1/9
Very interesting article about what after many years is starting to become a consensus – i.e. the similarities between China today and Japan in the late 1980s. I agree with Harding that China can learn a lot from Japan’s mistakes.
ft.com/content/af51a7…
Very interesting article about what after many years is starting to become a consensus – i.e. the similarities between China today and Japan in the late 1980s. I agree with Harding that China can learn a lot from Japan’s mistakes.
ft.com/content/af51a7…
2/9
I am skeptical however about what he believes to be the most important difference between the two. He notes that Japanese output per capita in the late 1980s was four-fifths the American level, whereas Chinese output per capita today is only one-fifth American levels.
I am skeptical however about what he believes to be the most important difference between the two. He notes that Japanese output per capita in the late 1980s was four-fifths the American level, whereas Chinese output per capita today is only one-fifth American levels.
3/9
This means, he says, that “Japan in 1990 had run out of room to catch up, whereas China still has a way to go.” I think economists overstate the tendency of developing countries to converge with advanced economies. There certainly is little evidence that this indeed happens.
This means, he says, that “Japan in 1990 had run out of room to catch up, whereas China still has a way to go.” I think economists overstate the tendency of developing countries to converge with advanced economies. There certainly is little evidence that this indeed happens.
4/9
As I see it, the ability of a country to absorb additional investment productively is determined not by its distance from the capital frontier set by the US, but rather by its own domestic institutions.
As I see it, the ability of a country to absorb additional investment productively is determined not by its distance from the capital frontier set by the US, but rather by its own domestic institutions.
5/9
These institutions – which include legal and political systems, social capital, the financial and educational sectors, cultural attitudes, and so on – are ultimately what determines the ability of its workers and businesses to absorb new investment productively.
These institutions – which include legal and political systems, social capital, the financial and educational sectors, cultural attitudes, and so on – are ultimately what determines the ability of its workers and businesses to absorb new investment productively.
6/9
If an economy is far away from its optimal level (which I called in the attached essay the “Hirschman” level), then it is true that more muscular investment can raise productivity and keep growth rates high.
carnegieendowment.org/chinafinancial…
If an economy is far away from its optimal level (which I called in the attached essay the “Hirschman” level), then it is true that more muscular investment can raise productivity and keep growth rates high.
carnegieendowment.org/chinafinancial…
7/9
But I would argue that investment in both Japan in the late 1980s and China today probably exceeded their Hirschman levels, which is precisely why their once-very-successful growth models, based on keeping investment levels high, had long since stopped delivering real growth.
But I would argue that investment in both Japan in the late 1980s and China today probably exceeded their Hirschman levels, which is precisely why their once-very-successful growth models, based on keeping investment levels high, had long since stopped delivering real growth.
8/9
If I am right, what China needs (and what Japan needed) is substantial institutional reforms that raise the ability of workers and businesses to absorb additional investment productively – some might call these “market-based” reforms.
If I am right, what China needs (and what Japan needed) is substantial institutional reforms that raise the ability of workers and businesses to absorb additional investment productively – some might call these “market-based” reforms.
9/9
Put differently, a country’s growth potential doesn’t depend on how far behind it is from the US but so much as it depends on how far behind it is from its own Hirshman level.
Put differently, a country’s growth potential doesn’t depend on how far behind it is from the US but so much as it depends on how far behind it is from its own Hirshman level.
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