trade interact with the indigenous mercantile activities on the China coast?11 What were the cultural effects of this form of western intrusion as seen not so much from the conventional angle of the Qing imperial state but from the angle of the repressed tradition of the Chinese merchants? It would be simplistic to assume that the Chinese merchants welcomed the British with open arms as their liberator. There had to be cultural and national pride involved in the encounter with the British as foreigners. There was the inescapable stigma of being colonial subjects, though the costs involved were clearly relative ones, relative to being Han Chinese under Manchu rule, and being merchants at the bottom of the Confucian league of honours. This deep sense of ambivalence was there right from the beginning. Yet in spite of all the ambivalence, the bottom line was that they could see a clear path of social advancement in the new colony, a promise of admission to the charmed circle of the sacred that had long been closed to them. How did this change in perception and in actual relationship with gatekeepers to the sacred centre manifest itself ? This occurred mainly, in the way in which they would educate their children. Chinese merchants in Hong Kong showed a clear preference for the western system of education. They valued English and bilingual skills as assets. They abandoned the Confucian amateur ideal and encouraged their children to pursue professional careers: Sun Yat-sen studied western medicine in Hong Kong; Richard Charles Lee of the Lee

11 See Sherman Cochran, Encountering Chinese Networks: Western, Japanese and Chinese Corporations in China, 1880–1937 (Berkeley: University of California Press, 2000).

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Hysan family qualified as a civil engineer at Oxford; and Lo Man-kam headed a family of British-trained lawyers. Then there was the reinvestment of profit. When Chinese merchants in Hong Kong decided to plough back their profit into entrepreneurial endeavours rather than seeking to convert it into other forms of social capital, a qualitative change happened. Their enterprise became an end in itself, with a direct linkage to the sacred centre, rather than just a means, a corrupted coinage waiting to be turned into gold. This was the touchstone of the genuine entrepreneur who believed that he had found gold directly, and that there would be more buckets of gold to be found. Therefore he was able to forsake the literati who used to lead the way, and who searched for gold in the classics. Now the entrepreneur took a new turn away from the well-trodden path of advancement. Though the going was rough, as he expected it to be, it was not a blind alley. He saw the light ahead, and he did not turn back. Joseph Schumpeter depicts the entrepreneur as a hero who breaks the equilibrium of the circular flow economy.12 How then is the entrepreneur different from the revolutionary who is committed to destroy a stagnant political order? On the one side, there is creative destruction and economic innovation. On the other, there is iconoclasm and political transformation. The temperament is similar—to destroy in order to rebuild. The difference lies in the distinctive arena of their endeavours. The operational logic of the economy is not the same as that of the polity. Daniel Bell points out that the former is guided by the norm of efficiency, while the latter is governed by the principle of participation.13 It follows then, that the entrepreneur is less concerned with the problem of inclusion and the broadening of a base of support. He is not in a winner takes all situation. His ambition, as Schumpeter sees it, is to create a private kingdom. It is to create a sphere of autonomy. It is not to conquer the world. So those who would be king must forswear their lack of ambition to be emperor. They must turn their back on the high peak of the centre where true power and glory used to lie. Who became kings in Hong Kong? What were the important private kingdoms? One of the promi-

12 Joseph A. Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (Cambridge: Harvard University Press, 1934). 13 Daniel Bell, The Cultural Contradictions of Capitalism (New York: Basic Books, 1976).

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nent ones was Y. K. Pao, who saw himself as the ‘First Sea Lord’ and a white knight charging into battle to capture the fiefdom of a British firm.14 The movie industry created by Run Run Shaw is another. Yet a third has to be the multinational ventures owned by Li Ka-shing. Wandering Knights Another case of submerged traditions is that of the martial arts and the knight-errant.15 It was in Hong Kong that the martial arts tradition came into full bloom. The first major event was the staged combat between two kung fu masters in the 1940s that became legend. Then there was the knight-errant novels that captivated young and old, the high brow and the low brow alike. Simultaneously, there were the kung fu movies, whose most illustrious star was Bruce Lee, who became an international icon. What gave Bruce Lee such enduring star quality? As a star, he was not without blemishes, yet he was always regarded with awe, touched with ambivalence. Awe was expressed at his daring, his physical virtuosity, and ultimately his grace on the screen. Ambivalence was evoked as he was not quite Chinese: educated in the United States, married to a Western wife, arrogant in manners, and somewhat crude in his story line. However, he clearly struck a chord in the Hong Kong audience with his memorable line: ‘I have little schooling, but don’t you dare to bully me.’ This was open defiance of the Confucian ideal on book learning. He glorified physical agility. He extolled the ethic of the market place where strict reciprocity reigned. He spurned the niceties of propriety. He embraced the raw passions of love and hate, brotherhood and honour. The full flowering of this martial arts tradition comes in the form of the Oscar-winning film Crouching Tigers and Hidden Dragons. The director, Lee Ang, has revealed his true ambition: to reconstruct an ideal China through the medium of the kung fu legend. He leaves Confucian and even Taoist values far behind him. The hero in the movie, Li Mo-bai, tries deep meditation but finds nothing but emptiness. He wishes to 14 See Robin Hutcheon, The First Sea Lord: The Life and Work of Sir Y. K. Pao (Hong Kong: Chinese University Press, 1990). 15 Liu J. Y. James, The Chinese Knight-Errant (Chicago: The University of Chicago Press, 1967).

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retire from the marshes ( jiang hu), but he cannot find another anchor for his soul. It seems that the promise land is at the border, in the Gobi desert where Chinese cowboys can roam free. With this message, Lee Ang establishes the cultural equivalence between his idealized China and the United States. There were the same daring cowboys, the adventurers in the wild frontier with its fresh air of liberation. Is this the spirit that similarly animated the entrepreneurs in Hong Kong? It is perhaps no coincidence for Victor Fung, one of the successful Hong Kong business leaders, to speak of the need to create a series of small and relatively autonomous profit centres, each headed by a ‘small John Wayne’, in his business organization that emphasizes horizontal networking rather than vertical hierarchies.16 The entrepreneur has to turn his back and look away from the sacred centre in order to gain freedom for innovation. How does such a rupture with the centre happen? There is the suppression of the mercantile tradition in the past, the collapse of the Confucian order, the rise of communism, and then the Cultural Revolution. One event after another deepens his alienation and disillusionment with the centre in China. This cynical mood is well captured by the knight-errant novels. The solitary hero in these novels usually comes to the stark realization that the different kung fu factions were all ridden with deceit and corruption. So he abandons the meaningless contest to be king of the alliance. He goes for freedom, roaming the four seas, perfecting his martial prowess, righting wrongs wherever he sees them, and searching for true love and salvation. In spirit, the Chinese knight-errant is similar to the Western cowboy.17 But with an important twist and contrast: the former carries a conscious cosmopolitan message extolling the virtue of multiethnic cooperation. The Chinese hero generally finds the minority tribes he encounters to be basically friendly and upright. He does not have to break them in order to conquer a hostile frontier. Rather, he becomes a natural champion for the ideal of harmony between the Han and Non-Han

16 Victor K. Fung, ‘Evolution in the Management of Family Enterprises in Asia’, in Dynamic Hong Kong: Its Business and Culture, eds. Wang Gungwu and Wong Siu-lun (Hong Kong: Centre of Asian Studies, The University of Hong Kong, 1997), 223. 17 Jacque Pampineau, “Chinese Wu-hsia Hsiao-shuo and their Western Counterparts”, in Wuxia Xiaoshuo Lunjuan [Collection of Papers on the Knight-Errant Novels], Volume 1, eds. Liu Shao-ming and Chen Yong-ming (Hong Kong: Ming He She, 1998).

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people. Most probably, this is a reflection of the social reality in Hong Kong where mutual accommodation between the British ruling minority and the Chinese majority was a necessity for survival, and where multicultural partnership was essential for business success. Women and Surrogate Entrepreneurship The early generation of educated women in Hong Kong seemed to come mainly from the comprador families. The sons in these families were mainly sent to the West for further education, while daughters were kept closer at home. What then happened to these women? They might well have brought up a new generation of Hong Kong entrepreneurs by imparting their skills and ambitions to their sons who fought for their glory. One of the themes of their untold stories would be the significance of the mother-son relationship in Hong Kong society, which supplanted the Confucian emphasis on the father-son bond. Another theme might well be the affirmation that entrepreneurship is a form of status compensation for repressed minorities facing formidable institutional hurdles. Chinese women, particularly the educated ones, form one of these minority groups in Hong Kong. After a sustained struggle to break down the institutional barriers of gender discrimination, there are now numerous female professionals and administrators in Hong Kong. But still, female entrepreneurs remain a rarity. Why should that be? A major factor is the Chinese family pattern with its tenacious patrilineal rule. The family continues to be an important unit of ownership in the Hong Kong business world but very few women become heads of the family and there is little institutional support for the transmission of status or property through the female line. As female members cannot serve as representatives of the household in public, except in emergency situations of widowhood or the incapacity of the husbands, very few women then emerge as heads of family enterprises. The patrilineal rule is remarkably resilient in the face of persistent reformist attempts to have it changed. Even many of the women themselves seem to accept this arrangement, as reflected in the reactions towards the controversy over the property rights of the indigenous inhabitants in the New Territories. This is clearly not a matter of ability. Many women do have the entrepreneurial skills. They simply would

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not assume the formal title of head of the enterprise. They could be acting heads in times of family emergencies, or they would be content to remain powers behind the throne. Are there cases where Chinese women do become heads of enterprises on their own right and not as surrogates of their husbands? There is Sally Aw who remains single. There is Margie Yang who is divorced. Then there is the fictional character of the second daughter-in-law of the Bai family who becomes the dangjia [household head] in the TV series Dazai Men. Is that fictional character a projection of contemporary sentiments, or is it based on historical occurrence? Whatever the case, she remains a member and representative of the Bai family, honouring the Bai family line. She does not start another family enterprise with her own line of business transmission. This form of family solidarity and closing off of options for the female finds its symbolic expression in burial rituals and funeral notices. At death, they bear the name of their husbands’ family. If they die single, they would have to borrow their nephews to act as their surrogate sons. Otherwise, they would be adrift in the world beyond. Is this part of the Confucian tradition? Most of the burial rituals are either Taoist or Buddhist in form, so it is probably more of a Chinese tradition: what it means to be Chinese rather than specifically Confucian. It is related to the Chinese solution to the problem of ultimate meaning, the search for social immortality in the perpetuation of the family line. More recently, the drastic decline in fertility threatens to undermine this Chinese tradition among the Hong Kong community as a whole. Yet within the business circle, entrepreneurship and familism still go together. Successful entrepreneurs would try to make sure that they have enough male offspring to carry on their ventures. Even though female entrepreneurship is not a flourishing phenomenon, women in Hong Kong do strike out on their own as professionals and administrators. In fields where credentials as social capital are important, the family recedes into the background. Where bureaucracies are the dominant mode of operation, the bureaucratic posts would be insulated from the domestic household, and these positions cannot be transmitted through the family. This is the arena in which women emerge strongly as leaders and the gender barrier is truly crashed. The patrilineal rule is quite irrelevant there. Many women are quick to grasp this opportunity. They prefer to go into the credential route of social advancement rather than the entrepreneurial route, as surveys on social mobility in Hong Kong have confirmed.

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A New Centre When the ties to the cultural centre in China proper were weakened under colonial rule, and that centre had crumbled, the social order in Hong Kong was no longer the same. It was no longer a microcosm of traditional Confucian society. Even the lineages in the New Territories, without the former linkages to the Confucian centre through the examination system, were not the same part of the traditional whole. If we take this rupture with the centre seriously, we have to ask: what kind of a new centre has emerged in Hong Kong, with what characteristics and consequences? To begin to answer that question, we have to satisfy ourselves that we can indeed speak of a sacred centre in Hong Kong. Intangible and abstract as it is, the centre of a society is most strongly felt in times of crisis. When inhabitants in the territory defended the ‘Hong Kong way of life’, as during the debate on Hong Kong’s future before the signing of the Sino-British agreement in 1984, they spoke with tears in their eyes. They were deeply stirred. When millions gathered on the streets before and after the June Fourth incident in 1989, there was no doubt about the existence of a ‘collective consciousness’ in Hong Kong. We may perhaps get a better glimpse of that elusive centre by examining briefly the civil service bureaucracy, the university, the legal system, and the Jockey Club that collectively make up that new sacred core. Colonial Bureaucracy As part of a sacred centre, the colonial bureaucracy in Hong Kong differed from the imperial bureaucracy in Qing China in at least one crucial respect. It was far less austere. And its charisma was far more diffused. It was also not quite the ‘commanding post’ or ‘central agency’ that stood towering above the subjects that it ruled. Furthermore, it did not have the peak of the society to itself. This was reflected in a popular saying in the 1960s to the effect that Hong Kong was ruled by the Jockey Club, the Hong Kong Bank, Jardines, and the Governor, in that order.18 Another manifestation of the diminished stature of the

18 Richard Hughes, Hong Kong: Borrowed Place, Borrowed Time (London: Deutsch, 1968).

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colonial bureaucracy could be found in Hong Kong’s architecture. There were no grand symbols of political power as found in the awe-inspiring Forbidden City in Peking or the imposing colonial headquarters in Delhi. We cannot understand the symbolic significance of the colonial bureaucracy without taking into account the unique orientation of the expatriate officials who formed its core. What type of men were these British colonial officers? They created an effective bureaucracy for minority rule. They could not borrow the blueprint from home, as the situation in the colonies was vastly different. They could not show signs of weakness, otherwise they would be easily toppled. They were obviously backed by the military might of the British Empire. But on the ground, they clearly needed the cooperation of the British merchants and the indigenous elite. But they were the last breeds. Colonial officers recruited to serve in Hong Kong knew that they had a finite future. The colonial service was winding down. The sun of the British Empire was setting. They could not return to the civil service in the United Kingdom. Hong Kong would be the last posting and the last hope for them. How would they behave as administrators when they had nowhere else to go and no other career path to fall back on? They clearly had to make the best of it, particularly when they had been given high status and responsibility at the start. They had much to lose if things did not work out in Hong Kong. This accounted for their dedication and corporate spirit as administrators. They would guard their autonomy jealously against the ministers and officials back home in London. They also guarded their monopoly at the top echelons of the civil service. They created a barrier of entry that acted as a spur to entrepreneurial autonomy among the Chinese residents. Talented and ambitious locals, such as the prominent lawyer Patrick Yu, would not join the service because of institutionalized discrimination.19 This may be the main reason for the emergence of female officers who later rose to prominence. The civil service ladder became an attractive avenue for local women who had few other alternatives. Yet on the whole, the unintended effect of this state of affairs in the colonial bureaucracy was that it served to speed up a weaning process by forcing most of the Chinese talents to give up hope of becoming officials and to channel their creative energy into entrepreneurial and professional pursuits. Yu Shuk-siu Patrick, A Seventh Child and the Law (Hong Kong: Hong Kong University Press, 1998), 123:28. 19

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Universities Besides the civil service, we may expect to find custodians of the sacred centre in universities. The British and American approaches in the creation of universities on Chinese soil were quite different. The British were reticent and created only The University of Hong Kong in the early part of the last century. The Americans were evangelistic in setting up most of the missionary universities in the treaty ports. That again marked Hong Kong and Shanghai apart in the pre-war era. The British government was apparently not keen to fund a university in Hong Kong. Governor Lugard had to appeal to the business community for help.20 What was the moving force for the creation of the University? Clearly it was not the missionary spirit of saving China from spiritual darkness. It was far more pragmatic: to train professionals, doctors and engineers, for China. It appeared to be more a response to widespread demand from the business community than an initiative from the colonial government itself. Whatever the case, it is interesting to note that law was not offered as a subject until very late in the history of the University. Yet that was the premium subject most valued by Hong Kong business families in a British education, and these families had to send their children to the United Kingdom in order to acquire law qualifications. Legal System Law was the pride of British colonialism, the most effective form of cultural imperialism. The Hong Kong Chinese elite trained in common law constituted the most anglicized group in the colony, starting with their immersion in the English language. Their detachment from the cultural centre in China must be the strongest. The common law system was fully established in Hong Kong but it did not seem to make a great impact on other parts of the China coast.

20 Lau Kit-ching Chan and Peter Cunich (eds.), An Impossible Dream: Hong Kong University from Foundation to Re-establishment, 1910–1950 (Hong Kong: Oxford University Press, 2002).

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What type of litigation were Hong Kong entrepreneurs involved in? In what ways was the common law most useful to them? It has to be the sanctity of private property upheld in the alien, western legal tradition. This is reflected in T. K. Ann’s famous statement: you don’t have to fear the knock on the door at night that would take your possession away.21 This is something not guaranteed even in Taiwan, and it made Hong Kong the haven for entrepreneurial capital. From the safety of this haven, they could venture out to unprotected arenas. But how could they be sure that the colonial power could be trusted; that it was not capricious? They must have tested the colonial administration on numerous occasions before they were convinced. Jockey Club Horseracing is a civil religion in Hong Kong. Its importance is selfevident, even though local intellectuals are loath to admit it. It has its church in the Jockey Club with its splendid racecourses, cutting edge information technology equipment and other recreational facilities. It has its high priesthood in the stewards and voting members, and its lay preachers in the forecasters and commentators. It has a huge and enthusiastic congregation of followers who study the race records and newspapers piously before they flock into the biweekly communions in the racecourses. Those who cannot be there in person are connected spiritually through radios in taxis or televisions at home. The community of followers is stratified by status, but otherwise it is quite inclusive in terms of race and class. The core of the belief is to decipher the code to success through various means—study, connections, gossip, or intuition. But the important message is not to abandon hope. Salvation through hitting the jackpot is open to everybody who is willing to bet. The race is never over. Efforts will be rewarded, even though as in any religion, there is always considerable mystery and uncertainty surrounding why rewards are conferred on some but not on others. Horseracing started virtually from the beginning when Hong Kong was founded as a colony.22 It was a British import that was quickly 21 See back cover, Dick Wilson, Hong Kong! Hong Kong! (London: Unwin Hyman, 1990). 22 Henry Ching Pow Mah, A Historical Sketch of Horse and Pony Racing in Hong Kong and of the Royal Hong Kong Jockey Club (Hong Kong: H. B. L. Dowbiggin, 1965) and Austin Coates, China Races (Hong Kong: Oxford University Press, 1983).

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adopted by the local Chinese. As an imported sport, it clearly was new to the Hong Kong Chinese and could not be attributed to a cultural inclination towards gambling. What is the critical difference between horseracing and traditional forms of gambling? Institutional trust must be important there: the idea of fair play and the sacredness of rules, even though there is always cynicism that these rules are not completely beyond bending. Nonetheless, the dominant belief is that these rules would normally be upheld, and there are explicit mechanisms to uphold them so as to inspire confidence. Horseracing and entrepreneurship have much in common. Both highlight the ideas of risk-taking and trust. Both involve a ruthless contest in which only a few would triumph and the main lot would fail. Both activities call for the exercise of calculated risk with a strong dose of faith that one would eventually become part of the elected few. The underlying assumption is that opportunities are open to all those who try, though there are no proven formulas for success. As an ethos, it bears some similarity with the traditional Chinese belief in social ascent through education as an open channel of mobility. But the content and skills required for the competition are radically different. Yet the crucial point is that they all involve competition in which human effort is a prerequisite, not pure chance in which an unknown fate dictates the outcome. A Distinctive Social Order: Network Society As the above analysis shows, a new centre has indeed emerged in Hong Kong under British rule, forming a distinctive social order that we may call network society. The new centre is rather special in its composition. It is polycentric in nature. This is the first feature of this form of social order. The state as the institution that monopolizes the use of legitimate force does not rule supreme. It is not the central agency or the key command post in society. Unlike the imperial bureaucracy in traditional China, it does not seek to concentrate charisma among its own ranks. As a result, charisma is dispersed. A career in the state bureaucracy is by no means the only avenue to power and glory. The state is a minimal one in that it has no ambition to be omnipotent. It is ready to keep its hand off the market by adopting a non-interventionist stance. By so doing, it has to open up the sacred sphere of the central realm by admitting partners. In other words, it is seeking to

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rule through a form of shared sovereignty. Its mode of governance is not one of domination and command. It is rather one of coordination and cooptation. Confronted with the centrifugal force of proliferating networks, its major task is the management of mobility and flows, including the flows of people, of information and of capital. The rich endowment of network capital is the second characteristic of the new social order that has emerged in Hong Kong. Network capital refers to the use of personal connections as an asset to generate economic return.23 Compared to other assets such as properties in relation to economic capital, or credentials in relation to cultural capital, personal connections are more diffused and mobile. As a result, network capital is one of the least institutionalized forms of asset. It is particularly well developed in a place like Hong Kong that has evolved into a major hub and node of both regional and global networks on the China coast. At the microscopic level, it is embodied in the plurality of kinship and friendship ties that individual Hong Kong families have established in different parts of the world. Although the importance attached to the nurturing of guanxi or personal connections has a long history in Chinese culture, it is crucial to remember that network capital was not always looked on with favour by the Chinese elite who guarded the cultural centre. In imperial times, officials were not posted to their native places and were prevented from forging strong connections among themselves. More recently, during the Cultural Revolution on the Chinese mainland, it was at least a political liability, if not a crime, for an individual to have active kinship ties overseas. Therefore it is rather special for network capital to be given a free rein in Hong Kong so that it can flourish and grow. This vigorous growth of personal connections fosters entrepreneurship in the territory as these connections can tap into an extensive array of information and ideas. Since it is not being discouraged institutionally, the personal network as a form a capital can also enter into a productive cycle of reinvestment and accumulation. There is no pressing need for it to be converted speedily into other forms of assets such as political power. Thus, in a society such as Hong Kong, the conversion process among various types of capital—political, economic, cultural or network—is more cyclical than unidirectional, mainly because there is no supreme centre to act as the powerful magnet for one-way conversion. 23 Wong Siu-lun and Janet W. Salaff, ‘Network Capital: Emigration from Hong Kong’, The British Journal of Sociology (49:3), 358–374.

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The third characteristic of the new social order as found in Hong Kong is the hybridization of identity. As a community, Hong Kong shows a remarkable degree of tolerance for individuals to uphold multiple identities. Many inhabitants in the territory adopt a pluralistic and situational approach to the issue of identification, and display a high level of cultural flexibility in this regard. Such flexibility is made possible because Hong Kong has maintained relative porous borders since its creation as a British colony. It allows freedom of movement in and out of the territory. This enables its inhabitants to acquire diverse foreign experiences as well as passports. Scratch a Hong Kong resident, and one should not be surprised to find a rich amalgam of multicultural make-up, as shown in the following self-portrait of a prominent Hong Kong entrepreneur: A multi-lingual, cosmopolitan and well-traveled Canadian who is also a permanent resident of both Hong Kong and Singapore, Dr. Lam was born (eldest son) in Saigon, Vietnam in 1959 into an overseas Chinese family active in international business and community service. Fluent in English, French, Vietnamese and Chinese (Mandarin/Putonghua, Cantonese and Chiu Chow/Teochew), Dr. Lam believes in constructively and honourably combining good corporate citizenship/public service and the pursuit of profit, and in the tremendous future and potential in Hong Kong, China, Singapore and the Asian Pacific region.24

Such a multicultural make-up is not confined to the affluent elite in the community. It can be found quite readily even in scattered villages on remote islands, as David Akers-Jones discovered, as a young district officer in the Hong Kong government in the 1960s: On the islands were typical grey villages with their tightly packed rows of houses . . . One by one I visited them, spending long days tramping over hills and along foreshores, sitting with village elders talking about their lives and families and the problems of remoteness from the bright lights of the city. The old men, some still with their seaman’s caps, as young men had gone to sea. Now bent and weather-beaten, they would talk about the great ports of the world, London, Liverpool, Swansea, while quietly living out their lives at home once more among the rice fields, the rhythm of the seasons and their timeless villages.25

24 L. G. Lam, Dr. Lee G. Lam [Biographical Sketch] (Hong Kong: Chia Tai Enterprises International Limited, 2004). 25 David Askers-Jones, Feeling The Stones: Reminiscences By David Akers-Jones (Hong Kong: Hong Kong University Press, 2004), 25–6.

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Large numbers of people from different parts of China have converged on Hong Kong since its establishment as a British colony and then ventured overseas. In the period from 1868 to 1939, it was recorded that over six million Chinese had left Hong Kong to go to every part of the world.26 A substantial portion of them, like the old sailors on the remote islands, returned to the territory to live. These returnees have created one of the largest re-migrant populations on the China coast. In the absence of official migration statistics, their precise numbers are unknown. But in the past two decades alone, since the mid-1980s, it has been estimated that nearly 700,000 Hong Kongers or about 10% of the total population had emigrated mainly in response to ‘handover anxiety’. Approximately 20% of them have since returned. Other than their sheer magnitude, preliminary research indicates that these returnees tend to show a distinctive style of identity shift at repatriation. In contrast to their counterparts in the United States or Japan, they seldom exhibit a ‘subtractive’ cultural identity response of negative readjustment to the home milieu. Instead, they tend to show mainly an ‘additive’ or intercultural mode of identity shift, being comfortable in reconciling different cultural experiences and embracing a hybrid form of cultural identity.27 The fourth characteristic of Hong Kong as a network society is the ethos of creative destruction. As Jan Morris has observed, the frantic noise of Hong Kong, with the endless thumping of the inevitable jackhammer, is ‘like the blast of history itself ’.28 An obsessive process of construction and reconstruction is going on all the time. The central business district, for example, has undergone many physical reincarnations. Virtually none of the original buildings erected at the Central Praya in the 1860s have survived unchanged to this day. ‘Shortage of land and high land values meant it was profitable for landlords to re-develop the same plot of land with successive generations of building’, remarked the curators of a recent exhibition on the history of the district.29 Sinn, Emigration from Hong Kong, 12. Nan M. Sussman, ‘Hybridization and Transformation: The Flexible Cultural Identity of Hong Kong Returnees’, seminar presentation at the Centre of Asian Studies, The University of Hong Kong, on 31 May, 2004. 28 Jan Morris, Hong Kong: Epilogue to an Empire (Harmondsworth: Penguin books, 1990), 290. 29 Robin Hughes, and Tina Yee-wan Pang, ‘The Central Business District: Historical Perspectives’, brochure for the exhibition jointly presented by the Centre for Urban 26

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This relentless obliteration of the past in its built form is probably not just the result of market forces. For instance, the family homes I grew up in have all disappeared. The familiar landmarks and neighbourhood in the Mongkok district and in Fanling are all gone. In contrast, landmarks in Oxford where I studied are remarkably stable. The British imperial urge to innovate and to renew is directed outward. On home ground, at the cultural centre in Great Britain, the built environment is sacred. Residents may change, but trees and houses live on. Not so in Hong Kong. People change residence in quick succession, and there is little nostalgia for old buildings. This mania to build and rebuild is like the Hong Kong flu, rapidly spreading to other parts of China as a contagious disease after the Chinese mainland has started its process of economic reform. This mania is probably connected to a wilful cutting off of roots, of turning one’s back on one’s home ground. Home ground used to be the sacred site and the sense of home is a key element of the sacred centre. But nowadays, not many Hong Kong Chinese, particularly those who were born locally, retain connections with their native villages in China. Even burials, the most revealing signs of the collective notion of home, are generally temporary and mobile in Hong Kong. Is this cutting off of roots part of the modern condition? In the United States, there are strong cultural critiques of the mobile and the rootless. In Hong Kong, there is hardly a murmur against such a condition; instead it is accepted as a matter of course. People’s ashes follow their offspring to San Francisco, Vancouver or Sydney as if they are really cosmopolitans who do not need a home base even in their afterlife. This brings us to the last characteristic of the network society that has emerged in Hong Kong. It is a heightened form of social fluidity marked by disembeddedness. In the traditional Confucian order, one’s ancestors and native place were sacred. They provided the moral anchors in the pursuit for the ultimate ideal of social immortality. The bonds of familism and regionalism furnished the basic underpinnings for the social structure. But these bonds have lost their hold in Hong Kong. Even though they still appear to be strong in their outward form, they have in fact undergone a fundamental change in meaning. They have become disembedded from their ultimate moorings.

Planning and Environmental Management and the University Museum and Art Gallery of the University of Hong Kong, 9 June to 30 August, 2004.

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Take the case of familism in the Hong Kong context. It is not simply a remnant of the past, a fragment of Confucianism preserved at the periphery. The ideal order has been transformed to that of the wandering knights, who find their home in the four seas. So it has become the familism of the migrants, cut loose from the presumed continuity of the family line. The Hong Kong Chinese gather at the annual Qing Ming festival mainly to nurture the memory of family members that they have known. They are not there to celebrate the myth of ancestors. They subscribe to the modern ideal of the nuclear family because they no longer acknowledge their family’s attachment to its extensions back home and back to history. They uphold the value of filial piety as an obligation to provide material support for their parents, but not as a duty to produce offspring for posterity. In the final analysis, it is autonomy that they hold dear. Such a sentiment is new and modern, though it bears some traditional look. This familism of the wandering knights is totally un-Confucian at its core. The premium being placed on autonomy has created a high level of social fluidity in Hong Kong. Vertical hierarchies are subverted and strong bonds are disembedded. The pace of social mobility is quickened, and social inter-dependence is increased. Intermediary agencies and sub-systems are being spawned. But such a high level of social fluidity carries its own risk. It is the danger of possible network failure. In terms of social governance, a network society has to confront core problems such as decision-making blockades due to the build-up of veto positions, structurally conservative action orientation, tension between disintegration and innovation, the risk of obstructed bargaining in deciding on alternative solutions, and difficulties in defining distributive criteria.30 In terms of individual adjustment, the enhanced fluidity and mobility in a network society can be disorienting because of the weak institutionalization of cultural blueprints to guide social action. This is particularly acute for the rapidly expanding ranks of the new middle class that have quickly outgrown their origins but remained quite unsure about their destinations.

Dirk Messner, The Network Society: Economic Development and International Competitiveness as Problems of Social Governance (London and Portland: Frank Cass, 1997), 221. 30

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Conclusion With the fluidity of movement of people through its borders, Hong Kong has evolved into a distinctive form of network society, which is a new phenomenon on the China coast. A network society creates a new mode of orientation to the centre. It calls into question the traditional notion about society itself. Emile Durkheim’s analysis of societies and social solidarity takes the relatively settled community as the norm. The shift from mechanic to organic solidarity happens within the framework of culturally homogeneous populations within rather rigid borders.31 The amorphous, multicultural communities with porous boundaries are novelties that had not yet caught Durkheim’s attention at his time. Even when Edward Shils sharpens the analytical tools on the problem of the sacred centre in societies, there is only a passing remark on ‘plural societies’ under colonialism that appear just as oddities.32 This calls for a new theory on network society with its special problems of integration and governance.33 Hong Kong constitutes a strategic case for the formulation of such a theory. It has emerged as a key node in global networks. It has grown to become a robust example of this new social type. A key question is whether there are similar network nodes elsewhere for us to seek comparisons. The other major port cities and logistic hubs in the world come readily to mind, and there are exciting prospects for theoretically informed comparative studies to be conducted in the future. Additional References Giddens, Anthony, 1990. The Consequences of Modernity. Stanford: Stanford University Press. Hamilton, Gary G., (ed.) 1999. Cosmopolitan Capitalists: Hong Kong and the Chinese Diaspora at the end of the Twentieth Century. Seattle and London: University of Washington Press. Huntington, Samuel P., 1996. The Clash of Civilizations and the Remaking of World Order. New York: Simon & Schuster.

31 Emile Durkheim, The Division of Labor in Society. Translated with an introduction by George Simpson (New York: Macmillan Company, 1993). 32 Shils, The Constitution of Society. 33 See Manuel Castells, The Information Age: Economy, Society and Culture, Volume I: Rise of the Network Society (Oxford: Blackwell, 1997) and Dirk Messner, The Network Society: Economic Development and International Competitiveness as Problems of Social Governance (London and Portland: Frank Cass, 1997), 221.

MARWARI AND CHETTIAR MERCHANT’S, c. 1850s–1950s: COMPARATIVE TRAJECTORIES Medha Kudaisya (I) Much of Indian business enterprise has been associated with certain banking and trading castes and mercantile communities. In one scholarly view, major entrepreneurs have emerged from communities with dominant cultures of banking and trading.1 Thus, specific caste groups and communities are perceived to possess the skills and attributes required to successfully engage in commercial pursuits. Some of these ideas derive inspiration from the writings of Max Weber, who argued that Hinduism and its allied social system generated attitudes that militated against economic enterprise. In Weber’s view, caste inhibited occupational mobility, and the dominant emphasis within Hindu philosophy on karma—of doing one’s duty without concern for rewards—offered little incentive for profit or material gain. Thus, entrepreneurial pursuits were the vocation of the hereditary trading castes and were hardly attractive to other sections of society.2 Several scholars like Dwijendra Tripathi and Sanjay Subrahmanyan have challenged this view of Indian business, showing in their writings that caste alone has not been the determinant in shaping business fortunes in South Asia and that other factors such as exposure to new ideas, knowledge and the adaptation of Western technology and managerial organization have been equally important.3 1 For instance, see Ramdas Menon, ‘Banking and Trading Castes in the Colonial Period: The Case of the Nattukotai Chettiars of Tamil Nadu’, South Asia Bulletin, Vol. V, No. 2, Spring 1985, pp. 19–26 and William H. Kapp, Hindu Culture, Economic Development and Economic Planning in India (New York, 1963). Many scholars have also argued against such a view, like Milton Singer, ‘Cultural Values in India’s Economic Development,’ Annals of the American Academy, Vol. 305, May 1956. 2 Max Weber, The Religions of India: The Sociology of Hinduism and Buddhism, translated and edited by H. H. Gerth and D. Martindale (Free Press, 1958). 3 See Dwijendra Tripathi and M. Mehta, Business Houses in Western India: A Study in Entrepreneurial Response, 1850 –1947 (London, 1989); see also Dwijendra Tripathi, The Oxford History of Indian Business (Delhi, 2004); Sanjay Subrahmanyam, ‘Institutions,

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Keeping this debate as an historiographic backdrop, this essay examines the story of two prominent mercantile communities in the Indian subcontinent, the Marwaris and the Chettiars, often portrayed as ‘counter-parts’ of each other in the historical literature on South Asian business.4 It traces the critical phases in their evolution and highlights the different historical trajectories of their fortunes. At the same time, it draws attention to the several similarities in their historical circumstances and their emergence as niche players in the subcontinent’s markets by the mid-nineteenth century. Both the Marwaris and the Chettiars were diasporic communities with strong community networks and support groups with long histories of trading. Both became beneficiaries of the expanded economic opportunities offered by the Pax Brittania. The Marwaris, on the one hand, made the transition from being niche players in trading to becoming industrial conglomerates. The Chettiars, on the other, continued in their groove of moneylending, eventually lapsing into economic oblivion. From being brokers and bankers, the Marwaris went on to break the British monopoly over the jute industry after World War I; they then moved into other industrial sectors, such as cotton and sugar, and set up diversified conglomerates. By the 1950s, the Marwaris dominated the Indian private industry scenario, emerging as the establishers of its most prominent business houses. Each phase of Marwari development inducted new players from the community, even as the older groups continued to operate. Meanwhile, the Chettiars were eased out of their niche areas of moneylending and trading after the 1930s due to extant political conditions, and economic depression in their territories. Thereafter, they were unable to make the transition to industry. It was not that they lacked capital, or opportunity. Yet they remained aloof from the modern sector, their industrial presence limited to only a few prominent houses. Tracing the divergent trajectories that traders from both

agency and economic change in South Asia: A survey and some suggestions,’ in Burton Stein and Sanjay Subrahmanyam (eds), Institutions and Economic Change in South Asia (Delhi, 1996). Harish Damodaran’s India’s New Capitalists. Caste, Business and Industry in a Modern Nation (Delhi, 2008), Introduction, pp. 1–7 looks at entrepreneurial groups that have emerged from castes outside the hereditary mercantile order. Thus, it includes those from ‘agricultural and allied backgrounds’ and ‘scribal castes.’ He notes that their entry into industry is essentially a post-Independence phenomenon. 4 This paper is not making the case that some communities are more adept at commercial activities. It merely seeks to understand the different trajectories of two mercantile communities placed within similar historical circumstances.

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communities followed, this article studies the phases of their evolution and seeks to ascertain the reasons for the differing fortunes of Marwari and Chettiar capital. (II) Given the similarities in the economic experiences and fortunes from the mid-nineteenth century, a brief backgrounder on the two communities may be helpful here. The term Marwari is derived from the word ‘Marwar’, which traditionally stood for the erstwhile princely state of Jodhpur but which has, over time, also encompassed people from other parts of Rajasthan, including Jaipur and Bikaner, from which hailed important mercantile figures. Comprising many caste groups with the Bania cluster, the most prominent Marwari traders belong to four jatis: Agarwal, Maheshwari, Oswal and Khandelwal. Anyone whose homeland is Rajasthan is called a Marwari but, in colloquial use, the term invariably refers to a trader.5 It was mostly used to refer to traders from Rajputana, especially in regions where immigrants did not always integrate with the local populations.6 Rajputana merchants had a long history of migration. From about the early fifteenth century, they traded all over the region and often migrated from territories under the control of one ruler to those under another. While this may have been due to factors such as famine, it could also have been prompted by the offer of special trading privileges by certain rulers. Given that their homeland lay in proximity to the major Ganges-Jumna trade route, they were always in a position to move to major upcountry marts, such as Farrukhabad, Mirzapur and Agra. Rajput kings often vied with each other to attract Marwari merchants and bankers to their territories.

5 See Thomas Timberg, The Marwaris. From Traders to Industrialists (Delhi, 1978); Medha Kudaisya, The Life and Times of G. D. Birla (Delhi, 2003), Chapters 1 and 2 and D. K. Taknet, Marwari Samaj ( Jaipur, 1989). 6 According to Dwijendra Tripathi, the traders probably did not see themselves as ‘Marwari’ when they were in Rajputana, but only in their diasporic environment. See D. Tripathi, ‘From Community to Class: The Marwaris in a Historical Perspective,’ in B. L. Bhandari and D. Tripathi (eds), Facets of a Marwar Historian ( Jaipur, 1996), pp. 189–196.

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With the establishment of British ascendancy over the subcontinent, this migration diversified. Once the British were firmly established in north India, the traditional Marwari activities of financing warring Rajput princely states and trading along the caravan routes that stretched beyond Rajputana into northwest India and central Asia shrank.7 Royal courts with their conspicuous consumption of goods and services also receded as centres of political power. In addition, there was a shift in long-established trade routes due to the rise of new commercial centres and trading posts, which the British either established or patronized.8 In this scenario of flux, the Marwaris were quick to spot the new commercial opportunities opening up in the mid-nineteenth century, especially in the metropolises of Madras, Bombay and Calcutta.9 The Pax Britannica ushered in a sense of security of life and property, and British commercial and legal codes relating to exchange, credit and contract were attractive to traders who had for long functioned in the unsettled conditions of the Mughal empire and post-Mughal regional states. The emergent conditions boosted the Marwari propensity to migrate.10 They arrived in large numbers in Bombay between 1835 and 1850 and in Calcutta from the 1870s onwards. Over time, they became important members of the local trading communities, and even before their large-scale influx into Calcutta, Colonel Todd, the well-known British official and writer had estimated, in 1832, that nine out of 10 traders and bankers in the bazaar were from Marwar.11 As the Marwaris grew in numbers by the last decades of the nineteenth century they gained 7 See Lakshmi Subramanian and Rajat K. Ray, ‘Merchants and Politics: From the Great Mughals to the East India Company’ in Dwijendra Tripathi (ed.), Business and Politics in India: A Historical Perspective (Delhi, 1991). 8 C. A. Bayly, Rulers, Townsmen, Bazaars (Cambridge, 1983) and his Indian Society and the Making of the British Empire (Cambridge, 1988), esp. Chapters 1 and 2. 9 Thomas A. Timberg, ‘Hiatus and Incubator: Indigenous trade and traders, 1837–1857’ in Asiya Siddiqi (ed.), Trade and Finance in Colonial India 1750 –1860 (Delhi, 1995). 10 K. L. Sharma, ‘Changing aspects of merchants, markets, money lending and migration: Reflections based on field notes from a village in Rajasthan’ in Philippe Cadene and Denis Vidal (eds), Webs of Trade: Dynamics of Business Communities in Western India. 11 Though Colonel Todd mentions as many as 128 trading castes, he also points out that important traders came from five castes. See his Annals and Antiquities of Rajasthan or the Central and Rajpoot States of India, Vols I and II (Calcutta, 1894). Dwijendra Tripathi and Makrand Mehta, in their study of business houses of western India, point out that the founders of four out of eight business houses came from castes and communities not traditionally associated with trading. See their Business Houses in Western India: A Study in Entrepreneurial Response, 1850 –1947 (London, 1989).

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control over the main segments of the bazaar, trading in grain, oilseeds, raw jute and other unprocessed goods as well as the distribution of Manchester piece-goods in eastern India. A similar dynamic was at work as far as the Chettiars were concerned. A sub-division of the large Chetti caste, the Nattukottai Chettiars belonged to the banking caste. The Nakarattar traders feature in written records from the seventeenth century onwards for their small-scale salt trading activities in interior Tamil Nadu. In the late nineteenth century, they migrated to more highly populated areas and, by the mid-twentieth century, were settled in 78 villages, of which 58 were in Ramnad district and the rest in Paddukottai state.12 Known commonly as Nagaraths, because the community was divided into nine ‘Nagarams’ or temple townships for socio-religious purposes, they were arranged into 25 gotrams (sub-castes). Since they hailed from an inhospitable region with scanty rainfall and low agricultural productivity, migration had long been an attractive proposition for them. Chettiar capital also penetrated the agricultural cotton growing areas in Tinnevelly, Ramnad and Kolipatti.13 By the eighteenth century, Chettiar traders had extended their business operations as far south as Ceylon and were active in the pearl, rice, cloth and arrack trades. Similarly, they had also moved north to Calcutta and participated in the rice and wheat trade there. As a matter of fact, even before the large-scale arrival of the Marwaris, the artist and draftsman Colesworthy Grant, who visited Calcutta in the mid-nineteenth century, commented on the ‘Madrasees in the Calcutta bazaar.’14 By the mid-nineteenth century, there were about 120 Chettiar firms in Calcutta, engaged mainly in the export and import of rice and pulses from and to Burma and Ceylon.15 Like the Marwaris, further Chettiar migration occurred in response to the establishment of Pax Brittania within India and the European expansion in Southeast Asia.

12 See D. Rudner, Caste and Capitalism in Colonial India: The Nattuokottai Chettiars (Berkeley, 1994), Chapter 4. Also see C. H. Rau, ‘The banking castes of Southern India,’ Indian Review, Madras, 8/8 (August 1907). 13 The Chettiars faced competition from Marwari traders within the internal economy in Tamil Nadu and in overseas trade. The Marwaris were better positioned to exploit the Bombay cotton market. 14 Sukanta Chaudhuri (ed.), Calcutta, The Living City, Vol. I (Calcutta, 1990) p. 204. 15 Raman Mahadevan, ‘Immigrant Entrepreneurs in Colonial Burma—An Exploratory Study of the role of the Nattukottai Chettiars of Tamil Nadu, 1830–1930’, Indian Economic and Social History Review, Vol. XV, No. 3.

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However, it was not only within the subcontinent that the Chettiar traders sought new opportunities. Huge opportunities were opening up further afield in Sri Lanka and Southeast Asia, arising out of critical changes occurring in the world economy and the increased integration of these regions in the emerging proto-capitalist global system. European expansion in the nineteenth century was followed by increased commercial production of staple commodities such as rice as well as the introduction of cash crops like tea, coffee and rubber. The opening up of the Suez Canal in 1869 and advances in transportation gave further impetus to the process that transformed these economies from entrepots for Eastern commerce to primary producers, supplying food and raw materials to the industrializing world. The emergence of a plantation economy in Sri Lanka, the opening up of the Burmese rice frontier and the rise of rubber and tin plantations in Malaya offered enormous investment opportunities to Indian traders. The Chettiars were positioned very strategically to avail of these, given their familiarity with Sri Lanka and the regions of ‘Suvarnadvipa’, with which they had a long history of trading.16 Thus, from the 1830s onwards, large numbers of Chettiars began to migrate to Sri Lanka, Malaya, Burma and the Straits Settlements, and subsequently to Java, Indo-China, Northern Sumatra and Thailand. The mid-nineteenth century thus saw traders from the Marwari community finding their feet in the trading hubs of Calcutta and Bombay, even as the Chettiars settled in Sri Lanka and Southeast Asia. Both gradually found their niches. Marwari traders engaged themselves mainly as brokers and commission agents for large European houses, as well as engaging in speculation, moneylending and trading. The Chettiars found their primary niche in moneylending and servicing the credit needs for producers of agrarian commodities headed for export to major European economies. Servicing mainly indigenous producers,

16 ‘Suvarnadvipa’ or ‘Land of Gold’ is the term commonly believed to have been used by Indian traders for parts of Southeast Asia. The Chettiars had been here in the 10th–12th centuries following the ship routes of the Chola traders across the seas. For their trading links, see Sachidanand Sahai, ‘Pre-colonial links with Southeast Asia’ in Federation of Indian Chambers of Commerce and Industry, A History of Indian Business (Delhi, 1999), pp. 53–62. Also see M. Nadaranjan, ‘The Nattukottai Chettiar Community and Southeast Asia,’ Proceedings of the First International Conference Seminar of Tamil Studies, Kuala Lumpur, Malaysia, April 1966, Vol. One (Kuala Lumpur, 1968) pp. 251–260.

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they penetrated the hinterlands of Sri Lanka, Malaya, Burma and other parts of Southeast Asia. (III) Within their newly-found diasporic settings, in the Indian subcontinent and in Southeast Asia, traders from both communities found the initial prosperity they sought. As the early pioneers settled, they acted as magnets to attract their kinsmen. They nurtured their links with the regions from where they had originated and formed a sort of resource group for others who followed. As they settled in their new locales, community members who were minority traders till now began to organize themselves along corporate lines. Thus, Rajputana traders—even though they were of diverse subcastes, belonged to different localities and regional groups and included followers of both Hindu and Jain religions—saw advantages in unity and came together as ‘Marwari’ organizations. While they continued to identify themselves primarily with their own sub-castes and localities, they also created collective ‘Marwari’ organizations, almost as though they belonged to one specific community. Thus, just a few years after their arrival in Calcutta, they set up the Marwari Panchayat in 1828, the Marwari Chamber of Commerce in 1895 and the Marwari Association in 1898. The Marwari Association skilfully explained its nomenclature in its Report of 1899–1903 when it defined itself as the ‘Parliament of the Marwari jati’. They reported that the ‘Marwaris have now learnt to recognize the necessity and usefulness of mutual exchange of views and of concerted action in matters relating to the interests of the community’. Applauding this new corporatist spirit, the Association declared: ‘It is a matter of great delight to remember that the first great awakening that the Marwari people received of the necessity of such united efforts was from the Marwari Association.’17 Such associations represented the community across caste lines and advocated issues of common concern to traders, helping them lobby and emphasize the Marwari corporate social organization.18 They exercised

See Medha Kudaisya, The Life and Times of G. D. Birla (Delhi, 2003), Chapter 2. On the different associations, see D. K. Taknet, Marwari Samaj and Balchand Modi, Desh Ke Itihas Mein Marwari Jati Ka Sthan (Calcutta, 1939). 17

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wide-ranging influence in matters such as the regulation of rates of interest and commission, the certification of hundi transactions, cases of liquidation and insolvency and family/trading disputes.19 Yet, under the panoply of these larger Marwaris associations, there existed influential bodies representing different jatis.20 A similar trajectory is evident for Chettiar traders. Wherever they moved, early settlers established community institutions such as temples, taverns and community centres to create a support base for fresh immigrants. As they all belonged to one locality and caste group, it was much easier for them—as compared to the Marwaris—to come together as a corporate trading community. According to David Rudner, caste became a crucial basis of organization for the Chettiar traders.21 Even in the regions where their numbers were low, early settlers encouraged newer immigrants to settle as traders. For instance, the first settlers in Indo-China were two Chettiars from Karaikudi who came soon after the French occupation in 1887, reportedly with a sum of Rs 60,000. By the early 1930s, there were no less than 125 Chettiar firms with investments exceeding Rs 80 million.22 The saga of both immigrant communities is thus strikingly similar. Typically, newcomers started off as employees of those already wellsettled. Their mentors then launched these newcomers into economic activities either in their own firms or as independent traders, often with the help of older, established trading houses.23 Early settling in was taken care of by kin networks established by fellow traders. For example, newly-arrived Marwari immigrants were housed in a bassa,

19 On the role of such bodies, see Rajat K. Ray, ‘The Bazaar; Changing structural characteristics of the indigenous section of the Indian economy before and after the great depression’, in Indian Economic and Social History Review, Vol. 25, No. 3 (1988), p. 309. Also see Ramkrishna Nevatia (ed.), Shri Ramdev Chokhany (Calcutta, n.d.), p. 46; Nandlal Jalan, Shri Ishwardas Jalan Abhinandan Granth (Calcutta, 1977), p. 119; Balchand Modi, Desk Ke Itihas Mein Marwari Jati Ka Sthan (Calcutta, 1930); Jawaharilal Jain, Ramvilas Poddar. Jiwan Rekha aur Smritiyan (n.p., 1936). 20 Thus, Bara Bazaar in Calcutta, at the turn of the century, had an influential Agarwal Panchayat, a Maheshwari Panchayat and other organizations such as the Didu Maheshwari Panchayat. 21 See Rudner, Caste and Capitalism in Colonial India. 22 On the community in Indo-China, see Lanka Sundaram, ‘The Chettiars of IndoChina: An economic appraisal’ in The Modern Review, Sept. 1933. 23 See Bhawarmal Singhi (ed.), Padam Bhushan Shri Sitaram Seksaria Abhinandan Granth (Calcutta, 1974), p. 258; Balchand Modi, Desh Ke Itihas Mein Marwari Jati ka Sthan, (Calcutta, 1939), pp. 439–48; Timberg, The Marwaris, p. 152; Nandkishore Jalan, Shri Ishwardas Jalan Abhinandan Granth (Calcutta, 1977), pp. 49–50.

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which provided them with board and lodging at a minimal rate, sometimes even free. These were operated on a cooperative basis by the larger Marwari firms as a form of charity. The Chettiar counterpart to the bassa was the vittuti, financed by the larger firms and through endowments. Typically located close to community temples,24 the vittuti were more than just a means of providing subsidized lodging. They initiated the newcomers into the business and introduced them to social networks. They facilitated the forging of new relationships and helped newcomers learn the ways of city life. The bonding that took place as a result lasted a lifetime and the values of the community were often imbibed here. Both the Marwari and Chettiar traders set up community institutions, which regulated internal affairs, determined current rates of interest, settled disputes and played vital roles in propelling the community on to the corporate route. For the Chettiars, besides these associations, a very important role was played by their Shaivite temples, which served as clearinghouses.25 Another distinctive feature of the Chettiars was their agency system. Firms were set up in partnership with fellow caste men. The principal himself resided in the home district of Ramnad, where the firm was headquartered. Branch offices were managed by agents, who were fellow caste men of moderate means, who typically served for a period of three years. After serving their tenure, the agent typically returned to work at the firm’s main office for a while and could then return to a branch office of the same or another firm. The proprietor himself would visit the branches only once or twice a year.26 The day-to-day operations were the agent’s responsibility.27 Such institutions set up

On the vittuti, see Rudner, Caste and Capitalism in Colonial India, pp. 124–126. Report of the Burma Provincial Banking Enquiry Committee, (Rangoon, 1930), Vol. I, Banking and Credit in Burma, p. 193. 26 See Rudner, Caste and Capitalism in Colonial India, pp. 114–124. Also see H. Rau for a fascinating account of the agency system. H. Rau, ‘The banking castes of Southern India’, Indian Review, Madras, 8 August 1907. 27 For example, one of the oldest and most prominent firms established by Muthiah Chetty in the early 1900s was headquartered in Kanadukatha in Chettinad but had agents in Ceylon, Burma, Malaya and French Indo-China. These agents were the family’s ‘own men, from their own neighborhood’ and some had been in their service over generations. Muthiah Chetty and his five sons, including the illustrious Sir Annamalai Chettiar, visited the different branches once or twice a year, but were usually stationed in headquarters. On their family firm, see K. Nagarajan, Rajah Sir Annamalai Chettiar (Annamalainagar, n.d.); K. Nagarajan, Dr Rajah Sir Muthiah Chettiar (Annamalainagar, 1989) and Dr Rajah Sir Muthiah Chettiar and Rani Lady Meyyammai Achi. 60th Birthday Commemoration Volume (Madras, 1965). 24

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by Marwari and Chettiar traders symbolized the corporate nature of the community and helped newcomers imbibe and inculcate the strict codes of mercantile ethics and trading morality, which were seen to be crucial in holding the community together.28 Such an ethic was critical in engaging traders with their peers in credit interactions and trade transactions. Such engagement was based on the notion of trust or sakh, which meant much more than financial liquidity. It can be defined as ‘creditworthiness’ and ‘business integrity’ and incorporated a moral dimension, which underlay all transactions.29 With sophisticated financial instruments, Marwari and Chettiar traders could move goods, money across the hinterlands where they were placed. Within the money markets in which they operated, the Chettiars were considered the ‘most advanced’ bankers. Working with both current and fixed deposits, they gave their customers deposit receipts or demand promissory notes. Passbooks were issued, in which customers made entries to be initialled by the moneylender. Much like modern bankers, the Chettiars dealt in cheques and also established a system of clearing them. Thanks to the complex financial arrangements that interlocked them at several levels and generated credit flow, only indigenous merchants could deliver goods at all levels of the economy. Financing of the massive movement of goods and crops occurred under their auspices, as did agricultural and craft production, which was dependent on their advancing loans to peasants and artisans. Through the hundi network, such trading groups could control the indigenous money market as well as the flow of goods and credit. Thus, both the Marwaris and the Chettiars came to occupy positions of advantage within the colonial economy.

28 Most Marwari migrants started out as agents to the clerks to larger Marwari firms and, over some time, were able to launch their own firms. For example, Ramdutt Goenka, who arrived in Calcutta in the early 1830s, started out as a clerk to Sevaram Ramrikhdas, a large Marwari firm headquartered in Mirzapur. Within a decade, he established his own gaddi. By the 1860s, he was bania to several large firms; his brothers became commission agents and brokers to his old employers when he left them. He himself moved on to become an independent cloth broker and then founded his own firm. Such traders who set up their own enterprises maintained the tradition of encouraging newcomers. 29 C. A. Bayly, Rulers, Townsmen, Bazaars (Cambridge, 1983) p. 180.

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(IV) By exploiting emergent business opportunities in the mid-nineteenth century, Marwari and Chettiar traders established themselves as niche players within their economic milieus. For example, over the years, with the growth in commercialization, Chettiar trading houses became indispensable as providers of agricultural credit. As the Chettiars had traditionally supplied rural credit and financed internal trade within the domestic economy of Madras Presidency, it was this skill that they were able to leverage in their new areas of settlement. In Sri Lanka, till the 1860s, their strength in the local economy derived from their role in remittances and discounting of sterling bills into rupees.30 As sterling bills for coffee shipments to London increased and sterling surplus had to be offset against rupee deficit, Chettiar traders played vital roles in such transactions. Their involvement with remittance grew, and estimates point that almost 50 per cent of Chettiar firms in Sri Lanka were engaged in this business.31 After the 1880s they got involved in the plantation economy, which emerged in Sri Lanka under the auspices of British capital and over the decades, they came to be recognized as the main providers of agricultural credit to indigenous tea, rubber and coconut farmers.32 They were popular for lending on easy terms to those unable to procure bank credit due to a lack of collateral. Lending at diverse rates ranging from 10 per cent to as much as 200 per cent, they lent for both production as well as occasions of conspicuous ritual consumption. Not surprisingly, the Chettiar moneylender held a special ‘place of honour . . . at society weddings.’33 Though trade remained an important aspect of their overall operations in Sri Lanka, moneylending crystallized as their primary interest. As the commercial production of tin and rubber increased after the 1870s, Chettiars moved in larger numbers to colonial Malaya, where they emerged as credit providers to local entrepreneurs, benefiting from the growing commercialization of rubber cropping and increased tin mining activities. Once again they began to play an important part in 30 See W. S. Weerasooria, The Nattukottai Chettiar Merchant Bankers in Ceylon (Sri Lanka, 1973), p. 26 and Sir Compton Mackenzie, Realms of silver: One hundred years of banking in the East (Routledge, 1954), p. 90. 31 Ibid., pp. 28–29. 32 Ibid., pp. 15–28. 33 Kumari Jajawardena, Nobodies to Somebodies. The rise of the colonial bourgeoisie in Sri Lanka (Social Scientists Association and Sanjiva Books, 2000), p. 138.

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the rising plantation economy and in the mining economy.34 Pioneer planter Tan Chayyan, the first to introduce rubber as a commercial crop in Malaya, could launch his new enterprise in 1895 only because of loans provided by Chettiar moneylenders. In that era, Chettiar support was critical because European banks were very selective in giving loans, due to their need to maintain a large capital reserve for sustaining exchange operations. Over time, Chinese tin miners, European planters and, sometimes, even the Malay royalty came to rely on the Chettiars for credit.35 By virtue of supplying credit to Malay and Chinese rubber cultivators and tin mine owners, the Chettiars helped open up the interior of Malaya to European capital and develop its export economy. Among the prominent Chinese tin miners and rubber planters who launched their enterprises with the help of Chettiar loans were Yap Ah Loy, Loke Yew, Khaw Sim Bee and Ng Boo Bee. The Chettiars also lent to Malay peasants and landowners in lieu of mortgaged properties and surrendered title deeds.36 Through their moneylending activities in Malaya, a few Chettiars accumulated enough capital and financial experience to make the transition to manufacturing. In Malaya, they began to acquire rubber plantations. For example, around 1926, the well known PKN Group—with interests in Malaya, Burma, Ceylon and Indo-China—acquired the 170-acre Nagappa Rubber Estate in Johore. It is evident that despite their keen involvement in manufacturing enterprises and acquisition of plantations and landed property, it was agricultural moneylending that the Chettiars mastered in all the countries they settled in across Southeast Asia. In Indo-China, for instance, they were involved with short-term agricultural lending, which complemented the activities of the French banks.37 Though the Chettiars had business interests all over the region, statistics reveal that Burma became their operational stronghold. In the 1930s in Burma,

34 For a very important study, see Raman Mahadevan, ‘Pattern of enterprise of immigrant entrepreneurs—a case study of Chettiars in Malaya, 1880–1930’, Economic and Political Weekly, 13 (4–5), 1978, pp. 144–152. 35 K. S. Sandhu, Indian Communities in Southeast Asia (Singapore, 1992), p. 292. Also see Medha Kudaisya, ‘Trading Networks in Southeast Asia’ in Brij Lal (ed.), The Encyclopedia of the Indians Overseas (Delhi, 2006). 36 In cases of defaulting of payment, the plantations and mines would fall into Chettiar hands. See S. Arasatnam, Indians in Malaya and Singapore (Bombay, 1970), p. 93. 37 On their involvement with Indo-China, see Virginia Thompson, French Indo-China (London, 1937).

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they had an estimated 1,650 firms compared to 1,000 in Malaya and Singapore, 200 in Indo-China, 150 in other areas of East Asia and 500 in Sri Lanka. Evidently, the community found its niche in agricultural moneylending in Burma. Though the earliest Chettiar firms date to before 1850 in Moulmein, they migrated in larger numbers after the British annexation of Lower Burma. By the late 1880s, it was noted that there was ‘a Chettiar within a day’s journey of every cultivator’ in Lower Burma. It took no more than half a day for a cultivator to meet a Chettiar moneylender, secure a loan and return home.38 Until the 1870s, however, the Chettiars dealt primarily with indigenous moneylenders to whom they supplied credit and who, in turn, dealt with Burmese peasants. After the 1870s, the Chettiars enlarged their credit net in a major way after a dramatic increase in commercial rice production, following significant changes in landowning policies. The Chettiars could now lend on the security of title deeds and began to finance Burmese cultivators directly. They moved into Upper Burma and hinterlands and towns such as Mandalay, Myingnan, Meitkila and Shwebo.39 Such was the expansion of their activities that, by 1929, it was reckoned that Chettiar firms had invested an estimated Rs 750 million in Burma.40 Between the 1870s and 1930s, the Chettiars were the most important financiers of commercial rice production in Burma and the ‘mainstay of agricultural finance’ in Lower Burma.41 With an estimated 1,650 firms all over Burma, of which 360 were Rangoon-based, they provided an estimated 60 per cent of crop loans and 45 per cent of 38 Report of the Burma Provincial Banking Enquiry Committee, 1929–30 (Rangoon, 1930), Vol. I Banking and Credit in Burma, p. 203. 39 On Chettiar migration, see Nalini Ranjan Chakravarty, The Indian minority in Burma. The rise and decline of an immigrant community (OUP, 1971), p. 56. 40 Nalini Ranjan Chakravarty, The Indian minority in Burma. The rise and decline of an immigrant community (OUP, 1971), p. 90. 41 According to the Burma Provincial Banking Enquiry Committee , they lent to both agriculturists and moneylenders. In Prome district, one-third of all crop loans were lent directly; alongside, they financed Burmese moneylenders. Thus, two-thirds of all loans were given by the Chettiars. In parts of Hathawadi, they were the only moneylenders. In Tharawaddy, 99 per cent of all loans were raised from the Chettiars. Report of the Burma Provincial Banking Enquiry Committee, 1929–30 (Rangoon, 1930), Vol. I, Banking and Credit in Burma, pp. 67–68. On Chettiar loans, rates of interest and conditions of credit, see Thun Thin, ‘A theory of the rate of interest for the Burmese economy’, JBRS, 1955. Also see Report of the Burma Provincial Banking Enquiry Committee, 1929–30 (Rangoon, 1930), Vol. I, Banking and Credit in Burma, pp. 120–121. On the types of loans given, see Cheng Siok Hwa, Rice Industry of Burma, 1852–1949, pp. 173–175 and U Tun Wai, Burma’s Currency and Credit (Calcutta, 1953), pp. 43–57.

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long-term loans to agriculturists in Lower Burma.42 The BPBEC (Burma Provincial Banking Enquiry Committee) reported that Chettiar moneylending had penetrated 217 villages and towns in Burma, of which 155 were in Lower Burma, 55 in Upper Burma and 7 in the Shan states.43 For their part, colonial officials acknowledged that the Chettiars were responsible for the expansion of rice cultivation in Burma. In 1927, Sir Harcourt Butler, Governor of Burma, noted: ‘Without the assistance of the Chettiar banking system, Burma would never have achieved the wonderful advance of the last 25–30 years’.44 Besides participating in agricultural credit, some Chettiar firms also engaged in import and export, especially in the Indian Ocean region. The Burma-based Chettiars specialized in the rice and timber trades. P. A. Chocalingam Chetty, who inherited his grandfather’s business in 1902, became an important exporter of timber.45 Further, their long experience and networks made the Chettiars insiders in the rice business. In 1916/17, of the 318 rice mills in Burma, 16 were under the Chettiars. They also set up some saw and timber mills in Burma. Another important role carved out by the Chettiars in Southeast Asia was that of acting as intermediaries of Western capital. Of all the indigenous bankers, brokers and moneylenders, the Chettiars undertook the most voluminous business with Western credit institutions and banks and they enjoyed better credit facilities and interest rates. They became channels for credit from Western banks to the local community, as European banks were often reluctant to deal directly with small and medium traders. Thus, small local traders obtained credit from Chet-

Report of the Burma Provincial Banking Enquiry Committee, 1929–30 (Rangoon, 1930), Vol. I, Banking and Credit in Burma, p. 203; Michael Adas, ‘Immigrant Asians and the Economic Impact of European Imperialism: The role of the South Indian Chettiars in British Burma, Journal of Asian Studies, Vol. XXXIII, No. 3, May 1974, pp. 385–401. 43 Report of the Burma Provincial Banking Enquiry Committee, 1929–30 (Rangoon, 1930), Vol. I, Banking and Credit in Burma, p. 100. Working capital employed was estimated to be close to Rs 75 or 80 crore. See Report of the Burma Provincial Banking Enquiry Committee, (Rangoon, 1930), Vol. I, Banking and Credit in Burma, p. 210. 44 On their important role in Burma, see Report of the Burma Provincial Banking Enquiry Committee, 1929–30 (Rangoon, 1930), Vol. I, Banking and Credit in Burma, p. 189 and Nalini Ranjan Chakravarty, The Indian minority in Burma. The rise and decline of an immigrant community (OUP, 1971), Chapter 5, pp. 56–69. 45 So large was his enterprise that consignments were shipped from Burma every week. His customers included the Government of Madras, the princely states of Hyderabad and Mysore, and many private contractors in Madras; see S. Playne, Southern India. Its history, people, commerce and industrial resources (London, 1914–15), pp. 646–649. 42

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tiar moneylenders against mortgaged crops or promissory notes.46 The Chettiars, in turn, discounted these promissory notes—hundis — with Western banks and obtained overdrafts on the security of bills or title deeds.47 Exchange banks were also an important source of Chettiar capital, obtained as overdrafts. Such was the trust in which a Chettiar banker was held that financial institutions and banks like the Imperial Bank of India, the Netherlands Trading Society, the Chartered Bank of India, Australia and China and the Indian Overseas Bank were all willing to deal with them.48 By the early 1930s, Chettiar traders had established a powerful economic presence in Southeast Asia, being well entrenched in almost all businesses from moneylending and brokerage to retail and export–import. As niche players, they became indispensable to local economies and played critical roles in the region’s overall economic transformation. However, new and daunting challenges arose in the ensuing decades, with the global economic depression of the 1930s, the Japanese occupation during the War and the post-War tide of nationalist movements towards indigenization and nationalization across the region. As these events unfolded and Southeast Asia transformed into an important theatre of war (with large parts under Japanese occupation), Chettiar traders could not stay aloof. All these developments served to completely marginalize the community.49

46 See W. S. Weerasooria, The Nattukottai Chettiar merchant Banker in Ceylon (Tisara Prakasakayo, n.d.), Chapter 2. 47 On the relations with Western Banks, see Sir Compton Mackenzie, Realms of silver: One hundred years of banking in the East (Routledge, 1954) and G. C. Allen and A. G. Donnithorna, Western Enterprise on Indonesia and Malaya (London, 1957), p. 205. On the hundis used by both Chettiars and Marwaris, see L. C. Jain, Indigenous Banking in India and S. K. Muranjan, Modern Banking in India (Bombay, 1952), pp. 143–145. 48 On this, see U Wai Tun, Burma’s Currency and Credit (Calcutta, 1953), pp. 49–50 and Comption Mackenzie, Realms of Silver. One Hundred Years on Banking in the East (London, 1954). 49 Acts were passed to check land alienation from peasant proprietors to non-agriculturists in Malaya, such as the 1931 Small Holdings (Restriction of Sale) Bill, which disallowed sale of land exceeding 25 acres without state consent. See S. Arasatnam, Indians in Malaya and Singapore (Bombay, 1970), pp. 93–94. In Burma, acts such as the Standard Tenancy Act, Tenancy Disposal Act, Agricultural Debt Relief Act, Land Nationalization Act and Burma Foreigners Act of the 1940s affected moneylending and trading adversely.

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The first challenge came with the global economic depression of 1930, which seriously affected the economies in which their capital was placed. The sharp drop in the prices of commodities, especially those targeted for export (rubber, tea, coffee, and tin) made it impossible for cultivators, estate owners, tin miners and plantation owners to fulfil their financial obligations, leading to foreclosures of properties on mortgage.50 This occurred across Southeast Asian economies where Chettiar capital had been invested. Foreclosures spelt disaster to Chettiar commerce, which required some balance between liquid assets and investment in immovable property.51 In Burma, where the Chettiars were entrenched deepest, they suffered the most. Since the 1910s, they had faced increasing competition due to the increased participation of ‘Chinese lenders’ who had spread through towns and villages in Burma and lent in large sums. They operated either as ordinary moneylenders or as pawnbrokers. As a matter of fact, by the 1920s, the Chinese were conducting almost all the pawnbroking.52 Further, the closure of the rice frontier in the 1920s and the Great Depression of the 1930 brought land into the hands of moneylenders, as landlords and owner-cultivators increasingly defaulted.53 By the late 1930s, the Chettiars controlled nearly 25 per cent of the cropped area in Lower Burma and 50 per cent of the land held by non-agriculturists.54 Before the economic depression, practically all Chettiar assets—valued at an estimated Rs 6,500 lakh—consisted of advances and hundis. After the price collapse, by 1935–42, a mere Rs 1,000 lakh was held in advances while the rest was converted into land and property.55 Not that the Chettiars faced

50 There were also fears of double assessment of income tax for the Indians in Burma. In Sri Lanka, an added issue was of the recent introduction of income tax, which led to some withdrawal of Chettiar capital since they did not want to be subjected to double taxation. See Usha Mahajani, The Role of Indian Minorities in Burma and Malaya (Bombay, 1960), p. 19 and W. S. Weerasooria, The Nattukottai Chettiar Merchant Bankers in Ceylon (Sri Lanka, 1973), p. 156. 51 See Allene Master, ‘The Chettiars in Burma—An Economic Survey of a Migrant Community’, Population Review: A Journal of Asian Demography, Vol. I, No. 1, January 1957, pp. 28–29. 52 L. C. Jain, The Monetary Problem of India, (London, 1933), pp. 65–66. 53 See J. R. Ardus, ‘The Agrarian problem in Burma,’ Pacific Affairs, Vol. XIX, No. 23, September 1946. 54 On problems of settling questions of land tenure and agricultural credit in this period see Virginia Thompson, ‘The New Nation of Burma’, Far Eastern Survey, 7 April 1948. 55 U Tun Wai, Burma’s Currency and Credit (Calcutta, 1953), pp. 50–51.

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bankruptcy but they were forced to return their own advances to the exchange banks in the shape of the land and property that had come to them. And post-depression Burma promised little scope of further business advances.56 This totally undermined the basis of their economic moneylending functions, which hinged on the balance between liquid assets and investment in immovable property. The Chettiars needed capital to stay fluid. These problems were aggravated by a wave of anti-Indian sentiments in the 1930s, which often targeted Chettiar moneylenders, blaming them for Burma’s economic woes.57 Called ‘fiery dragons’, they were accused of ‘swindling, cheating, deception and oppression’.58 The transfer of whatever liquid assets they had left reached ‘an all-time high in 1938’59 And the anti-Indian riots of these year were especially daunting for the Chettiars. The disruption in the War years and the Japanese occupation exacerbated this strain.60 Numerous Chettiar traders joined the War-induced mass Indian exodus. The compensation offered for nationalization was woefully inadequate. For instance, the Bank of Chettinad, which owned nearly 85,000 acres of land, was recompensed a mere Rs 1.5 lakh. Where compensation was available, remittance was problematic.61 After decades of contributing significantly to Burma’s prosperity, Chettiar traders were forced to return to India, so they repatriated their capital whenever they could.62 Trading interests were further marginalized in Ibid., pp. 55–56. On riots and troubles that affected the Chettiars after the 1930s, see S. B. Mookherji, ‘Indian Minority in Southeast Asia’ in K. N. Chatterji (ed.), The Modern Review, Vol. CXI, Numbers 1–6 ( Jan.–June 1962). 58 Report of the Burma Provincial Banking Enquiry Committee, 1929–30 (Rangoon, 1930), Vol. I, Banking and Credit in Burma, p. 189. 59 Sudhansu Bimal Mookherji, ‘Indian Minority in Southeast Asia,’ The Modern Review, Vol. CXI, No. 1–6 ( Jan.–June 1962), pp. 22–30. 60 On the problems faced by the community during the Japanese occupation and later years, see W. S. Desai, India and Burma; A Study (Dec. 1952). 61 On the problems faced in remittances, see ‘Indians Outside India’, The Indian Review, April 1957, June 1957, December 1957, February 1958. Also see Federation of Indian Chambers of Commerce and Industry, Correspondence and Relevant Documents for the years 1950 –57 (FICCI, Delhi). 62 Although specific figures for the amount repatriated to India are not available, an estimate of the total figure, much of which was to India, has been put forth by the Burmese economist U Tun Wai. During 1938/39, the estimated amount repatriated was 18 million kyats; this rose dramatically after the War to 304 million kyats in 1946/47 and 1947/48 and 391 million kyats in 1947/48. Due to the imposition of exchange control and because of the large amounts already repatriated, it fell to 32 million kyats in 1948/49 and to 15 million kyats in 1950/51. See U Tun Wai, ‘Outlook 56

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the 1950s, as the new leadership closed down big businesses and after the coup d’etat by General Ne Win in 1962 and the subsequent military takeover of private enterprises. Most importantly, the Chettiars returned to India.63 While in Burma, the Chettiars faced challenging legislation, in countries such as Vietnam, they continued moneylending and agricultural investments well into the 1970s. However, in overall terms, in most other parts of Southeast Asia, with the increasing spread of modern banking, the post-War generation of Chettiars was compelled to adopt new professions, moving away from their time-honoured activities of banking and moneylending. (V) Let us now consider the story of the Marwaris. Unlike the Chettiars, the Marwaris did not show a propensity to move in large numbers beyond the Indian subcontinent. As noted, the north Indian hinterland remained an important base for their trading endeavours, and by the mid-nineteenth century, Marwari traders had moved to the metropolitan hubs of Calcutta and Bombay to exploit new commercial opportunities. These were the preferred destinations for Marwari outward-migration, with eastern India becoming the most important centre for their trading operations. Once in Calcutta, the Marwaris gradually began to replace the Khattris and the Bengalis as banias to British firms. They moved smoothly into a crucial role in the new economic order as sub-contractors and became indispensable to trade and commerce. Given their strong links with their native Rajasthan and other parts of northern India, the Marwaris benefited from the expansion of commercial agriculture that occurred under the colonial aegis and got involved in financing peasant cultivators. The logical next step was to get involved in commercial crop export. As noted, through the hundi network, they could control the indigenous money market and the flow of goods and credit.64

for Burma’s Balance of Payments,’ Journal of the Burma Research Society, Vol. XXXVIII, Dec. 1954, Part 2, pp. 35–40. 63 On this, see Sudhansu Bimal Mookherji, ‘Indian Minority in Southeast Asia,’ The Modern Review, Vol. CXI, No. 1–6, Jan.–June 1962, pp. 22–30. 64 See Medha Kudaisya, The Life and Times of G. D. Birla (Delhi, 2003), Chapter 1.

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Taking to certain specific business activities, the Marwaris were soon entrenched in them. They became the principal distributors of Manchester piece goods and featured prominently in the supply of grain, oilseeds, raw jute and other unprocessed goods. These were the staple commodities of the export economy, largely controlled by European managing agencies. In their role as brokers, the Marwaris became banias or guarantee brokers to important European houses and could help in bringing in new orders and in financing and guaranteeing bills. For a 1.5 per cent commission, the bania undertook to guarantee that the bazaar merchant would fully pay the bill of the order that the broker had bought and financed. European importing houses dealt with large bazaar merchants through the bania who bought the goods on commission at the port. In metropolitan areas, the large merchants would, in turn, pass these goods either directly to the mofussil shopkeeper or through an intermediate wholesale dealer. Through such operations, the Marwaris strengthened their hold on the credit and banking structures of the indigenous economy. The Marwaris also had considerable interest in speculative markets and engaged in futures trading in opium, spices, hessian and jute. By the mid-nineteenth century, within the bazaars of northern India, the more prominent Marwari traders had established themselves as ‘kings’ in the trades they had chosen to enter. Thus, Ramgopal Mohta was commonly considered Karachi’s ‘iron king’, Calcutta’s Bansidhar Jalan, the ‘jute king’ while Motiram Jhunjhunwala was the ‘silver king’, Ramnath Ruia, the ‘cotton king’ and Baldeodas Dudhawala, the ‘shares king’.65 The outbreak of World War I in 1914 and the extraordinary economic opportunities it created propelled the Marwaris into manufacturing. Speculative operations in jute, cotton, gunny and silver led to windfall gains for many bazaar merchants. Those involved in silver speculation did especially well due to the sharp rise in the international price of silver and the Government of India’s policy to import large quantities.66

D. K. Taknet, Marwari Samj ( Jaipur, 1989), p. 57. The Government needed silver for coinage as currency circulation increased during the War from 1.8 billion to 2.9 billion silver rupees. Such was the demand for silver that in a single year India managed to absorb twice the total annual world output of silver. One example is that of Ramakrishna Dalmia who turned to silver speculation in a moment of desperation after being declared insolvent by the community. Borrowing Rs 50 from a friend and, based on some commercial intelligence, he made some speculative deals in silver—which he reinvested. This continued for a week at the end 65 66

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Speculative war-time profits, their dominance in the hinterland’s trade and their increasing presence in the share market allowed Marwari merchants to break into industry, till then the monopoly of European managing agencies. Taking the lead, the Calcutta merchants chose the jute sector in whuch to make their debut. This was expected, as by the end of World War I, the Marwaris dominated various layers of the jute sector, from the procurement of raw materials to the intermediate stage of baling to speculation and control over jute shares.67 The bulk of the internal trade in raw jute as well as much of the export was in Marwari hands. As banias to jute companies, many Marwaris had bought shares that further consolidated their presence.68 Thus, in 1919, three Marwari firms—Birla Jute Manufacturing Company, Halwasia Jute Mills and Hukumchand Jute Mills Ltd—were incorporated, breaking the European monopoly on manufacturing in the sector.69 The Marwaris then ventured into cotton and sugar. The Birlas set up a cotton mill in Delhi in 1921 and another one in Gwalior. Hargovind Dalmia acquired the Mathurdas Mills in Calcutta in 1921. Baijnath Juggilal, forerunners of the House of Singhanias, established a mill in Kanpur while Lakshmichand Jaipuria partnered with a fellow trader to of which he found himself worth more than 1.5 lakh rupees. Such stories were not unusual amongst the Marwari community in these times. See Seth Ramkrishna Dalmia, Some Notes and Reminiscences (Bombay, 1948). On Dalmia, also see his A Short Sketch of the Beginning of my Life and a Guide to Bliss (New Delhi, 1962) and D. Rothermund, An Economic History of India (London, 1988), pp. 72–73. 67 As the Capital remarked on May 25, 1922: ‘The great prosperity of the Calcutta jute mills during the war made many mouths water in the Indian commercial community, more especially the Marwari mouths . . . Why should not Indians dominate the jute manufacturing trade as well as the cotton manufacturing trade? The Marwaris, at any rate, were determined to drive the thin end of the wedge.’ 68 See Capital, 25 May 1922. As jute was principally grown in the hinterland of the Calcutta region, the metropolis became the centre of War-time production and the port from where jute products were shipped to the whole of the British Empire. The Marwaris, entrenched in the jute trade, benefited greatly from this boom and reaped enormous profits. In their capacity as jute traders and exporters, they benefited from a manifold increase in turnover and records show that they figured prominently in the accounts of clearances of jute mills. The Marwari Association claimed that by 1922 no less than 60 per cent of shares in jute mills were controlled by Indians. Jute shares rose in value; the ratio of net profit to paid up capital increased from 10 in 1914 to 58 in 1915, reaching an all time high of 149 in 1917. The industry recorded net profit rates of over 50% of paid up capital in the War years. 69 Although registered in 1919, they did not start operations till end-1922. The Halwasia mill does not appear to have been finally set up as it finds no mention after its registration in Capital. Sarupchand Hukumchand already had interests in cotton in Indore.

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set up the Khalsa Mills in Delhi in 1923. Jugalpat Singhania entered cotton, jute, sugar and light engineering, even as Anandilal Poddar of Bombay joined hands with a Japanese partner to set up Toy-Poddar Cotton Mills in Bombay in 1924.70 Yet, for the Marwaris, all this was just the beginning. As the eminent historian Dwijendra Tripathi puts it, it would take another decade for the Marwari presence on the industrial scene to become conspicuous. The Singhanias of Kanpur, after their initial foray into cotton in the early 1920s, moved on into jute, sugar and engineering. Jamnalal Bajaj, Gandhi’s close associate, entered sugar and subsequently iron and steel. Ramkrishna Dalmia entered sugar and then made significant investments in cement manufacturing.71 The Bajorias entered paper manufacturing and established, along with the Dalmias, the first Indian-owned paper manufacturing unit.72 The Khaitans entered sugar; Subhkaran Malwani set up a cotton mill in Hyderabad in 1930 while the Marwari Jains were known to dominate Ahmedabad’s cotton mill industry. The global economic depression of the 1930s gave Marwari trading firms several opportunities to acquire companies in distress. For example, the firms of Ramnarain Ramnivas Ruia and Chaturbhuj Piramal took over the managing agency of Bradbury and Phoenix Mills, while the latter also gained control over Morarjee Gokuldas Mills. New areas that the Marwaris forayed into were engineering, iron and steel, pharmaceuticals and cement. As Omkar Goswami highlights, the 1935–40 period represented a structural break in the growth of Marwari entrepreneurship; while they continued to operate in the more traditional sector of modern industry they had conspicuously entered the relatively technologically advanced sectors as well. The inter-War years also witnessed the emergence of industrial enterprise in many places far removed from Calcutta and Bombay. In the 1940s, the withdrawal of European managing agencies and the exodus of foreign capital opened up opportunities. Thus, Agarwal and Co. bought E. D. Sassoon United Mills with an estimated worth 70 S. Playne, Southern India. Its history, people, commerce and industrial resources (London, 1914–15), pp. 898–901 and Chentsal Rao, Lakshmipat Singhania: His Concepts and Creations (Delhi, 1986). 71 R. K. Dalmia, A Short Sketch of the Beginning of my Life and a Guide to Bliss (Delhi, 1962), Chapter VI. 72 On these developments, see Dwijendra Tripathi, The Oxford History of Indian Business (Delhi, 2004), Chapter 12, ‘Towards Maturity’.

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of Rs 8 crore in total assets; the Birlas bought Century Spinning and Manufacturing Company with assets worth Rs 5 crore; the Jaipuria Group took over Swadeshi Cotton Mills with assets worth Rs 5.5 crore and the Dalmia-Sahu Jain group acquired Sir Shapurji Broacha Mills and Madhowji Cotton Mills.73 So great was the interest in sectors such as cotton that four-fifths of the productive capacity in Ahmedabad’s massive cotton mill industry and over half of the production capacity of Bombay’s cotton mill industry was controlled by the Marwaris and Gujaratis by the early 1950s.74 Also significant was the Marwari entry into other sectors, such as coal, which had earlier been dominated by British managing agencies. Here Anandilal Poddar, Jhunjhunwala, the Jaipurias and Karnanis were increasingly making their presence felt.75 As well as buying up foreign firms, the Marwaris were getting more closely linked, in terms of business interests, with British companies.76 They featured more prominently in the directorships of expatriate firms, as the British sought to dispose of their holdings during the War and in the post-War boom, when the prices of shares and stocks rose dramatically.77 Several traders such as the Goenkas and the Khaitans entered the industrial sector through the acquisition of expatriate stock after Independence. Older houses, such as the Birlas, acquired a string of companies (including Bally Jute, Rameshwara Jute and Soorah Jute), entered the new areas of tea and tea estates, made forays into stable fibre, aluminium, fertilizers, rayon pulp and even steel.78

See M. M. Mehta, Structure of Indian Industries (Bombay, 1955), pp. 310–318. M. M. Mehta, ‘Recent trends in the managerial, administrative and financial integration of industrial enterprises in India,’ Indian Economic Review, February 1954, Vol. II, pp. 21–36. 75 Omkar Goswami, ‘Sahibs, Babus and Banias: Changes in Industrial Control in Eastern India, 1918–1950,’ Journal of Asian Studies, Vol. 48, No. 2 (May 1989), pp. 289–309. 76 Thus, the Jatias were linked with Messrs Andrew Yule and Co., the Kanorias with McLeod and Co. and the Bangurs with Bird and Co. 77 On this see Mehta, Structure of Indian Industries (Bombay, 1955), Chapter XII. 78 On their business expansion, see Medha Kudaisya, The Life and Times of G. D. Birla (Delhi, 2003), Chapter 14. 73

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(VI) By the 1950s, Marwari prominence in private industry was well recognized. This was in sharp contrast to the start of the twentieth century when, as M. M. Mehta, the Director of Statistics of the Government of India, had noted that they held an ‘insignificant position’ and were ‘just making their mark as traders, bankers and stockbrokers.’ By 1951, Mehta recorded that they were, along with the Gujaratis, ‘the most dominant elements in the Indian entrepreneurial groups’ and had ‘expanded their spheres of industrial and commercial activities in almost every direction’. By this time, the Marwaris were stepping into the dominant position, earlier enjoyed by British firms.79 The community consolidated its economic powers under the new industrial era of Nehruvian socialism which, though it appeared to restrict industrial growth, advantaged large groups that grew in share capital, fixed assets and capital stock.80 Newer Marwari business players emerged throughout the 1950s. Old traders and share dealers broke into industry to enter challenging areas like steel, power supply and collieries. This trend did not go unnoticed; in fact, it made political figures, economists and analysts anxious about the growing Marwari influence over economic life and their visibility in public life. Economists Wadia and Merchant, writing in 1957, highlighted the Marwari entry into the press, observing that control of The Times of India by the Dalmias, Hindustan Times, Searchlight, Leader and Bharat by the Birlas and a chain of papers by Ramnath Goenka gave the Marwaris an extraordinary grip over public opinion, which was ‘further tightened by the subtler methods of hospitality and largesse such as big business knows how to employ’.81

79 Along with the Gujaratis, they now controlled 96 companies out of 619 analysed, and held 618 directorships of a total of 2,622. See M. M. Mehta, ‘Recent trends in the managerial, administrative and financial integration of industrial enterprises in India,’ Indian Economic Review, February 1954, Vol. II, pp. 21–36. 80 On Marwari expansion in these years, see R. K. Hazari, The Structure of the Corporate Private Sector. A Study of Concentration, Ownership and Control (Calcutta, 1966). 81 See Wadia and Merchant, Our Economic Problems (Bombay, 1957), p. 728. By the 1980s, of the 100 ‘top industrial giants’, 28 were Marwari owned with 12 companies belonging to the Birlas. In 1986/87, of the 11 companies with the largest turnovers in India, five belonged to Marwaris. The Monopolies Commission reported in 1964/65 that 75 top business houses owned assets worth Rs 2,605 crore. This trend of Marwari dominance has continued. In 1975, the assets of the top four Marwari houses was estimated at Rs 1,395 crore and, by 1986/87, had grown to Rs 7,654 crore. Of

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In contrast, the Chettiars, by the 1950s, had seen their economic presence as well as their power eroded. From being niche players in the region’s credit markets and achieving impressive growth in Southeast Asia, they now stood more or less apart from industrial developments. Much of their capital from Southeast Asia and Sri Lanka was repatriated after the Depression and a substantial part of that capital was ploughed into banking, commerce and insurance; while some was invested in plantations. Scholars note that Chettiar investments in the modern sector were restricted to six textile mills, the cement industry, electricity plants, five banks and six insurance companies.82 This was rather small, compared to their prominence in moneylending in South and Southeast Asia. Barely a handful of Chettiar firms moved into industry, and that too mainly within Southern India, where their presence remained limited. From the 1920s, the most important industries in Madras Presidency had been cotton and sugar. Enormous opportunities unfolded here in the inter-War period, with Coimbatore swiftly becoming a major hub of the textile industry. The landholding Naidu and Kammas communities took advantage of this and entered the industrial scene; the Naidus went on to become the most active players in both Coimbatore and Madurai. Though two or three Chettiar firms did venture into industry, the community made no significant mark in the sector. This lean interest in industry appears to have prevailed across different sectors, as highlighted by a 1950s study of light engineering works in Madras state, many of which were set up in the 1930s and 1940s. The author noted the diversity of entrepreneurial backgrounds in the 52 medium firms, employing 50–250 workers. Once again, Chettiar participation was limited to merely eight firms, and they were easily outnumbered by communities such as the Naidus and the Brahmans.83

these, the Birlas alone accounted for a staggering Rs 4,772 crore. Similarly, of the 47 presidents of the prestigious Federation of Indian Chambers of Commerce and Industry, 20 have been Marwaris. 82 Ramdas Menon, ‘Banking and Trading Castes in the Colonial Period: The case of the Nattukotai Chettiars of Tamil Nadu’, South Asia Bulletin, Vol. V, No. 2, Spring 1985, pp. 19–26. 83 The author notes the ‘high proportion of members of the Brahman community among the present group of entrepreneurs. Five of the twelve firms have been established by Brahmans, and these, in turn, are nearly half of all Brahman-entrepreneurs encountered’. James Berna, Industrial Entrepreneurship in Madras State (Bombay, 1960), p. 70.

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In the pre-1930s, P. Somosonthram Chettiar had attempted to break into industry (circa 1880s) as had others like Karumuttu Thiagarajan Chettiar, who was involved in moneylending and trade in Sri Lanka. Thiagarajan Chettiar established the Sree Meenakshi Mills in 1921 in Madura. By the 1940s, he had expanded his interests to 13 textile companies and also had an interest in banking and finance, with the Bank of Madura and the Madurai Insurance Company Limited as his vehicles.84 The Chettiar hesitation to venture into industry is perhaps best illustrated by the story of the well-known Raja Sir Annamalai Chettiar Group. Composed of Annamalai and Muttiah Chettiar, the Group made a limited impact on the industrial sphere but was a major player in banking and within the public life of southern India. The Rajah Group’s interest in banking went back to S. RM. M. Muthiah Chettiar, the father of Annamalai Chettiar, who entered moneylending and banking. On joining the family business at the turn of the nineteenth century, Annamalai was responsible for expanding the firm through branches in Sri Lanka, Burma and other parts of Southeast Asia. In 1908, he helped found the Indian Bank with the help of others like Ramaswami Chettiar, V. Krishnaswami Aiyar and Sir C. P. Ramaswamy Ayar.85 Over the years, as his involvement with public life grew, he came to be well known for his large-scale philanthropy, including the founding of Annamalai University in 1929.86 In 1923, he was knighted and also conferred the title of Rajah by the British.87 However, even then, the Group’s main interest remained in banking and moneylending. Alongside the Indian Bank, the Bank of Chettinad was incorporated in 1929, with a paid-up capital of Rs 30 million. Headquartered in Ramnad, it had branches all over Southeast Asia and Sri Lanka. Once the Sir Raja Group repatriated its capital to India following the Depression of the 1930s, there was some expansion in the industrial sphere. One such initiative was the setting up of the South India Corporation in 1935, with its main interest in structural engineering. It took up contracts for structural works during World War II and was See H. Kothari (ed.), Who’s Who in Indian Engineering and Industry (Calcutta, 1962), p. 26. See Dr Rajah Sir Muthiah Chettiar and Rani Lady Meyyammai Achi 60th Birthday Commemoration Volume (Annamalainagar, 1965), p. 81. 86 See Annamalai University, Silver Jubilee Souvenir (Annamalainagar, 1955), pp. 103–112. 87 On their leaving Burma, see K. Nagaranjan, Rajah Sir Annamalai Chettiar (Annamalainagar, n.d.), esp. chapter entitled ‘Burma chapter closed’, pp. 79–80. 84

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involved with transport, clearing and shipping, stevedoring operations and steamer agencies while acting as the agent for larger firms, such as Tata Chemicals and Travancore Cements and Iron and Steel.88 Another relevant initiative was the takeover of Lotus Mills in Coimbatore in the early 1940s. Then, in 1945/46, Muthiah Chettiar set up Travancore Rayons, India’s first synthetic yarn factory. The desire for increased Chettiar participation in industry made K. Kamaraj, the then Chief Minister of Madras, persuade Rajah Sir Muthiah Chettiar to enter the cement sector. In 1962, the Chettinad Cement Corporation was incorporated, with a projected capacity of 4 lakh tonnes of cement per annum and a capital cost of Rs 5.73 crore. Two plants were started, one in Kanur district that commenced production in 1968 producing 600 tonnes a day, and another plant in 1970.89 Another venture was Madura Coats, which had close contact with the British firm set up by Messrs A. and F. Harvey—the Spinning and Weaving Mills—that later merged with Madura Coats.90 Muthiah Chettiar first became its Director and was then elected Chairman in 1974. Another group to venture into industry was headed by M. C. T. Chidambaram Chetty, who had a major interest in finance and insurance companies until the beginning of World War II. In 1924, he took over the United Life Insurance Company, the first Indian-owned insurance company in south India. The Group’s interests expanded to general insurance with the United India Fire and General Insurance Ltd and to banking with the Indian Overseas Bank in 1937.91 In the 1940s, Chidambaram was involved in the takeover of the famous Elphinstone Mills in Bombay and the setting up of the Travancore Rayon and Padukottai Textiles. Similarly, the Murugappa Group arose out of a family firm involved in banking and moneylending in Sri Lanka and in Southeast Asian operations in Burma, Malaya, Indonesia and Vietnam. Comprising three brothers—A. M. M. Arunachalam, A. M. Murugappa Chettiar and Ramanathan—it repatriated large amounts of capital in the 1930s in the wake of the Depression. It then set up a minor sandpaper plant, K. Nagaranjan, Dr Rajah Sir Muthiah Chettiar (Annamalainagar, 1989), pp. 251–252. K. Nagaranjan, Ibid., pp. 249–251. 90 K. Nagaranjan, Ibid., Chapter 17, 19. 91 The Indian Overseas Bank developed the reputation of helping overseas Indians as a priority. Launched with a capital of Rs 2.5 million, it commenced operations simultaneously in Southern India and Burma in 1937. Over the next few years, it opened branches in many parts of Southeast Asia. 88

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a storage equipment manufacturing unit called Ajax and an insurance company, and also bought a rubber plantation. Thereafter, the family moved into manufacturing bicycles and steel safes and later into light engineering, office and security equipment and coated abrasives. Following a major diversification, fertilizers became another major field of the group’s focus. Another important businessman, R. M. Alagappa Chetty, originally involved with rubber plantations in Burma and tin in Malaya, made substantial investment in textiles in the princely state of Travancore and Cochin. In 1937, he launched Cochin Textiles (later called Alagappa Textile Mills) at Paddukaddu in Kerala. He also had interests in insurance. However, ‘overtrading and speculation led to the complete obliteration’ of his business interests after the war.92 From the trajectories of these firms, which stood at the forefront of Chettiar commerce, it is apparent that the community’s foray into industry was limited even as banking interests dominated their agendas, even in the 1940s. Such dominance affected the modern banks in which the Chettiars had interests. For instance, a study of banking with data collected in the 1930s and 1940s notes that the Chettiar holding of a majority of shares in the Indian Bank affected the bank’s lending policies. Not only were more advances made to community members but often advances made on personal credit were as large as banks deposits, whereas advances for trade or against goods could be about one-thirteenth or one-tenth of the total advances made.93 (VII) It is not easy to speculate on what lay behind the reticence of Chettiar capital to make the transition to industry. Due to limited archival sources, it may not even be possible to put forth a definite explanation, but here are some tentative reasons for the failure of Chettiar enterprise.

Dwijendra Tripathi, The Oxford History of Indian Business (Delhi, 2004), p. 238. It was reported: ‘The Chetty firms themselves engage almost exclusively in banking and not in trade. In other words, the funds of the Bank are not available directly for trade of the country but only indirectly through the lending operations of the Chetties . . . The Bank prefers the security of the Chetty intermediary to that of goods or assets and earns perhaps a higher rate of interest. This should explain why the Indian Bank avoids investments and holds such a large proportion of funds in loans, advances and bills.’ See S. K. Muranjan, Modern Banking in India (Bombay, 1952), pp. 228–233. 92

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One salient feature of Chettiar commerce that perhaps contributed to the unwillingness to invest assets into the industrial sphere was the community’s lack of economic diversification. The growth trajectory of Chettiar firms had traditionally been restricted to indigenous banking and moneylending. Over-investment in finance and money lending was a common feature of the portfolios of Chettiar traders. Steeped in banking, Chettiar traders perhaps found it difficult to invest their capital in industry. As a result, banking remained their first preference. Even at the peak of their influence in the 1920s and 1930s, Chettiar operations in Burma primarily consisted of moneylending. In overall terms, the Chettiars showed little interest in extending their operations further into industry, either in Burma, or in the avenues opening up in southern India. ‘They do not, as a rule, do much other business,’ noted U Tun Wai, the Burmese economist who served on the United Nations Economic Commission for Asia and the Far East. From data collected in the 1930s and 1940s, he concluded that only ‘about 5 per cent to 10 per cent might be engaged in wholesale trade in paddy, oil or any other agricultural products in their district of operations’ while those owning rice and saw mills numbered about 15–20. While the Chettiars were content to finance trade, they did not themselves emerge as traders in any substantial manner.94 That the financing of agriculture was the main preoccupation of the Chettiars was apparent from the fact that as many as 940 out of the 1,100 district firms were based in the 13 main rice growing districts of Burma. Almost all their assets, valued at Rs 6,500 lakh consisted of advances and discounted hundis; their main business consisted of accepting deposits, remittance, transferring funds and advancing money to agriculturists. Although the Chettiars did not go bankrupt due to the economic depression, the dominance of moneylending in their business operations meant an end to any financial expansion and a ‘winding

94 Even involvement with trade, U Tun Wai commented, was not out of choice but in view of the ‘fact that in depression loans went bad and they were forced to become owners of industrial property’. For the post-War years 1946–48, he observes that ‘some have indulged in the purchase and sale of disposal goods and also contract work. Here, too, only about 5 per cent to 10 per cent of the Rangoon firms have been engaged in this business’. When they were involved with trade financing it did not mean retail but wholesale trade between India and Burma.

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up of firms’ and attempts to ‘liquefy their assets or just to keep the old business going’.95 The practice of concentrating on the moneylending portfolio may have contributed to the tendency to over-lend, described by Michael Adas as the ‘most detrimental aspect’ of Chettiar operations in Burma. If a prospective client could offer adequate security, the Chettiars would grant large loans without any attempt to determine the borrowers’ actual needs or the commercial justification behind the loan. Evidence suggests that the Chettiars were happy to allow cultivators to over-borrow or to take loans when they had no economic reasons to do so. Borrowing for unproductive reasons did not cause much discontent when agricultural prices were rising but could be disastrous during lean times. Eventually, the Chettiars would be forced to foreclose on the mortgage which the cultivator had offered as security.96 This was in contrast to the trajectories of capital investments of other indigenous bankers and traders in the Indian subcontinent. Most indigenous bankers combined moneylending with other activities such as trade and commerce. In the early decades of the twentieth century, they were most commonly involved with a spectrum of ‘allied businesses’ and were finding a place in almost every aspect of trade, commerce and industry. They had dealings in grain or gold, general merchandise, as commercial agents, goldsmiths, jewellers and in agricultural products they financed, they acted as agents and tried their hand at industry.97 In the 1920s, these ‘allied businesses’ were beginning to become more significant because of the challenges indigenous bankers faced due to rapid economic changes. First, with the unification of currency systems, the formation of new financial institutions such as credit societies and the spread of modern banking practices and more efficient means of remittance, indigenous bankers lost ground. Further, the improvement of communications and the rise of industry led to a general movement into new areas of entrepreneurial activities. Only in rare cases did indigenous bankers continue to concentrate solely on banking and moneylending. In a study conducted in the 1920s, economist L. C. Jain pointed out that the only ‘bankers qua bankers’ in the subcontinent were the Chettiars in both Madras and U Tun Wai, Burma’s Currency and Credit (Calcutta, 1953), p. 44. Ibid., p. 56. 97 See L. C. Jain, Indigenous Banking in India (London, 1929) and S. K. Muranjan, Modern Banking in India (Bombay, 1952), pp. 30–32 & 43–44. 95 96

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Burma and the Multani bankers of Sindh and Bombay. The Chettiars confined their activities to moneylending and banking and the Multanis to dealings in hundis. There was no doubt in Jain’s view that of all the indigenous bankers, the Chettiars were the most accomplished and had a ‘reputation throughout the land for their spirit of adventure and enterprise, for their natural shrewdness and ability and for their acts of munificence’. However, they were the only ones with such a restricted economic portfolio. All other indigenous bankers functioned as ‘bankers-cum-traders’.98 By this stage, other communities had highly diversified investment portfolios, though they may have dominated certain areas.99 Another factor that may have contributed to the reticence of Chettiars to plunge into industry may have been their propensity to work on their own, compared to the Marwaris, Gujaratis and Sindhis.100 The Marwaris worked closely with British capital, although an element of competition always remained. This was of various kinds and changed

98 L. C. Jain, Indigenous Banking in India (London, 1929) and S. K. Muranjan, Modern Banking in India (Bombay, 1952), pp. 42–45 . Also see L. C. Jain, Monetary Problems of India (London, 1933), p. 63. 99 For instance, despite their marginal involvement in Burma, the Marwaris maintained both moneylending and trading interests. For example, Shivbaksh Bagla, an important timber merchant in Calcutta, was involved with both moneylending and rice trading interests in Burma. Though their primary activity was discounting promissory notes, especially those related to piece-goods trade from Bombay or Lancashire, a role they could perform because of close links with European banks was the financing of the wholesale/retail trade in timber and rice. In overall numbers, they did not have a significant presence. According to estimates, there were two to three in Moulmein, two in Prome and five in Akyab. In Akyab, they had cornered 70 per cent of the local financing of wholesale trade and 40 per cent of the retail trade by the 1930s. See Report of the Burma Provincial Banking Enquiry Committee, (Rangoon, 1930), Vol. I, Banking and Credit in Burma, p. 187 and Usha Mahajani, The Role of Indian Minorities in Burma and Malaya (Bombay, 1960), pp. 12–21. 100 As R. K. Sheshadri points out in his history of the Indian Bank: ‘The Nattukottai Chettiars operated mostly as individuals. They had no close association or links with the governments of the day as the indigenous bankers in Murshidabad, Calcutta, Benaras, Surat or Delhi had. Among the many reforms, which Tipu Sultan tried to introduce when he was not fighting the British, was a system of state-sponsored and state-supervised multilateral coties or banking house all over the South. They were to undertake exchange operations and to finance trade; and their activities were to be financed by a central bank at Seringapatnam. The memory of this experiment is preserved in Captain Read’s report on the ceded districts north of the Cauvery, written in 1792, but the experiment itself was destined to fail, as the Chettiars and other indigenous bankers cherished their independence and preferred to operate without any restrictions by any external authority’. See R. K. Sheshadri, A Swadeshi Bank from South India (Indian Bank, 1982), p. 18.

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over the nineteenth and twentieth centuries. In the mid-nineteenth and early twentieth centuries, many acted as banias or guarantee brokers to the British.101 It was from these brokers that many industrial pioneers emerged after World War I. While this was a more formal relationship they forged, others built more informal relations with European traders and managing agencies. For instance, Ramkrishna Dalmia, who had perfected the working of the fataka market and speculation, often dabbled in futures to help British managing agents.102 Relations with British capital developed at various levels. Even after they broke into industry, Marwari traders maintained close links with British capital. For example, when in 1918, the Birla Brothers along with two other traders, Halwasia and Hukumchand, broke the European monopoly over jute, they were careful to induct British managing agents into their boards. G. D. Birla inducted H. Gavin Wilson and G. L. Allen on to his board despite the fact that he always harboured a grudge against British managing agencies for their ‘racial arrogance’.103 He also recruited European managers to run the mill,104 overlooking the opposition the Birlas had faced in their debut into industry by managing agencies such as Andrew Yule.105 These relations continued well into the 1930s and 1940s. Examining firms during this period, M. M. Mehta was astounded by the close integration of Marwari and British interests and the intermingling of two entrepreneurial groups that were culturally and socially so divergent. The Marwaris also featured more prominently in the directorships of expatriate firms. Once foreign firms were keen to sell off their holdings,

101 For instance, Nathuram Saraf was bania to Hoare Miller and Kinsell, Hariram Goenka was guarantee broker to Ralli Bros, Surajmal Jhunjhunwala to Graham and Co, Onkarmal Jatia to Andrew Yule, Ramdutt Ramkishendas to Rallis and Kettlewell Bullen, Anandilal Poddar to Tototo Menka Kesha, Lakshmi Narain Kanoria to Mcleod and Co., Tarachand Ghanshyamdas to Shaw Wallace and Harduttrai Chamaria to E. D. Sassoon. See D. K. Taknet, Industrial Entrepreneurship among Shekhawati Marwaris ( Jaipur, 1986), pp. 84–5. The Birla were brokers in the jute and gunny trade and dealt with Bird and Heiglers, Andrew Yule, Jardine Skinner and McLeod and others. 102 See, for instance, Ramkrishna Dalmia, A Short Sketch of the Beginning of my Life and a Guide to Bliss (New Delhi, 1962), pp. 16–17. 103 G. D. Birla, In the shadow of the Mahatma (Calcutta, 1953), p. xv. On the relations between Marwari and British business, see Maria Misra, Business, Race and Politics in British India 1850 –1960 (Oxford, 1999), especially Chapter 5. 104 This led the Capital to remark: ‘Like the Parsees and Bhatias of Bombay, the Marwaris of Calcutta saw the use, nay the necessity of employing in the first instance mill managers from Great Britain.’ See Capital, 25 May 1922. 105 See Medha Kudaisya, The Life and Times of G. D. Birla (Delhi, 2003), pp. 46–48

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especially in the post-World War II boom in share prices and stocks in the run up to the transfer of power, the most certain buyers were the Marwari banias. Most commonly, Marwari traders entered those industries in which they had operated as traders.106 Such relationships continued and leading Marwari industrialists maintained closer relations with British managing agencies than they did with Indian managing agencies.107 These relations proved critical, in many ways, in Marwari transitions from bania to industrialists. As shown by Omkar Goswami, it was common practice for European firms to allot shares to partners and managers and others in companies under their management. Once share prices rose during the war, the holders of such shares started to sell and the Marwaris with their proximity to European firms started to buy them up. Thus, entering the industry through stock purchases was an important strategy for the Marwaris. The setting up of management agencies and entry into industry by traders, shroffs and moneylenders was somewhat problematic since it meant an interlocking of funds and directorships. In a 1940s study, economist N. H. Thakkar pointed out that ‘surplus funds of the mills in Ahmedabad were kept with the shroffs who were either the Managing Agents themselves or their relatives’.108 This meant that in times of distress many such players sold off their industrial interests to save their banking operations. This interlocking of interests was a characteristic feature of managing agencies in South Asia, and many traders such as the Goenkas made their debuts in industry with the acquisition of expatriate houses after Independence. Acting as banias gave the Marwari traders an insider status. It helped them understand the industry dynamics, gain insights into the market 106 This held true not only for their first breaks into industry but also for later set-ups. The Seksaias (once ‘cotton kings’ of Bombay), the Ruias and the Birlas once associated with European managing agencies involved with cotton and having operated as stock brokers and in the raw cotton trade in which they made fortunes in the World War I prosperity then became big players in the cotton industry. See M. M. Mehta, Structure of Indian Industries (Bombay, 1955), p. 298. 107 In the post-War period, Marwaris entered what Mehta called ‘new deals’. On these, see M. M. Mehta, ‘Recent trends in the managerial, administrative and financial integration of industrial enterprises in India,’ Indian Economic Review, February 1954, Vol. II, p. 36. The basis of these was that the ‘foreign firms are to supply ‘technical know-how’ and part of the block capital and the Indian firms- part of the capital and the managerial and marketing organization’. Also see his Structure of Indian industries (Bombay, 1955), p. 302. 108 N. H. Thakkar, The Cotton Textile Industry during Twentieth Century (Bombay, 1947), p. 226.

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and develop their contacts. Exposure to Western businesses also led to a familiarity with new methods of business. G. D. Birla frankly acknowledged the advantages of working as a bania to British firms which, he said, led him to ‘see their superiority in business methods, their organizational capacity and their many other virtues’.109 This argument resonates with the view put forth by Tripathi and Mehta in their study of business houses in Western India that one of the critical factors that lay behind the motivation of entrepreneurs to move into a particular sector was their ‘direct or indirect exposure to business developments in industrially advanced countries’. Contact with European businessmen or officials provided insights, and encouraged persons of diverse backgrounds to take the plunge into industrial ventures. Further, the formation of managing agencies by the Marwaris allowed their family firms to hold almost unlimited power also facilitated the managerial, administrative and financial integration, which proved to be very important in the emergence of industrial enterprise. Another disadvantage that Chettiar capital faced compared to Marwari capital lay in its loose links with the hinterland. The Marwaris were entrenched in the north Indian hinterland. They had extensive internal trading networks and were interlocked at several levels by complex financial arrangements, which generated the flow of credit. This allowed them to deliver goods at all levels of the economy. Financing of the massive movement of goods and crops occurred under their auspices, as did the production process, which was dependent upon their advancing of loans to the peasants and artisans. L. C. Jain, in his study of indigenous banking in the 1920s, recounts at length how such traders were able to control the indigenous money market and control the flow of goods and credit through the hundi network. By moving across to Southeast Asia, the Chettiars were not able to leverage upon the hinterland linkages, which had proven so vital in the case of the Marwaris. In the 1930s, the Marwaris stood out as a community with large interests in almost the entire subcontinent’s money markets. A study carried out in the 1920s and 1930s claims that they were ‘almost in entire possession’ of the money market in Bengal and Assam; in Bihar and Orissa, they shared the trade with Gujaratis and Kachis, and in Bombay with the Multanis and the Shikarpuris. The Nattukottai Chettiars, by contrast, were restricted to Madras, and here too they faced

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fierce competition from the Marwaris, and to a less extent, from the Multanis and Kullidaikurchi Brahmans of Tinnevelly. Thus there was no market in the Indian hinterland where Marwari networks did not extend.110 This article thus shows that a number of factors accounted for the success of the Marwaris in the industrial sphere and the failure of Chettiar capital. It is important to recognize that attributes associated with caste status and ideology—such as corporate organization, shared code of business ethics, formation of trading ‘communities of trust’, strong kin and locality networks and a highly flexible nexus between family and firm—gave both Marwaris and Chettiars advantages in commercial pursuits and were instrumental in their entrepreneurial responses. Yet there were also other factors and historical circumstances that played critical roles in shaping their different trajectories. The Marwaris had a highly versatile trading, financial and service portfolio that gave them the flexibility to shift their operations when faced with challenges or new opportunities.111 In contrast, the Chettiars’ over-engagement with agricultural credit and their lack of economic diversification and aloofness from trade meant that it was far more difficult to adjust to changing commercial conditions. It did not allow them the suppleness to move from one area of investment to another with ease. It blocked their capital in such a way that when faced with the challenge of the global economic depression of the 1930s, Chettiar capital was unable to un-entrench itself and move into new areas. Another aspect that worked to Marwari advantage was their close relations with European capital. As noted, this occurred through different ways: through their being banias and guarantee traders to European managing agencies, or being directors of managing agencies, or through business dealings with European firms. This intermingling of interests proved advantageous in various ways by making them ‘insiders’ in important sectors, providing exposure to business ideas and developments and helping them imbibe knowledge about new businesses. S. K. Muranjan, Modern Banking in India (Bombay, 1952), pp. 145–146. This was a long-standing trait of Marwari trading practice. Writing about Marwari traders in mid-nineteenth century North India, Chris Bayly points out: ‘A notable feature of these firms was their versatility and the wide variety of commodities and services they managed. Some appear first as salt and grain merchants; others were local company treasurers; most became involved with moneylending to zamindars in the towns.’ C. A. Bayly, Rulers, Townsmen and Bazaars. North Indian society in the age of British expansion, 1770 –1870 (Cambridge, 1983), pp. 249–250. 110 111

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The Chettiars lost out because of their weak ties with foreign capital, implying a lack of exposure to Western business. They also grew to be risk-averse, functioning within their comfort zone and remaining faithful to traditional businesses and their methods. The Marwaris, in contrast, honed the ability to organize new forms of business organisation, like managing agencies to enable managerial, financial and administrative integration. This also facilitated interlocking directorships and enabled them to dominate the industrial activity. Thus it was not only their social organization and ways of trading that were important in ensuring success. Clearly, many factors and historical circumstances also played critical roles in shaping their different trajectories.

‘COLONIAL SYNDROME’ AND TECHNOLOGY CHOICES IN INDIAN INDUSTRY Dwijendra Tripathi Exploitation has been a preponderant theme in works dealing with colonialism,1 And historical analyses of British Colonialism in India are no exception. The thrust of most of the works in this genre is that the colonial government consciously and deliberately pursued policies and programmes directed towards exploiting the resources of the subject country for the benefit of the metropolitan power, in a way that had disastrous consequences for the economy and polity of the colony. The ‘mystic bond of racial affinity’ among the top echelons of the ruling bureaucracy did the rest.2 Originating with the writings of an influential group of publicists during the last quarter of the 19th century, this line of reasoning received emphatic support from nationalist leaders like Jawaharlal Nehru during India’s freedom movement.3 However, most of the authentic works pursuing this approach came out during the first two decades of Independence, investigating it with a measure of near finality.

An earlier version of this paper was presented at the XI International Economic History Congress in Milan in 1994 and published in Developing Economies, 34:1 (March 1996). 2 Perhaps the most prestigious of the works in this category are B. Chandra, The Rise and Growth of Economic Nationalism in India (New Delhi: People’s Publishing House, 1966); and A. K. Bagchi, Private Investment in India, 1900–1939 (London: Cambridge University Press, 1972). The quote, originally from a 1944 position paper of the AllIndia Manufacturers’ Organization, is approvingly included in Bagchi 1972:166. Also see Bipan Chandra’s T. Raychauduri’s and Toru Matsui’s essays in Indian Economic and Social History Review, 5:1 (March 1968) discussing M. D. Morris, Towards a Reinterpretation of Nineteenth Century Indian Economic History,’ appearing in the same issue, which is less hostile to the colonial regime. 3 See in this context D. Naoroji, Essays, Speeches, and Writings, ed. C. L. Parekh (Bombay: Caxton Printing Works, 1887); M. G. Ranade Essays on Indian Economics (Bombay: Caxton Printing Works, 1898); R. C. Dutt Economic History of India in the Victorian Age (London, 1904; reprint, New Delhi: Government of India Publications Division, 1960), Economic History of India under Early British Rule (London, 1904; reprint, New Delhi: Government of India Publications Division, 1960), Speeches and Papers on Indian Questions, 1892–1900 (Calcutta: Elm Press, 1902); J. Nehru Discovery of India (New York: John Day Vo., 1946). 1

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Almost as a rule, these works have concentrated on what the colonizers did—or did not do. It seems to me, however, that looking at the other side of the coin, i.e. how the colonized viewed the institutions and instrumentalities of the colonizer, may unfold some crucial dimensions of colonialism that the exploitation paradigm alone may remain oblivious to. The purpose of this paper is to open up this line of enquiry through an analysis of the choice of technologies by Indian promoters of modern industries for their industrial ventures during the colonial times. The Textile Producers Our discussion must start off with the cotton textile industry because this field was a challenge for Indian entrepreneurship at the first stage of the country’s industrialization. Overcoming heavy odds—an indifferent and sometimes even hostile government, deficient labour supply, and practically no experience in setting up or managing modern industrial ventures—the Indians developed an industry that was almost an exclusive preserve of Manchester, which never looked kindly at the prospects of rising competition from a colony. While the management structure and ownership pattern of the Indian mills bore no resemblance whatsoever to those of the British textile companies, the manufacturing system was an exact replica of Manchester’s. This was not only true of the technology—spinning and weaving machinery was of the same type—but it was also true of the physical layout of the premises and arrangement of the facilities which were similar to those in Manchester. During the early years of the industry, when no alternative had yet been developed, this was understandable. But even subsequently when mechanical devices were available that were more compatible with the Indian conditions, the Indians, by and large, continued to patronize the technology that the British manufacturers favoured. Perhaps the most telling example is that of the persistence of the mule spindle in Indian cotton mills. Developed first in 1779 in Great Britain, it had become, as a result of subsequent improvements, the most favoured spinning technology throughout the world by the time India launched its textile industry in the mid-1850s. Although technological experts in the United States had been experimenting with a new device, the ring spindle, since the 1830s, this still suffered from many technical limitations and had not yet come in general use even in the

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American mills where the mule reigned supreme. It was quite natural under these conditions for the early Indian promoters of cotton mills to adopt this device for their spinning operations. In the meantime the ring system underwent several modifications and improvements, leading to the elimination of most of the deficiencies, and by the beginning of the 1870s, the American invention began to threaten the supremacy of the mule. Even though the superiority attributed to the American device in certain aspects was debatable, the device displayed at least two features about which there was no question: it was better suited to the spinning power of coarser types of yarn, and it required much less labour efficiency to operate it. As most Indian mills were then concentrating on the production of coarse goods and the supply of skilled labour was always scarce, the Indian manufacturers should have found the ring system more attractive than the mule. Though slightly more expensive than the mule, the ring frame was capable of spinning more yarn at lower running cost and was cheaper in the long run. The price difference thus could not have been a major impediment to its introduction in India. And yet, few Indian producers took notice of the new spinning machine. That the older mills would have found it difficult to incur heavy expenditure involved in replacing the mule with the ring is not difficult to understand, but even the companies set up after the ring technology had attained a measure of perfection showed preference for the mule without even evaluating the alternative. J. N. Tata was the first Indian industrialist to appreciate the merit of the American technology and he applied it in his Empress Mill at Nagpur, replacing the old mules in 1883.4 Tata was not yet the towering personality in Indian business that he would become later; he was still seen more as a maverick than an innovator by most of his contemporaries. Yet whatever the reason, few were inspired by his successful experimentation to switch over to the ring. Only one company—and that too a British firm, the Connaught Mills in Bombay—followed his example. Although the number increased subsequently, the share of rings in the total Indian spindlage was still limited to barely 28 per cent in 1891. Surprisingly, the last decade of the nineteenth century, a period of major hardship for the Indian textile industry caused by a series of unfavourable circumstances, witnessed a

4 F. R. Harris, Jamsetiji Nusserwanji Tata: A Chronicle of His Life (Bombay: Blackie and Son, 1958), 30–32.

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somewhat swifter rise, but the diffusion of the ring technology on the whole still remained rather slow—so slow that not until 1909, more than a quarter of a century after the Tatas had introduced it, did its share in the total spindles installed in Indian mills reach the 50 per cent mark. The real spurt in the use of the ring occurred only after 1920, and it was not until the mid-1930s that India used about 90 per cent rings in the total number of spindles in its cotton factories. Even then, the mule did not disappear altogether and continued to be used in larger or smaller numbers in about one-fourth of the Indian companies. The pace of change had been slow throughout these years not only in the older centres of textile production like Bombay and Ahmedabad, where replacement cost would have been a possible deterrent, but also in the Punjab and United Provinces (now Uttar Pradesh) which witnessed the rise of the industry much later.5 In contrast, most other textile-producing countries were much quicker to adopt the ring technology. In Japan for instance, where factory production of textiles started about a decade later, the shift away from mule began around the same time as in India. But in a brief span of two years, the proportion of ring jumped from 13 to 57 percent of the total number of spindles in use, and by 1890 more than 90 percent of the spindles in Japanese factories used rings.6 The size of the Japanese industry was, of course, much smaller and, therefore, the number of ring spindles in Indian mills in absolute terms was much larger. What is important, however, is that the ring technology was widely accepted among Japanese textile manufacturers. As a matter of fact, the mule practically disappeared from their factories by the end of the nineteenth century. Obviously the mule was characterized by certain advantages: it worked better with Indian cotton; it could spin higher as well as lower counts of yarn; the yarn produced by it was of better quality than the ring could yield; changing counts on the mule was easier and cheaper; and the mule was cheaper to install even if the running cost was higher than in the case of the ring. In view of the fact that Indian mills, by

5 Y. Kiyokawa, “Technical Adaptations and Managerial Resources in India: A Study of the Experience of the Cotton Textile Industry from a Comparative Viewpoint,” Developing Economies, 21:2 ( June 1983): 17. 6 K. Otsuka, G. Ranis, and G. Saxonhouse, Comparative Technology Device in Development: The Indian and Japanese Cotton Textile Industries (New York: Basil Blackwell, 1988), 50–55.

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and large, were producing coarse goods almost until the end of the First World War, most of these perceived advantages of the mule, even if they were real, had little bearing on the Indian industry. But the human mind does not always act on purely rational grounds, and it is possible that the perception of the mule might have played some role in preventing a rapid diffusion of the ring in India. However, the Indian failure to adopt the use of blends of superior and inferior varieties of cotton for their spinning operations is surprising. The process owes its origin to the cotton crisis of the early 1860s caused by the American Civil War. The European mills then proceeded to the mixing of short-staple Indian cotton varieties with American cotton, much superior in quality, to compensate for the erratic and inefficient supply from the United States. The innovation was found to be so satisfactory that the Europeans continued to adopt the practice even after the United States resumed regular shipments.7 The Indians must have known of the successful European experiment—after all a product of their own country was one of the constituents of the blend—but they paid no attention to this possibility in their own manufacturing operations. Several benefits would have accrued to them, had the Indians followed the European lead. Without pushing up unduly the production cost, they could have produced coarse goods with better quality than the Indian staple by itself was capable of producing. The mills specialising in the production of higher counts of yarn could have reduced the cost of production without compromising the quality. It was believed, rightly or wrongly, that the mule worked better with the Indian staple. If that was so, with the adoption of the blending method the diffusion of the ring technology would have been easier inasmuch as the presence of a superior variety of cotton in the blend would have neutralized to some extent the hypothetical advantage of the mule. While the Indian manufacturers remained blind to these possible benefits, the Japanese, in contrast, adopted the practice almost from the start. The adoption of the ring frame and the practice of mixing cotton, among other things, helped the Japanese to cut costs and produce goods better suited to their target markets—China and Japan where coarse varieties of cloth were preferred because of the climatic conditions—and

7 D. Tripathi, “The United States in India: Economic Links, 1860–1900” (Ph.D. diss., University of Wisconsin, Madison, 1963), 70–72.

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sell them at prices lower than others. The result was that India, which had emerged as the major supplier of textile goods to East Asia by the beginning of the 1880s, began to experience Japanese competition by 1890 and was supplanted in these markets by its tiny competitor by 1913. Worse still, Japan began to make inroads into the Indian market as well, where the Japanese varieties surprisingly enjoyed price advantage despite heavy tariffs. The First World War temporarily halted the Japanese assault, but the danger assumed an alarming proportion around the early 1920s.8 This was to a large extent due to the failure on the part of Indian producers to realize the value of yet another new technology. The technology in question was the automatic power loom. Right until the end of the nineteenth century, ordinary power looms were used for factory-based production of cloth. Although many experiments to develop the automatic power loom had been conducted in the nineteenth century, it was not until 1894 that an English inventor patented a device, known as the Northrop power loom, named after him. However, it was an American firm that commercialized its production, as the automatic loom was considered unsuitable for weaving most of the specialised products of the British mills. The new technology would greatly reduce the labour cost, because one weaver could handle ten to thirty looms at a time, compared to three or four in the case of simple power looms. The factors preventing the use of the automatic device in Great Britain were not applicable to India, and the British-controlled Brinny Mills in Madras had in fact worked with automatic power looms since 1914 with excellent results. Still the device received scant attention from Indian producers, and even as late as 1934 ordinary looms constituted as much as 97.6 percent of all looms in India.9 The Japanese attitude to the automatic power loom was just the opposite. They started experimenting with it as early as 1900, within a few years of its invention, but the initial efforts to introduce the Northrop varieties did not succeed. It was the rising labour cost after the First 8 S. D. Mehta, Cotton Mills of India, 1854–1954 (Bombay: Textile Association, 1954), 46–47, 77–78 and Kang Chao Development of Cotton Textile Production in China (Cambridge, Mass.: Harvard University Press, 1977), 94–95. 9 A. Pearse, Cotton Industry of India (Manchester: Taylor, Garnett, Evans & Co., 1930), 9; Binny Ltd. The House of Binnys (Madras, 1969), 210–211; International Labour Organisation, World Textile Industry: Economic and Social Problems, Vol. 1 (Geneva, 1937), 48–56. Interestingly, the share of ordinary looms in the total number of looms in Great Britain was just about the same: 97 percent.

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World War that changed the situation drastically and that led to the use of automatic power looms in the Japanese factories. In the meantime, an inventor, Sakichi Toyoda (who had earlier developed a power loom which had started replacing the foreign machines in Japanese factories as early as 1900) was busy developing an indigenous device. Despite financial difficulties he eventually perfected his system by the middle of the 1920s. This accelerated the process of replacement of ordinary looms in Japanese factories by their automatic counterparts. The Japanese manufacturers also adopted several other processes, such as warp-stop motion, which improved the efficiency of even ordinary looms. All this helped Japan to increase its labour productivity many times over, in comparison with India. According to a well-documented assessment, while a Japanese weaver could operate six looms, a typical weaver in Bombay could handle only two.10 The Indian attitude to the textile technologies was very much in tune with that of the British producers. The popularity of the ring frame in England only began to rise after the First World War. The British never adopted the system of blending different varieties of cotton wool; and they continued to prefer ordinary power looms to the automatic device for a long time—even longer than the Indians—perhaps because of the compulsion of their product mix. Why did the Indians follow the British example? Why did they remain oblivious to the developments in other textile producing countries and the possible benefits accruing from them to their own operations?11 There was, of course, no official fiat which forced the choice on Indians, and none has seriously attempted to explain it with reference to the presence of an alien government in India—a factor to which most of India’s economic ills are often attributed. Vague reference to an overall laissez-faire outlook

Y. Kiyokawa, “Technical Adaptations and Managerial Resources in India: A Study of the Experience of the Cotton Textile Industry from a Comparative Viewpoint,” Developing Economies, 21:2, ( June 1983) and “Entrepreneurship and Innovations in Japan: An Implication of the Experience of Technological Development in the Textile Industry,” Developing Economies, 22:3 (September 1984), A. K. Bagchi, Private Investment in India, 1900–1939 (London: Cambridge University Press, 1972), 254–55, and D. H. Buchanan, The Development of Capitalistic Enterprise in India (London: Frank Cass, 1934), 381. 11 See D. H. Buchanan, The Development of Capitalistic Enterprise in India (London: Frank Cass, 1934), 203–205, for India’s imitation of Britain, also International Labour Organisation, World Textile Industry: Economic and Social Problems, Vol. 1 (Geneva, 1937), 48–56; and R. Robson, The Cotton Industry in Britain (London: Macmillan, 1956), 339, gives statistics on British technologies. 10

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of the colonial administration of India and the presence of a national monarchy in Japan in this context is not valid.12 More serious explanations centre on “the organizational and institutional environments” in India. The proponents of this view argue that since most of the promoters of Indian mills came from mercantile families, and since they had neither the knowledge nor the experience of dealing with modern technology, they concerned themselves primarily with financial aspects, and left technical matters to the care of British experts. These experts had a natural bias for British technology as most of them had been sent by British machinery makers, since local talents were unavailable due to the almost nonexistent technical education.13 True, a large number of the early promoters of Indian mills had been traders and moneylenders before entering the industry. But so were the promoters of the Japanese firms; few if any were experts in technical matters. Japanese mills, too, at the initial stages had to depend on foreign experts when it came to technological aspects.14 While the Indian mill owners accepted the British experts’ advice almost uncritically and continued to use their services much longer, the Japanese producers were much less subservient to the foreign advisers and replaced them with indigenous personnel much sooner. The above argument fails to explain why the role of the British experts had an aura of near-finality for the Indian mill owners. It also seems to presuppose erroneously that entrepreneurs must possess personal knowledge of technological intricacies, whereas all they need is to communicate intelligently with their technical managers and evaluate effectively the alternatives recommended. Against this background, the relative differences between the Indian and Japanese attitudes to technology are easily explainable: unlike the Japanese, the Indians lacked a technological inclination.

12 M.D. Morris, who normally takes a more sympathetic view of British colonialism, mentioned this as one of the explanations. See his review of K. Otsuka, G. Ranis and G. Saxonhouse, Comparative Technology Device in Development: The Indian and Japanese Cotton Textile Industries (New York: Basil Blackwell, 1988) in Journal of Japanese Studies, 15:1 (Winter 1989). 13 K. Otsuka, G. Ranis and G. Saxonhouse, Comparative Technology Device in Development: The Indian and Japanese Cotton Textile Industries (New York: Basil Blackwell, 1988), 71. 14 K. Seki, The Cotton Industry of Japan (Tokyo: Japan Society for the Promotion of Science, 1956), 15–17, and T. C. Smith, “Landlords and Rural Capitalists in the Modernization of Japan,” Journal of Economic History, 16:2 ( June 1956).

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The Indian promoters of cotton mills were the product of a society which could not have generated a great deal of technological orientation. Admittedly, India could boast of a rich scientific heritage and outstanding technological achievements in the past, the evidence of which can be seen in many parts of the country even today. However, this had failed to create a multiplier effect because little attention had been paid to develop and sustain an environment conducive to scientific research and experimentation. As the educational environment remained heavily weighted in favour of languages and classics, applied skills were passed on from father to son and from generation to generation. This paved the way for the routinization of certain methods and techniques but could not generate the quest for technological innovation. Widespread illiteracy reinforced this tendency still further. Such a society could hardly nurture a strong technological tradition, and whatever tradition it had developed had already exhausted itself well before the colonization process of India began.15 By contrast, the technological base of the Japanese society had become quite stable long before the process of industrialization started in that country. This, ironically, was partly due to the policy of seclusion strictly enforced by the pre-Meiji regime. While the country was cut off from the rest of the world, opportunities for agricultural pursuits were expanding, partly due to official patronage. The only way to facilitate the exploitation of new opportunities was to improve the indigenous know-how. Consequently, a large class of writers emerged in Tokugawa, Japan—Thomas C. Smith calls them “technologists”—for whom this became the primary concern. For them, the cause of economic progress was more important than anything else, and this was possible only through the introduction of better methods in forestry, sericulture, mining, and sugar manufacturing, and through the use of improved seeds, fertilizers and farming implements. The technologists endeavoured to discover these methods and instruments and disseminate the results

15 For details on this, see A. Rahman, Intellectual Colonization: Science and Technology in East-West Relations (New Delhi: Vikas Publishing House, 1983), 25–52 and A. Rahmah et al. Science and Technology in India (New Delhi: National Institute of Science, Technology and Development Studies, 1973), 1–23; and S. Bhattacharya, “Cultural and Social Constraints on Technological Innovations and Development: Some Case Studies,” in Science, Technology and Culture, ed. S. Sinha (New Delhi: India International Centre, 1970).

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obtained through their writings.16 Whether, and to what extent, their recommendations were adopted is beside the point. The development of such a large body of applied literature concerned with practical problems of agriculture and industry indicates a widespread interest in such matters among the Japanese masses, nearly half of whom could read and write. This in general, must have created a more innovative approach to technology. The textile producers of Japan were the beneficiaries of this social inheritance. In India, the adverse effects of the lack of technological orientation were compounded by the impact of what I would like to call the “colonial syndrome” on the business behaviour of Indian mill owners. By colonial syndrome I mean an instinctive inclination of a subject people to emulate the practices, behaviour and institutions of the ruling country, resentment against political subjugation notwithstanding. Ample evidence relating to other spheres can be cited to support the view that the Indians in general suffered from this affliction during the formative years of the textile industry. However, this tendency was much more evident in the choice of technology. Great Britain was then the leading industrial nation in the world, and the Indians had much greater exposure to its glittering economic might due to the imperial connection. They naturally concluded that the technology that was good for the most successful industrial country would also be good for them. The advice of the British experts regarding technology fell on receptive ears. Lack of a strong technological tradition coupled with the colonial syndrome, thus created among the Indian mill owners some sort of technological myopia, which placed an unwarranted and undesirable limit on their technological choices and even inhibited experimentation to modify the imported technology to suit Indian conditions and needs. Seen from this perspective, their preoccupation with financial aspects of their enterprises and uncritical acceptance of their foreign technicians’ recommendations were not the cause but the effect of their inability to play an effective role in matters relating to technology.

16 T. C. Smith, “Okura Nagatsune and The Technologists” in Personality in Japanese History, ed. A. M. Craug and D. H. Shiveli (Berkeley, Calif.: University of California Press, 1970); M. B. Jansen “Tokugawa and Modern Japan,” in Studies in Institutional History in Early Modern Japan, ed. J. W. Hall (Princeton, N.J.: Princeton University Press, 1968).

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The poor state of technical education or its slow development could have had only marginal effects on the prevailing conditions. True, there were only two engineering colleges in the country at the onset of the Indian textile industry, and little attention was paid to developing technical education almost up to the end of the 1880s. Progress remained slow even during the subsequent period, and it was not until after the end of the First World War that the situation somehow improved. Indian technicians, however, had begun to replace British experts soon after the establishment of the first mill. The number of foreign staff continued to decline with the corresponding rise in the number of Indian personnel so that, by the end of the nineteenth century, less than 50 percent of the technical positions were filled by foreigners. In almost every category of higher posts in Bombay mills, Indians outnumbered Englishmen. Yet, the Indian preference for technology continued to conform to the British rather closely. As a result, the rising number of indigenous technical staff did not exert a significant effect on the choice or evaluation of technology. Since the Indian technicians themselves could not have remained immune to what we have called the colonial syndrome, their presence did not have an appreciable effect on the process of evaluating various available technologies. It is also possible that the owners of the mills did not always have the same confidence in the competence of Indian experts as compared to the British hands, even though the quality of the latter was not very high; this again being evidence of the colonial syndrome.17 Moreover, the Indian cotton producers made practically no attempt to develop indigenous techniques or even modify the imported ones to suit Indian needs. The undeveloped state of technical education would have made any significant experimentation difficult during the initial stages of the industry, but the situation remained unchanged even after the number of Indian technicians in the industry increased considerably. The Indian industrialists did not attempt to develop indigenous cotton machinery until almost the end of British rule, and real progress took place only after Independence. It is possible that, given some encouragement and the hope that the results obtained would find some application in the factories, the Indian technicians and even the artisans Y. Kiyokawa, “Technical Adaptations and Managerial Resources in India: A Study of the Experience of the Cotton Textile Industry from a Comparative Viewpoint,” Developing Economies, 21:2 ( June 1983) and S. D. Mehta, Cotton Mills of India, 1854–1954 (Bombay: Textile Association, 1954), 106. 17

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would have made some attempts that could have had a multiplier effect. In fact, during the First World War, when imports were difficult, the local craftsmen, at least in Ahmedabad, did produce substitutes for some small parts to ensure that the mills continued running.18 But the end of the war put an end to their initiative as the industrialists now had access to resources in which they had greater trust. Comparison with Japan is again revealing. The process of addressing the problem of developing indigenous technology began almost immediately after the establishment of the first cotton mill in the country, and a new kind of spindle, known as gara-bo spindle, began to be produced commercially by the middle of the 1870s. Even though the device used power from a waterwheel and was rather primitive by Western standards, it captured a large domestic market because of its low cost, and continued to be in use in the waste spinning industry even after the spinning mills discarded it in favour of better substitutes. Efforts to develop indigenous weaving technology began a little later. Still, as we have seen earlier, Japan had perfected its own power loom—one that was almost comparable to the imported machine in quality—before the end of the century, and had produced an automatic power loom a little later. Unlike the gara-bo spindle, which was an improvement over the existing hand-spinning system, the Toyoda automatic power loom was a modification of the imported technology to suit Japanese needs and conditions.19 The Japanese contribution to indigenous technology using these twin routes—improving an existing indigenous system or modifying a foreign device—increased in later years as the technical education took firm roots. But the initial momentum was provided largely by the sense of technological autonomy generated by the work of the technologists of the bygone era on the one hand, and the absence of a colonial syndrome on the other. As the country proceeded further on the road to industrialization, technological independence—reflected in the modification of imported technologies to suit the country’s needs and environment, if not in original innovations—emerged as a national creed for the Japanese industrialists. The fact that a national monarchy promoted this process by providing the necessary infrastructure and This information is based on discussion with Gujarat Panchal Samaj, Ahmedabad and from a magazine published by them. 19 Y. Kiyokawa, “Entrepreneurship and Innovations in Japan: An Implication of the Experience of Technological Development in the Textile Industry,” Developing Economies, 22:3 (September 1984). 18

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environment in no way minimizes the importance of the dynamism that characterized the industrial entrepreneurship in Japan from the very inception of modern industries. The Indian approach, at least in the matter of technology, remained rather static. We have concentrated our analysis on the behaviour of Indian textile manufacturers for three reasons. First, modern industry started in India with the textile industry. Second, cotton manufacturing developed into and remained the largest, the most organized, and the most impressive expression of Indian entrepreneurship throughout the colonial period. And lastly, India had had a rich tradition of textile production, and the industry had held a major position in the Indian economic life for centuries before modern manufacturing devices were introduced in the country. Both the past history of the industry and the power and size it acquired by the end of the nineteenth century should have reduced the possible risk involved, and thus induced technological experimentation. That it did not happen makes the Indian failure all the more striking. The Later Phase The formative years of the Indian textile industry coincided with the period of considerable goodwill for the empire in India and a great appreciation for everything British. This was reflected in the world of business where a remarkable degree of cordiality prevailed between the Indian and British businessmen operating in India. As the areas of operation between these two groups were by and large separate, the possibility of conflict between them was indeed limited. The Indian industrialists under these conditions were still not conscious of their distinct identity. This might have been an important factor, it may be argued, in their uncritical fascination for the British technology during this period. The gap between the two groups began to widen around the turn of the century and became almost unbridgeable by the beginning of the 1920s because of the combination of a variety of factors, including the rise of a militant nationalism indicative of mass disaffection against the imperial connection.20 And yet, the technological

20 For a comprehensive discussion see D. Tripathi, “Congress and the Industrial Question” in The History of Congress, Vol. 2, ed. by R. Kumar (New Delhi: Vikas Publishing House, 1985).

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choices of the promoters of the industries that had started developing in the first half of the twentieth century bore no evidence that India was developing any sense of technological autonomy. The only difference between their approach and that of the textile manufacturers was that their search, unlike the textile producers, was not confined to Great Britain alone. Let us take the case of steel. The industry remained almost synonymous with the House of Tatas as the Tata Iron and Steel Company Ltd. (TISCO) at Jamshedpur was the only concern in the field well up to the onset of Independence. J. N. Tata, its founder, first explored the possibility of securing technical experts in Great Britain. This was understandable because most technical processes for producing steel had been developed and perfected in that country. Having failed in his attempt because of the British belief that a steel venture had little chance of success in India—this belief was also a major factor in Tata’s failure to attract British capital—he turned to the United States, the largest single producer of steel in the world. This too was understandable. What cannot be easily explained is that even such a progressive business group, whose founder’s acute appreciation of the role of science and technology in a nation’s development had resulted in the establishment of the prestigious Indian Institute of Science at Bangalore, continued to depend on foreign technical personnel at senior levels almost up to the end of the colonial rule. The first concrete step to develop the technical expertise of Indian staff was not taken until 1921 when the Jamshedpur Technical Institute was set up, and an apprentice school to train technicians was established only in 1927. The process of Indianizing the works did not begin until 1931; the first Indian general manager did not take over until 1938; and as late as 1944 the company still had some foreign experts filling senior posts. Under these conditions, the question of there being any significant modification in the imported technology and development of the indigenous process did not arise. In fact, every time the Tata Iron and Steel Company (TISCO) diversified into new product lines, it turned to foreign, usually British, companies for collaboration.21 Even more revealing of

21 Tata Iron and Steel Company (TISCO). Tata Steel Diamond Jubilee, 1907–1967 ( Jamshedpur, 1967), E. Verrir, The Story of Tata Steel ( Jamshedpur: Tata Iron and Steel Company, n.d.), 68–70; and R. K. Ray, Industrialization in India (New Delhi: Oxford University Press, 1979), 85–90.

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the TISCO’s indifference to technological aspects is the fact that practically no attempt was made to increase the efficiency of its production system with a view to reducing costs per unit of output or to improve quality for given cost. This could have been possible with some attention paid to research and development. But the changes in the production function through technical progress did not contribute significantly to the company’s rate of growth.22 Tata’s other ventures, too, depended on imported technology with no attempt to modify it or use it as a base to develop indigenous know-how. Of these, the hydro-electric system, comprising three concerns—Tata Hydro-Electric Power Supply Company Ltd., Andhra Valley Power Supply Company Ltd., and Tata Power Company Ltd.—was for all practical purposes managed by an American syndicate between 1930 and 1951, and the Tata Engineering and Locomotive Company Ltd. (TELCO) was not launched until 1945. The Tatas, therefore, cannot be held responsible for the static approach to technology development in the power supply system, and TELCO had yet to start production before colonialism ended. However, this house, whose founder had been the first Indian mill owner to appreciate the relative advantage of the ring frame, was as slow in later years as other textile producers in adopting new technological devices such as automatic power looms. Also, even the cement industry, of which the Tatas were among the pioneers, did not reflect any indigenous attempt to contribute to the technical know-how, even though the technology required was fairly simple, unlike steel or power production which required an intricate network of processes. The early cement companies imported machinery from a variety of sources, but after almost all of them amalgamated to form the Associated Cement Companies (ACC) in 1936, a Danish firm F. L. Smidth and Company, which was a world leader in the field, became the major source of technology.23 Even the ACC with its unassailable position in the market did little to promote necessary research and development.

22 P. N. Dhar and O. K. Nath, “The Rate of Technical Progress in the Tata Iron and Steel Company in 1913–56,” Indian Economic Review, 6:1 (February 1962). 23 F. R. Harris, Jamsetiji Nusserwanji Tata: A Chronicle of His Life (Bombay: Blackie and Son, 1958), 230–33; D. Tripathi and M. Mehta, Business Houses in Western India: A Study in Entrepreneurial Response, 1850 –1956 (New Delhi: Manohar Publications, 1990), 63– 70, 172.

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Like cement, sugar production required rather simple technology and Indians had produced their own varieties of unrefined sugar from times immemorial under the traditional method. They were not attracted by modern technology for quite some time. Some British firms, such as Thomas Parry and Company and Begg Sutherland and Company, had set up production facilities as early as the second half of the nineteenth century, not much later than the onset of the Indian cotton textile industry, and some even introduced minor innovations. Even after this only one Indian producer, House of Narang, had entered the field before the end of the 1920s. It was only after the government granted protection in 1931 that Indian-promoted units appeared in large numbers. The industry reaped large profits as a result of protection and was seldom short of financial resources, but no attempt was made to promote research and development except in the government laboratories,24 the results of which had little impact on the continuing hold of imported know-how on the Indian production process. The industries mentioned above were promoted by persons who had little personal insight into technical matters. Their choice of technology was based either on the understanding they had gained through their exposure to the developed economies of the West or they simply followed the lead of early pioneers in this field. However, even the entrepreneurs with technical competence did not demonstrate a will or desire to promote technological innovation. The case of Kirloskar Brothers illustrates this point. The founder, Laxmanrao Kirloskar, was definitely an engineer of considerable ability who, in his early business career and for the benefit of Indian farmers, developed some improved agricultural implements, bearing the stamp of his innovative ability. However, as the business developed into a house and more sophisticated goods were produced—machinery such as centrifugal pump, oil engine, machine tools, and electric motors—the Kirloskars needed to collaborate, mainly with British firms. Even though Laxmanrao’s three sons—Shantanu, Rajaram, and Ravi—were highly trained engineers, well versed in the technical aspects of their various product lines, their expertise was reflected more in duplicating the imported technology with a great deal of success than in promoting A. K. Bagchi, Private Investment in India, 1900–1939 (London: Cambridge University Press, 1972), 357–90; H. Brown, Parry’s of Madras: A Story of British Enterprise in India (Madras: Parry, 1954); Ray, R. K. Industrialization in India (New Delhi: Oxford University Press, 1979), 43–44. 24

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indigenous know-how. The same applied to the Seshasayee Brothers, trained as electrical engineers in the United States, who played a pioneering role in the rural electrification of South India in the 1930s and later set up the prestigious fertilizers and chemicals Travancore Limited (FACT) just before Independence. The only difference was that they depended more on American technology than on British. The story is repeated in the chemical industry. The industry did not make much headway in colonial times and the contribution of the Indian promoters to whatever little development that took place was not very impressive. Most of the companies in the field continued to concentrate their activities on the production of sulfuric acid and Chemicals based on it; the production of the alkali group, comprising various forms of soda and compounds based on them and involving more complex technology, began only toward the end of British rule. Most of the Indian companies engaged in the production of chemicals were controlled by bigger houses—Tata, Dalmia, and Seshayees—but some were small ventures set up by persons with a considerable technical expertise. In fact, among the first to start chemical production in India was Praful Chandra Ray who had a Ph.D degree in Chemistry from the University of Edinburgh and who taught the subject for some time at the Presidency College, Calcutta. His operations launched as early as 1892, later developed into the modest Bengal Chemical and Pharmaceutical Works Ltd. at Calcutta. Another Chemistry professor, T. K. Gajjar, set up a chemical plant around the same time, out of which grew Alembic Chemical Works Ltd. at Baroda.25 Yet the technological vision of neither the established houses nor the technically qualified entrepreneurs did not go beyond import substitution. Technology development was their lowest priority. Political sympathies did not affect the situation either. We may recall that the Swadeshi movement in the first decade of the twentieth century did not place emphasis on developing indigenous technology; the mills were directed merely to use Indian stores. In fact, in view of the public attitude against the use of imported cloth, many new mills were set up or the capacity of the existing ones expanded, all using imported machinery. Although Indian nationalism became increasingly militant during the following years, Indian industrialists remained by

25 D. Tripathi and M. Mehta, Business Houses in Western India: A Study in Entrepreneurial Response, 1850 –1956 (New Delhi: Manohar Publications, 1990), 114–46.

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and large apolitical or their anti-British feelings remained more or less subdued.26 The nationalist sympathies of a few, however, were more pronounced. Laxmanrao Kirloskar, who had been a victim of racial discrimination in his early career, was one of them. Yet, as we have seen earlier, his house, took no concrete steps to enable India to move closer to technological autonomy. Walchand Hirachand’s case is still more revealing. Unlike Kirloskar, he had not experienced racial discrimination. However, no Indian businessman was more vocal in his support for nationalist aspirations, none had greater hatred for British rule, and few surpassed him in his zeal for economic independence for India. But neither his shipping venture, challenging the British monopoly in Indian waters, nor his agribusinesses including sugar at his Ravalgaon Farm, gave any evidence of his concern for technological autonomy. The ships he bought for his Scindia Steam Navigation Company Ltd. were all British-made, repairs and maintenance remained in the hands of British technicians, and extensive discussions with British experts preceded the launching of the stillborn shipbuilding project. Britain then was among the leading shipbuilding nations in the world, and Walchand’s preference for British vessels and British expertise had a rational basis. But even a person with his vision did not attempt to develop indigenous technological capability. His Ravalgoan Farm enterprises continued to depend on imported technology with no concern for research and development. For his automobile scheme, even though he could not entertain the thought of financial participation by possible foreign collaborators, he had to depend on Chrysler of the United States and Fiat of Italy for technology. G. D. Birla too, though more subdued in his nationalist feelings, was following exactly the same course in his scheme to produce passenger cars indigenously.27 That Walchand’s Premier Automobiles Ltd. and Birla’s Hindustan Motors Limited continued to produce the same models for almost forty years, a kind of world record, reflects their low concern for developing the nation’s technological autonomy.

26 D. Tripathi, “Politics and Indian Industrialists, 1857–1947,” In Business and Politics in India: A Historical Perspective, ed. D. Tripathi (New Delhi: Manohar Publications, 1991). 27 D. Tripathi and M. Mehta, Business Houses in Western India: A Study in Entrepreneurial Response, 1850 –1956 (New Delhi: Manohar Publications, 1990), 147–69; and R. K. Ray, Industrialization in India (New Delhi: Oxford University Press, 1979), 126–38, 145–68, 183–209.

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We have dealt here only with those manufacturing industries which, before independence, had achieved some degree of development under Indian management and control, or which were pioneered by Indians. Some steps to develop glass, matches, aluminum, light engineering, and paper industries were also taken particularly during the twentieth century, but the Indian presence in these fields remained too limited to be noticed. Also, no technological innovation was recorded except in the case of paper and matches but here too, the momentum was allowed to be lost. An indication of the static Indian approach to technology is the number of patents applied for. While the applications started to rise after the turn of the century, the number of Indian applicants remained small; most applications were from Europeans or non-Indian residents in India. As late as 1930, out of 1,099 applications filed in Indian patent offices, only 212 originated in India; the others were from Europeans. And most of these 212 were related to simple agricultural implements, irrigation equipment or devices centred around craftsmanship.28 Conclusion This technological inertia cannot be attributed to explicit acts or policies of the colonial regime. By introducing technical education, however late, and by developing it, even inadequately, the government may have provided at least a base for scientific and technological discoveries. The colonial regime should also be given credit for setting up agencies for scientific and technological research relating to selected industries: Harcourt Butler Institute of Technological Research, All India Imperial Council of Sugar Technology, Imperial Council of Agricultural Research, and the Forest Research Institute, to mention some of the most important ones. The efforts of at least some of these yielded good results. Bamboo pulp for manufacturing paper, for instance, was developed at the Forest Research institute and the Hadi process for producing sugar was developed at the Department of Agriculture in the United Provinces. Also, private individuals developed innovative processes such as the invention by M. C. Nandi of Comilla of a system for producing

28 M. D. Morris, “The Growth of Large Scale Industry to 1947,” in The Cambridge Economic History of India, ed. T. Raychandhuri, I. Habib, and D. Kumar (Cambridge: Cambridge University Press, 1982), 639.

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matches.29 Arguably, the government could have been more sensitive, but there is no evidence that it obstructed or discouraged technological experimentation, or consciously and deliberately encouraged the use of any particular kind of know-how. It has been argued that if the government had supported the process of industrialization by offering protection, the Indian enterprises would have been in a better position to implement programs for research and development. However, the experience of the industries that came under protection such as steel and sugar, and also of those that developed despite government indifference if not antipathy such as cotton textile is sufficient to rule out this argument. The only factor that may have prevented the Indian industrialists from paying adequate attention to technological innovation was their easy access to foreign technology, due to the imperial connection, and their instinctive feeling that the technology produced or preferred in the metropolitan country—and by association in other relatively developed countries which, incidentally, were all white—was unquestionably superior to what they had or what they could develop indigenously.30 There was, thus, no psychological motivation to invest in research and development, which by its very nature would have entailed high costs with uncertain results. And since foreign exchange controls were not clamped until the Second World War—at the fag end of the colonial period—so importers of foreign machinery did not have to contend

A. K. Bagchi, Private Investment in India, 1900–1939 (London: Cambridge University Press, 1972), 391–96, 362; R. K. Ray, Industrialization in India (New Delhi: Oxford University Press, 1979), 155. 30 I would like to cite two incidents relating to two different periods in the history of Indian industrialization which may suggest that, given a different set of circumstances, Indian craftsmen could have risen to the occasion. The first incident took place in the initial phase of the development of the textile industry. The engineer sent by the English machinery suppliers for erecting the first mill at Ahmedabad could not arrive in time and the machinery was constructed by Indian staff with the help of locally available English engineers. The other incident took place in the last decade of colonialism. The House of Lalbhai, desirous of setting up a starch company, had ordered machinery from Germany. The Second World War broke out soon after the machinery was dispatched and the machinery never arrived. Also the German expert advising the promoters was interned and sent to Australia. Undaunted, the Lalbhais, using the services of an Indian engineer, constructed the machinery with the help of drawings already sent by the suppliers. Anil starch, among the first producers of starch in India, was thus launched. For details see D. Tripathi and M. Mehta, Business Houses in Western India: A Study in Entrepreneurial Response, 1850 –1956 (New Delhi: Manohar Publications, 1990), 44–45; and D. Tripathi, The Dynamics of a Tradition: Kasturbhai Lalbhai and His Entrepreneurship (New Delhi: Manohar Publications, 1981), 81–82. 29

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with this constraint. As the prospects of the industrial application of the processes developed indigenously were dim, scientists and technologists in the universities and other research establishments had few incentives to make any serious effort in this direction. As a consequence, the weak technological tradition of the pre-colonial days received only marginal nourishment during the colonial period, and hence continued to remain weak. I have argued elsewhere that a welcome, though unintended, byproduct of the British ruling presence was a better business climate, though admittedly not commensurate with the country’s potential, for industrial entrepreneurship in India.31 The rather passive attitude towards technological choice and development on the part of Indian industrialists was yet another unintended by-product—a negative one by contrast—of colonialism. Even as the development of modern industries in colonial India, no matter how limited and lop-sided, provided a base for the postcolonial tradition, the unfortunate hangover of a static approach to technology, generated by the colonial syndrome, seems to have inhibited indigenous experimentation in technical advancement in Indian industries for a long time even after the country became free. Even a casual look at the postcolonial industrial scene would bear this out.32 The regressive policies of the post-colonial regimes, stifling unduly the freedom of private enterprise until very recently served only to compound the colonial legacy of a soft-option approach to technology. Concentration on the policies and pursuits of the colonizer alone, thus, may not provide a clear understanding of the full implication of the colonial phenomenon. No colonial system can be anything but exploitative. In fact, exploitation is such an integral part of colonialism that to lay stress on it is like trying to validate an axiom—to prove what needs no proving. For a deeper and more balanced view, it is also necessary to probe colonialism’s impact on the attitude, the ethos and the behaviour of the colonial people.

31 D. Tripathi, “Occupational Mobility and Industrial Entrepreneurship in India: A Historical Analysis,” Developing Economies, 19:1 (March 1981). 32 Perhaps the most competent among the few works available on the subject in S. Lall, Learning to Industrialize: The Acquisition of Technology Capability in India (London: Macmillan, 1988); and P. Hilding, Technology in a Controlled Economy: The Match Industry in India (Stockholm: Nordic Institute of Asian Studies, 1992).

INDIAN BUSINESS, STATE AND CIVIL SOCIETY: IMPLICATIONS FOR GLOBAL PARTICIPATION Aditya Mukherjee This article seeks to highlight some aspects of the manner in which Indian business emerged as a class and the relationship it sought to establish vis-à-vis the colonial state in the 20th century and the post colonial state after independence in 1947 and vis-à-vis civil society as a whole. The precise manner in which these relationships evolved, often on the basis of dialectical linkages with each other, had a lot to do with the nature of positions taken by Indian business and the Indian state and society towards global capitalism. By the early decades of the 19th century the massive business network that existed in India comprising internal trade networks at the sub-continental level, long distance foreign trade (India was the largest exporter of textiles in the world till the 18th century), shipping, ship building, banking, etc., had been more or less destroyed or severely restricted due to the British colonial intervention which had begun by the mid 18th century. The internal forces among Indian business, which could have facilitated the transition to modern industrial capitalism, were thus destroyed. However, the business community in India survived, restricting their activities to petty trade, money lending, and so on. The caste system, which led certain caste groups to engage in business activities for centuries, had something to do with the survival of the business community even though the colonial intervention greatly diminished their scope of activity. The survival of the business community in petty business on a wide scale all over the country was an extremely significant development because once the opportunity arose, as it did in the 20th century, and particularly after World War I, the Indian business community could make rapid advances, acquiring a dominant position in many important sectors of the economy even before independence. However, it must be noted that the growth experienced by Indian business from World War I until independence in 1947 was not produced by colonialism but was a product of the space wrenched from it. It is easily demonstrable that the positive developments which enabled

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Indian business to grow rapidly, occurred (to list some of the causes) either (a) as a result of the struggle, political and economic, against imperialism, whether through the national movement, legislative assemblies, business chambers or directly by entrepreneurs, as in shipping, or (b) when the grip of imperialism weakened or loosened due to world factors autonomous of the logic of the colonial system in the colony, such as the World Wars and the Great Depression, or (c) when the principal metropolis (Britain) lost out in competition to other metropolitan centres and preferred to permit indigenous enterprise in the colony to grow rather than allow other foreign powers to capture the colonial market, e.g., protection given to cotton, iron and steel, matches and sugar was related, respectively, to competition from Japan, Belgium and Germany, Sweden, and Java—a Dutch colony, or (d) due to the inner contradictions of colonialism itself, e.g., the increasing need for revenue from the colony could no more be met from a by-now stagnating or even declining agriculture but had to be met through revenue tariffs on imports, which provided indigenous manufacture a certain amount of protection. In other words, the specific non-colonial type of developments in the 20th century occurred not as a result of colonialism but in spite of or in opposition to it. They were in the nature of independent capitalist developments in an embryonic form, managing to survive like an illegitimate conception in the womb of colonialism, waiting to be ‘born’ and allowed growth without impediments only after independence. The survival and growth of the Indian business community (in however hostile an atmosphere) created the economic basis for a strong ‘national bourgeoisie’, with implications for the nature of the class balance in the Indian national movement. The political trajectory in other colonial situations, such as say Indonesia, where even petty business had passed on to outsiders such as the Chinese, was somewhat different, with a weak national bourgeoisie and the national movement coming under greater influence from the Left. After the decimation of the indigenous big business houses under the impact of early colonialism in India, modern business groups, particularly in the industrial sphere, began to emerge once again in the closing decades of the 19th century. It was significant that the first Indian chamber of commerce, the Native Merchants’ Chamber of Coconada (later renamed Godavari Chamber of Commerce), was established in 1885, the year the Indian National Congress was founded. In fact the process of disparate business groups from different parts of the country emerging as an all-India class was inextricably linked

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to the growth of the Indian national movement and the process of the Indian ‘nation in the making’. After all, the notion of an Indian capitalist class could not emerge so long as the notion of India or the Indian ‘people’ did not begin to take root and the capitalist class did not begin to identify with it. A major and extremely creditable effort at national level networking of diverse business groups, bringing them on to a common economic and political platform, was made both by business leaders as well as by the leaders of the national movement. By 1927, business groups from all over the subcontinent speaking different languages, belonging to different religions and caste groups and representing extremely diverse business interests such as pepper and ginger merchants, oilseeds and grain merchants, jute balers, hides and skins merchants, owners of textile mills, paper mills, engineering companies, insurance companies, banks, shipping companies, collieries, and tea plantations, to name just a few, had all come together in a national level organization of Indian business called the Federation of Indian Chambers of Commerce and Industry (popularly called FICCI or Federation). From its inception this class organization of Indian business did not see its role as merely a sort of trade union organization of the capitalist class fighting for its economic demands and carrying out ideological propaganda to achieve the same. The leaders of the capitalist class clearly saw the necessity of the class effectively intervening in politics. Further, involvement of the class in politics meant doing so on the side of Indian nationalism. As Purshotamdas Thakurdas, one of the most important leaders of Indian business put it, “Indian commerce and industry are intimately associated with and are, indeed, an integral part of the national movement—growing with its growth and strengthening with its strength.”1 With some of the most astute minds of the period in their ranks, Indian business leaders evolved a comprehensive economic critique of imperialism in all its manifestations—whether it be direct appropriation through home charges, or exploitation through trade, finance, currency manipulations or foreign investments—including in their sweep the now fashionable concept of unequal exchange occurring in trade between countries with widely divergent productivity levels.2 They kept Purshotamdas, FICCI, Annual Report (A.R.), 1928, 4. For an interesting awareness of ‘unequal exchange’, see G. D. Birla, FICCI, A.R., 1934, 173; S. P. Jain and B. M. Birla, FICCI, A.R., 1943, 129 and A.R., 1946, 104–5 respectively. 1 2

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a watchful eye on the complex national and international developments, especially those vis-à-vis imperialism, which had a bearing on Indian economic development and forcefully argued the national position. They showed how imperialism and the policies of the colonial state prevented Indian economic development and made wide-ranging efforts to combat the former in pursuance of their goal of independent capitalist development. Thus, in the economic sphere, Indian business leaders performed in the 20th century the role that was in the 19th century performed by the most significant of the nationalist leaders like Naoroji and Ranade. It was they who now emerged as the champions of economic nationalism. On their part the national movement leaders acknowledged the role played by the business leaders and sought their assistance in combating imperialist designs in the economic sphere. It is to be noted that the Indian business leaders consciously took up and highlighted issues, which did not relate only to their class interest but affected the interest of other sections of society or the society as a whole. For example, even when they made demands for a lower foreign exchange rate for the Indian Rupee, a move which would clearly benefit Indian industry as it would make Indian industrial exports cheaper and foreign imports more expensive, the business representatives took great pains to defend this demand on wider grounds such as the benefit to the vast masses of Indian agriculturists. Similarly, they were willing to oppose measures, which were seen as very important in their immediate class interest, if those measures were not, or were not seen to be, in the national interest. For example, in 1930 the dominant section of Indian business opposed the Cotton Textile Industry Protection Bill brought in by the colonial government, which sought to secure some imperial preference for Lancashire in return for a measure of protection to the Indian textile industry. The bill was rejected “on the ground that the wider interest of the country demand(ed) that imperial preference could not be accepted”,3 although the textile industry was in an extremely precarious situation—partially caused by the Great Depression—and desperately needed protection. Another example was during the negotiations for the Indo-British Trade Agreement of 1939, in which it was essentially the business leaders from India who negotiated with the British government. The business leaders

3

G. D. Birla, Legislative Assembly Debates (LAD), Vol. I, pt. Ii, 25 March 1930, 2417.

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had struck a very hard bargain after three years of tough negotiations and it was generally felt that the agreement was emerging in Indian interest, yet the business leaders were prepared to oppose it if they were not able to carry the Congress, the leading party of the national movement, along. They would not make any agreement behind the back of the Congress, even if it were economically beneficial to themselves as well as to the country. The capitalists had long realized that it was the support of Congress which, on the one hand, gave their demands real clout and, on the other, lent weight to their assertion that they were taking positions not based on narrow class interests but national interests. Nevertheless, Gandhiji had reminded them of this aspect in the context of the ongoing trade negotiations: “Since the Congress is the only popular institution, it is necessary that whatever agreement is reached should have the seal of the Congress. . . . This would prove your integrity and sense of justice.”4 In the political sphere, too, the capitalists did not support moves, which while benefiting their short-term class interest, could harm national or societal interest. For example, in 1928–29, when the colonial government introduced the Public Safety Bill to acquire extraordinary powers to contain the high-pitched communist activity in the trade union movement, the capitalists firmly opposed the bill. While accepting the threat of communism and the need to contain it, they opposed the bill on the grounds that the colonial state would use the extraordinary powers to suppress Indian nationalism.5 The capitalists were not to put their class interest above national interest. As Purshotamdas put it, “We are Indians first and merchants and industrialists afterwards. . . . .”6 The business leaders were aware that the hegemonic influence of their class perspective would not be strengthened by the class being seen as pushing for its narrow self-interest. These leaders had, as an extremely self-conscious and mature class, correctly analysed the relationship

4 Gandhi to G. D. Birla, 18 Aug. 1937, Gandhi, Collected Works, Vol. LXVI, quoted in Basudev Chatterjee, Trade, Tariffs and Empire: Lancashire and British Policy in India, 1919–1939 (Delhi: Oxford University Press, 1992), chapter 7. 5 Purshotamdas, extracts from “Legislative Assembly Debates”, 12 Sept. 1928 in Home (Political) Department, fl. 18/VII/1928; Purshotamdas in FICCI, A.R., 1928 and Irwin, Viceroy to Sykes, Governor, Bombay, 2 Jan. 1929, Sykes Collection, Mss. Eur. F-150/1, IOR, London. See, also, G. D. Birla in FICCI, Proceedings of the Executive Committee (hereafter Proc. Of EC), 1929, Walchand Hirachand Papers (WH Papers) fl. 6a. 6 Purshotamdas to N. M. Mazumdar, 7 June 1929, Purshotamdas Thakurdas Papers, (PT Papers), fl. 42, pt. II.

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between their class and the growing anti-imperialist mass movement in India. They themselves never saw the Congress as their class party or even as a party susceptible primarily to their own influence, even though that was the perception of the Left and briefly even of the colonial state.7 On the contrary, they saw the Congress as an open-ended organization, heading a popular movement with “room in it for men of all shades of political opinion and economic views,”8 and therefore open to being transformed in either the left or the right direction. It was precisely the fear (expressed as early as 19309 and destined to grow in the following years) that Congress was shifting far too much to the left, that led the capitalists to activate themselves and evolve a complex strategy which would strengthen the influence of their class perspective both in the national movement and civil society as a whole. I shall indicate below some elements of this strategy. First, the business leaders were aware that their class was at no point to abandon or even be seen as abandoning the side of nationalism, whatever the fear or provocation, due to the radicalization of the national movement or the temptations offered by imperialism. If the capitalist class had gone over to the side of imperialism, it would have greatly facilitated the growth of the forces which argued for a simultaneous overthrow of imperialism and capitalism or at least for working class or socialist hegemony within the national movement. Since the Indian capitalists did not go over to imperialism, the task of the Left, of eroding the hegemony of an ally in the common struggle against imperialism (the principal contradiction for all classes in colonial India society) became far more difficult. It called for a complex understanding of the concrete Indian reality and the evolution of equally complex strategies and tactics. This was a challenge, which the Left essentially failed to measure up to. In fact the Left often chose to deny the reality itself

It is very interesting to note that while, on the one hand, the Indian capitalists recognized the autonomy of the Congress, on the other hand, they made every effort to maintain the autonomy of their own class organization and were unwilling to let themselves become front organizations of the Congress or even become susceptible to party influence through the operation of factions formed by Congress supporters within the organization. See, e.g., Purshotamdas to G. D. Birla, 31 July 1934 and G. D. Birla to Purshotamdas, 28 July 1934, PT Papers, fl. 42, pt. VI; Indian Finance, 11 Aug. 1934; A Glimpse—In the Near Past of the Indian Merchants’ Chamber, pamphlet, PT Papers, fl. 126 and G. D. Birla to Kasturbhai Lalbhai, 27 Sept. 1934, ibid. 8 J. K. Mehta, Secretary, Indian Merchants Chamber to Purshotamdas, 3 Feb. 1930, PT Papers, fl. 42, pt. 8, NMML. 9 “Rightly or wrongly it (the Congress) is becoming a labour organization”, ibid. 7

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and imagined the ‘convenient’ scenario that the capitalists had gone over to imperialism. Second, the business leaders were aware that bourgeois ideological hegemony in the anti-imperialist struggle was to be maintained not by simply buying up, manipulating or pressurizing the nationalist leaders, but by trying to successfully project its own class needs or interests as representing the societal interest or the interest of the nation; in Marx’s words, by “. . . .represent-(ing) its interests as the common interest of all members of society.”10 Indian capitalists in fact were extremely conscious that they should not ever be seen as pushing their own narrow interest of putting class before nation, but as speaking in the interest of the whole Indian nation. Further, this projecting of a class interest as the national interest was not achieved through manipulation, but by establishing a genuine coalescence of the two. In certain conjunctures, such as in a colonial society, there was up to a point a genuine unity of interests between the national bourgeoisie and the rest of society as all of them were oppressed by imperialism.11 Similarly, the bourgeoisie could represent the interests of the rest of society in its own struggle against feudalism. Third, a major index of the maturity of the Indian capitalist class was its ability to identify its broad long-term interest (i.e. maintenance of its overall ideological hegemony over the rest of society) and its willingness to subordinate its narrow short-term interest, sometimes at considerable cost, for the sake of the former. This perspective was necessary, not only for sections within the class vis-à-vis the class as a whole, but also for the class vis-à-vis the rest of society. The leaders of the Indian capitalist class showed remarkable sensitivity to this 10 Marx and Engels in 1846, referring to the bourgeoisie’s struggle against feudalism, made the following comment which is relevant to the colonial situation in India as well: “For each new class which puts itself in the place of one ruling before it, is compelled, merely in order to carry through its aim, to represent its interests as the common interest of all the members of society, that is, expressed in ideal form: it has to give its ideas the form of universality, and represent them as the only rational, universally valid ones. The class making a revolution appears from the very start, if only because it is opposed to a class, not as a class, but as the representative of the whole of society, it appears as the whole mass of society confronting the one ruling class.” The German Ideology (Moscow, 1964), 61–62. 11 As N. Poulantzas also notes, “The national bourgeoisie is capable of adopting, in certain specific conjunctures of the anti-imperialist and national liberation struggle, class positions which make it part of the people, it can therefore be brought into a certain type of alliance with the popular masses.” N. Poulantzas, Classes in Contemporary Capitalism (London: NLB, 1975), 71, emphasis mine.

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aspect. This was evident, for example, from the manner in which they chalked out a ‘plan’ envisaging a capitalist welfare system with partial nationalization, an important public sector and definite limits on the private sector and free enterprise,12 or the manner in which G. D. Birla argued against a reduction of the taxes levied during the War to mop up “Excess Profits” made by business enterprises. Further, the Indian capitalists recognized the fact that a popular movement (and, after independence, a popular government) had, to a certain extent, to balance conflicting class interests. Each class, being aware that it could not directly claim sole hegemony over the movement, would have to act in subtle ways, essentially trying to ensure that the movement, despite contending hegemonies, remained, in substance, within the broad parameters of its class perspective. Fourth, the capitalists showed an awareness of the subtle processes through which a class retained its ideological hegemony over society. To begin with, it was recognized that the best ‘political-ideological’ representative of a class was not necessarily a member of that class. The understanding was that which Marx had put very succinctly while discussing the relationship between the “political and literary representatives of a class and the class they represent”. He said: “what makes them representative of . . . (a particular class) is the fact that in their minds they do not get beyond the limits which the latter do not get beyond in life, that they are consequently driven, theoretically, to the same problems and solutions to which material interest and social position drive the latter practically.”13 The capitalists’ tactic was to strengthen the hands of such representatives of their class. The capitalist leadership firmly opposed efforts by a section of their class to try to extend their class hegemony by entering politics themselves directly or by forming a class party14 when they felt threatened by the Left as they did in the days of heightened trade union struggle in the late 1920s or during Jawaharlal Nehru’s orthodox ‘left stance’ in the mid 1930s. G. D. Birla brilliantly enumerated how such 12 See Purshotamdas Thakurdas, et al., A plan for Economic Development for India, (Bombay Plan), Pt. I and II (Harmondsworth, 1945). 13 Karl Marx, The Eighteenth Brumaire of Louis Bonaparte (Moscow, Foreign Languages Pub House, 1954), 40–41. 14 Interestingly, Antonio Gramsci drew from the European experience to note that “great industrialists . . . do not have their own party.” They use “their resources to reinforce one party or another . . . from the varied political checkerboard.” Selections from the Prison Notebooks (New York: International Publishers, 1971), 155–56.

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efforts went against the interest of capitalism and how the method of strengthening the hands of those who, without being members of their class, were saying what the capitalists wanted, was much superior in maintaining their long term interests. He argued that the capitalists were not to attempt to “kill Bolshevism and communism with such frail weapons” as frontally attacking the Left with class organizations of the capitalists, which would carry no weight with “the masses” or even with the “middle classes”. He added, “I have not the least doubt in my mind that a purely capitalist organization is the last body to put up an effective fight against Communism.”15 Birla was to outline a ‘superior’ method, in 1936, while reprimanding a section of his fellow capitalists who, alarmed by Jawaharlal Nehru’s leftism, raised an open banner of revolt against him and his socialist ideas in a public statement called the ‘Bombay Manifesto’. He said: “It looks very crude for a man with property to say that he is . . . opposed to expropriation in the wider interest of the country. Are you or myself a fit person to talk? Let those who have given up property, say what you want to say.”16 The correct strategy, therefore, was to “strengthen the hands” of the ‘right wing’ nationalists such as “Vallabhbhai and Bhulabhai who are fighting against socialism.”17 Last, the failure or weakness of the Left, which lagged far behind the bourgeoisie in its understanding of some of the aspects mentioned above, especially the subtle relationship between class, party and nation, partially facilitated the continuance of bourgeois ideological hegemony over the Indian national movement. In its understanding of Indian society the Left constantly tended to collapse the categories of class, party and nation, seeing a direct instrumental linkage between them. It failed to see the relative autonomy of the Indian national movement

G. D. Birla to Purshotamdas, 30 July 1929, PT Papers, fl. 42, pt. V. G. D. Birla to Walchand, 26 May 1936, PT Papers, fl. 177. Similarly Indian Finance, 11 Mar. 1944, warned against the class speaking “with too obvious a concern for its own class interest . . . condemn(ing) itself in the eyes of the public.” See, also, Bipan Chandra, “Jawaharlal Nehru and the Indian Capitalist Class, 1936”, in Nationalism and Colonialism in Modern India (New Delhi: Orient Longman, 1979). 17 G. D. Birla to Walchand, 26 May 1936, PT Papers, fl. 177. “The right-wing Congressmen are . . . fighting against two forces—the Government and the Socialists”. G. D. Birla, In the shadow of the Mahatma: a personal memoir (Calcutta: Orient Longman, 1953), 193. 15 16

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from all classes including the bourgeoisie, and resorted to crude class reductionism.18 The Indian business leaders envisaged the role of their class in the post-colonial situation where a democratic popular government was to be in power, in a complex manner as they understood the role of their class in the multi-class national popular movement. Just as they did not see the Congress, the leading party of the Indian national movement, as their class party and did not seek only that it remain under bourgeois ideological hegemony, similarly they were able to see that the post-colonial popular government would not be under their exclusive domination or control and they would in fact have to carefully evolve such a stance that the class balance in the government and other state apparatuses did not turn against them. The business leaders did not commit the error often made by the Left of misinterpreting the capitalist support for the Congress, and of seeing the Congress before independence as virtually a class party of the capitalists and consequently the post-colonial Congress government as essentially a government of the capitalists. The business leaders were aware that a democratic popular government could not be under the exclusive influence, let alone control any one class. It would have to balance and resolve conflicting interests by demanding sacrifices (though unequal, depending on the balance of class forces at each point of time) from all classes. The business leaders were willing to make the necessary sacrifices while simultaneously trying to shift the balance in favour of their class. Unlike the bourgeoisie of many other post-colonial countries in parts of Latin America and East Asia, Indian business did not at any point of time opt for the alternate model—a right wing dictatorship or an authoritarian regime dominated by the capitalist class. The twin notions of anti-imperialism and democracy were deeply ingrained among the Indian people through the efforts, spanning nearly a century, of the Indian national movement. The Indian business community too was deeply influenced by both these ideas. While fully aware that there was “little guidance from history”, from the experience of other countries, for undertaking the task of comprehensive economic development within a democratic framework, they nevertheless argued

18 See Aditya Mukherjee, “Workers’ and Peasants’ Parties, 1926–30: An Aspect of Communism in India” in Bipan Chandra, ed., The Indian Left: Critical Appraisals (New Delhi: Vikas, 1983).

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that the objective of planned development would be served more “effectively” by a “democratic organization of society.19 The capitalists’ acceptance and even welcoming of the institution of democracy, rather than their pitting themselves against it, was of enormous import, particularly in relation to the influence of their class and their class perspective over the rest of Indian society. Once the notion of democracy had taken root among the people in general or democratic institutions were in place, any class (or section) which opposed democracy or based its politics outside its framework only ended up isolating itself and reducing its own legitimacy, as well as that of its class (or sectional) perspective over the rest of society. The traditional Left (dominated as it was by ‘Stalinism-Marxism’) often suffered this denouement as it tended to view democracy (as it viewed nationalism) in a class reductionist manner, seeing it as a bourgeois institution (and consequently a democratic state as a bourgeois state) which had to be overthrown, preferably through an insurrection, to bring in the ‘dictatorship of the proletariat’. It did not see the democratic state as an open-ended institution which could be transformed in favour of the oppressed by so altering the class balance in it as to orient it in a socialist direction. The adoption of such a stance by the Left amounted to its surrendering the democratic space in the state apparatuses and civil society to other influences (such as that of the bourgeoisie) and thus allowing a consolidation of such influences. Once democracy and democratic institutions were not assigned a pre-determined class character (as they were not by the Indian business), it followed that any class could use them to extend its influence and seek to transform them in its favour. A class seeking to extend its influence in a democratic state (or in a popular movement) would have to be able to carry the bulk of the people with its programmes and plans. It would have to create a societal vision which, while it met its own interests, was not seen to be narrowly conceived in the interest of any one section of society. In the colonial period, as we argued above, Indian business championed the cause of the defence of national economic interests, consciously emphasizing those aspects of its anti-imperialist agenda which would particularly benefit the common people. In a colonial situation

19 See John Mathai’s draft for the Post War Economic Development Committee, on State and Economic Organization, 17 Aug. 1944, PT Papers, fl. 307 and The Bombay Plan, (89–92).

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it was relatively easier for the capitalists to project their interests as societal interests as there was in this situation, to a considerable extent, a genuine coalescence of the two interests—it was not only the Indian capitalists but the Indian people as a whole who were oppressed by imperialism. The post-colonial situation was, however, somewhat more complex. Though in the effort at generating independent economic development the capitalists and the rest of Indian society would share certain common objectives, the main contradiction in Indian society would no more be imperialism versus the Indian people but would increasingly tend to be situated within the various classes of Indian society, with socialism lurking on the horizon.20 In such a situation the capitalists’ task of adopting and projecting a model of development which would, while maintaining capitalism, successfully carry the rest of society with them, was daunting. The capitalists would have to adopt a national developmental approach which, while remaining within bourgeois parameters, would appeal to society as a whole and not only to the capitalist class. It was such an approach that the capitalists adopted in their plan of development for Independent India.21 FICCI President, G. L. Mehta, as early as 1943, brilliantly anticipated the complex task ahead for class organizations of the capitalists like the FICCI, once “self-rule” was achieved. He said:22 Indian commercial bodies have hitherto, necessarily because of our political conditions, played a mainly critical role . . . But with the attainment of popular responsibility and the growth of representative institutions, the Federation (FICCI) will have an increasingly constructive part to play in the national economy. As the apex organization of Indian commerce and industry, it will not rest content to be a custodian of sectional interests, in a land where sectionalism thrives, nor a defender of the status quo, but will strive to be the exponent of a sane and creative body of opinion in the economic sphere: the economic front, in fact, of a healthy and broadbased nationalism. In so far as Indian commercial interests seek to identify themselves with the wider economic interests of the nation, respond to the finer and growing needs of the people and continually adapt their outlook and adjust their programme 20 Aditya Mukherjee and Mridula Mukherjee, “Imperialism and the Growth of Indian Capitalism in the 20th Century”, Economic and Political Weekly, 12 March 1988. 21 See Aditya Mukherjee, Imperialism, Nationalism and the Making of the Indian Capitalist Class (New Delhi, Sage, 2002), Ch. 11. 22 G. L. Mehta, Presidential Speech, 27 Mar. 1943, FICCI, A.R. (1943), 30–32, emphasis mine.

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to the fundamental economic requirement of the changing times, in so far would they successfully pass the trials and conflicts and struggles in the years to come . . . Let it not be said that we were weighed in the balance and found wanting. For, with the rest of the country, we also are all on our trial at the bar of history.

The business leaders also realized that they would have to cooperate with the post-colonial popular government in trying to achieve this broad-based goal of national societal development. A failure to do so would isolate the capitalists, putting them in the ‘anti-people’ camp, facilitating a diminution of their influence, if not their overthrow. They thus agreed to cooperate with Nehru’s government despite their inhibitions about the anti-capitalist, Left-leaning inclinations of many in that government and despite Nehru’s own socialist vision, in the same way as they had stayed with the national movement despite a strong leftwards trend within it. As M. A. Master, President of FICCI, said in an address to the Federation:23 We are in a changing world. . . . New (read Left, A.M.) ideologies have come into existence. We shall have to adjust our plans and policies. New obligations and duties will be imposed on us. We will have to take courage . . . and respond on many occasions to the wishes which our Government might express and to the new policies which our Government may lay down . . . As we are expecting them to meet our wishes it will be our obligation to meet their wishes.

Again, in his message to Prime Minister Jawaharlal Nehru carrying felicitations on the occasion of India’s independence, Master said:24 The Indian commercial community has played its part in India’s fight for freedom and has stood by and supported the Indian National Congress in its long unprecedented unique and heroic struggle for winning freedom for our motherland . . . While we all realize that the fight for freedom has been won, the victory for economic emancipation and social regeneration is yet to be won. In any well thought out plan the Government may therefore evolve for removing poverty, misery and economic and social inequality and injustice from the country to make our people happy contented and prosperous and for enabling India to attain her rightful place and to play her destined role in the comity of the free nations of the world. May I assure you that the Federation will work

M. A. Master, FICCI, A.R. (1947), 145, emphasis mine. Telegram from Master to Nehru, 14 Aug. 1947, FICCI Corresp. (Correspondence Volumes) (1947), 249–250, emphasis mine. G. D. Birla and the FICCI took similar positions. 23 24

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aditya mukherjee with your Government in closest mutual cooperation and will always place their services at the disposal of your Government.

After Independence in 1947 the position taken by Indian business on issues of political economy and the nature of the planned effort at development was coloured by the perspective of their class as we have discussed above. It was also influenced by the colonial experience, the emerging consensus in India on the development path to be followed and on the existing state of knowledge and understanding on development theory in large parts of the world. Indian business thus was essentially in tune with, rather than opposed to, the basic strategic objectives of the planned development envisaged by the post-colonial state or with what may be called the Nehruvian Consensus. They, for example, fully endorsed a number of objectives. These included: trying to achieve comprehensive all-round development aimed at reducing foreign domination over the Indian economy and a quick rise in the standard of living of the Indian people; and initiating rapid industrial development which was to be carried out by indigenous capital and was to be based essentially on the home market, and which was aimed at creating self-sufficiency, particularly in capital goods; allowing only a small volume of foreign capital, and that too under strict controls; not adopting an ‘isolationist’ outlook and participating in all possible areas of international cooperation, though on an equal footing, rejecting any terms which undermined India’s sovereignty and her right to follow her own chosen path. They promoted comprehensive anti-feudal land reforms; maintaining the economic unity of India; bringing about a mixed economy with a combination of the private and public sectors; and introducing ‘welfare’ measures which would cushion the social costs of the development process on the poor and underprivileged. And, most importantly, they endorsed the aim of carrying through the developmental effort within a democratic framework.25 In fact the capitalists had stated these very objectives in their own Plan of Economic Development (Bombay Plan), drawn up at the eve of independence.26 There were few fundamental differences between their Plan and the planning schemes introduced after independence. The endorsement by Indian business of the basic tenets of the national developmental efforts after independence not only contributed

25 26

See fn. 22 above. See Bombay Plan.

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to the relative success of such efforts (the business community was a critical ‘agency’ for carrying out the plan) but also prevented the isolation of the capitalist class from the Indian mainstream and contributed to the bourgeois developmental perspective exercising overall hegemony over the post colonial state, despite the existence of a significant Left strand and Prime Minister Nehru’s own socialist commitment. The Nehruvian model, with its inward orientation and substantial state participation as well as extensive state control, delivered good results in the initial years, till about the mid 1960s. However, over time the excessively inward looking, protectionist and control-ridden model began to produce major inefficiencies in the economy. Many of the controls and restrictions introduced in the name of socialist principles and equity (such as the MRTP27 and reservation for the small sector) actually ended up building a distorted, backward capitalism, as they went against the basic laws of capitalism such as the need for continuous expansion on the basis of innovation and efficient investment. Besides, changes that were occurring in global capitalism post World War II, and particularly since the 1960s, opened up new opportunities and were proving the inadequacy of the inward-oriented model based on export pessimism that was popular in economic thinking of the 1950s. Some of the important changes that needed to be taken cognisance of were, very briefly, the following: First, the nature of foreign capital and multinational corporations was changing. A process of ‘internationalisation of production’ had started. Multi-national corporations, instead of just looking for markets or sources of raw material, now looked for cheaper production areas. Instead of creating enclaves in the backward countries, which had backward and forward linkages with the home country (as was the typical colonial pattern), they were now bringing in investments which had major multiplier effects on the local economy, including the effect of technology transfer. It became common for multi-national companies to ‘source’ a large part of the components that went into the final product from all over the developing world and even shift entire production plants to the under-developed countries. Second, along with, and partially as a result of, the above process, there were massive capital transfers between countries, reminiscent of the capital transfers of the 19th century at the height of colonial expansion, but very different in character.

27

Monopolies and Restrictive Trade Practices Act.

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The above two processes contributed to the third major international development—that of an unprecedented explosion of world trade. Between the 1950s and 1970s, world output of manufactures increased four times but world trade in manufactures increased ten times. The percentage of world produce that went for export doubled between 1965 and 1990. What is most significant is that while there was a massive increase in global industrial exports, the Third World was able to rapidly increase its share of total industrial exports, especially since the 1970s, from about 5 per cent in 1970 to double the figure in 1983.28 The East Asian Miracle, i.e., the rapid industrialisation of the East Asian countries, beginning in the 1960s, which gradually shifted the industrial base of the world from the West to the East, took advantage precisely of these kinds of opportunities of capital and market availability. Japan’s example of explosive post-World War II growth was being repeated by South Korea, Taiwan, Singapore, Hong Kong, followed by Thailand, Malaysia, China and Indonesia. The four Asian Tigers—South Korea, Hong Kong, Singapore and Taiwan—increased their share in world export of manufactures from 1.5 per cent in 1965 to 7.9 per cent in 1990. Even the newly industrialising economies (NICs), Indonesia, Malaysia and Thailand increased their share from 0.1 per cent to 1.5 per cent over the same period.29 South Korea’s manufactured exports, which were negligible in 1962, amounted to four times those of India by 1980. Again, South Korea was exporting $41 billion worth of manufactured goods to the OECD countries in 1990 to India’s mere $9 billion. That reform of the dirigiste, control ridden and inward looking Indian economy was necessary was recognized as early as the mid 1960s. However, India failed to respond promptly to the lessons learnt from her own experience and international changes. On the contrary, because of internal and external reasons discussed elsewhere,30 India got pushed in the late 1960s into an even more protectionist, inwardoriented and state-dominated direction, thus failing to take advantage of the globalisation process. In fact India’s share in world exports actually 28 See E. J. Hobsbawm, Age of Extremes: The Short Twentieth Century (Penguin: Harmondsworth, 1994), for a brilliant analysis of the changes in world capitalism since World War II and pp. 261, 277 and 280 for the statistics in this paragraph. 29 The East Asian Miracle: Economic Growth and Public Policy, World Bank (Oxford University Press, New York, 1993), 38. 30 Bipan Chandra, Mridula Mukherjee, Aditya Mukherjee, India Since Independence, (New Delhi, Penguin, 2008).

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shrunk from 2.4 percent in 1948 to 0.42 per cent in 1980, rising to a paltry 0.6 percent in 1994. Since the mid 1970s, and particularly the 1980s, efforts began to be made to introduce economic reforms but, for various reasons, its comprehensive implementation could not occur. Governments, especially when in a vulnerable situation (e.g., Rajiv Gandhi after the Bofors scandal, Indira Gandhi with the Punjab crisis, and later even Narasimha Rao following the destruction of the Babri-Masjid), were extremely wary of initiating or sustaining reforms which would involve introducing unpopular measures like attempts to regain fiscal discipline, changes in labour laws, etc.—steps which, in the initial phase, were bound to be painful. Also, there was (and still remains) persistent opposition to reform from vested interests such as the bureaucracy and even sections of business who benefited from the existing system of controls, using them to earn a sort of ‘rent’. Last and certainly not the least, a strong ideological opposition from the orthodox Left, strangely oblivious to the changing global reality, continued to play a role in obstructing reform. The crisis in 1991, with the country at the edge of default, enabled the Narasimha Rao government to break through the traditional mindset and attempt an unprecedented and comprehensive change at a time when both the ideological opposition and the resistance of the vested interests was at a weak point. Thus, though late, (nearly thirteen years after China had changed course), a programme of economic reform was initiated in 1991. One reason why the shift took so long and why, even when it took place, it was not as sharp a turnaround as it was in China in 1978 or the Soviet Union after the mid 1980s, was that in a democracy the change from one kind of societal consensus (such as the Nehruvian consensus) to a new consensus (say, around reforms) is a process and not an event, and consequently it has its own dynamic, very different from that operating in a non-democratic or totalitarian society. The process of reforms started in 1991 involved, inter alia, an immediate fiscal correction; making the exchange rate more realistically linked to the market (the Rupee underwent about a 20 per cent devaluation at the very outset); liberalisation of trade and industrial controls like freer access to imports, a considerable dismantling of the industrial licensing system and the abolition of MRTP; reform of the public sector including gradual privatization; reform of the capital markets and the financial sector; the removal of a large number of the

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restrictions on multinational corporations and foreign investment and in fact welcoming them, particularly foreign direct investment, and so on. In short it was an attempt to free the economy from stifling internal controls as well as equip it to participate in the worldwide globalisation process to its advantage. The record of the first few years of reform was creditable by any standards, though a lot of problems and challenges still remained. India performed one of the fastest recoveries from a deep macroeconomic crisis. Moreover, the process of structural adjustment, particularly the fiscal reining-in (that was performed initially), was achieved with relatively minimal pain — without it setting off a prolonged recessionary cycle leading to massive unemployment and deterioration of the condition of the poor as was feared and as occurred in the case of several other economies in a similar situation attempting structural adjustment. As mentioned earlier there were sections in business in India that had, over the years, acquired vested interests in a model which sheltered them from external competition, and allowed some of them special privileges through the government licensing system—often called the license-quota Raj. There was therefore some resistance to reform, particularly of the opening up of the external sector. Groups like the ‘Bombay-group’, as it was popularly called, argued for slowing down of the external sector reforms till such time as indigenous business was in a position to compete, and for the creation first in India of conditions, which would provide Indian capital a level playing field before allowing entry to external capital. However, Indian business organizations in general and particularly the increasingly influential, modern and forward-looking ones like the Confederation of Indian Industries (CII) actively supported economic reform which involved both internal liberalization as well as external reform involving a greater opening up to the world economy. They reflected the growing self-confidence and strength of Indian business and also to some extent a farsightedness reminiscent of the early leadership of Indian business. They saw the long-term interest of Indian business in not being left behind iron or bamboo curtains but in participating in the globalization process; in forcing themselves to be more efficient and competitive even if the process was painful and involved shortterm sacrifices. Whatever the various strands of opinion within Indian business, by and large it can be maintained that Indian business refused now, as it had done in the past, to step outside the societal consensus and insist

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either for reform before a consensus had emerged in its favour, or against reform after a consensus for reform had emerged in civil society. But perhaps where the role of Indian business today is qualitatively different from what it was before independence and in the early years after independence is in its farsightedness and maturity in intervening in wider social processes that might affect its class and societal vision. Business leaders appear today far less active and able in influencing broad societal trends. However, glimmerings of the early elan were recently seen31 in the CII taking the brave step of having a full discussion of the fascist developments occurring in Gujarat involving the committing of genocide against the Muslim minority in that province. This they did knowing full well that it would annoy the Government in power in Gujarat—one of the premier industrial belts in India—as well as the Government of India. The business leaders here took courage to express concern over political happenings that would have a serious bearing on the survival of the very system which can nurture their development in today’s world.

31

The reference is to developments up to May 2002.

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INDEX

accounting 31, 35, 37–39, 41–42, 44, 46–47, 54–56, 58 agencies of arbitration 58 Ahmedabad 124, 132, 140 Akers-Jones, David 79 American Civil War 125 ancestral sacrifice 38 Ann, T. K. 75 Arasatnam, S. 96 Asian Financial Crisis 31 Aw Boon-haw 28 Aw, Sally 72 Bagchi, A. K. 121, 127, 136, 139 Bai family 72 Bank of Chettinad 101 banks & banking 35, 41, 43, 47, 53–54 Bayly, C. 94, 118 Beijing/Peking 3, 35, 65, 74 Bell, Daniel 68 Bergere, Marie-Claire 17 Birla, B. M. 144 Birla, G. D. 8, 115, 117, 146, 147, 148, 150–1, 155 Birlas 104, 105, 106, 107, 115, 138 Bombay Manifesto, The 151 Braudel, Fernand 31, 37 British Empire 74 Buchanan, D. H. 127 Buddhism, Zen 39 Buddhist monasteries 39 bureaucracy, colonial 74 bureaucracy, imperial 50, 77 burial rituals 72 Burma 96–100, 112, 114 Burma Provincial Banking Enquiry Commission 98, 114 business-government relations 16–20, 29 businesses, Chinese 20, 31–35, 41, 43, 46–48, 52, 55, 57 businesses, Western 48 Butler, Harcourt 98 Cambridge University 24 capital 42, 44, 49–50, 56, 58–59, 63, 68, 76, 78

capitalism 31–32, 37, 43, 64 capitalist class of India 144–152 capitalist enterprise, Promethean force of 64–65 Cartier, Carolyn 14–16 central place theory 14 Central Praya 80 Chambers of Commerce 44–45 Chan Kai-yiu 50–51 Chandler, Alfred 22 Chandra, Bipan 9, 121, 151, 152, 158 Chao, Kang 126 charisma 62–63, 77 Chaudhuri, Sukanta 89 Chen, Edward 20 Chettiars 6–7, 85–120 Chiang Kai-shek 17, 19 Chin Sophonphanich 28 China, imperial 58 China, People’s Republic of 19, 57 China coast 78, 83 China Merchants’ Steam Navigation Company 49–50 ChIndia 1 Chinese Communist Party 55 Choi Chi-cheung 40 civil religion 76 Civil War, Chinese (1946–49) 19 Coble, Parks 17 Cochran, Sherman 4–6 colonial syndrome 7–9, 121–142 colonialism, British 65, 73–74 Commercial Revolution 34 Common Law 44, 75 companies 47–49 Company Law 31, 46–48, 50, 54, 56, 58–59 compradore 48, 51 Confederation of Indian Industries 160–1 Confucianism 2–4, 31–33, 47, 57–58, 63–65, 67, 69, 72–73, 81–82 Connerton, Paul 31 Constitution, Chinese 58 consumerism 53

176

index

contracts/contractors 31, 35–37, 41–42, 44, 52, 54, 56, 58 corporations 35, 38–39, 59 corruption 49–50 corvee service 39 cowboys, Chinese 70 creative destruction, ethos of 80 credit and liability 37–38 Crouching Tigers and Hidden Dragons 69 Cultural Revolution 55, 70, 78 Dalmia, Ramakrishna 104, 105, 115, 137 Damodran, Harish 86 dangjia (“household head”) 72 Dazai Men 72 Delhi 74 Deng Xiaoping 55–56 Desai, W. S. 101 Dhar, P. N. 134 dividend 37 Durkheim, Emile 83 Dutt, R. C. 121 East Asia 64 East Asian growth 31, 58 East Asian Miracle, The 158 Eastman, Lloyd 17 Eckstein, Alexander 31 Economy and Society 31–32 Elvin, Mark 2 enterprise conglomerates 56 entrepreneurs 12, 15, 18, 20, 57, 66, 68, 71, 76, 79 entrepreneurship 64, 68, 71–72, 78 Europe 34, 37 extraterritoriality 44 Fairbank, John King 31 familism 47, 52, 59, 72, 81–82 Fanling 81 Faure, David 4–5, 14 Federation of Indian Chambers of Commerce and Industry 147, 154, 155 fen (“share”) 39 Fertilizer and Chemicals Travancore Limited 136 Feuerwerker, Albert 49 financing 35, 42, 47–48 Forbidden City 74 four occupations 33 Freedman, Maurice 39–40 Fujian 39 Fung, Victor 70

gan fa (“syndicate method”) 43 Gandhi, Indira 159 Gandhi, Mohandas K. 147 Gandhi, Rajiv 159 gift 44 Gobi desert 70 Godawari Chamber of Commerce 144 gongsi heying qiye (“public and private jointly managed enterprises”) 27 Gordon, A. D. D. 8 Goswami, Omkar 105, 106 Governor, Hong Kong 73 Gramsci, Antonio 150 Great Depression (1930s) 18, 100–1, 110, 111, 144, 146 Guangdong 39 guanxi (“personal connections”) 61, 78 Gutherie, Dougg 2 Hamashita Takeshi 11, 13–14, 16 Hamilton, Gary G. 20 Han Chinese 67, 70 handbook, Huizhou merchant 37 Hankou (the Chicago of China) 12 Hanshan Deqing 39 Hao Yen-ping 48 Harris, F. R. 123, 135 Harvard Business School 24 Hay, Donald 2 Hazari, R. K. 107 Hilding, P. 141 Hindustan Times 107 Hirachand, Walchand 137–8 Hobsbawn, E. J. 158 Hong Kong 2–4, 38, 40, 45, 48, 61, 65–83 Hong Kong Bank 73 Hong Kong, University of 75 horseracing 76 household registration 39 hui (“voluntary associations”) 39 Huizhou merchants 37, 40 human agency 15 Hundi 95, 99, 101, 103, 112, 114, 117 identity, cultural 80 identity, hybrid 79 ideological conservatism 31 imperial examination 33, 44–45 incorporation 31, 35–37, 44, 56, 58 Indian Institute of Science 134 Indian National Congress 8, 144, 147, 148, 152

index individualist ideology 34 Indo-British Trade Agreement 1939 146 Indonesia 144 Industrial Revolution 34, 57 Inheritance, rules of 39 innovation, value of 64 investment, foreign 48 Jain, L. C. 99, 100, 113, 114 Jain, S. P. 144 Jalan, Nandlal 92 Jamshedpur Technical Institute 134 Jansen, M. B. 130 Japan 80, 124–130, 132–133 Jardines 73 Jayawardena, Kumari 96 jiang hu (“marshes”) 70 Jiangsu province 51 Jinshan Zhuang (“Gold Mountain or California Traders”) 66 Jockey Club, Hong Kong 73, 76 June Fourth incident, 1989 73 Kailuan mills 51–52 Kailuan Mining Administration 23 kaizhong fa (“open bidding method”) 42–43 Kapp, William H. 85 kinship 4, 12, 21 Kirby, William 17 Kirloskar, Laxmanrao 136, 137 Kiyokawa, Y. 124, 127, 131, 132 Köll, Elizabeth 50–51 Kothari, H. 109 Kudaisya, Medha 6, 8, 87, 96, 107, 117, 115 kung fu (“martial arts”) 69–70 Lall, S. 141 Lam, Dr L. G. 79 Land ownership 36 Lao She 24 law, Chinese 35, 58 Lee Ang 69–70 Lee, Bruce 69 Lee Hysan family 67 Lee, Richard Charles 67 Levenson, Joseph 64 Li Ka-shing 28, 69 Li Mo-bai 69 lian-hao (“linked firms”) 41 License-Quota Raj 160 Liem Sioe Liong 28

177

limited liability 46 lineages 39–41 literati, Chinese 2, 33, 57, 63–64 liturgical 58 Liu Hongsheng 23–28, 51–52, 54 Liu Zhiwei 39 Lo Man-kam 68 Loke Wan Tho 28 London 74 Low, D. A. 8 Lugard, Governor 75 Ma Yinchu 53–54 Mackenzie, Sir Crompton 95, 99 macroregional model 14–15 macroregions 11–12, 15 Madras Presidency 95, 108 Mahadevan, Raman 89, 96 Mahajani, Usha 100, 114 Malaya 96–7, 111 Manchester 122 Manchu rule 67 Mao Zedong 19 marketing systems 14 Markovits, Claude 3, 9 Marwari Association 91–2, 104 Marwari Chamber of Commerce 91 Marwaris 6, 85–120 Marx, Karl 149, 150 Massachusetts Institute of Technology 24 Master, M. A. 100, 155 Mathai, John 153 May Fourth Movement (1919) 19 Mazumdar, M. N. 147 McKeown, Adam 6 McVey, Ruth 20 Mehta, G. L. 154 Mehta, M. M. 85, 88, 106, 107, 115, 116, 135, 138, 140 Mehta, S. D. 126 Menon, Ramdas 85, 108 mercantile groups 1, 85 mercantile tradition 63–65 merchant families 64 merchants 33, 38, 40–42, 44, 48, 52, 63, 66–67 migration 66, 80 min (“subjects of the emperor”) 33 Ming dynasty 32, 37–39, 42–43, 57–58 Mongkok district 81 Monopolies, government 44, 48–49 Morris, Jan 80

178

index

Morris, M. D. 121, 128, 139 Mukherjee, Aditya 8–10, 143, 152, 154, 158 Mukherjee, Mridula 154, 158 Muranjan, S. K. 118 Nagarajan, K. 94, 110 Nanbei Hang (“South-North Traders”) 66 Nandarajan, M. 90 Nanjing Decade 17 Nantes 37 Nantong County 50–51 Nanyang Brothers Tobacco 48 Nationalist government 17, 19, 52, 54 Nehru, Jawharlal 121, 150–1, 155 nepotism 49–50 networking relations, Chinese 4, 32–33 networks 2–6, 11–13, 16, 20–29, 32, 58, 61–63, 66, 78, 81–83 Nevatia, Ramakrishna 92 New Territories 71, 73 Ng Chin-keong 14 Ningbo 3, 24–25 Northern Expedition 17, 19 offering sacrifice 39 “official supervision and merchant management” 42–43, 59 Opium War 44 Otsuka, K. 124, 128 Overseas Chinese 18, 22 Oxford 50, 68, 81 Panchayat 92 Pao, Y. K. 69 Parks, M. Coble, Jr. 2 particularism-universalism 34 partnership 37–38 patrilineal rule 71–72 patronage, political 31, 35, 43, 45, 47, 59 Pearse, A. 126 Pearson, M. N. 8 petty capitalist mode 63 PKN Group 96 Plan of Economic Development (The Bombay Plan) 156 Playne, S. 98, 105 plural societies 83 Polanyi, Karl 46 political lobbying 22 port cities 83

Poulantzas, N. 149 privatization of state enterprises profit 37, 43, 47, 68 Promethean force 64–65 Protestant ethic 31, 64 Protestant reformation 65

59

Qing dynasty 19, 28, 39, 50–51, 53, 57–58, 67, 73 Qing Ming Festival 82 Raja Sri Annamalai Chettiar Group 109–110 Rajput 86–7, 91 Ramesh, Jairam 1 Rangoon 97, 98, 112 Ray, R. K. 92, 134, 136, 139 real estate market 49 Redding, S. Gordon 21 reforms of 1978 56 Republican era 53 returnees 80 Revolution of 1911 19 risk-taking 34–35, 77 rituals 34–35, 44, 58 Robinson, R. 127 Rong Desheng 52 Rong family 54 Rong Yiren 28 Rowe, William T. 11–16 royal charters 46 Rudner, D. 89, 92 Saez, Lawrence 1 Sahai, Sachindanand 90 Saigon 79 San Francisco 81 Sandhu, K. S. 96 Schumpeter, Joseph 68 Seki, K. 128 Shanghai/Shanghainese 17, 24–27, 42, 45, 48, 51–54, 65–66, 75 Shantou 40 Shanxi 40, 53 share-holders 46–47, 49–50 shared sovereignty 78 Sharma, K. L. 88 Shaw, Run Run 69 Shils, Edward 62, 83 silver price 54 Singapore 18, 97, 158 Sino-British agreement, 1984 73 Sino-Japanese War (1937–45) 17, 19

index sishi tongtang (“four generations under one roof ”) 24 Skinner, G. Williams 2, 11–16, 63, 66 Smith, Adam 32 social conflict theories 33 social integration 67 social mobility 33 social order 77, 79 Song dynasty, southern 32 Southeast Asia 41 spatial hierarchy 15 special economic zones 56 Sri Lanka 90, 91, 95–6, 99, 108, 109, 111 St. John’s Middle School 23 St. John’s University 23 state-business relations 2, 6, 7, 8 Subrahmanyam, Sanjay 85, 86 Suez Canal 90 Sun Yat-sen 67 Sy, Henry 28 Sydney 81 Taiping rebellion 53 Taiwan 75 Taknet, D. K. 87, 115 Tan Chayyan 96 Tan Kah-kee 28 tang/tong (“hall”) 38 Taoist values 69 Tata Engineering & Locomotive Company Limited 135 Tata Iron & Steel Company 134 Tata, Jamsetji Nusserwanji 123 Tatas 134, 137 taxation 44, 46, 55 temple holdings 39–40 Thakkar, N. H. 116 Thakurdas, Purushotamdas 145, 147, 148, 150–1 Third Plenum of the 11th Party Congress 45, 55 Thomas, Smitch C. 129, 130 Thompson, Virgina 101 Timberg, Thomas 3, 87 Times of India 107 Todd, Colonel 88 trade 13, 14, 42 trade, long-distance 11–16, 25, 29, 42 trade system, tributary 13 trade zone, Indian Ocean 13 traditional values 31

179

treaty ports 44, 48, 65 tributary mode 63 Tripathi, Dwijendra 7, 8, 85, 87, 105, 111, 121, 125, 133, 135, 138, 140 Trocki, Carl 18 trust 34, 39, 57, 77 trusts, landholding 40 t’ung-hsiang (“ ‘same-native-place’ ties”) 12, 24 United Kingdom 52, 74–75, 81 United States 54, 70, 80–81 upward mobility 32 Vancouver

81

Wai, U Tan 101, 102, 112 wandering knights 69–70 Wang Y. C. 28 water-management associations 40 Weber, Max 31, 34, 37, 46, 58, 64, 85 Weberian challenge 4 Werasooria, W. S. 95, 99, 100 Western factories 58 Western impact 45, 58–59, 65–66 Winter, Alan 1 women, Chinese 72 Wong Siu-lun 2–5, 20–21 World War I 18, 104, 115, 116, 126–7, 131, 132, 143 World War II 18, 140, 153 World War II, post- 21 Wuhu 53 wushi tongtang (“five generations under one roof ”) 24 Xinan County 65 Xu Yongzuo 54 Yamin, Mo 6 Yang, L. S. 31 Yang, Margie 72 Yangtze River 35, 49 Ye Chengzhong 25 Ye Suzhen 24–27 Yeh Wen-hsin 23 Yu, Patrick 74 Yuan dynasty 32 Yusuf, Shahid 1 Zhang Jian

50–51