Two pictures comparing the Shanghai skyline between 1990 and 2010 have been making the rounds online – we posted them on the blog the other day. In this piece, Dr Richard Ebeling discusses the economic history of Shanghai's skyline, which thrived during the pre-Second World War years and, thanks to the laissez-faire economic policies it enjoyed as a virtual city-state, grew to become Asia's answer to New York City.
The "before" picture of Shanghai (from 1990) is actually the same skyline from before the Second World War. Under communism, from 1949 until 1980s-1990s, this picture of Shanghai had not changed.
And, by the way, how did Shanghai come to have such a "Western"-style skyline before the Second World War? Because following the British-Chinese War of 1842 (the "Opium War"), Shanghai was one of the treaty ports in which there emerged foreign "concessions" administered by Western governments to minimize frictions between the Chinese and Europeans and Americans, due to conflicting conceptions of criminal and civil law, and property rights.
By the end of the 19th century, Shanghai had two foreign districts. The French Concession, administered by a Governor-General appointed by the French government in Paris, and the International Settlement (the picture, above, shows what was the "heart" of the International Settlement among the Bund (the waterfront) facing the Whangpoo River).
The International Settlement was administered by a city council of 14 members elected by the foreign rate payers (mostly property taxes) residing in the boundaries of the Settlement. Thus, it was, for all intents and purposes, a self-governing "city-state" under the protection of the Western Powers (which ended up meaning mostly a British and American military presence).
It thrived because it was, for the most part, a laissez-faire-run free city. Other than the municipal works, the dredging of the Whangpoo River up to where it runs into the Yangtze River, and police and fire departments, the International Settlement government basically left "the market" and the residents pretty much alone.
It was this free market environment that created that Western-style skyline that in the 1930s was considered the Asian rival of New York.
And the city was a refuge for many. First, for Western businessmen "escaping" from heavy taxation in other parts of the world. For example, if you look at that upper picture of Shanghai, on the left side you see a building with a green pyramid roof. That was the Cathay Hotel, also known as Sassoon House; it was built by Sir Victor Sassoon, who left Britain with a good part of his fortune in 1927, to get away from the high business and income taxes in Great Britain. (The Sassoon's were a famous family of Iraqi Jews, among whom was Siegfried Sassoon, the noted German poet and writer.)
Shanghai was a haven for many people escaping real tyranny -- not just tax "oppression." Following the Bolshevik Revolution, thousands of "white" (anti-communist) Russians found refuge in Shanghai. They became famous in the city, not only among the city's "sing-song" girls, but as doormen at nightclubs and bodyguards for Chinese gangsters who usually preferred the nightlife in the French Concession; and, of course, for the city's many fine Russian cuisine restaurants. (Russian noblemen, or their sons, were seem playing the balalaika in those restaurants, or even in the streets pulling rickshaws, to earn enough to live.)
But, also, in the 1930s, thousands of German Jews who fled Nazi Germany found refuge in Shanghai, because the city had neither passport nor visa requirements. Many of them settled in the Hongkew district of Shanghai, which had been badly damaged during the fighting between Chinese Nationalist and Imperial Japanese army forces, first, in 1932, and then, again, in 1937.
But under the diligent work-ethic and work effort of these refugee German Jews, much of the Hongkew district was rebuilt and again thriving. And, then, in an irony of fate, when the Japanese occupied the International Settlement following the attack on Pearl Harbor they did not intern these Jews (unlike the systematic roundup and imprisonment and cruel treatment of all French, British and American citizens), because these Jews carried German exit passports. And though these passport were stamped with the infamous "J," the Japanese viewed them as citizens of their war-time ally.
Shanghai was also the headquarters for numerous religious and secular charities and philanthropies that ministered to the needs and improvements of the Chinese population both in the city and throughout other parts of China. There were voluntarily-funded orphanages, soup kitchens, shelters, schools, and vocational training colleges to give a "helping hand" to the Chinese.
Finally, throughout the second half of the 19th century and up until the 1941, Shanghai's International Settlement and French Concession were a refuge for many Chinese when revolutions, civil wars, or the general cruelty of Chinese government governors or war lords made life "nasty, brutish, and short."
There in Shanghai, financial savings were safe in Western banks, and property rights were respected and protected from both illegal plunder and the "legal" plunder of Chinese officials and war lords.
But, in addition, Shanghai's International Settlement was a cultural oasis for Chinese artists and intellectuals. Here was born the Chinese motion picture industry; non-traditional music and art; and a haven for freedom of speech and the press, that was not allowed in surrounding Chinese administered areas. Here civil liberties were respected and secure.
It was also a property rights-safe place for the development of Chinese-owned manufacturing and industry -- not only Western businesses. In Shanghai, these Chinese entrepreneurs were free from the "squeeze," the Chinese term for bribes and corrupt protection rackets and government official shakedowns.
Like everywhere, in an imperfect world with imperfect people, Shanghai was no "utopia." But its instituting and general protecting of Western civil and economic liberty, made the International Settlement a place of practical, everyday freedom in that part of the world.
Of course, most Chinese -- from intellectuals down to the ordinary (and usually) illiterate Chinese "coolies" -- resented the power and presence of the "foreign devils." And this resent and anger against the power and too-often arrogance of the Westerner, took many forms.
But, de facto, Shanghai's International Settlement gave many Chinese the personal safety and economic and cultural opportunities they could never have under their Chinese rulers.
This all came to an end in 1941, with the Japanese occupation. And, then, at the 1943 Cairo Conference between FDR, Churchill and Chiang Kai-Shek (the Nationalist, or Kuomintang, head of the Chinese government), the Western powers relinquished their rights to "extraterritoriality," which was the basis for those foreign concessions in China, of which Shanghai's International Settlement was the most important and famous.
After the war, from 1945 to 1949, when Shanghai was under the control of Chiang's Nationalist government, the city suffered through political corruption and abuse, and a hyperinflation caused by the government's massive printing of paper money to finance its war against Mao's communists.
And from 1949 until the end of the 20th century, the communist "utopia" left the city in a state of a "frozen moment in time," with that skyline that had not changed since the 1930s. And which symbolized the possibilities when freedom and property are secure.
— Richard Ebeling is Professor of Economics at Northwood University andformer President of the Foundation for Economic Education.