Between 1820 and 1980, the growth rate of average income in India and China fell behind the average rate in Europe and North America. Since 1980, income growth in the two Asian giants has been far above the world average. Economists and economic historians who believe they understand the emergence of international economic inequality in the nineteenth century, or divergence, have yet to explain the convergence using the same explanatory models that they apply to the 1800s. Can business history do better? Since corporate firms led the convergence, business analysts should have important things to say about the capitalist resurgence in India and China. Chinese and Indian Corporate Economies by Raj Brown, professor emeritus in international business at Royal Holloway College and an authority on Asian capitalism, is a book written in that spirit.
Although the book begins with the convergence problem, Chinese and Indian Corporate Economies is mainly a comparative business history of these two countries. Brown uses Europe-Asia convergence to motivate the study, but she quickly sets that problem aside. Europe is uninteresting—varieties of capitalism and varieties of globalization within Asia are more interesting. It is simply too old-fashioned to remain “trapped by . . . arguments of convergence or divergence,” which tend to treat Europe as the center of the universe (p. 1).
More than a definite hypothesis, the book sets out to establish the validity of an intellectual project. Brown clearly believes that comparing India and China is a useful and a necessary thing to do in order to understand contemporary capitalism, not only because both are large economies, but also because, starting in the 1990s, both economies internationalized and reshaped the world economy in turn. Too often, comparisons between them end up in general statements about economic policy or political economy. This book tries to be more ambitious. It asks why, despite both countries being subject to similar forces of change, such as liberal reforms or economic globalization, corporate capitalism evolved in different ways in these two emerging economies. Brown's answer is that the initial conditions differed. The internationalization process was influenced by regional and local factors too deeply. History, business culture, law, consumption patterns, and forms of state intervention influenced corporate growth and especially the emergence of international companies in both countries.
The book complicates the narrative by making two further suggestions. First, inequalities within these countries created “spaces for interaction in the global world” (p. 7). Regions within the two countries were affected by internationalization and corporate growth in dissimilar ways, suggesting that for some purposes, the nation is not a useful unit of analysis for a recent business history. Second, because regional factors were so important to the story, “institutional and cultural challenges faced by foreign multinationals in China and . . . obstacles faced by Chinese multinationals in overseas markets” remained significant (p. 7). There is no one story of internationalization in emerging markets, this book tells us. Therefore, a comparative study is necessary.
What was distinctive about corporate capitalism in these two countries, and what was different between them? Brown seems to advance the general idea that, while companies gained from globalization, the globalization process did not change corporate governance enough. The two trajectories were correlated, no doubt, but not very deeply, and cultural and institutional legacies shaped governance more than did global factors. The India-China difference is set out in the penultimate chapter of the book. Brown suggests that the “segregation” of state and private enterprise, and a corporate law that recognized, even sustained, family firms, distinguished Indian corporate capitalism from that of China in recent times. These propositions, of course, have relevance for corporate governance.
Excluding the introductory chapter and the conclusion, the book contains fourteen chapters. Eight of these are on China, five are on India, and one is comparative. Parts of the discussion on China revisit well-researched subjects, for example, the restructuring of state enterprises since the 1980s (chapter 2). It is often said that despite rapid economic growth and high investment rates, institutional change has been slow to come. For example, both countries faced major difficulties with reforming their financial systems, which were redesigned in the mid-twentieth century to serve desired forms of investment. Neither country was decisively successful in the financial reform project, in part, thanks to a “weak legal and regulatory framework” and the adverse legacy of statism (p. 112, chap. 5). Chapter 7, on the labor market, deals directly with the issue of regional imbalance. Chapter 8 reflects on patterns and quality of innovation and makes the point that Chinese companies and state actors were especially successful in commercializing new ideas. Again, such arguments have been made before.
Brown elevates the analysis in three ways. First, she makes liberal use of case studies, and these are without exception knowledgeable and insightful. Second, the book is at its best talking about law, legal reform, courts, and legal cultures. Brown has done earlier, pathbreaking work in this field, and that advantage pays off. Third, the book believes that history matters in systematic and deep ways, working through consumer preference, associational culture, corporate governance, and patterns of business-politics interaction.
The book foregrounds several other issues that tend to be overlooked in recent business history. For example, chapter 3 shows the crucial role of consumption and retail trade in driving economic growth in emerging markets. Chapter 8, on innovation, makes a connected point: “China is focused on commercial innovation” (p. 197). The relevance of history is in view throughout. The persistence of consumer preference was historically inherited to some extent. So was associational culture. Chapter 4 shows the persistence of the “dynamics of Chinese associational links to dialect, [and] regional loyalties” (p. 77). A theme that runs through the book is that foreign investment and market development brought corporate governance issues into sharper relief than before. This effect was present in banking—and in stock markets: “China's cosy cartel-dominated economy meant that the stock market revealed more villains, often propped up by the state” (p. 131).
Well over two-thirds of the book is about China. The India section is shorter, and parts of it derive from the extensive literature on postreform India. Brown again uses case studies creatively. But one such case study (Tata) dominates the text so much that some of the propositions about the family firm or business communities may seem overgeneralized.
One cannot help thinking that the author ought to have committed to a smaller set of big ideas for the book to have more effect on future discourse on corporate capitalism in emerging economies. There are indeed big ideas here, but these are often drowned in description. A patient reading is needed to do justice to this tour de force.
