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Book Review: Shanghai

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Shanghai: Collision Point of Cultures, 1918-1939
by Harriet Sergeant (New York: Crown Publishers, Inc., 1990); 371 pages; $25.

Following the Sino-British War of 1842, several ports along the China coast were opened to Western merchants. In these “treaty ports,” portions of the cities were recognized to be under European jurisdiction. Known as “concession” areas, the European powers administered these areas according to Western principles of the “rule of law,” with recognition and protection of property rights and individual civil liberties.

Among these ports was Shanghai, which is located near the mouth of the Yangtze River. By the end of the 19th century, Shanghai had become the most important of the treaty ports. Indeed, it was the industrial, commercial and cultural center of modem China until the Japanese occupation of the city in December 1941, following the attack on Pearl Harbor.

Shanghai: Collision Point of Cultures, 1918-1939 by Harriet Sergeant offers a panoramic view of a city known as the Florence” of the East, the Whore of Asia, and the Emporium of China. Having interviewed hundreds of Chinese and Westerners who had lived in Shanghai during the interwar period, Ms. Sergeant weaves history and personal reminiscences into a social tapestry of many shades and designs.

The Western-administered portions of Shanghai were divided into two districts: the French Concession and the International Settlement. The French Concession was administered by a Consul-General appointed by Paris. But the International Settlement was administered by a Municipal Council composed of fourteen members elected by the permanent foreign residents of the city, with the franchise based on being a “rate-payer,” i.e., a tax-paying property owner within the boundaries of the International Settlement. (In the 1930s, almost 90,000 Europeans and Americans lived in Shanghai.) Hence, Shanghai’s International Settlement was almost an independent city-state.

There were no income taxes. Passports and visas were not required for either visitors or permanent residents of Shanghai. This meant that the city offered a haven for those escaping from tyranny. Shanghai became a home for tens of thousands of Russians after the Bolshevik Revolution, and was the only port open to thousands of German Jews escaping from the Nazis in the late 1930s.

In general, the economic policies of Shanghai’s International Settlement followed the ideas of Adam Smith’s system of natural liberty and laissez faire. The Municipal Council limited itself primarily to three functions: administration of justice; police protection of individual liberty and property; and the undertaking of certain “public works,” e.g., construction of roads, traffic control (administered by Sikh policemen brought by the British from India), harbor patrol, and the dredging of the Whangpoo River that connects Shanghai with the mouth of the Yangtze.

Under treaty agreements between China and the major Western nations, legal disputes in which a Chinese citizen sued a Western resident were adjudicated before a court of the country of which the Westerner was a citizen. This system was known as “extra-territoriality.” While viewed as an insult to Chinese territorial integrity, and while not always free of abuse and bias, this meant that on the whole, an impartial and efficient system of Western-style justice was guaranteed for everyone in Shanghai’s International Settlement.

Under a regime of limited government, low taxes, and economic laissez faire, Shanghai became the most prosperous metropolis in all of Asia. The standard of living, including that of Chinese residents in the International Settlement and in surrounding Chinese-administered areas, was the highest in east Asia. The city also became the focal point for the Chinese intellectual community as well as a Chinese cultural center — and one in which freedom of speech and press were protected for all, Westerner and Chinese alike. While tempests of civil war engulfed China in the interwar period, Shanghai was a haven of economic and civil liberty.

Through a system of private colleges and universities that served both Westerner and Chinese, Shanghai also developed into China’s center for higher learning. Indeed, through scholarships and philanthropic endowments — many being supported by Christian missionaries — many of those who later became China’s leaders in politics, literature and the arts acquired their advanced schooling in Shanghai.

Shanghai was a many-sided city. In the French Concession were the homes of many of the most notorious Chinese gangsters. Opium dens abounded and houses of ill-repute existed in the hundreds — and catered to every imaginable tote and socio-economic group. But it was also a city of commercial trust and integrity. No one ever paid for anything with cash or check. A person simply signed his name to a chit for any purchase, and just settled up at the end of the month.

Shanghai’s International Settlement ended with the Japanese occupation. And the communist conquest of China in 1949 brought down the final curtain on Shanghai’s capitalist era. But in that brief period of a hundred years, from 1842 to 1941, Shanghai symbolized what is possible when a city and its people are free.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).