The New Economy Facilitates the Emergence of Entrepreneurs
By YAO Zhongqiu, Professor of Beihang University
Translated by MA Junjie, Project Researcher, Unirule Institute of Economics
Professor SHENG Hong’s presentation on his model of estimating the New Economy’s contribution to growth gave us insights from a macroeconomic perspective. Now I’d like to present the micro aspect of this issue, which may be helpful for us to understand the mechanism of the New Economy.
I’ll speak on entrepreneurship and entrepreneurial capacity, or more directly, on entrepreneurs. What I propose is that the reason why the New Economy, or the Internet-based economy, brings growth is because it facilitates the emergence of entrepreneurs.
There is extensive study on economic growth. Many economists have come up with their own theories, such as Adam Smith’s theory on how division of labour facilitates growth. And there are other economists who emphasise technological advances, human capital, and organisational changes. I did some research years ago on the Austrian School of Economics, and how entrepreneurs brought about growth. Therefore, I’ll focus on this theory.
There is no doubt that entrepreneurs and their innovative activities are the main driving force of economic growth. I can’t say they are the only driving force, since calling something the sole factor resembles preaching. When we look at many present debates in the economic circles in China, they are debates between preachers, which is not beneficial to our understanding of economic activities.
No matter what, entrepreneurs are a very important factor in economic growth as economic activities concern human action. According to the Austrian School, men play an active, productive, and innovative role in the economic process, and by doing so, they are considered entrepreneurs. In a sense, anyone can be an entrepreneur, and everyone has some entrepreneurial qualities. Of course, we must admit that some people’s more enterprising, and they tend to be more of entrepreneurs than others. As long as they possess factors such as technology, labour, and resources, they can move the economy forward. Without them, economic development is impossible.
When we look at economic growth over different historic periods and economic entities, if there are any differences, they are mainly differences concerning entrepreneurship. For example, the environment for entrepreneurs to succeed in different economies and different times has a very important influence on the performance of the economy.
When we have this discussion, maybe we could use a concept such as entrepreneur index or entrepreneur ratio, which is the number of entrepreneurs compared to the whole population, or the adult population. As Mr. LIANG Chunxiao suggested that we could use the “density of online merchants”, this entrepreneur index should also be useful. With this concept, we could compare over time and space, and reach conclusions about when and where the environment is beneficial to entrepreneurial success.[Page]
I’d like to refer to two facts to illustrate this proposal.
Firstly, I’d like to examine the change of the relationship between China’s economic growth over the dynasties and the entrepreneur index in different times. It’s fair to say that the entrepreneur density has been increasing slowly and constantly over China’s long history. The history can be, therefore, divided into three phases: the first phase was the three generations in ancient China when most of the entrepreneurs in the Chinese society were official merchants. I recall an article in my Chinese textbook about a merchant in the Zheng Kingdom named Xiangao who informed the Zheng emperor about Qin Kingdom’s plan to invade it. Later as I studied the Zuo Tradition or Commentary of Zuo, an ancient Chinese narrative history that is traditionally regarded as a commentary on the ancient Chinese chronicle Spring and Autumn Annals, I discovered that in that time period it was requested for government officials to be merchants as the Zhou Emperor and other dukes granted monopoly for certain trade to them, such as selling salt, jade, and bows. This Xiangao, I presume, probably was in the trade of making and selling bows.
However, in the Warring States Period, this institution changed as free business emerged. According to SIMA Qian’s Records of the Grand Historian, there were several merchants who did business freely across China. Ever since then, for the last two thousand years, China practiced a largely free enterprises institution that upheld private property rights. Of course there were ups and downs, but in general, the institutional environment was lax. Due to this particular reason, the entrepreneur density increased, especially during the Ming and the Qing dynasty. Back then, the market order was quite advanced in areas such as the coastal areas and provinces to the south of the Changjiang River. In that environment, the main income source came from business, and most peasants were entrepreneurs. Back then, China was the world factory due to its advanced industrial and commercial development and its global reach that supported the whole international economic system.
Today, we may be witnessing the third phase featuring online platforms such as Alibaba and Taobao that provide more convenience and room for entrepreneurs to grow. Therefore, the entrepreneur density tends to become higher. We can be sure that the entrepreneur density is higher than that in the Ming and Qing dynasty, because back in the past, though everyone could be an entrepreneur, they were constrained by factors such as transportation and the transaction network. Therefore, the distribution of entrepreneurs back then was highly imbalanced. As Mr. LIANG Chunxiao said and what I saw myself, nowadays it’s very convenient for people in remote areas to get online and have access to the global market. That is to say, as long as people are willing to become entrepreneurs, they can do so even in remote areas.
This is the great benefit brought by the Internet-based economy, which is good for China’s economic growth. Therefore, I am very optimistic about China’s economic prospect, because it is more likely for any Chinese citizen to become an entrepreneur now than ever before.
Furthermore, I’d like to put the Chinese entrepreneurship into the framework of civilisation comparison.
As I just talked about the Ming and Qing Dynasty when the Chinese economy was in a leading position within the world thanks to the prosperity of entrepreneurs, we must face the fact that since the beginning of the 18th century when the East and the West met, China was defeated. Why? This is a grave issue for China. Apparently it was not because China didn’t have a market system. We have to dig deeper.
Maybe we could return to the origin of civilisations. In a nutshell, the fundamental difference between the Chinese civilisation and the Western civilisation is that people in the West believe in different forms of theism, and in most cases monotheism, whereas the Chinese worship heaven.
Allow me to explain. In the West, people believe in the one true god, and there is the church that facilitates collective activities, i.e., as Mr. LIANG Shuming called the group life mentality. By the 18th century with the industrial revolution sweeping the western world, a special type of corporate organisation emerged: the large-scaled factories. Max Weber regarded bureaucracy as the main feature of modern society as it was a highly rational organisation. In his analysis, bureaucracy was the fundamental characteristic of Western modernity. He also thought the lack of it was the reason for China not being capitalist. As for the reason, Weber traced it back to the Protestant ethics. However, I’d like to believe that the Western world built industrial mass production on their tradition of group life habits. The combination of both brought about the big companies, the big factories that later constituted the backbone of Western capitalism, which has barely any direct connection to market economy. This can be tested through the academic history: Adam Smith’s Wealth of Nations advocated a free market economy, and he criticised mercantilism which was built upon big companies. People in the West depended on the big factories to industrialise their economy and conquered the world with great abundance of materials.
On the contrary, the Chinese worship the heaven as it allows man to be free. There are no regulations and there’s never been any organised church on this land. Therefore, the Chinese are not used to submission, or homogeneous collective life. This explains why there was no emergence of Western-style big companies after Song dynasty. Therefore, over the last few hundred years of industrialisation, China was lagging behind the West to a large extent. The very reason is that industrialisation relies on economies of scale, and the Chinese were not used to big factories under collective control.
The Chinese and Western civilisations diverged from each other this way in the past. Now it seems that we have come to another breaking point.
In the industrialisation era, big companies had obvious advantages. But one of their biggest issues was that it was built upon the most widely exploitative institution with a particular feature of bureaucracy that somehow applied military mechanism to the economic process. In big factories, only one person is the entrepreneur, and all others are non-entrepreneurs who don’t stand a chance to become one.
The advantage of such an institution is as telling as its disadvantages. These disadvantages may not be reflected in the economy, but as I see it, on smearing human dignity. In Chaplin’s movies and in Foxcon’s suicide incidents, it can be seen that in such strictly managed factories, a man can not be his full self, remain independent and keep his integrity. As a matter of fact, Adam Smith realised this after he analysed how division of labour promoted economic growth in “Wealth of Nations”. He pointed out that the division of labour would result in the damage of people’s integrity, as some of them may only be able to produce a certain product, such as pins, and others another certain product, such as cloth. Therefore, big factories produce many stubborn and incomplete people.
The Internet-based economy seems to challenge the big factories. Even within the big corporates, thanks to the Internet or the challenges it poses, the bureaucratic management mechanism is loosening. All the big corporates are decentralising, that is to allow more executives and staff to work independently though they remain in the big corporate framework. Another aspect is that this has transformed more people into entrepreneurs.
Here I’d like to stress that an entrepreneur and a worker in a big company are very different in terms of spirit and mindset. We can see this clearly in real life. To use Chinese concepts to describe both kinds of people, we can say that entrepreneurs are Daren (大人, gentleman), and those who work in big factories as workers are Xiaoren (小人, minor man). These concepts are neither derogatory nor bearing any ethical significance, but only describe the capabilities, mindsets and personalities of people. Entrepreneurs face the world, along with its risks and uncertainty, by themselves, and bear responsibility for their own behaviours. Whereas workers don’t have to do this. Therefore, the difference. We can say that an entrepreneur is more complete in personality than a worker. Comparatively speaking, those who work in factories doing the same thing again and again are no more than slaves.
We need to focus on the economic contribution of the New Economy or the Internet-based economy when we talk about it. But in the meantime, we should also recognise its qualitative contributions to growth, which is how it facilitates man to become entrepreneurs. Therefore, the emergence of the Internet-based economy bears not only economic significance, but also cultural and societal importance. Therefore, we need to elaborate on the contribution of the New Economy from multiple facets. As Professor SHENG Hong presented his economic analysis, we should also acknowledge how the New Economy brings about tremendous change to our society and culture. We will see more entrepreneurs springing up and becoming, in the societal sense, independent and free people.
The advantage of the Chinese culture is taking effect as I mentioned on other occasions. Almost everyone has noticed that China’s Internet-based economy develops better than that of Western countries, such as the US and European countries. Even in terms of technological innovation China’s not leading, as for application, China is definitely among the leading economies in the world. We could say that the Chinese were in a disadvantaged position in the era of industrialisation and big factories due to the fact the Chinese were not used to collective life. However, this disadvantage has turned into an advantage in the information era as we Chinese are more used to being free and independent entrepreneurs.
Of course, this cultural advantage is also useful in solving a social problem caused by the Internet-based economy. As more and more free and independent people emerge, are we increasingly going to drift apart? What is the human relationship going to be like in this context? We need to conduct research on this problem in due course. The Internet-based economy is not only an economic form, but also more importantly, a social organisational form. From the Chinese cultural perspective, I am confident that the Chinese culture is especially suitable for solving this problem and facilitates the formation of good human relationships. The Chinese culture features great saints who were born to be a cure for scattered human relationships, and Confucianism also provides a way for independent and free souls to share mutual love, and to cooperate without the guidance or restraint of a god.