China is a crony capitalism built on systemic corruption and raw political power.
Property rights are not secure, a politically connected entrepreneur, with the full backing of the coercive power of the state, could simply expropriate the value from ordinary people.
4 kinds of capitalism:
(1) state-guided capitalism: government sets industrial policies and directs investment
(2) oligarchic capitalism: empowers and enriches the few at the expense of the many
(3) big-firm capitalism: accentuates the dominance of big firms and suppress innovation
(4) entrepreneurial capitalism: small and innovative businesses drive growth
On the surface, it does not seem to matter whether Chinese capitalism is entrepreneurial or state-led.
But it does matter:
(1) social opp--arrangements for health care and education--contracted during the fast GDP growth period of the 1990s.Rising illiteracy is probably the most monumental legacy of the policy model of the 1990s.
(2) personal income per capita grow much more slowly than GDP per capita
(3) it is well established that China today is among the most unequal societies in the world. Certain groups or individuals are privileged over others to grab a larger share of the economic gains.
Showing posts with label Capitalism with Chinese characteristics. Show all posts
Showing posts with label Capitalism with Chinese characteristics. Show all posts
10/06/2012
What's wrong with Shanghai?
The story of Shanghai is of two extreme. At one extreme, Shanghai is viewed as a model of economic development and as a symbol of a rising and prosperous China. At the other extreme, there is virtually no real knowledge about this city.
Much of the admiration for Shanghai is based on visual evidence. Although it is true that Shanghai has had excellent GDP performance, much of this performance seems to have only moderately improved the living standards of the average Shanghainese. A huge portion of Shanghai's GDP accrues not to Shanghai's households as personal income but rather to the government in the form of taxes and to corporations in the form of profits. Corporations in Shanghai are either heavily controlled by the government or their control rights are shared with foreign investments. The exalted GDP numbers translate into only modest levels of household income in Shanghai.
In the 1990s, Shanghai's GDP growth was not pro-poor and since the late 1990s, its growth has been sharply anti-poor.Whereas Shanghai households enjoy the highest wage level in the country, they earn very little money from their asset ownership.
There is no hard evidence that Shanghai is innovative. Despite a rich history of business creation and risk-taking, entrepreneurship is almost completely missing in Shanghai today.
Shanghai is rich but an average Shanghainese is not. A huge share of the economic gains go to the government and the state-controlled businesses. In 1980s, when Shanghai's GDP per capita declined against the rest of the country, the income of its average residents was actually gaining, and this was especially true for its rural residents. A state-controlled economy can grow without improving the economic well-being of its average residents.
Shanghai's per capita property income is very low (the sources of property income are comprised of interest and dividend payouts or income from property rentals)
Many observers believe that Shanghai experienced a Renaissance in the 1990s, but the truth is that for Shanghai's average households, the massive growth brought about very little in wealth creation.
The incomes from interest and dividend payouts represent the incomes derived from the savings set aside by households in previous years. That Shanghai's property income is so low indicates that there is a very low savings rate.
The growth in joblessness took an extreme form in Shanghai. In the 1990s, not only did employment grow at a slower rate than GDP, the size of employment actually contracted.
Shanghai started out as a leader in patents in the 1980s but ended as a laggard in the 1990s. Shanghai was showered with resources from the central government.
The Shanghai model has four integral components.
(1) a highly interventionist state
(2) a systematic and deep anti-rural bias in its economic policies
(3) a biased liberalization in favor of foreign capitalists at the expense of indigenous capitalists
(4) Shanghai is favored by the central government and might have been showered with massive resources
The Shanghai model, formulated in the last five years of the 1980s, was a precursor to China's anti-rural bias and repression of small-scale and labor-intensive entrepreneurship in the 1990s. The Pudong project, which in its essence ks built on a massive taking of land from rural incumbents, has had a powerful demonstration effect and was widely emulated in the rest of China beginning in the late 1990s. The Pudong model contributed to rising land grabs in China as many local governments sought to create their own versions of urban miracles. The tactics include forcible evictions of long-term residents, large-scale demolitions of existing housing stock, collusions with corrupt real estate developers, and below-the-market-price land requisitions.
Because of its privileged position in Chinese politics in the 1990s, Shanghai was able to amass a huge amount of financial resources supplied from the rest of the country.
In the 1990s, as the Chinese central state was investing heavily in a few urban metropolis such as Shanghai and Beijing, the same central government under-funded rural health and education.
Shanghai is the quintessential state-led capitalism.
Much of the admiration for Shanghai is based on visual evidence. Although it is true that Shanghai has had excellent GDP performance, much of this performance seems to have only moderately improved the living standards of the average Shanghainese. A huge portion of Shanghai's GDP accrues not to Shanghai's households as personal income but rather to the government in the form of taxes and to corporations in the form of profits. Corporations in Shanghai are either heavily controlled by the government or their control rights are shared with foreign investments. The exalted GDP numbers translate into only modest levels of household income in Shanghai.
In the 1990s, Shanghai's GDP growth was not pro-poor and since the late 1990s, its growth has been sharply anti-poor.Whereas Shanghai households enjoy the highest wage level in the country, they earn very little money from their asset ownership.
There is no hard evidence that Shanghai is innovative. Despite a rich history of business creation and risk-taking, entrepreneurship is almost completely missing in Shanghai today.
Shanghai is rich but an average Shanghainese is not. A huge share of the economic gains go to the government and the state-controlled businesses. In 1980s, when Shanghai's GDP per capita declined against the rest of the country, the income of its average residents was actually gaining, and this was especially true for its rural residents. A state-controlled economy can grow without improving the economic well-being of its average residents.
Shanghai's per capita property income is very low (the sources of property income are comprised of interest and dividend payouts or income from property rentals)
Many observers believe that Shanghai experienced a Renaissance in the 1990s, but the truth is that for Shanghai's average households, the massive growth brought about very little in wealth creation.
The incomes from interest and dividend payouts represent the incomes derived from the savings set aside by households in previous years. That Shanghai's property income is so low indicates that there is a very low savings rate.
The growth in joblessness took an extreme form in Shanghai. In the 1990s, not only did employment grow at a slower rate than GDP, the size of employment actually contracted.
Shanghai started out as a leader in patents in the 1980s but ended as a laggard in the 1990s. Shanghai was showered with resources from the central government.
The Shanghai model has four integral components.
(1) a highly interventionist state
(2) a systematic and deep anti-rural bias in its economic policies
(3) a biased liberalization in favor of foreign capitalists at the expense of indigenous capitalists
(4) Shanghai is favored by the central government and might have been showered with massive resources
The Shanghai model, formulated in the last five years of the 1980s, was a precursor to China's anti-rural bias and repression of small-scale and labor-intensive entrepreneurship in the 1990s. The Pudong project, which in its essence ks built on a massive taking of land from rural incumbents, has had a powerful demonstration effect and was widely emulated in the rest of China beginning in the late 1990s. The Pudong model contributed to rising land grabs in China as many local governments sought to create their own versions of urban miracles. The tactics include forcible evictions of long-term residents, large-scale demolitions of existing housing stock, collusions with corrupt real estate developers, and below-the-market-price land requisitions.
Because of its privileged position in Chinese politics in the 1990s, Shanghai was able to amass a huge amount of financial resources supplied from the rest of the country.
In the 1990s, as the Chinese central state was investing heavily in a few urban metropolis such as Shanghai and Beijing, the same central government under-funded rural health and education.
Shanghai is the quintessential state-led capitalism.
10/05/2012
A great reversal
Politically, the post-Tiananmen conservative leadership mounted a nationwide crackdown on China's private sector. The prevailing economic policy in the 1990s was to favor the urban areas over the rural areas and to favor foreign capitalists--FDI--over indigenous capitalists.\
Fittingly, 1989 marked both the decadal and policy turning points.
In the 1990s, China reversed many of its productive policies of the 1980s, with real consequences.
The barriers to entry or to expansion of rural entrepreneurship increased profits to incumbent businesses, thus explaining why non-farm business income increased in the 1990s.
The TVEs succeeded in the 1980s and failed in the 1990s for exactly the same reason--- that they were substantially private. It was the national policy environment that changed between the two decades.
Fittingly, 1989 marked both the decadal and policy turning points.
In the 1990s, China reversed many of its productive policies of the 1980s, with real consequences.
The barriers to entry or to expansion of rural entrepreneurship increased profits to incumbent businesses, thus explaining why non-farm business income increased in the 1990s.
The TVEs succeeded in the 1980s and failed in the 1990s for exactly the same reason--- that they were substantially private. It was the national policy environment that changed between the two decades.
10/02/2012
The entrepreneurial decade
China in the 1980s witnessed an explosion of indigenous, completely private entrepreneurship, but almost all of this entrepreneurship occurred in the rural areas of the country. It was not an agricultural phenomenon.
Township and village enterprises spearheaded China's massive rural industrialization.
In the 1980s, Chinese peasants experienced the most rapid income gains in history. Per capita rural income between 1978 and 1981 grew at a real rate of 11.4 percent, the urban/rural ratio of the purchase of consumer goods fell from 10 to 1 in 1978 to 6 to 1 in 1981. According to a rural survey, rural per capita income more than doubled between 1978 and 1984, and real rural per capita consumption increased by 51percent between 1978 and 1983.
The consensus view is that rural reforms accounted for the largest segment of the income gains.
Chinese capitalism is heavily rural in origin. Rural entrepreneurship was also virtuous because it emerged first and developed fastest in the poorest regions of China.
Many of the largest manufacturing private-sector firms hail from backward, predominantly agricultural provinces of China.
The Cultural Revolution might have laid the foundation for the post-reform takeoff of rural entrepreneurship.
In the 1980s, there were two cross-cutting dynamics in the income distribution trends. One was a rise of within-rural inequality; the other was a decrease in rural/urban inequality.
Township and village governments assumed controls of private firms as a matter of political prerogative rather than on the basis of their share of capital contributions. In 1980s, China did not have a legal framework to accommodate large-size private firms. The logic of township control had nothing to do with economics; it was deeply political.
The very reason for the failure of township and village enterprise is that the business environment for rural entrepreneurship turned dramatically adverse in the 1990s.
Are TVEs really public?
The TVE label owes its origins to the commune and brigade enterprises created during the Great Leap Forward. But the cast majority of TVEs had nothing to do with the Great Leap Forward. Instead, they completely new entrants during the first half of the 1980s.
Enterprises sponsored by townships and villages are the collective TVEs. The rest of the firms under the TVE label are all private businesses or entities.
In general, the developed parts of China were more state-owned.
The initial triggers of growth can often be "humble" in nature. These reforms amount to nothing more than some relaxation of existing constraints on the private sector. No fundamental institutional reforms--those aiming at property rights protection, for example-- are needed.
Property rights protection in China, now or in 1980s, is very poor, but relative to the Cultural Revolution period, the marginal improvement was huge. Directional liberalism was the source of Chinese incentive to go into entrepreneurship. (Directional liberalism describes the idea of an economy that lacks many key features of liberal capitalism, but is nevertheless moving in that direction with sufficient speed to reassure investors that they’ll be able to keep their gains.)
The price of directional liberalization: property rights is not institutionalized.
Township and village enterprises spearheaded China's massive rural industrialization.
In the 1980s, Chinese peasants experienced the most rapid income gains in history. Per capita rural income between 1978 and 1981 grew at a real rate of 11.4 percent, the urban/rural ratio of the purchase of consumer goods fell from 10 to 1 in 1978 to 6 to 1 in 1981. According to a rural survey, rural per capita income more than doubled between 1978 and 1984, and real rural per capita consumption increased by 51percent between 1978 and 1983.
The consensus view is that rural reforms accounted for the largest segment of the income gains.
Chinese capitalism is heavily rural in origin. Rural entrepreneurship was also virtuous because it emerged first and developed fastest in the poorest regions of China.
Many of the largest manufacturing private-sector firms hail from backward, predominantly agricultural provinces of China.
The Cultural Revolution might have laid the foundation for the post-reform takeoff of rural entrepreneurship.
In the 1980s, there were two cross-cutting dynamics in the income distribution trends. One was a rise of within-rural inequality; the other was a decrease in rural/urban inequality.
Township and village governments assumed controls of private firms as a matter of political prerogative rather than on the basis of their share of capital contributions. In 1980s, China did not have a legal framework to accommodate large-size private firms. The logic of township control had nothing to do with economics; it was deeply political.
The very reason for the failure of township and village enterprise is that the business environment for rural entrepreneurship turned dramatically adverse in the 1990s.
Are TVEs really public?
The TVE label owes its origins to the commune and brigade enterprises created during the Great Leap Forward. But the cast majority of TVEs had nothing to do with the Great Leap Forward. Instead, they completely new entrants during the first half of the 1980s.
Enterprises sponsored by townships and villages are the collective TVEs. The rest of the firms under the TVE label are all private businesses or entities.
In general, the developed parts of China were more state-owned.
The initial triggers of growth can often be "humble" in nature. These reforms amount to nothing more than some relaxation of existing constraints on the private sector. No fundamental institutional reforms--those aiming at property rights protection, for example-- are needed.
Property rights protection in China, now or in 1980s, is very poor, but relative to the Cultural Revolution period, the marginal improvement was huge. Directional liberalism was the source of Chinese incentive to go into entrepreneurship. (Directional liberalism describes the idea of an economy that lacks many key features of liberal capitalism, but is nevertheless moving in that direction with sufficient speed to reassure investors that they’ll be able to keep their gains.)
The price of directional liberalization: property rights is not institutionalized.
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