Transcript 1. Complete the transition to a market economy

Stories of Social and Economic
Change
KMUN 2013
Dr. Peter Ibbott
Associate Professor of Economics
King’s University College at the
University of Western Ontario
May 16, 2013
Stories of Social and Economic Change
• Is economic change accelerating?
• Is economic change mostly good or mostly bad?
• Can we manage change or will it destroy us?
Stories of Social Economic Change
Is social change accelerating?
• The paleontological record shows that for approximately
6,000,000 million years, humans were hunter gatherers
• The historical and archeological record shows that for
approximately 10,0000 years humans have existed in
slowly changing agrarian societies
• Over the last 300 years change has been accelerating.
– Scientific Revolution/Industrial Revolution
– Urban Society/Consumer Society/Globalization/Mass
Extinction/Global Warming/Democracy
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Accelerating Social Change: Air travel
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1903: Wright Flyer 11 kph
1905: Wright Flyer III 60 kph
1917: Sopwith Camel 190 kph
1937: Supermarine Spitfire 594 kph
1944: Me 262 (Swallow) 870 kph
1953: Canadair F-86 Sabre 1,130 kph (sound-B)
1964: McDonnell-Douglas F-4 Phantom II 2585 kph
1976: Lockheed SR-71 Blackbird 3,529 kph
1981: Space Shuttle 27,870 kph
Stories of Social and Economic Change
Accelerating Social Change: Computing
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1951: UNIVAC I
1971: Intel 4004
1977: VAX-11/780
1982: Intel 286
1987: Motorola 68030
1992: Intel 486DX2
1994: Intel Pentium
1996: Intel Pentium Pro
1998: Intel Pentium III
2003: Pentium 4
2006: Intel QX6700 (Quad core)
2008: Intel Core i7 920 (Quad core)
2011: Intel Core i7 3960X (Hex core)
0.002 MIPS
0.092 MIPS
0.500 MIPS
2.66 MIPS
18MIPS
54 MIPS
188 MIPS
541 MIPS
2,054 MIPS
9,726 MIPS
49,161 MIPS
82,300 MIPS
177,730 MIPS
Moore’s Law: Number of components on an integrated circuit
doubles every year (1965)
Stories of Social and Economic Change
Era
Neolithic
Bronze Age and Iron Age
Classical Greece
Classical Rome
Pre-Columbian North America
Medieval Islamic Caliphate
Life Expectancy at Birth
(years)
20
26
28
28
At age 15, life expectancy an
additional 37 years (total
age 52).
25–30
35+
Medieval Britain
30
Early 20th Century
31
2010 world average
Life Expectancy at Older Age
67.2
At age 21, life expectancy an
additional 43 years (total
age 64).
Stories of Social and Economic Change
Life Expectancy and Gross National Income
Stories of Social and Economic Change
Stories of Social and Economic Change
Freedom 55?
• If any of these babies retires
at 55 they will have to
finance 65 years of
retirement and the health
costs of an extended life.
• OR, the state will have to.
• This is unsustainable
• We must re-imagine the
future.
Stories of Social and Economic Change
• Is change inevitable? Poverty Trap
• Are the poorest doomed to poverty?
China and India
Stories of Social and Economic Change
• Just because we are getting richer and living
longer does not mean that we are having
better lives.
• Development and Education
• Development and Poverty
• Development and Inequality: Kuznet’s Curve
• Development and Child Labour
Stories of Social and Economic Change
Have we sown the seeds of our own destruction?
• The Population Bomb is ticking (Malthus and Ehrlich)
• The collapse of Capitalism is imminent (Marx)
• The collapse of the social order is increasing domestic
crime and violence. (Conservatives)
• Technological change has increased lethality of modern
warfare so that Armageddon is imminent.
• Global warming (Environmentalists)
Moral Panic from unleashing forces we cannot control.
Stories of Social and Economic Change
The Population Bomb is ticking very slowly.
Stories of Social and Economic Change
The Population Bomb is ticking very slowly.
Stories of Social and Economic Change
The Population Bomb is ticking very slowly.
Stories of Social and Economic Change
The collapse of Capitalism is not imminent.
• The Great Depression (US Real GDP per Capita)
Stories of Social and Economic Change
The collapse of Capitalism is not imminent.
• Are we facing a new Depression?
• US Unemployment
• G6
• PIGS
Stories of Social and Economic Change
The collapse of Capitalism is not imminent.
• Should the means of production be socialized?
• China and India
Stories of Social and Economic Change
The collapse of the social order is not increasing
domestic crime and violence.
Stories of Social and Economic Change
Stories of Social and Economic Change
Stories of Social and Economic Change
Stories of Social and Economic Change
Armageddon?
Stories of Social and Economic Change
Stories of Social and Economic Change
Stories of Social and Economic Change
Global Warming is real but there has been very little real progress in reducing CO2
Stories of Social and Economic Change
• Perhaps we need a more radical approach.
• Some have suggested that we need to
confront our culture of excess consumption,
and develop an ethos of deep ecological
consciousness. (Deep Ecology Movement)
• Can we re-educate human nature?
• There are much simpler solutions:
– Carbon Tax
– Cap and Trade
Stories of Social and Economic Change
• There is no political will to implement these
solutions.
• Even with sufficient political will this global
problem needs a global solution. We have the
mechanism through the UN to make change.
– Intergovernmental Panel on Climate Change (IPCC)
– United Nations Framework Convention on Climate
Change (UNFCCC) and the Kyoto Protocol
• Success is possible under the UN system: The
Montreal protocol on Substances that deplete the
Ozone Layer (1989).
Stories of Social and Economic Change
• We are in the middle of the most rapid period of economic
and social change in human history.
• China and India are growing so rapidly that:
– the global balance of power is shifting back to its
traditional balance.
– The middle class in China and India are the new engines of
demand in the world economy.
– Rural-Urban migration is creating a tidal wave of change to
the social fabric
– living standards are rapidly converging around the world
• Change is not restricted to India and China. The same forces
are driving :
– Arab Spring
Stories of Social and Economic Change
• Change is not restricted to India and China. The same forces
are driving :
– Arab Spring
– Accelerating growth in Africa and Latin America.
• No one seems interested in developing a deep ecological
consciousness.
What should be done?
1. Develop an understanding of the social forces reshaping our
world.
2. Develop policy instruments that will help us steer our society
and the world economy towards a just and sustainable future.
This is the business of the Social Sciences.
Stories of Social and Economic Change
• Unfortunately there is insufficient time
thoroughly examine these social forces how to
control them.
• Instead I propose that we Examine China as a
case study of a modern industrial revolution.
This allows us to examine the:
• Causes of China’s growth?
• Benefits from China’s growth?
• Risks and Challenges posed by China’s growth?
Shanghai: Bund
Shanghai: Pudong
Stories of Social and Economic Change
Causes of Chinese Economic Growth:
• 1949-58: Mao consolidated power and encouraged families
to have more children. China’s first five year plan
introduced the Soviet development model in which large
state monopoly firms pursue heavy industrial development.
• 1958-61: In the second five year plan the soviet industrial
model was replaced with a focus on rural development.
Under “The Great Leap Forward” small rural agricultural
collectives were merged into large, rural “People’s
Communes” in order to better exploit the gains from the
division of labor. The peoples communes were tasked with:
– Banning all private holdings/gardens
– Introducing new farming techniques that would turn China into
a grain exporter
– Accelerating the construction of state infrastructure,
– Increasing steel production by using backyard furnaces.
The Chinese Economic Miracle
Causes of Chinese Economic Growth:
• 1962: The result was the “Great Chinese Famine”.
Estimates of up to 45 million died of starvation,
while 200 million suffered from serious
malnutrition. During this time China exported
grain. Mao is forced by the party to change
direction and Deng Xiaoping and others take over
economic planning.
• 1966: Mao introduces the Cultural Revolution
and uses it to purge Deng Xiaoping and other
leaders of the CPC who had earlier opposed him.
Stories of Social and Economic Change
Causes of Chinese Economic Growth:
• Mao dies in 1976, Gang of Four arrested
• Deng Xiaoping seizes power from Mao's
anointed successor Hua Guofeng
• In 1978 Deng introduces significant economic
reforms aimed at introducing market socialism
Stories of Social and Economic Change
Chinese Economic Growth: Stage 1 (1978-84)
• De-collectivization of agriculture, and the
introduction of the “household responsibility
system”. Farmers are granted long term leases and
allowed to privately farm and sell their produce in
new private markets.
• Special Economic Zones were created that permitted
foreign investment and encouraged local
entrepreneurs to start up businesses.
• But: most industry remained state-owned.
Stories of Social and Economic Change
Chinese Economic Growth: Stage 2 (1985-2010)
• privatization and contracting out of much stateowned industry
• lifting of price controls, protectionist policies, and
regulations,
• But: state monopolies in sectors such as banking and
petroleum remained.
• But: The conservative Hu Jintao Administration more
heavily regulated and controlled the economy after
2005, reversing some reforms.
Stories of Social and Economic Change
Benefits of Chinese Economic Growth:
• Agricultural output growth dramatically accelerated to
8.2% a year, agricultural prices fell, meat and vegetable
production rose dramatically.
• Overall the reforms unleashed economic growth that is
unprecedented in human history
– GDP Growth rate of 9.5% a year
– China's economy became the second largest after
the United States.
– More than 500 million people lifted out of poverty
– Now the world’s largest exporter and manufacturer
– In transition from middle-income to high-income status.
China and India Compared
2011 Nominal GDP in US$ billions (Source: IMF)
Stories of Social and Economic Change
Benefits of Chinese Economic Growth:
Improvements to Basic Education
• 1950: 20% over age 15 are literate
• 2007: 93.3% over age 15 are literate while 99% of 1524 year olds are literate
• 2009, PISA (Program for International Student
Assessment) international rankings of 15 year olds
placed Shanghai students first in the world in
mathematics, science and literacy
Stories of Social and Economic Change
Benefits of Chinese Economic Growth:
Improvements to Health
• 1949: Average Life Expectancy of 35 years
• 2012: Average Life Expectancy of 74.8 years
• But life expectancy would be much higher if respiratory
illnesses (cigarettes, air pollution) could be reduced,
water quality improved and food safety increased.
• Improvements to public health should provide huge gains
in life expectancy.
Stories of Social and Economic Change
Benefits of Chinese Economic Growth:
Middle class lifestyle:
• Car (already world’s largest automobile market)
• TV, Internet, Music, Movies, Mobile phones
– http://www.youtube.com/watch?v=9bZkp7q19f0
• Consumer goods
– Global brands are coveted
• Status recreational activities
• Quality Education in the Arts and Science
• Home ownership
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
• Pollution
• Corruption
• Consumerism
– Endless pursuit of status goods
– Rising Search for spiritual alternative (Christianity is
growing very fast)
– Vice (drugs, gambling, prostitution) is a rising menace.
– Congestion
100-km Chinese traffic jam enters Day 9
Last Updated: Monday, August 23, 2010 | 1:43 PM ET
CBC News
External Links
Xinhua: Highway jam enters its 9th day, spans 100km
(Note: CBC does not endorse and is not responsible for the content of external sites - links will open in new window)
(David Gray/Reuters)
A nine-day traffic jam in China is now more than 100 kilometres long and could last for
weeks, state media reported Monday. Thousands of trucks en route to Beijing from Huai'an
in the southeast have been backed up since Aug. 14, making the National Expressway 100
impassable, Xinhua News reported. A spokesman for the Beijing Traffic Management
Bureau reportedly told China's Global Times newspaper that the backup was due to
"insufficient traffic capacity … caused by maintenance construction.“ The construction is
scheduled to last until Sept. 13.Stranded drivers appear to have few options when it comes
to dealing with the jam. At least some drivers have complained that roadside vendors have
increased their prices to take advantage of the traffic jam. One truck driver said he bought
instant noodles from one vendor for four times the original price.
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
• Failure to introduce meaningful political and legal reform.
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Tiananmen Square Protests of 1989
Internet and press are subject to heavy handed censorship
Courts and police are corrupt and serve interests of the party
Despite this, the government is having difficulty resisting change:
• Failure to introduce national history curriculum in Hong Kong
• Need for legal reform to sustain investment
• Inequality
– Chinese market socialism has failed to deliver distributive justice.
– Japan, Singapore, Taiwan and Korea have managed growth without
such high inequality by making careful policy choices.
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
China’s inequality compared.
• Canada: Gini = 32.1
• Korea: Gini = 31.4
• Taiwan: Gini = 34.2
• Peoples Republic of China: Gini = 41.5
• Hong Kong: 53.3
Culture does not determine
inequality. Politics matters!!!
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
The One Child Policy introduced in 1978 has slowed population growth.
Chinese Population Trends
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2 AD: 86,000,000
1000: 87,000,000
1500: 110,000,000
1800: 260,000,000
1900: 400,000,000
1950: 546,815,000
1982: 1,008,065,000 (reaches 1 billion)
2010: 1,337,825,000 (almost 1 in 5 people live in China)
2020: 1,387,792,000
2030: 1,393,076,000
2040: 1,360,906,000
2050: 1,295,604,000
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
• But the One Child Policy has had less impact on population
growth than is commonly believed and has caused a
number of unintended consequences of enormous
importance:
– Increased the proportion of males to females
– Encouraged the state to use its power to violently intervene in
the most important decisions made by ordinary families.
– Has caused China to have a rapidly aging population which will
soon increase the dependency ratio and further weaken the
already weak social safety net
– Will put increasing pressure on the health care industry and
further reduce access to primary health care for most ordinary
Chinese families.
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
Rural-urban migration is dramatically reshaping China:
• Between the 1953 and 1982 the urban population grew slowly from
13.3% to 20.6%. China was still primarily an agrarian society.
• From 1982 to 1986, the urban population increased dramatically to 37
percent of the total population as rural agricultural workers left the
land in the largest rural urban-migration in human history.
• By 2000 this had risen to 50% of the total population (650 million)
• Between 2010 and 2025 an additional 300 million people are expected
to leave the countryside and move to the cities taking the urban
population to 75%.
Rural urban migration has caused the rise of super-megalopolises
• Guangzhou: ≈ 41 million
• Beijing-Tianjin : ≈ 30 million
• Shanghai: ≈ 25 million
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
Other Internal Risks and Challenges:
• Resource depletion
• Inflation
• Pace of human capital accumulation
External Risks and Challenges:
• global economic slowdown
• high resource prices
• new emerging competitors
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
Can China’s economy continue to grow quickly with little disruption
to the world, the environment, and the fabric of its own society?
In a recent report, the World Bank suggests that both are possible,
but that growth is likely to slow down and that meaningful policy
changes will be needed to support China’s transition to a modern,
harmonious, and creative high-income society.
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
• What policy changes are needed?
• The World Bank Report recommends that China seek to
implement policies that:
1.
2.
3.
4.
Complete the transition to a market economy
Accelerate the pace of open innovation
Go green
Expand Individual Opportunities and Improve Social
Services
5. Reform the fiscal framework
6. Take on greater responsibilities as a Global Player
Stories of Social and Economic Change
Risks and Challenges of Chinese Economic Growth:
• Is that all?
• The World Bank will not say it, but policy reform may
be impossible without meaningful political reform.
Select Readings:
• “China 2030: Building a Modern, Harmonious, and
Creative High-Income Society”
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published by the World Bank and available at
http://www.worldbank.org/en/news/2012/02/27/china-2030-executivesummary
• “Supersized cities: China’s 13 megalopolises “
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published by the Economist and available at
http://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=Megalopolis_Report_
July_2012.PDF&mode=wp&campaignid=Megalopolis2012
• “New Clues to a Long Life”, Stephen S. Hall
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Published in the May 2013 Edition of National Geographic and available at
http://ngm.nationalgeographic.com/2013/05/longevity/hall-text
• Animated graphics on living standards are available from
the UNDP 2013 Human Development Report
•
http://hdr.undp.org/en/data/explorer/
Stories of Social and Economic Change
End
1. Complete the transition to a market
economy
• Implement structural reforms,
• Strengthen the foundations for a market-based economy,
• Redefine the role of government its relationship to markets and the private
sector,
• Reform and restructuring state enterprises, developing the private sector,
• Promote competition,
• Provide more intangible public goods and services like systems, rules,
• Introduce modern corporate governance practices, e.g., separating ownership
from management
Financial sector reform:
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Allow commercializing the banking system,
Allow interest rates to be set by market forces,
Deepening the capital market,
Developing the legal and supervisory
infrastructure to ensure financial stability,
• Build the credible foundations for the
internationalization of China’s financial sector.
Labor market reform:
• Ensure workers can move in response to market
signals,
• Introduce measures to increase labor force
participation rates, and
• Use social security instruments (pensions, health,
and unemployment insurance).
Land reform:
• Increase efficiency of land use,
• Reform policies for acquisition of rural land for
urban use, and
• Reduce local government dependency on landrelated revenues.
2. Accelerating the pace of open innovation
Needed: An open innovation system that fosters both
Product and Process innovation
How? Increasing Chinese domestic R&D
1. By participating in global R&D
2. By establishing a research and development
infrastructure via:
a) increase the technical and cognitive skills of
university graduates,
b) build a few world-class research universities with
strong links to industry, and
c) foster research parks, innovative cities.
3. Go green
Why ?
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Increased efficiency,
Improve the level of well-being,
Sustain comparative advantage,
Achieve and sustain economies of scale, and
Sustain rapid growth.
How ?
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Public education and awareness,
market incentives,
Regulations,
Public investments,
Industrial policy, and
Institutional development.
4. Expand Individual Opportunities and
Improve Social Services
• Expand opportunities and promote social security,
• Facilitate equal access to jobs, finance, quality social
services, and portable social security,
• Help households manage employment, health, and agerelated risks,
• Increase labor mobility,
• Manage the large rural-urban differences in access to jobs,
key public services, and social protection.
4. Expand Individual Opportunities and
Improve Social Services
• Deliver more and better quality public services to underserved rural areas and migrant,
• Restructure social security systems to ensure secure social
safety nets
• Mobilize all segments of society, public and private,
government and social organizations, to share
responsibilities in financing, delivering and monitoring the
delivery of social services.
5. Fiscal Reform
Three key dimensions:
1. Mobilize additional fiscal resources to meet rising
budgetary demands,
2. Reallocate spending toward social and
environmental objectives
3. Ensure that budgetary resources available at
different levels of government.
Note: fiscal reform as an essential prerequisite for
many of the other reforms
6. Becoming a Global Player
1. Seek mutually beneficial relations with the world,
2. Use multilateral institutions and frameworks and open regionalism,
3. Intensify trade, investment, and financial links with the global
economy,
4. Seize the benefit from further specialization, and diversification,
5. Integrate into the global financial system, which will involve opening
the capital account,
6. Take steps toward internationalizing the RMB as a global reserve
currency,
7. Help shape the global governance agenda such as:
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climate change,
global financial stability,
effective international aid structure,
development in poor nations.
Substantial hurdles ahead:
• The risk of a hard landing in the short term,
• Challenges posed by an ageing and shrinking
workforce,
• Rising inequality,
• Environmental stresses, and
• External imbalances and shocks.