Transcript CH13

“The Economic Way of Thinking”
12th Edition
Chapter 13: The wealth of nations:
Globalization and Economic Growth
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Chapter Outline
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Introduction
Who is Rich, Who is Poor?
The Historical Record
Sources of Economic Growth
Foreign Investment
Human Capital
Oil Comes From Our Minds
Economic Freedom Index
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Chapter Outline
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The Developmental Power of Private Property
Rights
The Asian Record
Outside of Asia
Globalization and its Discontents
The Power of Popular Opinion
The Power of Special Interests
The Outsourcing Controversy
Appendix: The Difficulties of International GDP
Comparisons
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Introduction
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Economic system is a social system
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People cooperate
Creating and using resources to satisfy wants
Why do some systems accomplish so much
than others?
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Natural resources?
Ratios of population?
There is more!
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Who is Rich, Who is Poor?
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The World Bank（世界银行）
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Using gross national product per capita（人均国
民生产总值）
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Classifies countries
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High-income economies
Middle-income economies. China is here now!
Low-income economies (<1,000 current US dollars of
income per resident，居民人均收入)
GNP and GDP practically the same
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The Historical Record
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GDP Per Capita – 2008
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China - $5,345
USA - $45,790
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India - $2,753
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899 times 1820 level
Almost 34 times 1820 level
资料来源：世界银行公布的“2008年各国的人均GDP排
名”（按购买力平价计算的人均GDP）
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The Historical Record
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Cautionary note on aggregation
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The sources of economic growth and
development lay in the structural composition of
the political and economic system under study
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Aggregate statistics are at best poor estimators
that must be used with caution and skepticism
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Also, there are many difficulities in measuring,
comparing, and interpreting GDP among countries.
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The Historical Record
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The huge difference between the GDPs of
these countries lies in economic growth
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GDP growth in US – average annual rate of better
than 3% between 1820 and 2008.
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The Historical Record
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Explaining the difference in growth
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Economic growth requires the initial existence of a
surplus（剩余，盈余） that can be invested in
productive capital.
Possible source of surplus
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Imperialism and exploitation（帝国主义和剥削）？
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The Historical Record
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Observations
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Some of the poorest countries were never
subjected to conquest.
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Some of the richest never conqured or colonized
others. Such as Switzerland（瑞士）, Singlepore
（新加坡）
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The Historical Record
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From 1950 – 1973:
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World economic growth – 4.9%
Per capita world growth – 2.9%
From 1973 – 1990:
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Latin American growth slowed.
Soviet Union and Africa per capita income fell.
Europe’s growth rate would only double per capita income
every 50 years.
Asia’s growth rate would double per capita income every
25 years.
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Sources of Economic Growth
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The essential preconditon: Stable social
order（稳定的社会秩序）
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Rule of Law is well established so that people can
initiate projects with reasonable confidence that
they will able to enjoy the results of their efforts.
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Sources of Economic Growth
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The essential preconditon: Stable social order
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Economic development is a function of three things:
People, resources, and insititutions
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We only have some commond over the institutions
that govern the way we interact with one other and the
way we utilize resources
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So fundamental institutions (such as the rule of law),
not the supply of natural resources or the level of
human capital investment, are vital to economic
development.
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Sources of Economic Growth
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Other prerequisite
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Low-cost systems of transportation and
communications（低成本的运输和交流体系）
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Stocks of capital（资本存量）
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积累消费品，让生产者度过生产期，这些消费品发挥着资
本的功能，因为其使用提高了未来的生产率
提高劳动能力（更强有力的生产工具）
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Sources of Economic Growth
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Other prerequisite
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Technical innovation（技术创新）
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推动经济增长最强的力量
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后发优势？
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Foreign Investment
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Foreign investment may create the surplus
required to stimulate growth in poor countries.
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Private investors
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Foreign aid
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Foreign Investment
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Issues in Private Investment
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Risk of nationalization
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Private investment may benefit only the political
leaders
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Foreign Investment
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Issues in Foreign Aid
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Questions
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What is the quid pro quo （交易条件）of the giving
country?
How will the aid be allocated?
Aid may support bad governments.
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Foreign Investment
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Advantages of Private Investment
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Private Investors:
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Provide the expertise to utilize the capital they lend.
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More accurately measure the probability of success of a
project.
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Human Capital（人力资本）
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Education and human capital
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Question
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Literacy（识字） is a precondition for economic
growth.
Productive knowledge and skills makes
individuals wealthy.
How much human capital contribute to the growth
in the wealth of nations?
Answer
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Important but difficult to measure
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Oil Comes to Our Minds
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Knowledge is the crucial factor in the process
of economic growth.
Human intelligence eventually saw a way to
use oil for human purposes.
It takes human minds to discover and employ
resources!
What the poor countries lack is not things, but
ideas!
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Economic Freedom Index
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Economic Freedom Index（EFI, 经济自由度
指数）
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Block, Gwartney, and Lawson
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Want to correlate their index with measures of
economic growth
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Economic Freedom Index
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Get the index by measuring a country’s
economic policies
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Regulation
Pricing practices
Monetary policy
Fiscal policy
International trade
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Economic Freedom Index
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Which countries have great degrees of
economic freedom
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Low levels of regulation
Freedom of pricing
Stable monetary policy
Low levels of taxation
Open international trade
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Economic Freedom Index
Countries that followed policies ranking
highest in EFI had the highest levels of
per capita GDP.
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The Developmental Power of Private
Property Rights
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Adam Smith: The Wealth of Nations (1776)
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There is a causal relationship between economic
freedom
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People grow wealthier with the freedom to
participate in the market process.
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The Asian Record
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The Elements of Growth:
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Rule of Law
Competent and honest government officials
Educated populace
Openness to international trade
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The Asian Record
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South Korea, Japan and Taiwan
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Invested in education, especially women’s
Embraced the global economy
Government policy maintained a market
perspective and controlled inflation
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The Asian Record
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1960 – 1990 India
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Per capita GDP (2000 PPP dollars)
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1960 - $606
2006 - $2,122
64% of South Korea’s in 1960
11% of South Korea’s in 1999
1960 – 1990 India
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Population increased >100%
South Korea population increased 47%
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The Asian Record
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India: Limits to Growth
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Resources allocated to national defense.
Did not allow markets and prices to allocate
resources.
Attempted central planning
Government regulation eliminated the rule of law.
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Outside Asia
Growth Rates (1960-2006)
Country
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
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% Change in real GDP
46.6
177.8
217.5
142.2
150.0
55.0
0.0
Source: World Bank, World Development Indicators
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Outside Asia
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Latin America’s Mixed Records
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Argentina (per capita GDP)
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Venezuela (per capita GDP)
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1929 – 63% of US
2006 – 27.3% of US
2006 – unchanged from 1960 level
Brazil (per capita GDP)
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Rose in the 1970’s
Fell in the 1980’s
2006 – 20% higher than 1990
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Outside Asia
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Question
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What prevents the Latin American countries from
establishing a consistent economic growth rate?
The safest answer
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Unstable government cannot establish the rule of
law
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Outside Asia
Per Capita GDP 2006 (in 2000 U.S. Dollars)
Country
Per Capita GDP
Congo
Ethiopia
Ghana
Tanzania
Nigeria
Kenya
Cote d’Ivoire
$91
$146
$194
$335
$440
$446
$555
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Outside Asia
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Sub-Saharan Africa（撒哈拉以南非洲）
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Limits to economic growth
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Climate and geography
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Lack of agricultural production
Climate related to diseases
Rivers not navigable（河流不能通航）
Unstable political regimes
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Outside Asia
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Policies do matter
But
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policies are set by governments
We cannot count on those who set policies always
to favor economic growth over narrower goals of
their own that are not compatible with growth
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Globalization and Its Discontents
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Some believe
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Large corporations are in a global quest to help
the “have-nots” of the world.
Others say
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Large corporations will “roll over” the poor in
searching for profits.
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Globalization and Its Discontents
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“华盛顿共识” (the Washington consensus)：
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1990年代由美国政府及其控制的国际经济组织所制
定，并由它们通过各种方式进行实施
指导了20世纪90年代拉美、东欧、前苏联转轨国家
的经济改革和转轨实践
是以自由市场经济为导向的一系列政策措施
“华盛顿共识的争论”有待进一步探讨。
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Globalization and Its Discontents
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“华盛顿共识”共包括十个方面
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①加强财政纪律，压缩财政赤字，降低通货膨胀率，稳定宏
观经济形势；
②把政府开支的重点转向经济效益高的领域和有利于改善收
入分配的领域（如文教卫生和基础设施）；
③开展税制改革，降低边际税率，扩大税基；
④实施利率市场化；
⑤采用一种具有竞争力的汇率制度；
⑥实施贸易自由化，开放市场；
⑦放松对外资的限制；
⑧对国有企业实施私有化；
⑨放松政府的管制；
⑩保护私人财产权。
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Globalization and Its Discontents
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Critics of globalization argue that “the Washington
consensus” leads to
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Growing income inequality in the world
A “race to the bottom” in terms of environment policy
A “race to the bottom” in terms of labor policy
“race to the bottom”: “竞次”,即打到底线的竞争。
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在竞次的游戏中，比的不是谁更优秀，谁投入了更多的科技，
更多的教育，而是比谁更次，更糟糕、更能够苛待本国的劳
动阶层，更能够容忍本国环境的破坏
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Globalization and Its Discontents
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Evidence suggests globalization achieves
positive changes:
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Lifts up the poor from miserable poverty.
Environmental quality improves.
Workers better off.
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Income
Working conditions
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The Power of Popular Opinion
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Strong opinions are not the same as valid
arguments.
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Popular opinion often focuses on the obvious
consequences of public policy.
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The Power of Popular Opinion
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But good economics
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Is not only about both the immediate and obvious
consequences of any public policy
Also tries to clarify the longer term and the often
hidden, unintended consequences that result
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The Power of Popular Opinion
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Increases in real income result only from
increases in real productivity
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Productivity increases sourced from
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Labor skill improvements.
Technological knowledge increases.
Improvements in economic organization.
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The Power of Popular Opinion
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Globalization brings all from
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More developed world to
Less developed world
The pattern of exchange and production that
emerges from globalization
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Is usually a marked improvement
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The Power of Special Interests
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The power of special interests leads to a
conflict between good economic policy and
good political decisions
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Politics exhibit a short-sightedness in
economic decision making
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Concentrated benefits bias
More so in non-democratic governments that are
not secure.
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The Outsourcing（外包） Controversy:
Soundbytes（吵闹） vs. Analysis
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Number of jobs lost in the US due to
outsourcing of jobs to foreign workers
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Miniscule（微乎其微） compared to size of US
economy
Law of comparative advantage works
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Trade between nations is positive-sum game（正
和游戏）
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Appendix: The Difficulties of
International GDP Comparisons
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GDP will:
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Decrease as a consequence of marriages.
Increase with the rising divorce rate.
GDP of low income countries will be
understated.
Wealth of those in wealthier countries will be
exaggerated.
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Appendix: The Difficulties of
International GDP Comparisons
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International comparisons of per capita GDP
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Distorted by common denominator – US $
Using current exchange rate
Purchasing Power Parity adjustments（购买
力平价调整）
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Must be made for meaningful international
comparisons.
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Once Over Lightly
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Economic Growth and Specialization
Low costs means of exchanges will increase
specialization and economic growth.
Rule of law also essential for economic
growth.
Economic growth has depended upon the
accumulation of capital.
Openness to global economy facilitates
economic growth.
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Once Over Lightly
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Capital accumulation and economic growth
Human capital and economic growth
Institutions of governance and economic
growth
Debate over globalization
Aggregate GDP analysis is difficult when
comparing across different countries /
currencies.
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