Saturday, August 10, 2013

Watermelon Man (with Chinese characteristics)

Ning Wang and Ronald Coase (inaugurating his second hundred years of scholarship, we can only hope) have collaborated on a work of economic history; How China Became Capitalist. Largely by its leaders holding two contradictory ideas in mind at the same time: That socialism is a superior economic system and that it needs capitalism to augment it.

In that, it is more of a book on the psychology of economics. How even the leaders of a totalitarian country, ruled by a foreign ideology, can be led as if by an invisible hand, to transform themselves into a society they had no intention of ever becoming.  Paying lip service to the ideology at the same time they were refuting it in practice. The incentives were strong enough; survival, to make that eventuate.

One amusing vignette being Deng Xiaoping's protection of one Nian Guangjiu from persecution as an 'economic criminal'--while some 30,000 other Chinese weren't so fortunate--for selling baked watermelon seeds in the street. Nian, illiterate and twice imprisoned under Mao's reign, developed a recipe for the popular Chinese snack that produced a unique flavor. It became wildly popular with the people, who would form long lines to purchase Nian's treats.

Like any alert entrepreneur, he decided to expand production and distribution. So he began hiring employees; i.e. to exploit workers. That so worried his wife she begged him to give up his business (the Fool's Watermelon Seeds), and in fact, someone did report him to higher authorities. But, Deng was intrigued by the example, and said, 'Let's wait and see.'

Nian became one of post-Mao China's first millionaires. Without Deng's protection he would have been imprisoned. Deng, and other Chinese leaders, drew a valuable lesson. And China became capitalist.

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