------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (September 2006)
Madeleine Zelin, _The Merchants of Zigong: Industrial
Entrepreneurship in Early Modern China_. New York: Columbia
University Press, 2006. xxiv + 404 pp. $45 (cloth), ISBN:
0-231-13596-3.
Reviewed for EH.NET by Carol H. Shiue, Department of Economics,
University of Colorado.
The considerable fortune accumulated by the famed salt merchants of
China has often been attributed to their privileged access to
government licenses that limited salt sales through quotas. In this
volume, Madeleine Zelin, Professor of History and East Asian
Languages and Cultures at Columbia University, uses source materials
based on municipal archival documents of case records of legal suits;
business accounts and contracts; local gazetteers; memoirs and
transcribed oral histories; and other primary and secondary materials
to evaluate the economic history of the salt industry. Among the many
substantial findings that emerge in her study is that the industry
was built on much more than the government's regulations on salt.
The "Merchants" of the title refer to the entrepreneurs of Zigong, in
the western hinterland province of Sichuan, who dealt in the business
of producing and trading salt. Salt production was a multi-step
process that began with raising the salty brine. This required
pumping and well drilling, a costly venture that could potentially
take five or ten years. Afterwards, furnaces were needed to evaporate
the salt. Because the tasks involved in processing were invariably
larger than anyone could undertake alone, production ultimately
relied not only on advances in new technologies, but just as
importantly, on organizational structures that allowed groups (such
as corporate groups and lineages) to finance the drilling, to create
profit sharing arrangements, and to allow a rental market in
productive assets. The first chapters of the book describe the
technology used in salt production. Using the example of two
saltyards, Chapter 2 discusses the structure of investment contracts
in well drilling. Chapter 3 shows how partnerships (e.g. contracts
for renting a well or for renting a furnace and leasing brine and
gas) were used to organize fragmented resources and to merge smaller
amounts of capital. Zelin provides important new evidence of an
active industrial sector where property rights and contracts were
recognized and enforced by the existing legal framework, but
commercial laws governing limiting liability and the effects of
bankruptcy did not exist until the turn of the twentieth century.
For acquiring the necessary capital, banking and credit services were
not critical to the early development of the salt industry. Instead,
assets were often brought together through kin and the establishment
of lineage trusts, with little outside sources of financing. Chapter
4 focuses on the role of the lineage in structuring the management of
the firm, taking as examples several families that had accrued large
fortunes as salt developers.
In addition to capital, processing the salt required a sizable labor
force, and the possibility of shipping the goods to potential buyers.
Large vertically integrated firms could ensure not only their own
supplies of brine and gas, but establish contacts in merchant
networks for the sale of their goods. Chapter 5 considers working
conditions in the salt industry, which was the largest employer
outside of agriculture in Sichuan. Chapter 6 considers the question
of the impact of government regulation on producers.
The remaining chapters, Chapters 7-10, turn to the changes in the
twentieth century, when the prosperous salt empires of the previous
century faced decline, mainly as a result of political instability
and the lower profitability of processing brine. In addition,
increasingly over the late-nineteenth century and twentieth century,
the state sought to tax salt in transit. Chapter 7 surveys the impact
of technological changes. Chapter 8 details the family histories of
the salt magnates in the later period. Chapter 9 brings the
implications of politics to bear on the business of merchants, and
Chapter 10 addresses the question of the long-term implications of
the industry on Zigong's economic development.
The text assumes some familiarity with the institutional background
of early modern China, and most chapters are packed with carefully
teased out analysis from original sources, but Zelin also provides
brilliant summaries in the introductory and concluding sections of
each chapter that tend to be targeted to a wide audience in business
history. The book's glossary compiles an excellent list of more than
750 names and terms used in the text in both pinyin and in Chinese.
If this sounds specialized, it is -- but the writing is so clear and
engaging that even the general reader will want to know more about
the uses of bamboo piping in pumping or the intra-familial spats of
the merchant clans.
A recurrent theme of the book is that the business arrangements seen
in the Chinese salt industry belie not only previous perceptions
about the predatory influence of the "feudal" state on
entrepreneurial incentives in China, but also the purported
uniqueness of Western business practice. On both fronts, this book
breaks important new ground and will have a major influence on the
future research agenda. _The Merchants of Zigong_, however, is
fundamentally not a comparative study, and as such its comparisons
are based mostly on secondary sources from the business history of
the United States. Nevertheless, it is at these points that some of
the more provocative observations emerge. For example, Zelin
observes, "On a much more limited playing field, the _chengshouren_
then played much of the same role of informed 'honest broker'
performed by investment bankers like J.P. Morgan" (p. 48). In another
analogy, Zelin finds that the advantages of vertical integration in
the Chinese salt industry "match in importance the organizational
breakthrough made by the great American oil and steel companies�" (p.
96). The implication of the analogies is that despite differences in
institutional environments, similarities in business practice between
China and the United States arose out of underlying similarities in
"opportunities and constraints" (p. 292). For those who see more
differences than similarities between oil and salt, the
correspondences may seem to be too broad brush. How far should the
similarities be taken, and what is the significance of the
differences? It may take another book to answer these questions, but
the undertaking would be well worth it.
_The Merchants of Zigong_ is a microeconomic case study that expands
our knowledge of business practices in the nineteenth and twentieth
centuries by leaps and bounds while shedding light on the
institutions in which the Chinese firms operated. It is a work that
shows just how good historical scholarship on China can be and the
volume is one that researchers will refer to time and time again.
Carol H. Shiue is Associate Professor of Economics at the University
of Colorado at Boulder, a Research Affiliate at CEPR and a Research
Economist at the NBER. She is the author of "Transport Costs and the
Geography of Arbitrage in Eighteenth-Century China," _American
Economic Review_, December 2002, and co-author (with Wolfgang Keller)
of "Markets in China and Europe on the Eve of the Industrial
Revolution," NBER and CEPR Working Papers. Additional details on her
work can be found at http://spot.colorado.edu/~shiue/.
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Published by EH.Net (September 2006). All EH.Net reviews are archived
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