"This goes now to China, Township and Village Enterprise or TVE. I'll try to say it in Chinese. Xiang zhen qi ye, did I say that right? Close anyway. So, what was this? When China emerged from a communist, strictly communist state, in the early period in the--maybe starting in the late '70s, but more in the 1980's, the Chinese economy increasingly became built on a certain kind of organization called a township or TVE. And the TVE was like a company, a corporation, except that it always involved the town. So, in other words, if you wanted to start a business, making something, making toys for export to the world, you wouldn't just start a toy company. You would go to the mayor of your town, and you'd talk to the mayor and say, I want to start a toy company as this town's enterprise, and I want to share the profits with you, with the whole town.
Now, this is kind of unique. Well, I don't know if it's unique, but we don't see this in the United States. But it proliferated. It was actually the invention that led to initial successes of the Chinese economy. By 1985, I believe, I have the statistics here, there were 12 million TVEs in China. By the mid-1990's, most of the industrial production of China was done by TVE. So then you have to ask why--this is an invention, but we don't see it in other countries. Why in China? Well, people who look back on it think that it was inventing around certain constraints at the time in China. And that the invention got around a legal constraint. That China, having been a communist country, did not have all these financial lawyers. And they did not have courts that enforced legal contracts the way we do in the U.S.
And that entrepreneurs in China were inhibited from starting an enterprise, because they thought it would just be usurped by the village. You live in a village, you start a toy company, as soon as you start making money, they'll just put a tax on you. Or, they'll take it. That was your worry. So, you had to involve them. It was a fact of life, a very important fact of life. You had to involve the whole community. You could not start a business without involving the community. But it was a very successful invention, because it actually led the Chinese economy on its first huge successes."
© Robert J. Shiller
Yale Lectures on Financial Markets (2011)
[link]
Now, this is kind of unique. Well, I don't know if it's unique, but we don't see this in the United States. But it proliferated. It was actually the invention that led to initial successes of the Chinese economy. By 1985, I believe, I have the statistics here, there were 12 million TVEs in China. By the mid-1990's, most of the industrial production of China was done by TVE. So then you have to ask why--this is an invention, but we don't see it in other countries. Why in China? Well, people who look back on it think that it was inventing around certain constraints at the time in China. And that the invention got around a legal constraint. That China, having been a communist country, did not have all these financial lawyers. And they did not have courts that enforced legal contracts the way we do in the U.S.
And that entrepreneurs in China were inhibited from starting an enterprise, because they thought it would just be usurped by the village. You live in a village, you start a toy company, as soon as you start making money, they'll just put a tax on you. Or, they'll take it. That was your worry. So, you had to involve them. It was a fact of life, a very important fact of life. You had to involve the whole community. You could not start a business without involving the community. But it was a very successful invention, because it actually led the Chinese economy on its first huge successes."
© Robert J. Shiller
Yale Lectures on Financial Markets (2011)
[link]
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