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Tue Sep 5 09:21:05 2006
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------------ 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/.  
  
Copyright (c) 2006 by EH.Net. All rights reserved. This work may be   
copied for non-profit educational uses if proper credit is given to   
the author and the list. For other permission, please contact the   
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229).   
Published by EH.Net (September 2006). All EH.Net reviews are archived   
at http://www.eh.net/BookReview.  
  
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