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How Do You Become the Richest Woman in China?

February 5, 2012

I highly recommend the very lucid and insightful Solomon’s Knot: How Law Can End the Poverty of Nations by Robert Cooter and Hans-Bernd Schafer. It nicely details the micro-foundations for economic growth:

Shang Yin, the eldest of a soldier’s eight children, opened a printing shop in the 1980s when she was in her twenties. As China moved to a market economy, demand swelled for printed products used by new industries. A short supply of paper bottlenecked Shang Yin’s business, until she made the discovery of her life: ships left Chinese harbors for the United States filled with cargo, and they returned almost empty…Shang Yin had discovered a new market, and she reorganized her business to exploit this opportunity. She started buying scrap paper in the United States and shipping it back to China. Business burgeoned at her company Nine Dragons Paper Industries, and some observers now count her as China’s richest woman.

When a developing country has many entrepreneurs like Shang Yin, a cascade of innovations in markets and organizations lifts productivity, wages and profits. Innovations in markets and organizations combine ideas and capital in bold ventures with big risk and opportunities. The central claim of this book is that sustained growth in developing countries occurs through innovations in markets and organizations by entrepreneurs; developing innovations poses a problem of trust between innovators with ideas and investors with capital (the “double trust dilemma”); and the best solutions require law. 

Emphasis mine. Though much of the book is about how bad laws inhibit prosperity in poor countries, much of its analysis applies equally well to richer European and North American economies.

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