Institutional Change and Rural Industrialization in China

The Putting-Out System in Handicraft Industry in Late Qing and Early Republic Period

Feizhou Zhou

• Publisher: WSPC
• Year: 2018
• ISBN:
  9789814569934
• Topic: History
• Subtopic: Social History
• Index: History

This book explores the development of the putting-out system in hand-woven textile industries in late Qing Dynasty and China's Republican Period. In classic sociology theory, the putting-out system in handcraft production was regarded as traditional and inefficient. In the context of Republican China, it was believed that this kind of household-based production system would have totally failed in competition with the factory system of machinery production. However, this book exhibits the historical fact that the putting-out system was booming in handcraft textile production and subsequently provides an explanation to this phenomenon from the perspectives of institutional analysis and quantitative modeling. With rich county-level data and comprehensive analysis, this book is valuable for both researchers, academics and students in economics and social history studies.

Contents:

• Introduction: Smithian Growth or Involution Growth?
• Literature Review on the Handicraft Industry and Institutional Change
• Proto-industrialization in the Industrial Era: A Historical Study about the Cotton Textile Industry in North China
• 'Involution' and 'Industrialization': Investigation of the Cotton Textile Industry in the South of the Yangtze River
• Quantitative Analysis on Institutional Change and Rural Industrialization
• The Putting-out System and the Prosperity of Rural Homespun Industry
• Conclusion: Commercialization, Institutional Change and Rural Industrialization

Readership: Undergraduates, graduates, academics and researchers who are interested in commercialization, institutional change and rural industrialization in China.
Key Features:

• Provides quantitative modeling analysis of Chinese economic history
• Contains rich county-level data on Republican China
• Provides historical analysis of new institutionalism

Chapter 1

Introduction: Smithian Growth or Involution Growth?

What are the stimuli for economic growth before industrialization? Since Adam Smith, there have been two answers to this question in economic history fields. The first one is the Smithian Growth form widely accepted by European society before the Industrial Revolution. This view, derived from Adam Smith’s classic discussion, mainly refers to economic growth promoted by division of labor, regional specialization and market expansion. This mode is different from the so-called Kuznetzian Growth to a large extent, which is driven by machine production and technical changes provided by the Industrial Revolution. Before the 1960s and 1970s, economic historians generally regard the Smithian Growth form as the economic growth mode of pre-industrial societies, including non-European countries, like China, Japan, and India. However, since Clifford Geertz’s pioneering study on the Southeast Asian paddy in the 1960s, more and more economists and historians have started to pay attention to another growth mode, called Involution Growth by Geertz (Geertz, 1963).

Involution Growth refers to the growth mode of economic forms with underdeveloped markets, insignificant labor division and self-sufficient, not-for-market production. The principal characteristic of this mode is that producers still insist on putting in more labor to gain growth of economic output under a situation where more input of workforce is not worthwhile when marginal remuneration starts to decline. The reason why producers do this is that it is hard for surplus labor to enter into the labor market. Geertz’s findings have been applied to the research of China’s economic history by other scholars. Philip Huang asserts that this involutionary situation was the most significant feature of the rural economy in China at that time in his study on North China and the Yangtze delta district. Besides the overpopulation and common occurrence of surplus labor in most underdeveloped economic systems, Huang believes that agricultural commercialization advanced by capitalist forces in the 19^th and 20^th centuries was one of the main factors accelerating the involutionary situation (Huang, 1986, 1990).

If one reviews the rural economy before 1949, when the People’s Republic of China was founded, from the viewpoint of the two modes of economic growth, it is difficult to make judgments suddenly, because characteristics of both Smithian and Involution Growth coexist. On one hand, agriculture, commercialization of handicrafts, and market expansion developed quickly since the Ming Dynasty, and flourished under the influence of foreign economic forces during the period of the late Qing Dynasty and the early Republic of China. Besides, the trends of regional specialization and labor division were more evident. On the other hand, the agricultural productivity of many areas was so low that the majority of peasants made a living with difficulty, while large amounts of labor were put into their own farmlands. In that way, what were the main features of the rural economy at that time? How can we make a clearer judgment on the economic situation?

With the outbreak of a series of wars and settlement of unequal treaties since the Opium War, foreign industrial products were able to spread in China without hindrance by the end of the 19^th century. Western scholars generally define it as a process of commercialization¹ with the fast advancement of commercial relationships and development of modern industry in China. Specifically, there are three theories on the rural economy, influenced by commercialization from the view of scholars:

1.Recession Theory

This is widely accepted by domestic scholars of China. They believe that the rural economy had been at a standstill or even in recession without any growth since the Opium War, and the direct cause for recession was the process of commercialization. The large import of foreign industrial goods directly led to the decline and transformation of the rural handicraft industry, to the extent that the natural economy incorporating rural farming (or agriculture) and weaving went into bankruptcy. It is worth stressing that the scholars believe that the recession of the handicraft industry directly led to the recession of the rural economy. It was hard for the farmers to sustain their original standards of living with deteriorating rural finance, which in turn made it hard to sustain agricultural investment and led to bankruptcy of the rural economy (Chen et al., 1989; Qian, 1990).

2.Stagnation Theory

Although these scholars also take a dim view of the rural economy, they hold a different opinion from scholars of Recession Theory. These scholars investigate the reasons for stagnation of the rural economy against a broader historical background and conclude that the change in the relationship between population and land determined the general trend of economic activities. Mark Elvin believes that it was the overstocked population that stagnated the rural economy in the 19^th and early 20^th centuries. From Song to Qing Dynasties, both population and productivity reached their peaks, trapped in “high equilibrium” by the end of the Qing Dynasty.² Opportunities for business and employment provided by commercialization since the opening of coastal ports brought a glimmer of hope for agriculture to get rid of the trap. Although the rural economy of the Republic of China failed to escape from the trap ultimately, commercialization was not mainly responsibile for it (Elvin, 1973).

Corroborating Elvin, Huang also maintains that stagnation of the rural economy was caused by population pressure. However, differing from Elvin, he insists that the development of commercial agriculture brought by commercialization could not help agriculture get rid of the pressure of extremely high rations of land and labor, but led to agricultural involution instead. Huang believes that both the development of commercial agriculture and the spread of economic crops helped peasants to use their own surplus labor forces intensively, because each unit area of economic crops required more labor input. However, such intensive management was at the expense of the decline in productivity. Therefore, although yeomen succeeded in making a living by the increase of total output, the marginal labor productivity declined. The process of involution resulted from smallholding families taking risks to cultivate economic crops. However, due to their inability to bear the risks, they often ended up in bankruptcy, which led to the differentiation of rural society (Huang, 1985). In another book, Huang emphasizes that it was the rural industrialization that started from the 1980s that helped the rural areas to get rid of the trap of involution (Huang, 1990). His conclusions are close to the viewpoints of Recession Theory, but the logic of the statement is quite different. From his point of view, it is still “an increase [in GDP] without development” even if rural economic aggregates rise.

3.Development Theory

This theory is represented mainly by Western scholars. Ramon Myers and Loren Brandt are in opposition to the scholars of Recession Theory, who only attach importance to population but neglect the market. They emphasize the great influence of the commercialization process on the rural economy, especially on the labor market, in their works. Myers and Brandt point out that the commercialization process changed traditional rural economy in two aspects in spite of the heavy pressure from population.

Firstly, the production factor markets became more complete, which allowed the peasants to reorganize redundant labor and land. In other words, the surplus labor brought about by the decline of the handicraft industry in the process of commercialization were able to enter the labor market rather than be put into their own lands in the involution process as described by Huang. Secondly, commercial agriculture was booming and the cultivation of cotton and tobacco brought about by commercialization required a large amount of labor, which brought more opportunities to the labor market. In that way, the spread of commercial crops and growth of the labor market complemented each other to promote development in the rural economy (Myers, 1970; Brandt, 1987). It is worth noting that the analysis of Myers and Brandt strongly points to a trend of development in the rural economy, though they have not made any quantitative estimation of the development. In addition, Brandt has a series of articles on quantitative analysis which reveal that the income gap of peasants was not as big as the domestic scholars and Huang say, but smaller (Brandt and Sands, 1994).

Another group of scholars concentrate on the overall rate of increase in economic development. Two existing authoritative quantitative estimations on the domestic economy demonstrate that the economy developed very quickly during the period of the Republic of China but this development was only concentrated in modern industrial departments (Wu, 1947; Yeh, 1965). The latest research findings should be in the new book by Thomas Rawski. Due to the lack of available and credible data, Rawski estimates that the annual growth rate of agriculture was between 1.4% to 1.7% during the period of the Republic of China, which is far beyond 0.8% as Yeh Kung-Chia estimates, based on the growth of per capita cotton cloth consumption and the estimated rise of real wages for unskilled workers in the agriculture and manufacturing industries (Rawski, 1989). It was even more superior to that of Japanese agriculture at that time. With a positive estimation of industrial departments, Rawski believes that China’s economy had broken through the economic structure with low per capita production based on agriculture, and started to take off by the First World War.

Based on the aforementioned discussion, we cannot help but ask why scholars hold such different viewpoints on China’s economic history of less than a hundred years ago that their views regarding the rural economy, under the influence of commercialization, are completely opposite. Certainly, the influence of ideology and the different methods of analysis are among the important reasons. For example, most of the domestic scholars adopt the perspective of Marxism Theory, and believe that commercialization is in fact a plundering process of the colonial economy by imperialist powers. Historians focus on population while economists focus on market impact. However, all of these are not enough to cause scholars to reach completely opposite conclusions. The author believes it is because the scholars have not reached consensus on two empirical observations — the effect of commercial agriculture and the fate of the handicraft industry.

That commercial agriculture had different impacts on the development of the rural economy is behind the divergent views of Myers and Huang. Both of them have not made estimations on the degree of agricultural development. Instead, their divergence is mainly based on the impact of commercial agriculture on the income distribution of peasants. Huang insists that social differentiation is the result of commercialization, whereas Myers maintains that the differentiation is not a fact at all (Myers, 1970; Huang, 1985). However, the key to the debate on whether the rural economy was in stagnation or at growth is the handicraft industry, which is generally neglected by scholars.³

In studies on the development of the rural economy, the rural handicraft industry is discussed as an appendage. After careful analysis, we can find that it is the very key reason that causes scholars to reach completely different conclusions. As a matter of fact, scholars of Recession Theory, Stagnation Theory, or Development Theory all admit that there was little growth — at least in food production per capita, labor productivity, and technological innovation in traditional agricultural sectors — and that the limited growth was due to the increase of total quantity mainly brought about by the reclaimed land in northeast China. It is worth noting that the estimation of the rate of agricultural growth by the Development Theory scholar, Rawski, is actually based on the conditions of the handicraft industry. As mentioned earlier, two significant indicators employed by Rawski are cotton cloth consumption per capita and wages of unskilled workers in the rural handicraft industry, which actually reflect the growth conditions of the handicraft industry. Brandt also adopts payment of labor in the rural handicraft industry as an important indicator when evaluating the rural economy in the middle and lower areas of the Yangtze River from 1870 to 1937 (Brandt, 1989). Furthermore, scholars of Development Theory consider the increase in wages of farm workers as important evidence supporting the development of the rural economy. However, the payment of farm workers may not reflect the growth of agriculture. Even if there was no change in agriculture, the growth and decline of the handicraft industry would also influence the increase and decrease in payment of farm workers, because the agriculture and handicraft industries relied on the same farm labor. This competition for farm workers also explains why agriculture was underdeveloped, a view held by most scholars.

The main support for the Development Theory actually comes from the development of the rural handicraft industry, while support for the Stagnation Theory and Recession Theory mainly comes from agricultural production. Nevertheless, scholars generally believe that the handicraft industry faces the same destiny as the agriculture industry, either lingering on or vanishing without any trace. Therefore, in order to get a better understanding of the true features of the rural economy within the context of commercialization, the most significant yet difficult task is to understand the true features of the handicraft industry within the context of commercialization.

In retrospect, the rural handicraft industry at the end of the Qing Dynasty and the beginning of the Republic of China not only determined the features of the rural economy, but also the start of industrialization in rural areas, a development similar in importance to the impact of township businesses on rural development in the 1980s. The subsequent chapters will attempt to answer certain questions.

Firstly, did the industrialization process start from the end of the Qing Dynasty and the beginning of the Republic of China, or earlier? If earlier, how far back did it start? The main criterion that the author is using to assess rural industrialization is not the share of handicraft industry in national income; instead, the approach is to investigate the nature of the handicraft industry based on Smithian and Involution Growth. During the Ming and Qing Dynasties, most of the handicraft industries were established to meet household consumption in the natural economy, which was generally self-sufficient. Although this kind of handicraft industry accounted for a large proportion in the national economy, it had little influence on modern industrialization. However, its nature is more important for us to judge whether industrialization started or not. If the handicraft industry had existed to supplement agricultural incomes, and peasants took part in production in this industry only in the slack season (on the basis that “do or do not, one must eat; do not calculate payment, one always have gains”), the scale of the handicraft industry would never have expanded and it would have been difficult to improve its commercialization. The choice of “do or do not, one must eat” was the very reflection of the increase in involution. However, if the scale of handicraft had expanded, and its profits approximated or exceeded agricultural incomes, peasants would become workers in the handicraft industry to pursue maximum profits. In that case, economic growth would be manifested as typical Smithian Growth. In Chapters 3 and 4 of this book, the author will trace the development of and changes in the cotton textile industry during the Ming and Qing Dynasties and the Republic of China in order to establish the features of the rural handicraft industry at that time.

Secondly, historical investigations reveal that the handicraft industry had been flourishing in certain areas of China in the late Qing Dynasty and early Republic of China periods. In certain areas, almost all peasant families were engaged in cotton spinning and even the males switched from the agriculture industry to the handicraft industry, with products sold across the whole country. The handicraft industry of these periods was quite different from the traditional handicraft industry aimed at complementing the agriculture industry, and it surpassed the agriculture industry. One purpose of this book is to conduct careful investigation on these areas. What is worth stressing is that this book is not focused on the proportion of areas where the handicraft industry flourished out of the total vast areas of China, but on the fundamental change in the character of the handicraft industry. From this perspective, a more significant question is: how did this change take place? And, what was the driving force of this industrialization?

In order to answer these questions, we shall adopt the methods of quantitative and qualitative analysis to probe into the driving forces of industrialization. Besides the factors of commercialization and technical change, the author finds the organization and institutional changes of the handicraft industry, especially the emergence of the putting-out system, to be of vital importance. In Chapter 5, the author demonstrates that the emergence of the putting-out system was one of the most significant factors that led to the flourishing of the handicraft industry in a certain district, with data analysis of more than 400 counties in five provinces in North China and south of the lower reaches of the Yangtze River. In Chapter 6, the author will analyse the mechanism of the putting-out system on the handicraft industry with historical case material of certain areas.

¹Saying this implies that there was no commercialization before the Republic of China. However, this is questionable. In the later chapters, this study will present the development of domestic commercialization before the invasion of foreign capitalism. There is no doubt, however, that commercialization has developed rapidly since the First Opium War in 1840. Domestic production is catering to international market quickly and the internal market also has flourished since then. Therefore, I will continue to use the term “commercialization” to generalize the change of domestic economic environments.

²It means that profit brought by any increase of production is consumed by too many people, therefore the per capita output is hard to increase.

³Neither of the authors hold optimistic attitude on the influence that the development of commercial agriculture has made on the increase of agricultural production technology and crop yields (land productivity). Taking labor productivity as an example, Huang believes that involution leads to the decrease of labor productivity; while Ma suggests that the boom of the fact markets enhances labor productivity. But neither of...