Ancient China’s development shows many parallels to our own day. China then, as now, moved from warlord chaos to totalitarian unity and finally to modest liberalization.

The Officials of Zhou is a precapitalist manual for public sector management, because they were the only managers that existed in China at the time.

China’s history is so vast we can only summarize it here. Under its Shang rulers (1766-1208 BCE), China developed in isolation from the Near East and even India during the second millennium BCE. Shang China was less "capitalist" than even Egypt.

Everything appeared to be in the hands of the state, even the land, which the Shang organized into communes based upon extended family groups. The last Shang ruler was exceedingly corrupt and, consequently, was overthrown by the chariots of the warlord Wu around 1208 BCE.

The new Zhou Dynasty justified its rule with a new philosophy: the Mandate of Heaven. Any ruler that governed unjustly risked losing that mandate and, therefore, his power.

The Zhou rulers would pave the way for Chinese capitalism — and China’s disintegration. They delegated local power to blood relatives, who eventually became mighty warlords.

By 770 BCE, China contained some 200 principalities, and the weakened Zhou were driven to the eastern end of the Yellow River valley. The stage was being set for a Chinese market revolution.

Beginnings of management theory

China’s collectivist approach seemed like pretty barren soil for entrepreneurs. Still, practical Chinese thought was focused on this life, not the afterlife. This led to the earliest formulations of management theory.

The first writings on management go back as far as Shang and early Zhou times. Writings such as The Great Plan and The Officials of Zhou date from around 1100 BCE, but a lot of the material may even be centuries older. One passage in The Great Plan sets forth the first theory of leadership:

“The three virtues are rules, firmness and gentleness. Spell out rules for peaceful people, deal firmly with violent and offensive people, deal gently with amenable and friendly people. Employ firm supervision with those who shirk or lack initiative, gentle supervision with those who are distinguished by their talents and good dispositions.”

More than anywhere else, Chinese capitalism operated and still operates in the confines of the extended family.

Another translation of the same passage tells managers to take the social environment of their subjects and underlings into account:

“The three virtues are correct procedure, strong management and mild management. Adhere to correct procedure in situations (times) of peace and tranquility, use strong management in situations of violence and disorder, apply mild management in situations of harmony and order.”

The Officials of Zhou is a precapitalist manual for public sector management, because they were the only managers that existed in China at the time. Nevertheless, private managers can learn a lot from it.

The idea of leading by example goes back even before the Shang, to the Xia of about 2000 BCE. Kaou-yaou, writes to his ruler, Yu:

“If rulers attend carefully to their personal improvement, with concern for the long-term, they will be able to show unselfish benevolence and to draw perceptive distinctions among people.”

If this wise principle were followed, “all intelligent people will exert themselves to serve their rulers” and the spin-offs in public order and productivity would positively influence even distant subjects. Kaou-yaou argued that success in management came from “knowing people and keeping people satisfied.”

Private capitalism eventually took root in China in the latter part of the Zhou period, before 500 BCE.

Already, the Chinese management theory of 2000 BCE was light years beyond the ideas of Frederick Taylor.

Yu replied that even the wise, legendary King Yao found it hard to both know people and keep them satisfied. If one knew their subjects, they could hire the best people.

Yu argued that it was easier to keep order if subjects were satisfied. Also, a satisfied population would help rulers and managers be benevolent because there would be little reason for insubordination or firing people (or worse).

Early in Shang times, around 1750 BCE, Prime Minister E. Yin also counseled his subordinates to consider the needs of those under them. This would cause them to think of their difficulties and not become smug and comfortable in their own positions.

If a manager heard criticism, he needed to consider if it might be valid, Yin said. If a manager heard agreement, he needed to consider if it might be flattery.

Capitalism’s rough start

Private capitalism eventually took root in China in the later part of the Zhou period, before 500 BCE.

Records of China’s first private, profit-seeking merchants appear in the official Chinese court history, the Hou Hanshu dated to the fifth century BCE. The author, the courtier Fan Ye, compiled the work from earlier histories, none of which was terribly favorable to capitalism.

Practical Chinese thought was focused on this life, not the afterlife. This led to the earliest formulations of management theory.

The Shang and Zhou eras are pictured as a golden age where everyone knew his or her place in the great harmonious hierarchy of Chinese life. Rulers ruled and everyone farmed, studied or practiced an appropriate trade. Capitalist markets, historian Ban Gu wrote, were small. “There was both an intercommunication of productions of labor and an interchange of men’s services by which the people mutually profited,” he wrote.

Before the market revolution, he wrote that “desires of the people were few, and undertakings were limited. Their wealth was sufficient, and they did not vie with one another.” Remarkably similar advice scenarios are sometimes spun during the current global recession.

This began to change as private entrepreneurs rose up. More than anywhere else, Chinese capitalism operated and still operates in the confines of the extended family.

The reason for this paradox is that after centuries of suppression by an all-powerful government, the family was all that was left.