Euro-Asia Centre Research Series

Authority: The Vertical Order of Society

N° 76

July 2001

Gordon Redding Affiliate Professor of Asian Business INSEAD

INSEAD EURO-ASIA CENTRE Abstract

Authority is seen as one of the three components of culture which underlie the pattern of institutions in a particular society, the other two features being `identity' or the basis for cooperation and horizontal order, and `rationale' or the sets of ideas which convey purposes for behaviour. The role of authority is to provide the vertical order in the societal architecture, and the paper examines the way this occurs historically in the context of the evolution of business systems. The fundamental notion is one of the emergence of distinct and societally embedded business systems.

Classifications of types of authority are considered, using a mainly Weberian set of categories, and so a continuum of traditional to legal/rational. Components of this typology are examined, and the role of religion in affecting it is described. Empirical data on worldwide variations along the key dimensions is presented and discussed, drawing mainly on Inglehart but also Hofstede.

Three societal systems are then examined as cases to illustrate the emergence of alternative business systems deeply affected by different systems of authority. The first of these is Western bureaucracy, seen in terras of the influence of Roman law, then Christianity, then rationality. The second analysis is of the Japanese business system, and its origins in Japanese social history. The influence of decentralized feudalism in early Japan and its being carried forward during the Tokugawa period is brought into the account, and the diffuse nature of power in Japan today is described. In contrast, the final case, that of the Chinese system, as it developed outside China and now as it is emerging in China itself, is presented as an instance of the role of belief systems, in this case Confucian, on the retention of a centralized structure. In each case, some proposais are made about the impact of such forces on present day practices in the world of managing and organizing.

Acknowledgement Grateful acknowledgement is made for the research support provided to this project by Boston University's Institute for the Study of Economic Culture, INSEAD's Research Committee, and the Euro-Asia Centre, INSEAD Authority: The Vertical Order of Society

Discussing the idea of vertical order cornes from the need to understand how one society is different from another. Societies vary in three major ways: in how they think life should be lived, in other words the spirit which breathes through them (seen in a parallel paper via the question of rationality, in other words `reasons', considered previously); in how to organize the use of power and authority to establish a form of vertical order (this paper); and in how relationships and trust are organized to establish horizontal order (another parallel paper). They are not always clear about such things, but societies with strong cultures normally are, and any society has to be able to achieve a minimum of agreement and acceptance about such fundamental issues if it is to remain a society in which people can fit and understand their places.

It is a convenient simplification to separate out for analysis a single variable like `authority', even though within it there is much complexity. Such forces should not be analysed out of context, as they are inextricably bound up with other features of society, in ways which will become apparent. This convenience is, however, adopted here for the sake of concentrating attention on one thing at a time. Having done that, it will be necessary to demonstrate that patterns of values in culture tend to be connected and to be knitted together, in ways which give a culture its more rounded and fuller meaning.

Vertical order is about power and authority. It is about the kinds of people who tend to be above and below, why they are there, and how the flows of influence remain stable. In a formal sense it is a matter of who can require you to do things, to a degree that might concern you, such as your parents, your boss, the tax man, or a policeman, or your bank manager. In an informai sense, it is a matter of whom you take notice of, such as your grandfather, or your teacher, or a politician. It is also a matter of how these influences work, of why you obey, if you do. All societies need a sense of natural social order, and authority is the most important of the senses in which it is needed. As a necessity it will be created and justified and maintained. People need to know where they stand.

Take the case of a young executive in a company employing a thousand people in the United States, and an equivalent in Bangkok, and their relationships with the bosses of their companies. For most such cases in the US the executive would be there because of certain

2 competences, which justify being employed in that position. These might be an ability to handle financial analysis, or marketing, or production management, or some such specialism, possibly backed by a degree in the subject and some years of practical experience. The boss of the company would, in the case of most companies, be in that job because of an ability to deliver results, and would expect to step aside if the results were not delivered. By the same token, the boss would have great influence if the results kept coming, and would be able to keep the authority needed to get others to do what was needed. People have to earn a living and executives would realistically accept that keeping their jobs required them also to get results, to submit to being measured against them, and to do what the boss thought was necessary. The system is seen by most of those involved in it as fair, and they have the choice of walking away if they don't like it. It is not expected that loyalty to the company would force a person to stay in it if a better opportunity became available outside. Except in cases where the authority is abused, it is seen as legitimate, as reasonable, and as necessary. Without it the economy would not work and people would be poor. There are other aspects of it, such as legal protection, formai contracts, neutral and objective ways of giving reward, and ways of incorporating the wishes and ideas of people who work in the system, but these are peripheral to the main characteristic which is that the power works effectively because it fits in with what people see as fair and efficient. Here the basis of authority is the system of objective, neutral, reasonable allocation of influence based on ability and specialization. Its workings are based on two features ; it is rational in the sense that the work compliance required is part of a larger structure of specialized jobs which all lock together and make sense if everyone plays his or her part , and the total activity to which they separately contribute is seen as the right thing to be doing. So, for example, the running of an organization which gives people a living is seen as both desirable and reasonable. Secondly there are agreements entered into which bind the person to an exchange of work for reward and which carry accepted threats of punishment, if the bargain is not kept by each side. The authority lies in the system itself. Its technical name in social theory is bureaucracy and in Western cultures it is pervasive. This form of authority is not universal.

In the Bangkok company, assuming it is more or less typical of the indigenous companies of that city, the majority of which are owned and mn by people who are ethnically Chinese - although now Thai citizens - the young executive is likely to be in a position of trust and some authority because he or she is considered trustworthy by the boss. This may corne from some years of cultivating loyalty, or it may corne from relationships such as a family

3 connection or a friendship and obligation network of the kind which is often based on ancestral place of origin. The young executive's performance is likely to be good, as such organizations do not carry passengers, but it is unlikely to be measured openly. Nor will the rewards received be directly connected with the results achieved. The relationship with the boss will be one of respect and dependence, and there is far less likelihood of the young executive going looking for openings in other companies. So too is there less likelihood of suddenly being fired in a business downturn. The relationship with the boss is also likely to be more personal than in the US case, and the feelings of mutual obligation more marked. There is likely to be a naturally expressed deference upwards, which includes not challenging or disagreeing with the boss. The power of the boss to exert influence over executives like this is based largely on the boss's ability to display the kind of dignity and sense of responsibility which both Confucian and Buddhist culture see as ideal. The firm's performance is unlikely to be known in any clear detail, and only a broad sense of the firm's progress is available for judging the results of a CEO's actions. The likelihood of the boss resigning because of a downturn is virtually unthinkable. He, occasionally she, will own the company, and much of the authority carried will be because of that. It is a strong basis for social respect and influence, as long as appropriate behaviour is part of the package in addition. This form of authority is not rational-legal. The organization is not a bureaucracy in the technical social science sense (although borrowing of external managerial methods is common and is causing some change). It is more appropriately termed patrimonial, in other words a form of benevolent paternalism with authority based on ownership of resources. Much of its power is personal. It is in line with many non-Western ideals about how power should be used in society, and variations of it are widespread in many cultures. (Forms of this also occur in the West, in family businesses, but they do so in a societal context which surrounds them with bureaucratic ideals and legislation).

It would be possible to extend these descriptions up and down. Downwards it would be possible to describe the forms of leadership behaviour and patterns of motivation which typify the more micro aspects of behaviour in organizations. Upwards it would be possible to extend the analysis into the sphere of the society's political and institutional structures. In either direction the same features become apparent as constant themes, and although interpreted in different ways, they indicate a consistency in the way power is handled. Bureaucracy, and all its attendant components, runs all through Western society, visible at the base in ideas of equality, participation, and openness, and visible in the higher reaches in

4 democracy, professional administration, and civil society. Patrimonialism runs all through many other societies, visible at the base in forms of benevolently (or otherwise) autocratic behaviour, and at the top in forms of government which tend to display more centralization of power, and the holding on to power by specific elites. This latter may not always be visible in totalitarian dictatorship, but it is more likely to include variants such as one-party mle, reliance on military backing, strong central planning, or submission to a charismatic leader.

It takes many centuries before a large and complex society can achieve, if it wishes, the decentralization of power in stable conditions, a normal pre-requisite for being modern, and during that long period of time it is normal for the old power structures to be slowly dismantled. The process may occasionally be speeded up by revolution, as in England in the seventeenth century, America and France in the late eighteenth, Japan in the late nineteenth, but it still takes time to form the new structures in the society which will guarantee that the newly decentralized power will still be exercised in a way which contributes to the general good. These stabilizing structures are the society's 'institutions'. These are visible in such things as an accounting system, a legal system, and bodies set up to handle the work of education, channelling capital, spreading information, and so on. The key to their effectiveness in enabling a modern society to work is their independence – the fact that they decide themselves how they want to contribute to the good of society, thus increasing the total volume of talent and effort devoted to that purpose. They exist or are reformed on the basic of society's acceptance of that. The US banking industry was radically reformed in the 1930's as a result of the 1929 collapse and the loss of confidence in the banks. The Japanese banking industry is currently facing similar pressures. Without such relatively free standing institutions in place to provide a form of order in their special domain – as for instance with reliable accounting, or life insurance, or civil engineering - the result would be a much higher level of uncertainty, and the society might break up into separate factions, each making up its own mies for orderly conduct.

The authority system in a society reflects the degree of movement towards the modern condition, in particular the way power cornes to be diffused so that the proportion of people able to influence events goes up. The total amount of power in the society increases this way. It has a major impact on the society's institutions as they currently stand, and as they will evolve in the future. When the institutions remain tied to the central body, as for instance with the legal system in China and its control by the Communist Party, then it creates the grounds

5 for adding a political dimension to business decision-making and behaviour. This may not always be efficient in a more absolute sense, even though it fits the circumstances and makes practical sense for the time being. Each society follows its own track in the evolutionary process, that is if it does change (as most do) in the direction of the modern. The track will introduce certain biases, as the society's history and traditions are fed into the pattern of change, and each one will evolve differently. Canada and the US, for instance, share much in the way of context, but their institutions are very different, as were their political and social histories.

Variations in how authority works

The two ends of the continuum commonly used for describing authority are `traditional' and `rational'. Their workings are illustrated in Table 1. As a continuum it allows for much experimentation and mixing between the two ends, and any one society is likely to display a variety of modes of authority at any one time, but over time there is a tendency for one style to become dominant in a society and to be present in the majority of situations. There may also be mixtures at the personal level whereby different styles are adopted in the same day. The shopkeeper in the English rural village who takes the order for Christmas hampers from the local duke's butler, and promises to deliver them to the people working and living on the estate, may well express a degree of deference, and freedom with credit, which goes back centuries to a traditional social order. But in the same day the same shopkeeper may vote as a citizen in a national election and help to elect a candidate to represent him in parliament, on the rational basis of the candidate's policies — compared to those of others - for developing the village economy, and the political philosophy which lies behind such policies. The traditional and the rational can often live together, but in most societies one will predominate.

6 Table 1: Criteria of Tradition al and Ration al Domination

Type Traditional Rational Criteria

1. Legitimation personal loyalty legality

2. Organization A. Division of powers "standisch" constitutional division of privileges division of jurisdiction

B. Top position holders of privileges organs, elected or appt. hereditary, "elected" or political leaders, notables or "appointed" kings, princes, professional politicians lords, patricians, notables

C. Administrative staff "servants" "officiais" (civil servants) a. structure hierarchy of privileges of hierarchy ofjurisdiction of persons "agencies" b. definition of "office as personal right" "office as impersonal right" "office" tendency toward approp- tendency toward expropriation nation of means a of means of administration, administration in the form fixed remuneration, separation of benefices or fiefs, of official and private sphere "unity" of official and private sphere c. criteria of birth, "honor", property expertise recruitment

d. type of hereditary estates and commercial classes and status stratification property classes groups

D. The ruled traditional "members" and citizens subjects

3. Relation of the partial stratified differentiation functional differentiation orders conflict between religious struggle between political and political sphere for and economic sphere for permanent predominance. relative autonomy. State Theocracy, caesaropapism, administration dualism of political and hierocratic domination

4. Economic basis organized want satisfaction market economy (self-sufficient) oikos

Source: Schluster, 1981:120

Traditional authority is based on personal loyalty. The chief, the local lord, the monarch, are seen as capable of leading the community, and of looking after its members and their welfare. Allegiance may be sworn to them. And they form the necessary apex of a more complex structure, acting to stabilize it, and to prevent the disturbances of constant competition for influence. Partly to help in this latter regard, their positions are often inherited, and if not, then subject to careful choice or election. The way in which traditional

7 leaders rule is through an administrative staff who owe the leader service. As servants of the ruler they are given privileges, often in an elaborate hierarchy, which may include hereditary land ownership. The office the 'servants' hold is a personal right, and they may take resources from the system in order to cover the expense of exercising their duty, such resources often being mixed together with their personal property. The official and the private spheres then become intermingled. Recruitment into this governing elite is normally on the grounds of birth into the right family, but also sometimes as reward for acts seen as honourable, as in battle, and sometimes in consequence of wealth and assets accumulated. The people at the base of systems such as this are seen as `subjects', in other words they are subject to the authority structure above them, both in terms of its demands and its protection. Change in systems of this nature may be slow or fast, often depending on the degree of abuse which has accumulated, or in the sense of distance between the ranks. The French, suffering from extreme distance, dismantled theirs virtually overnight on July 14 th 1789. The British have taken about two hundred years in dismantling theirs and have not completed doing so. In the classic traditional society, the work of the economy consisted of satisfying the wants of relatively small groups, each within a local social nexus such as an estate with a village, a community, a hamlet, a farm and its household. Most exchange was local and based on barter or simple trading. Self-sufficiency was the ideal in such a community, and so connection into a wider world for goods or services was limited. Much of the world displays variations of this condition.

The opposite end of the spectrum, the `rationar form of authority, accumulates over time into a fully fledged and integrated system uniting a society under the principle of legality. Its centre-piece is a constitution, or at least a legal framework, and this binds ail, including the head person, into compliance with a set of ideals and rules of conduct which have been embraced by the majority as legitimate. The superstructure consists of `organs' of the society put there to represent the people, such as a cabinet, a parliament, a senate, a presidency. The administration of affairs is in the hands of officiais who are not personal servants but civil servants. They serve the state, not its leader, and they mostly continue from one administration to the next. They do so regardless of their private circumstances, and they are chosen for their ability and expertise, often via examination, as in an early version for the Chinese mandarinate, or currently for the commission of the European Union. They might in some countries be recruited from certain elite educational streams, such as the graduates of the Ecole nationale d'administration (the enarques) who fill the senior ranks of the French

8 government, or the Oxford and Cambridge graduates who have played a similar role in British society. The people at the base are citizens, in other words full participating members of the society. The economy in societies like this is usually based on widespread participation in a market, and is thus more or less unrestricted in its interactions and its reach. The reason for considering this form of authority `rational' is that the power of those in charge to direct others below them is based on the agreed agenda which those allowed to have power are responsible for implementing. So people at the base corne to understand and accept the way a society is organized, they take part in shaping its policies, and in doing so they accept the costs involved and their need to pay taxes accordingly. The payment of taxes is then seen as reasonable. It has a logic behind it, a logic which has been argued out and justified, and it is rational in that someone has worked out the most efficient way of organizing to achieve the agreed agenda. Accompanying it will be a system of accepted discipline to ensure compliance via a legal process.

A further component of this rational form of society may be the role of religion and its power to create or influence the societal ideal. In some societies, religion reinforces hierarchy, as does Confucianism, or Hinduism, or Catholicism. In the cases of Protestantism, and Buddhism, there is an opposite effect. In particular, Protestant beliefs, with their emphasis on direct personal connection with God, give rise to the dismantling of traditional hierarchy, and in the West have had much to do with the invention of alternative forms of vertical order. This role of religion will be examined in more detail later.

There is one further kind of authority which needs to be accounted for but which does not fit into the continuum. This is known as `charismatic' domination, and it can occasionally have dramatic effects, as for instance when Mao Zedong inspired hundreds of millions of Chinese to the ten years of the Cultural Revolution in 1967. Religious cults are often led by such a force, an example of which might be the Reverend Moon and the `moonies', or the Maharishi Mahesh Yoga. So too may it dominate societies, at least temporarily, as with Argentina and Eva Peron, France and de Gaulle or Napoleon, or parts of societies, as with Martin Luther King. The key to its working is not so much the individual, although that is clearly a crucial element in the effectiveness of the appeal, but the mission which he or she represents. The power cornes from the message being expressed, and such messages are often seen as an answer to an earlier experience of deprivation, discrimination, and resentment. The carrier of the resolution of this resentment suddenly has potentially immense authority. The

9 classic twentieth century case, and depressing object lesson in the power of this force, is that of Hitler and his capture of the German imagination with his answer to the deprivations perceived as willed upon them by other countries in the 1920's. A contrasting example of benevolent charisma is that of Nelson Mandela in South Africa.

Charismatic domination is, however, always out of the ordinary, and not directly connected with the standard forms of authority which a society is likely to be using. It may however successfully mix with them for long periods, as arguably is the case with the Catholic Church and the charismatic power which attaches to the office of a long series of popes. It must however be able to co-opt societal support or it will fade away, and so it is most commonly temporary. It will normally either collapse in the face of reality (which of course includes the death of the leader) or it will revert to operating within one of the normal modes, traditional or rational, or within whatever mixture of the two has been achieved to that point historically.

Where do countries stand?

There are two ways of seeing the workings of authority worldwide. One is in terms of the nature of its main mechanism, in other words the extent to which it reflects tradition, as opposed to rationality. The other is in terms of the extent to which sensitivity to hierarchy cornes to affect daily life and work. Two sets of research results are presented in graph form now to show these alternative perspectives. Each graph contains in addition a second dimension related to individualism, and that will be considered in more detail in a separate paper. It will, however, be necessary here to consider the interaction of the two forces, seen commonly by researchers and social theorists as representing the two primary features of societal differences worldwide. The combination allows us to see the world's cultural clusters, and so to begin the job of comparing the `civilizations' within which countries tend to be grouped.

Figure 1 is taken from the work of Ronald Inglehart and is based on the 1995-1998 World Value Surveys for 65 countries (Inglehart and Baker 2000) and also reflects findings from earlier surveys in 1981-82, and 1990-1991. The data presented here corne from a sample of approximately 70,000, or around 1400 people in each of 50 countries. The traditional / secular–rational dimension shows the most traditional societies at the base of the graph. In

10

these, religion is emphasised, and so too the idea of absolute standards, and traditional family values. Here, large families are favoured and divorce uncommon. They tend to emphasize social conformity rather than individualistic achievement, favour consensus rather than open conflict, support deference to authority, and tend to have high levels of national pride, and a nationalistic outlook. Clusters of countries which have such tendencies include much of Latin America, South Asia, and a number of African countries. Within the English speaking world there is a tendency for the US and Ireland to display these features to a greater extent than do the more purely Anglo countries, but to do so from a different position on the second dimension. The progression towards a more secular and rational response is found in the Confucian countries and in Protestant Europe, the latter being also distinct on the second dimension. The Catholic and Orthodox countries tend to have this tendency to only a mild degree. The Ex-Communist bloc in Europe forms a loose cluster in the top left quadrant but across a wide spectrum divided roughly by the Orthodox origins of its non-Baltic members.

I.? • kazgf Mil • I 1 1- — •• knorm tai.) - tee? ie.-, _ ...... ,.. : - - - r.e-Ar , Protesked . ...,.„ .. ,ekirii .... - -, Pker3 (.1pfe  - C u rcpc; ›, o. 6 - luitsta --. ..:•,

Figure 1: Two Dimensions of Cross-cultural Variation

11 Making sense of these patterns is helped by looking at a second graph from the same source which shows relative wealth in clusters. Clearly there is a progression from the bottom left corner to the top right, with two large bands across the middle. At the same time there are clearly clusters which stay consistent and which are based in religion. This suggests a number of conclusions, and they are summarized by Inglehart and Baker (2000:49) as follows:

13

1.3

threr

-1 7 —

1.5 - •-e 0 415 1.1)

•Iirdivc1 e.e4 F-Elepree,+:1A

Figure 2: Clusters of Relative Wealth Source: Inglehart, 2000:89

1. Economic development tends to push societies in a common direction, but rather than running together they appear to be running in parallel, in separate trajectories shaped by their cultural heritages. 2. The process of modernization is not simply linear. Recent changes in the modern world, such as the rise of the knowledge society, and the growth of the service sector, produce a different kind of cultural change from that which characterized the earlier age of industrialization, and it is a change which returns partially to an earlier value set, thus re-inventing its nationale. There is, for instance, in these prosperous cases a return to spirituality which reverses the trend towards increasing secularisation. So too,

12 the reversai of modernization can take place in conditions of economic collapse, as with the return to traditional values in the post-Soviet bloc. 3. Culture change is path dependent. A society historically shaped by Protestantism, or Catholicism, or Confucianism, or Islam, has a cultural heritage with enduring effects. The religion may not be overtly influential now for everyone in daily life, but it has in the past helped to shape the institutional fabric of society in ways which make that fabric very `sticky', very persistent. 4. Change is not `Americanization', as the American case is intriguingly deviant, being a society with much more traditional beliefs than many other rich country cases.

Turning now to another major study, that of Hofstede (1991), it is possible to separate out the question of power without having attached to it the extra components of its source in rationality or secular influence. This then illustrates the perception of the extent of sensitivity to hierarchy. Here the original study had a sample size of 117,000 across 66 countries, and has sine been confirmed by extensive replication studies. The dimension in question is `power distance' and this study reveals the perception of the workings of authority by the less powerful members of society. It is defined as "the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally". Hofstede (1991 : 27) points out that the index is essentially revealing of dependence relationships in a country. Where power distance is small, then interdependence between bosses and subordinates is common, and so too is consultation. In such cases, almost ail of which are Western, emotional distance between the levels is small, which means that bosses can be approached and contradicted without disturbance to the basic structure of relations, and means also that the boss is seen fundamentally as 'one of us' and not a member of a higher social caste.

In countries where power distance is seen as large, then subordinates are much more dependent. Emotional distance is also large, meaning that an implicit social hierarchy exists in the mind and affects behaviour subconsciously, so that bosses cannot easily be approached or contradicted. This results in one of two reactions among subordinates : one is to accept the dependence and see it as part of an exchange appropriate within that culture, as with Confucian paternalism ; the other is to reject it and to behave resentfully towards authority, a reaction often suppressed at the individual level, but visible in occasional outbursts of uncooperative behaviour, as is the case in France.

13 The scores and rankings of countries on Hofstede's power distance index are given in Table 2 (Hofstede 1991: 26 ). Also to provide the more meaningful viewpoint of two major cultural dimensions together, a graph is presented in Figure 3 (Hofstede 1991: 54). This shows the clustering of countries on Power Distance and Individualism-Collectivism. It is important to note here that this graph does not pretend to show exactly the same pair of key variables as the one shown previously from Inglehart's work. Hofstede's idea of power does not take account of its basis in rationality or secularism, but simply asks about the extent to which it separates people hierarchically. Is society seen as a ladder or not?

Table 2:Power Distance Index (PDI) Values for 50 Countries and 3 Regions

Score Country or region PDI Score Country or region PDI Rank score Tank score

1 Malaysia 104 27/28 South Korea 60 2/3 Guatemala 95 29/30 Iran 58 2/3 Panama 95 29/30 Taiwan 58 4 Philippines 94 31 Spain 57 5/6 Mexico 81 32 Pakistan 55 5/6 Venezuela 81 33 Japan 54 7 Arab countries 80 34 Italy 50 8/9 Equador 78 35/36 Argentina 49 8/9 Indonesia 78 35/36 South Africa 49 10/11 West Africa 77 38 USA 40 12 Yugoslavia 76 39 Canada 39 13 Singapore 74 40 Netherlands 38 14 Brazil 69 41 Australia 36 15/16 France 68 42/44 Costa Rica 35 15/16 Hong Kong 68 42/44 Germany FR 35 17 Columbia 67 42/44 Great Britain 35 18/19 Salvador 66 45 Switzerland 34 18/19 Turkey 66 46 Finland 33 20 Belgium 65 47/48 Norway 31 21/23 East Africa 64 47/48 Sweden 31 21/23 Peru 64 49 Ireland (Republic of) 28 21/23 Thailand 64 50 New Zealand 22 24/25 Chute 63 51 Denmark 18 24/25 Portugal 63 52 Israel 13 26 Uruguay 61 53 Austria 11 27/28 Greece 60

The first striking thing about the two graphs is the similar clustering. Inglehart's `English speaking' cluster is visible again in Hofstede's work and so too the separation of Protestant

14

and Catholic Europe. The lists of countries represented are not identical and Hofstede has more Asian countries, while Inglehart has more ex-Communist and Orthodox examples, and also more Latin American. Even so, there are clear similarities in the findings. Latin America displays traditionalism and also high power distance, clearly evident in both surveys in the high score cases of Venezuela, Columbia and Peru, and in the less extreme instances of Chile, Uruguay, Mexico and Argentina. Japan is an outlier culturally from its Asian geographic neighbours. India remains distinct from Asia more generally. The Confucian cluster remains visible in the close scoring in both surveys of South Korea, Taiwan, and China/Hong Kong.

lndivittualistn Sit iIl p:o ..y er t2;içrance

.____.— ---hi z...ci. e,",I1..".•. d!....147„;;Kt rDL . .. 1.-I.1.4 net,: \ (,..:1:ZIrriii.%r I l•i 1 •"Pet • .-1•011PER IDC, kOie eski .11 ".1-,y 1 f •, IL 1-: .11111, %.,,A, I ! ■ s i" ,e,e 1001 e.7 .-. airT :7_ 1 __ ,...... ,..e il:._.:,.. ...- ),-u..1 -- ‘k- . --tri,. rti..,z; . .A.R--i I _ +.1F.;-•. ,-•• A Fi.L. ..- .--. .11N • ---....---- — - - • Ir411 i .., ..... • ... tetSfi, • • •,p.,4 f À:. : I

1)4 — ...A A Ri 1 • ",À, — % te. 111 • ...Fie.A. 72 51:. I; I \ -.. 91 1 il "%14 ru seleAll:„E, .1.-i ..• --.------— -- --I • .ITA .--

pawer I p_bwrr dimanze Ludi•riduliist • I ! I 3fi 41; 51.; >1 e,,1 Ir)) tir;

effletr di•refutt.e ndrx

Figure 3: The Position of 50 Countries and 3 Regions on the Power Distance and Individualism-Collectivism Dimensions

As indicated earlier, these surveys are not intended to be directly comparable, except for the sharing of the intention to capture the main dimensions of cultural variation. They are also based on answers to small numbers of essentially simple questions and need to be corroborated by other research. But such confirmation is readily available, scattered throughout the disciplines of anthropology and sociology, and it may be taken that the two graphs capture most of what needs to be understood in placing the countries of the world in a

15 conceptual cultural geography. The 'second' dimension, that which deals with the place of the self in society as seen horizontally, will be treated in another paper, and so now it is appropriate to probe further into Inglehart's complex view of authority and examine the influence of religion. In doing this the framework of reference will be the idea of alternative civilizations. By this analysis, it may be possible to disturb fruitfully what Huntington (1996: 55) called "the widespread and parochial conceit that the European civilization of the West is now the universal civilization of the world".

The role of religion in shaping the authority system

Here we will stay simply with the question of authority, and how religion may shape the institutions which in turn influence the present day manner of handling power in a society. It has already been noted that the connection between religion and authority structures is indirect, and mediated by other forces, but the apparent resilience of the effect, even when religion is no longer a major part of social life, suggests that the underlying influence has been deep and significant. The basis of the explanation is that the religion shapes the most fundamental of the society's ideals and understandings and that these ideas are embedded in later thinking about how society should be best organized and why. These are the value and instrumental rationalities discussed earlier in the paper on rationality.

The clusters visible in Inglehart's graph are given their titles in deference to a widely read work by Huntington (1996), whose argument about the 'Clash of Civilizations' echoed parallel work based on the idea of a civilization as a stable and self-sustaining system of social order based at heart in a religion. Huntington saw vine civilizations in the world post- 1990: Western, Latin American, African, Islamic, Sinic, Hindu, Orthodox, Buddhist, and Japanese. Such systems seem robust over centuries, and a feature of each is a distinct worldview which shapes society. The idea of 'multiple modernities' is similar and has a growing literature. Key theorists in that field are Gary Hamilton (1994), Shmuel Eisenstadt (2000), and Tu Weiming (2000). Behind the current interest in the idea lies the realization that the `socio' in socio-economics is not going to go away, will continue to shape economic behaviour, and that a 'cultural turn' in social theory is due (Nash 2001). Eventually also there cornes to be included the acknowledgement that Max Weber's work, almost a century ago, for all its formidable complexity, remains a masterful treatment of the questions we still face about the workings of religion and culture in shaping society.

16 Civilizations are clearly not the same as states, and only in Japan do the two overlap. Nor are they defined by race. Instead they are the broadest levels of identification for people. As Huntington puts it, it is the biggest "we" within which to feel culturally at home, as distinguished from all the other "thems" out there. The core of this process of identifying is a common culture, a 'moral milieu', a shared set of understandings and their resulting institutions, customs, and structures. There is inevitably within a civilization a variety of interpretations of its basic premises, and major subsets may emerge within it, such as occurs with the Protestant and Catholic interpretations of Christianity in the Western case. Even so, the tendency of individuals to stay associated with people of their own civilization is marked. Chinese people find an instinctive affinity around the world as they meet for Chinese food in restaurants in cities far away from home, and they seek common identity in language, in forms of respect and in reassuring rituals of social behaviour. Japanese people cluster in places like London's St John's Wood, and share concerns over child-rearing away from home, and the chance to speak their own language. Americans coming out of China into Hong Kong used to go urgently in search of the reassurance of MacDonalds, and they move globally from CNN in one hotel bedroom to another, and from one American Chamber of Commerce to another. Meeting other Americans away from home they instinctively exchange points of reference and commonality – which state and city you corne from, occupation, religious sub- group, political allegiance, building up a picture to add to that already conveyed by appearance, and placing others in the common membership of the national ideal of the open, friendly, and overtly principled culture.

To trace the effects of sets of values based in a civilization on a society's system of authority, requires a set of propositions which are historical in nature, and which can only be stated and argued for, not proved with hard data. The argument will be made from a few examples rather than by treating all cases, and the examples will be the Western, the Confucian, and the Japanese, arguably the most significant currently in the arena of world business. We will later in the book treat them more specifically but for the moment the three categories will suffice to illustrate in an introductory way the varying nature of authority systems, their origins and their consequences. In preparation for discussing the variations which will become evident, it will be necessary to have a vocabulary (and so a theory) about how authority systems become different from each other. For this the authority is Weber, as seen through the eyes of his interpreters Schluchter, and Swedberg.

17 Types of authority

The main types of authority, or domination, are described in Table 3 (1998) Included in this are the effects on the economy and on the legal system. Another view showing the emergence over time of their separation is given in Figure 4. Although several of these may appear to be of historical interest only, they will be shown to be still relevant to the understanding of significant economies and management systems today. Doing business in China, Japan, Korea, Latin America, Russia, will be enhanced by an understanding of the nature of authority systems which have evolved along different tracks from those of the Western cases familiar from a large management literature. As the process of globalization increases investment in countries in which transnational corporations seek labour cost and other advantages, they will find their operations there meshing with unfamiliar forms of authority structure. These need to be understood for their grounding in local perceptions of how the world is and how it should be. Many organizational failures in foreign ventures derive from the inability to understand local structures of power and influence. This is also the context in which much corruption may be better understood, as that is essentially about the use or abuse of authority.

18 POWER ("the possibility that one actor within a social relationship will be in a position to carry out his own will despite resistance, regardless of the basis on which this possibility rests." )

Domination by Virtue of Authority I. Nature of Possibility Domination by Virtue of the Constellation (Power of Command and Duty of Utility vs. Duty of lnterests (Expecially by Virtue of Monopolistic Situations) Obedience)

Dominated by Virtue of 2. Nature of Claim to Authority: Dominated by Virtue of Extraordinary Authority Routine vs. Extraordinary Routine Authority

Domination by Virtue Domination by Virtue 3. Nature of the Embodiment of Domination by Virtue Domination by of a Personal Gift of of a Supra-Personal Claim to Authority Of Traditional Piety Virtue of lmpersonal Grace: lndividually Mission: Institutionally Personal vs. Impersonal (Task (Loyalty) Traditional Satutes: Bound Charismatic Round Charismatic Oriented) Domination Legal Domination Domination Domination

Genuine Institutional Charismatic 4. Nature of Organizational Patriarchalism and Patrimonialsim Direct Representative Genuine Charismatic Charismatic Formation Administration: Gerontocracy Government Government Charismatic Movements Congregations Movement With or Without an (Traditional Rule (Democracy) and Administrative Staff by Notables) tRabullees by Notables

Elective Charismatic Dynastie-. Lineage, 5. Nature of Recruitment of Sultanism and Prebendal Elective Officaldom Expert Ofticaldom Domination (e.g. And Office- Administrative Staff: Arbitrary Feudalism and (Legal Domination (legal Domination Plebiscitary Charismatic Open vs. Regulated vs. Patrimonialism Stiindesunit with a `Democratie with a Bureaucratie Führer-Demokiwtie) Domination (e.g. Appropriated Govemmental Staff) Governmental Staff) Patrician City- State, Fiefal Feudalism, Value in its Functional Anstalten of Grace) Value Own Right

Functional Value in its Value Own Right

Figure 4: Max Webers Sociology of Domination (A Typological Outline)

Source: Schluchter, 1989:406

19 Table 3: Main Types of Domination and Their Relation to the Economy

CHARISMATIC TRADITIONAL AND TRADITIONAL LEGAL CHARISMATIC DOMINATION: DOMINATION: DOMINATION DOMINATION PATRIMONIALSIM FEUDALISM

NATURE OF obedience is to the law obedience is inspired obedience is due to the contract of fealty between LEGITIMATION and to rules, not to by the extraordinary sancity of tradition; lord and vassal; a persons character of the leader there is a corresponding mixture of traditional and loyalty to the leader charismatic elements

TYPES OF bureaucracy; the official followers and disciples from house-hold staff to small-scale administration, ADMINISTRATION is trained and has a who later become more more advanced officiais similar to patrimonial staff career and a sense of like normal officiais as a with mostiy ad hoc and but with a distinct status duty resuit of routinization stereotyped tasks element to it; the vassal bas especially military duties

MEANS TO PAY Taxation; the officiai booty, donations, and the from the rulers own tributes and services from FOR THE gels a salary and like pay for the needs of resources or treasury; the subjects; fiefs to the ADMINISTRATION possibly a pension the "officiais" before the officiai first Bats at the vassals, while the minor AND TO routinization leads to rulers table, then gets a officiais get paid as in COMPENSATE other forms of benefice patrimonialism THE OFFICIALS compensation

LEGAL SYSTEM law constitutes a justice is made through justaposition of legal the contract between lord consistent system of reveiation in the traditionalism with and vassal permeates abstract rules that have concrete case; there are arbitrary decisions by the society and creates a stable been intentionally no legal traditions or ruler creates an unstable legal situation established abstract legal principles legal situation

EFFECT ON THE indispensible to initially hostile to ail forms hostile to rational the allies of feudalism ECONOMY, rational capitalism of systematic economic capitalism because of its goes against ail types of ESPECIALLY ON through its activity; when routinized, arbitrary element; positive capitalism; deeply THE RISE OF predictability; hostile usualiy a conservative to economic conservative effect on the RATIONAL to political capitalism force traditionalism and to economy CAPITALISM political capitalism Source: Swedberg, 1998, 69 + 86

It will be useful here to take note also of a related theory by Weber, which identifies six main types of capitalism, these being distinct responses to the surrounding political order, and contributors to that order. This set of types will be of use later in applying the classification used in this book, which takes a slightly different starting point, but which will benefit at times from occasional further subdivision. The six types are illustrated in Figure 5. They are seen as two types of rational capitalism, three types of political capitalism, and a single form of traditional commercial capitalism. The explanation of their origins and determinants is suggested briefly in the related Table 3.

Under conditions of legal domination, the law, and the set of `rules' governing society have corne to take precedence over the wishes of individuals. This is the modern condition familiar to most Westerners. This law is expressed in abstract principles and these have corne into being on the basis of widespread agreement, preceded usually by debate. No-one can

20 claim to be above the law. The administration of order within the society is done by career bureaucrats who have a sense of duty. They are paid for this work, by the state, with a salary. This form of authority is indispensable to rational capitalism, because of its ability to provide a stable and predictable set of circumstances within which business decisions can be made. The rules of the game are clear, understood by ail, and policed uniformly.

CAPITALISM

TRADITIONAL POLITICAL RATIONAL COMMERCIAL CAPITALISM CAPITALISM CAPITALISM

MODE #1 MODE #2 MODE #3 MODE #4 MODE #5 MODE #6 Trade in Capitalist Predatory Profit on Profit Traditional free speculation political the market through types of markets; and profite through unusual trade and capitalist financeb force and deals with money productions domination" political dealsf authoritiese

Figure 5: The Main Types of Capitalism and the Principal Modes of Capitalist Orientation of Profit-Making Source: Swedberg, 1998:47

Under conditions of charismatic domination, visible currently in Cuba or North Korea, and recently in China under Mao, or to a degree in Russia under Yeltsin, a leader of extraordinary character inspires obedience, and, as noted earlier, will usually promote a mission to correct previous societal wrongs. He or she will begin the period of domination with the help of a group of followers or disciples, but over time these people will become more like normal officiais as their work takes on a routine nature. In the early stages the `officiais' are paid from captured resources, as with the case of expropriated companies, or from donations to the cause, as with Russian aid to new communist countries, but in time official pay is also routinized. The legal system often lacks abstract principle or tradition, and can be very unpredictable in consequence. As in the Cultural Revolution, or the Russian

21 `show trials' under Stalin, the aim of the legal process is simply the pursuit of a political agenda determined at the centre. Some forms of charismatic domination may be judged by history as benevolent, as perhaps would be the case for Allende in Chile, or De Gaulle in France, but the majority seem to bring with them a weakening of the society. Systematic economic activity does not fit easily with this kind of arbitrary central power, as investors in Vietnam in recent years keep finding. When the charisma becomes routinized (the vision is interpreted by large numbers of followers and administrators) then the result is usually highly resistant to innovation. There is often paranoia over bodies representing alternative power bases, as with the students in Tienanmen Square, or the Falun Gong.

Under conditions of traditional domination or patrimonialism, obedience is heavily influenced by tradition, which itself becomes sacred, and loyalty to the leader can be strong because of his or her representation of that tradition. A clear example is the role of the Emperor in Japan, or of the Queen in Britain, both of them heads of state with centuries of ancestry, but neither of them deriving authority by virtue of personal charisma : instead embodying and representing the idea of the nation and its continuing existence. The most common traditional reward for the administrators who run the state, and deal with such issues as tax gathering, and national defence, is the gift of resources such as land and titles. This is the exchange of the 'right to extract' for the `duty to assist and to administer'. An example of this patrimonialism at work in the modem era is visible in Korea, where the chaebol leaders, over a period starting with the Park reforms in the 1960's, and running up to the mid 1990's, were given the chance to get rich by holding equity in large family corporations while those corporations undertook to implement the national development plan designed in the Prime Minister's office. An illegitimate interpretation of this same urge to get access to state resources is visible in the wholesale take over of state assets by opportunistic entrepreneurs in both China and Russia recently, as the grip of the state on the economy relaxed. Another widespread response among officiais in patrimonial conditions is corruption. This ranges from the petty corruption which reflects the perception of extractive rights which go with public office, to the wholesale crony capitalism of Indonesia or the Philippines, or much of Africa, where political leadership in effect licenses others to do the extraction in exchange for a share in the proceeds. The psychology in such cases is that the elite acts as if it owned the state, and the range of responses reflects the contrasts between responsible and irresponsible ownership.

22 In conditions such as this, patrimonial authority figures often resort to traditional legal processes rather than to more modern law (within which they might be held accountable). They may also impose their own arbitrary legal structures, for example by declaring martial law, or by imposing presidential decrees, and the legal system is thus unstable. This makes the environment hostile to rational capitalism, and it results in only two forms of business being effective. The first is political capitalism, in which large corporations ally with the political leadership to obtain the right to function, seeking monopoly rights if they can get them. The masters of this highly rational response to circumstances are the large ethnic Chinese business groups in the ASEAN states, notably the Philippines, Indonesia, and Thailand. The second response is traditional small business, with its ability to survive without the need for large free and fair local markets. This is the condition of much of the world.

Feudalism is a hybrid form of authority structure, combining elements of the charismatic and the traditional forms. Historically it helped to form much of the modem attitude to authority in both Japan and mainland Europe and although its influence is now buried under more modem responses, the mindset which it fosters is arguably still widely operative. Its essence is the relationship between a vassal who held land from a feudal lord and received protection in retum for homage and allegiance. The European notion of noblesse oblige is paralleled by the Japanese bushido ethic and in both there lies the idea of the exchange of protection downwards and loyalty upwards. Status and respect within the society were assigned in accordance with the upholding of these principles. As the inheritance of land ownership and aristocratie title in both Europe and Japan was by primogeniture, the eldest son normally inheriting all possessions intact, then the system could be perpetuated for centuries. Its charismatic element came from the way in which the successive 'lords' represented personally the delegated power of the successive monarchs or shoguns. The legal system found a base in the vertical exchange of obligations, and in the British case this provided the foundation of its modem law, through the enforced acceptance, in the year 1215, by the king, of Magna Carta, the `great charter' which specified rights and duties.

Feudalism is essentially conservative and not conducive to capitalism without substantial adjustment. Those adjustments came for Japan in the Meiji Restoration of 1868, and for Europe over centuries of change, but old attitudes to authority are remarkably resilient. Having samurai ancestry in Japan does no harm these days and is regularly acknowledged. The English aristocracy and the residual elite of Europe listed in the Almanac

23 de Gotha have a great capacity to remain subtly authoritative. World War 1 destroyed much of the power of the British class system, but the slaughter of the trenches could not have been endured without the sense of loyalty of millions, and the perceived legitimacy of the socially defined officer elite.

Three examples of culturally determined authority systems in the modern world

1. Western legal rationality

The heritage of Greece and Rome continues to be visible in Western societies. The Greek legacy has influenced the political ideal especially, and specifically with the notion of democracy. The Roman legacy has tended to have more influence on the legal ideal, and it did so by acting as the base upon which Christianity built its historical influence in Europe. As Hamilton (1994) explains, authority in the Mediterranean area in pre-Roman times was patriarchal. This means that the head of each social unit, an oikos, or household (which could extend, for example, to a farm with its workers), ruled over a prescribed set of subjects. The power of the patriarch came from his personal link with the gods, of whom the Romans had many. He controlled that link. This form of authority was common in many societies and it always contains an internai tension. Some action will be bound by tradition, and some will be free of mies and subject to the patriarch's discretion. In the cases where there are many gods, and so much focussing of detailed traditional belief patterns, then the patriarch's discretion is limited; people know from previous interpretations what is to be expected. But when there is only one god, the monopoly of interpretation, which the patriarch has, gives him much more power. So, the arrivai of monotheism in the form of Christianity substantially changed the structure of authority.

Two things happened consequently to Roman society. Firstly secular and ecclesiastical power came together at the centre in what Weber termed " caesaropapism". In this the ruler controlled both state and religion. Secondly, and perhaps more significantly for daily life and commerce, the power of patriarchs came under greater control. Roman law became more codified, more routinized, and less dependent on the discretion of individual power holders. This took place alongside the enlargement of state power at the centre and the growth of new state institutions. Jurisdiction took over from patriarchy.

24 In any system of authority there has to be an ultimate source of the right to command, and for Western Europe from the late Roman Empire onwards, this became Christianity. It made possible the adoption of a transcendent explanation, above and beyond direct experience and requiring faith : God was in his heaven, and those on earth should believe in the possibility of reaching it, and would do so by compliance to Christian principles in behaviour. This theology became institutionalised in the Church, but also the authority was transferred to heads of states, who derived their right to mle either by claiming to be the personal links to the heavenly order, or by having their positions sanctioned by the head of the Church. Weber saw this working on the basis of a kind of "office charisma" whereby the office itself came to be revered for the power it contained and which it gave to the person occupying it. This same special foret of charisma, from the mediaeval period onwards, came to be attached to families in the feudal elite, and "lineage charisma" became a feature of bloodlines. Originally based on military prowess, this right to mle, at either state level with royalty, or local level with aristocracy, became almost supernatural in its effects. It was normally part of the larger structure of the monarchy, headed by the king or queen as God's selected leader on earth. By the sixteenth century the emerging states were being conceived as one of the monarch's two bodies. There was his or her physical body, and there was the public sphere over which he or she reigned, seen as the `corporate' in other words the embodied state, or in some accounts the 'body politic'. Such personalization of power would arguably not have developed to the extent that it did without the Christian dimension which allowed such powerful claims to special status; claims which, moreover, could not be challenged, and which were reinforced by a massive array of symbols and institutions.

The Roman state, as it centralized and created new institutions had also codified its laws and spread their effects throughout society. Building on this legacy, and following the same path, the newly emerging states of Europe came to do the same thing. In varying degrees, and with a variety of societal structures, the notions of free individuals, of ownership and control of property, ownership of one's own labour, came to be part of the social condition. Christianity had a place in this process, in particular in its Protestant form which placed high stress on the integrity and freedom of the individual. Macfarlane (1978) has shown that the English experience was very different from that of many mainland countries in this process, and that individual rights developed in England very early. The ability to own property personally, and the consequent increase in the incentive to have it accounted for in

25 the field of business, are held by Weber to form two of the most important benchmarks in the development of modern capitalism, an opinion confirmed in de Soto's recent study of the third world and the problems of capital starvation in conditions of plenty (de Soto 2000).

By the beginning of the sixteenth century, two revolutions in thinking would corne to challenge the Christian-based power structures of Europe, following different sequences in each country, but led by the Protestant north-west. The divine right of kings would however be given up only slowly and unwillingly. The sequence of changes would be a combination of evolution and revolution and would take centuries to work their influence. They would change the nature of domination and usher in the age of rational-legal authority in the West. The first major challenge to orthodoxy was the Protestant Reformation, which challenged the right of the Catholic hierarchy to control access to God and replaced that monopoly with individual direct access to the deity and to potential salvation. This greatly increased the sense of individualism, and brought with it a massive reappraisal of rights, duties, obligations and traditional forms of power. The founding Puritans of the United States took with them a strong form of this mentality. The second major challenge was over the monopoly of access to the truth. This was led by Copernicus, introducing a scientific view of the universe, and by Descartes, beginning to shape the idea of a rational method for acquiring knowledge. These new perspectives began the slow process of undermining the charisma which had been attached to the holders of high office on the grounds of their proprietary access to understanding. From now on ordinary people could think for themselves about their place in the world, and began to do so.

The Age of Reason in eighteenth century Europe speeded up the societal changes and led to the plural democracies of later centuries. In these, power is extensively de-centralized, and is seen as illegitimate if it becomes too focussed in an individual. The societies have constructed a great range of new institutions to assist in stabilizing societal order, and these have tended to emerge from the central domain of the growing bourgeoisie, a group particularly concerned with stable, reliable, processes of exchange. This order is self- governing in large measure, and in large measure it does the job it is designed to do, namely to diffuse influence throughout the society and allow people to mn much of the system themselves.

26 In achieving this diffused empowerment, much changed. Science undermined the right of religion to explain the cosmos. Direct access to God by individuals led to religiously directed self control. Rational calculation of individual interests then became relevant. The mass of independent, self-controlling individuals, was then ready to see the sense of calculable rules and standards, and the sense of conforming to and contributing to the order. The acceptance of this discipline became the heart of new forms of enterprise, and the possibility of the modern corporation was a result of the eventual adoption of an entirely re- invented form of domination, different from any that had gone before. Hamilton (1994: 197) describes this transformation as follows

"The rise of the rationalist organizational paradigm produced a subtle shift in logic : groups, still as organized jurisdictions, became reconceptualized in terms of the activity in which the participants, as individuals , were engaged. The individual served as both the fundamental unit of activity and the fundamental unit of control. The legitimate power holder becomes recast as a manager of the activity, a traîner of people, and a follower of organizational rules. The new organizational paradigm, with its logic of normalizing activity, and normalizing people to fit into the frame of that activity, was quickly incorporated in existing forms of Western business activities and transformed them. The economy, like every other sphere of activity, was subject to this new way of thinking. Enterprise should be reconceptualized and restnictured, not as a way families earn their livelihood or as a place where the masters' wishes prevail, but rather as a way to systematize manufacturing activities. The economy and the economic institutions through which the economy is organized are conséquences, rather than causes, of developmental changes in Western civilization."

A question inevitably suggests itself. Can this form of organization be used, in a natural way, in societies which have had a different evolution?

2. The Confucian idea of vertical order

What follows here is essentially about China, but aspects of what is described also apply to the sphere of influence in Asia which might be said to be penetrated by Chinese cultural understandings about power in society. This sphere includes Korea, Hong Kong, Taiwan, and Singapore. There is also a historical residue of influence on Vietnamese thinking about power, resulting from its millennium of status as a tributary state. Ethnie Chinese are

27 also highly significant in the economies of Indonesia, Malaysia, Thailand, and the Philippines, and much of their organizational behaviour is founded in Confucian norms about authority. It is noteworthy that Japan is not included here. This is not because Confucianism never came there. It did, and it was significant. But, rather, Japan developed an alternative view of power very early, and has maintained it into the modern era, as will be seen later.

The civilization of China is very far removed, in terms of its fundamental structure, from that of the West. The starting point of the difference is that China has had no divine right of kings. There is no God to provide it, and no transcendental heaven towards which to aspire, no permanent `great beyond'. Instead, there is a view of a harmonious hierarchy of heaven, earth, and mankind, all permanently bound together, and interacting. China, as the 'middle kingdom' Chungwa, is the intermediary between heaven and the human world. The cooperation of people within this natural hierarchy is based on a harmony found within the cosmic pattern. The sense of this order as being natural is distinctly out of phase with the Western notion of law as a man-made alternative structure for imposing order.

The ideas which express this worldview are gathered together in two major sets of beliefs on how life is explained and should be lived. The first is that of Taoism, the beliefs which stress the natural order and the place of human beings in nature. This includes beliefs in a whole series of spirits and of `minor' gods, such as the kitchen god, or the god of fishermen etc. It also embraces the charming, and occasionally unnerving, beliefs in feng shui, the geomancy which pays attention to the spirits of place and of space relationships. The second great belief system is that defined by Confucius. This is not a religion, but a set of prescriptions for how a good society should be designed. It gives each person clear guidelines about conduct, and clear principles upon which social harmony can be maintained. It has had a profound effect on Chinese civilization, since its first appearance about 2500 years ago, and has continued, with occasional interruptions, to supply the core framework of Chinese education. The Taoist and Confucian belief systems are not competitive with each other and work together in the minds of most Chinese. Nor is it unusual to find Buddhist beliefs, or Christianity, in the non-exclusionist and tolerant Chinese mind.

Without divine right, the power over others, which is symbolized in the role of the Emperor, comes to be exercised as long as it promotes the natural order. The vocabulary of its legitimation stresses obedience by all individuals to their positions. This includes obedience

28 by the Emperor to the demands of his role, and he can Jose 'the mandate of heaven' for behaviour seen as unfitting to the responsibilities and duties of leadership (currently for instance the great fear of the present elite as regards Tienanmen Square). The role of emperor is nevertheless quite forcefully dominant and he is a true centre of power, and a strong interventionist in the workings of the government for most of Chinese history and tradition. The dominance of recent successors to the role, such as Mao or Deng Xiao Ping, was clear, and so too was the mass of expectations to which they played.

Roles, in the Confucian system of order, are clearly specified and contain mies for how others are to be related to. Much of this structure is hierarchical and rests on obedience, which is not just obedience to another, such as that of a son to a father, but also obedience via conformity to one's own position in a wider sense. There is a deeply imbued sense of propriety, of conduct which is judged by others for its appropriateness. So too is there much attention to the socialization of individuals into their correct understanding of civilized conduct.

Traditional domination in the West, under the influence of Christianity, came to be interpreted through social systems which stressed the supremacy of individuals. In China, traditional domination came to be interpreted decisively in the opposite direction, via the supremacy of roles. Appropriate conduct is the ideal. This is a difference not of degree, but of kind, and it results in a society which operates on radically different organizing principles. The person does not corne first. The perceived natural order takes priority. One of its commonly discussed outcomes is the contrast in worldviews, in which the West came to emphasize mastery of the world, and here an individual is relatively unconstrained and challenged to take charge of surrounding circumstances, for instance via the use of science in submitting natural forces to human control. The Chinese, by contrast, emphasized adjustment to the world, and so a tendency not to interfere with the natural order. Another significant outcome has been the resistance within the Chinese social structure to forces of change which affect the fundamental structure. The system has built-in rigidities.

In the economic sphere, the Chinese position has consistently been to create institutions which would achieve two purposes : firstly, a harmonious set of hierarchical, ordered relations between the political, social, and economic spheres, harmony and order being recurring themes ; secondly, the guarantee of people's livelihoods. All would have parts

29 to play, all would contribute, all would conform. The actions of people would be regulated by the norms, and far less through resort to law. For most of Chinese history, the family was the basic unit of society and the head of the family was charged with responsibility for maintaining harmony and compliance within it. The law tended to be used to make examples to keep behaviour consistent, but within the family the father was the law. The rights of individuels were of little account before the power of the system.

For most of Chinese history also, the commercial and industrial sector existed under severe constraint. This was not just a matter of officialdom using taxation, proscription, regulation and expropriation to keep the practitioners of business from growing too powerful within the state. It was also a matter of popular psychology, as the Confucian hierarchy consigned business people to the lowest rank in society. This meant that those who were merely privately wealthy could not compete in influence with the austerely superior world of officialdom. It has taken almost a social revolution for this ancient bias to be worn away, and the main locations where this has happened have been cities like Hong Kong and Singapore. In China itself that slow revolution is only just beginning.

In the West, a system of power grew over time, which took the Roman tendency to have elaborate jurisdiction, and the Christian concern with the individual, and produced legal definitions of property and ownership ; authority there followed clear jurisdictional lines, and it became widely disseminated. The Western firm, for instance, is a legal body with a life of its own jurisdictionally. In China, by contrast, both jurisdictional principles and individual autonomy are historically absent. Instead, the society worked on the principles of (a) the status hierarchy and the codes and regulations which maintained that status by controlling the behaviour of people in it, (b) obedience to roles rather than command structures, (c) network building to achieve harmonious connections as necessary upwards, downwards, and sideways. One of the subtle and almost indiscernible outcomes of this tradition is a view of the economy as network-based rather than firm-based. The Western firm, with its clearly delineated boundaries, and its very specific accounting and human resource records, fits uneasily into the Chinese scenario. This is not to say that the two are incompatible in a practical sense. It is to say that the use of Western organizational assumptions and practices may be a highly convenient partial borrowing in cases such as Hong Kong , Taiwan, or Singapore, where it fosters access to world capital, technology, and especially markets. It is to say also that the jurisdictionally defined firms, now taking over the economy in China's private sector

30 expansion, may prove to be a mass of revolutionary cells challenging the old order. But they do so slowly, and in a Chinese way. Private capitalism in China is network capitalism, and its eventual shape as a system will not replicate that of the West.

No discussion of power in China can be complete without reference to the persistence of totalitarianism, and consequently of elaborate hierarchy. Nor can any consideration of absolutism in China be made without acknowledgement of the unique challenges of managing such a huge country, now with a fifth of the world's total population. The formula adopted historically, described in simple terms, was that of control via the administrative apparatus of the mandarinate. This group of elite civil servants, chosen by competitive examination, held a monopoly on the interpretation of the state ideology, which was essentially Confucian, and which required constant fine judgement in the detail of the legal process, the mandarins being the only people permitted to make such judgements. The role of the emperor was to represent this power structure and to work in collaboration with it, but not to take absolute power over it, as would a patrimonial monarch, (except in the special cases of the imperial edicts). This would have led to a practically unworkable level of centralization, an administrative bottleneck, and an unstable state. Instead, the mandarin elite maintained a balance, more or less, between forces which might have destabilized what they saw as the ideal state. They curbed the influence of the military. They influenced emperors towards policies which would keep the state stable, and they removed imperial failures. When commercialisation threatened, in various waves from the sixteenth century onwards, to introduce a powerful bourgeoisie of the kind that had turned European society upside down, they brought commercial power under state control. They did this for centuries and only failed in this balancing act when the whirlwind of change swirling outside during the nineteenth century, could not be prevented from coming in. Suffering by then from dynastic decadence, overpopulation, invasions, civil wars, and extreme conservatism, the state then entered a period of agonizing turmoil for the first half of the twentieth century, resolved of least partially by the Communist Revolution of 1949. The old structure then re-established itself, except that the emperor was Mao, and the new administrative apparatus with a monopoly on the interpretation of the state ideology was no longer the mandarinate, but the Communist party. A radical difference was that the party membership was not chosen for its scholarship, and its legitimacy has, perhaps in consequence, been slowly eroded.

31 In this set of circumstances, the people of China have always been dependent on a vertical system of authority which they have personally taken little part in formulating or influencing. The wisdom has always been given from above. But, significantly, it has always been given from above by an aloof state authority, disconnected from personal relations with those at the base, and disconnected from specific vertical ties of mutual obligation. The mandarin was always unknowable, moving anyway every few years from post to post to prevent becoming known, living in a separate highly refined cultural world. His connection with the average person was tenuous in the extreme. So too, in the modern context, is the Communist party seen as living in its own ideological world. The average person returns instinctively to the basic unit of Chinese society designed to provide a sense of belonging, and a system of shared welfare at the practical level, the family. So Chinese society continues to be made up of families, surviving and looking after their own, in the context of a state superstructure which provides order as its sacred duty, but which tends to leave an emotional vacuum between itself and the mass of the people. This vacuum was temporarily filled by the state owned enterprises now struggling to maintain their obligations to their employees, but the direction of movement is now clear. China is reverting to its normal vertical societal structure.

A valuable summary of the main tenets of Confucian humanism, as it applies today in influencing East Asian modernity, is provided by Tu Wei Ming (2000: 263), who distils out the following ideals for leadership and governance:-

(a) Government leadership in a market economy is not only necessary but desirable. The `invisible hand' is less effective than the creation and maintenance of order by a government concerned with public needs and welfare. (b) Although law is essential for social stability, true `organic solidarity' can only come from humane interaction. This must be voluntary and cannot be coerced. Instead it must be achieved by example, by shaming and socialization into the rituals of civilized conduct. (c) The family is the basic unit of society, and the source of learning of the core values. Reciprocity is taught here, and so too hierarchy and obligation. (d) The family is a microcosm of the state and the state is an enlargement of the family. Civil society provides mediating cultural institutions between the two but does not replicate the much larger role which it has in the West.

32 (e) Education ought to be the civil religion of society, and it should aim at character building. In addition to skills and knowledge, it should impart cultural competence, and the capacity to understand and accumulate social capital. (f) Self-cultivation is a necessary condition for the virtue-centred leadership, mutual exhortation, civil interaction, and education, which together make for the good society.

It is inevitable that these ideals are not fully realized, but their cogency, and their ancient lineage, account for much of their influence, and for the likelihood of its continuation.

3. The Japanese system of authority

The renowned historian of science and civilization in China, Joseph Needham, once observed that Chinese and Japanese civilizations were so different, and the Japanese so close to that of Europe, that Japan might just as well have been towed away and anchored off the Isle of Wight. This does not, of course, mean that Japan was in any way influenced in its early development by Europe, but simply that its social structures, largely in isolation from the rest of the world, happened to follow closely the feudalism which also characterized much of the historical development of continental Europe. The stark contrast with its Asian neighbour is evident most vividly in the enormous wealth of Japan, and the relative great poverty of China. The explanation of that phenomenon has much to do with the way in which Japan decentralized power and China did not.

To understand the present-day extensive diffusion of power throughout Japanese society, requires some understanding of the history of Japan's evolution as a state, and especially the crucial difference between China and Japan in the roles of emperor and governing elite. By the fifteenth century, after a long period of internai struggles between regional powers, Japan had become divided into areas controlled by powerful local magnates or daimyos, some of whom could have had aspirations to full national dominance, except that the position of emperor remained intact. Unlike the Chinese emperor, the Japanese emperor could not be held accountable for his 'performance'. The role was sacred and the Confucian ideology was reinterpreted to prevent the emperor from being challenged. The role was also hereditary and served to represent Japan's history. As such it was unattainable, and has always been inviolate. It was however, in terms of the coercive power it could command,

33 weak. The emperor and his court were unchallenged but, in terms of influencing what went on in the fiefdoms they were no more than spectators.

Alter a period of near anarchy at the end of the fifteenth century, real controlling military power moved into the hands of the most powerful, and most astute, of the magnates, the shogun Tokugawa, following the decisive battle of Sekigahara in 1601. He then set out to design a state structure which would be stable, but which at the same time began crucially from the position that power in Japan had already been extensively decentralized. The regional `kingdoms' had become used to running their own affairs, and were in many ways

(but not all) similar to the European feudal domains of the same era. Each daimyo had held a fiefdom as a vassal, or dependant, of the current shogun. Japan had become a country of separate fiefdoms with a tradition of extensive autonomy, backed in each region by military strength.

The Tokugawa shogunate, which lasted from 1601 to 1868, created a different Japan, leaving Tokugawa himself to be seen by historians as the father of modern Japan'. By this is meant that he brought the country under clear central command, fostered a strong sense of nationhood, and introduced advanced administration. He designed the state using revived Confucian principles, and his successors maintained the design until it eventually became obsolete in the nineteenth century. Key to the stability of the society from that date onwards was the allocation of individuals to ranks of social status following the Confucian order of priority: scholars; farmers ; artisans ; merchants.

He also began the process of converting the samurai warrior class to an administrative group serving the state, and acquiring the culture and learning needed for that role in the Confucian schema. He organized the education system. He also, significantly for Japanese social psychology, froze the free movement of people, and restricted most peoples' lives physically to the area in which they were boni. The intention behind this enforced togetherness was to create stability, and this was achieved. Orchestrating a rebellious movement became much more difficult. But it also had a side effect. Centuries of this restriction would create in the Japanese consciousness a very strong sense of mutual dependence and group identity. Cooperation with others meant survival ; separating from your survival group was threatening in the extreme. The penalty for being found outside your permitted area was the loss of your head, and the samurai sword could effect this punishment

34 very fast. Foreigners were excluded, and the Christianity which had corne in earlier went underground. Japan would be effectively closed to outside influence for the next two and a half centuries, and would fall behind in technology, in military competence, and in economic development.

Like the France of Louis XIV, at roughly the same period, early Tokugawa Japan was both centralized and decentralized at the same time. The shogun supervised rather than administered the regions, or han. But he ensured that most of the daimyos who ran them were his vassals, his dependants, and that they were obligated to him. Almost all of them by 1650 were occupying different lands than their families had in 1600. Tokugawa had reallocated them, and their loyalty was reflected in their locations. He also maintained a strong military force bigger than any they could collect together. He required them to be present in the capital for long periods and to leave their families there as hostages. Power at the centre grew with the peace and prosperity that followed, and this power was encouraged by a monopoly on the coinage, the disarming of all commoners, the emergence of the samurai class as administrators, and a network of police and informers.

The samurai class of administrators was self reproducing, as all classes were hereditary. Here an extremely important distinction between China and Japan occurs in the method of inheritance: in Japan the system was of primogeniture, the eldest son inheriting all, and keeping the family lands and wealth intact. In China inheritance was partible, and wealth was constantly divided, family holdings thus constantly dissipating and dissolving through time. As the role of these longstanding samurai families shifted from a military one to a civil one, they came to monopolize an increasingly significant profession in the society, that of the bureaucracy. Paid with a stipend in rice, increasingly concerned to acquire intellectual skills as a means of progress towards the better rewarded specialisms in their own Tanks, less and less personally committed to their lords, and more and more to the state, this 7 percent of Japanese society had, by the nineteenth century, become the comerstone of the state's stability. Its reformulation of itself throughout the twentieth century would give Japan its capacity to manage the immense complexities of modernization via heavy reliance on its administrative class. Japan Inc would be an echo of an earlier samurai —centred state.

The revolution which brought Japan into the modem world in 1868, had been stimulated by a dramatic display of foreign power. In 1853, four US warships had arrived in

35 Tokyo Bay, carrying a commodore who demanded the opening of Japan to trade. Japan had been closed for too long and was well behind the now industrializing nations in strength. The ending of this vulnerability required a new system of power, and the move to create this was instigated by the fringe samurai groups of Satsuma and Choshu. The Meiji Restoration was not a civil war. Instead it re-shaped the appearance of the power structure, but especially did it encourage the taking in of ideas from the fast developing industrial nations of North America and Europe.

There then developed a long process of social adjustments, leading to the present day, which have served to keep Japan essentially authoritarian. But this is an authoritarianism of a distinct kind : it contains the institutions of democracy, imposed from outside and having taken root now over half a century ; and it has a power structure which is peculiarly diffuse, having no clear central holder. This is clearly a paradox. The most complete account of its workings, by Karel van Wolferen (1989) calls it an enigma. It continues, in other words to contain both centralization and decentralization at the same time. If we are to understand how the modern Japanese economy works, the nature of this unique power structure needs to be grasped. In this chapter that will be at an introductory level only.

The Meiji Restoration was not, like some other pre-industrial revolutions, an overturning of an older hierarchy, and its replacement by an increasingly participatory liberal democracy, or socialist experiment. Instead, it achieved a continuation of control by an administrative elite, and the subordination of the economy to the designs of that elite. There was major change : there was no longer a shogun ; the hereditary ranks were abandoned and the samurai disarmed ; education became the new definer of social esteem and the source of upward mobility ; industrialization came to be pursued in an orchestrated way ; the earlier land-holding elite was co-opted rather than victimized, as land reform came in. But running against these forces for change there were powerful features to keep change from being too radical. Firstly, the commercial class was weak politically and in prestige. Secondly, the practices imported to help industrialization were brought in with as few concessions as possible to Western institutions and with conscious attempts at re-interpretation and `Japanization'. Thirdly, the gathering together of new sources of power and influence at the base, as for instance might have happened with a strong independent banking sector and self- financing industry, or with the growth of worker based power in unions, did not happen. Influential industrial or working classes never grew until late in the twentieth century. The

36 forms of them that did emerge behaved in accordance with the habits of centuries, following hierarchical, leader-follower norms of fitting into the larger structure. Unions emerged as company unions. Large-scale, technically sophisticated industry remained closely tied to the state. What Chie Nakane (1970) terms the 'vertical society' of Japan, transmuted into the twentieth century against an influential context of quite fierce xenophobia, and with the emperor always present as the focus. It remains vertical today, and the idea of service to the nation, or at least to the community, remains core to the business ideology.

The ethics which sustain this vertical system reflect still the earlier 'bushido' ethics promoted by Tokugawa in his design for a stable Japan (just as the writings of Tom Paine or Voltaire might be said to permeate many Western responses to the same challenge today). The senior person has a duty to protect and provide for the welfare of his subordinates. In doing this he has a duty to take account of their wishes and ideas, and not to behave as a dictator. He is judged by his managing of harmony, and his orchestrating of consensus. In exchange he has the right to demand loyalty and obedience, once the purpose is set. Looking upwards in this scenario, the average person cornes to exhibit what Takeo Doi (1973) has identified as the prime constituent of the Japanese psyche – amae or dependence. The subordinate has the right to seek a sympathetic, nurturing, and tolerant superior, in an exchange process which, of course, can bring into play in return the power of guilt feelings on the subordinate's part. Lucien Pye (1985:163) has perceptively identified this as almost maternai rather than paternal. One of the unusual, and distinctly Japanese, outcomes of this system of vertical relations is the absence of strong, decisive leadership. This is ruled out where the ideal is leadership as representation and consensus managing, where negotiating between factions is valued, and dominating is seen negatively.

Individuals tend less than Westerners to take responsibility for their own fates but instead to seek security in the combination of group membership and benevolent paternalisrn/maternalism. This delicately balanced system of authority places a high premium on the sensitivity of the superior to the wishes of the group, but in doing so it is capable of releasing individual commitment of a high order. Its safety for the individual is also capable of sponsoring the exercise of individual talent and collective energy in unusual quantities by world standards. The radical contrast with the use of authority in Chinese culture lies in the liberating power in Japan of consensus, individual participation, and respect. In China respect tends to go one way, upwards. In Japan it goes downwards as well. In practice the amount of

37 necessary communications in the Japanese form is inevitably very much higher, but the stable widespread diffusion of influence to all results in a major difference between the two societies in the volume of talent available in practice. As Lucien Pye has observed (1985:161) Japan was capable of the transition to a meritocracy, whereas China retained a virtuocracy. It is noteworthy also that Western systems of societal authority are different again, and especially in their diffusion of influence to free-acting individuals.

The imposition of democracy on Japan after the Second World War does not appear to have changed radically the fundamental and traditional views of power and authority. The idea of an elite of administrators governing the state remains firm, and was noted by Lucien Pye, who, in commenting on the large proportion of ex-bureaucrats in politics, wrote 'the Japanese political elite includes an inordinate number of people who have a deep technical knowledge of the workings of government. The result is a politics of "insiders" of a kind unknown either in the rest of Asia or in Western democratic societies. It is the style of the bureaucrat which sets the whole political tone' (Pye 1985: 174).

The end-result is a one-party political system which has all the labels and trappings of democracies elsewhere but acts in its own way. As van Wolferen (1989 : 25) describes the exercise of power in Japan:-

`The Japanese prime minister is not expected to show much leadership; labour unions organize strikes to be held during lunch breaks; the legislature does not in fact legislate ; stockholders never demand dividends ; consumer interest groups advocate protectionism ; laws are enforced only if they do not conflict with the interests of the powerful ; and the ruling Liberal Democratic Party is, if anything, conservative and authoritarian, is not really a party and does not in fact ride.'

What van Wolferen terms The System is one in which nobody is boss but all have some form of influence over others. The key factions are the bureaucrats, the politicians, and the industrialists, but also the farming lobby, and certain other interest groups such as the construction industry, the bankers, and even, marginally, the crime syndicates. It is a matter of constant wariness and adjustment to ensure that no one of these cornes to dominate. The resulting lack of clear leadership helps to explain much of the paralysis which has gripped the Japanese state since 1990, in facing the Heisei bubble and the consequent recession.

38 Forms of vertical order and their impact on the business system

1. Power and authority in Western business

It is not argued here that a society's business system is shaped entirely by the society's power system, but simply that the system of vertical order will have an important part to play alongside other features, and especially the twin feature of horizontal order to be discussed in the next chapter. There will also be the influence of the institutional fabric of society to amplify or suppress those influences historically. So too will external forces, of universal technology, and of outside ideas, play a part. Given these conditions, the argument for the influence of the authority structure will now be illustrated briefly, and with the starting assumption, as expressed by W. G. Runciman (1989 :3) that 'the study of societies is the study of people in roles, and the study of people in roles is the study of the institutional distribution of power'.

The three cases just outlined show quite different formulae for the allocation of power in society. Essential parts of those formulae are the societal belief systems which underpin the responses. In the Western case, it is possible to trace the emergence of legal systems in Roman law, and of their detailed codification, and then the later carrying forward of this as a facility available for use, when stimulated by other forces. Those other forces would come to include, in the formative phases, the emergence in some countries, and especially England, of a high level of individual discretion and expectation of rights, symbolized in Magna Carta, and showing in widespread ownership of assets and land. This would be joined later by a strong force of reformist Protestantism, beginning on the European mainland, which then served to dismantle the previous monopoly of the Catholic Church over access to God. Making this access more individual and personal served to greatly increase the sense of individual independence and responsibility, at the same time bringing with it a growing scorn for traditional hierarchy. Followed by the new thinking of the Age of Reason in the eighteenth century, and the revolutionary upheavals which that (along with the previous abuses) gave rise to, there came about a series of evolving formulae for the good society : the French, the American, the British, the Dutch, the Swiss etc. They all carried one overwhelming design principle which was that power resided with the people, and that traditional hierarchy should, whether quickly or slowly, be dissolved. It would be a long time before the full development

39 of liberal and pluralistic democracy took place, but the decentralization of power, and its diffusion throughout society in stable conditions, has been a long and consistent trend.

These generally Western ways of seeing how society ought to be organized, despite being varied among themselves, shared certain fundamental common ideals wrapped up in the notion of democracy. This carried with it principles of participation, and of the acceptance of reason in arguing things through to a conclusion and a policy for action. It was this latter which so strongly contributed to the replacement of traditional, i.e. personal, authority, and its replacement with 'cleserved' leadership seen as legitimate because of the purposes it pursued. This brought with it the growth of professionalism, and included in this was the idea of the manager as holding power based on competence in that role (as defined rationally). One of the outcomes of this was a vast increase in social mobility, together with increases in incentive and opportunity and an explosion of wealth. In a separate paper I will add to this picture with a consideration of the role of horizontal coordination and its effect on civil society but that is simply acknowledged here as a further influence to be accounted for.

The end result, in the Western case, is that power in the society is very widely diffused, and the capacity of an individual to influence his or her own fate is unusually high by the standards of human experience to date. The business system has grown in response to this evolved societal design, and an ideal type description of the result (i.e. of features generally found but not always in every case) would include the following:

1. Individual employees engage freely in most employment relationships and (subject to the constraints of the labour market) are free to move around from job to job. They tend to do so with a sense of responsibility for their own fates. They will also expect access to promotion opportunity based on performance, and they will be sensitive to connections between performance and reward. Freedom of choice is a core belief. 2. Organizations, seeking to keep their employees motivated, will offer them a system of reward, assessment, and opportunity which reflects the societal beliefs about such issues. Many of these organizational processes will have emerged through legislation over time, and will continue to evolve, as, for instance, with equal opportunities legislation.

40 3. The preparation of managers for their roles will stress their acquisition of (a) technical competence, and also (b) the human skills needed to engender widespread acceptance of the purposes for which their roles act as coordinating focuses. This widespread acceptance, plus the reliability of the contractual relationships between people and organizations, has contributed to the achievement of vert' large scale in organizations. 4. The maintenance of this system is based on a last resort of legal protection, and the law will protect the wishes of society as expressed in the legislation, the debating of it being on issues of principle. The contract between the organization and the employee, or the other stakeholders including suppliers, partners, customers, is based on formai legal agreement, and rational debate. Objectivity and neutrality are used to protect the principles, and by that means, to protect the majority. 5. Ownership power varies much in its structuring, but in the stereotype case of the publicly owned company, the power is exercised on behalf of others, and those holding it are accountable for such exercise. The exercise of this power has been accompanied by an elaboration of the system of accountability through rational means, including public scrutiny. This has brought many people actively into the economic arena as owners. 6. There is a strong sense of performance, defined in a specific way, as being the key to legitimating behaviour in organizations, and in particular performance which increases wealth, or economic value. The acceptance of discipline by those involved is a part of this mechanism. 7. In practical terms, managers need to make it worthwhile for people to stay and work, and they need to resort to persuasion rather than coercion. They can cultivate personal obligation as a component in this process but rarely as a prime source of keeping people.

There are three corollaries which have gone along with these tendencies. The first has been a generally active and vibrant labour movement, at least for a significant period of the evolutionary history. This has led to a levelling up of the various claims to resources. The second has been a sharpening of the consciousness of professionalism in the managerial role, as the basis of its legitimacy has moved further in that direction. As a result, for example, degrees in management are now common in many Western countries. Thirdly has been a

41 steady growth in economic wealth for the system as a whole, a feature which has tended to reinforce the application of the core features, to say nothing of the collective self confidence of the system as a whole.

2. Power and authority in Chinese business There is inevitably a need to simplify across a field of much variety here, and one which includes not just China but also Taiwan, Hong Kong, and Asean. The variety includes not just geographical differences but also big contrasts in societal economic wealth. In addition, there are many kinds of Chinese business. Secondly, there is much change on the landscape. Even so, it is possible to recognize certain unifying features which cut across the variety and the change, and give it some inner consistency. More will be said of this later, but, in brief summary, the tenets of Confucian humanism, and of familism, are returning to their former dominance overall. In China itself the state owned enterprise sector is in decline, and its place in the economy is being taken up by the two growing sectors of the 'collectives' and private enterprise. The collectives are companies which combine state ownership of assets, usually at a local level, with new entrepreneurial initiative. The latter may well also be private in nature, and some may come from outside China in alliances. These companies are increasingly run in a market oriented and `managerial' way, rather than as instruments of political ideology (although that trend does not imply the emergence of a classic laissez-faire economy). They account for roughly half of the economy. The private sector in China, now the fastest growing sector with nearly a third of the economy, is an extension of the form of Chinese family business which has so successfully dominated the countries to the south over the past century. It appears to be returning home to its original context, bearing with it lessons about access to world markets, but bearing with it also a confirmation of the efficiency which can be released by use of the Confucian ideals for societal order, the vertical aspect of which is our present concern.

The most acceptable form of authority for Chinese people is patemalism. This is the centrepiece of the Confucian system of vertical order, and the foundation of its acceptance lies in ethics. People will subject themselves to a father figure, or the equivalent in a work situation, as long as there is a sense of being protected. The more the sense of protection, and the more the demonstrated ability to deliver it, the more the authority. There are large numbers of related guidelines to behaviour, but the essence is one of exchange : loyalty upwards ; protection downwards. This is a traditional form of authority. In a sense, the logics

42 of it were borrowed by the Communist party to justify their retention of power, and the party's hold on power still rests, in large measure, on the idea of caring for the people. This is now dwindling, as the delivery of prosperity is seen to lie with other societal structures like the free market and its disciplines, and authority is reverting to the owners and managers of firms. The firm again cornes to replicate the social psychology of the extended family and the clan, and China's socio-economic structure returns to familiar ideals which were suppressed for a time but never abandoned.

The workings of Chinese ideals about authority in the context of business, may be briefly summarized as follows:

1. For power to reside with a father figure is normal, and does not require always that the figure is an actual father. A person filling the role, and behaving appropriately, will attract compliant subordinates. Protection is expressed downwards ; deference upwards. 2. Discipline is managed by social processes such as shaming, as well as by the adoption of comportment which expresses hierarchy, such as the dispensing of favours. 3. The power of the boss may be transmitted through others representing him, but it remains essentially personal, and is commonly centralized for many decisions. The essential legitimacy is based on ownership and is then dispersed via proxies. 4. Staff loyalty is based on an accumulation of implicit mutual obligation, much of which may spill over into the private domain of the employee, where the boss may have provided help. 5. Performance of employees is likely to be measured specifically if the work permits that, and control downwards may be tight in consequence, especially in such fields as production work. Managerial and senior executive performance is not normally a matter for open scrutiny, except in the broadest terms of general corporate growth. Key staff may be judged on different criteria from others, and e.g. rewarded for loyalty. Reward systems are not as open as in the West. 6. Inequality is seen as normal, for influence, privileges, status, and wealth. This includes inequality in access to information, and leaves the boss in a position of being `didactic', of telling others what to do, and of their expecting to be told. 7. The society is structured to focus power at the top, and to provide stable order elsewhere. A context of democracy is rare : China is a totalitarian state ; Singapore a

43 one party benevolent autocracy ; Hong Kong an administered benevolent autocracy ; Taiwan the exception as a very recent and fledgiing democracy. 8. The political economy in all Chinese-run societies assigns heavy influence to the state to administer the market, and to take significant control over key industries. (The historical exception of Hong Kong is due to British ideology, but even there state intervention in many fields has been high, (as e.g. with property, banking, food, transport, power). The context of business is consequently quite politicised in many instances.

We see here a picture of societies in which power is essentially centralized in the political sphere, and both centralized and personalized in the business sphere. The Confucian ideal rests on the acceptance of this by people at large, and the implicit support is indicated in the adoption of the relevant instruments ; their response to their own ambitions for power has always had outlets via the growth of privately owned firms and this sector remains vibrant and expanding. As we shall observe later, network capitalism linking small private units is a distinct and efficient Chinese response The state appears to yield only slowly, if at all, on its sacred duty, and right, to preserve order and discipline. Most Chinese people have not been exposed to an ideology of choice in that regard.

4. Power and authority in Japanese business

We have noted that, in radical contrast to China, Japan became decentralized very early in its history, and held on to many of the effects of that. It was a feudal state, like many of those in Europe prior to the age of revolutions, and as such it fostered the achievement of wealth within its largely autonomous domains. It is reasonable to suppose that such wealth could not have accumulated unless there were achievements in efficiency, and that in turn these could not have been achieved under conditions of severe autocracy. Benevolence and stability, some protection of property rights, and participation, would inevitably have grown if commerce and production were to thrive. It must also be acknowledged that the quality of basic civil administration reached high levels during the Tokugawa centuries. The Japanese countryside traditions of consensus seeking, cooperation, and sense of community, are likely to be traceable back to that long period of peace, just as English individualism is traceable to the pre – 16th century era and its own distinct context. Autonomous local government was set in place very early in Japanese history and remains influential. This compares with similar

44 developments over the growth of free cities in Europe. China has never had this kind of free city or local legal autonomy.

At a more micro level, the ideals of consensus, and of leadership as representation rather than domination, are embedded in the bushido ethic, and they are reflected today in the unique nature of `Japanese management'. This form of subtle domination manages to retain high levels of subordinate engagement because of its ability to convey a sense of respect – at least to key subordinates. This in turn tends to be conducive to the encouragement of talent and the practice of skill. It also has the effect of stabilizing employment relations and trust- bonds and plays a part in the growth of organizational size to a point far beyond that which Chinese culture is capable of reaching (at a given standard of operating efficiency).

There is also an influence which derives from the view of the firm in the society. The strong sense of national identity, which is also perceived in vertical terms, leaves the firm with a place in a hierarchy of respect. This hierarchy leads upwards towards the great government ministries which have done so much to shape the economy, and more generally to the administrative superstructure of the society which manages the Byzantine form of command by which it conducts itself. Japan thus achieves both centralization and decentralization at the same time, a feat of great intricacy.

In the arena of business, the workings of the Japanese form of authority may be illustrated in the following examples:

1. Acceptance by business leaders that working in cooperation with the national administration is appropriate, for reasons which go beyond the pragmatic access to support which may (perhaps over time) be entailed. Note that this is not necessarily a deferential relationship and may include hard bargaining and non-cooperation at times. 2. Running a company as a community, although with different degrees of membership, and committing to a paternalistic concern over the welfare and employment of the core members. 3. Actively avoiding overt domination, and instead seeking cooperation and psychological engagement via the exchange of information, and early and extensive consultation. This applies both to subordinates and related interest groups.

45 4. Personally in a leadership role accepting a moral contract, based on a Japanese form of the Confucian ethic, in which responsibility for subordinates is part of an exchange in which their loyalty is returned. This may be expressed in more emotional, and personally close, some would say 'maternai' terms than would be the case in the Chinese interpretation of the same ethic. The Tokugawa interpretation of filial piety displaced the father figure and substituted it with the 'lord', insisting at the same time on unquestioning loyalty. The senior role includes acceptance of subordinate dependence and the obligations that carnes. 5. Ascribing respect in the society on the basis of educational achievement, and so in practice to the graduates of key institutions such as Tokyo Imperial University, Waseda, Keio, etc. 6. Making industrial arrangements (between, say, large firms and multiple sub-contractors) fit in with similar social psychology, and so inducing financial dependence, longstanding ties, and extensive interconnections. 7. Not treating women as fundamentally equal in most employment contexts. 8. Acceptance by most `salarymen' and employees, of rigid hierarchies for promotion in which personal performance does not lead to faster advancement. Nor is movement to another company for promotion common because of the similar hierarchy there. This rigidity is breaking down now but has by no means disappeared. It echoes what van Wolferen (1990: 257) described for the Tokugawa era as 'the moral injunctions chaining people to their proper stations that permeated life'. The regimentation and unquestioning acceptance of position may be largely a result of a continuing system of upbringing and education which stresses the surrounding natural phenomenon of state, society, and culture, as a virtuous force to be left unquestioned.

These three brief depictions of alternative systems of authority and their origins are intended to suggest that there are deep structures within societies which are incorporated into the economic domain and influence its workings. Seen simply as one of the two principal forms of order upon which will be carried the society's spirit, or package of reasons for action, they appear to be unusually resilient to change, and to be capable of reappearing in new guises through the generations, to achieve their work of making a civilization what it collectively wishes to be, and to remain.

46 Readings

Calder, Kent (1993) Strategic Capitalism: Private Business and Public Purpose in Japanese Industrial Finance, Princeton N.J., Princeton University Press de Soto, Hernando (2000) The Mystery of Capital, London, Bantam

Doi, Takeo (1973) The Anatomy of Dependence, Tokyo, Kodansha

Eisenstadt, Shmuel N. (2000) "Multiple modernities", Daedalus, 129/1, Winter, pp. 1-29

Eisenstadt, Shmuel N. (1996) Japanese Civilization: A Comparative View, Chicago, University of Chicago Press

Hamilton, Gary G. (1994) "Civilizations and the organization of economies" in N.J. Smelser and R. Swedberg (eds) The Handbook of Economic Sociology, Princeton N.J., Princeton University Press, pp. 183-205

Hamilton, Gary G. and C.S. Kao (1990) "The institutional foundations of Chinese business: the family firm in Taiwan", Comparative Social Research, 12, pp. 135-151

Harrison, Lawrence E. and S.P. Huntington (eds) (2000) Culture Matters: How Values Shape Human Progress, New York, Basic Books

Hauser, William B. (1974) Economic Institutional Change in Tokugawa Japan, Cambridge, Cambridge University Press

Hirschmeier, Johannes and T. Yui (1981) The Development of Japanese Business 1600-1980, London, George Allen and Unwin

Hofstede, Geert (1991) Cultures and Organizations: Software of the Mind, London, McGraw- Hill

47 r

Huntington, Samuel P. (1996) The Clash of Civilizations and the Re-making of World Order, New York, Simon and Schuster

Inglehart, Ronald (2000) "Culture and democracy" in L.E. Harrison and S.P. Huntington (eds) Cultural Matters, New York, Basic Books

Inglehart, Ronald and W.E. Baker (2000) "Modernization, cultural change, and the persistence of traditional values", American Sociological Review, 65, pp. 19-51

Jones, E.L. (1981) The European Miracle, Cambridge, Cambridge University Press

Macfarlane, A. (1978) The Origins of English Individualism, Oxford, Blackwell

Mackie, J. (1998) "Business success among Southeast Asian Chinese: the role of culture, values and social structures", in R.W. Hefner (ed) Market Cultures: Society and Morality in the New Asian Capitalisms, Boulder CO, Westview Press, pp. 129-146

Morishima, M. (1982) Why Has Japan Succeeded?, Cambridge, Cambridge University Press

Nakane, Chie (1970) Japanese Society, Berkeley, University of California Press

Nash, Kate (2001) "The 'cultural turn' in social theory: towards a theory of cultural politics", Sociology, 35/1, pp. 77-92

Okumura, Hiroshi (2000) Corporate Capitalism in Japan, London, Macmillan

Orru, Marc, N.W. Biggart and G.G. Hamilton (1997) The Economic Organization of East Asian Capitalism, London, Sage

Polanyi, Karl (1944) The Great Transformation, Boston, Beacon Press

Pye, Lucien W. (1985) Asian Power and Politics: Cultural Dimensions of Authority, Cambridge MA, Belknap Press

48 Redding, S.G. (1990) The Spirit of Chinese Capitalism, New York, de Gruyter

Rohlen, T.P. (1974) For Harmony and Strength, Berkeley CA, University of California Press

Runciman, W.G. (1989) A Treatise on Social Theory Vol II: Substantive Social Theory, Cambridge, Cambridge University Press

Schluchter, Wolfgang (1981) The Rise of Western Rationalism: Max Weber' s Developmental History, Berkeley, University of California Press

Schluchter, Wolfgang (1989) Rationalism, Religion and Domination: a Weberian Perspective, Berkeley, University of California (translation, Neil Solomon)

Swedberg, Richard (1998) Max Weber and the Idea of Economic Sociology, Princeton NJ, Princeton University Press

Tu Wei-Ming (2000) "Multiple modernities: a preliminary enquiry into the implications of East Asian modernity" in L.E. Harrison and S.P. Huntington (eds) Culture Matters, New York, Basic Books, pp. 256-267

Tu Wei-Ming (1984) Confucian Ethics Today, Singapore, Federal Publications

Van Wolferen, Karel (1990) The Enigma of Japanese Power, New York, Vintage Books

Wang Zhong-Ming (1994) "Culture, economic reform, and the role of industrial and organizational psychology in China", in H.C. Triandis M.D. Dunnette and L.M. Hough (eds) Handbook of Industrial and Organizational Psychology, Vol 4, Palo Alto CA, Consulting Psychologists Press pp. 689-726

Whitley, R. (ed) (1992) European Business Systems: Firms and Markets in their National Contexts, London, Sage

Whitley, Richard (1999) Divergent Capitalisms: The Social Structuring and Change of Business Systems, Oxford, Oxford University Press

49 Whitley, Richard (1992) Business Systems in East Asia, London, Sage

50 THE EURO-ASIA CENTRE RESEARCH SERIES

PRICE TO NON-MEMBERS OF THE EURO-ASIA CENTRE: € 50 (V.A.T. EXCLUDED)

N° Title Author 76 Authority: The Vertical Order of Society (July 2001) Gordon Redding 75 Rationality as a Variable in Comparative Management Theory Gordon Redding (June 2001) 74 The Cultural Foundations of Economic Development (April Gordon Redding 2001) 73 Five Things to Understand About Institutions and Gordon Redding Modernization (April 2001) 72 The Evolution of Business Systems (March 2001) Gordon Redding 71 Five Things to Understand About Culture and Modernization Gordon Redding (March 2001) 70 Convergence or Divergence at the Millennium (February Gordon Redding 2001) 69 Invisible Corporate Citizenship — Proceedings of a Research Gordon Redding Workshop (February 2001)

INSEAD EURO-ASIA CENTRE Campus in Europe: Campus in Asia:

Boulevard de Constance 1 Ayer Rajah Avenue

77309 Fontainebleau Cédex Singapore 138676 France

For information, please contact Mrs. Ghislaine Labro Tel. 33 (0) 1 60 72 40 22 – Fax. 33 (0) 1 60 72 40 49 E: mail: ghislaine. labro@insead edu www.inseadedu/EAC

Copyright 2001 by the INSEAD Euro-Asia Centre. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the permission of the Euro-Asia Centre N Title Author 68 Leading Organizational Change in Japan (January 2001) Jocelyn Probert 67 Key Success Factors in the Creation of Manufacturing Facilities Arnoud De Meyer Abroad (August 2000) Ann Vereecke 66 Stimulants to Capital Inflows into Emerging Markets and the Recent Dilip K. Das Role of Speculators (Ma 2000) 65 Technology Transfer: Preparmg for a New Era (January 2000) Arnoud De Meyer 64 Corporate Responses to Asia's Economic Crisis: Myth, Reality and Peter J. Williamson the Challenges Ahead (November 1999) 63 A Corporate Perspective on the Management of Human Resources in Ingmar Bjôrkman China (June 1999) Yuan Lu 62 Dual Sources of the Korean Economic Crisis: Institutional and Dongyoub Shin Organizational Failures and the Structural Transformation of the Korean Economy (May 1999) 61 Trust in Lean Production Systems: Lean Job Design and Workers' Dongyoub Shin Trust in Management at Korean Automobile Plants (April 1999) Jiman Lee 60 Regional Organisation: Is it the way for the multinational? Alice De Koning (March 1999) Venkata Subramanian Paul Verdin 59 What is Chinese about Chinese Family Business? And how much is Gordon Redding Family and how much is Business? (December 1998) 58 Asian Exports: Deceleration and Probable Strategies for Dilip K. Das Revitalization (Nov. 1998) 57 Non-Japanese Asian Investment in Europe (Oct. 1998) Jocelyn Probert 56 Organizational Transformation and Technological Innovation in Qiwen Lu Chinese Electronic Publishing: The Founder Group (April 1998) William Lazonick 55 Small and Medium Enterprises in the Japanese Economy Jocelyn Probert (March 1998) Daniel F. Muzyka Arnoud De Meyer 54 The Japanese Financial Crisis, Corporate Governance and Sustainable William Lazonick Prosperity (January 1998) 53 Organizational Learning and International Competition: William Lazonick The Skill-Base Hypothesis (January 1998) 52 Capturing Global Opportunities: The Emerging Markets Challenge Dominique Turcq (December 1997) 51 Expatriation in Asia Pacific: A survey (November 1997) Philippe Lasserre 50 Learning and Innovation in a Transitional Economy: The rise of Qiwen Lu Science and Technology Enterprises in Chinese Information Technology Industry (October 1997) 49 Management of US Acquisitions by Japanese Companies Hideo Ishida (September 1997) 48 Evolution of Manufacturing Systems and Ex Post Takahiro Fujimoto Dynamic Capability (September 1997) - A Case of Toyota's Final Assembly Operations 47 Capability Building and over-Adaptation - A Case of "Fat Design" in Takahiro Fujimoto the Japanese Automobile Industry (September 1997) 46 Managing the Human Resources in Chinese-Western Ingmar Bjôrkman Joint Ventures (June 1997) Yuan Lu 45 Investment Conditions in Asia (March 1997) Jocelyn Probert N° Title Author 44 The Asian Business Context: A Follow-up Survey (March 1997) Jocelyn Probert Philippe Lasserre 43 Joint Venturing in Asia Pacific - A survey (March 1997) Philippe Lasserre 42 Leisure Behaviour in Asia - Is it Different? (February 1997) Hellmut Schlitte Peter Yoo 41 Asia's New Competitive Game (January 1997) (published through Peter Williamson Financial Times)

40 From Expatriation to Localisation of Managers in China Philippe Lasserre (December 1996) Poy-seng Ching 39 The Ethnic Chinese Business System of Pacific Asia: Consistencies in Gordon Redding its Differentiating and Evolving Forms (November 1996) 38 Consumer Behaviour in China - An Exploratory Study (June 1996) Hellmut Schlitte Poy-seng Ching 37 Will China Go Wrong ? Four Scenarios for Chinais Future Poy-seng Ching (May 1996) 36b Development of Managerial Resources in China Philippe Lasserre An interim research report (April 1996) Poy-seng Ching 36 Developing Managerial Resources in China(August 1995) Poy-seng Ching 35 Players in Asia Pacific: the Overseas Chinese, the ASEAN Philippe Lasserre Indigenous Firms and the PRC International Firms: A profile Poy-seng Ching (May 1995) 34 Chinese Corporate Govemance and Finance in the ASEAN Countries Brian Wallace Semkow - Some Implications For Europe and European Firms (April 1995) 33 Consumer Behaviour in Asia (February 1995) Hellmut Schlitte 32 Vietnam: Open for Business (September 1994) Jocelyn Probert 31 International Equity Joint Ventures in China: Operations and Potential Yigang Pan Close-Down (August 1994) Wilfried Vanhonacker Robert E. Pitts 30 Corporate Govemance in Japan (July 1994) Hellmut Schlitte 29 Europe and the Japanese Banking Challenge (May 1994) Mark Mason 28 Japanese Pharmaceutical Companies in Europe: Preparing the Ground Jocelyn Probert (April 1994) 27 Elements of Consensus: Europe's Response to the Japanese Mark Mason Automotive Challenge (March 1994) 26 Myths and Realities of the Global Market for Capital: Lessons for Laurent Jacque Financial Manager (February 1994) Gabriel Hawawini 25 Human Resource Management in the Asia Pacific Region Philippe Lasserre A comparative Assessment (Janurary 1994) Jocelyn Probert 24 Market-led Integration in the Asia Pacific Region (January 1994) Dilip K. Das 23 The Transformation of Japanese Industrial Sourcing: 1960-1990 Toshihiro Nishiguchi (December 1993) 22 Economic Zones within the Asia Pacific.Region (October 1993) Dilip K. Das 21 Competing and Cooperating with Japanese Firms (August 1993) Hellmut Schlitte 20 The Impact of National Culture, Business Scope, and Geographic Wilfried Vanhonacker Location on Joint Venture Operations in China (July 1993) Yigang Pan 19 EC Trade and Investment Relations with Developing Gabriel Hawawini East Asian Countries: Evolution in the 1980s (May 1993) Jocelyn Probert 18 Management Training and Education in the People's Republic of Jan Borgonjon China (April 1993) Wilfried Vanhonacker 17 The Asia Pacific Economies Dilip K. Das From Economic Integration to Economic Co-operation: Institutional Initiatives (May 1993) 16 Japan: The Rise of an Economic Superpower (October 1993) Dilip K. Das 15 The Strategic Roles of Regional Headquarters in the Asia Pacific Philippe Lasserre Region (April 1993) Title Author 14 The Japanese Presence in the European Financial Services Sector: Gabriel Hawawini Historical Pers • ective and Future Pros • ects (Febru . 1993) Michael Schill 13 The Coming of Age of Indonesian-Chinese Conglomerates Philippe Lasserre National, Regional or Global Players? (January 1993) 12 Strategic Logic and Competitive Climate in the Asia Pacific Region Philippe Lasserre (December 1992) Jocelyn Probert 11 Chinese and American Cultures: Yigang Pan Value Structure and Family Orientation Wilfried Vanhonacker An Explorative Study (September 1992) 10 Vietnam: Tiger in Waiting (August 1992) (replaced by N°32) Jocelyn Probert 09 The Investment Climate in the Asia Pacific Region (April 1992) Jocelyn Probert (no longer available) (replaced by N°45) 08 Strategic and Marketing (no longer available) Philippe Lasserre Intelligence in Asia Pacific (January 1992) (replaced by N°44) Jocelyn Probert 07 Japanese Pharmaceutical Firms: Players in the European Market? Jocelyn Probert (January 1992) (no longer available) 06 Valuation of Cross-Border Mergers and Acquisitions (December Gabriel Hawawini 1991) 05 Asian Direct Investment in Europe (August 1991) Jocelyn Probert 04 Survival of Japanese Personnel Management in the "New-Breed" Age Kazunori Suzuki (June 1991) 03 The Taiwanese Presence in Europe (January 1991) Paul Tung 02 Vietnam: Another Little Tiger for Asia? (November 1990) Jocelyn Probert (replaced by N°32) 01 A Guide to Joint Ventures and Licensing in Asia (October 1990) Jocelyn Probert (no longer available)