Transcript USST 100 - 中南大学商学院

The Orthodox and Unorthodox
Approaches to Economic
Development
经济发展的方法论
Lecture Series at Central South University, Changsha
Presented by
Dr. QIJIN WU
Vice President Hunan Branch
The Export and Import Bank of China
April 22th, 2012
State and Market
The East Asian Miracle
Views on the evolving role of the
state in economic development
Economies of the Asian
Miracle
Competing theoretical
paradigms:
The proponents of competing paradigms practice their
trades in different worlds ... [they] see different
things when they look from the same point in the
same direction.
(Kuhn 1970: 150)
Orthodox view of the role of
state (based on allocative/static
models):
• To protect the vulnerable and ensure an
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equitable distribution of income
To provide an institutional environment in which
markets can flourish
To correct market imperfections (market failure)
provide public goods
• So, generally little role for industrial policy??
Rapid Growth
Persistence of Growth
Life expectancy at birth
Demography
Export Penetration
What was key to HPAEs
success? What caused the
miracle?
Can it be replicated?
Doing fundamentals well:
• Rapid accumulation both physical
and human capital made possible
by very high savings rates
• Stable and predictable macroeconomic
environment
• Sound financial institutions
• Secure property rights
• Complementary investments in
infrastructure
Why is investment in human
capital important?
To facilitate the formulation of learning curve
Coordination problems may hinder human capital
formation, so there is a reason for the state to
intervene.
Imperfect markets (loans for schooling)
Externalities as well (such as sharing of ideas, less
contagious disease)
Features that promoted human
capital formation
• Economic growth
• Declining population growth
With significant savings….
Also fuelled by
• Equality in distribution of income
• But most importantly of all a focus on
basic education, East Asian NICs made
good use of available investment
resources on education
High savings because
• Control of inflation (avoided fiscal deficits)
hence positive or mildly negative real
interest rates
• Stable banking sectors because of
regulatory oversight
• Demography (dependency ratio fell)
• Public consumption quite low (minimal
role of state)
High rates of investment:
• Secure property rights
• Complementary infrastructure
investment
• Low relative price of capital goods
• Capital controls
• Tax incentives
• Moderate repression of interest rates
(most controversial) (EAMR, 1993: 237)
(getting the prices right? See Amsden,
1989)
Low price of capital goods
So, success was because
• ‘fundamentals’ were right: stable
macroeconomic environment, universal
primary education, sound and solvent
financial institutions, secure property
rights, complementary investments in
infrastructure, low relative prices of
investment goods
But what interventions did
actually take place?
• Industrial and trade policies (policies targeting of
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industries to change industrial structure)
Key among these was financial repression/direction
Nurturing of big business in key sectors
Selective tax and tariff policies (to protect industries)
Creating contests (restriction also of competition)
Monitoring/disciplining of big business
Control of foreign direct investment
Capital flow restrictions
Using directed credit by policy banks
Real interest rates on directed credit
Trade policies?
Protection in Korea
• Miracle Report argues that HPAEs were in fact more open than
other developing countries, more ‘outward oriented’… but so
what?
• This ‘may be soothing to the bank, but it is not really relevant –
the real issue … is whether they distorted their prices at all’
(Lall, 1993: 651)
So did these various
interventions work??
Revisionist view
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industries which require intensive employment of
capital and technology, industries that in
consideration of comparative cost of production
should be most inappropriate for Japan, industries
such as steel, oil refining, industrial machinery of all
sorts, and electronics … From a short-run, static
viewpoint, encouragement of such industries would
seem to conflict with economic rationalism. But, from
a long-range viewpoint, these are precisely the
industries where income elasticity of demand is high,
technological progress is rapid, and labour
productivity rises fast ... Japan has been able to
concentrate its scant capital in strategic industries
(Wade, 1990: 25)
Market friendly view of these
industrial policies:
• Industrial policy defined as ‘governments efforts
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to alter industrial structure to promote
productivity based growth’
Attempts to influence industrial structure
generally unsuccessful, it is argued
Those sectors that were targeted did not
experience significantly higher productivity
change
But problems with these calculations and the
argument as a whole
‘Pointing the gun inwards’
(Amsden, 1993):
• ‘we find very little evidence that industrial
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policies have affected either the sectoral
structure of industry or rates of productivity
change … industrial policies were largely
ineffective (p.312)
Because ‘manufacturing sector seems to have
evolved roughly in accord with neoclassical
expectations: industrial growth was largely
‘market conforming’ (p.315)
‘Market friendly’ approach
• ‘Private direct investment and rapidly growing
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human capital, were the principal engines of
growth … in this sense there is little that is
‘miraculous’ about the HPAEs superior record of
growth; it is largely due to superior
accumulation of physical and human capital (p.5)
the eight economies tend to favor the
importance of doing the fundamentals well’
East Asian success sometimes occurred in
spite of rather than because of market
interventions.
Revisionists
• State did play a large role, not just providing
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the ‘fundamentals’ but also supporting
specific industries, those capable of exploiting
economies of scale. Especially the case in
Japan and South Korea
East Asian Miracle Report drew heavy
criticism, but we should not forget that
fundamentals are important (human/capital
investment)
A Focus on our own path of growth and development
China’s economic success has surprised the world
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Since the late 1970s, there have been 30 years of
impressive changes in China. China today and
China 30 years ago have presented a totally different
image, an image that is somewhat unimaginable to
both China and the whole world: To many, a
formerly poverty-stricken country has now created
an economic miracle within 30 years.
• The soft power of erecting examples for other
developing nations
How to explain the Chinese Miracle?
• Big Bang vs. Gradualism (Probing for a way forward)
• Two types of transitional approaches: orthodox vs.
unorthodox: The former Soviet Union and China in contrast.
• Institutional Change: from HRS to Private entrepreneurs
joining the Party
• China’s focus of economic reform: using both hands (state and
market); using increments to reform the stock; using market to
exchange the tech.; using opening (trade) to promote
development.
Approaches: the ‘cat’,’ stone’ and ‘scientific’
concepts of development theories
Goals: Development is a paramount
obligation, but with both hands: ‘state’ and
‘market’.
Building a harmonious society.
Challenges of globalisation, development and
transition.
Conclusion 1
Competing theoretical paradigms
The proponents of competing paradigms practice their
trades in different worlds ... [they] see different
things when they look from the same point in the
same direction.
(Kuhn 1970: 150)
Conclusion 2