Steven N. S. Cheung
Encyclopedia
Steven Ng-Sheong Cheung (Traditional Chinese: 張五常; Pinyin
: Zhāng Wǔcháng; born December 1, 1935), a Hong Kong
born economist
, specializes in the fields of transaction cost
s and property rights. Known for his work on private property rights and transaction costs, he achieved his fame with an economic analysis on China open-door policy after 1980s. In his studies of economics, he focuses on economic explanation that is based on real world observation (an observation first approach). He is also the first to introduce concepts from the Chicago School of Economics into China.
He obtained his PhD
in economics
from UCLA, where his teacher was American economist Armen Alchian
. He taught in the Department of Economics at the University of Washington
from 1969 to 1982, and then at the University of Hong Kong from 1982 to 2000. During this period, Cheung reformed the syllabus of Hong Kong's A-level
Economics
examination, adding the concepts of the postulate of constrained maximization
, methodology
, transaction cost and property right, most of which originate from the theories of the Chicago school
.
US authorities have issued an arrest warrant for Cheung on tax-evasion and conspiracy charges. Cheung fled to mainland China
from Hong Kong
; China has no extradition treaty with the US.
, analysing share tenancy and variable rural land resource allocation. From 1969, he taught at the University of Washington
and, from 1982, was head of the School of Economics and Finances of Hong Kong University.
From 1998 to 2003, he allegedly sold fake antiques through his store, Thesaurus Fine Arts, until he was indicted by U.S. federal grand jury
for alleged tax evasion. In 2005, his store got a settlement, as announced by the Washington Attorney General. Since 2003, he resides, writes researches in mainland China
.
Unlike modern mainstream economists, Cheung's analysis does not rely on advanced mathematical techniques but solely on the two basic building blocks of price theory: one is the axiom of constrained maximisation and the other, the law of demand (one that already incorporates the law of diminishing marginal returns). One of the constraints which he emphasizes most is transaction cost (or better termed institutional cost).
His theory of share tenancy has enhanced the understanding of contractual arrangement, which was largely ignored by neo-classical economists. According to Cheung, sharecropping
is not necessarily exploitative. It will achieve the same efficient allocation as labor markets under competition and zero transaction costs (Cheung, 1968). In the presence of transaction costs, sharecropping can be efficient by lowering the monitoring costs of wage contracts and increasing risk-sharing benefits relative to rent contracts (Cheung, 1969).
This implication is revolutionary; sharecropping was perceived as an inferior arrangement for years. After the publication of The Fable of The Bees, our perception of externalities is no longer the same: as long as corresponding property rights are clearly delineated, OR transaction cost is zero, externalities can be internalized through private negotiation/contract arrangement without government's intervention. In 1983, Cheung published probably his most important journal article, The Contractual Nature of The Firm. While a firm cannot be defined easily, Cheung interprets it as a kind of contractual arrangement being used to replace the market (i.e. price mechanism) to reduce transaction costs (e.g. the cost of price searching).
and Joseph E. Stiglitz
have acknowledged the contribution by Cheung in their respective Nobel lectures. While referring to Cheung's "brilliant, valiant attempt" to prove that sharecropping does not matter to the incentives of the workers, Stiglitz credited Cheung's "unreasonable assumptions, especially concerning information" for motivating him to develop the alternative theory.
) commenting on China
's modernization programs from an economic point of view. In the 1980s, Cheung strongly supported an economic transformation of China as a market economy
. However, in that decade, China went through serious inflation
, leading to strong economic, political and social tensions.
However, after 1992, China continued to reform economically. Steven Cheung claimed that most of his predictions have come true. One of his major ideas, the replacing of state owned enterprises by private enterprises, turns out to be very consistent with the direction taken by Chinese political leaders and policy makers.
. Linda Su Cheung, the wife of Steven N.S. Cheung, was also indicted on the latter count.
Cheung and his wife were to be arraigned on February 20, 2003. However, they failed to appear. Consequently, arrest warrants were issued.
Originally a professor at University of Hong Kong, because of the extradition
agreements between the US and Hong Kong
, Cheung has since stayed in mainland China
, a country that has no such agreements with America.
Currently, Cheung lives in Shenzhen
. He now still writes books and works as a columnist for the Hong Kong newspaper Apple Daily
. Occasionally, he pays visits to various universities in mainland China.
In 2004, the Washington State Attorney General filed consumer fraud charges against Thesaurus Fine Arts.http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=thesaurus29m&date=20051029&query=%22thesaurus+fine+arts%22 In 2005, Thesaurus Fine Arts settled] for up to $550,000 in fines, attorney fees, and restitution. However, as part of the settlement, Cheung himself was dropped from the case.
Pinyin
Pinyin is the official system to transcribe Chinese characters into the Roman alphabet in China, Malaysia, Singapore and Taiwan. It is also often used to teach Mandarin Chinese and spell Chinese names in foreign publications and used as an input method to enter Chinese characters into...
: Zhāng Wǔcháng; born December 1, 1935), a Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
born economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
, specializes in the fields of transaction cost
Transaction cost
In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal...
s and property rights. Known for his work on private property rights and transaction costs, he achieved his fame with an economic analysis on China open-door policy after 1980s. In his studies of economics, he focuses on economic explanation that is based on real world observation (an observation first approach). He is also the first to introduce concepts from the Chicago School of Economics into China.
He obtained his PhD
Doctor of Philosophy
Doctor of Philosophy, abbreviated as Ph.D., PhD, D.Phil., or DPhil , in English-speaking countries, is a postgraduate academic degree awarded by universities...
in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
from UCLA, where his teacher was American economist Armen Alchian
Armen Alchian
Armen Albert Alchian is an American economist and an emeritus professor of economics at the University of California, Los Angeles....
. He taught in the Department of Economics at the University of Washington
University of Washington
University of Washington is a public research university, founded in 1861 in Seattle, Washington, United States. The UW is the largest university in the Northwest and the oldest public university on the West Coast. The university has three campuses, with its largest campus in the University...
from 1969 to 1982, and then at the University of Hong Kong from 1982 to 2000. During this period, Cheung reformed the syllabus of Hong Kong's A-level
Hong Kong Advanced Level Examination
The Hong Kong Advanced Level Examination , or more commonly known as the A-level, conducted by the Hong Kong Examinations and Assessment Authority , is normally taken by senior students at the end of their matriculation in Hong Kong. In 2010, 39,772 candidates entered for the examination...
Economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
examination, adding the concepts of the postulate of constrained maximization
Maximization
The profit motive is the concept in economics that refers to individuals being provided incentive to relinquish something for deployment to a productive purpose. If humans are rational and self-interested , then they should only divert some of their personal resource toward production for others...
, methodology
Methodology
Methodology is generally a guideline for solving a problem, with specificcomponents such as phases, tasks, methods, techniques and tools . It can be defined also as follows:...
, transaction cost and property right, most of which originate from the theories of the Chicago school
Chicago school (economics)
The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...
.
US authorities have issued an arrest warrant for Cheung on tax-evasion and conspiracy charges. Cheung fled to mainland China
Mainland China
Mainland China, the Chinese mainland or simply the mainland, is a geopolitical term that refers to the area under the jurisdiction of the People's Republic of China . According to the Taipei-based Mainland Affairs Council, the term excludes the PRC Special Administrative Regions of Hong Kong and...
from Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
; China has no extradition treaty with the US.
Timeline
Born in Hong Kong in 1939, he fled to China in 1941. From 1959 to 1967, he studied Economics at UCLA and prepared a PhD dissertation. From 1967 to 1969, he did postdoctoral research at the University of ChicagoUniversity of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...
, analysing share tenancy and variable rural land resource allocation. From 1969, he taught at the University of Washington
University of Washington
University of Washington is a public research university, founded in 1861 in Seattle, Washington, United States. The UW is the largest university in the Northwest and the oldest public university on the West Coast. The university has three campuses, with its largest campus in the University...
and, from 1982, was head of the School of Economics and Finances of Hong Kong University.
From 1998 to 2003, he allegedly sold fake antiques through his store, Thesaurus Fine Arts, until he was indicted by U.S. federal grand jury
Grand jury
A grand jury is a type of jury that determines whether a criminal indictment will issue. Currently, only the United States retains grand juries, although some other common law jurisdictions formerly employed them, and most other jurisdictions employ some other type of preliminary hearing...
for alleged tax evasion. In 2005, his store got a settlement, as announced by the Washington Attorney General. Since 2003, he resides, writes researches in mainland China
Mainland China
Mainland China, the Chinese mainland or simply the mainland, is a geopolitical term that refers to the area under the jurisdiction of the People's Republic of China . According to the Taipei-based Mainland Affairs Council, the term excludes the PRC Special Administrative Regions of Hong Kong and...
.
Unlike modern mainstream economists, Cheung's analysis does not rely on advanced mathematical techniques but solely on the two basic building blocks of price theory: one is the axiom of constrained maximisation and the other, the law of demand (one that already incorporates the law of diminishing marginal returns). One of the constraints which he emphasizes most is transaction cost (or better termed institutional cost).
His theory of share tenancy has enhanced the understanding of contractual arrangement, which was largely ignored by neo-classical economists. According to Cheung, sharecropping
Sharecropping
Sharecropping is a system of agriculture in which a landowner allows a tenant to use the land in return for a share of the crop produced on the land . This should not be confused with a crop fixed rent contract, in which a landowner allows a tenant to use the land in return for a fixed amount of...
is not necessarily exploitative. It will achieve the same efficient allocation as labor markets under competition and zero transaction costs (Cheung, 1968). In the presence of transaction costs, sharecropping can be efficient by lowering the monitoring costs of wage contracts and increasing risk-sharing benefits relative to rent contracts (Cheung, 1969).
This implication is revolutionary; sharecropping was perceived as an inferior arrangement for years. After the publication of The Fable of The Bees, our perception of externalities is no longer the same: as long as corresponding property rights are clearly delineated, OR transaction cost is zero, externalities can be internalized through private negotiation/contract arrangement without government's intervention. In 1983, Cheung published probably his most important journal article, The Contractual Nature of The Firm. While a firm cannot be defined easily, Cheung interprets it as a kind of contractual arrangement being used to replace the market (i.e. price mechanism) to reduce transaction costs (e.g. the cost of price searching).
Original thinking
Nobel Prize winners like Ronald CoaseRonald Coase
Ronald Harry Coase is a British-born, American-based economist and the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School. After studying with the University of London External Programme in 1927–29, Coase entered the London School of Economics, where he took...
and Joseph E. Stiglitz
Joseph E. Stiglitz
Joseph Eugene Stiglitz, ForMemRS, FBA, is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences and the John Bates Clark Medal . He is also the former Senior Vice President and Chief Economist of the World Bank...
have acknowledged the contribution by Cheung in their respective Nobel lectures. While referring to Cheung's "brilliant, valiant attempt" to prove that sharecropping does not matter to the incentives of the workers, Stiglitz credited Cheung's "unreasonable assumptions, especially concerning information" for motivating him to develop the alternative theory.
Contribution to economics and China's economic development
Chueng's contribution to economics and China's economic development can be roughly grouped in the following areas,- New Institutional EconomicsNew institutional economicsNew institutional economics is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underlie economic activity.-Overview:...
- how different kinds of contractual arrangement affect transaction costs, which are often ignored by New Classical economists
- realizing the importance of transaction costs (as Cheung often mentions in his writings, if there is no transaction costs (the original starting point assumption by Coase), there is no difference in using different institutional arrangements (e.g. market or government)).
- the nature of the firm (a government, to a certain extent, is a firm and can be more efficient than the market in some areas),
- MethodologyMethodologyMethodology is generally a guideline for solving a problem, with specificcomponents such as phases, tasks, methods, techniques and tools . It can be defined also as follows:...
- emphasis on economic explanation (according to Cheung, economic explanation is the ONLY objective of the study of economics);
- the analysis of relevant and observable real world constraints: Adam Smith's tradition,
- downward sloping demand curve: NeoclassicalNeoclassical economicsNeoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
tradition, - theories must be potentially refutableFalsifiabilityFalsifiability or refutability of an assertion, hypothesis or theory is the logical possibility that it can be contradicted by an observation or the outcome of a physical experiment...
but not yet refuted (Cheung considers many mainstream concepts not observable, leading to the non-refutable nature of many theories (such as utilities, welfare)) - focus on capturing the underlying and relevant constraints to explain economic phenomena that might seem odd and strange on the surface.
- China's economic development
- Considerable influence among the Chinese speaking population (most of his work after 1982 are written in Chinese);
- Prediction of China's institutional reform (which, in general, has been quite accurate)
- Analysis of the deficiencies in the Chinese state owned enterprises
Comments on China's modernization
He had written many books (in ChineseChinese language
The Chinese language is a language or language family consisting of varieties which are mutually intelligible to varying degrees. Originally the indigenous languages spoken by the Han Chinese in China, it forms one of the branches of Sino-Tibetan family of languages...
) commenting on China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
's modernization programs from an economic point of view. In the 1980s, Cheung strongly supported an economic transformation of China as a market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
. However, in that decade, China went through serious inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, leading to strong economic, political and social tensions.
However, after 1992, China continued to reform economically. Steven Cheung claimed that most of his predictions have come true. One of his major ideas, the replacing of state owned enterprises by private enterprises, turns out to be very consistent with the direction taken by Chinese political leaders and policy makers.
Tax fraud charges and US arrest warrant
On January 28, 2003, Cheung was indicted on thirteen counts by a US federal grand jury. The charges consisted of six counts of filing a false income tax return, six counts of filing false foreign bank account reports, and one count of Consipiracy to Defraud the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. Linda Su Cheung, the wife of Steven N.S. Cheung, was also indicted on the latter count.
Cheung and his wife were to be arraigned on February 20, 2003. However, they failed to appear. Consequently, arrest warrants were issued.
Originally a professor at University of Hong Kong, because of the extradition
Extradition
Extradition is the official process whereby one nation or state surrenders a suspected or convicted criminal to another nation or state. Between nation states, extradition is regulated by treaties...
agreements between the US and Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Cheung has since stayed in mainland China
Mainland China
Mainland China, the Chinese mainland or simply the mainland, is a geopolitical term that refers to the area under the jurisdiction of the People's Republic of China . According to the Taipei-based Mainland Affairs Council, the term excludes the PRC Special Administrative Regions of Hong Kong and...
, a country that has no such agreements with America.
Currently, Cheung lives in Shenzhen
Shenzhen
Shenzhen is a major city in the south of Southern China's Guangdong Province, situated immediately north of Hong Kong. The area became China's first—and one of the most successful—Special Economic Zones...
. He now still writes books and works as a columnist for the Hong Kong newspaper Apple Daily
Apple Daily
Apple Daily is a Hong-Kong-based tabloid-style newspaper founded in 1995 by Jimmy Lai Chee Ying and is published by its company, Next Media. A sister publication carrying the same name is published in Taiwan, Republic of China under a joint venture between Next Media and other Taiwanese companies...
. Occasionally, he pays visits to various universities in mainland China.
Selling fake antiques
From 1998 to 2003 Steven N. S. Cheung Inc. owned an antique dealer in Seattle called Thesaurus Fine Arts, which specialized in Asian antique pieces. The store closed when a series of investigative reports in the Seattle Times revealed that many of the antiques were fake, and whose old ages had been certified by a lab owned by Steven Cheung. [source needed]In 2004, the Washington State Attorney General filed consumer fraud charges against Thesaurus Fine Arts.http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=thesaurus29m&date=20051029&query=%22thesaurus+fine+arts%22 In 2005, Thesaurus Fine Arts settled] for up to $550,000 in fines, attorney fees, and restitution. However, as part of the settlement, Cheung himself was dropped from the case.
Doctoral Thesis
- 1969 The Theory of Share Tenancy, University of Chicago Press. Reprinted in June 2000 by Acadia PSeress.
Selected Books for General Audiences
- 2001 Economic Explanation, Arcadia Press, Reprinted in December 2002 by Aracadia Press
- Book I, The Science of Demand
- Book II, The Behavior of Supply
- Book III, The Choice of Institutional Arrangements
Selected Journal Articles
- 1968 "Private property rights and sharecropping", Journal of Political Economy, Vol. 76, Issue 6, pp. 1107-1122.
- 1969 Transaction Costs, Risk Aversion, and the Choice of Contractual Arrangements, Journal of Law and Economics, Vol. 12, Issue 1, pp. 23–42.
- 1970 The Structure of a Contract and the Theory of a Non-Exclusive Resource, Journal of Law and Economics, Vol. 13, Issue 1, pp. 49–70.
- 1970 Enforcement of Property Rights in Children, and the Marriage Contract, Economic Journal, Vol. 82, Issue 326, pp. 641–57.
- 1973 The Fable of the Bees: An Economic Investigation, Journal of Law and Economics, Vol. 16, Issue 1, pp. 11–33.
- 1974 A Theory of Price Control, Journal of Law and Economics, Vol. 17, Issue 1, pp. 53–71.
- 1975 Roofs or Stars: The Stated Intents and Actual Effects of a Rents Ordinance, Economic Inquiry, Volume 13, Issue 1, pp. 1–21.
- 1977 Why are better seats 'underpriced' , Economic Inquiry, Volume 15, Issue 4, pp. 513–522.
- 1982 Property Rights in Trade Secrets, Economic Inquiry, Volume 20, Issue 1, pp. 40–53.
- 1983 The Contractual Nature of The Firm, Journal of Law and Economics, Vol. 26, Issue 1, pp. 1–26.
- 1995 Economic Interactions: China vis-a-vis Hong Kong, Contemporary Economic Policy, Vol. 13, Issue 1, pp. 1–9.
- 1996 A Simplistic General Equilibrium Theory of Corruption, Contemporary Economic Policy, Vol. 14, Issue 3, pp. 1–5.
- 1998 Deng XiaopingDeng XiaopingDeng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
's Great Transformation, Contemporary Economic Policy, Vol. 16, Issue 2, pp. 125–35. - 1998 The Curse of Democracy as an Instrument of Reform in Collapsed Communist Economies, Contemporary Economic Policy, Volume 16, Issue 2, pp. 247–49.