Sun hats and development

I recently bought a new sun hat (stay with me). A label inside reads ‘made in China’. Replacing my previous hat was well overdue, as it was more than 20 years old. Out of curiosity and before getting rid of it, I checked inside and saw a label, which also read ‘made in China’. I must be something of a geek, as this got me thinking about the manufacture of clothing and development processes.

It is notable that China is manufacturing and exporting clothing such as this, just as it was twenty years ago. The hats are not dissimilar. Of course, the Chinese economy is the largest manufacturing nation in the world and exports a huge amount of goods of all kinds. But according to this experience, companies there are still involved in the manufacture of quite basic clothing. Continue reading

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Industrial policy and Chinese development

The rapid growth and transformation of the Chinese economy since 1978, when policymakers began a programme of economic reforms, has been extraordinary. Up until the last few years, GDP growth averaged around 10% per year, lifting hundreds of millions out of poverty. This represents the largest episode of poverty reduction in human history. China, as the largest manufacturing nation, has become the ‘workshop of the world’.

With a population of 1.4 billion, and an economy relatively open to international trade, these changes have and will continue to have an enormous impact on the rest of the rest of the world. For this reason, we should take a great interest in China’s continuing evolution.

Donald Trump, both on the campaign trail and since becoming US President, has placed great emphasis on getting some sort of ‘better deal’ between the US and Chinese economies. His administration has criticised China for taking advantage of the US on trade and the use of technology. But should China’s rise be a worry in these respects? Or is the US being hypocritical? In fact today’s rich countries all intervened in the economy and used forms of trade, industrial and technology policy to promote their growth and enable periods of ‘catch up’ with those at the frontier. China has been no exception. Continue reading

High wages vs high savings as models of development

I refer to the work of Michael Pettis quite often on this blog. He strikes me as a highly original thinker, combining macroeconomics, finance, development, political economy and economic history in a way which provides a deep understanding of world economic events.

He recently posted here about what he sees as the two main models of economic development which nations have used to transform their economies at certain times in history: the high wages model, and the high savings model.

Models of development can be described as a set of policies and institutions which aim to develop the economy and achieve sustained rises in productivity and output via industrialisation and the advancement of technology.

For Pettis, both models aim to raise wages and productivity, but they are distinct from one another in how they drive the investment which makes this possible. Continue reading

Michael Pettis on China, the US, debt and trade tensions

Michael Pettis is a Professor of Finance at Peking University’s Guanghua School of Management, and an economist whose work I have found to be original, interesting and inspiring. His book The Great Rebalancing explores the role of current account imbalances in the Great Recession and its aftermath of slow growth. I explore some of his ideas in more detail here.

Particularly relevant to today’s events is his prediction that, just as in the 1930s, in a world of limited demand, tensions over international trade are inevitable.

In the short video below, he explores some of the issues facing China’s economy over the next decade, its misallocated investment and unsustainable rise in debt, relations with the US including trade tensions, GDP and its measurement, and liberalization under different economic and financial circumstances.

Inequality, global imbalances and crisis

Tracing a connection between rising inequality and the Great Recession of 2008 is appealing to leftist economists. It suggests that what they see as two of the potential downsides of capitalism and in particular the neoliberal economic order can perhaps be mitigated via appropriate policies. Thus, a more egalitarian capitalism can become less prone to crisis or recession.

Of course, what is appealing as social and economic outcomes is not a good enough reason to investigate linkages between them, though I suspect that I am far from the only one who is drawn to particular ideas as a matter of bias.

Perhaps there is nothing wrong with that as a starting point, followed by economic analysis of the chosen object of study.

An article in the latest issue of the heterodox Cambridge Journal of Economics explores the potential linkages between the distribution of income and current account imbalances in a simplified model of the global economy consisting of the US, Germany and China, prior to the 2008 recession.

These three countries had the largest current account imbalances in absolute terms in the run-up to the recession. The US ran a deficit, and Germany and China were running surpluses. Since these imbalances have been pinpointed by some economists as a cause of the recession itself, analysing them is important. Continue reading

‘In the end, policies are decided on the street’

ha-joon-changIn this short video, which is (slightly annoyingly) only available directly on YouTube, development economist Ha-Joon Chang chats about a range of economic and political issues. He covers industrial policy, free-market ideology, the UN’s Millennium Development Goals (MDGs) and China.

I am a fan of Chang’s often iconoclastic work, and he has written a number of excellent non-academic books for the intelligent reader, including Bad Samaritans, 23 Things They Don’t Tell You About Capitalism, and Economics: The User’s Guide.

US-China industry and trade relations – what’s in store?

An interview with Professor John Weeks on Trump’s efforts to revive US manufacturing and the potentially tense international relations in store. Weeks describes how many nations adopt policies which promote their exports, so that the idea of ‘free trade’ is often misleading. Subtle industrial policies such as these are apparently quite common.