Analysis Of The Rising And Falling Of Merchant Clans (Business Gangs) In Terms Of New Institutional Economics

With the theory of transaction cost, property right, institutional change, and other basic theory of new institutional economics, the article trys to disclose the causes and rules of the rising and falling of China's ancient merchant clans represented by the Jin(Shanxi) Merchant Clan and the Hui(Anhui) Merchant Clan. It also takes the institutional changes of the Wenzhou Model as an example to illustrate the rules and the trends of the contemporary merchant clans.According to the institutional economics theory, the official policy system is a kind of formal institution. China has been a centralized country for thousands of years and the formal institutions held a decisive position in business development. After having studied on the formal institutional changes in Qing and Ming Dynasty, we found that the rising and falling of the Jin(Shanxi) Merchant Clan and Hui(Anhui) Merchant Clan was in accordance with formal institutional changes.Under the same systems, why Jin and Hui Merchant clans were much more outstanding than their peers? The article explains the reasons using the concept of informal institutions. The prosperity of the two clans owed to the informal institutional factors such as identity recognition, traditions and customs, and culture accumulation.In terms of transaction cost, we can find that a good institution can accelerate the business development, whereas, as the operation cost became bigger and bigger, its inhibition against the institution became stronger and stronger. Thereafter, there would be an induced institutional change or mandatory institutional change. The Salt Government Offical System and the rising and falling of "the Hui(Anhui) Merchant Clan in the Qing Dynastry are two typical examples.Private business organizations run by Jin and Hui Merchant Clan are quite different from contemporary enterprises, but they are considered to be the progenitors of modern enterprises with some shared characteristics. For example, Jin Merchant Clan is much like running a family company, while Jin Merchants set foot in "join-venture" company. They even have professional agents as a shareholder in forms of human capital. The article, based on the concepts of property rights and enterprise system, has thorough analyses of this phenomenon. Taking Wenzhou Merchants Clan as a representative of the modern merchants clans, the article analyses its original conditions for its institutional changes, the process, and the characteristics, which will be helpful for us to study the development of Chinese Contemporary regional economy.In this thesis we reached such conclusions: a suitable formal institution is the basis and cause of the rising and prosperity of merchant clans. Otherwise, a system with increasing operation cost will hamper the development of the micro economy. Considering China's economic development, it greatly outlines the importance of institutional reform and the necessary of keeping in pace with the time. In the same system, the informal institution and internal system are the important factors for merchant clans or the modern companies. A Personified system can inhabit the long term development of the enterprise, while one Non-personified enterprise system can secure the long prosperity of the enterprises.