Management is the only window to incentive bargaining. The result of the incentive bargaining, filtered by management’s own incentive, determines the direction of managing the firm. Chapter 3 categorizes managerial incentives into power-related, reputational, and monetary incentives, and compares the characteristics of managerial incentives in the three countries. For US management, monetary incentives are the most important among the three categories. For Japanese management, the monetary incentive is not the priority but is subordinated to power-related and reputational incentives. In China, managerial incentives are different in SOEs and POEs. For SOE management, monetary compensation is not so important, but political rank is more important, which is accompanied by monetary rewards. For POE management, monetary incentives are important, and stock options are widely used. At the same time, the political network is important to POE management, and POE management cares about its reputation in the party-state as well.

A significant percentage of listed companies are under the influence of founding families by stock ownership and/or family managers, even in developed countries, including the United States. In the United States, when the founders retire, they tend to hire professional managers and sell out their shares. In Japan, approximately 50% of listed companies are family firms, many of which are managed by founders’ heirs without substantial family ownership. In China, although family firms are relatively new because Chinese law traditionally prohibited private enterprises, family firms have grown rapidly since the transformation from a planned to a market-oriented economy in 1978. Generally speaking, founder firms’ performance is significantly better than that of non-family firms in most countries, but heir-managing firms’ performance varies in different countries. Prevalent types of listed family firms and their relative performance to non-family firms reflect minority shareholder protection law, the size of the manager market, and the corporate governance practice of each country.

China’s reform and opening up program commenced in 1978 with the transition from the collective production team system to the household responsibility system. This reform aimed to enhance incentives for agricultural production, leading to rapid growth in agriculture and increased income for farmers. It also played a significant role in bridging the urban–rural income gap. However, starting from the 1990s, rural income growth began to lag behind that of urban areas, giving rise to a spate of challenges regarding the countryside, agriculture, and farmers, known as the Three Rural Issues (San Nong Wen Ti, in Mandarin). These issues are primarily rooted in the sluggish growth of rural income.

One of the key concepts of this book is “incentive bargaining.” We view the firm as an ongoing joint project, which requires both monetary and human capital. There are two main groups of indispensable capital providers to the joint project: (1) management and employees as the human capital providers; and (2) shareholders and creditors as the monetary capital providers. These two groups need to motivate other capital providers to provide their capital to maximize their own payoff. The bargaining among the indispensable capital providers that motivates each player to provide its capital to the joint project will be called “incentive bargaining.” Incentive bargaining among the four players in a stock corporation is made not as a multilateral bargaining but as a complex of three bilateral bargaining processes via management. The way of incentive bargaining, or incentive pattern, in each country can be categorized into either the balancing image, the monitoring image, or the bargaining image, based on the way of coalition among the four players.

This is a book focusing on a comparative analysis of business systems primarily involving and surrounding the firms/enterprises across three leading economies in the world, that is, the United States, China, and Japan. The book will discuss one basic question: how does law matter to business practice, together with the markets and social norms of each jurisdiction? The book’s framework is as follows: the firm acts as a forum for incentive bargaining among four major participants: management and employees as human capital providers, creditors, and shareholders as monetary capital providers. Each participant will bargain with each other to maximize its own payoff based on exogenous factors: the situation of various markets (products, labor, intellectual property rights, and capital), social norms (e.g., shareholder value maximization model and stakeholder model), and enterprise law. This book will include the government as the fifth player of this game in the sense that the government provides indispensable resources (physical, social, and legal infrastructures) to the firm, shares the pie via tax revenue, and bargains with the other four players.

This chapter first argues that the disagreement between advocates and opponents of industrial policy is actually a disagreement between the two different market theory paradigms. One is the “neoclassical economics paradigm” and the other is the “Mises–Hayek paradigm.” The chapter then analyzes the challenges faced by industrial policy from the perspectives of both cognitive limitation and incentive distortion. The basic conclusion is that industrial policy is destined to fail. Ignorance of entrepreneurship is the fatal weakness of industrial policy advocates. The two primary justifications for industrial policy are “externalities” and the “coordination failure” of the market. With a correct understanding of entrepreneurship, however, these two justifications are untenable. The chapter also argues that the “comparative advantage strategy” of a nation is endogenously created by entrepreneurs, not determined by so-called “endowments.”

Johann Friedrich Flatt (1759–1821) was a lecturer in theoretical philosophy in Tübingen from 1785–1791. As the resident Kant expert, during this time Flatt was responsible for reviewing both pro- and anti-Kantian works in the local academic journal, the Tübingische gelehrte Anzeigen. Flatt also reviewed Kant’s works themselves, including the Groundwork, translated into English in this chapter for the first time. The main theme of the review is Kant’s inconsistency, but Flatt also makes a claim that is repeated by other early critics, such as Tittel and Pistorius, namely that Kant’s own examples reveal that the categorical imperative cannot determine concrete duties without referring to experience, despite what Kant might say to the contrary. We have good reason to believe that Kant read Flatt’s review of the Groundwork, and Kant likely has Flatt in mind at 5:4.28–37n and 5:5.24–6.11 when discussing various alleged inconsistencies in his writings.

Based on the findings of the empirical chapters, Chapter 6 recapitulates the impacts that rich mineral resources generate on the state–capital–labor triad in China. It analyzes in detail the Chinese state’s coping strategies to mitigate the resource curse at local levels. Moreover, it explains why the Chinese state is able and willing to take the observed strategies to contain the resource curse. The key lies in the Chinese Communist Party-state’s strong capacity to penetrate into the economy and the society and also in its top-down monitoring and tight control of the local agents. In the end, this chapter critically evaluates the successes and pitfalls of the China model of resource management.

This chapter presents a new incentive-based theory to explain the systematic variation in regulatory stringency over time, which Shen calls the theory of “the political regulation wave.” It is intended to be a general theory with three scope conditions. First, in a decentralized political system, local leaders or politicians possess discretion over decision-making, resource allocation, and control over the bureaucracy. Second, local politicians or political leaders are incentivized to prioritize different policy goals throughout their tenure, per what their constituencies or political superio+L2rs prefer, to maximize their chances of reelection or promotion. Third, implementation of the policy is high conflict and low ambiguity in nature, so it takes on a political character. China’s air pollution control policies for sulfur dioxide (SO2) satisfy all scope conditions, while fine particulate matter (PM2.5) control satisfies the first two but entails some level of ambiguity. Nevertheless, the two empirical cases provide an interesting comparison. Shen derives three testable implications for SO2 and PM2.5 control in China.