See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/321868945 2017 Guanxi vs. Monetary Economics BerliSinia Slides Presentation · December 2017 DOI: 10.13140/RG.2.2.32680.06407 CITATIONS READS 0 25 1 author: Manfred Nitsch Freie Universität Berlin 61 PUBLICATIONS 84 CITATIONS SEE PROFILE Some of the authors of this publication are also working on these related projects: Fair pensions View project Project by the Institute of Development Studies, Brighton which accompanied the Brandt Commission View project All content following this page was uploaded by Manfred Nitsch on 17 December 2017. The user has requested enhancement of the downloaded file.
Prof. em. Dr. Manfred Nitsch Latin American Institute / School of Business and Economics, Freie Universität Berlin, with the help of Frank Diebel, Southwestern University of Finance and Economics, Chengdu, China Monetary vs. Guanxi Economics Confucius meets Lenin, Keynes, and Schumpeter in Contemporary China Berlin, LAI, FUB, BerliSinia Workshop, December 6, 2017
Worksheet: Monetary vs. Guanxi Development Economics Questions to be answered before the lecture begins • • Please mark YES or NO about the following statements. Follow your spontaneous impulse! Compare your answers with those of your neighbours. Introduce yourselves, and let one another know, why you are in favour of this or that statement. • • Yes No Assertion • • 1. o o Socialist economies are ruled by planning authorities and large state-owned enterprises. China has been very • successful in planning its economic development in the last three to four decades. • • 2. o o Schumpeter’s entrepreneur ( Unternehmer ) is the typical owner of an established firm, who starts an important • innovation with disruptive effects leading to “creative destruction” of the business of the Wirte , the non- • innovative, normal businesspersons. • • 3. o o Party cells in every enterprise, administrative or media unit, civil society organization, military unit, university • institute and regulatory agency are a means of ideological control and often a source of corruption in all • communist-ruled countries. • • 4. o o At the end of the 1970’s, Deng Xiaoping gave the order to establish a ”Socialist Market Economy“, which • opened the way to spectacular economic development through a broad set of village enterprises and private • businesses, foreign direct investment and infrastructure projects, mostly coordinated through markets – and • the guanxi network of Communist Party secretaries. • • 5. o o The financial sector intermediates between savers and investors (S=I) so that investment is determined by the • amount of savings. • • 6. o o In the analysis of successful economic development you can always identify three agents: the status-quo user • of the resources, the innovative entrepreneur, typically without major property and possessions of his or her • own; and the intermediary, who enables the transfer of the resources towards the new, innovative enterprises • and the corresponding infrastructure and regulatory institutions.
Yes No Assertion (abridged version of the worksheet) 1. o o Socialist economies are ruled by planning. 2. o o Schumpeter’s entrepreneur ( Unternehmer ) is the typical owner of an established firm. 3. o o Party cells are a means of ideological control and often a source of corruption. 4. o o Deng Xiaoping gave the order ”Socialist Market Economy“, which brought about economic develop - ment, mostly coordinated through markets – and the guanxi network of Communist Party secretaries. 5. o o The financial sector intermediates; investment is determined by savings. 6. o o Successful economic development with three agents: the Wirt ,status-quo user of the resources, the Unter- nehmer , entrepreneur without wealth, and the inter- mediary ,, Schumpeter’s Bankier .
Contents 1 Money as a real asset (Milton Friedman’s helicopter model) Money as a “means of deferred payment” (Keynes) 2 and the Theory of Finance Credit creation ex nihilo (Schumpeter’s Unternehmer 3 and his banker) 4 Constitution of a functioning monetary economy 5 Guanxi Economy / Economics in China 6 Summary: Accumulation by secondary distribution of capital 7 Abbreviations 8 Literature
The Riddle of China‘s Growth • Three decades of high growth with Deng Tsiaoping’s “Socialist Market Economy” • None of textbook “prerequisites“ fulfilled • Unique path of “transition/transformation“: Looking for special Chinese traits • Recent developments – Hardening of control and anti-Western discourse – Association of German Industries (BDI) alarmed about mandatory CP cells in FDI enterprises – Praising of the Chinese model
Yes No Assertion 1. o o Socialist economies are ruled by planning. 2. o o Schumpeter’s entrepreneur ( Unternehmer ) is the typical owner of an established firm. 3. o o Party cells are a means of ideological control and often a source of corruption. 4. o o Deng Xiaoping gave the order ”Socialist Market Economy“, which brought about economic develop - ment, mostly coordinated through markets – and the guanxi network of Communist Party secretaries. 5. o o The financial sector intermediates; investment is determined by savings. 6. o o Economic development successful with three agents: the Wirt ,status-quo user of the resources, the Unter- nehmer , entrepreneur without wealth, and the inter- mediary ,, Schumpeter’s Bankier .
Family enterprise / household or state- owned people‘s brigade / commune: Schumpeter‘s Wirt and status-quo wealth owner Balance sheet Assets Liabilities - real - relatives - financial - friends and neighbours cash - market partners - human capital - banks and insurance co. - social capital - state agencies (also as owners) - reciprocity - social security Equity / ownership - public services - man / husband / member - labour rights - woman / wife / member - culture - children
Money as a cash asset for the exchange in spot markets CO WO cash cash ER BK real assets cash cash LE LU cash cash human capital
Money as medium of deferred payment Keynes’ monetary theory of production and the theory of finance ; no such social division of labour in the Familienwirtschaft (family enterprise/household) and in Cuba’s cuentapropistas CO WO cash ER BK real assets real assets fin. CO LE credit assets wage human advance capital LU human capital
Credit creation ex nihilo Schumpeter’s entrepreneur and his banker ER BK loan sight deposit
Interplay of commercial and central banking Constitution of a monetary economy through emission of universally valid banknotes CB CO WO cash ER BK real assets real assets fin. CO LE credit assets wage cash advance LU human capital
Yes No Assertion 1. o o Socialist economies are ruled by planning. 2. o o Schumpeter’s entrepreneur ( Unternehmer ) is the typical owner of an established firm. 3. o o Party cells are a means of ideological control and often a source of corruption. 4. o o Deng Xiaoping gave the order ”Socialist Market Economy“, which brought about economic develop - ment, mostly coordinated through markets – and the guanxi network of Communist Party secretaries. 5. o o The financial sector intermediates; investment is determined by savings. 6. o o Economic development successful with three agents: the Wirt ,status-quo user of the resources, the Unter- nehmer , entrepreneur without wealth, and the inter- mediary ,, Schumpeter’s Bankier .
Socialist economics • Central planning – Lenin‘s model: First World War allocation via food stamps / Lebensmittelkarten / Libreta , administrative acts and mandatory supply and demand relations between enterprises – Industrialization – Problems: Flexibility, speed, innovation • Markets (voluntary exchange of goods and services against money) – Easier for consumption goods than for real estate, raw materials and capital goods – International trade and investment • Coherence through four mechanisms – Barter, queuing-up - and giving-up – Market response; accounting prices close to market prices – Planning – via the Directors – for the bulk of transactions – Guanxi between Party Secretaries and Directors - for projects
Guanxi (= trustful relationship) economics I: ER-PS guanxi plus command ex nihilo in village (commune / brigade) industrialization and beyond PS CO WO cash ER real assets real fin. LE assets assets cash LU human capital
Definition of Gu ā nxi 关系 • Principle of reciprocity – Fríendship/kinship based on a social, individual, emotional, committing, and long-term relationship – Exchange or secure favours for mutual benef it – Two or more individuals • Historical background: Confucian rites and ethics – 禮 l ǐ: rites , today 礼物 l ǐwù: gift, present – 五倫 w ǔ -lún five human relationships : role model for the traditional Confucian hierarchy • Care and concern between parents and children • Mutual respect between husband and wife • Harmonious relationship between the elder and the younger • Righteousness of the superior and his subordinates • Trust between friends
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