Introduction

The Shanghai Exerience, 1842–2009

To many transient observers Shanghai seemed "incomparable" before World War II. Once foreigners had been allowed to settle in a so-called mudflat opposite the walled "Native City" in 1842, Shanghai developed by leaps and bounds. Immune to Chinese sovereignty, and months away from London by sea, the city acquired a reputation for laissez-faire and the mystique of hybridity and vice.

Consider this rather passionate description from a Western tourist guidebook to the city published in 1935:

Cosmopolitan Shanghai, city of amazing paradoxes and fantastic contrasts; Shanghai the beautiful, bawdy, and gaudy, contradiction of manners and morals; a vast brilliantly-hued cycloramic, panoramic mural of the best and the worst of Orient and Occident. Shanghai, with its modern skyscrapers, the highest buildings in the world outside of the Americas, and its straw huts shoulder high. Modern department stores that pulse with London, Paris, and New York; native emporiums with lacquered ducks and salt eggs, and precious silks and jades, and lingerie and silver, with amazing bursts of advertising colour and more amazing bursts from advertising musicians, compensating with gusto for lack of harmony and rhythm. Modern motors throbbing with the power of eighty horses march abreast with tattered one-man power rickshaws; velveted limousines with silk-clad Chinese multi-millionaires surrounded by Chinese and Russian bodyguards bristling with automatics for protection against the constant menace of kidnapping (foreigners are not molested); Chinese gentlemen in trousers; Chinese gentlemen in satin skirts. Shanghai the bizarre, cinematographic presentation of humanity, its vices and virtues; the City of Blazing Night; cabarets; Russian and Chinese and Japanese complaisant "dance hostesses"; city of missions and hospitals and brothels. Men of title and internationally notorious fugitives tip cocktails in jovial camaraderie.

This introductory chapter is aimed, nevertheless, at easing non-specialist readers into the warp and weft of Shanghai's modern history by insisting on a less sensationalist comparison of the city's economy in the pre-war era (1842–1937) with its post-war reform thrust following the 1990 designation of Pudong precinct as China's primary financial centre. It will seek to explore why Shanghai was a magnet for so many Chinese entrepreneurs and intellectuals before World War II, as the passage above might indicate; it will then explore whether the reformed makeup of Shanghai in the 21st century can bring about fresh urban dynamism, that might help shake off the post-war legacy of state dirigisme and create a truly global innovation hub. Building on the latest literature in urban development, management and economic history, this chapter will focus on four elements that are conventionally seen as vital to sustaining innovation: well-functioning capital markets, respect for property rights, free information flow and a quality education system. Inevitably, it will leave other important areas of exploration to future research, because these are only associated with the contemporary Chinese economy, e.g. research clustering or fiscal federalism.

The bigger conceptual framework of the comparison drawn here is practical in nature because the historical conditions of the pre-war period cannot be perfectly reproduced. Shanghai of the 21st-century cannot be the same as the one of the early 20th century. Therefore, the question to be pursued is not whether it is desirable to reproduce the same "urban dynamism" that defined the pre-war era but what can be learnt about contemporary Shanghai when we place it in historical perspective.

Shanghai's Position in the Chinese Pre-War Economy

Assessment of pre-war Shanghai's contribution to the economic modernization of China has been an ongoing academic pursuit but the jury is still out. The rapidly changing political and social circumstances in the People's Republic of China (PRC) often call for a review of past performance in view of present achievements and failures. In the field of Shanghai Studies, such major scholarly reviews can be traced every two decades or so.

For example, in 1981 Marie-Claire Bergère, soon to become the doyenne of Shanghai Development Studies in the West, critiqued Rhoads Murphey whose work had embodied conventional wisdom in the field in the 1950s. In his Shanghai: Key to Modern China (1953), Murphey cast pre-war Shanghai as an all-important bridgehead of Western innovation in East Asia against the backdrop of the Communist takeover of the Mainland. By 1977, however, Murphey had come to view pre-war Shanghai's role within the Mainland as a 'fly on an elephant's back'. In other words, Murphey recast pre-war Shanghai as a small enclave of modernity that was ultimately insignificant to the lives of most ordinary Chinese.

Bergère, on the other hand, identified valuable sprouts of civil society, innovation and free enterprise in "golden-age" Shanghai (1920s), when Chinese state power was in decline, but pointed to the resurgence of dirigisme and the stifling of free-markets in the 1930s, after the Nationalists (Kuomintang – KMT) had come to power. She suggested that the 1920s saw the birth of a bolder breed of Chinese businessmen, steeped in the internal dynamics of China's rural hinterland, but equally conversant with market conditions around the world.

Chinese intellectuals influenced by radical Western ideology flocked to Shanghai in their thousands in the 1920s. As part of this ferment, the city came to host the founding of the Chinese Communist Party (CCP) in 1921, and was to play a role in the KMT's rise to power nationally in 1927. But ironically, the two rival parties were averse to the free-wheeling nature of the city in the 1920s precisely because both were autocratic.

KMT founder Sun Yat-sen had dreamt of "reforming" Shanghai's wayward character; of subjecting the city's foreign-run precincts straddling Puxi (west of the Huangpu river) to Chinese government control. To that end, he envisioned what was still a boggy and sparsely-populated Pudong district (East of the Huangpu river) as the seat of a new Chinese municipality with strong central powers. After Sun's death, and following its unification of China in 1928, the KMT appointed Wu Tiecheng to accomplish this mission. Wu, who had been educated in Japan, launched grand architectural projects in the 1930s but, overall, because of rampant corruption in their ranks, KMT municipal authorities failed to demonstrate that they were able to manage the Chinese precincts as efficiently as the foreign concession areas.

The success of foreign-run Shanghai cannot be understood accurately enough without considering the plight of the surrounding Chinese pre-war economy as a whole. In the 1980s, economists such as Rawski and Brandt tended to revise conventional...