Economics moves eastward
- By Justin Yifu Lin
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E-mail China.org.cn, December 7, 2012
![Former Chief Economist of the World Bank Justin Yifu Lin [file photo]](http://images.china.cn/attachement/jpg/site1007/20121207/001ec949c22b122bdf9e18.jpg "Former Chief Economist of the World Bank Justin Yifu Lin [file photo]") |
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Former Chief Economist of the World Bank Justin Yifu Lin [file photo] |
Chief Economist of the World Bank is usually regarded as the highest economics post in the world. The position has traditionally been occupied by senior economists from developed countries. My eight predecessors, including Hollis B. Chenery, Stanley Fischer, Lawrence Summers and Joseph E. Stiglitz, are all professors from first-class US universities. China's rapid economic development gave me the chance to serve as the World Bank Chief Economist from 2008-2012.
After working with the World Bank for four years, I've realized that a developing country needs to have theoretical innovation based on its realities. What happened after the Second World War showed that none of the developing countries which formulated their policies in accordance with theories popular with the developed countries achieved success. Meanwhile, the policies of those countries which succeeded often seemed to be wrong from perspective of mainstream theorists.
Internationally, there were two structuralist schools of development economics. The first is structural economics which believes that developing countries are economically backward because of their problematic economic structure – since they lack modern, sophisticated and capital-intensive industries. As their markets do not work, developing countries suffer from structural rigidities in distribution of resources which have hindered the development of modern industries. Consequently, their governments have to directly allocate resources and funds to develop those industries.
China adopted structural economic thinking in its development approach in the 1950s to "catch up with Britain and overtake the United States". India, Latin American and African countries also adopted this thinking. As a result, some heavy industries that were established yielded low productivity. After enjoying some growth driven by investment at the early stage, the economy soon fell into stagnation. But during the same period, Japan and the Four Asian Dragons (Hong Kong, Singapore, South Korea and Taiwan) enjoyed steady economic development by relying on a labor-intensive approach to boost exports, accumulate capital and upgrade industry. But this approach at that time was considered wrong by structuralists who emphasized an import substitution strategy.
Since the 1980s, neo-liberalism and the "Washington Consensus" became increasingly popular. Both the political-economic concepts believed that the reason behind developing economies' backwardness lied in their lack of a sound market system; these countries, therefore, had to take "shock therapy" – dramatic approaches of privatization, marketization and liberalization – in order to develop their economies. A general view at that time was that the planned economy was worse than the market economy, and the gradualist approach (that provides transitory protection to the old priority sectors in order to maintain stability, and liberalizes sectors consistent with the economy's comparative advantages so as to achieve dynamism simultaneously) was considered the worst. However, it turned out that the economies which adopted the "shock therapy" method fell into stagnation while those East Asian economies in transition that adopted the so-called "wrong economic approach" achieved steady progress.
The current global financial crisis has further proved that the economic systems and theories of the developed world are not as faultless as expected. It shows that their theories could no longer guide them along a path of steady economic development.
Adam Smith's "Wealth of Nations" marked the birth of modern economics. From Adam Smith up to the year 1930, most master-economists were British or foreigners working in the UK. This trend changed during the 1930s, when United States started to become home to great economists. This phenomenon has something to do with the nature of economics. Only when an economist lives in an important economy can he or she have a good command of real social and economic variables key to better illustrate cause/result relationship.
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