(This essay was published in Hong Kong Economic Journal on 8 January 2014)

 

Professor Robert William Fogel (Nobel Laureate in Economics 1993) died in June 2013. I took Fogel’s graduate economics course on “Strategic Factors in American Economic History” in 1974-75 at the University of Chicago. This was a very exciting time as he had just published (with co-author Stanley Engerman) his most audacious and well-known work, Time on the Cross: The Economics of American Negro Slavery (1974). As students we bore witness to his almost daily feud with critics. He was an inspiring teacher and I decided immediately I would become an economic historian; unfortunately this did not materialize for reasons that are not the concern of this essay.

 

Fogel is best known as a leading advocate of the New Economic History or Cliometrics — the use of quantitative methods in history. He revolutionized the study of economic history by rigorously applying the tools of economic theory and econometrics to the study. In so doing he initiated a reinterpretation of many “historical inferences” and came to very different conclusions.

 

Traditional economic historians were typically historians who applied historical methods to the study of economic subjects. They were not trained as economists and adopted a non-rigorous approach to the study of economic subjects by the standards of economics. Fogel’s approach transformed the work of economic historians permanently. The next generation of economic historians would often have a rigorous background in economics training before studying historical subjects.

 

Economics of Slavery – A Revision

 

Fogel and Engerman’s work Time on the Cross directly challenged the long-held conclusions that slavery was unprofitable, inefficient, a moribund institution, and extremely harsh for the typical slave. Some historians believed that slavery was a backward economic system so it had to be economically inefficient and would necessarily fall apart on economic grounds alone. By implication, the Civil War was unnecessary to ending slavery.

 

Fogel and Engerman demonstrated quantitatively that the system of slavery was profitable for slave owners in the antebellum South. He even produced evidence that the day before the Civil War ended with the surrender of the South, the transacted price of slaves on the New Orleans market was still robust without any concern that slavery would soon have to end.

 

The most important economic activities in the South were cotton, sugar and coffee produced on plantations. These agricultural products were mainly for export. The landlords in antebellum South supported the Democratic Party and were strongly pro-free trade. They were not interested in national economic policies to protect industrial production favored by many Republican states in the North.

 

In the North, agricultural production was primarily organized through family farms with limited scope for exploiting economies of scale through using hired laborers. Sharecropping through shared tenancy arrangements still retained the small scale family based production mode. In the South, cotton, sugar and coffee production were organized on plantations using what can be described as “modern factory style monitoring” arrangements. This was called the “gang system.” It was a system of division of labor among slaves on a plantation. It ensured continuous work at the same pace throughout the day, never letting up or slowing down, similar to an assembly line in a modern factory system.

 

The slave system permitted landlords greater scope to manage and organize workers into gangs (or teams in today’s language). Slave workers were often divided into three gangs according to their level of productivity. The first gang was given the hardest work, for the fittest slaves. The second gang was for less able slaves (teenagers or old people) and was given easier work. The third gang was given the easiest work. This permitted a more efficient and effective division of labor that raised productivity.

 

Plantation slavery was essentially an efficient way of managing agricultural labor production using industrial methods in order to rationally maximize profits. On purely economic grounds, according to Fogel and Engerman, slavery was not unprofitable or inefficient as previous historians had claimed. The economies of scale from adopting the “gang system” of labor allowed Southern slave farms (with 16+ slaves) to be 33% more productive, per unit of labor, than northern free farms, which were often family based farms.

 

Uncontested Evidence on Productivity of Slavery

 

The economy of the antebellum South, therefore, was far from stagnating. Between 1840 and 1860 per capita income increased faster in the South than in the rest of the country. Interestingly in the film Lincoln, the President recounted the story of his father, who opposed slavery because his small family farm had been driven out of Kentucky by more efficient slave plantation farms, and having settled in Indiana, his father wanted to keep it free from slave farming.

 

Fogel and Engerman concluded that the Civil War was necessary to end slavery because the system was in fact economically robust. This conclusion overturned a century of interpretation of slavery and its legacy. Previous historians who believed that slavery was economically inefficient believed the Civil War was fought primarily to make room for the advance of industrial capitalism in the North. It was therefore a revolutionary war and not a constitutional war about whether all men were equal and had equal rights.

 

Other historians reasoned that because the slave system was economically backward it had inculcated poor working habits among the Black population. The work culture they inherited became a legacy that permanently disadvantaged them after they were set free. Some even concluded that Blacks were different from Whites culturally because of the slavery legacy.

 

The Fogel and Engerman results were initially greeted with some disbelief and considerable hostility. A survey of economic historians conducted on Time on the Cross after its publication concludes that 48% of them “agreed” and another 24% “agreed with provisos” with the authors’ argument that slave agriculture was efficient compared with free agriculture. Today the findings have become the new orthodoxy — one simply cannot quarrel with solid quantitative evidence.

 

Price and Treatment of Slaves

 

Another very controversial element in Time on the Cross was its consideration of how slave owners treated their slaves. If slave owners approached slave production as a business enterprise rather than merely a form of morally depraved behavior, then there would have to be some limits on the amount of exploitation and oppression they inflicted on the slaves. One would be expected to take good care of one’s valuable assets, not brutalize them, in order to ensure that they would remain productive.

 

Time on the Cross found that over the course of a field-hand slave’s lifetime he received 90% of the value of his production. Fogel and Engerman based their analysis largely on plantation records and claimed that slaves worked less than free farm farmers, were better fed than them, and were whipped only occasionally. They also found that slaves in the American South often lived better than many industrial workers did in the North.

 

Slaves did not live in dormitories. The single family house was the universal form of shelter for slaves on large plantations and was the place for food and medical-health care support. Family maintained discipline, created an economic stake for members who owned houses, furniture, clothing, garden plots, and small livestock. The assets and possessions of slaves were passed down through the family to their children. Christian and family lives for slaves were actively encouraged to foster commitment and attachment. This also helped to prevent slaves from running away, in addition to motivating them in general. Family connections promoted fertility and increased the population of slaves, which was in the interest of the slave owner.

 

This part of Time on the Cross created a fire-storm of controversy, even though Fogel and Engerman were careful to state explicitly that slaves were still exploited in ways which were not captured by measures available from records, and even though it was not directly related to the central argument of the book — that Southern slave plantations were profitable for the slave owners and would not have disappeared in the absence of the Civil War.

 

According to a survey conducted at the time, some 23% “agreed” and 35% “agreed with provisos” with the book’s argument that the material (rather than psychological) living conditions of slaves compared favorably with those of free industrial workers in the decades before the Civil War. The book appears to have corrected previous images of extensive exploitation and gross brutality towards slaves.

 

Value of Evidence-Based Knowledge

 

Some criticisms mistakenly considered the authors as apologists for slavery. Fogel in fact objected to slavery on moral grounds, not economic ones. Fogel’s personal history provided considerable cover against accusations that he was a racist. As a student he had attended Cornell University and became president of the campus branch of American Youth for Democracy, a communist organization. After graduation in 1948, he became a professional organizer for the Communist Party.

 

In 1949, he married Enid Cassandra Morgan, an Afro-American woman, and had two children. The couple had to battle with anti-miscegenation laws and prejudice against interracial marriages that was prevalent in those days. After eight years Fogel rejected communism as unscientific and went to study economics at Columbia (MA in 1960) under George Stigler and at Johns Hopkins (PhD in 1963).

 

Time on the Cross is a great book. Today, almost forty years after its publication, I cannot help reflect on its relevance in helping me comprehend and appreciate the enormous challenges that face China as she struggles to march into modernity.

 

Three Factors in China’s Economic Takeoff

 

In the past thirty years, China has made great strides in promoting economic development while maintaining social stability. It has achieved rapid economic growth by a combination of several factors:

 

(1) The dismantling of the commune system, which has been critical for not only raising agricultural productivity, but also releasing rural labor to work in previously neglected labor-intensive manufacturing industries. The state has allowed a more efficient allocation of society’s human resources through reactivating labor markets.

 

(2) The release of rural labor, which has not only supported the development of new township and village enterprises, but also driven many rural workers to seek work in the urban centers. Rapid urban industrialization and development have in turn ignited fresh demand for infrastructure and construction works that had been under-provided for long periods of time.

 

(3) The opening of the economy to international trade and foreign investment, which has provided additional encouragement for the development of manufacturing enterprises outside the state owned sector. The non-state sector has now overtaken the state sector in terms of total valued added.

 

The rise of manufacturing and services, especially the former, has been the most important accomplishment of China’s economic modernization in the past three decades. Behind this growth has been a huge internal migration of human resources from rural to urban areas and from interior provinces to coastal centers. The result is a national labor market.

 

The extent of this migration is unprecedented in Chinese peacetime history. It has immense implications for nation building and breaking down localism, and for impacting economic, social, political and cultural agendas. But it has happened under circumstances when (i) property rights in rural agricultural land are still not well-defined, and (ii) household registration still divides the population into separate rural and urban identities with different rights. These legacies of the past create all kinds of incongruences and rigidities that will hamper continued modernization. They are urgently in need of reform to sustain economic, social, political and cultural development.

 

Suicides Reveal Social Stress

 

One of the prominent manifestations of these incongruences is the Foxconn suicides that occurred between January and November 2010 when eighteen Foxconn employees attempted suicide resulting in fourteen deaths. The suicides drew international media attention, and employment practices at Foxconn, a large contract manufacturer, were investigated by several of its customers including Apple and HP. Foxconn is a major manufacturer that has catered to such companies as Apple, Dell, HP, Motorola, Nintendo, Nokia and Sony.

 

Some of the investigations into employment practices in Foxconn compared them to labor camp conditions. Long working hours, employee mistreatment, illegal overtime, failure to report accidents, discrimination against mainland Chinese workers by their Taiwanese co-workers, and a lack of working relationships were all held up as potential problems. In particular, Foxconn’s management style was called inhumane and abusive. Other experts claimed that employees were treated comparatively well at Foxconn, but news reports focused overwhelmingly on the critical viewpoints.

 

In response to the suicides, Foxconn substantially increased wages for its factory workforce, installed suicide-prevention netting, and asked employees to sign no-suicide pledges. Workers were also forced to sign a legally binding document guaranteeing that they and their descendants would not sue the company as a result of unexpected death, self-injury, or suicide.

 

Although the number of workplace suicides at the company was large in absolute terms, the rate is still low when compared to the rest of China. In 2010, the worst year for workplace suicides at Foxconn, there were 14 deaths out of a reported total employee count of 930,000 people. The average workplace suicide rate for Foxconn that year therefore was 1.5 per 100,000, putting it at only about 7% of the national average suicide rate of over 20 deaths per 100,000 persons. In fact, the suicide rate at Foxconn during the suicide spate was lower than that for the general population in all 50 states in the United States.

 

Enterprise Responsibility and Social Support

 

In my view, the critics of Foxconn as well as those who have been more sympathetic to the company have focused narrowly on the suicides as merely an employment practice issue. I believe the most valuable observation of the investigations into Foxconn’s management was its regimented lifestyle, which was deemed to be out of touch with the new generation of workers. Foxconn, like most huge foreign employers, hired migrant rural workers for employment. They were responsible for taking care of many aspects of the livelihood of these employees because the state had obliged them to do so as a condition of gaining permission to operate.

 

The state was required to stipulate this condition because rural migrants working in urban centers are denied all kinds of social support normally available to urban dwellers under the household registration system. In a sense, employers of rural migrants in urban centers are expected to assume social support responsibilities that the state has downloaded to them. Meals and lodging in dormitories are provided by the employer, as well as basic health care support and even amenities for social entertainment.

 

Time on the Cross showed that slave owners found it advantageous not to house slaves in dormitories, but rather to encourage them to form families and live in single family homes that they owned, to have possessions, and small plots of land to cultivate on their own, to encourage family and Christian values, etc. This approach recognized that slaves required emotional and social support in order to reduce the unavoidable stresses and strains of any person’s life and contain them within manageable proportions.

 

In a sense, the state owned enterprises of the pre-reform days performed such  a role. Those were the days when managers were not only managing an enterprise, but a society. These enterprises became inevitably inefficient because they were “comprehensive when large and comprehensive when small”.  State owned enterprises in the pre-reform days were an extension of the state and had these moral and social obligations.

 

Privately owned enterprises are poorly equipped to undertake these responsibilities. If they assumed such responsibilities they would cease to be efficient and profitable. Managing discipline during work hours to maximize profit is enterprise business. Managing the off hours of staff living in dormitories is not. Rather, it is the business of civil society, markets, and the state.

 

Socio-Economic Reforms Key to Sustained Development

 

Reports we have seen show that Foxconn’s regimented life style was not brutal or humiliating, it was just mechanical and rigid like an army life. This could work for early rural migrants who were glad to have found work and did not necessarily expect to settle in the urban areas. Their demands for social support were therefore few and limited. But most of the new generation of workers are not recently arrived rural migrants, but descendants of earlier rural migrants. They have grown up in the urban areas, consider these as their homes, and do not expect to return to the rural areas. Their demands for social support are more diversified and numerous than can be handled by a private profit-oriented enterprise.

 

Judging by suicide rates alone, I could even claim that Foxconn appears to be doing a better job than the rest of Chinese society. Of course the suicide rate is just one measure of a person’s psychological well-being. But media alarm and criticism of the Foxconn suicides is misplaced.

 

The new generation descended from migrants yearns for a life after working hours that only civil society, markets, and the state can provide, not a private business enterprise. Their aspirations can only be accomplished if China finally redefines property rights and remove the distinction between rural and urban residents imposed by the dual household registration system.

 

The formation of a modern industrial economy requires an integrated labor market that allows workers to move freely from one place to another depending on where economic opportunities emerge. At the same time it must provide social support structures that allow individuals and households to be able to settle into a place with a life outside of the workplace. One cannot and should not expect enterprises to provide all this.

 

The report issued after the Third Plenum of the Chinese Communist Party’s 18th Congress recognizes that the present challenge for the nation is to reconstruct civil society, continue market reforms, and improve their governance. It attempts to provide a more comprehensive solution that correctly puts emphasis on governance rather than administration. This would create a single citizenry with equal rights, an integrated labor market, and a nationally mobile population free and able to choose to settle in a place of their choice without hindrance. The proposals of the Third Plenum show there is clear appreciation of what needs to be done in order to sustain the long march towards modernization.

 

Reference:

 

Fogel, Robert William and Engerman, Stanley L. (1995), Time on the Cross: The Economics of American Negro Slavery, W.W. Norton and Company, New York,  Reissue edition, first published in 1974

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