Transcript China`s Eleventh 5

China’s 11th Five-Year Plan
Joseph E. Stiglitz
March 2006
The Context
• Enormous—unprecedented-- economic success
– Previous economic revolutions—like the industrial
revolution of the nineteenth century—had seen
growth rates peak at around 2 to 3%
• The golden age of growth in America in the fifties and sixties
saw similar growth rates
– China’s growth has been three times these numbers
– The fraction of the Chinese population living on less
than $1 a day has fallen from 63.8% in 1981 to 16.6%
twenty years later
The Context
• But enormous challenges
– Even in purchasing power parity, per capita income is only an
eighth of that of the United States
– Growing inequality
• The Development Forum two years ago emphasized that
China was entering a phase in its development where it
was making increasing demands on the environment
– China’s share in global emissions is 3 times larger than its share
in global GDP
– China consumes 28% of world’s rolled steel, 50% of cement
– Sustainability of China’s growth—and the well-being of the
world—depends on China addressing these environmental
issues
• Changing global landscape
– Increasing protectionism
The objective
• Maintaining momentum, ensuring that growth is
sustainable
– Environmentally
– Socially
– Economically
• Ensuring not just sustainable growth, but that the
fruits of that growth are equitably shared
– And that it is not just GDP that is growing, but that
living standards are improvimg
CROSSING THE RIVER BY
FEELING THE STONES
• THE PLAN IS A COMPREHENSIVE GUIDE
TOWARDS THE NEXT STEPS
– But with a focus on the areas where government
needs to focus its efforts
• IN CHINA’S TRANSITION TO A MARKET
ECONOMY WITH DISTINCTIVE
CHARACTERISTICS
– RECOGNIZES THAT THE ROLE OF THE
GOVERNMENT HAS CHANGED
– AND CORRESPONDINGLY, THE ROLE OF
PLANNING
• A GUIDE TO WHAT GOVERNMENT NEEDS TO DO
• INCLUDING THE INSTITUTIONAL INFRASTRUCTURE
….TOWARDS A MARKET ECONOMY WITH DISTINCTIVE
CHARACTERISTICS
• WHAT KIND OF A MARKET ECONOMY?
• There are many versions of a market economy.
The American model differs from the
Scandinavian model, the Japanese model, and
the Continental European Model
• Different models have different consequences—
for the distribution of income, for health, literacy,
and other metrics of well-being
• Choices reflect differences in history, values, etc.
CHINA’S MODEL, REFLECTED IN
THE PLAN, BASED ON A VISION
• OF THE ECONOMY AND SOCIETY IN WHICH NOT
JUST INCREASES IN GDP MATTER
– EMPHASIS ON HARMONY—EQUITY
• PARTICULARLY PROBLEMS IN URBAN RURAL DISPARITIES
• REGIONAL DISPARITIES
• BUT ALSO DISPARITIES WITHIN URBAN SECTOR BETWEEN
RURAL MIGRANTS AND OTHRS
– EMPHASIS ON THE ENVIRONMENT
• DIFFERENT VERSIONS OF MARKET ECONOMY WILL
DIFFER IN THEIR ABILITY TO “DELIVER” THESE
BROADER GOALS
– IN JUDGING RELATIVE PERFORMANCE, IMPORTANT NOT
TO BE “TRAPPED” INTO JUST FOCUSING ON GDP
MEASURING SUCCESS
• WHAT WE MEASURE AND HOW WE MEASURE AFFECTS
BEHAVIOR
• WHICH IS WHY IT IS SO IMPORTANT THAT GOVERNMENT NOT
FOCUS EXCESSIVELY ON GDP
• USE AND DEVELOP BROADER AND BETTER MEASURES
– REAL MEDIAN INCOME
• GDP may increase even as real median income falls
• The problem of rich countries with poor people
– GREEN NET NATIONAL PRODUCT
• GDP may increase even though Green NNP may fall
– HDI
• Some countries have increasing GDP, but lag in social
indicators
– POVERTY RATE, MEASURES OF INEQUALITY
• Poverty may increase, even when GDP increases
DIFFERENT MODELS DIFFER IN
ROLE OF GOVERNMENT
• TODAY, THERE IS A CONSENSUS THAT
SUCCESS REQUIRES A BALANCE
BETWEEN GOVERNMENT AND
MARKETS
• The debate is largely about where to strike that
balance
• Different versions of market economy strike that
balance in different ways
• Differences related to differences in circumstances
and values
Modern economic theory has emphasized
the strengths and limitations of the market
• Adam Smith’s invisible hand often is invisible,
because it’s not there
• As we look across societies, problems arise as
often from too little government as too much
• More generally, problem is often that the
government does too much of what it shouldn’t,
and too little of what it should
• But China will need to guard against the risk of
over reacting, going from excessive intervention
into the economy to too little intervention
– And avoiding simplistic “solutions” based on free
market ideology
Maintaining balance
• More than just a balance between
government and markets
– Important “third sector”: cooperatives, NGO,
civil society, not-for profits
– Play an important role in every market
economy
Roles of Government
• 11th five-year plan identifies clear areas of
focus for the government—related to
areas where markets, by themselves, “fail”
• Distribution—harmony
• Innovation
• Environment
• Macro-economic balance
• Governing the market
1. Harmony: the problem of
inequality
• Strong forces in modern market
economies for increasing inequality
– Partially globalization
• Especially asymmetric globalization, with capital
more mobile than labor
• And advanced industrial countries maintaining
huge agriculture subsidies, lowering prices of
agricultural goods, lowering incomes in rural sector
– With globalization, America and EU subsidies contribute
to China’s problems
Social harmony and market failures
– But partially reflects major market failures
associated with corporate governance,
reflected in scandals of 90s; but the scandals
were the “tip of the iceberg”
• But even perfectly functioning markets do
not necessarily result in “social
harmony”—in a just or even socially
acceptable distribution of income
Social Harmony and the rural
sector
• China now has the resources to improve
living standards in the rural area
• Many of the key policy (institutional)
decisions will affect the rural sector, both
in the short run and long
– property rights debate (affects migration,
wealth distribution)
– Exchange rate
2. Innovation
• Standard theory explains why markets invest too
little in innovation (especially basic research)
– Markets by themselves do not lead to “optimal”
investments in R & D
– Important societal spill-overs
• What separates developed from less developed
countries is not just a gap in resources, but a
gap in knowledge
• China has striven to reduce that gap
• And now it seeks to establish a basis of
independent innovation
3. ENVIRONMENT
• China’s emphasis on the environment is
commendable
• The Development Forum two years ago
emphasized that China was entering a
phase in its development where it was
making increasing demands on the
environment
Two Comments
•
There should be more emphasis on creating
livable cities
–
•
--especially important with increasing fraction of
population living in cities
As China moves towards a market economy,
should increasingly rely on market
mechanisms to address externalities
–
–
–
--carbon or btu taxes, recycling taxes
But in some areas, even market economies rely
heavily on direct “controls”—zoning
Example of general point—property rights are
always circumscribed
4. Macro-management
• China’s growth has been export based
• But it may be difficult for it to sustain the
pace of export growth
• Especially as it confronts growing
protectionism
– Even when problems (e.g. U.S. huge trade
deficit) is not the result of China’s own policies
• Plan recognizes need for China to
increase domestic market
Increasing domestic demand
• Better social safety nets (social security, health
care) and better insurance markets would help
– Reducing need for precautionary savings
• More public support for education
• Tax structure
– Move to consumption based V.A.T. makes little sense
• Designed for countries worried about insufficient savings
• China needs higher revenues of broader tax base
• Regressive—China needs a more progressive tax system to
deal with growing inequality
5. Making markets work: providing
institutional infrastructure
• Market economies only work when there is
effective competition
– Need for strong anti-trust agency
– Need for regulating natural monopolies
•
•
•
•
Financial and securities market regulation
Balanced bankruptcy laws
Balanced intellectual property laws
In many of these areas, especially where there
is risk of regulatory capture, important to have
multiple oversight and to have flexible laws (like
NY Martin Act) to check “innovative” abuses
Designing Institutions
• More than one set of institutions that “work”—just like
there is more than one form of market economy
– Trade-offs and risks
– Ideology and Interests—often the conjoined influence
of free market ideology and interests attempt to shape
a market economy that is not in the broader interests
of society
• Special interests use their economic power and
free market ideology to try to shape rules of the
game to favor themselves
• Putting little value on broader societal concerns—
environment, just distribution of income
– Evidenced in widespread anti-environmental policies,
tax loopholes and subsidies in U.S.
“Crossing the river by feeling the
stones”
• The 11th five year plan combines a comprehensive and
pragmatic blueprint with a vision: a guide to the country
as it takes its next steps in crossing the river.
– As China marches towards a market economy, it
should be careful not to imitate those parts of the
market economy which are badly flawed; at the very
least, it should inform itself about the flaws, discuss
how they can be addressed, and look for alternatives
– Every successful market economy has been based
on achieving an appropriate balance between the
market and government
– The 11th five year plan correctly identifies key areas in
which government will have to play a central role if
China is to ensure the continuation of its successful
growth, and if it that growth is to result in sustainable
and equitable increases in living standards for the
people of China
• The 11th five year plan combines a
comprehensive and pragmatic blueprint
with a vision: a guide to the country as it
takes its next steps in crossing the river.